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Dunkin’ Brands: Percolating Performance

Despite the weak U.S. recovery and a global economic slow-down, Dunkin’ Brands (DNKN) delivered strong results for Q3 2012. The company generated $27.7 million in free cash flow in Q3 2012, repurchased $450M worth of its shares from its former private equity owners, raised $390M in new debt and ended the quarter with $165.6 million in cash. Comparing Q3 2012 financial results with Q3 2011, revenue increased by 9.8%; adjusted operating income increased by 14%; and adjusted net income increased by 63%. Diluted Adjusted EPS for Q3 2012 was $.35 versus $0.33 for Q2 2012 and represented a 32% increase from $0.28 for Q3 2011. The company exhibited solid performance in all four segments in H1 2012. All of DNKN’s segments had positive comparable store sales growth in Q3 2012. With the exception of Baskin Robbins US, all DNKN’s segments had positive systemwide sales growth during the quarter.

We like the long-term prospects of Dunkin’ Brands. In its core New England footprint, Dunkin’ Brands is more than just a coffee and donut shop. Dunkin’ Brands (or Dunkies as it is colorfully referred to here in Boston) is a New England business institution. Because we are located in Boston, MA, we are also acquainted with the story behind Dunkin’ Donuts (Dunkin’ Brands’s largest subsidiary). Dunkin’ Donuts was founded in 1950 by William Rosenberg, a local entrepreneur in Quincy, MA. In 1990, Dunkin’ Donuts was sold to the British conglomerate Allied Lyons, which created Allied Lyons Retailing USA in 1993 and merged Dunkin’s operations with Baskin-Robbins. Allied Lyons became Allied Domecq when it merged with Pedro Domecq in 1994 and sold Dunkin’ Brands to a private equity consortium two years after Allied Domecq was acquired by Pernod Ricard SA.

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