Dunkin' Brands Group, Inc. DNKN is set to report fourth-quarter and full-year 2015 results on Feb 4, before the market opens.
Last quarter, the company posted a positive earnings surprise of 1.96%. In fact, the company has posted three positive surprises in the trailing four quarters, bringing the average to 3.78%.
Let's see how things are shaping up for this announcement.
Factors to Consider
Dunkin' Brands operates through the Dunkin' Donuts and Baskin-Robbins brands. The company’s strategic initiatives to boost sales such as more drive-through locations, menu innovation and breakfast-menu optimization should boost fourth-quarter results. Meanwhile, the newly launched digital initiatives and global expansion, mainly in the emerging markets, are likely to aid the company's international operations. Further, the company’s renewed multi-year partnership with Keurig Green Mountain and J.M. Smucker, signed in 2015, to manufacture, market, distribute and sell Dunkin' K-Cup pods at retailers in the U.S. would benefit the top line.
Nevertheless, like other restaurant chains, Dunkin' Brands' upcoming results are likely to be hurt by the food price inflation. Cost inflation would lead to higher expenses, in turn affecting margins. Further, intense competition in the quick service space would hurt the company's top line in the to-be-reported quarter. Also, the breakfast segment – historically one of Dunkin' Brands' most profitable divisions – is facing immense competition with more companies grabbing market share. This would hurt the company’s top line in the near term.
Earnings Whispers
Our proven model does not conclusively show that Dunkin’ Brands 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 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.
Zacks ESP: The company’s ESP stands at 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 50 cents.
Zacks Rank: Dunkin' Brands' Zacks Rank #3 when combined with a 0.00% ESP makes surprise prediction difficult.
We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks to Consider
Here are some stocks in the restaurant industry that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Dave & Buster's Entertainment, Inc. PLAY, with an Earnings ESP of +4.76% and a Zacks Rank #1.
Kona Grill Inc. KONA, with an Earnings ESP of +5.88% and a Zacks Rank #2.
Cracker Barrel Old Country Store, Inc. CBRL, with an Earnings ESP of +3.16% and a Zacks Rank #1.
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