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Sunday, March 31, 2013

Dunkin' Donuts: Are All The Analysts In Florida?


Seeking Alpha

Dunkin' Donuts: Are All The Analysts In Florida?

Mar 16 2013, 21:52  | 13 comments  |  about: DNKN
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
You don't need to know a weatherman to know which way the wind blows...
Just ask Dunkin' Donuts' (DNKN) CEO Nigel Travis. Listen to his comments on Friday's J.P. Morgan Forum (and by the way, he plugs SeekingAlpha.com's thoughts about weather and restaurant sales):
But I think I would say that this is probably -- we haven't had the huge depths of snow that we had 2 years ago in the Northeast, but we've had more regular storms. It seems that we've have a storm every week. So I'd say it's probably similar to 2011 and I've never worked it out but I'd say that 150 basis points probably goes back the other way.
For those of you not living in the Northeast - the home of so many Dunkin' Donuts - Winter 2013 has been a horrible unending series of snowstorms. I've been hitched up to my snow blower. In contrast, the comparable 2012 quarter was one of the mildest winters on record, making for some difficult comparisons.
We are going against the quarter last year, where we had exceptionally good weather for our business. So we always said this quarter was going to be a challenge.
Indeed. Not too many New Englanders got their coffee and donuts in 2-foot blizzards.
Perhaps, the analysts following Dunkin' Donuts live in sunnier climes. You'd think that after looking at their rosy EPS and revenue forecasts. Consensus expects an optimistic EPS of 29 cents versus 25 cents in the year-ago quarter. Revenue is forecast at $161.78 million, 6% higher than a year ago. Notice estimates haven't budged over the last 90 days despite the miserable winter. Those analysts must really be enjoying that Florida sunshine!
(click to enlarge)
(Courtesy Yahoo.com.)
This winter's dismal weather report might be a better forecaster of Dunkin' Donuts' quarter than a roomful of analysts. Before you push the DD eject button, remember that awful New England winters don't come every year. In fact, the weather's become lovely...
I'd take the recent pull-back in Dunkin' as an opportunity to get in the stock before the snow melts.
Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.
DNKN's management discussing earnings
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All (13)Author's Picks (1)
  •  
    Stephen: interesting point, but the JPM sell side analyst that hosted the DNKN love fest IS actually based in Florida, Miami actually !

    Otherwise, the fairly strong same store sales numbers that a weaker competitor, Krispy Kreme (KKD) and the positive US same store sales results released by Starbucks (SBUX) and Tim Horton's (THI) does seem, to support the case that lower average ticket 'beverage' concepts seem to be "hot", if there is average ticket upside via food attachment and new product new news.

    John A. Gordon
    Pacific Management Consulting Group
    chain restaurant analysis and advisory
    http://bit.ly/m8ad9
    17 Mar, 11:11 PMReply! Report Abuse  |  Make Author's PickLike0
  •  
    I bought shares of DNKN for each of my 7 grandchildren through accounts I set up for them. Monday morning I an going to direct my broker to establish dividend reinvestment accounts at Duncan .some of the kids are under 1 year old. I wish someone did something like that for me 70 years ago !
    18 Mar, 12:18 AMReply! Report Abuse  |  Make Author's PickLike0
  •  
    Dunkin Brands' story is not about one quarter, not to mention that in franchise they are not as vulnerable to store volumes anyway (they surely sell the stuff to the stores, but don't bear as much operating risk). Even if the quarter does underperform, it will create a "buyable" dip, as transient weather difficulties in Northeast are part of the business and will not change expansion west of Mississippi.
    18 Mar, 09:25 AMReply! Report Abuse  |  Make Author's PickLike0
  •  
    I understand that it is human nature to get more excited aout buying stocks as the prices climbs higher, but DNKN has an earnings yield of about 2% after debt is added back to Market Cap, and single digit growth prospects at best. Am i missing something ?
    21 Mar, 10:58 AMReply! Report Abuse  |  Make Author's PickLike0
  •  
    Limited Western US exposure. Growth story
    25 Mar, 11:10 AMReply! Report Abuse  |  Make Author's PickLike0
  •  
    "Am i missing something ?"

