Dunkin' Brands Results

Dunkin' Brands Reports Fourth Quarter and Fiscal Year 2019 Results

Fiscal year 2019 highlights include:

  • Dunkin' U.S. comparable store sales growth of 2.1%
  • Baskin-Robbins U.S. comparable store sales growth of 0.8%
  • Added 385 net new Dunkin' and Baskin-Robbins locations globally, including 211 net new Dunkin' locations in the U.S.
  • Revenues increased 3.7%
  • Diluted EPS increased by 6.6% to $2.89
  • Diluted adjusted EPS increased by 9.3% to $3.17

Fourth quarter highlights include:

  • Dunkin' U.S. comparable store sales growth of 2.8%
  • Baskin-Robbins U.S. comparable store sales growth of 4.1%
  • Added 146 net new Dunkin' and Baskin-Robbins locations globally, including 76 net new Dunkin' locations in the U.S.
  • Revenues increased 5.1%
  • Diluted EPS increased by 7.8% to $0.69
  • Diluted adjusted EPS increased by 7.4% to $0.73

Dunkin' Brands Group, Inc. (Nasdaq: DNKN), the parent company of Dunkin' and Baskin-Robbins (BR), today reported results for the fourth quarter and fiscal year ended December 28, 2019.

"Our strong performance in 2019 is indicative of the progress we're making to transform our two beloved brands around the world. All business segments delivered positive comparable store sales growth in the fourth quarter and for the fiscal year, reflecting broad-based momentum across the system," said Dave Hoffmann, Dunkin' Brands Chief Executive Officer. "We had a strong finish to the year, led by Dunkin' U.S. comparable store sales growth of 2.8 percent in the fourth quarter, the highest quarterly comparable sales growth in six years, fueled by espresso and cold brew sales, coupled with the successful launch of the Beyond Sausage® Sandwich, and sustained performance of our national value platforms. Better quality food and beverage enabled by better equipment is a cornerstone of the Dunkin' Blueprint for Growth, which is the reason we are investing $60 million in high-volume brewers for our franchisees' restaurants in 2020 as part of our commitment to beverage leadership."

"We are pleased to have delivered on our revenue, operating income, and earnings per share targets for 2019. We also achieved our Dunkin' U.S. net development goal for the year, exceeded our first-year sales goals for new restaurants, and ended the year with more than 500 new and remodeled NextGen restaurants," said Kate Jaspon, Dunkin' Brands Chief Financial Officer. "We will be exiting 450 limited-menu Dunkin' Speedway owned and operated locations throughout 2020, closing under a termination agreement entered into with Speedway.  These limited-menu locations are lower volume units, in total representing less than 0.5 percent of Dunkin' U.S. annual systemwide sales.  By exiting these sites, with minimal financial impact, we're confident we'll be better positioned to serve many of these trade areas in the coming years with new Dunkin' NextGen restaurants that offer a broader menu."

FISCAL YEAR 2019 KEY FINANCIAL HIGHLIGHTS

(Unaudited, $ in millions, except per share data)

Fiscal year ended

Increase (Decrease)

Amounts and percentages may not recalculate due to rounding

December 28,

2019

December 29,

2018

$ / #

%

Financial data:

Revenues

$

1,370.2

1,321.6

48.6

3.7

%

Operating income

451.1

411.8

39.2

9.5

%

Operating income margin

32.9

%

31.2

%

Adjusted operating income(1)

$

470.1

434.6

35.5

8.2

%

Adjusted operating income margin(1)

34.3

%

32.9

%

Net income

$

242.0

229.9

12.1

5.3

%

Adjusted net income(1)

265.1

246.3

18.8

7.6

%

Earnings per share:

Common–basic

2.92

2.75

0.17

6.2

%

Common–diluted

2.89

2.71

0.18

6.6

%

Diluted adjusted earnings per share(1)

3.17

2.90

0.27

9.3

%

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

83.7

85.0

(1.3)

(1.5)

%

Systemwide sales(2)

$

12,174.9

11,634.0

540.9

4.6

%

Comparable store sales growth (decline):

Dunkin' U.S.

2.1

%

0.6

%

BR U.S.

