Dunkin’ Brands is a leading quick-service restaurant (QSR) with more than 21,000 points of distribution in more than 60 countries. The company is one of the world’s leading franchisors, serving hot and cold coffee, other caffeinated beverages, along with breakfast sandwich options, baked goods, as well as hard serve ice cream. Dunkin’ Brands is the parent company of two of the world’s most recognized and beloved brands: Dunkin’, America’s favorite all-day, everyday stop for coffee and baked goods, and Baskin-Robbins, the world’s largest chain of ice cream specialty shops.
The company has seen accelerated growth in the last 3 years, especially in their breakfast menu – a place many other QSR’s have struggled to gain traction. The company’s resiliency in this market is a testament to the quality control and consumer sentiment about Dunkin’. Through innovation in the Dunkin’ app, Dunkin’ Menu, and further making the offering more convenient for the consumer, Dunkin’ Brands hopes to elevate sales in the coming 3-5 years. Dunkin’ Brands has an asset-light model, providing strong free cash flow figures. Further, because they are 100% franchised, they are an attractive option for investors looking for strong, steady returns.
In their most recent filing for Q3, results were strong. Dunkin’ and Baskin’ Robins had U.S. comparable store sales growth of 1.5% and 3.6%, respectively. In terms of new locations, Dunkin’ added 55 new stores, while there was a total increase of 122 stores for Dunkin’ and Baskin Robins globally. Overall revenues are up 1.7% from a year prior, in line with management’s goal of delivering steady growth and return to shareholders. Dunkin’ Brands CFO Kate Japson reiterated guidance for revenue and increased guidance for EPS.
Financially, the country is stable and growing. Net PP&E has nearly tripled since 4Q18, up from $209.2M in 4Q18 to $594.2M in 3Q19. Long term debt has remained flat in the TTM, indicating no upward pressure on the company, as they sport a current and quick ratio of 1.60. This further illustrates the company’s financial strength. Current liabilities have shrunk nearly $50M since 4Q2018, while net income over the same period has increased from $229M to $238M. Additionally, Dunkin’ Brands has increased its dividend from ~$115M in 4Q2018 to ~$122M in its most recent quarter. Unlevered Free Cash Flow increased by 9.5%, or ~$28M, from 2Q2019 to 3Q2019. The company is strong and poised for growth.
Further growth in the company will be realized through increased use of the Dunkin’ Brands mobile app. As customers and technology become more and more integrated, it is more important than ever for brands to keep up their mobile ordering capabilities to further ease the process for consumers. Recently, the company has opened over 400 “NextGen” restaurants that feature a pickup station specifically for mobile orders, making the process streamlined and quicker for consumers.
The company has lofty targets for 2021, including 200-250 net new units for Dunkin’ in the United States – a number they are on track to meet. While the company is expecting low to mid-single-digit percentage growth in revenue, and low single-digit percentage growth in G&A expenses, the company is projecting mid-to-high single-digit percent growth in operating income; which is a strong sign that the firm is streamlining expenses and operating more efficiently than it currently is.
I expect Dunkin’ Brands to be trading in the $83.00-$85.00 in the next 6-9 months. Continuing to make more of the menu items available to consumers via to delivery services will help grow the top line. Growth fueled by innovation through the mobile app, innovation in the menu, and expansionary visons for store locations will continue to deliver value to shareholders.