Coffee Stock Showdown: SBUX, DNKN, KKD

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The coffee and snack segment has always been competitive as revenues in that segment keep growing. This segment is expected bring in $31 billion in revenue this year, nearly double its intake from 2002.

With that kind of growth, it’s no wonder that the key players are looking to keep their hold.

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Starbucks Corporation (NASDAQ:SBUX), Dunkin’ Brands Group Inc (NASDAQ:DNKN) and Krispy Kreme Doughnuts Inc (NYSE:KKD) are all popular destinations for a coffee and snack on the go.

The West Coast powerhouse, Starbucks, and East Coast titan Dunkin’ account for nearly 50% of the U.S. market share for out-of-retail coffee shops. Krispy Kreme, with its roots in the southern U.S., is innovating in hopes of mounting a challenge to its peers.

So which of the three — SBUX, DNKN or KKD — is positioned the best for growth?

We’ll take a look at all three of the coffee and snack speciality stocks.

Coffee Stock Showdown: Starbucks Corporation (SBUX)

Starbucks stock SBUX covered callsSBUX investors enjoyed impressive fiscal Q2 earnings. Revenue was $4.6 billion, a 18% jump from the same period last year, and global comparable same-store sales grew 7%, including a 3% growth in traffic.

SBUX even saw a net increase of 210 stores — even after factoring in the loss of 132 stores associated with the closure of Target Corporation (NYSE:TGT) stores in Canada.

The SBUX stock price is currently close to its 52-week high of $52.09 a share. Over the previous 12 months, SBUX stock rose by more than 40%.

The major driver for SBUX’s impressive growth is its activities in China and the Asia-Pacific. Starbucks saw same-store sales growth of 12%, including 10% growth in traffic and 2% in ticket sales. And SBUX looks forward more servings too: Of the 1,650 new stores projected to open during the rest of the year, 850 will be in the China/Asia-Pacific region.

SBUX is further accelerating its use of mobile technology. Its My Starbucks rewards program added 1.3 million new members the last quarter, bringing the totals to 10.3 million active users.

The program is a big generator for revenue as it accounted for $1.1 billion in Starbucks Card loads in the quarter.

The combination of the China/Asia Pacific region and the momentum from the My Starbucks rewards program will mean even more profits for SBUX stock.

Coffee Stock Showdown: Dunkin’ Brands Group Inc (DNKN)

dunkin-brands-dnkn-stockWith a large presence in the Northeast, DNKN sales were vulnerable to the full force of this winter’s weather blues.

However, DNKN saw growth in the quarter: Revenues were $185.9 million — up 8.1% from the same period last year. It added 79 new restaurants, with 78 of them in the U.S.

However, most of DNKN’s same-store growth came from its Baskin-Robbins ice cream brand, not from the Dunkin’ Donuts brand. Baskin-Robbins same-store growth was 8% for the quarter compared to Dunkin’ Donuts same-store growth of 2.7%. Systemwide, DNKN had same-store growth of 6.2%.

Baskin-Robbins growth was driven by increased sales of new flavors and the increased sale of cakes stimulated through online ordering. Dunkin’ Donuts sales growth was driven by strong beverage growth and menu innovations, which include a croissant doughnut and the permanent addition of steak to the breakfast menu.

DNKN investors were excited by the results. DNKN stock is trading close to its 52-week high of $54.03 a share, and is up more than 13% from a year ago.

The impressive first-quarter figures allowed DNKN to revise its 2015 outlook upward. It’s projecting year-end revenue growth between 6% to 8%, up from earlier revenue projections of 5% to 7%. However, same-store projections remained the same, with growth of 1% to 3% expected for both restaurant brands.

DNKN is also looking to China for growth. In January, DNKN announced a franchise agreement that will open and operate more than 1,400 Dunkin’ Donuts stores in the country over the next 20 years. The first regional store is expected to open later this year.

This is the largest development agreement in the company’s history.

DNKN is pushing its technology forward, but its not yet at the level as SBUX. DNKN’s online app had 12 million downloads and 2.8 members in its second year. DNKN is leveraging the Dunkin’ Donuts Perks to create a Baskin-Robbins equivalent later in the year. But its too early to tell if any of the DNKN apps will drive the business like SBUX’s apps have.

If customers in China show the same hunger for Dunkin’ Donuts as they do for SBUX and the apps start driving in revenue, then DNKN will be in great shape.

Coffee Stock Showdown: Krispy Kreme Doughnuts (KKD)

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At first glance, KKD’s latest quarterly results were impressive — quarterly revenue of $125.4 million was up 11.2% from the same period last year.

KKD reported a systemwide store count of 987 company and franchise shops worldwide — 6.7% growth. However, KKD had slower growth in same-store sales, rising only 3.6%, including a 2.6% decline in international franchise sales. 

KKD stock reflected this mixed set of results. KKD stock is trading just a bit over halfway of its 52-week high ($22.32) and low ($14.82).

KKD is looking to increase its store count to grow revenues. It opened its 1,000th store in February and is looking to add 10-15 company shops this year, as well as 10-20 net new domestic franchise shops and 95-110 net new international shops.

KKD’s strategy to expand aggressively in international markets seems to be curious one, given that it has declining sales at its current international locations. Furthermore, KKD is not projecting any promising improvements to same-store growth at its domestic locations.

KKD is also late to the game in terms of technology. It began testing a loyalty an rewards program late last year, with a full rollout expected later this year.

CEO Anthony Thompson expects that the additional stores will help build the store’s brand. I think that can be an expensive and risky marketing strategy. Furthermore, KKD is way behind the other two in leveraging technology to drive customers into its stores.

Analysts see KKD as a buy, probably a reflection of its lower stock price, but I don’t see the excitement behind it.

Coffee Stock Showdown: The Winner Is …

Starbucks SBUX

Out of the three, SBUX is the most promising of the three coffee stocks. Its international presence is driving its revenues and same store sales, and it maintains a strong hold on its U.S. customer base. Furthermore, SBUX has already seen its apps as a significant driver of revenue. SBUX’s mobile outreach looks the most promising as there are increasing numbers of customers downloading and using its apps.

SBUX is the one that will give investors the best caffeinated and sugar punch between these three coffee and snack shops.

As of this publication, Johnny Chen does not hold any of the aforementioned stocks.

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