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 28, 2014. «Second quarter sales growth was below our expectations with Dunkin´ Donuts U.S. comparable store sales not accelerating as fast or to the degree that we anticipated after a difficult first quarter. We believe this was largely the result of macroeconomic challenges facing consumers, as evidenced across the retail and the QSR industries, along with an unseasonably cold, rainy start to the spring season», said Chairman and CEO Nigel Travis.
Second Quarter Highlights Include …
| Dunkin´ Donuts U.S. comparable store sales growth of 1,8 percent Added 151 net new restaurants worldwide including 75 net new Dunkin´ Donuts in the U.S. Revenue increased 4,6 percent Adjusted operating income increased 3,3 percent; adjusted operating income margin of 49,3 percent Diluted adjusted EPS increased 14,6 percent to 0,47 USD Board of Directors declares 0,23 USD third quarter dividend |
«Dunkin´ Donuts U.S. transaction growth was encouraging and comparable store sales gradually improved throughout the quarter with June average weekly sales reaching the highest volume on record. We remain confident in our ability to drive long-term growth through our product and marketing innovation, including our mobile and loyalty programs. In fact, we are excited to announce that we recently eclipsed 7,9 million downloads of the Dunkin´ Donuts mobile app, and we are nearing 1,3 million DD Perks Rewards members».
«In addition to the impact of Dunkin´ Donuts U.S. comparable store sales, our full-year earnings per share target is also being affected by weak performance by our Baskin-Robbins joint venture in Japan along with lower-than-anticipated profit from the sale of ice cream in the Baskin-Robbins International business», said Paul Carbone, CFO, Dunkin´ Brands Group Inc. «While we are updating certain 2014 targets, we are maintaining our long-term growth targets».
Q2/2014 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 higher traffic and increased average ticket resulting from our continued focus on product and marketing innovation. Growth was driven by beverages, led by Iced Coffee, Frozen Beverages, and Hot and Iced Espresso; by breakfast sandwiches and associated add-ons like Hash Browns, led by the Chicken Apple Sausage Breakfast Sandwich; and by doughnuts including the Blueberry Cobbler and flower-shaped doughnuts and the celebration of National Donut Day in June. Traffic growth accounted for more than half of the comparable store sales growth in the second quarter.
Baskin-Robbins U.S. comparable store sales growth was driven by sales of Cups + Cones, Cakes, and Beverages as a result of a new program offering guests a free waffle cone with the purchase of a second scoop of ice cream, the Mother´s and Father´s Day holidays as well as the launch of online ice cream cake ordering.
In the second quarter, Dunkin´ Brands franchisees and licensees opened 151 net new restaurants around the globe. This includes 75 net new Dunkin´ Donuts U.S. locations, 47 net new Baskin-Robbins International locations, 17 net new Dunkin´ Donuts International locations, and twelve net new Baskin-Robbins U.S. locations. Additionally, Dunkin´ Donuts U.S. franchisees re-modelled 94 restaurants during the quarter.
Revenues for the second quarter increased 4,6 percent compared to the prior year period primarily from increased royalty income due to systemwide sales growth.
Operating income for the second quarter increased 10,8 million USD, or 14,0 percent, from the prior year period primarily as a result of the increase in revenues and a gain recognized in connection with the sale of all company-owned restaurants in the Atlanta market. Additionally, the prior year period included a one-time 7,5 million USD charge related to a third-party product volume guarantee and a 7,0 million USD gain related to the sale of 80 percent of our Baskin-Robbins Australia business. Adjusted operating income increased 3,0 million USD, or 3,3 percent, from the second quarter of 2013 as a result of the increase in revenues and gain on the sale of company-owned restaurants in Atlanta, offset by the gain from the sale of the Baskin-Robbins Australia business recognized in the prior year period.
Net income for the second quarter increased by 5,4 million USD, or 13,2 percent, compared to the prior year period primarily as a result of the increase in operating income of 10,8 million USD and a 3,1 million USD decrease in interest expense, offset by a 9,2 million USD increase in income tax expense. Adjusted net income increased by 6,3 million USD, or 14,3 percent, compared to the second quarter of 2013, as a result of the increase in adjusted operating income and decrease in interest expense.
