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Analysis: Dunkin' Brands' future success on Wall Street rests on growth

Wall Street welcomed Dunkin’ Brands Inc. to the stock market Wednesday with open arms, mainly because the parent company to Dunkin’ Donuts and Baskin-Robbins has room for growth, uses a franchise model and is more of a beverage company than anything, analysts say.

Dunkin’ debuted on the NASDAQ Wednesday under the symbol DNKN and saw its stock price jump 47 percent to close at $27.85. The initial public offering was priced at $19 per share. With the sale of 22.25 million shares, the company garnered about $423 million, which it will use to pay down debt.

“The market loves a company that still has strong growth,” said boutique investment banker Craig Weichmann of Weichmann & Associates in Dallas. He noted that Dunkin’ Donuts, a chain of about 9,760 locations, has a strong foothold in the Northeast, but has much room to expand in the western United States and overseas.

“At one point in time, there were some mixed feelings [about Dunkin’s listing], because the market still remembers the Krispy Kreme debacle,” he said, referring to the rapid expansion and collapse of the Winston-Salem, N.C.-based doughnut chain in the early 2000s, “but Dunkin’ Donuts is far superior as an organization.”

Weichmann said actual sales of doughnuts account for less than 20 percent of Dunkin’ Brands’ sales, with the bulk of remaining sales resting on coffee. Cold drinks and breakfast sandwiches also contribute to the mix.

In addition, Dunkin’ Donuts has become “a very strong marketing company [positioning itself] as more than just doughnuts and coffee,” he said.

The successful launch of McDonald’s McCafe beverage concept showed that Starbucks hadn’t completely saturated the market with coffee houses, leaving room for additional players, he added.

Dunkin’ Brands is the parent of two older restaurant chains, Weichmann said, “but this isn’t an old big fat pig, but something with a good story about it.”

Stephen Anderson, senior restaurant analyst for Miller Tabak & Co., agreed that Dunkin’ Brands holds a good model for success.

“It’s a well-known name that generates the vast majority of its sales from beverages; it’s almost 100-percent franchised, so it has a very steady stream of high-margin income,” he said.

Dunkin’ Brands has proven to be “fairly recession resistant,” he said, noting that same-store sales were in the mid-to-high single digits before the recession, and only down a couple of percentage points during the recession.

Headquartered in Canton, Mass., Dunkin' Brands has 9,760 Dunkin' Donuts and 6,433 Baskin-Robbins locations. It had system-wide sales of approximately $7.7 billion at the end of 2010. Majority shareholders continue to be its private-equity owner group, including Bain Capital, The Carlyle Group and Thomas H. Lee Partners.

Watch a video from Reuters about Dunkin's debut

Contact Bret Thorn at [email protected].
Follow him on Twitter: @foodwriterdiary

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