Leading doughnut and coffee chain, Dunkin' Brands Group, Inc. DNKN, is set to report first-quarter 2015 results on Apr 23, before the opening bell.
Last quarter, the company posted a negative earnings surprise of 2.13% largely due to sluggish international comps. Let’s see how things are shaping up for this announcement.
Factors to Consider
Dunkin' Brands operates through its Dunkin’ Donuts and Baskin-Robbins brands.
Dunkin' Brands’ U.S. comps in the first quarter are expected to remain under pressure due to inclement weather toward the end of 2014 in the Northeastern states of America. Customer footfall declined in New York and Boston as well as regions like Pennsylvania, northern Michigan and other areas which were hit by the harsh winter.
Further, the bad winter is likely to have a negative impact on the company’s ice cream chain, Baskin Robbins. The ice cream chain has a solid presence in the West Coast, but the unusually cold winter might have reduced consumer appetite for ice cream even in areas where snowfall was lesser.
Additionally, like other restaurant chains, Dunkin' Brands would likely be hurt this quarter by the food price inflation. Cost inflation would result in higher expenses, which in turn are likely to put margins under pressure in the to-be-reported quarter.
However, strategic initiatives to boost sales like the introduction of more drive-through locations, menu innovation coupled with breakfast-menu optimization would help the company to stand out in an immensely competitive sector and boost first-quarter results.
Also, newly launched digital initiatives and global expansion – mainly in the emerging markets – would boost the company’s international operations. However, a drastic change is not expected yet, especially with a slowdown in the emerging markets.
Earnings Whispers
Our proven model does not conclusively show that Dunkin’ is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: The company’s Earnings ESP stands at -2.78%. This is because the Most Accurate estimate stands at 35 cents and the Zacks Consensus Estimate is pegged higher at 36 cents.
Zacks Rank: Dunkin’ has a Zacks Rank #3 (Hold), which increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.
We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement.
Stocks to Consider
Here are some companies in the restaurant sector that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Jack in the Box Inc. JACK, with an Earnings ESP of +1.52% and a Zacks Rank #2 (Buy).
BJ's Restaurants, Inc. BJRI, with an Earnings ESP of +7.14% and a Zacks Rank #2.
Sonic Corp. SONC, with an Earnings ESP of +2.78% and a Zacks Rank #1 (Strong Buy).
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