Dunkin’ Brands (NASDAQ:DNKN) will announce its first quarter earnings on April 25. The stock has climbed more than 10% in the last three months, buoyed by strong full year earnings and a general optimism about the overall economy. In addition to Dunkin’ Donuts, the company also operates the Baskin-Robbins brand.
Dunkin’ Donuts’ American operations contribute around 75% to the stock price as per our estimates. The company is expanding in the U.S. and added 291 restaurants in 2012. This year, it will accelerate the openings to about 330-360. The Western part of the country and states such as Texas and Mississippi represent huge untapped markets with an expansion potential. In total, Dunkin’ plans to double the number of its outlets to 15,000 in the next 20 years. 
We expect the same-store sales growth to average about 3.5% in the long run helped by a combination of pricing and an expanded menu. Some of the new items that the company plans to add to its menu in 2013 are Turkey Sausage Breakfast Sandwich, Angus Steak and Egg Breakfast Sandwich, among several others. There is an opportunity for the restaurant chain to attract more footfalls during the afternoons. Since Dunkin’ Donuts is typically associated with breakfast meal, adding new sandwich and bakery products should boost their post-noon sales.
There shouldn’t be too much volatility in the chain’s margins since almost all of Dunkin’ Donuts outlets are franchised. For franchised restaurants, the company doesn’t have to bear the cost of raw materials, labor, occupancy etc.
Baskin-Robbins: International Markets In Focus
Baskin-Robbins’ international locations contribute about 15% to the stock price, as per our estimates. As of December 31, 2012, there were 4,517 stores of Baskin-Robbins outside the United States. The ice cream chain, which has struggled domestically in the last few years, is performing well internationally. The company opened 299 new stores in the 2012, and posted same-store sales growth of 2.8%. 
We estimate that there is scope to easily add 250-300 new stores annually over the next few years, due to its low penetration levels. The company is targeting expansion in countries like China, the Middle East, the U.K. and Vietnam.
We have a $38 price estimate for Dunkin Brands, which is in line with the current market price.
Disclosure: No positions