Canton / MA. (db) Dunkin’ Brands Group Inc., the parent company of Dunkin’ Donuts (DD) and Baskin-Robbins (BR), reported results for the third quarter ended September 26. Q3/2015 highlights include:
- Dunkin’ Donuts U.S. comparable store sales growth of 1.1 percent
- Baskin-Robbins U.S. comparable store sales growth of 7.5 percent
- Added 90 net new restaurants worldwide, including 68 net new Dunkin’ Donuts in the U.S. which reflects the closing of 31 Speedway self-serve coffee stations
- Revenues increased 8.9 percent
- Diluted EPS decreased 7.7 percent to 0.48 USD
- Diluted adjusted EPS increased 6.1 percent to 0.52 USD
«Our overall financial performance in the third quarter, including the strong growth in our revenue, operating income and adjusted earnings per share, demonstrates the benefits and resiliency of our asset-light franchise business model, and the solid Dunkin’ Donuts U.S. net restaurant growth shows the continued demand for the brand. While we were disappointed with our third quarter Dunkin’ Donuts U.S. comparable store sales, we remain on track to deliver our full-year targets, and we are working closely with our franchisees to regain transaction momentum through great products, exceptional guest service, and innovative marketing», said Dunkin’ Brands Chairman and Chief Executive Officer Nigel Travis.
«Dunkin’ Brands is a business with tremendous long-term growth potential. At our recent investor day, we provided targets for our growth expectations for the next five years which included mid-to-high single digit revenue growth, ten percent plus adjusted operating income growth and up to 15 percent adjusted earnings per share growth», said Paul Carbone, Chief Financial Officer, Dunkin’ Brands Group Inc.
Third Quarter 2015 Key Financial Highlights
Dunkin’ Donuts U.S. comparable store sales growth in the third quarter was driven by increased average ticket. Growth was driven by strong beverage sales, led by total coffee including iced coffee and espresso-based beverages, and frozen beverages, which was driven by the launch of blended beverages; and donut category growth driven by the REESE’S Peanut Butter Square and Pumpkin Cheesecake squares. The in-restaurant K-Cup and packaged coffee categories had a negative impact on third quarter comparable store sales. Traffic declined approximately 70 basis points in the quarter.
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 third quarter, Dunkin’ Brands franchisees and licensees opened 90 net new restaurants around the globe. This included 68 net new Dunkin’ Donuts U.S. locations, 40 net new Dunkin’ Donuts International locations, two net closures for Baskin-Robbins U.S., and 16 net closures for Baskin-Robbins International. The Dunkin’ Donuts U.S. net store growth number reflects the previously-announced closing of 31 self-serve coffee stations within Speedway locations. Additionally, Dunkin’ Donuts U.S. franchisees remodeled 116 restaurants and Baskin-Robbins U.S. franchisees remodeled 32 restaurants during the quarter.
Revenues for the third quarter increased 8.9 percent compared to the prior year period due primarily to increased royalty income as a result of systemwide sales growth, an increase in sales at company-operated restaurants due to a net increase in the number of company-operated restaurants, increased sales of ice cream and other products, and licensing fees earned from the sale of Dunkin’ K-Cup® pods.
Operating income and adjusted operating income for the third quarter increased 7.3 million USD, or 7.9 percent, and 6.5 million USD, or 6.6 percent, respectively, from the prior year period primarily as a result of the increases in royalty income, ice cream margin due primarily to the increase in sales, and licensing fees earned from the sale of Dunkin’ K-Cup® pods. The increases in revenues were offset by an increase in general and administrative expenses driven primarily by an increase in personnel costs and bad debt expense.
Net income for the third quarter decreased by 8.5 million USD, or 15.5 percent, compared to the prior year period primarily as a result of additional interest expense of 8.1 million USD, driven by additional borrowings incurred in conjunction with the securitization refinancing transaction completed in January 2015, and an increase in income tax expense of 7.5 million USD as the prior year period was favorably impacted by the settlement of certain tax audits. These decreases were offset by the 7.3 million USD increase in operating income.
