Dunkin' gets warm response from new investors

NEW YORK - July 27, 2011

Shares of Dunkin' Brands Group Inc. soared more than 50 percent by early afternoon on Wednesday, their first day of trading. Shares were trading at $28.66, up $9.66 from their original pricing of $19. Two weeks ago, Dunkin' had predicted that shares would price at just $16 to $18.

To be sure, it's impossible to predict how the shares will fare long-term, and most stocks get a one-time pop on their first trading day. Still, Dunkin' Brand's reception indicates that investors are willing to shell out for initial public offerings - and not just for the tech companies like LinkedIn and Groupon.

"There's more to the IPO market than just the Internet bubble," said John Fitzgibbon of IPOScoop.com.

Dunkin' Brands, which owns Dunkin' Donuts and the Baskin-Robbins ice cream chain, has said it will use the money to pay down debt. However, it's also intent on opening more locations internationally and in the U.S., and hopes it will have money left over to devote to that.

At $19 per share, Dunkin' Brands would raise about $423 million - and more if the underwriting banks decide to buy more shares in the next 30 days. When Dunkin' Brands first announced its intentions to go public, it predicted it would raise about $400 million.

Dunkin' has made changes under the private-equity firms that bought it six years ago, bringing in a technology head, adding egg-white sandwiches to try to appeal to the health-conscious and selling its beans in grocery stores. But the Massachusetts company, founded by a food-cart vendor who wanted to sell doughnuts to factory workers, has continued to emphasize its blue-collar roots.

Dunkin' Donuts is used as a badge of identity in the U.S., with Americans labeling themselves as humble Dunkin' Donuts drinkers or upper-class Starbucks patrons just as they identify as Mac or PC users or Mets or Yankees fans. Nasdaq changed the logo on its website Wednesday to reflect Dunkin' Donuts' bright, clashing color scheme of pink and orange, a departure from the mellow green of Starbucks.

Though restaurants in general are struggling as Americans cut back on eating out, analysts predict that breakfast and snacks - the main fare of Dunkin' Donuts - will continue to grow over the next decade.

Seventy-three percent of U.S. doughnut sales at restaurants happen at a Dunkin' Donuts, according to Technomic. Krispy Kreme and Tim Hortons are the only other restaurants to make even a blip on the radar, each with about 6 percent of the market.

Dunkin' is less dominant in coffee, although coffee makes up 60 percent of its U.S. revenue. According to IBISWorld, Starbucks controls about 33 percent of the coffee and snack sales in the U.S. Dunkin' is second, with about 16 percent.

According to Technomic, Dunkin' Donuts posted a bigger increase in U.S. revenue last year than even McDonald's Corp., which is often heralded as the gold standard for sales growth. It opened more net new locations in the U.S. than any restaurant except Subway. And it's the country's seventh-biggest restaurant chain by U.S. revenue, though Starbucks still beats it as No. 3.

In 2010, Dunkin' Brands' revenue grew 7 percent, partly because of new locations but also because of more customers buying more things per visit. But net income fell 23 percent as expenses rose, including fees paid to the investment firms that own it, costs for refinancing debt, spending on technology, and reserves set aside for potential legal costs.

A weak spot could be U.S. sales of Baskin-Robbins ice cream, which fell 5.5 percent last year. Also, Dunkin' Brands lost money in the first quarter of this year, as it paid more in interest payments, administrative expenses and the cost of ice cream.

Dunkin' Brand's reception on Wall Street is another indication that public offerings are gaining steam after the financial crisis scared off companies from trying to go public. So far this year, 87 IPOs have been priced, 23 percent more than at this time a year ago, according to Renaissance Capital.

So far, they have so far returned an average of 13 percent to investors, Renaissance Capital said. Among the best performers was the much-buzzed about LinkedIn, which is above $102 after opening at $45. Kips Bay Medical was among the worst, down to $2.78.

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