Coffee price war takes jolt out of Dunkin’ results

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The coffee price war that has broken out among US fast food chains has taken the jolt out of Dunkin’ Brands’ first quarter results.

The company behind the Dunkin’ Donuts coffee chain and Baskin-Robbins ice-cream stores saw shares fall in pre-market trading on Thursday after it reported sales that fell short of analysts’ estimates.

Sales at US Dunkin’ Donuts stores opened for more than a year – and which make up about 75 per cent of total group revenue – were flat for the first three months of the year. This compares to the 2 per cent growth recorded in the prior year period and missed expectations for a rise of 0.8 per cent.

The company attributed the slowdown to “a decline in traffic” and an “increasingly-challenging environment for retail and restaurants”.

In a bid to bolster traffic, Dunkin’ has been making a push into more premium coffee offerings such as cold brew and espresso-based beverages. However, competitors have responded by cutting prices, with McDonald’s selling any size coffee for $1 and specialty drinks like ice lattes for $2.

By contrast the price of a small coffee at Dunkin’ starts at around $1.59.

The competition has not only lowered traffic but it has also given Dunkin’ less room to raise prices. Dunkin’s Baskin-Robbins business also offered little support, with like-for-like sales down 2.4 per cent in the US.

Overall, group revenue for the quarter came in at just $190.7m, a 0.5 per cent increase from the year ago period and below the $192.4m the market was expecting.

Net income jumped by more than a quarter to $47.5m however, helped by a tax benefit that stems from new accounting rules on share-based compensation. Adjusted for this, profit was $50.7m, or 54 cents per diluted share, beating consensus forecast of $44.4m or 48 cents a share.

Despite the tough market conditions, Dunkin’ raised its full year earnings guidance. It now expects earnings per diluted share to be in the $2.22 to $2.30 range and adjusted earnings to be between $2.40 to $2.43. It had previously projected earnings of between $2.16 to $2.24 and adjusted profits in the range of $2.34 to $2.37.

Still, investors were not impressed. Shares in the company, up 7.5 per cent so far this year, fell 1.5 per cent in pre-market trading.

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