Adjusted net income for the third quarter decreased by 2.0 million USD, or 3.8 percent, compared to the third quarter of 2014 primarily as a result of increases in interest expense, offset by the 6.5 million USD increase in adjusted operating income.
Diluted earnings per share decreased by 7.7 percent to 0.48 USD for the third 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 6.1 percent to 0.52 USD for the third quarter of 2015 compared to the prior year period as a result of the decrease in shares outstanding, offset by the decrease in adjusted net income. 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.
Third Quarter 2015 Segment Results
Dunkin’ Donuts U.S. third quarter revenues of 154.4 million USD represented an increase of 8.0 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 sales at company-operated restaurants driven by a net increase in the number of company-operated restaurants. Also contributing to revenue growth were increases in other revenues, driven primarily by income recognized in connection with the termination of a lease, and franchise fees due primarily to favorable development mix.
Dunkin’ Donuts U.S. segment profit in the third quarter increased 6.7 million USD over the prior year period to 112.9 million USD, which was driven primarily by growth in royalty income, other revenues, and franchise fees. The increases in revenues were offset by an increase in personnel costs and a decrease in other operating income as the prior year period included a gain recognized in connection with the sale of real estate.
Dunkin’ Donuts International third quarter systemwide sales decreased 5.0 percent from the prior year period. Sales declines in South Korea and South America were offset by sales growth in the Middle East and Asia. 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 seven percent. Comparable store sales growth was negatively impacted as a result of the MERS outbreak in South Korea.
Dunkin’ Donuts International third quarter revenues of 4.6 million USD represented an increase of 5.8 percent over the prior year period. The increases in revenues were primarily a result of increased franchise fees due to additional gross development, as well as an increase in royalty income which was negatively impacted by unfavorable foreign exchange rates.
Segment profit for Dunkin’ Donuts International decreased 0.3 million USD to 1.6 million USD in the third quarter primarily as a result of an increase in general and administrative expenses, offset by revenue growth. A portion of the increase in general and administrative expenses can be attributed to increased personnel costs and other investments in international markets.
Baskin-Robbins U.S. third quarter revenue increased 3.9 percent from the prior year period to 13.1 million USD due primarily to an increase in other revenues, driven by an increase in licensing income, and an increase in 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 from our third party ice cream manufacturer.
Segment profit for Baskin-Robbins U.S. increased 0.8 million USD in the third quarter, or 9.2 percent, over the prior year period primarily as a result of the increases in other revenues and royalty income, offset by an increase in general and administrative expenses due primarily to expenses incurred related to brand-building activities and increased personnel costs.
- The Company announced that the Board of Directors declared a fourth quarter cash dividend of 0.265 USD per share, payable on December 2, 2015 to shareholders of record as of the close of business on November 23, 2015.
- During the third quarter, the Company repurchased approximately 126’000 shares of common stock in the open market at a weighted average cost per share of 48.79 USD. The Company’s shares outstanding as of September 26, 2015 were 95’163’689.
Fiscal Year 2015 Targets
As described below, the Company is reiterating and updating certain targets regarding its 2015 expectations.
- The Company continues to expect Dunkin’ Donuts U.S. comparable store sales growth of one to three percent. It now expects Baskin-Robbins U.S. comparable store sales growth of three to five percent (previously it expected one to three percent comparable store sales growth).
- The Company continues to expect that Dunkin’ Donuts U.S. will add between 410 and 440 net new restaurants, for greater than five percent net unit growth, and expects Baskin-Robbins U.S. will add between five and ten 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 100 of these self-serve coffee stations to close between 2015 and 2016.
- Internationally, the Company continues to target opening 200 to 300 net new restaurants across the two brands. It continues to expect net income of equity method investments to be approximately 13 million USD.
- Globally, the Company continues to expect to open between 615 and 750 net new restaurants, excluding the closing of the self-serve coffee stations within Speedway locations.
- The Company continues to expect revenue growth of between six and eight percent; adjusted operating income growth of between seven and eight percent; and adjusted earnings per share of 1.87 USD to 1.91 USD (Image: pixabay.com).