Weak consumer spending and increased competition for their breakfast business yesterday prompted the parent company of Dunkin' Donuts to warn that it might miss sales forecasts.
It will be a "challenge" for Canton-based Dunkin' Brands to achieve the low end of its targeted 2 percent to 3 percent increase in comparable-store sales at U.S. Dunkin' locations, chairman and CEO Nigel Travis said in an earnings call with analysts.
"Dunkin' Donuts U.S. third-quarter (comparable store sales) of 2 percent did improve slightly over the second quarter even if we continue to feel the impact from an ongoing sluggish economy and a highly competitive QSR (quick-service restaurant) breakfast and coffee environment," Travis said. "We've faced some headwinds this year on Dunkin' Donuts U.S. stores."
Comparable store sales are considered an important performance measure. They reflect sales at stores open 54 weeks or more and exclude recently opened or closed stores.
Travis said he is "concerned" about consumers.
"I'd like to think that they were going to be encouraged by gas prices going down," he said. "That doesn't seem to have happened to anyone yet."
Dunkin' is facing competitive pressures — including price competition — from casual dining chains and fellow quick-service chains such as McDonald's.
Breakfast and coffee are strong growth categories in the restaurant business, and more and more companies are looking to get their piece of the pie, said Sharon Zackfia of William Blair & Co. "Particularly with soft drink consumption kind of declining and other (parts of the day) providing challenges for many restaurant operators, breakfast is pretty enticing," she said. "It's growing, and it's pretty habitual. "
Dunkin' maintained its full-year earnings-per-share guidance of $1.73 to $1.77.
Its earnings growth is primarily driven by development, and that remains very healthy for U.S. Dunkin' locations, and franchisee profitability is at all-time highs, Zackfia said.
Dunkin' shares, which fell as much as 6.7 percent yesterday, closed at $44, down 5.96 percent.
"The shares have under-performed their (QSR) and broader restaurant industry peers year-to-date," Barclays analyst Jeffrey Bernstein said in a research report. But, he noted, "Despite the near-term headwinds, we continue to believe Dunkin' is a strong long-term growth story."
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