13 October 2024
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Global Industry

Dunkin’ Brands: Reports Q4 and FY 2015 Results

Canton / MA. (db) Dunkin’ Brands Group Inc., the parent company of Dunkin’ Donuts (DD) and Baskin-Robbins (BR), reported results for the fourth quarter and fiscal year ended December 26, 2015.

Fiscal year 2015 highlights include

  • Dunkin’ Donuts U.S. comparable store sales growth of 1.4 percent
  • Baskin-Robbins U.S. comparable store sales growth of 6.1 percent
  • Added 495 net new restaurants worldwide, including 349 net new Dunkin’ Donuts in the U.S. which reflects the closing of 81 Speedway self-serve coffee stations
  • Revenues increased 8.3 percent
  • Diluted EPS decreased 34.5 percent to 1.08 USD which reflects a 54.3 million USD, or 0.56 USD per share, impairment of the Company’s investment in its joint venture in Japan
  • Diluted adjusted EPS increased 10.9 percent to 1.93 USD
  • More than 150 million Dunkin’ «K-Cup» pods sold into grocery channel since launch in May 2015

Fourth quarter highlights include

  • Dunkin’ Donuts U.S. comparable store sales decline of 0.8 percent
  • Baskin-Robbins U.S. comparable store sales growth of 4.4 percent
  • Added 172 net new restaurants worldwide, including 123 net new Dunkin’ Donuts in the U.S. which reflects the closing of 41 Speedway self-serve coffee stations
  • Revenues increased 5.5 percent
  • Diluted EPS decreased 0.60 USD to a loss of 0.10 USD which reflects a 54.3 million USD, or 0.58 USD per share, impairment of the Company’s investment in its joint venture in Japan
  • Diluted adjusted EPS increased 13.0 percent to 0.52 USD

«For the year, we met or exceeded our financial performance targets including delivering nearly 10 percent adjusted operating income growth and 11 percent adjusted earnings per share growth. In addition to these achievements, we grew the Dunkin’ Donuts U.S. restaurant footprint at greater than five percent, launched Dunkin’ «K-Cup» pods into thousands of retail and online outlets nationwide, continued the remarkable turnaround of Baskin-Robbins U.S., and completed a successful debt refinancing at an attractive fixed interest rate», said Dunkin’ Brands Chairman and Chief Executive Officer Nigel Travis. «The Dunkin’ Donuts U.S. comparable store sales growth performance was disappointing. To help drive positive Dunkin’ Donuts transactions in 2016 and the years beyond, we have begun executing against a strategic plan designed to enable us to deliver an even better guest experience through stronger product innovation, leading technologies to enhance convenience such as on-the-go mobile ordering, and targeted, compelling value offers».

«We’re proud to have returned more than 725 million USD to shareholders in 2015 and nearly 1.6 billion USD since going public in 2011. As a further demonstration of our confidence in the business and our commitment to delivering shareholder value, we announced this morning that our Board of Directors increased our quarterly dividend by 13 percent over the prior quarter and increased the authorization available under our existing share buyback program», said Paul Carbone, Chief Financial Officer, Dunkin’ Brands Group, Inc.

