By Tonya Garcia, MarketWatch
Dunkin’ Brands Group Inc.’s quarterly results suffered as customers brewed their own morning coffee at home while locked down due to the COVID-19 pandemic.
The coffee-and-donut seller joins a number of other restaurant chains that have seen a shift or decline in their business as customers stay home and prepare their own meals.
Dunkin’ reported earnings and revenue that exceeded expectations, but same-store sales in the U.S. took a beating. The company saw a 35% decline at the end of March and heading into April. For the week ending April 25, the same-store sales drop was about 25%.
“With customers’ daily morning routines disrupted, we are seeing a shift in sales across dayparts,” said David Hoffman, Dunkin’s chief executive, during the earnings call according to a FactSet transcript. “Sales volumes in the early morning are down but have picked up from 10:00 AM to 2:00 PM as people venture out for a break.”
Dunkin’ Brands was downgraded to neutral from outperform in a Wedbush note published last Friday due to its “sensitivity” to a prolonged economic downturn, saying breakfast is “the most impaired daypart.” Wedbush’s price target was reduced to $60 from $88.
Dunkin’s Hoffman said nearly 2,000 locations have closed the front lobby to focus entirely on drive-thru service. About 2% of transactions are through curbside ordering from the app, available in about 1,000 stores.
Dunkin’ is a fully franchised business with 13,000 Dunkin’ restaurants at the end of the first fiscal quarter. About 90% of U.S. locations are open for off-premise purchases while the remaining 1,000, located in transportation hubs, college campuses and in dense urban areas like New York City and Philadelphia, are closed.
Dunkin’ Brands also has 8,000 Baskin-Robbins locations.
“Aside from risk of the breakfast category being permanently impaired by such potential post-COVID trends as a higher incidence of work-from home among customers, pre-COVID growth drivers such as the pace of remodels and the growth in higher-priced espresso beverages may also be at risk,” Wedbush wrote.
“Once schools go back into session, which they start later this week and into next week, we foresee that the mornings will continue to recover as people go back into offices and get more back into routinized behaviors, which I think will help as well,” said John Culver, international group president of channel development and group coffee and tea at Starbucks, on the earnings call, according to a FactSet transcript.
And McDonald’s Corp. /zigman2/quotes/203508018/composite MCD +1.80% , which reported on Thursday, also commented on the breakfast decline, saying that it’s having an impact on other business metrics.
“[O]ver the last several weeks, the US has experienced a significant increase in average check across all channels,” said Chief Financial Officer Kevin Ozan, according to a FactSet transcript of the earnings call. “This is due to an increase in party size as well as evolving consumer behavior, with daily routines interrupted and fewer transactions at the breakfast daypart.”
It’s not just those chains that specialize in breakfast that have seen changes in the daily business. Jack Hartung, chief financial officer at Chipotle Mexican Grill Inc. /zigman2/quotes/200781108/composite CMG +1.81% , said the company saw a shift of about 10% from lunch to dinner as customers work from home rather than go to their offices.
“They’re still eating at Chipotle, but at a different time,” he told MarketWatch after the fast-casual Mexican chain reported first-quarter earnings last week. “Some of that shift went to dinner, some at various times throughout the day.”
Late night orders to Domino’s Pizza Inc. /zigman2/quotes/201587798/composite DPZ -2.48% have been under pressure with a rise in lunch and dinner.
“And we are seeing larger order sizes throughout the week,” said Domino’s Chief Financial Officer Jeff Lawrence on the earnings call last Thursday, according to a FactSet transcript. “Again, these are initial observations regarding consumer behavior and we may experience volatility in our sales going forward as a result of this dynamic environment.”
Dunkin’ looks forward to a return to some normalcy.
“As we continue to serve our guests during this crisis, we are also focused on ways to quickly bring back morning rituals in the post-pandemic world,” Hoffman said. “We believe our high-frequency, low-touch, affordable-ticket business model will serve us very well in the new reality.”
Dunkin stock closed Thursday down nearly 3%, and has tumbled 14.6% over the last year. The S&P 500 index /zigman2/quotes/210599714/realtime SPX +1.01% has fallen 0.4% for the past 12 months.