Dunkin´ Brands: Reports Second Quarter 2013 Results

Canton / MA. (db) Dunkin´ Brands Group Inc., the parent company of Dunkin´ Donuts (DD) and Baskin-Robbins (BR), reported results for the second quarter ended June 29, 2013. Highlights include:

  • Dunkin´ Donuts U.S. comparable store sales growth of 4,0 percent
  • Added 151 net new restaurants worldwide including 63 net new Dunkin´ Donuts in the U.S.
  • Adjusted operating income increased 15,5 percent
  • Adjusted operating income margin expanded 420 basis points to 50,0 percent
  • Adjusted EPS increased approximately 24 percent to 0,41 USD
  • Company returned nearly 40 million USD to shareholders through share repurchases and dividends

«We are pleased with our performance in the second quarter which was driven by strong comparable store sales and net unit development for Dunkin´ Donuts U.S.», said Nigel Travis, Chairman and Chief Executive Officer, Dunkin´ Brands Group Inc. «Innovative marketing and new product introductions, as well as a focus on delivering a great customer experience, continue to deliver attractive franchisee returns and exceptional results for Dunkin´ Donuts in the U.S. Additionally, we continue to see significant interest in restaurant development for Dunkin´ Donuts in this country and for the second consecutive quarter, Baskin-Robbins U.S. experienced positive net growth. On the international front, we continue to build the foundation for the long-term growth of both brands. Going into the second half of the year, we are confident about our business prospects and are steadfastly focused on delivering profitable growth for our franchisees and shareholders».

«For the quarter, our franchised business model continues to generate consistent revenue growth and high-margins resulting in a 24 percent adjusted earnings per share growth», said Paul Carbone, Chief Financial Officer, Dunkin´ Brands Group Inc. «Our business is strong and we remain confident with our full-year financial targets for 2013».

Second Quarter 2013 Key Financial Highlights

Global systemwide sales growth in the second quarter was primarily attributable to global store development and Dunkin´ Donuts U.S. comparable store sales growth (which includes stores open 54 weeks or more).

Dunkin´ Donuts U.S. comparable store sales growth in the second quarter was driven by increased average ticket and higher traffic resulting from our continued product and marketing innovation. This includes strong beverage growth, led by cold beverage news such as the introduction of Iced Coffee flavours inspired by Baskin-Robbins Ice Cream as well as Berry Blast, Minute Maid and Hot Chocolate Coolatta flavours; continued momentum across the breakfast sandwich platform highlighted by the national expansion of the Türkiye Sausage Breakfast Sandwich in May; growth in doughnut sales led by a successful National Donut Day program; and growth in afternoon products including new Chicken and Tuna Salad Wraps and new Chicken Sandwiches.

Baskin-Robbins U.S. comparable store sales growth was driven by sales of Flavours of the Month, including Jamoca Heath, Blueberry Shortbread and Triple Vanilla; increased sales of cakes around Mother´s Day, Father´s Day and graduation season; and limited time offers on take-home ice cream quarts.

In the second quarter, Dunkin´ Brands franchisees and licensees opened 151 net new restaurants around the globe. This includes 63 net new Dunkin´ Donuts U.S. locations, 50 net new Baskin-Robbins International locations, 33 net new Dunkin´ Donuts International locations and five net new Baskin-Robbins U.S. locations. Additionally, Dunkin´ Donuts U.S. franchisees remodelled 141 restaurants during the quarter.

Revenues for the second quarter increased 5,9 percent compared to the prior year primarily from increased royalty income from the increase in systemwide sales, as well as increased sales of ice cream products.

Operating income for the second quarter increased 30,7 million USD or 66,5 percent, from the prior year primarily as a result of a 20,7 million USD increase in the Bertico litigation reserve in the prior year, the increase in royalty income and a gain recognized on the sale of 80 percent of our Baskin-Robbins Australia business, offset by a one-time 7,5 million USD charge related to a third-party product volume guarantee. Adjusted operating income increased 12,2 million USD or 15,5 percent, from the second quarter of 2012 also as a result of the increase in royalty income and the gain from the Baskin-Robbins Australia sale.

Net income for the second quarter increased by 22,3 million USD or 120,6 percent, compared to the prior year primarily as a result of the 30,7 million USD increase in operating income, offset by a 4,4 million USD increase in income tax expense and a 3,2 million USD increase in interest expense. Adjusted net income increased by 3,6 million USD or 8,8 percent, compared to the second quarter of 2012 as a result of the increase in adjusted operating income, offset by increases in interest expense and income tax expense.

