1 Aug

Why Dunkin’ Brands’ Stock Fell after Its Q2 Earnings

WRITTEN BY Rajiv Nanjapla

Dunkin’ Brands (DNKN) reported its second-quarter earnings today. For the quarter ended June 29, the company reported adjusted earnings per share of $0.86, outperforming analysts’ estimate of $0.82. However, Dunkin’ Brands’ revenue came in at $359.3 million, falling short of analysts’ estimate of $360.2 million.

For the second quarter, U.S. Dunkin’ reported SSSG (same-store sales growth) of 1.7%, beating analysts’ estimate of 1.4%. However, U.S. Baskin-Robbins’ SSSG fell 1.4% against analysts’ forecasts for an increase of 0.6%. Also, the company’s management lowered its 2019 SSSG guidance for U.S. Baskin-Robbins from flat to slightly negative from its earlier guidance of an increase in the low single digits.

The weakness in U.S. Baskin-Robbins’ sales appears to be dragging Dunkin’ Brands’ stock down. Today, the company’s stock was trading down more than 3.0% at 10:45 AM EDT.

Why Dunkin’ Brands’ Stock Fell after Its Q2 Earnings

Dunkin’ Brands’ revenue growth

During the second quarter, Dunkin’ Brands’ revenue grew 2.5% from $350.6 million in the second quarter of 2018, driven by the increase in royalty and rental income. The opening of new restaurants and positive SSSG increased the systemwide sales for Dunkin’ U.S., leading to an increase in royalty income. However, the fall in advertising fees offset some of the increase in revenue.

During the quarter, the Dunkin’ U.S segment’s SSSG was driven by growth in its average ticket size, which was partially offset by a decline in traffic. The increase in menu prices and favorable mix drove the segment’s average ticket size. However, the drop in traffic lowered the SSSG of U.S. Baskin-Robbins, which was partially offset by growth in its average ticket size.

The company’s Dunkin’ International and Baskin-Robbins International segments reported SSSG of 5.6% and 3.2%, respectively.

Dunkin’s Brands’ EPS rose

Dunkin’ Brands (DNKN) reported diluted EPS of $0.71 in the second quarter. However, removing one-time items, the company’s adjusted EPS came in at $0.87. Year-over-year, the company’s adjusted EPS rose 11.7%. The increase in revenue, expansion of its adjusted operating margin, and a lower number of shares outstanding drove the company’s EPS. However, the increase in the effective tax rate from 26.8% to 28.0% offset some of the gains in its EPS.

For the second quarter, Dunkin’ Brands’ adjusted operating margin improved to 35.4% from 34.2% in the second quarter of 2018. Due to share repurchases, the weighted average number of shares fell from 84.1 million to 83.7 million. Today, Dunkin’ Brands’ board of directors announced quarterly dividends of $0.375 per share.

Outlook

Dunkin’ Brands’ management expects Dunkin’ U.S.’s 2019 same-store sales to rise in the low single digits. Also, the company’s management maintained its revenue growth guidance of low- to mid-single-digit percentage. However, the company’s management raised its adjusted EPS guidance for 2019 to $3.02–$3.05 from its earlier guidance of $2.94–$2.99.

On July 25, Dunkin’ Brands’ peer Starbucks reported its earnings for the third quarter of fiscal 2019. To learn more about Starbucks’s third-quarter performance, please read Starbucks Stock Rose After Impressive Q3 Earnings.

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