Fiscal Year 2015 Key Financial Highlights

(USD in millions, except per share data) Fiscal year ended Increase (Decrease)
Amounts and%ages may not recalculate due to rounding December 26, 2015 December 27, 2014 USD / # %
Franchisee-reported sales1 USD 10’141.2 9’751.3 390.0 4.0 %
Systemwide sales growth 4.1 % 5.1 %
Comparable store sales growth (decline):
DD U.S.2 1.4 % 1.7 %
BR U.S.2 6.1 % 4.9 %
DD International 0.5 % (2.0) %
BR International (1.9) % (1.2) %
Development data:
Consolidated global net POD development3 495 704 (209) (29.7) %
DD global PODs at period end 11’750 11’310 440 3.9 %
BR global PODs at period end 7’607 7’552 55 0.7 %
Consolidated global PODs at period end 19’357 18’862 495 2.6 %
Financial data:
Revenues USD 810.9 748.7 62.2 8.3 %
Operating income 319.6 338.9 (19.3) (5.7) %
Operating income margin 39.4 % 45.3 %
Adjusted operating income4 USD 400.5 366.0 34.5 9.4 %
Adjusted operating income margin4 49.4 % 48.9 %
Net income USD 105.2 176.4 (71.1) (40.3) %
Adjusted net income4 187.9 186.1 1.8 1.0 %
Earnings per share:
Common-basic 1.10 1.67 (0.57) (34.1) %
Common-diluted 1.08 1.65 (0.57) (34.5) %
Diluted adjusted earnings per share4 1.93 1.74 0.19 10.9 %
Weighted average number of common shares – diluted (in millions) 97.1 106.7 (9.6) (9.0) %
1 Franchisee-reported sales include sales at franchisee-operated restaurants, including joint ventures. While we do not record sales by franchisees or licensees as revenue and such sales are not included in our consolidated financial statements, we believe that this operating measure is important in obtaining an understanding of our financial performance. We believe franchisee-reported sales information aids in understanding how we derive royalty revenue and in evaluating our performance relative to competitors.
2 Comparable store sales growth for DD U.S. and BR U.S. for the fiscal year ended December 27, 2014 have been revised to include only those restaurants that have been open at least 78 weeks (approximately 18 months) to conform to the current period calculation, whereas previously reported figures included only those restaurants that were open at least 54 weeks (approximately 12 months).
3 Consolidated global net POD development for the fiscal year ended December 26, 2015 reflects the previously-announced closing of 81 self-serve coffee stations within Speedway locations.
4 Adjusted operating income, adjusted operating income margin, and adjusted net income are non-GAAP measures reflecting operating income and net income adjusted for amortization of intangible assets, long-lived asset impairments, impairment of joint ventures, and other non-recurring, infrequent, or unusual charges, net of the tax impact of such adjustments in the case of adjusted net income. Diluted adjusted earnings per share is a non-GAAP measure calculated using adjusted net income.

 

Fourth Quarter 2015 Key Financial Highlights

(USD in millions, except per share data) Three months ended Increase (Decrease)
Amounts and%ages may not recalculate due to rounding December 26, 2015 December 27, 2014 USD / # %
Franchisee-reported sales1 USD 2’518.9 2’463.1 55.8 2.3 %
Systemwide sales growth 2.3 % 4.5 %
Comparable store sales growth (decline):
DD U.S.2 (0.8) % 1.5 %
BR U.S.2 4.4 % 9.4 %
DD International (0.8) % 0.3 %
BR International (2.7) % (2.2) %
Development data:
Consolidated global net POD development3 172 260 (88) (33.8) %
DD global PODs at period end 11’750 11’310 440 3.9 %
BR global PODs at period end 7’607 7’552 55 0.7 %
Consolidated global PODs at period end 19’357 18’862 495 2.6 %
Financial data:
Revenues USD 203.8 193.2 10.6 5.5 %
Operating income 43.5 89.7 (46.2) (51.5) %
Operating income margin 21.3 % 46.4 %
Adjusted operating income4 USD 103.9 96.7 7.2 7.5 %
Adjusted operating income margin4 51.0 % 50.1 %
Net income (loss) USD (8.9) 52.5 (61.5) n/m
Adjusted net income4 48.9 48.2 0.7 1.5 %
Earnings (loss) per share:
Common-basic (0.10) 0.50 (0.60) n/m
Common-diluted (0.10) 0.50 (0.60) n/m
Diluted adjusted earnings per share4 0.52 0.46 0.06 13.0 %
Weighted average number of common shares – diluted adjusted (in millions)5 94.1 105.7 (11.6) (10.9) %
1 Franchisee-reported sales include sales at franchisee-operated restaurants, including joint ventures. While we do not record sales by franchisees or licensees as revenue and such sales are not included in our consolidated financial statements, we believe that this operating measure is important in obtaining an understanding of our financial performance. We believe franchisee-reported sales information aids in understanding how we derive royalty revenue and in evaluating our performance relative to competitors.
2 Comparable store sales growth for DD U.S. and BR U.S. for the three months ended December 27, 2014 have been revised to include only those restaurants that have been open at least 78 weeks (approximately 18 months) to conform to the current period calculation, whereas previously reported figures included only those restaurants that were open at least 54 weeks (approximately 12 months).
3 Consolidated global net POD development for the three months ended December 26, 2015 reflects the previously-announced closing of 41 self-serve coffee stations within Speedway locations.
4 Adjusted operating income, adjusted operating income margin, and adjusted net income are non-GAAP measures reflecting operating income and net income adjusted for amortization of intangible assets, long-lived asset impairments, impairment of joint ventures, and other non-recurring, infrequent, or unusual charges, net of the tax impact of such adjustments in the case of adjusted net income. Diluted adjusted earnings per share is a non-GAAP measure calculated using adjusted net income.
5 Diluted weighted average number of common shares for the three months ended December 26, 2015, for the purpose of calculating diluted adjusted earnings per share, includes 920’503 incremental dilutive shares that are excluded from earnings per share as calculated in accordance with GAAP as they would be anti-dilutive.

