CANTON, Mass., US – Dunkin’ Brands Group, Inc., the parent company of Dunkin’ Donuts (DD) and Baskin-Robbins (BR), yesterday reported results for the first quarter ended March 29, 2014.
First Quarter 2014 Key Financial Highlights
Global systemwide sales growth in the first 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 first quarter was driven by increased average ticket resulting from guests purchasing more items per transaction and positive mix as guests purchased more premium-priced items. Growth was driven by beverages, led by Iced Coffee and Hot and Iced Espresso; by breakfast sandwiches, led by the Sliced Turkey and Eggs Benedict sandwiches; afternoon sandwiches; and by donuts including the Brownie Batter and Cookie Dough Heart-Shaped donuts. Traffic growth, which was marginally negative, was significantly disrupted by weather in the first quarter. We estimate weather contributed approximately 200 basis points of negative impact in the quarter.
Baskin-Robbins U.S. comparable store sales growth was driven by sales of Cups & Cones, Beverages and Take Home as a result of news around Flavors of the Month such as Movie Theatre Popcorn as well as a new program offering guests a free waffle cone with the purchase of a second scoop of ice cream.
In the first quarter, Dunkin’ Brands franchisees and licensees opened 96 net new restaurants around the globe. This includes 69 net new Dunkin’ Donuts U.S. locations, 52 net new Baskin-Robbins International locations, 1 net new Baskin-Robbins U.S. location, and 26 net closures for Dunkin’ Donuts International. Additionally, Dunkin’ Donuts U.S. franchisees remodeled 94 restaurants during the quarter.
Revenues for the first quarter increased 6.2 percent compared to the prior year period primarily from increased sales of ice cream products and increased royalty income due to systemwide sales growth.
Operating income for the first quarter increased $5.6 million, or 8.9 percent, from the prior year primarily as a result of increases in royalty income and margin on sales of ice cream products. Adjusted operating income increased $4.9 million, or 7.0 percent, from the first quarter of 2013 also as a result of the increases in royalty income and margin on sales of ice cream products.
Net income for the first quarter decreased by $0.8 million, or 3.5 percent, compared to the prior year period primarily as a result of a $13.7 million loss on debt extinguishment and refinancing transactions compared to a $5.0 million loss in the prior year period, as well as a $1.0 million increase in income tax expense. The increases in expenses were offset by the $5.6 million increase in operating income and a $2.9 million decrease in interest expense. Adjusted net income increased by $4.5 million, or 14.4 percent, compared to the first quarter of 2013, as a result of the increase in adjusted operating income and decrease in interest expense, offset by an increase in income tax expense.
Diluted adjusted earnings per share increased by 13.8 percent to $0.33 for the first 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 is due primarily to the repurchase of shares during 2013 and the first quarter of 2014 (512,205 shares repurchased during the first quarter), offset by the exercise of stock options.
First Quarter 2014 Segment Results
Dunkin’ Donuts U.S. revenues of $125.2 million represented an increase of 4.7 percent year-over-year. The increase was primarily a result of increased royalty income and an increase in gains from refranchising transactions, offset by a decline in franchise fees driven by the timing of franchise renewals.
Dunkin’ Donuts U.S. segment profit in the first quarter increased $6.3 million over the prior year period to $89.8 million, which was driven primarily by revenue growth.
Dunkin’ Donuts International first quarter systemwide sales increased 0.4 percent from the prior year period, driven by sales growth in the Middle East, Germany, and Spain, offset by a decline in South Korea. On a constant currency basis, systemwide sales increased by approximately 3 percent.
Dunkin’ Donuts International first quarter revenues of $4.3 million represented a decrease of 7.3 percent year-over-year. The decrease in revenue was primarily a result of a decrease in transfer fees and renewal income, offset by an increase in royalty income.
Segment profit for Dunkin’ Donuts International increased $0.3 million to $2.9 million, primarily due to an increase in income from our South Korea joint venture and the prior year loss from our Spain joint venture.
Company Updates
The Company today announced that the Board of Directors declared a second quarter cash dividend of $0.23 per share, payable on June 4, 2014 to shareholders of record as of the close of business on May 27, 2014.
Fiscal Year 2014 Targets
As described below, the Company has reiterated its performance targets regarding its 2014 expectations.
– The Company expects Dunkin’ Donuts U.S. comparable store sales growth of 3 to 4 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 380 and 410 net new restaurants representing greater than 5 percent net restaurant growth and expects Baskin-Robbins U.S. will add between 5 and 10 net new restaurants.
– Internationally, the Company is targeting opening 300 to 400 net new restaurants across the two brands.
– Globally, the Company expects to open between 685 and 800 net new units.
– The Company expects revenue growth of between 6 and 8 percent and adjusted operating income growth of between 10 and 12 percent.
– The Company expects adjusted earnings per share of $1.79 to $1.83, which would represent 17 percent to 20 percent year-over-year adjusted earnings per share growth. This target is based on diluted weighted average shares for the full year of 108.2 million.