Diluted adjusted earnings per share increased by 24,2 percent to 0,41 USD for the second quarter of 2013, as a result of the increase in adjusted net income, as well as a decline in shares outstanding due to the repurchase of 15 million shares in August 2012 and approximately 400’000 shares repurchased under previous authorizations during the second quarter of 2013.

Second Quarter 2013 Segment Results

Dunkin´ Donuts U.S. revenues of 128,7 million USD represented an increase of 4,9 percent year-over-year. The increase in revenue was primarily a result of increased royalty income, offset by a decrease in rental income and franchise renewal fees. Dunkin´ Donuts U.S. segment profit in the second quarter decreased 2,9 million USD over the prior year to 87,1 million USD. This decrease was driven by a one-time 7,5 million USD charge related to a volume guarantee with the franchisee-owned supply chain cooperative regarding sales of cooler beverages in our restaurants, offset by revenue growth.

Dunkin´ Donuts International systemwide sales increased 3,5 percent from the prior year period, driven by sales growth in Germany and Southeast Asia, offset by a decline in sales in South Korea. On a constant currency basis, systemwide sales increased by approximately two percent. Dunkin´ Donuts International revenues were consistent with the prior year period at 3,9 million USD, as the increase in royalty income driven by the increase in systemwide sales was offset by a decline in franchise fees. Segment profit for Dunkin´ Donuts International declined 17,9 percent to 1,6 million USD, primarily from investments in personnel and marketing for the Dunkin´ Donuts International business, as well as losses realized from our new joint venture in Spain.

Baskin-Robbins U.S. revenue declined 2,0 percent from the prior year period to 12,5 million USD primarily from a decline in rental income due to a decline in the number of leased locations and a decline in refranchising gains, offset by an increase in royalty income driven by a 2,0 percent increase in systemwide sales as a result of comparable store sales growth of 1,6 percent. Segment profit for the Baskin-Robbins U.S. segment decreased 0,9 million USD or 10,2 percent, year-over-year primarily as a result of investments in advertising and other brand-building activities, as well as the decline in total revenues, offset by a decrease in occupancy expense for franchised restaurants consistent with the decline in rental income.

Baskin-Robbins International systemwide sales decreased 3,8 percent from the prior year period driven by an unfavourable impact of exchange rates on sales in Japan, offset by sales growth in South Korea. On a constant currency basis, systemwide sales increased by approximately four percent. Baskin-Robbins International revenues increased 16,0 percent year-over-year to 34,9 million USD primarily from the sale of ice cream and related products to our new Australian joint venture in conjunction with the sale of 80 percent of our Baskin-Robbins Australia business, as well as increased sales of ice cream products to the Middle East. Segment profit increased 64,1 percent year-over-year to 19,4 million USD, primarily resulting from the gain recognized on the sale of the Baskin-Robbins Australia business and an increase in net margin on ice cream driven by the increase in sales, as well as an increase in income from our South Korean joint venture.

Company Updates

  • The Company has extended its promotion, manufacturing and distribution agreement with Green Mountain Coffee Roasters Inc. (GMCR) through February 2016. GMCR exclusively packages Dunkin´ K-Cup packs using coffee sourced and roasted to Dunkin´ Donuts´ exacting specifications. The Companies first entered into the agreement in February 2011. Dunkin´ Donuts began offering 14-count boxes of Dunkin´ K-Cup packs exclusively at its restaurants in the U.S. and Canada in the summer of 2011. Today, Dunkin´ K-Cup packs are available in five popular Dunkin´ Donuts flavours, including Original Blend, Dunkin´ Decaf, French Vanilla, Hazelnut and Dunkin´ Dark as well as limited time offer varieties.
  • The Company announced that the Board of Directors declared a third quarter cash dividend of 0,19 USD per share, payable on September 04, 2013 to shareholders of record as of the close of business on August 26, 2013.
  • The Company announced on July 10, 2013 that it elected Carl Sparks to its Board of Directors effective on July 26, 2013. Mr. Sparks is the President and Chief Executive Officer of Travelocity Global.
  • The Company repurchased approximately 400’000 shares of common stock during the second quarter; approximately 33 million USD remains available for purchase under previous authorizations.
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