Threat Of Dunkin' Brands Having To Cut Store Growth Strategy 'Looming'

Longbow Research said Dunkin Brands Group Inc (NASDAQ: DNKN) will be forced to slow store growth soon, potentially as early as 2017, while reiterating its Underperform rating and $34 price target on the stock.

"Lack of coffee mix at Dunkin' Donuts restaurants outside of the concept's core markets remains a key issue, while the pace of new store openings to date in the important California market was disappointing to date," analyst Alton Stump wrote in a note.

As such, the analyst said the threat of Dunkin Brands cutting its store growth strategy within its flagship U.S. Dunkin' Donuts segment is looming due to the inherent difficulty in shifting new store builds in its core markets to offset missed targets in new markets year after year.

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"Comps for this business are in the midst of a multi-year trend of decelerating and we are skeptical the company's plans to launch new products more aggressively will prove effective in combating same store sales pressure," Stump continued.

However, Stump reaffirmed its EPS estimates on the company at $0.58 for the third quarter (in line with consensus), $2.19 for 2016 ($0.02 below consensus) and $2.34 for 2017 (below consensus of $2.43).

For the U.S. the analyst models DD comp growth of 1.0 percent for the third quarter (consensus at 1.2 percent), 1.4 percent for 2016 (in line with consensus) and down 0.1 percent for 2017 (consensus at up 1.7 percent).

At time of writing, shares of Dunkin Brands were down 0.28 percent to $47.05.