Can store revamp, drive-thru help Dunkin’ Brands (DNKN) stock during recovery?

Dunkin’ Brands Group Inc. (NASDAQ: DNKN), the company behind popular ice cream brand Baskin-Robbins, was pretty quick in responding to the virus-induced slump. It has been making the best use of facilities like drive-thru since then to serve customers during the crisis period.

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After recouping most of the recent losses, Dunkin’s stock is likely to stay flat until the next earnings, which is scheduled for 30. Analysts will be looking for a double-digit fall in profit and revenues to $0.48 per share and $280 million, respectively. So, it might not be the right time to invest in Dunkin’, going by the consensus target price that points to a modest downtrend in the near term. In short, it makes sense to hold the stock for the time being and postponing investment plans.

Focus on Liquidity

The Canton, Massachusetts-based company recently embarked on an extensive cost-reduction initiative to preserve cash, with measures ranging from salary cuts for executives to suspension of quarterly dividends – which the CEO later pledged to reinstate. The company ended the most recent fiscal quarter with negative cash flow, which can be a cause for worry considering the high debt.

Meanwhile, the management is taking the tried and tested path to overcome the virus-related headwinds, probably taking inspiration from rivals like Starbucks (SBUX) and McDonald’s (MCD). Dunkin’ recently extended the drive-thru facility, making it currently available in more than 60% of the store locations, and announced plans to close hundreds of underperforming stores this year due to the breakup of a partnership that was focused on gas stations.

A Timely Facelift

Nevertheless, the store count will be maintained by opening new outlets in key markets, featuring advanced facilities capable of attracting new-gen customers. These actions complement the ongoing menu revamp and point to a major shift in the operating model. It is expected to prepare the company to face the new normal emerging in the business world.

Having adopted a new brand identity last year – by changing the name from Dunkin’ Donuts to just Dunkin’ – the company is probably looking to create long-term value for shareholders. When it comes to innovation, the management is particularly encouraged by the success of the new breakfast recipe based on the plant-based sausage that was made possible by a partnership with Beyond Meat (BYND) last year.

“Following the reveal of our new brand identity in 2018, when we officially changed our name to simply Dunkin,’ we began 2019 with new branding on our packaging, in advertising, online, and on new and remodeled restaurants. By simplifying and modernizing our name, while still paying homage to our heritage, we are creating incredible new energy for Dunkin’, both in and outside our restaurants,” said Dunkin’ CEO Dave Hoffmann in an official statement earlier this year.

Flat Q1

In the three months ended March, the key financial numbers were almost flat, compared to last year, as the business was affected by the movement restrictions in the final weeks of the quarter. The company earned $0.67 per share in the March-quarter on revenues of $323 million. A marked contraction in international sales more than offset growth in the other segments. The Dunkin’ brand was hurt by negative comparable sales.

On Recovery Path

There has been an improvement in the performance of Dunkin’ stores in recent weeks, thanks to the relaxation of shelter-in-place orders. Considering the 100% franchised business model, it is highly essential to ensure seamless coordination with the franchisee and licensee partners for future plans to yield the desired results. Statistics show that quick-service restaurants accounted for about 66% of the total commercial foodservice business in the U.S. last year.

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Following a pattern similar to those of its peers in the fast-food space, Dunkin’s stock rebounded quickly from the multi-year lows seen in the early weeks of the virus outbreak and gathered steam since then. The ongoing recovery is significant for the stock, which had a rather dismal start to 2020 after retreating from last year’s peak.

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Looking for management/ analysts comments on Q2 results? Check out this space for the latest earnings call transcripts

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