Weekly Notes On Restaurant Industry: Dunkin’ Brands & McDonald’s

September 18th, 2015 by Trefis Team
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Downside
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Trefis
DNKN: Dunkin' Brands Group logo
DNKN
Dunkin' Brands Group

The summer ended quite positively for the restaurant chains in the U.S., as the industry reported improved comparable store sales and customer traffic in the month of August 2015. According to a report by Black Box Intelligence Group, comparable store sales in August grew 1.7%, making it the fifth consecutive quarter with positive comparable store sales. [1] Moreover, a year-to-date comparable store sales growth of 2.2% was recorded. On the other hand, customer traffic growth improved 10 basis points in August compared to July’s figures. Average spend per visit grew 2.7% in August, down from the average 3.4% growth in per visit spend recorded in the first two quarters of 2015.

Here are some of the updates regarding a few restaurant companies covered by Trefis:

McDonald’s

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The Golden Arches has been witnessing negative comparable store sales for the past few quarters. The company also reported negative comparable sales for the fifth consecutive quarter in its second quarter fiscal 2015 earnings report. [2] Struggling with stagnant sales growth and declining customer traffic, the company decided to introduce the ‘Create Your Taste’ platform, which allows the customers to customize their burgers with additions of their choices. It not only attracts more customers, but also ensures that the company maintains the margins on these products.

Furthermore, the company has decided to shift to cage-free eggs for nearly 16,000 restaurants in the U.S. and Canada over the period of the next 10 years. [3] This is aimed at providing customers with more organic and hygienic products.

MCD stock rose from $95 to $98 during the last week. Our price estimate for MCD stock is $99, which is roughly the same as the current market price.

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Dunkin’ Brands

The U.S. segment of both the brands of Dunkin’ Brands has been posting strong positive same-store sales growth for the past few quarters now. In Q2 2015, Dunkin’ Donuts U.S. posted 2.9% growth driven by tremendous customer response to beverage items and the Dunkin’ Donuts Perk program, whereas Baskin-Robbins U.S. delivered 3.4% growth in the comparable store sales boosted by new ice-cream flavors. ((Dunkin’ Brands, Q2 2015, earnings call transcript)) The company is hosting its annual Investor and Analyst Day on October 1, 2015. [4]

DNKN stock traded in the range of $47 and $48 during the last week. Our price estimate for DNKN stock is $57, which is 20% above the current market price.

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Notes:
  1. Restaurant industry on track to positive same-store sales during Q3 [↩]
  2. McDonald’s, Q2 2015 earnings call transcript [↩]
  3. McDonald’s to fully transition to cage-free eggs for all restaurants in the U.S. and Canada [↩]
  4. Dunkin’ Brand Group to host 2015 Investor and Analyst Day [↩]