Canton / MA. (db) Dunkin´ Brands Group Inc., the parent company of Dunkin´ Donuts and Baskin-Robbins, reported results for the third quarter ended September 29, 2012. «The third quarter marked our fifth quarter as a public company and our fifth consecutive quarter with double-digit adjusted earnings per share growth. We continue to leverage our asset-light, nearly 100-percent franchised model to drive strong shareholder returns», said Nigel Travis, Chief Executive Officer, Dunkin´ Brands Group, Inc. and President, Dunkin´ Donuts U.S. «With the exceptional growth of the Dunkin´ Donuts brand over the past two years and our intense focus on franchisee profitability, our franchisees are seeing very strong unit economics and in turn are driving our robust restaurant expansion across the U.S. Together, we are delivering on our core strategies as well as utilizing new operational and marketing tactics to compete and grow in today´s challenging environment».
Global system-wide sales growth in the third quarter was primarily attributable to Dunkin´ Donuts U.S. comparable store sales growth (which includes stores open 54 weeks or more), global store development and growth in Baskin-Robbins International sales.
Dunkin´ Donuts U.S. comparable store sales growth in the third quarter was driven by increased average ticket and higher traffic despite a challenging consumer and competitive environment. The growth resulted from our continued focus on product and marketing innovation with strong beverage sales growth led by cold beverages; strong breakfast sandwich sales across both core offerings and differentiated breakfast sandwiches; continued growth in Bakery Sandwiches; and sales of Dunkin´ Donuts K-Cup® portion packs.
Baskin-Robbins U.S. comparable store sales growth was driven by new Flavors of the Month; new signature cake merchandising; and new beverage messaging around Flavors of the Month being available as milk shakes.
In the third quarter, Dunkin´ Brands franchisees and licensees opened 187 net new restaurants across the globe. This includes 78 net new Dunkin´ Donuts U.S. locations, 74 net new Baskin-Robbins International locations, 36 net new Dunkin´ Donuts International locations and one net closure for Baskin-Robbins U.S. Additionally, Dunkin´ Donuts U.S. franchisees remodelled 144 restaurants during the quarter.
Revenues grew by 5,0 percent compared to the third quarter of 2011, primarily from increased royalty income driven by the increase in system-wide sales and additional company-owned restaurants.
Operating income increased 16,2 million USD or 30,0 percent, from the third quarter of 2011 primarily as a result of 14,7 million USD of one-time expenses incurred in connection with the Company´s IPO last year, as well as the increase in royalty income. Adjusted operating income increased 9,5 million USD or 12,5 percent, from the third quarter of 2011 primarily as a result of the increase in revenues and continued general and administrative expense leverage.
Net income increased by 22,1 million USD or 298,4 percent, compared to the third quarter of 2011 as a result of the 16,2 million USD increase in operating income and a 14,1 million USD decline in debt refinancing charges, offset by a corresponding increase in tax expense. Adjusted net income increased by 10,8 million USD or 34,4 percent, compared to the third quarter of 2011 as a result of the increase in adjusted operating income and a 5,1 million USD decrease in interest expense, offset by an increase in tax expense.
Company Updates
As previously announced, the Company repurchased 15 million shares of common stock from its former private equity owners during the quarter. It used 400 million USD from its recently upsized term loan facility and 50 million USD in cash on hand to fund the repurchase. The purchase was made concurrently with the closing of a registered offering of shares by those former stockholders that, together with the repurchase, eliminated their ownership in the Company.
The Company executed a 5-year interest rate swap at 4,37 percent for 900 million USD of its 1,8 billion USD in outstanding long-term debt (inclusive of the additional 400 million USD upsize).
The Company today announced that the Board of Directors declared a fourth quarter cash dividend of 0,15 USD per share, payable on November 14, 2012 to shareholders of record as of the close of business on November 05, 2012.
Fiscal Year 2012 Targets
As described below, the Company is updating certain targets and reaffirming others that it has previously provided regarding its 2012 performance.
- The Company expects Dunkin´ Donuts U.S. comparable store sales growth to be at the low-end of its four to five percent target range and Baskin-Robbins U.S. comparable store sales growth to be in the middle of its two to four percent range.
- The Company now expects that Dunkin´ Donuts U.S. will add between 280 and 300 net new restaurants (previously the range was 260 to 280 net openings) and it continues to expect Baskin-Robbins U.S. will close between 40 and 60 restaurants net. Internationally, the Company continues to target opening 400 to 450 net new units across the two brands. The Company expects to open 620 to 710 net new units globally.
- The Company now expects revenue growth of between six and seven percent (previously the range was seven to eight percent). This is a result of a change in ice cream shipping terms related to the manufacturing shift to Dean Foods that was announced in July 2012 and as a result of expecting to be at the low end of the targeted range for Dunkin´ Donuts U.S. comparable store sales growth. The change in shipping terms will result in a one-time delay in revenue recognition that will impact Q4 sales of ice cream products. It continues to expect adjusted operating income growth of between twelve and 14 percent. The targets for revenue and adjusted operating income growth are based on a 52-week year in 2011.
- The Company is increasing its range for adjusted earnings per share to 1,25 USD to 1,27 USD which represents 33 to 35 percent growth over its 0,94 USD adjusted earnings per share in 2011 and is an increase from the previous target of to 1,22 USD to 1,25 USD.
«We are pleased to continue to deliver such strong shareholder value», said Paul Carbone, Dunkin´ Brands Chief Financial Officer. «Importantly, by locking in an attractive interest rate for a portion of our outstanding debt, we have added stability to our already resilient and strong cash flow-generating business model».