 
Global systemwide sales growth in the fourth quarter was primarily attributable to global store development.

The decline in Dunkin’ Donuts U.S. comparable store sales in the fourth quarter was driven by a decline in traffic offset by an increase in ticket. Ticket increased approximately 20 basis points while traffic declined by approximately 100 basis points. The in-restaurant K-Cup and packaged coffee categories continued to have a negative impact on comparable store sales. In the fourth quarter the impact was approximately 120 basis points.

Baskin-Robbins U.S. comparable store sales growth was driven by increased sales of cups and cones, beverages, desserts, and sundaes and increased sales of cakes, stimulated by strong year-over-year growth of online cake ordering. Comparable store sales growth was driven primarily by traffic.

In the fourth quarter, Dunkin’ Brands franchisees and licensees opened 172 net new restaurants around the globe. This included 123 net new Dunkin’ Donuts U.S. locations, 59 net new Dunkin’ Donuts International locations, and 15 net new Baskin-Robbins U.S. locations, and 25 net closures for Baskin-Robbins International. The Dunkin’ Donuts U.S. net store growth number reflects the previously-announced closing of 41 self-serve coffee stations within Speedway locations.  Additionally, Dunkin’ Donuts U.S. franchisees remodeled 157 restaurants and Baskin-Robbins U.S. franchisees remodeled 41 restaurants during the quarter.

Revenues for the fourth quarter increased 5.5 percent compared to the prior year period due primarily to an increase in royalty income as a result of systemwide sales growth, licensing fees earned from the sale of Dunkin’ «K-Cup» pods, and increases in franchise fees due to favorable development mix, transfer fee income, and sales at company-operated restaurants due to a net increase in the number of company-operated restaurants. These increases were offset by a decrease in sales of ice cream and other products.

Operating income for the fourth quarter decreased 46.2 million USD, or 51.5 percent, from the prior year period primarily as a result of an impairment of the Company’s investment in its Japan joint venture of 54.3 million USD, an increase in general and administrative expenses, and an increase in net losses incurred from company-operated restaurants. These items were offset by the increase in royalty income, licensing fees earned from the sale of Dunkin’ «K-Cup» pods, and increases in franchise fees and transfer fee income. The Japan joint venture impairment recorded in the fourth quarter of 2015 resulted from an other-than-temporary decline in the value of the Company’s investment, as a result of various factors including the continued declines in the operating performance of the joint venture and reduced future expectations of the Baskin-Robbins business in Japan.

Adjusted operating income for the fourth quarter increased 7.2 million USD, or 7.5 percent, from the prior year period primarily as a result of the increase in royalty income, licensing fees earned from the sale of Dunkin’ «K-Cup» pods, and increases in franchise fees and transfer fee income. The increases in revenues were offset by an increase in general and administrative expenses and an increase in net losses incurred from company-operated restaurants.

