Dunkin' Brands Group, Inc. DNKN is set to release fourth-quarter 2018 results on Feb 7, before the market opens.
Dunkin’ Brands’ strategies of satisfying guests by introducing beverage-led restaurant services, driving consumer packaged goods and new channels, and developing a simpler brand identity are expected to have benefitted its top line in the fourth quarter. However, the company’s initiatives involve higher costs of operations that are likely to have affected earnings in the to-be-reported quarter.
High expenses, intense competition and lower-than-expected sales in ice-cream products have been plaguing the company of late. Shares of Dunkin’ Brands have lost 4.7% over the past six months against industry’s rally of 6.9%.
Let’s find out how the company’s top and bottom lines will shape up in the fourth quarter.
Top Line to Gain
Dunkin' Brands increased focus on enhancing the beverage portfolio and improving traffic drove results in the first nine months of 2018. Total revenues increased 4.3% year over year during the same time frame.
We believe that the top line has continued to gain from the same. With the rising demand for coffee, the company is expected to gain from the addition of new coffee beverages to its menu, both in the value and premium offering segments. Further, menu innovations, breakfast menu optimization, loyalty programs, and digital and sales-building initiatives bode well for Dunkin' Brands.
Moreover, the increase in royalty income is expected to boost revenues. DD Perks Loyalty Program is likely to be a major sales driver, primarily owing to the company’s brand recognition.
Subsequently, the Zacks Consensus Estimate for revenues in the fourth quarter is pegged at $329.8 million, reflecting 45.2% growth from the year-ago quarter.
High Costs to Hurt EarningsurtHurtHhH
Dunkin' Brands operates on a full-fledged franchise model. We believe that re-franchising a large chunk of its system will reduce capital requirements and facilitate earnings per share growth. However, the company’s high costs of operations are likely to have more than offset the positive effects of franchising in the fourth quarter.
In the first nine months of 2018, total operating costs increased 3.4% and are likely to have continued in the to-be-reported quarter as well. Subsequently, the consensus estimate pegs fourth-quarter earnings at 62 cents, suggesting a 3.1% decline from the year-ago quarter’s earnings.
What Our Model Indicates
Our proven model does not suggest a beat for Dunkin' Brands in the quarter to be reported. This is because a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for that to happen. Unfortunately, that is not the case here as you will see below.
Dunkin' Brands has an Earnings ESP of 0.00% and a Zacks Rank #3, a combination that reduces chances of an earnings beat. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
Dunkin' Brands Group, Inc. Price and EPS Surprise
Stocks to Consider
Here are a few stocks from the Restaurant space that investors may consider as our model shows that these have the right combination of elements to post an earnings beat in the fourth quarter.
YUM! Brands YUM presently carries a Zacks Rank #3 and has an Earnings ESP of +2.01%. The company is scheduled to report quarterly numbers on Feb 7.
BJ’s Restaurants BJRI has an Earnings ESP of +2.08% and a Zacks Rank #3.
El Pollo Loco LOCO has an Earnings ESP of +7.14% and it currently flaunts a Zacks Rank #1.
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