Dunkin' Brands Sees Small Improvement, But Goldman Still Sees Risks

Although Dunkin Brands Group Inc DNKN has indicated an improvement in 2Q, industry trends continue to be a risk, Goldman Sachs’ Karen Holthouse said in a report. She maintained a Neutral rating on the company, while raising the price target from $46 to $47.

Reading Into The Commentary

Management indicated that comps had been steady throughout 2Q, implying an improvement versus the industry. Analyst Karen Holthouse pointed out, however, that the commentary on comp drivers “was medium- to long-term in nature,” while adding that wage-driven pricing could continue to be a traffic risk.

Dunkin Brands reiterated its full-year EPS guidance of $2.20-$2.22. Holthouse noted, however, that the guidance includes a benefit of $0.03 from the sale of company units and, therefore, imply a decline in core profitability

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The company has plans to better leverage the Perks platform going forward. “We see room to be more optimistic with better evidence of effective incentives to register,” the analyst wrote.

Ongoing Challenges

There are persisting risks of pricing remaining elevated against wage increases, while Dunkin Brands indicated political and regulatory uncertainty.

The EPS estimates for FY16, FY17 and FY18 have been reduced from $2.24 to $2.22, from $2.49 to $2.37 and from $2.80 to $2.67, respectively.

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