Dunkin' Brands Reports Fourth Quarter & Fiscal Year 2013 Results

 

 

Dunkin' Donuts U.S. comparable store sales growth of 3.5% - Added 309 net new restaurants worldwide including 149 net new Dunkin' Donuts in the U.S.

Dunkin' Brands

Fourth quarter highlights include:

  • Dunkin' Donuts U.S. comparable store sales growth of 3.5%
  • Added 309 net new restaurants worldwide including 149 net new Dunkin' Donuts in the U.S.
  • Revenue increased 13.3%
  • Adjusted operating income increased 11.8%; adjusted operating income margin of 48.7%
  • Diluted adjusted EPS increased 26.5% to $0.43

Fiscal year 2013 highlights include:

  • Dunkin' Donuts U.S. comparable store sales growth of 3.4%
  • Added 790 net new restaurants worldwide including 371 net new Dunkin' Donuts in the U.S.
  • Positive Baskin-Robbins U.S. store growth
  • Revenue increased 8.5%
  • Adjusted operating income increased 10.8%; adjusted operating income margin of 47.7%
  • Diluted adjusted EPS increased 19.5% to $1.53

Company news:

  • Board of Directors declares $0.23 first quarter dividend representing a 21% increase over the Company's fourth quarter 2013 dividend
  • Board of Directors authorized new $125 million share repurchase program

Dunkin' Brands Group, Inc. (Nasdaq: DNKN), the parent company of Dunkin' Donuts (DD) and Baskin-Robbins (BR), today reported results for the fourth quarter ended December 28, 2013. 

"Our fourth quarter was strong, capping off a great year in which we set records and achieved major milestones for both Dunkin' Donuts and Baskin-Robbins," said Nigel Travis, Chairman and Chief Executive Officer, Dunkin' Brands Group Inc. "The Dunkin' Donuts U.S. annual net development growth rate exceeded five percent, and Baskin-Robbins had positive net development for the first time since 2006. Dunkin' Donuts U.S. had 3.4 percent comparable store sales growth in 2013, demonstrating the brand's continued relevance and resiliency in a challenging year for the QSR industry in general, and Baskin-Robbins U.S. had 0.8 percent comparable store sales growth, marking the third straight year of sales growth for the brand. Internationally we added 415 net new restaurants for both brands, and importantly, we made significant progress with our development goals to focus on higher profit-opportunity markets and globalizing our U.S. disciplines. Going into 2014, we look to drive growth by strengthening worldwide awareness of our two brands through global marketing initiatives, such as our recently announced partnership with Liverpool Football Club. We are also working to make our brands more accessible to consumers through programs like our DD Mobile initiative and DD Perks Rewards, which launched nationally on January 27."

"We are steadfastly committed to driving profitable growth for both our franchisees and our shareholders, a commitment we delivered on yet again in our second full year as a public company," said Paul Carbone, Chief Financial Officer, Dunkin' Brands Group, Inc. "As a result of strong topline sales growth and our intense focus on restaurant-level returns, franchisee profitability for both brands is healthier than it's ever been.  Additionally, our nearly 100 percent franchised, asset-light business model enabled us to return more than $100 million to shareholders in 2013 through our quarterly dividends and ongoing share repurchases. We're also excited to announce the Board of Directors' decision to increase our first quarter dividend more than 20 percent over our fourth quarter 2013 dividend."

FISCAL YEAR 2013 KEY FINANCIAL HIGHLIGHTS

 

($ in millions, except per share data)

Fiscal year ended

Increase (Decrease)

Amounts and percentages may not recalculate due to rounding

December 28,

 2013

December 29,

 2012

$ / #

%

Franchisee reported sales

$

9,276.4

8,771.3

505.0

5.8

%

Systemwide sales growth

5.8

%

5.2

%

Comparable store sales growth (decline):

DD U.S. comparable store sales growth

3.4

%

4.2

%

BR U.S. comparable store sales growth

0.8

%

3.8

%

DD International comparable store sales growth (decline)

(0.4)

%

2.0

%

BR International comparable store sales growth

1.9

%

2.8

%

Development data1:

Consolidated global net POD development

790

772

18

2.3

%

DD global PODs at period end

10,858

10,349

509

4.9

%

BR global PODs at period end

7,300

7,019

281

4.0

%

Consolidated global PODs at period end

18,158

17,368

790

4.5

%

Financial data:

Revenues

$

713.8

658.2

55.7

8.5

%

Operating income

304.7

239.4

65.3

27.3

%

Operating income margin

42.7

%

36.4

%

Adjusted operating income2

$

340.4

307.2

33.2

10.8

%

Adjusted operating income margin2

47.7

%

46.3

%

Net income

$

146.9

108.3

38.6

35.6

%

Adjusted net income2

165.8

149.7

16.1

10.7

%

Earnings per share:

Common–basic

1.38

0.94

0.44

46.8

%

Common–diluted

1.36

0.93

0.43

46.2

%

Diluted adjusted earnings per share2

1.53

1.28

0.25

19.5

%

Weighted average number of common shares – diluted (in millions)

108.2

116.6

(8.4)

(7.2)

%

Prior year POD counts have been adjusted to reflect the results of an internal POD count audit.