0.8

%

(0.6)

%

Dunkin' International

5.7

%

2.2

%

BR International

1.9

%

3.8

%

Development data:

Consolidated global net POD development

385

392

(7)

(1.8)

%

Dunkin' global PODs at period end

13,137

12,871

266

2.1

%

BR global PODs at period end

8,160

8,041

119

1.5

%

Consolidated global PODs at period end

21,297

20,912

385

1.8

%

(1) 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 certain other items, 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. See "Non-GAAP Measures and Statistical Data" and "Dunkin' Brands Group, Inc. Non-GAAP Reconciliations" for further detail.

(2) Systemwide sales include sales at franchisee-operated restaurants, including joint ventures. While we do not record sales by franchisees, licensees, or joint ventures as revenue, and such sales are not included in our consolidated financial statements, we believe that this operating measure is important in obtaining an understanding of our financial performance. We believe systemwide sales information aids in understanding how we derive royalty revenue and in evaluating our performance relative to competitors.

FOURTH QUARTER 2019 KEY FINANCIAL HIGHLIGHTS

(Unaudited, $ in millions, except per share data)

Three months ended

Increase (Decrease)

Amounts and percentages may not recalculate due to rounding

December 28,

2019

December 29,

2018

$ / #

%

Financial data:

Revenues

$

335.9

319.6

16.3

5.1

%

Operating income

105.7

96.6

9.1

9.4

%

Operating income margin

31.5

%

30.2

%

Adjusted operating income(1)

$

110.5

102.2

8.3

8.1

%

Adjusted operating income margin(1)

32.9

%

32.0

%

Net income

$

57.7

53.2

4.5

8.5

%

Adjusted net income(1)

61.2

57.3

3.9

6.8

%

Earnings per share:

Common–basic

0.70

0.64

0.06

9.4

%

Common–diluted

0.69

0.64

0.05

7.8

%

Diluted adjusted earnings per share(1)

0.73

0.68

0.05

7.4

%

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

83.7

83.7

0.0

(0.1)

%

Systemwide sales(2)

$

3,049.2

2,876.2

173.0

6.0

%

Comparable store sales growth (decline):

Dunkin' U.S.

2.8

%

0.0

%

BR U.S.

4.1

%

(3.7)

%

Dunkin' International

6.9

%

1.1

%

BR International

3.2

%

1.5

%

Development data:

Consolidated global net POD development

146

148

(2)

(1.4)

%

Dunkin' global PODs at period end

13,137

12,871

266

2.1

%

BR global PODs at period end

8,160

8,041

119

1.5

%

Consolidated global PODs at period end

21,297

20,912

385

1.8

%

(1) 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 certain other items, 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. See "Non-GAAP Measures and Statistical Data" and "Dunkin' Brands Group, Inc. Non-GAAP Reconciliations" for further detail.

(2) Systemwide sales include sales at franchisee-operated restaurants, including joint ventures. While we do not record sales by franchisees, licensees, or joint ventures as revenue, and such sales are not included in our consolidated financial statements, we believe that this operating measure is important in obtaining an understanding of our financial performance. We believe systemwide sales information aids in understanding how we derive royalty revenue and in evaluating our performance relative to competitors.

Global systemwide sales growth of 6.0% in the fourth quarter was primarily attributable to global comparable store sales growth and global store development.

Dunkin' U.S. comparable store sales grew 2.8% in the fourth quarter as an increase in average ticket was partially offset by a decrease in traffic. The increase in average ticket was driven by favorable mix shift to premium priced espresso and cold brew beverages, as well as the successful launch of the Beyond Sausage Sandwich, an addition to the high end of our breakfast sandwich barbell strategy, coupled with strategic pricing increases which were partially offset by discounting driven by national value platforms.

Baskin-Robbins U.S. comparable store sales grew 4.1% in the fourth quarter driven by an increase in average ticket and an increase in traffic. Comparable store sales growth was led by the strong performance of cups and cones, beverages, take home, and sundaes.

In the fourth quarter, Dunkin' Brands franchisees and licensees opened 146 net new restaurants globally. This included 76 net new Dunkin' U.S. locations, 62 Baskin-Robbins International locations, and 26 Dunkin' International locations, offset by net closures of 18 Baskin-Robbins U.S. locations. Additionally, Dunkin' U.S. franchisees remodeled 40 restaurants and Baskin-Robbins U.S. franchisees remodeled 11 restaurants during the quarter.