Net income for the fourth quarter decreased by 61.5 million USD to a net loss of 8.9 million USD compared to the prior year period primarily as a result of the 46.2 million USD decrease in operating income, an increase in tax expense of 7.8 million USD as the prior year period was favorably impacted by tax benefits resulting from a restructuring of our Canadian subsidiaries, as well as additional interest expense of 8.1 million USD driven by additional borrowings incurred in conjunction with the securitization refinancing transaction completed in January 2015.

Adjusted net income for the fourth quarter increased by 0.7 million USD, or 1.5 percent, compared to the fourth quarter of 2014, primarily as a result of the 7.2 million USD increase in adjusted operating income, a decrease in tax expense, and the impact of unfavorable foreign exchange in the prior year period, offset by the increase in interest expense.

Diluted earnings per share decreased by 0.60 USD to a loss of 0.10 USD for the fourth quarter of 2015 compared to the prior year period as a result of the decrease in net income, offset by a decrease in shares outstanding. Diluted adjusted earnings per share increased by 13.0 percent to 0.52 USD for the fourth quarter of 2015 compared to the prior year period as a result of the increase in adjusted net income and the decrease in shares outstanding. The decrease in shares outstanding from the prior year period is due primarily to the repurchase of shares, offset by the exercise of stock options.

Fourth Quarter 2015 Segment Results

Amounts and%ages may not recalculate due to rounding Three months ended Increase (Decrease)
Dunkin’ Donuts U.S. December 26, 2015 December 27, 2014 USD / # %
(USD in thousands except as otherwise noted)
Comparable store sales growth (decline)1 (0.8) % 1.5 %
Systemwide sales growth 3.6 % 6.6 %
Franchisee-reported sales (in millions)2 USD 1’952.4 1’885.5 66.9 3.5 %
Revenues:
Royalty income USD 106’478 102’181 4’297 4.2 %
Franchise fees 12’912 10’254 2’658 25.9 %
Rental income 23’243 23’036 207 0.9 %
Sales at company-operated restaurants 6’762 5’887 875 14.9 %
Other revenues 3’662 2’719 943 34.7 %
Total revenues USD 153’057 144’077 8’980 6.2 %
Segment profit USD 115’603 106’536 9’067 8.5 %
Points of distribution 8’431 8’082 349 4.3 %
Gross openings 185 179 6 3.4 %
Net openings3 123 141 (18) (12.8) %
1 Comparable store sales growth for the three months ended December 27, 2014 have been revised to include only those restaurants that have been open at least 78 weeks (approximately 18 months) to conform to the current period calculation.
2 Franchisee-reported sales include sales at franchisee-operated restaurants, including joint ventures. We do not record sales by franchisees or licensees as revenue and such sales are not included in our consolidated financial statements.
3 Net openings for the three months ended December 26, 2015 reflects the previously-announced closing of 41 self-serve coffee stations within Speedway locations.

 
Dunkin’ Donuts U.S. fourth quarter revenues of 153.1 million USD represented an increase of 6.2 percent over the prior year period. The increase was primarily a result of increased royalty income due to an increase in systemwide sales, as well as an increase in franchise fees due primarily to favorable development mix. Also contributing to revenue growth were increases in other revenues, driven primarily by an increase in transfer fee income, and in sales at company-operated restaurants driven by a net increase in the number of company-operated restaurants.

Dunkin’ Donuts U.S. segment profit in the fourth quarter increased 9.1 millionUSD over the prior year period to 115.6 million USD, which was driven primarily by growth in royalty income, franchise fees, and other revenues. Also contributing to the increase in segment profit were a decrease in personnel costs and an increase in other operating income due to a gain recognized in connection with the sale of real estate, offset by an increase in losses incurred from company-operated restaurants.

