Dunkin' shares drop after coffee chain focuses attention on espresso

Key Points
  • Shares of Dunkin' Brands drop after the company reports flat U.S. same-store sales for its increasingly coffee-focused brand.
  • CEO Dave Hoffmann says the company focused all of its attention during the quarter on rolling out its new espresso drinks.
  • Dunkin' has been trying to compete with Starbucks by raising its profile as a coffee maker and improving the quality of its drinks.
An employee fills a coffee order at a Dunkin' Donuts location in Ramsey, New Jersey.
Ron Antonelli | Bloomberg | Getty Images

Shares of Dunkin' Brands dropped more than 6 percent Thursday after the company reported flat same-store sales growth for the fourth quarter, saying it was focused on rolling out espresso drinks as part of a long-term strategy to attract more coffee drinkers.

Dunkin' relaunched its espresso, which is used in drinks such as cappuccinos and lattes, in more than 9,000 of its stores in November. The company told reporters at its media day that research shows that more than 50 percent of millennials opt for espresso when they order coffee drinks.

"The launch of new hand-crafted espresso beverages at Dunkin' was critical enough to the success of the blueprint to warrant nearly all of our attention in Q4," CEO Dave Hoffmann told analysts on the quarterly conference call.

Hoffmann later said the launch "may have impacted short-term sales" but it was the right choice over the long term. Analysts surveyed by Refinitiv expected the company to announce same-store sales growth of 1.6 percent, but instead Dunkin' announced that sales at U.S. stores open at least a year were flat for the quarter that ended Dec. 29.

The fast-food chain spent 2018 revitalizing its image to compete with coffee giant Starbucks. It announced that it was dropping "Donuts" from its name in the new year to reflect its growing emphasis on coffee. The company also began simplifying its menu and promoting its beverages with an afternoon happy hour deal.

Kalinowski Equity Research analyst Mark Kalinowski downgraded the stock Thursday, saying that the company's "thesis decaffeinates."

Dunkin' is also trying to become a bigger player through digital. Hoffmann said on CNBC's "Power Lunch" that only 12 percent of its sales come from digital channels, with mobile orders only making up 3 percent. Compare that to Starbucks, which saw 13 percent of its sales come from its app.

Dunkin' Brands, which owns Dunkin' and ice cream chain Baskin-Robbins, earned 64 cents per share on an adjusted basis during its fourth quarter. It beat Wall Street estimates of 61 cents per share, thanks to the impact of tax reform in 2017.

The parent company missed on revenue, reporting sales of $319.6 million. Analysts were expecting quarterly revenue of $329.6 million.