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Dunkin's EPS In Line, Revs Beat

Zacks Equity Research

Dunkin' Brands Group, Inc. (DNKN) posted second quarter 2012 earnings of 33 cents per share, in line with the Zacks Consensus Estimate but higher than the year-ago quarter earnings of 25 cents. On a reported basis, the company earned 15 cents per share compared with a loss of 4 cents in the prior-year quarter.

Quarter Highlights

Total revenue came in at $172.4 million, up 9.8% year over year, driven by an increase in comps across all the segments. Revenue also surpassed the Zacks Consensus Estimate of $170 million.

Within the segments, Dunkin’ Donuts comparable sales grew 4.0% and 3.5% in U.S. and in the international market, respectively. The U.S business comps were driven by increased average ticket, innovative menu offerings and higher customer traffic.

On the other hand, comparable sales for Baskin-Robbins increased 4.6% and 1.5% in U.S. and in the international market, respectively. The U.S business comps were driven by introduction and re-launch of new menu items.

In the reported quarter, operating income plunged 25.3% year over year to $46.1 million, driven by an increase in the legal reserve related to the Bertico litigation and some costs related to the closing of the Canada-based ice cream manufacturing plant, partially offset by higher revenues.

Store Update

In the second quarter, the company’s franchisees and licensees opened 140 new restaurants worldwide, including 29 Dunkin' Donuts in international market and 19 U.S. locations and 87 Baskin-Robbins international locations and 5 U.S. locations. In addition, Dunkin’ Brands’ U.S. franchisees remodeled 156 restaurants during the reported quarter.

During the quarter, Dunkin’ Brands announced the closing of its Baskin-Robbins segment’s Canadian ice-cream manufacturing plant in October 2012. As of June 30, 2012, the company owned 10,169 Dunkin' Donuts restaurants and 6,847 Baskin-Robbins restaurants worldwide.


Dunkin’ Brands ended second quarter 2012 with cash and cash equivalents of $218.7 million and shareholders’ equity of $755.1 million. Long-term debt at the end of the quarter was $1,442.3 million.

Share Repurchases & Dividend

In the reported quarter, the company authorized to repurchase shares worth up to $500 million. The authorization is granted for a period of two years.

Dunkin’ Brands announced a dividend of 15 cents per share for third quarter 2012, payable on August 24, 2012 to shareholders of record as of August 6, 2012.

2012 Outlook

The company reaffirmed its comps, revenue and operating income guidance for 2012. Dunkin’ Brands anticipates comps increase for Dunkin' Donuts U.S in the range of 4%-5% and for Baskin-Robbins U.S. in the range of 2%-4%. Revenue growth is expected to be in the range of 7%-8% and operating income increase in the range of 12%-14%.

However, Dunkin’ Brands increased its adjusted earnings per share guidance for 2012. The company now expects adjusted earnings in the range of $1.22 to $1.25 per share, up from the previous guidance of $1.21 to $1.24. The optimism reflects Dunkin’ Brands’ consistent comps growth and strong performance in the reported quarter.

In addition, the company expects worldwide unit growth in the range of 600 to 700. It reaffirmed its guidance of adding 260- 280 Dunkin’ donuts U.S restaurants and now expects to close around 40-60 Baskin-Robbins U.S restaurants (previous range was 60 to 80 net closures). On the international front, the company expects to open 400 to 450 new units across the two brands, up from the previous range of 350 to 450.

Our Take

Canton, Massachusetts-based Dunkin’ Brands remains focused on its expansion plan, marketing innovation and menu innovation. Based on this, we expect analysts to revise their estimates upward in the coming days. Currently, the Zacks Consensus Estimate for 2012 and 2013 are pegged at $1.25 and $1.45, respectively.

Dunkin’ Brands competes with the likes of Yum! Brands, Inc. (YUM), which reported its second quarter 2012 adjusted earnings of 67 cents per share, missing the Zacks Consensus Estimate by 3 cents. Dunkin’ Brands currently carries a Zacks #2 Rank, implying a short-term Buy rating. We also reiterate our long-term Neutral recommendation on the stock.

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