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Dunkin Pens Franchise Deal in WV

Zacks Equity Research

In a bid to expand its footprint in West Virginia, the operational arm of Dunkin' Brands Group (DNKN) – Dunkin’ Donuts and Little General recently inked a multi-unit store development deal.

Under the terms of the agreement, franchisee Little General will introduce 3 new Dunkin’ restaurants in West Virginia over the next 5 years. The 1st Dunkin’ unit is slated to open for business in 2014.

Little General manages nearly 90 quick-service restaurants (:QSR) chains across West Virginia. Given its familiarity with local food habits and a strong presence in the industry, Little General is deemed a strategic fit for Dunkin’ Donuts’ expansion plan in the region.

Since most of the areas of West Virginia including Charleston and Huntington have very high growth potential, management is focused on expanding in the region by forming new franchise agreements. Dunkin’ has not set any minimum limit on the number of units and is going with both single and multi-unit opportunities.

The National Restaurant Association projects that West Virginia’s emerging restaurant industry will generate total revenues of nearly $2.2 billion in 2013. Other restaurant chains, which are active in the region for years, include Krispy Kreme Doughnuts, Inc. (KKD), Burger King Worldwide, Inc. (BKW) and Starbucks Corp (SBUX).

Recently, the Zacks Rank #2 (Buy) company, Dunkin’ has penned another multi-unit deal with its existing franchisee, Sizzling Donuts, LLC. to introduce 7 new restaurants in Northern Utah over the next 7 years.

These moves are consistent with the company’s objective of doubling its store count in the U.S. over the next 20 years. In 2013, Dunkin is expected to launch 300-360 Dunkin Donuts units in the U.S., resulting in an annual new unit growth rate of 4.5% - 5%.

Dunkin’ completely relies on a franchised business model. We believe that franchising provides a strong engine for earnings per share growth and ROE expansion, as the company gets to reduce its capital requirements.

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