Dunkin' Brands raises 2012 view as competition brews

Thu Oct 25, 2012 12:47pm EDT

Straws bearing the Dunkin' Donuts logo are seen at a Dunkin' Donuts store in Tewksbury, Massachusetts December 20, 2005. REUTERS/Jessica Rinaldi

Straws bearing the Dunkin' Donuts logo are seen at a Dunkin' Donuts store in Tewksbury, Massachusetts December 20, 2005.

Credit: Reuters/Jessica Rinaldi

(Reuters) - Dunkin' Brands Group Inc (DNKN.O) on Thursday raised its full-year profit forecast after share buybacks and steady sales at U.S. Dunkin' Donuts restaurants bolstered third-quarter results amid stiff competition in its core U.S. market.

Shares in the company, which gets almost 75 percent of revenue and more than 80 percent of profit from its domestic Dunkin' Donuts cafes, were up 1.6 percent in midday trading on the Nasdaq.

The U.S. economy appeared to weaken in early September, prompting major quick-service chains such as McDonald's Corp (MCD.N) and Starbucks Corp (SBUX.O) to step up promotions, said Nigel Travis, chief executive of Dunkin' Brands and president of the U.S. Dunkin' Donuts operation.

"If you all respond at the same time, it makes life very competitive," said Travis, who said he does not expect the recent uptick in economic activity to reduce that pressure.

McDonald's, the world's biggest fast-food chain, last week posted its smallest quarterly restaurant sales growth in nine years. Analysts say it will use its size and abundant resources to keep an edge over rivals.

Dunkin' Donuts' third-quarter sales at established restaurants were roughly in line with analysts' expectations. The chain is responding to the rise in competition without moving into the "discount category," Travis said.

"We're easing people in with a little bit more aggressive promotions. This is giving us a slightly sharper edge," Travis said. The coffee and doughnut chain's promotions include digital coupons and limited-time offers on items like pumpkin spice coffee K-Cups for Green Mountain Coffee Roasters Inc's (GMCR.O) popular Keurig brewers.

Dunkin' Donuts, McDonald's, Starbucks and other fast-food chains have been expanding their menus to attract customers who are spending cautiously in a weak economy. As a result, most chains are selling coffee drinks, blended beverages like smoothies and frappes, as well as a variety of sandwiches and other food.

DUNKIN' DONUTS GROWS IN U.S.

Canton, Massachusetts-based Dunkin' Brands, which also owns Baskin-Robbins ice cream, raised its 2012 profit forecast to $1.25 to $1.27 per share, from $1.22 to $1.25 previously. The new forecast is on track with analysts' current estimates.

It expects sales growth at established U.S. Dunkin' Donuts restaurants to be at the low end of its 4-5 percent target range for the full year.

When Dunkin' Brands went public in July 2011, it set a 20-year target for 15,000 U.S. Dunkin' Donuts stores. That target would give the chain more domestic outlets than Starbucks and more than double its presence in the United States.

On Thursday, the company increased its 2012 forecast for net new U.S. Dunkin' Donuts restaurants to a range of 280 to 300, from 260 to 280 previously.

Those new cafes are expected to drive growth for Dunkin' Brands, one of the most successful restaurant initial public offerings in recent history.

Third-quarter net income jumped to $29.5 million from $7.4 million a year earlier.

Dunkin' Brands earned 37 cents per share in the latest quarter, excluding items. That beat analysts' expectations by 2 cents a share, according to Thomson Reuters I/B/E/S, helped by share buybacks.

Revenue rose 5 percent to $171.7 million, falling short of Wall Street estimates of $174.9 million.

Same-restaurant sales at U.S. Dunkin' Donuts were up 2.8 percent during the quarter, just missing the 2.9 percent gain analysts polled by Consensus Metrix had expected.

Shares in Dunkin' Brands were up 48 cents at $31.29, well above their $19 IPO price last summer.

(Reporting By Lisa Baertlein in Los Angeles and Juhi Arora and Siddharth Cavale in Bangalore; Editing by Sreejiraj Eluvangal; Editing by David Gregorio)

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