This Quick Service Restaurant Is Giving Investors a Sugar High

This Quick Service Restaurant Is Giving Investors a Sugar High

An investor with a sweet tooth may want to keep an eye on Dunkin' Brands Group . You would think this 63 year-old company would be showing signs of slowing down by now. But Dunkin' Donuts, similar to its competitors Krispy Kreme Doughnuts and Starbucks , continues to rake in impressive growth in sales and profits.

Dunkin' Brands Group reported its third-quarter results on Oct. 24. Total revenue increased 8.6% to $134.3 million. Same-store sales from its U.S. Dunkin' Donuts locations rose 4.2%. Adjusted earnings per share increased 10.8% to $0.41. The company declared a quarterly dividend of $0.19 per share. This puts the annual rate at $0.79 for a modest, but encouraging, yield of over 1.5%.

Dunkin' Donuts added 222 new restaurants in the quarter. It now has over 7,500 Dunkin' Donuts restaurants in the U.S. The company has ample room for growth as there are highly populated cities, towns, and even entire states it has yet to tap into. For example, during the quarter Dunkin' Donuts opened its first location in Denver, Colorado. The company has also begun to sell franchise agreements in California, a region that remains largely untapped. Dunkin' Donuts hopes to open a total of 15,000 restaurants in the U.S.

Dunkin' Donuts saw both increased guest traffic and increased revenue per guest. The company attributed its success to "continued product and marketing innovation" across all categories. It saw strong performance from beverages (mostly coffee varieties), breakfast sandwiches, lunch sandwiches, and, of course, donuts.

Conference call
In the call, CEO Nigel Travis noted that it was the 14th quarter in a row of positive same-store sales growth despite what he described as "a fairly difficult environment." He made an interesting comment when he stated, "In certain markets, such as Southeast Asia, we have franchisees who've been in the system for a long time and are very profitable on low average weekly sales. Our goal, therefore, is to get those sales even higher."

This demonstrates the profitability of the Dunkin' Donuts business model. Each restaurant doesn't need a lot of sales to turn a profit due to the exceptionally high margins of its products and its small store footprint. This means much of even a small increase in sales will fall to the bottom line as net income.

Krispy Kreme Doughnuts should report its third-quarter results on Dec. 2. In its second-quarter results, Krispy Kreme Doughnuts reported that its revenue increased by 10.4% to $112.7 million. Company same-store sales rose an eye-popping 10%. This was the 19th quarter in a row of same-store sales increasing. Adjusted net income jumped 17.2% to $9.6 million or $0.14 per share. The company guided for this fiscal year in total to show an adjusted EPS increase of 26%-34%.

Starbucks last reported its quarterly results on Oct. 30. Total revenue grew 13% to $3.8 billion. Same-store sales grew by 8%. The past 12 months marked what CEO Howard Schultz described as "by far the best year in Starbucks 42-year-history." CFO Troy Alstead added, "The strong momentum of the fourth quarter gives us further confidence in our robust outlook for fiscal 2014."

Foolish final thoughts
Based on the results of Dunkin' Brands Group, Krispy Kreme Doughnuts, and Starbucks, clearly good coffee and finger foods are hotter than ever. Even during these slow economic times, consumers have a few bucks to treat themselves. Follow Dunkin' Donuts' expansion plans closely, as they will dictate more than anything else the degree of success for the chain.

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Nickey Friedman has no position in any stocks mentioned. The Motley Fool recommends Starbucks. The Motley Fool owns shares of Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Originally published