Credit Suisse’s Dunkin Upgrade is Irresponsible
In this expected major downturn in the market, everyone is out there searching for bargains. Credit Suisse has announced that they found one of theirs and it shows why this bank has been so doomed for the future. The Swiss bank gave Dunkin’ Brands a prestigious two-notch upgrade from underperform to outperform.
Credit Suisse’s upgrade stems from their positive outlook surrounding Dunkin’s 100% franchise business model. It sounds great given Dunkin’s expected sales drop, but when you look at Dunkin’s balance sheet, it’s not as rosy as Credit Suisse paints it out to be. According to the company’s 2019 Annual Report, Dunkin’ has over $3 billion in long-term debt. This is not great news for any company, but especially Dunkin’. This total of $3.011 billion in debt is especially concerning because of the company’s total assets are $3,920 billion in comparison to their total liabilities of $4.5 billion. Basically, it doesn’t take a genius to understand that over the years Dunkin’ has grossly overexpanded. They use the franchise model because it takes away the emphasis on same-store sales, a metric used by many in the retail world. The more stores they open up, the more franchise fees, since these fees are a fixed expense that each store must pay. However, for those that aren’t able to make these payments, it’s Dunkin’ that is essentially paying these fees themselves to keep it going.
Based on this disastrous model by Dunkin’ one could be extremely frightened by how they’ll be to even stay in business once sales tank and the company isn’t able to keep its own stores open. They’ve bailed themselves out for way too long and any sort of economic collapse would give reason to believe that they’ll be able to keep up to their company’s own demand. Dunkin’ seems like a growing business, but in fact there’s just too many for their own good and the company’s growth around the world has not gone as expected as they’d hope. Beyond the Northeast portion of the United States, America isn’t exactly running on Dunkin’.
It’s a shame this is happening to a company that really produces an excellent coffee and is a brand that has a humongous as well as loyal following. For those following Credit Suisse’s word, they’re in trouble.