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Dunkin' Brands' (DNKN) Q3 Earnings Beat Estimates, Rise Y/Y

·6 min read

Dunkin' Brands Group, Inc. DNKN reported third-quarter fiscal 2020 results, with earnings and revenues surpassing the Zacks Consensus Estimate. While the bottom line beat the consensus mark for the 12th straight quarter, the top line outpaced the same for the fourth straight quarter. Notably, the metrics increased on a year-over-year basis. However, following the quarterly results, the company’s share price did not show much movement.

Adjusted earnings of 93 cents per share not only surpassed the consensus mark of 81 cents by 14.8% but also increased 3.3% on a year-over-year basis.

During the fiscal third quarter, total revenues of $361.5 million beat the consensus mark of $340 million by 6.3%. Moreover, the top line increased 1.6% on a year-over-year basis. The increase can be primarily attributed to a rise in franchise and advertising fees, partially offset by a decline in rental income.

Dunkin Brands Group, Inc. Price, Consensus and EPS Surprise

 

Dunkin Brands Group, Inc. Price, Consensus and EPS Surprise
Dunkin Brands Group, Inc. Price, Consensus and EPS Surprise

Dunkin Brands Group, Inc. price-consensus-eps-surprise-chart | Dunkin Brands Group, Inc. Quote

Segmental Performance

Dunkin' U.S. reported revenues of $168 million in the fiscal third quarter, up 0.9% from the prior-year quarter’s figure. The increase can be primarily attributed to a rise in franchise fees, offset by a decrease in rental income owing to lower sales at leased locations. Comps in the segment grew 0.9% year over year owing to a rise in average ticket, partially offset by a decreased traffic due to the COVID-19 pandemic.
 
Dunkin’ International division reported revenues of $5.2 million in the fiscal third quarter, down 23.1% from the prior-year quarter’s level primarily attributed to a decline in royalty income (owing to a drop in system-wide sales) and franchise fees (owing to deferred revenue recognition in the prior-year period). Comps in the segment declined 15.9% against 7.3% rise in the year-ago quarter.

Baskin-Robbins U.S. revenues increased 3.2% year over year to $14.8 million in the fiscal third quarter, primarily due to a rise in sales of ice cream and other products, partially offset by a decrease in rental income owing to a lower number of leased locations. Comps in the segment grew 6.5% compared with 3.6% growth in the prior-year quarter. The increase was primarily led by a rise in average ticket. However, this was partially offset by decreased traffic due to the pandemic.

Baskin-Robbins International division revenues amounted to $30.1 million in the fiscal third quarter, down 3.1% year over year owing to lower sales of ice cream and other products as well as a drop in rental income. However, this was partially offset by a rise in royalty income. Comps in the segment declined 0.5% against 3% growth in the year-ago quarter.

Operating Performance

Adjusted operating income increased 6% from the year-ago quarter’s level to $133.5 million. The increase can be primarily attributed to rise in franchise fees as well as an increase in ice cream margin driven by a drop in general and administrative expenses, commodity costs and favorable product mix. Adjusted operating income margin expanded 150 basis points (bps) to 36.9%.

Balance Sheet

Dunkin' Brands ended fiscal third quarter with cash and cash equivalents of $613.6 million compared with $621.2 million at the end of 2019. Restricted cash totaled $89.6 million, up from $85.6 million as of Dec 28, 2019. Net long-term debt was reported at $2,992.3 million, compared with $3,004.2 million as on Dec 28, 2019.

At the end of the fiscal third quarter, the company held approximately $341 million of unrestricted cash in the United States, excluding cash reserved for gift cards and advertising funds. Moreover, the company had $117 million of available borrowings under its $150 million variable funding notes, thereby strengthening financial flexibility.

Owing to the uncertainty revolving around the global pandemic, the company’s board of directors has decided to defer the cash dividend for the fourth quarter of 2020.

As of Sep 26, 2020, it had 82,406,709 shares outstanding. In order to preserve cash amid the ongoing crisis, the company refrained from share repurchase activity during the fiscal third quarter.

Other Updates

As of Oct 24, 2020, 98% of Dunkin' U.S. locations, 99% of Baskin-Robbins U.S. locations and approximately 93% of each of Dunkin' and Baskin-Robbins International locations remained open.

Since the start of the fiscal fourth quarter to Oct 24, comparable store sales for open stores at Dunkin' U.S. and Baskin-Robbins U.S. locations remained positive in the low-single digits and high-single digits, respectively.

Going forward, the company intends to shut down 800 Dunkin' U.S. locations (or 8% of the Dunkin' U.S. restaurant footprint) in 2020 in order to sustain strong profitable growth in the future. Notably, this initiative will be implemented in conjunction with its franchisees as part of its real estate portfolio rationalization. During the fiscal third quarter, the company closed 687 Dunkin' U.S. locations (including 447 Speedway locations).

Internationally, the company expects to close 350 Dunkin' and Baskin-Robbins international restaurants permanently on a gross basis during the second half of 2020. Majority of the closures are expected to be from low-volume sales locations. During the fiscal third quarter, the company closed 212 international locations.

Zacks Rank & Key Picks

Dunkin' Brands currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the same space include Brinker International, Inc. EAT Fiesta Restaurant Group, Inc. FRGI and Chuy's Holdings, Inc. CHUY, each sporting a Zacks Rank #1.

Brinker has a three-five-year earnings per share growth rate of 12.7%.

Fiesta Restaurant’s 2021 earnings are expected to surge 260.7%.

Chuy's Holdings has a trailing four-quarter earnings surprise of 87.3%, on average.

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Brinker International, Inc. (EAT) : Free Stock Analysis Report
 
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