Revenues for the fourth quarter increased $16.3 million, or 5.1%, compared to the prior year period due primarily to increases in royalty income and advertising fees and related income as a result of Dunkin' U.S. systemwide sales growth, as well as an increase in rental income, offset by decreases in franchise fees and sales of ice cream and other products. The increase in rental income resulted from the adoption of the new lease accounting standard in the first quarter of fiscal year 2019, which requires gross presentation of certain lease costs that the Company passes through to franchisees. See "Adoption of New Accounting Standard" for further detail. The decrease in franchise fees was due primarily to additional franchisee incentives, including investments to support the Dunkin' U.S. Blueprint for Growth which are being recognized over the remaining term of each respective franchise agreement.

Operating income and adjusted operating income for the fourth quarter increased $9.1 million, or 9.4%, and $8.3 million, or 8.1%, respectively, compared to the prior year period primarily as a result of the increase in royalty income and a decrease in general and administrative expenses, offset by the decrease in franchise fees.

Net income and adjusted net income for the fourth quarter increased by $4.5 million, or 8.5%, and $3.9 million, or 6.8%, respectively, compared to the prior year period primarily as a result of the increases in operating income and adjusted operating income, respectively, offset by an increase in income tax expense. The increase in income tax expense was driven primarily by the increase in income in the current year period and excess tax benefits of $3.2 million in the prior year period compared to an immaterial amount recognized in the current year period, offset by a valuation allowance recorded on foreign tax credit carryforwards of $1.8 million in the prior year period.

Diluted earnings per share and diluted adjusted earnings per share for the fourth quarter increased by 7.8% to $0.69 and 7.4% to $0.73, respectively, compared to the prior year period as a result of the increases in net income and adjusted net income, respectively. Excluding the impact of recognized excess tax benefits, both diluted earnings per share and diluted adjusted earnings per share would have been lower by approximately $0.04 for the fourth quarter of fiscal year 2018. Recognized excess tax benefits had no per share impact on diluted earnings per share and diluted adjusted earnings per share for the fourth quarter of fiscal year 2019.

FOURTH QUARTER 2019 SEGMENT RESULTS

Amounts and percentages may not recalculate due to rounding

Three months ended

Increase (Decrease)

Dunkin' U.S.

December 28,

2019

December 29,

2018

$ / #

%

(Unaudited, $ in thousands except as otherwise noted)

Revenues:

Royalty income

$

130,606

123,024

7,582

6.2

%

Franchise fees

2,779

3,717

(938)

(25.2)

%

Rental income

29,064

24,179

4,885

20.2

%

Other revenues

919

1,305

(386)

(29.6)

%

Total revenues

$

163,368

152,225

11,143

7.3

%

Segment profit

$

124,305

119,802

4,503

3.8

%

Comparable store sales growth

2.8

%

0.0

%

Systemwide sales (in millions)(1)

$

2,353.7

2,228.3

125.3

5.6

%

Points of distribution

9,630

9,419

211

2.2

%

Gross openings

123

142

(19)

(13.4)

%

Net openings

76

106

(30)

(28.3)

%

(1) Systemwide sales include sales at franchisee-operated restaurants, including joint ventures. We do not record sales by franchisees, licensees, or joint ventures as revenue and such sales are not included in our consolidated financial statements. See "Non-GAAP Measures and Statistical Data" for further detail.

Dunkin' U.S. fourth quarter revenues of $163.4 million represented an increase of 7.3% compared to the prior year period. The increase was primarily a result of an increase in royalty income driven by systemwide sales growth, as well as an increase in rental income, offset by a decrease in franchise fees due primarily to additional franchisee incentives, including investments to support the Dunkin' U.S. Blueprint for Growth which are being recognized over the remaining term of each respective franchise agreement. The increase in rental income resulted from the adoption of the new lease accounting standard in the first quarter of fiscal year 2019. See "Adoption of New Accounting Standard" for further detail.

Dunkin' U.S. segment profit in the fourth quarter increased to $124.3 million, an increase of $4.5 million over the prior year period, driven primarily by the increase in royalty income, offset by an increase in general and administrative expenses and the decrease in franchise fees.

