Dunkin’ Brands Group, Inc. (DNKN) had a bad year even for a restaurant-chain stock, and frenetic expansion plans won’t change the outlook for upside anytime soon. Indeed, DNKN needs to get its act together in the U.S before it bites off more than it can chew.
The market has been sour on a wide range of restaurant stocks all year. Chipotle Mexican Grill, Inc. (CMG) is set to end 2014 with a 30% gain, and Sonic Corporation (SONC) is up 35%, but those stocks are the exception — not the rule.
Former market darling Starbucks Corporation (SBUX) is up just 5% for the year-to-date and it’s getting clobbered by the broader market. Indeed, the S&P 500 is poised to end 2014 with a more-than-respectable increase of 13%.
Meanwhile, much of the rest of the industry is a pile of laggards and losers. McDonald’s Corporation (MCD) is off 2%, Wendys Co (WEN) is up about 6% and Yum! Brands, Inc. (YUM) is down 3%. Even Panera Bread Co (PNRA) is flat. (Burger King Worldwide Inc (BKW) stock — to its rebound credit — had a great 2014.)
DNKN stock sure didn’t buck the trend — not with the kind of year it had operationally. If anything, it was a loss leader. For the year-to-date, DNKN stock is off 11% and still looks too pricey to buy.
True, DNKN is looking to boost growth by expanding domestically and especially internationally. As Quartz notes:
“Right now there are more than 11,000 Dunkin’ Donuts shops in 33 countries. [The CEO] has said he eventually wants 17,000 in the U.S. alone, and 30,000 outlets total (including Baskin Robbins locations) around the world.”
DNKN Stock Still a Domestic Play
Lovely, but those expansion plans will take more than five years to implement. For now, DNKN still makes 80% of its revenue here at home. As impressive as its overseas ambitions may be, DNKN stock will trade on U.S. results for a good long time, and those results haven’t been kind to DNKN stock.
The biggest killer of DNKN stock was when the company recently cut a critical 2014 sales target and slashed its guidance for next year. Same-store sales — a key measure of a retailer’s health — are forecast to grow just 1.4% in 2014, down from the company’s prior forecast of 2% to 3%.
Next year is expected to offer more of the same. DNKN said same-store sales, revenue and profit would all fall short of Wall Street forecasts. “Continued pressure on the consumer and decelerating sales of packaged coffee,” are to blame, DNKN chairman and CEO Nigel Travis said.
True, whenever a stock gets knocked down as much as DNKN has been, there’s a chance it could be a bargain buy, but DNKN stock isn’t there yet.
Even with massive expansion plans, analysts expect long-term earnings growth of less than 14% a year. That makes the forward price-to-earnings multiple of 22 look anywhere from fairly valued to a bit rich.
Restaurant chains need a lot more help on the macroeconomic level. Even with its expansion plans, that goes double for DNKN stock as we enter a new year.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
