Dunkin’s major costs of operations
Dunkin’ Brands Group (DNKN) has three major costs of operations. The costs of operations include:
- general and administrative expenses
- cost of products sold
- occupancy expense
We’ll discuss these costs in this part of the series. To learn more about Dunkin’ Brands Group, click here.
General and administrative expenses
Dunkin’s general and administrative expenses have the highest impact on operating income—as we see in the chart above. For the second quarter, general and administrative expenses accounted for $56 million. This was 30% as a percentage of sales—compared to $62 million, or 34%, as a percentage of sales.
Cost of products sold and occupancy expenses
Cost of products sold includes the cost of ice cream products. The cost of ice cream products was $23 million for the quarter, or 12% as a percentage of sales—compared to 13% in the same quarter last year. This decline was mainly because the company changed its manufacturer to Dean Foods at the end of fiscal year 2013. Occupancy expenses remained stable over the past 12 quarters. They don’t change because of long-term leases agreed at a fixed rental cost.
Operating income for the quarter was $88 million. It increased 14% year-over-year (or YoY). Margins improved to 46% from 42% YoY—mainly because of a one-time gain from sale of the company-operated restaurant in Atlanta. It was also a result of lower general and administrative expenses. However, after removing the one-time charges, the operating income was $94 million. It only grew 3% YoY.
Comparatively, Starbucks (SBUX) reported $0.7 billion, McDonald’s (MCD) reported $2.2 billion, and Tim Hortons (THI) reported $0.1 million in operating income. To get exposure to more restaurants, you may want to consider an exchange-traded fund (or ETF) like the Consumer Discretionary Select Sector SPDR Fund (XLY).
Operating income growth was in the double digits. In the next part of the series, we’ll look at how the bottom line performed.