Dunkin’ Brands (DNKN, Financial) has decided to trim its same-store sales growth forecast in the United States owing to the decelerated sales growth of packaged coffee in its restaurants.
The management currently expects U.S. comparable-store sales for the company to expand in just 1 to 3 percent range, below its earlier expectation of 2 to 4 percent. The U.S. same store sales for the ice-cream business of Baskin-Robbins is also forecasted to expand in 1 to 3 percent range.
A closer look
Dunkin' Brands eyes sales at its Dunkin' Donuts stores that were opened hardly a year ago to be growing just 1.4% for this year and below the company's earlier growth forecast to be in 2% to 3% range.
The lowering of the same-store sales expansion forecast signifies the fact that the company needs to develop some key strategies to counter this continued decline in sales across its stores.
The primary company of Baskin-Robbins and Dunkin’ Donuts has illustrated disappointing sales expansion in current quarters due to hugely competitive breakfast offerings in the marketplace and a tough macroeconomic environment.
Dunkin’ is focused on speeding its services at the doughnut shops, modifying prep stations to enable speedy service to handle hectic morning events. Dunkin’ has rightly identified the key weak point to its services which is primarily the sales occurring from the breakfast segment and is also redesigning its techniques to emphasize greatly on breakfast sandwiches and thus improved fare.
The continued healthy approach of Dunkin’ in retooling its offerings and schedules is believed to soon take the brand out of the declining sales condition and enable it to lead its competitors, going forward.
In addition, Dunkin’ sanctioned a $700 million of share buyback schedule and enhanced its quarterly dividend by 15%.
International growth
Abroad, Dunkin’ is keen on opening total 200 to 300 fresh restaurants covering both its brands. In the U.S. itself, it estimates to open 410 to 440 innovative Dunkin’ Donuts restaurants and about five to 10 net new units of Baskin-Robbins restaurants. However, Dunkin’ Brands joint ventures in Japan and Korea seem to be performing poorly and thus expected to decline next year's performance.
The major share repurchase program of the company is believed to attract the key investors with the enhanced quarterly dividend and highlights the Dunkin’ Brands sharp focus on delivering improved shareholder returns.
Globally, Dunkin’ Brands still expects to open over 17,000 possible Dunkin’ Donuts stores across the U.S. and over 30,000 units for both brands collectively. Thereby, the company seems to be committed on returning to solid double-digit growth in the successive years.
Improving consensus
David Tarantino is an associate director of research at Baird Equity Research and expects Dunkin’ Donuts’ hardships in the U.S. is due to the increased competition and poor K-cup sales. However, simpler comparisons in the forthcoming quarters could prove helpful coupled with the expected benefits from the recovering macro environment allowed by reduced gas prices.
The rebounding macroeconomic environment along with the accelerated growth efforts of the Dunkin Brands is believed to soon free the company from the loss-making situation and bring it back to the path of profitability.
Mark Kalinowski is the managing director of restaurants at Janney Capital Markets and expects Dunkin’ Donuts to have solid long-term growth prospects with the typically east coast brand shifting west of the Mississippi River. But, Baskin-Robbins is expected to witness a major competitive threat with the expanding concepts of self-serve frozen yogurt.
Dunkin’ Brands is focused on introducing innovative platforms, like Dark Roast coffee, Croissant Donuts and Steak sandwiches to accelerate significant growth in the fourth quarter of 2014 and further into 2015. The entire 3 platform offerings have been very well received by the customers and Dunkin’ Brands expects to introduce its blender program by this year end.
Conclusion
Overall, the investors are advised to invest into the Dunkin’ Brands Group, Inc. looking at the impressive valuation levels with the trailing P/E and forward P/E ratios of 28.11 and 21.18 respectively and depicts that the brand is not overvalued coupled with comparable to the industry’s average P/E of 19.58. The PEG ratio of 1.80 is better than the industry’s average of 2.94 and indicates improved company growth. The profit margin of 23.56% seems attractive for the investors. Dunkin’ Brands only needs to optimize its balance sheet having huge total debt level of $1.81 billion against total cash position of $208.08 million only to support its future growth opportunities.
