Harriet Lefton

About the Author Harriet Lefton

Harriet originates from the UK where she worked as a journalist specializing in the metal markets. She graduated from the University of Cambridge before becoming a qualified UK lawyer.

Dunkin Brands Group Inc Plans To Double Its Number Of Stores

Dunkin Brands Group Inc (NASDAQ:DNKN) is set to serve up their 4Q earnings on February 6 and we’ve put together a list of what top analysts expect to see on the menu. Dunkin’ Brands is comprised of Dunkin Donuts a market leader in the hot coffee, donut, bagel and muffin categories with more than 12,400 restaurants and Baskin Robbins, the world’s largest chain of ice cream specialty shops.

Currently the Street is expecting a consensus EPS of $0.63- up from last quarter’s EPS of $0.61. Here we take a closer look at the three key factors most likely to influence analyst expectations for the future of Dunkin, namely: 1) Next Generation Stores 2) Aggressive Expansion 3) Positive Industry Environment & Tax Reforms.

Next Generation Stores

Dunkin’ Donuts was founded in 1950 by William Rosenberg, in Quincy Massachusetts with the first franchises in 1955. Unfortunately, many of the locations look as if they haven’t been updated since Bill first opened the doors more than have a century ago. It’s no wonder that investors and analysts are welcoming the news of major renovations and redesigns.

On January 16, about a mile from the original location in Canton, MA, the very first of the next generation concept stores opened for business and for testing. Dunkin’ plans on doing real world test with variations of the concept to measure which perform best before moving forward with a full roll-out.

The renovations go far beyond a lighter color palette and logo update. The goal is to drive up comparable traffic, and one way to do that is with a ‘smart’ On-the-Go drive-thru lane.  Dunkin’ has begun offering their DD Perks® members the option of placing their orders in advance via Dunkin’s Mobile App. The orders can be prepared while the customer is en-route.  Once the customer arrives they bypass the ordering kiosk and jump right to the pick-up window. The obvious upside for Dunkin’ and their customers is far shorter wait times. Dunkin predicts that the faster turn-over will allow them to serve more guests during peak hours and that in turn will translate into positive sales numbers. The same system is also being implemented for instore pick-up of advance mobile orders.

In addition to their new mobile ordering application, Dunkin also plans on installing in-store self-serve ordering kiosks similar to McDonalds. The kiosks streamline the ordering process, allowing the majority of employs to focus on filling orders. In a parallel announcement, Rick Colón, a McDonald’s veteran was named a new senior vice president of operations and development. The automated ordering kiosks offer two obvious benefits, shorter customer wait times and the potential for significantly lower labor cost typically associated with hiring, training and staffing the cash registers.

Dunkin’ Brands has also had success mirroring McDonalds’ value-based offerings. “We may have been slightly slow to embrace national value, but I think we broke through last year,” CEO Nigel Travis said, referencing Dunkin’s daily deals and $2 wraps. “You’re going to see a lot more value coming out of our proposition over the next several months.” In the ‘Ain’t it Cool’ category, Dunkin will begin offering what it refers to as “Premium Pours.” This refers to a selection of their signature cold beverages that will be served through an innovative tap system that looks similar to something you might see at your local bar.

Aggressive Expansion

Dunkin’ Donuts is bringing new meaning to the term ‘double-double’ (2 sugar, 2 cream) with their plans of doubling the total number of stores to 18,000. Adding 9000 new stores would put them ahead of 7-11 which has about 8,300 US stores, and Starbucks nearly 14,000 US locations. R.J. Hottovy, an analyst with Morningstar is confident that Dunkin’ can deliver on its optimistic expansion plans. Hottovy says: “a new more technological-leveraged and drive-thru focused restaurant format and nontraditional store formats … offer unit growth potential and could push U.S. and international unit growth targets higher than our current estimates.” However, he cautions that competition in the global specialty coffee category will get far fiercer in the near future.

Positive Industry Environment & Tax Reforms

If history is a reliable indicator, President Trump’s tax reform will have a positive growth effect on the fortunes of the restaurant industry. The Knapp-Track casual dining index recorded a 2.3% comp gain after the announcement and roll-out of President George W. Bush’s 2003 tax changes. That’s more than double the 1.1% average seen in the full year preceding the changes. The trend continued with President Obama’s 2011 tax holiday with an increase of 1.4% growth vs. 0.5% in the year prior.

Baird’s David Tarantino thinks that restaurants could see two big benefits from the tax reforms. First, consumers having more cash in their pockets will likely lead to more meals out. Second, corporate tax reform will mean that multiple restaurant chains will end up paying lower rates.

TipRanks currently shows that Dunkin’ has a Moderate Buy analyst consensus rating. This is based on 11 analyst ratings in the last three months. In an almost even split, 6 recommend a Buy and 5 a Hold. Meanwhile the average analyst price target of $66.20 suggests just over 6% upside from the current share price.

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