Dunkin' Brands (DNKN, Financial) reported decent numbers for the fourth quarter, with year-over-year growth in both revenue and profit. It was driven by increased demand in the U.S for sandwiches coupled with its newly launched dark roast coffee. However, there are mixed cues going forward; as on one hand the falling oil prices have bolstered the discretionary spending of consumers, but at the same time fears are mounting concerning their earning power, especially those in the mid- to lower-income brackets.
A closer look
Starting with its numbers lets go step by step to see all the factors that will impact its performance in the days to come. Its revenue for the quarter rose 5.5% to $193.2 million compared to last year while adjusted earnings increased to 46 cents a share from a year ago period of 43 cents per share. It is a result of its continuous efforts to appeal to its guests and their evolving needs.
The company benefitted from the introduction of new items such as dark roast coffee and seasonal frozen beverages. One of the core strengths of Dunkin lies in the fact that it is focused on adding healthier products to its menu without compromising on taste, quality or value. For example, its Turkey Sausage sandwich launched in 2013 received great applause from consumers. As a result, it is currently promoting the Turkey Sausage sandwich on its new multigrain flatbread, making it a balanced breakfast choice. With such new product launches the company is trying to lure consumers, which will prove beneficial in the long run.
Key strategies
Apart from the new launches, its DD perks program started last year with an intention to benefit its regular customers, was a big hit. DD perks offered customized benefits to its consumers, which formed the foundation of this initiative. For instance, if a customer visits only in the morning then it will target the person with a trial offer to return in the afternoon as well.
After one year, the results were encouraging as its DD Perks consumers spent 40% more on an average weekly basis compared to last year and ultimately contributed around 50 basis points to comps in 2014. Considering its huge success, Dunkin will continue to grow the number of Perks members in the days ahead, which will finally translate into its bottom line.
Looking into 2015, the management is counting on the launch of its blender program, which is expected to start in time for summer. The program is significant because of its new offerings such as real fruit smoothies made with low-fat yogurt and Coolatta Lite containing fewer calories. It is different from the usual Dunkin' Coolatta as it contains 33% less calories, which will definitely attract health conscious foodies and consequently drive its store traffic.
Finally, all these initiatives will be backed by its continuous store expansion plans. Recently the company signed an agreement with two franchisee groups in Indiana to develop forty six restaurants in the region over a period of time.
Conclusion
Going forward, analysts expect its earnings to improve and anticipate a forward P/E of 21.44 from its 28.46 trailing P/E. The stock rose considerably since its IPO launch in 2011, however the same cannot be said for its performance in 2014. Analysts are concerned regarding its dismal sales growth. Lee Munson of Portfolio, LLC cites that; although American’s have extra cash in their pockets on account of falling oil, but they would like to spend it at higher end establishments and not at Dunkin’ Donuts.
Further he argues that if the company is finding it difficult to make money now, it will be all the more difficult once oil starts regaining strength. Therefore, investors must be cautious while venturing into this stock and if things go bad they should have a well planned exit in mind.