2 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, 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. Please refer to "Non-GAAP Measures and Statistical Data" and "Dunkin' Brands Group, Inc. Non-GAAP Reconciliations" for further detail.

 

FOURTH QUARTER 2013 KEY FINANCIAL HIGHLIGHTS

 

($ in millions, except per share data)

Three months ended

Increase (Decrease)

Amounts and percentages may not recalculate due to rounding

December 28,

2013

December 29,

 2012

$ / #

%

Franchisee reported sales

$

2,355.6

2,212.2

143.4

6.5

%

Systemwide sales growth (decline)

6.5

%

(0.4)

%

Comparable store sales growth (decline):

DD U.S. comparable store sales growth

3.5

%

3.2

%

BR U.S. comparable store sales growth

2.2

%

1.5

%

DD International comparable store sales decline

(0.3)

%

%

BR International comparable store sales growth

1.6

%

%

Development data1:

Consolidated global net POD development

309

262

47

17.9

%

DD global PODs at period end

10,858

10,349

509

4.9

%

BR global PODs at period end

7,300

7,019

281

4.0

%

Consolidated global PODs at period end

18,158

17,368

790

4.5

%

Financial data:

Revenues

$

183.2

161.7

21.5

13.3

%

Operating income

82.2

67.8

14.5

21.4

%

Operating income margin

44.9

%

41.9

%

Adjusted operating income2

$

89.2

79.8

9.4

11.8

%

Adjusted operating income margin2

48.7

%

47.6

%

Net income

$

42.1

34.3

7.7

22.5

%

Adjusted net income2

46.3

36.6

9.6

26.3

%

Earnings per share:

Common–basic

0.39

0.32

0.07

21.9

%

Common–diluted

0.39

0.32

0.07

21.9

%

Diluted adjusted earnings per share2

0.43

0.34

0.09

26.5

%

Weighted average number of common shares – diluted (in millions)

108.3

107.9

0.4

0.4

%

Prior year POD counts have been adjusted to reflect the results of an internal POD count audit.

2 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, 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. Please refer to "Non-GAAP Measures and Statistical Data" and "Dunkin' Brands Group, Inc. Non-GAAP Reconciliations" for further detail.

 

Global systemwide sales growth in the fourth 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 fourth quarter was driven by increased average ticket and higher traffic resulting from our focus on operational excellence and product and marketing innovation. These product and marketing innovations resulted in strong beverage growth, led by Iced Coffee and Hot and Iced Espresso, driven by flavor news including Pumpkin; increases in Hot Chocolate, driven by the introduction of the Salted Caramel flavor; continued breakfast sandwich momentum across core sandwiches, the limited time offer Hot & Spicy Breakfast Sandwich, and incremental gains in the Turkey Sausage Breakfast Sandwich; growth in afternoon products including Chicken Sandwiches, Deluxe Grilled Cheese, and Wraps; growth in donut sales led by the introduction of the Pumpkin Pie donut; and increased sales of Dunkin' Donuts K-Cup® portion packs driven by a $7.99 National Coffee Day offer and a two-packs-for-$19.99 offer.

Baskin-Robbins U.S. comparable store sales growth was driven by sales of Cups & Cones, Beverages and Cakes as a result of news around favorite holiday flavors such as Gingerbread Junction and Winter White Chocolate, and a new flavor, Peppermint Bark in the Dark as well as increased sales of cakes driven by new cake designs and take-home ice cream quarts.

In the fourth quarter, Dunkin' Brands franchisees and licensees opened 309 net new restaurants around the globe. This includes 149 net new Dunkin' Donuts U.S. locations, 120 net new Baskin-Robbins International locations, 44 net new Dunkin' Donuts International locations, and four net closures for Baskin-Robbins U.S. Additionally, Dunkin' Donuts U.S. franchisees remodeled 169 restaurants during the quarter.