Amounts and%ages may not recalculate due to rounding Three months ended Increase (Decrease)
Dunkin’ Donuts International December 26, 2015 December 27, 2014 USD / # %
(USD in thousands except as otherwise noted)
Comparable store sales growth (decline) (0.8) % 0.3 %
Systemwide sales growth (decline) (6.1) % 2.5 %
Franchisee-reported sales (in millions)1 USD 172.4 183.6 (11.2) (6.1) %
Revenues:
Royalty income USD 4’018 4’144 (126) (3.0) %
Franchise fees 2’310 2’553 (243) (9.5) %
Rental income — 8 (8) (100.0) %
Other revenues 20 (16) 36 n/m
Total revenues USD 6’348 6’689 (341) (5.1) %
Segment profit USD 3’577 4’346 (769) (17.7) %
Points of distribution 3’319 3’228 91 2.8 %
Gross openings 133 140 (7) (5.0) %
Net openings 59 46 13 28.3 %
1 Franchisee-reported sales include sales at franchisee-operated restaurants, including joint ventures. We do not record sales by franchisees or licensees as revenue and such sales are not included in our consolidated financial statements.

 
Dunkin’ Donuts International fourth quarter systemwide sales decreased 6.1 percent from the prior year period. Sales declines in South Korea and Colombia were offset by sales growth in Asia, Europe, and the Middle East. Sales in South Korea, South America, Asia, and Europe were negatively impacted by unfavorable foreign exchange rates. On a constant currency basis, systemwide sales increased by approximately 2 percent.

Dunkin’ Donuts International fourth quarter revenues of 6.3 million USD represented a decrease of 5.1 percent from the prior year period. The decreases in revenues were primarily a result of decreases in franchise fees, driven by a decline in franchise renewal income, as well as a decrease in royalty income.

Segment profit for Dunkin’ Donuts International decreased 0.8 million USD to 3.6 million USD in the fourth quarter primarily as a result of the decreases in revenues and a decrease in net income from our South Korea joint venture, as well as an increase in general and administrative expenses.

Amounts and%ages may not recalculate due to rounding Three months ended Increase (Decrease)
Baskin-Robbins U.S. December 26, 2015 December 27, 2014 USD / # %
(USD in thousands except as otherwise noted)
Comparable store sales growth1 4.4 % 9.4 %
Systemwide sales growth 5.6 % 12.7 %
Franchisee-reported sales (in millions)2 USD 108.8 103.1 5.7 5.5 %
Revenues:
Royalty income USD 5’221 5’090 131 2.6 %
Franchise fees 323 178 145 81.5 %
Rental income 745 815 (70) (8.6) %
Sales of ice cream and other products 345 801 (456) (56.9) %
Other revenues 2’092 1’585 507 32.0 %
Total revenues USD 8’726 8’469 257 3.0 %
Segment profit USD 3’733 4’485 (752) (16.8) %
Points of distribution 2’503 2’484 19 0.8 %
Gross openings 29 26 3 11.5 %
Net openings (closings) 15 (2) 17 n/m
1 Comparable store sales growth for the three months ended December 27, 2014 have been revised to include only those restaurants that have been open at least 78 weeks (approximately 18 months) to conform to the current period calculation.
2 Franchisee-reported sales include sales at franchisee-operated restaurants, including joint ventures. We do not record sales by franchisees or licensees as revenue and such sales are not included in our consolidated financial statements.

 
Baskin-Robbins U.S. fourth quarter revenue increased 3.0 percent from the prior year period to 8.7 million USD due primarily to an increase in other revenues, driven by an increase in licensing income, and increases in franchise fees and royalty income, offset by a decrease in sales of ice cream and other products. The fluctuations in licensing income and sales of ice cream and other products can be attributed to a shift in certain franchisees now purchasing ice cream directly from our third party ice cream manufacturer.

Segment profit for Baskin-Robbins U.S. decreased 0.8 million USD in the fourth quarter, or 16.8 percent, from the prior year period primarily as a result of an increase in general and administrative expenses due primarily to expenses incurred related to brand-building activities and increased personnel costs, offset by the increases in other revenues, franchise fees, and royalty income.

