Dunkin Brands reported Q2 earnings yesterday, beating consensus earnings by $.01, consensus revenue estimates by $12 million and was profitable at 44 cents per share. The earnings call overall was positive, but as with many restaurant stocks and the broader market, the stock was down $3 or 4.2% at the close. The top news announced by CEO Dave Hoffmann was that both Dunkin and Baskin were undergoing a worldwide real estate site review. In that context, up to 800 low-volume, unprofitable US Dunkin locations deemed not suited for the current strategy would be targeted for closing, along with another 350 international locations. Hoffmann and CFO Kate Jaspon noted in detail that these stores had AUV levels at only 25% of the system average and were unprofitable for franchisees. Reiterating a focus of quality rather than quantity of franchisee units, they also noted that the closings should allow for better and more sound remodeling along with future growth. In the opinion of John Gordon, DDIFO restaurant analyst, “Hoffmann’s action is a great strategic move and works to correct older Dunkin actions that merely opened a bunch of shops no matter the location. This is a golden opportunity to strengthen the brand and the franchisee networks.” Dunkin’ US store count opens and same-store sales improved sequentially throughout the quarter, with system traditional SSS improving to minus mid-single digits by mid-July. Sales weakness in the Boston and New York City downtown urban cores as well as those without drive-thru or curbside capability continued. Hoffmann credited franchisees with getting stores open where appropriate, unlike some competitors. As was the case last quarter as well, 6 – 9 AM segment sales were down but the 10 AM – 2 PM segment picked up. Transactions were lower while the average ticket, with more items sold per transaction, was much above prior year. Kate Jaspon reiterated the Dunkin franchisee profitability projection from last quarter that franchisee store level profits in 2020 should be at 80% of the prior year with PPP assistance assumptions included.
