Post-IPO, Dunkin' Donuts Has Money to Expand. Let's Hope It Doesn't
America's run to Dunkin' Brands (DNKN) IPO has the company set to expand. But is it really time to make more donuts? Krispy Kreme (KKD) tried that, and almost wound up sugar-glazed roadkill.
Dunkin' has proven to be just as popular with the public as its donuts are said to be with police. The IPO launched at $19 on Wednesday -- raising $427.5 million -- and closed Thursday around $29.
The success reflects solid financials -- it sells more hot regular coffee and iced coffee than any other fast-food chain in the U.S., including Starbucks (SBUX), according to NPD. (It may also reflect investors' relief over not having to figure out some weird internet business model.) The company, home to both the Dunkin' Donuts and Baskin-Robbins chains, plans to use the funds to pay down debt and move beyond its Northeastern creme-filled roots.
The company has plenty of room to expand even though it has 6,800 stores across the U.S. While Dunkin' seems to have one store every five feet in the Northeast (actually one for every 9,700 people), it is less well-established beyond that. In the rest of the area east of the Mississippi it only has one store for every 48,400 people.
The big goal for the chain is not to become another Krispy Kreme. The North Carolina-based chain of coffee and donuts had its IPO in 2000 and the public loved it as well. The stock was offered at $21 and went to $32 on the first day of trading. It then expanded far and wide and much too quickly. In 2005 it was forced to restate earnings for the previous five years and fire its CEO. The stock now trades around $8.
As odd as it may sound, Dunkin is fortunate to be carrying so much debt. Post-IPO it still has $1.5 billion in debt and that may put some brake on expansion. Although because all of its stores are franchise-owned it won't curtail it too much.
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