Dunkin' CEO Nigel Travis, photo/NASDAQ

Wall Street received a cup of turbo-charged Dunkin' stock as investors chugged down shares of Dunkin' Brands Group initial public offering Wednesday.  After its $422.8 million initial offering, shares spiked as high as 56 percent on the franchising firm's first day of trading, closing at $27.85. And that was on a down day for the Street.

At the end of 2010, Dunkin' Brands' nearly a hundred percent franchised business model included 9,760 Dunkin' Donuts restaurants and 6,433 Baskin-Robbins restaurants, and the company had system-wide sales of approximately $7.7 billion. One of the reasons given by analysts for the Street liking Dunkin' was because franchised stores help absorb the business risks of retailing and running a donut business while the franchisor enjoys higher margins from franchise-related fees. The franchisor says it can double store count across the country and internationally in twenty years.

Reporter Josh Kosman of the NY Post explains the difference in stock price value between a pure franchisor like Dunkin' and a chain like Starbucks that has only licensed half of its stores. "When one compares Dunkin' to Starbucks on an EBITDA basis, they trade at similar multiples," Kosman observes. "However, Dunkin' trades at about 55 times earnings, as it spends relatively little on development or opening company stores, while Starbucks trades at 27 times earnings.

Letter from franchisor CEO to franchisees

Dunkin' CEO Nigel Travis sent an email to franchisees Wednesday afternoon. One of the brand's franchisees shared the email with Blue MauMau (below).

Dear franchisees,  

This morning we officially welcomed "DNKN" to NASDAQ, and what an experience that was. In case you missed the event this morning, click here to watch the Listing Day Event that took place at NASDAQ in New York City.

Dunkin' franchisees celebrate at NASDAQ listing, New York City, July 27, 2011.

Despite the hustle and bustle of the day, I wanted to take a moment to recognize you, your restaurant managers and crew for helping make Dunkin' Donuts and Baskin-Robbins two of the most successful, fastest-growing and beloved brands in our industry. The single biggest reason for Dunkin' Brands' success is our incredible community of franchise owners and operators here in the U.S., and abroad. You have fueled our company's growth, through your unwavering commitment to providing our guests with the best experience with every visit. I recorded a video address from New York that you can click here to watch.

It's hard to believe that more than 65 years ago in California, Burt Baskin and Irv Robbins opened their first ice cream shop. Shortly thereafter, in Massachusetts, William Rosenberg opened the very first Dunkin' Donuts. Today we are a global company with more than 16,000 locations, and listing "DNKN" on the NASDAQ in the heart of New York City. As CEO, I am truly honored to be able to celebrate this moment with you.

Going public is exciting, but our values and our mission remain the same: to provide delicious coffee, baked goods and ice cream, fast and friendly service, great value and some fun to the millions of guests who entrust us every day.

I look forward to continuing this great journey with all of you.

Sincerely,

Nigel Travis
CEO, Dunkin' Brands, Inc.
President, Dunkin' Donuts

NASDAQ changes logo for the day

NASDAQ gave the restaurant chain an espresso-shot of a sendoff that is usually reserved for the most famous of high-tech firms. "In celebration of their initial public offering, NASDAQ is unofficially changing its name to NASDDAQ, incorporating Dunkin Donuts' iconic pink and orange D's into our traditional logo," said Bruce Aust, Executive Vice President, NASDAQ OMX Corporate Client Group, before the trade started.

Payment of debt

The Wall Street Journal reports that the IPO proceeds will by applied to a sizable debt load that has eaten into profits despite an increase in revenue.

Like many private equity-backed IPOs, Dunkin' carries a hefty debt load, one made heavier by its owners decision in November to borrow more money to pay themselves a $500 million dividend (new investors in the company won't be getting any dividends), says Francis Gaskins, president of IPOdesktop.com. In the first quarter, 75% of its operating earnings were wiped away by interest payments.

In the three months that ended March 26, Dunkin' Brands' total revenue rose 9% to $139 million on an overall increase in systemwide sales, compared to the same period of 2009. Operating income increased 22.2% to $45 million, but the company booked a net loss of $1.7 million on a debt repricing transaction, as well as $6.2 million of additional net interest expense resulting from additional long-term debt obtained since the prior year.

In fiscal 2010, which ended Dec. 25, the company's total revenue rose 7% to $577 million compared to fiscal 2009, primarily on higher systemwide sales from Dunkin' Donuts. Operating income increased 5% to $194 million. Net income decreased 23% to $27 million for fiscal 2010 due to a $62 million pre-tax loss on debt extinguishment.

Dunkin' franchisees, the owner-operators who fund and run the stores, were each offered a hundred shares of the franchising company at its $19 offer price. The company sold 22.5 million shares yesterday in its initial public offering.

Related reading:

• An I.P.O. Built on the Basics: Sugar and Coffee, Dealbook, NY TImes
• Dunkin' Stock Still Robust, Boston Globe, Thurs, Jul 28, 2011