Amounts and%ages may not recalculate due to rounding Three months ended Increase (Decrease)
Baskin-Robbins International December 26, 2015 December 27, 2014 USD / # %
(USD in thousands except as otherwise noted)
Comparable store sales decline (2.7) % (2.2) %
Systemwide sales decline (1.9) % (8.4) %
Franchisee-reported sales (in millions)1 USD 285.3 290.9 (5.6) (1.9) %
Revenues:
Royalty income USD 1’296 1’714 (418) (24.4) %
Franchise fees 283 477 (194) (40.7) %
Rental income 109 133 (24) (18.0) %
Sales of ice cream and other products 26’424 27’409 (985) (3.6) %
Other revenues 28 178 (150) (84.3) %
Total revenues USD 28’140 29’911 (1’771) (5.9) %
Segment profit USD 8’753 9’084 (331) (3.6) %
Points of distribution 5’104 5’068 36 0.7 %
Gross openings 157 153 4 2.6 %
Net openings (closings) (25) 75 (100) n/m
1 Franchisee-reported sales include sales at franchisee-operated restaurants, including joint ventures. We do not record sales by franchisees or licensees as revenue and such sales are not included in our consolidated financial statements.

 
Baskin-Robbins International systemwide sales decreased 1.9 percent in the fourth quarter compared to the prior year period driven by sales declines in South Korea, Japan, Puerto Rico, and Russia, offset by sales growth in the Middle East and Asia. Sales in South Korea andJapan were negatively impacted by unfavorable foreign exchange rates. On a constant currency basis, systemwide sales increased by approximately 5 percent.

Baskin-Robbins International fourth quarter revenues decreased 5.9 percent from the prior year period to 28.1 million USD due primarily to a decrease in sales of ice cream and other products in the Middle East, as well as decreases in royalty income and franchise fees.

Fourth quarter segment profit decreased 3.6 percent from the prior year period to 8.8 million USD as a result of a reduction in income from ourSouth Korea joint venture and decreases in royalty income, net margin on ice cream due primarily to the decline in sales, and franchise fees, as well as an increase in net loss from our Japan joint venture. The decreases in segment profit were offset by a reduction in general and administrative expenses, including decreases in personnel and advertising costs.

Company Updates

  • The Company announced that the Board of Directors declared a first quarter cash dividend of 0.30 USD per share, payable onMarch 16, 2016 to shareholders of record as of the close of business on March 7, 2016.
  • The Company also announced that its Board of Directors increased the availability under the existing share buyback program to 200 million USD of the Company’s outstanding common stock. The authorization is valid until February 2018.
  • During the fourth quarter, the Company repurchased approximately 2.5 million shares of common stock under the 125 million USD accelerated share repurchase (“ASR”) agreement that it entered into in October 2015. Upon final settlement of the ASR agreement during the first quarter of 2016, the Company received nearly 500’000 additional shares. Under the agreement, including the settlement during the first quarter of 2016, the Company repurchased a total of approximately 3.0 million shares at a weighted average cost per share of 41.51 USD. The Company’s shares outstanding as of December 26, 2015 were 92’641’044.

Fiscal Year 2016 Targets

As described below, the Company is providing the following targets regarding its 2016 performance:

  • The Company expects Dunkin’ Donuts U.S. comparable store sales growth of 0 to 2 percent and Baskin-Robbins U.S. comparable store sales growth of 1 to 3 percent.
  • The Company expects that Dunkin’ Donuts U.S. will add between 430 and 460 net new restaurants, for greater than 5 percent net unit growth, and expects Baskin-Robbins U.S. will add between 5 and 10 net new restaurants. The Dunkin’ Donuts U.S. net development target excludes the previously-announced closing of self-serve coffee stations within Speedway locations. The Company expects approximately 30 of these self-serve coffee stations to close in 2016.
  • Internationally, the Company targets opening approximately 200 net new
    restaurants across the two brands. It expects net income of equity method
    investments to be slightly less than 2015 full-year results.
  • The Company expects revenue growth of between 4 and 6 percent; adjusted operating income growth of between 8 and 10 percent; and adjusted earnings per share of 2.17 USD to 2.19 USD. Fiscal year 2015 is a 53-week year for the Company. The target ranges for revenue and adjusted operating income growth are applicable on both a 52- and 53-week basis. The adjusted earnings per share range is on a 52-week basis and assumes 94’000’000 shares outstanding and a 38.5 percent tax rate. The impact of the 53rd week on adjusted earnings per share is approximately 0.03 USD.

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