Revenues for the fourth quarter increased 13.3 percent compared to the prior year period primarily from increased royalty income due to systemwide sales growth, increased franchise fees due to favorable development mix and incremental franchise renewals, and increased sales of ice cream products. The increase in sales of ice cream products was partially the result of a one-time delay in revenue recognition related to the shift in manufacturing to Dean Foods that negatively impacted fourth quarter sales of ice cream products in 2012.

Operating income for the fourth quarter increased $14.5 million, or 21.4 percent, from the prior year primarily as a result of the increases in royalty income, franchise fees, and margin on sales of ice cream products.  Adjusted operating income increased $9.4 million, or 11.8 percent, from the fourth quarter of 2012 as a result of the increases in royalty income and franchise fees, offset by a decrease in net income of equity method investments.

Net income for the fourth quarter increased by $7.7 million, or 22.5 percent, compared to the prior year period primarily as a result of the $14.5 million increase in operating income and a $2.0 million decrease in interest expense. This was offset by a $7.6 million increase in income tax expense and greater losses on foreign currency due to exchange rate fluctuations. Adjusted net income increased by $9.6 million, or 26.3 percent, compared to the fourth quarter of 2012, as a result of the increase in adjusted operating income and a decrease in interest expense, offset by greater losses on foreign currency.

Diluted adjusted earnings per share increased by 26.5 percent to $0.43 for the fourth quarter of 2013 compared to the prior year period as a result of the increase in adjusted net income, offset by an increase in shares outstanding. The increase in shares outstanding is due primarily to the exercise of stock options, offset by the repurchase of 648,000 shares during 2013 (230,700 shares repurchased during the fourth quarter).

FOURTH QUARTER 2013 SEGMENT RESULTS

 

Amounts and percentages may not recalculate due to rounding

Three months ended

Increase (Decrease)

Dunkin' Donuts U.S.

December 28, 

2013

December 29, 

2012

$ / #

%

($ in thousands except as otherwise noted)

Comparable store sales growth

3.5

%

3.2

%

Systemwide sales growth (decline)

7.9

%

(0.9)

%

Franchisee reported sales (in millions)

$

1,767.5

1,637.6

129.8

7.9

%

Revenues:

Royalty income

$

95,468

89,093

6,375

7.2

%

Franchise fees

11,534

8,963

2,571

28.7

%

Rental income

22,112

21,865

247

1.1

%

Sales at company-owned restaurants

6,715

6,216

499

8.0

%

Other revenues

2,790

1,980

810

40.9

%

Total revenues

$

138,619

128,117

10,502

8.2

%

Segment profit

$

105,563

94,293

11,270

12.0

%

Points of distribution

7,677

7,306

371

5.1

%

Gross openings

187

180

7

3.9

%

Net openings

149

149

%

 

Dunkin' Donuts U.S. revenues of $138.6 million represented an increase of 8.2 percent year-over-year.  The increase was primarily a result of increased royalty income, as well as increased franchise fees due to favorable development mix and incremental franchise renewals. The increase in revenues was also driven by an increase in gains from refranchising transactions.

Dunkin' Donuts U.S. segment profit in the fourth quarter increased $11.3 million over the prior year period to $105.6 million, which was driven primarily by revenue growth.

 

Amounts and percentages may not recalculate due to rounding

Three months ended

Increase (Decrease)

Dunkin' Donuts International

December 28, 

2013

December 29, 

2012

$ / #

%

($ in thousands except as otherwise noted)

Comparable store sales decline

(0.3)

%

%

Systemwide sales growth

2.7

%

9.3

%

Franchisee reported sales (in millions)

$

179.0

174.4

4.6

2.7

%

Revenues:

Royalty income

$

3,879

3,526

353

10.0

%

Franchise fees

1,714

470

1,244

264.7

%

Rental income

37

29

8

27.6

%

Other revenues

(42)

(29)

(13)

44.8

%

Total revenues

$

5,588

3,996

1,592

39.8

%

Segment profit

$

4,386

2,174

2,212

101.7

%

Points of distribution1

3,181

3,043

138

4.5

%

Gross openings1

105

113

(8)

(7.1)

%

Net openings1

44

53

(9)

(17.0)

%

Prior year POD counts have been adjusted to reflect the results of an internal POD count audit.

 

Dunkin' Donuts International fourth quarter systemwide sales increased 2.7 percent from the prior year period, driven by sales growth in Indonesia, Germany, and the Middle East.  On a constant currency basis, systemwide sales increased by approximately 3 percent.