Diluted adjusted earnings per share increased by 14,6 percent to 0,47 USD for the second quarter of 2014 compared to the prior year period as a result of the increase in adjusted net income and a 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. During the second quarter, the Company repurchased a total of 1’260’000 shares.
Q2/2014 Segment Results
Dunkin´ Donuts U.S. revenues of 136,5 million USD represented an increase of 6,0 percent year-over-year. The increase was primarily a result of increased royalty income, as well as franchise fees due primarily to timing of franchise renewals and an increase in development year-over-year. The increases were offset by a decline in sales at company-owned restaurants due to the sale of all company-owned restaurants in the Atlanta market early in the second quarter.
Dunkin´ Donuts U.S. segment profit in the second quarter increased 9,7 million USD over the prior year period to 101,0 million USD, which was driven primarily by revenue growth and a gain recognized in connection with the sale of the company-owned restaurants in the Atlanta market.
Dunkin´ Donuts International second quarter systemwide sales increased 3,5 percent from the prior year period, driven by sales growth in the Middle East, Germany, Spain, and India, offset by a decline in South Korea. The decline in South Korea was partially offset by favorable foreign exchange. On a constant currency basis, systemwide sales increased by approximately two percent.
Dunkin´ Donuts International second quarter revenues of 4,5 million USD represented an increase of 15,0 percent year-over-year. The increase in revenue was primarily a result of an increase in royalty income and franchise fees for openings in new international markets.
Segment profit for Dunkin´ Donuts International increased 1,4 million USD to 3,0 million USD, primarily due to revenue growth and a reduction in expenses due to investments in marketing in the prior year. Also contributing to the increase in segment profit was a partial recovery of a previously-reserved note receivable related to our Spain joint venture, as well as losses incurred from our Spain joint venture in the prior year period.
Baskin-Robbins U.S. second quarter revenue increased 3,7 percent from the prior year period to 13,0 million USD due primarily to increases in royalty income and other revenues.
Segment profit for Baskin-Robbins U.S. increased 1,5 million USD, or 18,6 percent, year-over-year primarily as a result of the increase in revenues and a reduction in expenses as the prior year period included investments in advertising and other brand-building activities.
Baskin-Robbins International systemwide sales increased 4,7 percent from the prior year period driven by increases in sales in South Korea and the Middle East, offset by a decline in sales in Japan. On a constant currency basis, systemwide sales increased by approximately four percent.
Baskin-Robbins International second quarter revenues decreased 3,7 percent from the prior year period to 33,6 million USD due primarily to sales of ice cream products to our Australian joint venture in the prior year period in conjunction with the sale of 80 percent of our Baskin-Robbins Australia business, as well as a decline in royalty income.
Second quarter segment profit decreased 39,6 percent from the prior year period to 11,7 million USD due primarily to a 7,0 million USD gain recognized on the sale of the Baskin-Robbins Australia business in the prior year period and a decrease in income from our Japan joint venture.
Company Updates
The Company announced that the Board of Directors declared a third quarter cash dividend of 0,23 USD per share, payable on September 03, 2014 to shareholders of record as of the close of business on August 25, 2014.
Fiscal Year 2014 Targets
As described below, the Company has updated or reiterated its performance targets regarding its 2014 expectations.
The Company now expects Dunkin´ Donuts U.S. comparable store sales growth of two to three percent (previously it expected three to four percent comparable store sales growth) and it continues to expect Baskin-Robbins U.S. comparable store sales growth of one to three percent.
The Company continues to expect that Dunkin´ Donuts U.S. will add between 380 and 410 net new restaurants representing greater than five percent net restaurant growth and continues to expect Baskin-Robbins U.S. will add between five and ten net new restaurants.
Internationally, the Company continues to target opening 300 to 400 net new restaurants across the two brands.
Globally, the Company continues to expect to open between 685 and 800 net new units.
The Company now expects revenue growth of between five and seven percent (previously it expected six to eight percent revenue growth) and adjusted operating income growth of between seven and nine percent (previously it expected ten to twelve percent adjusted operating income growth).
The Company now expects adjusted earnings per share of 1,73 USD to 1,77 USD (previously it expected 1,79 USD to 1,83 USD), which would represent approximately 13 percent to 16 percent year-over-year adjusted earnings-per-share growth. This target is based on diluted weighted average shares for the full year of 107,4 million.
