Tuesday, November 12, 2013

Dunkin' Brands: Growth Expectations Too Sweet?

Growth Plans Overseas Set Ambitious Goal

Dunkin' Brands Group Inc. (DNKN) and its flagship Dunkin' Donuts coffee shops have grand ambitions for conquering the international landscape and North America outside of their highly concentrated Northeastern U.S presence. There are over 500 locations in New York City alone and several hundred in Massachusetts. The firm has a strong presence in the city hubs of the I-95 corridor from Boston to Philadelphia. There are about 7.500 Dunkin' Donuts stores in the U.S. and about 3,200 overseas. Many stoefronts are co-branded with Baskin Robbins ice cream shops, which is featured in 7,000 total locations across the globe.

The company has added Dunkin' Donuts franchises at a fast clip in the US and plans on effectively doubling locations in the US to 15,000 by around 2031. To achieve this goal the company has to open on average 500 stores state-side each year. The last three years has seen Dunkin' add 240 stores in 2011, 291 in 2012, and 357 of a projected 360 stores completed to date in 2013. International expansion has been tagged at 10,000 stores up from 3,000 but no time frame was provided in a late 2011 Businessweek article outlining the initiative. For the sake of projection purposes, to use the domestic 500 store per year build out, it 14 years until 2027 for Dunkin' to reach this goal.  A more tempered 300 overseas annual expansion rate would take 33 years or 2046 to complete.

The main driver of domestic growth for Dunkin' is California. The company will start building stores in full force by the year 2015 to include a goal of 1,000 locations in the Golden State. The main thrust internationally will include Shanghai, China with 100 locations by 2023 and India with 500 locations expected by 2026. The company has not found success in Canada or Japan and will count on building 150 stores in the UK to help its peripheral global expansion efforts set for new regions to include Brazil and Eastern Europe in the future.

Revenues for Dunkin' Brands have ranged from 8.8% growth from in 2011 to 4.8% in 2012 to projected 7.9% growth in 2013. 7.1% sales growth in 2014 is analysts current consensus estimate. Earnings growth is expected to come in around 16-17% in 2014. On the surface Dunkin's international expansion plans appear to be very ambitious at best and far fetched at worst in the next 15 years. At the very least, executing on the domestic expansion strategy may prove challenging at home, where Starbucks has a established foothold on the west coast.

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Foundry Stock Review and its contributors have no positions in Dunkin Brands' (DNKN) or Starbucks (SBUX) the securities mentioned in this blog as of 11/12/2013. Periodically, Foundry Stock Review or its contributors may initiate a position in a stock covered in this blog. If we do initiate a position in any security we cover prior to publication, we will disclose the position here in our disclosure. This stock disclosure is not a recommendation to purchase or sell any security.


Foundry Stock Review is an earnings focused investment newsletter. Foundry Stock Review, LLC is not a registered investment advisor and the data contained in this newsletter has been gathered from external sources and is believed to be accurate as of publication. The content of this blog is for information purposes only and is not a solicitation to buy or sell any individual securities. It is important that you consult with your investment advisor and tax advisor before making investment decisions. Past performance is not indicative of future results
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