Amounts and percentages may not recalculate due to rounding

Three months ended

Increase (Decrease)

Dunkin' International

December 28,

2019

December 29, 

2018

$ / #

%

(Unaudited, $ in thousands except as otherwise noted)

Revenues:

Royalty income

$

5,949

5,249

700

13.3

%

Franchise fees

(385)

159

(544)

(342.1)

%

Other revenues

114

54

60

111.1

%

Total revenues

$

5,678

5,462

216

4.0

%

Segment profit

$

2,852

3,140

(288)

(9.2)

%

Comparable store sales growth

6.9

%

1.1

%

Systemwide sales (in millions)(1)

$

225.1

206.9

18.1

8.8

%

Points of distribution

3,507

3,452

55

1.6

%

Gross openings

94

99

(5)

(5.1)

%

Net openings

26

25

1

4.0

%

(1) Systemwide sales include sales at franchisee-operated restaurants, including joint ventures. We do not record sales by franchisees, licensees, or joint ventures as revenue and such sales are not included in our consolidated financial statements. See "Non-GAAP Measures and Statistical Data" for further detail.

Dunkin' International fourth quarter systemwide sales increased 8.8% from the prior year period driven by sales growth in the Middle East, Asia, and Europe, offset by a sales decline in South Korea. Sales in South Korea and Latin America were negatively impacted by unfavorable foreign exchange rates, while sales in Asia were positively impacted by favorable foreign exchange rates. On a constant currency basis, systemwide sales increased by approximately 10%.

Dunkin' International fourth quarter revenues of $5.7 million represented an increase of 4.0% from the prior year period. The increase in revenues was primarily a result of an increase in royalty income driven by systemwide sales growth, offset by a decrease in franchise fees due primarily to additional franchisee incentives to support brand-building activities in certain international markets.

Segment profit for Dunkin' International decreased $0.3 million to $2.9 million in the fourth quarter primarily as a result of an increase in general and administrative expenses driven primarily by an increase in bad debt expense, offset by the increase in revenues.

Amounts and percentages may not recalculate due to rounding

Three months ended

Increase (Decrease)

Baskin-Robbins U.S.

December 28, 

2019

December 29,

 2018

$ / #

%

(Unaudited, $ in thousands except as otherwise noted)

Revenues:

Royalty income

$

5,482

5,335

147

2.8

%

Franchise fees

373

365

8

2.2

%

Rental income

689

668

21

3.1

%

Sales of ice cream and other products

771

835

(64)

(7.7)

%

Other revenues

1,927

1,922

5

0.3

%

Total revenues

$

9,242

9,125

117

1.3

%

Segment profit

$

3,822

3,918

(96)

(2.5)

%

Comparable store sales growth (decline)

4.1

%

(3.7)

%

Systemwide sales (in millions)(1)

$

115.7

110.9

4.9

4.4

%

Points of distribution

2,524

2,550

(26)

(1.0)

%

Gross openings

19

24

(5)

(20.8)

%

Net closings

(18)

(8)

(10)

n/m

(1) Systemwide sales include sales at franchisee-operated restaurants, including joint ventures. We do not record sales by franchisees, licensees, or joint ventures as revenue and such sales are not included in our consolidated financial statements. See "Non-GAAP Measures and Statistical Data" for further detail.

Baskin-Robbins U.S. fourth quarter revenues increased 1.3% from the prior year period to $9.2 million due primarily to an increase in royalty income driven by systemwide sales growth, offset by a decrease in sales of ice cream and other products.

Segment profit for Baskin-Robbins U.S. decreased to $3.8 million in the fourth quarter, a decrease of 2.5%, primarily as a result of an increase in general and administrative expenses, offset by the increase in royalty income.

Amounts and percentages may not recalculate due to rounding

Three months ended

Increase (Decrease)

Baskin-Robbins International

December 28,

2019

December 29,

2018

$ / #

%

(Unaudited, $ in thousands except as otherwise noted)

Revenues:

Royalty income

$

1,603

1,695

(92)

(5.4)

%

Franchise fees

151

184

(33)

(17.9)

%

Rental income

227

141

86

61.0

%

Sales of ice cream and other products

21,165

22,278

(1,113)

(5.0)

%

Other revenues

(37)

6

(43)

(716.7)

%

Total revenues

$

23,109

24,304

(1,195)

(4.9)

%

Segment profit

$

7,158

5,213

1,945

37.3

%

Comparable store sales growth

3.2

%

1.5

%

Systemwide sales (in millions)(1)

$

354.8

330.0

24.7

7.5

%

Points of distribution

5,636

5,491

145

2.6

%

Gross openings

123

81

42

51.9

%

Net openings

62

25

37

148.0

%

(1) Systemwide sales include sales at franchisee-operated restaurants, including joint ventures. We do not record sales by franchisees, licensees, or joint ventures as revenue and such sales are not included in our consolidated financial statements. See "Non-GAAP Measures and Statistical Data" for further detail.