Dunkin' Donuts International fourth quarter revenues of $5.6 million represented an increase of 39.8% year-over-year. The increase in revenue was primarily a result of an increase in franchise fees due to income recognized in connection with the termination of development agreements in Asia and franchise fees for openings in new international markets, as well as increased royalty income.

Segment profit for Dunkin' Donuts International increased $2.2 million to $4.4 million, primarily due to revenue growth, as well as a decrease in advertising expenses.

 

Amounts and percentages may not recalculate due to rounding

Three months ended

Increase (Decrease)

Baskin-Robbins U.S.

December 28, 

2013

December 29, 

2012

$ / #

%

($ in thousands except as otherwise noted)

Comparable store sales growth

2.2

%

1.5

%

Systemwide sales growth (decline)

0.9

%

(8.3)

%

Franchisee reported sales (in millions)

$

91.5

90.7

0.8

0.9

%

Revenues:

Royalty income

$

4,577

4,574

3

0.1

%

Franchise fees

383

148

235

158.8

%

Rental income

866

913

(47)

(5.1)

%

Sales of ice cream products

774

931

(157)

(16.9)

%

Other revenues

1,552

1,249

303

24.3

%

Total revenues

$

8,152

7,815

337

4.3

%

Segment profit

$

5,033

3,888

1,145

29.4

%

Points of distribution

2,467

2,463

4

0.2

%

Gross openings

19

9

10

111.1

%

Net closings

(4)

(29)

25

(86.2)

%

 

Baskin-Robbins U.S. fourth quarter revenue increased 4.3 percent from the prior year period to $8.2 million due primarily to increased franchise fees driven by incremental franchise renewals, as well as an increase in other revenues mainly as a result of refranchising gains and transfer fees. The increase in revenues was offset by a decline in sales of ice cream products.

Segment profit for Baskin-Robbins U.S. increased $1.1 million in the fourth quarter, or 29.4 percent, year-over-year primarily as a result of reductions in general and administrative expenses, including a reduction in incentive compensation and the fact that the prior year included expenses for reserves on leased locations, as well as the increase in revenues.

 

Amounts and percentages may not recalculate due to rounding

Three months ended

Increase (Decrease)

Baskin-Robbins International

December 28, 

2013

December 29, 

2012

$ / #

%

($ in thousands except as otherwise noted)

Comparable store sales growth

1.6

%

%

Systemwide sales growth

2.6

%

0.2

%

Franchisee reported sales (in millions)

$

317.6

309.5

8.0

2.6

%

Revenues:

Royalty income

$

1,701

2,033

(332)

(16.3)

%

Franchise fees

675

314

361

115.0

%

Rental income

123

133

(10)

(7.5)

%

Sales of ice cream products

24,655

15,445

9,210

59.6

%

Other revenues

75

46

29

63.0

%

Total revenues

$

27,229

17,971

9,258

51.5

%

Segment profit

$

8,773

6,833

1,940

28.4

%

Points of distribution1

4,833

4,556

277

6.1

%

Gross openings1

178

126

52

41.3

%

Net openings1

120

89

31

34.8

%

Prior year POD counts have been adjusted to reflect the results of an internal POD count audit.

 

Baskin-Robbins International systemwide sales increased 2.6 percent in the fourth quarter from the prior year period driven by sales growth in the Middle East and South Korea, offset by unfavorable exchange rates on sales in Japan. On a constant currency basis, systemwide sales increased by approximately 11 percent.

Baskin-Robbins International fourth quarter revenues increased 51.5 percent year-over-year to $27.2 million primarily due to increases in sales of ice cream products in the Middle East and an increase in distribution costs billed to customers, as well as a one-time delay in revenue recognition related to the shift in manufacturing to Dean Foods that impacted fourth quarter sales of ice cream products in the prior year.

Fourth quarter segment profit increased 28.4 percent year-over-year to $8.8 million, resulting from an increase in net margin on ice cream driven by the increase in sales, as well as a reduced cost of ice cream products primarily resulting from the shift in manufacturing to Dean Foods. The increase was offset by a decrease in net income of equity method investments due to decreases in net income in Japan and Korea.

