Dunkin' Donuts plans $400 million IPO

The iconic pastry and coffee company seeks funds to grow both at home and overseas.

By InvestorPlace May 4, 2011 11:23AM

By Jeff Reeves, editor of InvestorPlace.com

Though named after its tasty pastries, Dunkin' Donuts is one of the most powerful beverage brands in America. Its coffee customers routinely rank the company at the top of the list for brand loyalty, and awards are a big driver behind the chain's $6 billion in annual revenue.

Dunkin' Donuts hopes investors share that kind of enthusiasm for the brand, with the Massachusetts company looking to offer stock in its operations sometime soon. Wednesday, it announced it has filed for an IPO that could raise up to $400 million and will create a stock that trades under the Nasdaq ticker DNKN.

After the market's recovery over the past year or so, some observers think the timing is right to sell stock in Dunkin' Donuts. But should individual investors buy it, and will it change anything for consumers?


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There are many signs that the recent rally on Wall Street is sustainable and that now is the time to buy stock. The unemployment rate is slowly falling, earnings are improving for many major corporations, and consumers seem to be feeling better about spending.

As a result, initial public offering of stock have really picked up. After a measly 31 offerings in 2008 at the height of the financial crisis, IPOs totaled 153 in 2010. Many of those, like that of the reborn General Motors (GM), came at the end of the year, too, and momentum is building in 2011 with a host of recent offerings hitting the market.

But there are no guarantees the favorable environment will last. The housing market remains battered, and debates over federal spending and U.S. debt loom large. As we've learned over the past few years, fortunes can change in a hurry on Wall Street. If things go south for the broader stock market, Dunkin' Donuts may have trouble attracting investors.

What's more, zeroing in on the specifics of Dunkin' Donuts itself reveals signs of concern. In its filing, the company said it suffered a quarterly loss of $1.7 million in the first quarter of 2011 -- a big difference from $5.9 million in profits the year before.

Of course, one bad quarter doesn't mean the brand is busted. Dunkin' Donuts certainly has room to grow, and that's what investors look at most of all. There are 6,700 Dunkin' Donuts locations throughout the United States, compared with 15,000 Starbucks (SBUX) coffee shops that rake in $10 billion in annual revenue. If Dunkin' manages to flex its muscle on a bigger scale, it could easily tap into a bigger piece of the specialty beverage market.

That's to say nothing of Dunkin' Donuts' packaged product line that launched in 2008, rolling out bagged coffee grounds to roughly 40,000 supermarkets and stores last year. This relatively new effort has a lot of room to grow.

Theoretically, the IPO would raise funds to power that expansion and growth. In its filing with regulators, Dunkin' pointed to a "significant opportunity" to expand in foreign markets and outside the Northeast U.S., where it is concentrated.

But whatever the vices and virtues of a Dunkin' Donuts IPO, the reality is that, as with Facebook and Twitter and other much-anticipated stock offerings, there is a lot of daylight between now and any debut of DNKN shares. Dunkin' Donuts simply filed the paperwork for a stock offering but was light on the details. As of right now, there's no telling how many shares will be part of the IPO.

In short, there are many unanswered questions about Dunkin' Donuts stock, not the least of which is when DNKN shares will actually start trading. Loyal consumers have no cause for alarm about shareholders demanding an overhaul of the menu or ratcheting up prices. At least not yet.

For now, folks who want to buy into Dunkin' Donuts will have to content themselves with a box of Munchkin donut holes and a cup of trademark Dunkin' joe.

Jeff Reeves is editor of InvestorPlace.com. As of this writing, he did not own a position in any of the stocks or funds named here. Follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook.

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