Dunkin Brands Group Inc (NASDAQ:DNKN) delivered earnings Feb. 6 that slightly beat estimates, but not by enough to resist the market’s down opening. In fact, DNKN stock is down more than 2% at the time of this writing.
The company said it had diluted adjusted earnings-per-share of $58.4 million, 65-cents-per-share, on revenue of $227.1 million for the quarter, against net of $59.4 million, 64-cents-per-share, and revenue of $215.7 million a year earlier.
The previous year’s fourth quarter had an extra week in it. The earnings beat consensus estimates by 1-cent-per-share, but fell 1-cent short of the 65-cents-per-share “whisper number” analysts had been hoping for.
In response, DNKN increased its dividend 7.75%, to 34.75-cents-per-share.
Numbers Don’t Matter for DNKN Stock
What the numbers showed was that the company is getting a much bigger lift from ice cream than from its namesake donut chain.
Dunkin booked earnings of $195.5 million, $2.17-per-share, mainly on the one-time impact of the tax cut. Same store sales growth in the U.S. was only 0.8%, but same store sales growth for the Baskin Robbins ice cream unit came in at 5.1%.
None of this is expected to matter for DNKN stock because of two reasons.
First, the market’s downdraft is not going to respect a small company that basically matched estimates. Most of the market was overvalued before the carnage of Feb. 5, and Dunkin wasn’t alone in that, selling at a price-to-earnings ratio of 26.6.
Second, if there is going to be interest in DNKN stock after the carnage is over, it is more likely to be based on takeover rumors than organic results.
JAB Holdings Inc., an investment group controlled by Germany’s Riemann family, has been on a breakfast buying spree, picking up Panera Bread, Keurig, Einstein Bagels and now (through Keurig) Dr Pepper Snapple Group Inc. (NYSE:DPS). It was rumored to be after Dunkin in January.
Other restaurant groups, like Restaurant Brands International Inc (NYSE:QSR), which owns Tim Horton’s and Yum! Brands, Inc. (NYSE:YUM), may want to do their own shopping, and DNKN’s market cap of $5.5 billion would fit right into such a strategy. Roark Capital, which completed its purchase of Buffalo Wild Wings (NASDAQ:BWLD) on Feb. 5, might also get into the game as a white knight, if a bidding war breaks out.
No one has made a move on DNKN stock yet, but in an up market, which we had until February began, it’s the kind of logic that has lifted stocks.
Growth Through New Stores
Dunkin management is trying to beat the acquirers with an aggressive growth plan. It opened 440 new stores during 2017, mostly U.S. donut shops. CEO Nigel Travis said its Perks loyalty program grew by 2 million members, to 8 million, and that out of restaurant sales of the company’s packaged goods grew by 30%. DNKN has also been in the U.K. market since 2016, alongside the Liverpool Football Club which, like Dunkin, is controlled out of Boston.
DNKN stock’s performance over the last year, however, was in line with that of the general NASDAQ market, and it has also matched the collapse of the market that began Feb. 1, with shares down 5%.
Bottom Line on DNKN
Dunkin Donuts is like a sugar-frosted donut on a big cup of coffee, riding the market waves. It does not outperform the averages, but it doesn’t lag either. Most analysts have an average or “hold” rating on DNKN stock.
The company’s position as a possible takeover target in a consolidating market may make it interesting to investors looking to arbitrage, once the market sorts itself out.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, did not hold a position in any of the aforementioned securities.
