Dunkin' Brands Group (DNKN, Financial) is an American restaurant holdings company which runs two chains of fast-food restaurants: Dunkin' Donuts and Baskin Robbins. The company has been on a good run as the stock has moved up over 20% YTD. While the stock may look expensive, it still warrants a buy as the company’s prospects look bright.
Dunkin' international had 1.7% sales growth in the quarter led by a strong start to the year by Dunkin' Korea, which remains to overturn its multiquarter downtrend. The company continues to feel exhilarated by its progress with Dunkin' Donuts in Continental Europe and in the beginning of April, it opened the first Dunkin' Donuts in Denmark where it had a very large and excited crowd lined up in the pre-opening hours waiting to be its first customers.
Growing reach
In early 2015 in China, Dunkin' Brands signed the largest expansion agreement in the company's history for 1,400 Dunkin' Donuts restaurants. The development will take two decades to complete and will give the company a stronghold in Asia. In 2014, Dunkin' Brands added 282 locations internationally and plans to add 200-300 more units this year.
Dunkin’ Brands also had another quarter of firm Dunkin' Donuts leading growth in the USA adding nearly 80 Dunkin' Donuts stores. Its Dunkin’ Donuts memberships are growing at a healthy pace in the technology front. The company’s online cake ordering for Baskin-Robbins is contributing nicely to the segment’s same-store sales growth. Combining all that with a successful debt refinancing in January, the company had a very good start for the year.
In the first quarter, Dunkin' Donuts' U.S. franchisees opened up 78 net new units versus 69 last year. By region, 8% of the net development was in the core, 45% in established markets, 23% in emerging and 24% in the west. Baskin-Robbins U.S. had zero net store openings in the quarter versus one net store opening last year. Baskin-Robbins International added 22 net new restaurants versus 52 last year.
Revenues for the first quarter increased 8.1% compared to the prior year period, due mainly to the revenue known in connection with the K-Cup licensing agreement and improved royalty income as a result of system-wide sales growth. The rise in revenues was offset by a decrease in ice cream margin dollars and gains realized in the prior year period in connection with the sale of real estate.
Moreover, operating income was positively impacted by decrease in legal reserves from the vertical trial in linked matters of 2.8 million. Net income for the first quarter increased by 2.7 million or 11.7% compared to the prior year period, primarily as a result of a 14.6 million increase in operating income counterbalanced by two items associated with their financing. The first is a 6.8 million increase in loss on debt extinguishment and financing transactions and secondly, a 4.2 million increase in interest expenditure.
Dunkin’s operative tax rate for the quarter was 37%. During the quarter, they had 67 million in free cash flow. They ended the quarter with 412 million in cash and short-term restricted cash on the balance sheet. And of this 412 million, 118 million signifies cash related with their gift card programs and their marketing fund balances. In addition, the company used 26 million in cash during the quarter to pay their Q1 cash dividend to their shareholders.
Conclusion
Dunkin’ Brands share price growth is reflected in the company’s sales. The company has been consistently improving top-line while boosting earnings as well. The company’s growth plans have reaped benefits and I expect this trend to continue. The company will benefit from its expansion in Asia and has fortified its positioned in the U.S. Investors should load on the stock at the present price.
