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Dunkin’ Brands’ Investor Day Was an Embarrassing Flop (DNKN)

DNKN stock tanked after management served up a disappointing outlook

Dunkin’ Brands Group (DNKN) caused DNKN stock to shed nearly all of its year-to-date gains after the parent of Dunkin’ Donuts and Baskin-Robbins surprised investors by cutting a key sales figure and issuing a light earnings forecast.

Dunkin' Brands' Investor Day Was an Embarrassing Flop (DNKN)DNKN stock tumbled almost 12% soon after Thursday’s opening bell. Shares have now lost 21% over the last three months and are clinging to a year-to-date gain of less than 3%.

Although that beats the broader market by a wide margin, it’s not what DNKN investors expected when the stock was up as much as 30% YTD over the summer.

The issue, once again, was revenue weakness. Dunkin’ has been struggling with underwhelming sales growth for more than a year, hurt predominantly by heightened competition.

DNKN does most of its business during the breakfast hours, and that lucrative time of day has brought new competitors to the market and caused other chains to up their games. Starbucks (SBUX) has made breakfast a priority for a number of years, and even Yum Brands‘ (YUM) Taco Bell serves breakfast now.

Against that backdrop, DNKN has been touting an ambitious global five-year growth plan, but for now it can’t seem to keep its traction in the U.S. At an investor day held Thursday, DNKN said third-quarter comparable-store sales — an important measure of a chain’s health — would slow significantly.

DNKN Stock Falls on Guidance

The company now expects U.S. comps to rise 1.1% for the third quarter, down from last year’s gain of 2%. Even worse for the short-term performance of DNKN stock, the company maintained a full-year forecast that’s short of analysts’ average estimate. DNKN sees annual adjusted earnings coming in at $1.87 to $1.91 a share, versus a Wall Street forecast for $1.92.

And just for good measure, Dunkin’ added that 100 franchise-owned Speedway-operated self-service kiosks would be closing. True, DNKN pointed out that the stores being closed accounted for just 0.1% of its domestic sales, but the optics are terrible.

Dunkin’ Brands once again went over its bold expansion plan at its analyst day, but disappointing guidance and store closings aren’t very reassuring to those wondering if the company will be able to pull it off.

DNKN is targeting U.S. comparable-store sales growth of 2% to 4% for the next five years, but it’s off to a poor start with the third-quarter shortfall. DNKN is also targeting adjusted earnings per share growth of “up to 15%,” but this year’s forecast implies upside of around 10%.

Bottom Line

It’s hard to like DNKN stock when the company is doing a poor job of managing expectations as it embarks upon a strategic growth plan.

After all, an investor day is nothing more than a PR and marketing push for the stock.

If a company’s shares fall 10% when it’s supposed to be wooing investors, it’s doing something wrong.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

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