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Dunkin’ Brands Reiterates 2017 Guidance despite Weak 1Q17 Sales

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Part 2
Dunkin’ Brands Reiterates 2017 Guidance despite Weak 1Q17 Sales PART 2 OF 9

Why Dunkin’ Brands’ 1Q17 Revenue Was below Analysts’ Estimates

Revenue sources

Dunkin’ Brands (DNKN) earns its revenue through five channels: Dunkin’ Donuts U.S., Dunkin’ Donuts International, Baskin-Robbins U.S., Baskin-Robbins International, and Others.

In 1Q17, revenue from Dunkin’ Donuts U.S. accounted for 74.5% of the total revenue, while Dunkin’ Donuts International, Baskin-Robbins U.S., Baskin-Robbins International, and Others generated 2.8%, 5.5%, 13.7%, and 3.6% of the total revenue, respectively.

Why Dunkin&#8217; Brands&#8217; 1Q17 Revenue Was below Analysts’ Estimates

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1Q17 revenue growth

In 1Q17, Dunkin’ Brands posted revenue of $190.7 million, which represents a 0.50% rise from $189.8 million in 1Q16. However, 1Q17 revenue was lower than analysts’ estimate of $192.2 million. Revenue growth was driven by the addition of 638 new restaurants in the last 12 months. However, some of the growth was offset by negative SSSG (same-store sales growth).

Looking at Dunkin Brands’ segments, we see that revenue for Dunkin’ Donuts U.S. rose 2.3% due to higher royalty income, renewal income, and rental income from the addition of new restaurants in the last 12 months. However, some of the revenue growth was offset by the fall in company-owned restaurant sales. The company didn’t operate any company-owned restaurants in 1Q17 compared to 41 in 1Q16.

Revenue for Dunkin’ Donuts International fell 27.0% during the quarter due to lower franchise fees, which include a significant market development fee recognized at the time of entering into the new market. Also, SSSG of -0.20% resulted in lower royalty fees. However, the addition of 70 new restaurants offset some of the fall in revenues for the segment.

Revenue from Baskin-Robbins U.S. fell 0.10% due to a fall in other revenues and franchisee fees, which were offset by an increase in royalty income. Revenue from Baskin-Robbins International fell 2.8% due to SSSG of -2.4%. However, some of the fall was offset by the addition of 163 new restaurants.

Revenue for the Others segment rose 7.3% due to the launch of ready-to-drink bottled iced coffee in January 2017. The product is manufactured, distributed, and sold by Coca-Cola and its partners.

Peer comparisons

In 1Q17, Starbucks (SBUX) and Panera Bread (PNRA) posted revenue growth of 6.0% and 6.2%, respectively.

Outlook

For the next four quarters, analysts are expecting Dunkin’ Brands to post revenue of $850.9 million, which represents a rise of 2.5% from $829.8 million in the corresponding quarters of the previous year. Revenue growth is expected to be driven by the addition of new restaurants and positive SSSG.

Next, we’ll look at SSSG for Dunkin’ Donuts in 1Q17.

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