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Dunkin' Brands (DNKN) Q1 Earnings & Sales Beat Estimates

Dunkin' Brands Group, Inc.’s DNKN first quarter 2016 earnings per share (EPS) and sales beat the Zacks Consensus Estimate.

Earnings and Revenue Discussion

Adjusted earnings of 44 cents per share beat the Zacks Consensus Estimate of 43 cents by 2.33% and increased 10% year over year.
 

The quick service restaurant operator’s revenues in the quarter increased 2.1% year over year to $190 million. The improvement was driven primarily by increased royalty income and an increase in sales of ice cream and other products. These increases were offset by a decrease in other revenues primarily due to a one-time upfront license fee recognized in connection with the Dunkin' K-Cup pod licensing agreement. Revenues also marginally beat the Zacks Consensus Estimate by 0.6%.

Inside the Headline Numbers

Dunkin' Brands operates through its Dunkin’ Donuts and Baskin-Robbins brands.

System-wide sales increased 4.4%, comparing favorably with 2.3% growth in the prior quarter.

Dunkin’ Donuts

Dunkin' Donuts U.S. reported revenues of $138.8 million, reflecting a rise of 3.7% over the prior year period. The increase was mainly attributable to higher royalty income as well as an increase in transfer fee income.  

Comps increased 2% in the Dunkin Donuts U.S. division, comparing unfavorably with 2.7% growth in the prior-year period and favorably with 0.8% growth in the prior quarter. The growth in comps was primarily due to beverage growth, a 30 basis points (bps) increase in traffic, and a 180 bps rise in tickets.

Comps at Dunkin’ Donuts International division declined 2.3% as against 1.7% growth in the prior year quarter.

Baskin Robbins

Baskin-Robbins revenues were up 2.4% from the prior year period to $10.6 million mainly due to higher licensing income, and increases in franchise fees and royalty income, offset by a fall  in sales of ice cream and other products.

Comps increased 5% in the Baskin Robbins U.S. division, weaker than 8.6% growth in the year-ago comparable period but better than 3% growth in the prior quarter.

However, at Baskin Robbins International division, comps declined 8.2%, worse than 0.3% growth in the prior-year quarter. The company’s primary international markets – South Korea and the Middle East – experienced a challenging first quarter.

Operating Margin

Adjusted operating income rose 4.2% from the prior year period primarily as a result of the increase in royalty income, as well as an increase in franchise income and a gain recognized in connection with the sale of real estate, offset by the decrease in other revenues due primarily to a one-time upfront license fee recognized in connection with the Dunkin' K-Cup® pod licensing agreement

Store Update

In the first quarter, Dunkin' Brands opened 114 net new restaurants worldwide. These include 69 Dunkin' Donuts U.S. locations and 14 Dunkin' Donuts international outlets. There were  42 new openings under Baskin-Robbins International. Additionally, Dunkin' Donuts U.S. franchisees remodeled 90 restaurants and Baskin-Robbins U.S. franchisees renovated 35 outlets during the quarter.

Guidance for 2016

Dunkin’ Brands expects adjusted earnings per share in the range of $2.20–$2.22 in 2016. The company maintained its revenue growth guidance in a range of 4%–6% and adjusted operating income growth guidance in a range of 8%–10%.The adjusted earnings per share range is on a 53-week basis. The 53rd week is expected to add approximately 3 cents to 2016 earnings.

Dunkin' Donuts U.S. comps are expected to be in a range of flat to up 2%. However, Baskin-Robbins U.S. comps growth is likely to be within 1% to 3%.

Dunkin’ Brands currently has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the same industry include Carrols Restaurant Group, Inc. TAST, Dave & Buster's Entertainment, Inc. PLAY and Diversified Restaurant Holdings, Inc. SAUC. All these stocks sport a Zacks Rank #1 (Strong Buy).

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DIVERSIFIED RST (SAUC): Free Stock Analysis Report
 
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