Why Analysts Expect Dunkin’ Brands’ Earnings Margin to Expand
For 2Q17, analysts expect Dunkin’ Brands (DNKN) to post EBIT (earnings before interest and tax) of $117.4 million, which represents an EBIT margin of 53.1%. Comparatively, in 2Q16, the company posted an EBIT margin of 51.4%.
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Factors that could drive DNKN’s margins
The expansion in Dunkin’ Brands EBIT margins is expected to be driven by sales leverage from positive same-store sales growth, the refranchising of company-owned restaurants, and lower SG&A (selling, general and administrative) and D&A (depreciation and amortization) expenses.
DNKN operated 29 company-owned distribution points in 2Q16. The refranchising of these restaurants along with sales leverage and lower costs for ice cream and other products are expected to lower the company’s cost of sales from 21.8% in 2Q16 to 18.3% of the total revenue in 2Q17. During the quarter, the company’s SG&A expenses are expected to fall from 31.8% to 29.3%, while its D&A expenses are expected to fall from 5.0% to 3.3%.
For the next four quarters, analysts expect Dunkin’ Brands to post an EBIT margin of 53.5%, compared to 53.3% in the previous four quarters. This expansion is expected to be driven by sales leverage and lower SG&A expenses.
Next, we’ll look at Dunkin’ Brands’ earnings estimates for 2Q17.