Dunkin’ had a difficult 2015 Investor day yesterday. Despite generally upbeat DDIFO operator panels last month, Dunkin’ disappointed Wall Street greatly, with the stock down 11% or $6 dollars per share on Thursday. This is another reminder that franchisees live and work on Main Street but Dunkin’ lives on Wall Street, and is a different game. This was the largest stock falloff since the 2011 IPO.
Many analyst reports are still outstanding, and more reaction will be coming, but the main takeaways from the perspective of our restaurant analyst John Gordon, Pacific Management Consulting Group are:
- Q3 Dunkin US same store sales were only plus 1.1%, less than expected. Transactions were -.7%. Nigel and Chris Fuqua principally blamed the franchisees’ price increase (3.0%) and the lack of new news because the summer flight was cancelled due to egg cost and perception problems. Nigel said…”we need price…and new news advantages, and had neither.”
- 100 Speedway Oil and Gas DD sites will be closing in 2016/2017, but Speedway continues as a franchisee. These 100 were Hess self-serve stations that Speedway inherited and not traditional Dunkins. Reported AUV for these sites was only $98,000 per site. Impacted markets not revealed.
- 2014 New opens store economics were revealed. The 2014 class EBITDA was only 8% [which is critically low in my view]. Dunkin tried to talk to the cash on cash return, which is an unlevered (not adjusted for debt number) but Paul Twohig was challenged on that. There were questions as to what the franchisees really want, and Twohig mentioned that franchisees expect zero ROI in the first ten years, knowing it is a long term build. [This is a reversal of the prior story line.]
- The rate of existing US DD store gross new opens was unchanged (410 to 440).
- The decline of in-store K Cup sales continue to be cited as the CPG channel ramps up.
- Dunkin revealed some US systems-wide data for the first time: beverage sales 57%, bakery 23%, food 16% & other 4%. In terms of transaction mix, 64% was 4a – 12n, 29% 12n – 7p and 7% from 7p – close.
- John Costello did not attend, and international was considerably deemphasized.
- Scott Murphy reported “flat pricing:” was in place, with $100 million in savings, based on average cost per case decline. They continue to encourage CML consolidation.
- Grant Benson reported the development strategy and noted no problems in meeting store growth.