    Yes - it is called half of the country, west of Mississippi. The only trully saturated market is Northeast, where they started. Southeast still has some room, but it is probably less robust, however DD has no real presence in western US, including California. There is no reason for them not to achieve similar presence in CA similar to that they have currently in FL, which means there is tons of growth potential. The only limits are execution and fund availability.

    Single digits growth is for same store sales, earnings and overal sales growth will go through leaps and bounds, as expansion continues. Perhaps not every single quarter and there surely will be some sputters, but Dunkin is essentially "regional-to-national" story to be played out in next 10 years.

    Doesn't mean of course one has to buy their stock today... There may be a better price coming, but the story is definitely very compelling to me.
    21 Mar, 11:39 AMReply! Report Abuse  |  Author's Pick (undo)Like0
  •  
    Were you sent different SEC filings than i was ?

    2010 sales $577m
    2011 sales $627m 8% growth
    2012 sales $657m 4% growth

    What is clear is the 2% earnings yield, what is not clear is the future.
    22 Mar, 01:15 PMReply! Report Abuse  |  Make Author's PickLike0
  •  
    2% earnings yield? or dividend yield?

    Wasn't DNKN a PE holding being consolidated in 2010 and most of 2011?
    25 Mar, 11:19 AMReply! Report Abuse  |  Make Author's PickLike0
  •  
    Well, they guided 6-8% revenue for 2013. They could miss, of course, there is no crystal ball.
    22 Mar, 03:37 PMReply! Report Abuse  |  Make Author's PickLike0
  •  
    I do not know which is the most overvalued stock on the planet right now, dnkn or bkw. Wake me up when dnkn drops below 30. It should happen in the summer sell off, or earlier, once everyone gets to rejoice
    over the new S&P 500 record high. Deja 2007 all over again.
    22 Mar, 04:45 PMReply! Report Abuse  |  Make Author's PickLike0
  •  
    We have seen that these companies actually tend to act like consumer staples in economic downturns. MCD did fine in 2007, 2008, and 2009. With a lower arpu than SBUX, one could argue DNKN is the MCD of the morning coffee/pastry space.

    $4 breakfast is likely one of the last things to be be cut from discretionary spending.
    25 Mar, 11:23 AMReply! Report Abuse  |  Make Author's PickLike0
  •  
    One can consider DNKN overvalued on many metrics and there are reasons to stay away or even short (if you dare), but calling it "most overvalued on the planet" is beyond hyperbole. If DNKN were, as you say, "most overvalued in the planet", then you should be calling for drop below $5, no just $30. Most overvalued stocks in the planet fall over 90%, not puny 25%.

    I was trying to have a reasonable conversation, but this comment (and comparing now to 2007) exposed you. There is really not nothing more to say. Enjoy your short positions.
    23 Mar, 06:02 PMReply! Report Abuse  |  Make Author's PickLike0
  •  
    Ok. But as far as i can see, it still has an earnings yield of 2% when debt is added back to Market Cap. I know everyone is hungry for earnings yield, but the valuation here is outrageous for a single digit grower. That's all, i'll say.
    It may take as long as 6 months or even 2 years for Dnkn to get whacked, but it most likely will.
    25 Mar, 01:43 PMReply! Report Abuse  |  Make Author's PickLike0
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DNKN VS. ETF ALTERNATIVES
ETFsTODAY3 MTHS1 YRYTD
RWK0.8%14.9%16.8%16.3%
EZM0.7%13.6%15.2%12.8%
XRT0.4%13.5%14.5%13.1%
PRFZ0.3%12.5%14.3%11.8%
IPD0.2%7.8%11.4%6.5%
XLY0.1%11.3%17.9%11.0%
MDY0%11.8%15.1%11.7%
MVV-0.1%24.3%30.8%24.4%
DNKN-0.2%11.2%22.6%11.2%
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