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High Royalty Fees to Aid Dunkin' Brands (DNKN) in Q2 Earnings

Zacks Equity Research

Dunkin' Brands Group, Inc. DNKN is set to release second-quarter 2019 results on Aug 1, before the market opens.

The company’s leading beverage portfolio, unit expansion, digital efforts and other sales-building initiatives are likely to have driven top-line growth in the second quarter of 2019. Also, robust top-line growth is likely to have more than offset cost pressures in the to-be-reported quarter, thereby boosting earnings.

Notably, shares of Dunkin’ Brands have gained 27.6% so far this year, slightly underperforming the industry’s 30.5% rally. This gain can primarily be attributed to better-than-expected earnings in the trailing six quarters. Moreover, its earnings surpassed the Zacks Consensus Estimate in the preceding four quarters, the average being 8.9%.

 

Let’s find out how the company’s top and bottom lines will shape up in the second quarter.

Top Line to Gain

Dunkin' Brands increased focus on enhancing the beverage portfolio and improving traffic drove results in the first quarter of 2019. Total revenues increased 5.9% year over year in the last reported quarter, owing to rise in royalty income from system-wide sales growth and an increase in advertising fees and related income. We believe that the top line has continued to gain from the same in the to-be-reported quarter.

With the rising demand for coffee, the company is expected to gain from the addition of new coffee beverages to its menu, both in the value and premium offering segments. Further, menu innovations, breakfast menu optimization, loyalty programs, and digital and sales-building initiatives bode well for Dunkin' Brands.

Moreover, the increase in royalty income is expected to have boosted revenues. Subsequently, the Zacks Consensus Estimate for its second-quarter revenues is pegged at $361.1 million, suggesting 3% growth from the year-ago quarter’s reported figure.

Earnings to Gain Despite High Costs

Despite shouldering high costs of operations, Dunkin’ Brands’ earnings in the second quarter of 2019 are expected to have gained, given robust top-line growth. Rise in net income is likely to have driven earnings in the quarter as well.

The consensus estimate for the company’s second-quarter earnings is pegged at 82 cents, suggesting a 6.5% increase from the year-ago quarter’s reported figure.

Our Quantitative Model Predicts a Beat

Dunkin’ Brands has the right combination of two main ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

Earnings ESP: The company has an Earnings ESP of +1.02%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: This restaurant currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Dunkin' Brands Group, Inc. Price and EPS Surprise

 

Dunkin' Brands Group, Inc. Price and EPS Surprise

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

Other Stocks to Consider

Here are a few other stocks from the Retail-Wholesale sector that investors may consider as our model shows that these too have the right combination of elements to post an earnings beat in the second quarter.

Builders FirstSource BLDR currently sports a Zacks Rank #1 and has an Earnings ESP of +9.66%. The company is scheduled to report quarterly numbers on Aug 1.

Abercrombie & Fitch ANF presently has a Zacks Rank #3 and an Earnings ESP of +1.50%.

Casey's General Stores CASY currently has an Earnings ESP of +0.90% and a Zacks Rank #1.

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