Argus Analyst Cuts Dunkin' Brands To Hold, Cites 'Weaker Outlook'

• Shares of Dunkin Brands Group, Inc DNKN have declined 25.46 percent over the past three months, touching a low of $42.05 on October 13.
• Argus’ John Staszak has downgraded the rating on the company from Buy to Hold.
• With the shares trading close to the fair value, Staszak believes that a cautious approach is required, given Dunkin Brands’ declining same store sales and rising labor costs.

Analyst John Staszak expects the price hikes undertaken by the company to mitigate the increasing labor costs to impact store traffic, while preventing an improvement in comp sales in the near term.

At its Investor Meeting on October 1, Dunkin Brands guided to a 1.1 percent increase in comps at its Dunkin’ Donuts locations during 3Q, well below the consensus expectation of 2.7 percent, as well as the growth seen in 2Q14.

The management also guided to a 0.7 percent drop in restaurant traffic, while mentioning that “100 in-store self-serve kiosks would be closed in early 2016,” which are franchised by Speedway, the Argus report said.

However, the company has reiterated its EPS and revenue guidance for 2015 and intends to open 410-440 stores in the US during the year.

The EPS estimates for 2015 and 2016 have been lowered from $1.94 to $1.88 and from $2.26 to $2.16, respectively to reflect the lowered guidance.