 

COMPANY UPDATES

  • As previously disclosed, the Company is seeking to refinance its senior secured credit facility, including its senior secured term loan facility and its senior secured revolving credit facility. Upon the anticipated completion of the transaction, the Company expects its full-year 2014 interest expense to be approximately $70 million, representing approximately $10 million in annual interest expense savings and $0.05 in incremental earnings per share in 2014. The anticipated weighted interest rate on the Company's $1.8 billion in outstanding debt will be 3.4 percent. The refinancing is not yet complete and remains subject to customary closing conditions. The Company will provide further details upon the closing of the transaction.
  • The Company today announced that the Board of Directors declared a first quarter cash dividend of $0.23 per share, payable on March 19, 2014 to shareholders of record as of the close of business on March 10, 2014. This represents a 21 percent increase over the Company's fourth quarter 2013 dividend.
  • The Company repurchased 230,700 shares of common stock during the fourth quarter.
  • The Company today announced that the Board of Directors authorized a new program to repurchase up to an aggregate of $125 million of its outstanding common stock over the next two years.

FISCAL YEAR 2014 TARGETS

As described below, the Company is providing certain 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, inclusive of the anticipated closing of approximately 100 small, kiosk locations in the Philippines throughout the year. The closure of these locations is immaterial to Dunkin' Donuts International business segment profit.
  • 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 inclusive of expected savings from the refinancing and is based on diluted weighted average shares for the full year of 108.2 million.

Non-GAAP Measures and Statistical Data

In addition to the GAAP financial measures set forth in this press release, the Company has included certain non-GAAP measurements, adjusted operating income, adjusted operating income margin, adjusted net income, and diluted adjusted earnings per share, which present operating results on a basis adjusted for certain items. The Company uses these non-GAAP measures as key performance measures for the purpose of evaluating performance internally. We also believe these non-GAAP measures provide our investors with useful information regarding our historical operating results. These non-GAAP measures are not intended to replace the presentation of our financial results in accordance with GAAP. Use of the terms adjusted operating income, adjusted operating income margin, adjusted net income, and diluted adjusted earnings per share may differ from similar measures reported by other companies.  Adjusted operating income and adjusted net income are reconciled from the respective measures determined under GAAP in the attached table "Dunkin' Brands Group, Inc. Non-GAAP Reconciliations."

Additionally, the Company has included metrics such as systemwide sales growth and comparable store sales growth, which are commonly used statistical measures in the quick service restaurant industry and are important to understanding the Company's performance.

The Company uses "systemwide sales growth" to refer to the percentage change in sales at both franchisee- and company-owned restaurants from the comparable period of the prior year. Changes in systemwide sales are driven by changes in comparable store sales and changes in the number of restaurants.

The Company uses "DD U.S. comparable store sales growth," "BR U.S. comparable store sales growth," "DD International comparable store sales growth," and "BR International comparable store sales growth," which are calculated by including only sales from franchisee- and company-owned restaurants that have been open at least 54 weeks and that have reported sales in the current and comparable prior year week.

About Dunkin' Brands Group, Inc.

With more than 18,000 point of distribution in nearly 60 countries worldwide, Dunkin' Brands Group, Inc. (Nasdaq: DNKN) is one of the world's leading franchisors of quick service restaurants (QSR) serving hot and cold coffee and baked goods, as well as hard-serve ice cream. At the end of fiscal 2013,  Dunkin' Brands nearly 100 percent franchised business model included nearly 11,000 Dunkin' Donuts restaurants and 7,300 Baskin-Robbins restaurants, which are primarily owned and operated by approximately 2,000 franchisees, licensees and joint venture partners. For the full-year 2013, the company had franchisee-reported sales of approximately $9.3 billion.  Dunkin' Brands Group, Inc. is headquartered in Canton, Mass.

DUNKIN' BRANDS GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

Three months ended

Fiscal year ended

December 28, 

2013

December 29, 

2012

December 28, 

2013

December 29, 

2012

Revenues:

Franchise fees and royalty income

$

119,931

109,121

453,976

418,940

Rental income

23,158

22,957

96,082

96,816

Sales of ice cream products

25,458

16,376

112,276

94,659

Sales at company-owned restaurants

6,715

6,216

24,976

22,922

Other revenues

7,915

7,033

26,530

24,844

Total revenues

183,177

161,703

713,840

658,181

Operating costs and expenses:

Occupancy expenses—franchised restaurants

13,056

13,275

52,097

52,072

Cost of ice cream products

18,091

13,019

79,278

69,019

Company-owned restaurant expenses

6,663

6,166

24,480

23,133

General and administrative expenses, net

53,723

53,024

228,010

239,574

Depreciation

5,462

6,551

22,423

29,084

Amortization of other intangible assets

6,858

6,626

26,943

26,943

Long-lived asset impairment charges

116

328

563

1,278

Total operating costs and expenses

103,969

98,989

433,794

441,103

Net income of equity method investments:

Net income, excluding impairment

3,173

5,037

19,243



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