Why Analysts Expect DNKN’s Earnings Margin to Expand in 4Q16
Analysts expect Dunkin’ Brands (DNKN) to post EBIT (earnings before interest and tax) of $116.5 million in 4Q16, representing an EBIT margin of 54%. In 4Q15, the company posted an EBIT margin of 51%.
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Factors affecting EBIT margin
In 4Q16, Dunkin’ Brands sold its remaining six company-operated restaurants to franchisees to become 100% franchisee operated. Analysts are expecting this refranchising, sales leverage from positive same-store sales growth, and favorable commodity prices to expand Dunkin’s EBIT margin in 4Q16.
Due to favorable commodity prices and DNKN’s refranchising, analysts expect the company’s cost of sales to fall from 21.6% to 14.2% in 4Q16. Its depreciation and amortization expenses are also expected to fall from 5.6% to 3.3%. However, rising labor wages and general and administrative (or G&A) expenses are expected to offset some of the gains in DNKN’s EBIT margin. In 4Q16, analysts expect the company’s G&A expenses to rise from 27.6% to 27.9%.
For the next four quarters, analysts are expecting Dunkin’ Brands to post an EBIT margin of 53.4%, compared to 51.6% in the corresponding four quarters of the previous year. The expansion of DNKN’s EBIT margin is expected to be driven by refranchising, sales leverage, high-margin beverage sales, and efficiency improvements via the simplification of its operations.
Next, let’s look at Dunkin’s 4Q16 earnings per share.