Baskin-Robbins International systemwide sales increased 7.5% in the fourth quarter compared to the prior year period driven by sales growth in South Korea, the Middle East, Europe, and Japan. Sales in South Korea were negatively impacted by unfavorable foreign exchange rates, while sales in Japan were positively impacted by favorable foreign exchange rates. On a constant currency basis, systemwide sales increased by approximately 8%.

Baskin-Robbins International fourth quarter revenues of $23.1 million represented a decrease of 4.9% from the prior year period due primarily to a decrease in sales of ice cream and other products. Systemwide sales and sales of ice cream products are not directly correlated within a given period due to certain licensees sourcing their own ice cream products, the lag between shipment of products to licensees and retail sales at franchised restaurants, and the overall timing of deliveries between fiscal quarters.

Fourth quarter segment profit increased 37.3% from the prior year period to $7.2 million primarily as a result of a decrease in general and administrative expenses due primarily to a decrease in consulting fees, as well as an increase in net income from our South Korea joint venture.

Three months ended

Increase (Decrease)

U.S. Advertising Funds

December 28,

2019

December 29,

2018

$ / #

%

(Unaudited, $ in thousands)

Revenues:

Advertising fees and related income

$

118,595

113,059

5,536

4.9

%

Total revenues

$

118,595

113,059

5,536

4.9

%

Segment profit

$

%

U.S. Advertising Funds fourth quarter revenues of $118.6 million represented an increase of 4.9% compared to the prior year period driven primarily by Dunkin' U.S. systemwide sales growth. Expenses for the U.S. Advertising Funds were equivalent to revenues in each period, resulting in no segment profit.

COMPANY UPDATES

  • During the fourth quarter, the Company returned $36.0 million to shareholders, including $31.1 million in dividends and $4.9 million through open market repurchases of approximately 65,000 shares. The Company's shares outstanding as of December 28, 2019 were 82,834,830.
  • The Company today announced that the Board of Directors declared a cash dividend of $0.4025 per share, payable on March 18, 2020, to shareholders of record as of the close of business on March 9, 2020. This represents a 7.3 percent increase over the prior quarter's dividend.
  • The Company today announced that the Board of Directors approved a new program for the repurchase of up to $250 million of the Company's common stock. The authorization is good for a period of two years.

FISCAL YEAR 2020 TARGETS

The Company is providing the following fiscal year 2020 performance targets:

  • The Company expects low-single digit comparable store sales growth for Dunkin' U.S. and low-single digit comparable store sales growth for Baskin-Robbins U.S.
  • The Company expects to open between 200 to 250 net new Dunkin' U.S. units, excluding approximately 450 limited menu Dunkin' Speedway locations which are closing under a termination agreement entered into with Speedway and are expected to close by fiscal year end 2020. These locations represented less than 0.5% of Dunkin' U.S. annual systemwide sales in 2019. As a result of this strategic decision, in 2020 the Company will report development results both with and without the Speedway closures included until the exit is completed.
  • The Company expects new Dunkin' U.S. restaurants opened in 2020 will contribute greater than $140 million in systemwide sales in 2020.
  • The Company expects Baskin-Robbins U.S. franchisees to close approximately 25 net units.
  • The Company expects low-to-mid single digit percent revenue growth.
  • The Company expects ice cream margin dollars to be flat compared to 2019.
  • The Company expects net income of equity method investments (JV net income) to be flat compared to 2019.
  • The Company expects low-single digit percent growth to general and administrative expenses.
  • The Company expects mid-single digit percent operating and adjusted operating income growth, reflecting an approximately $60 million strategic investment for continued beverage leadership.
  • The Company expects its full-year effective tax rate to be approximately 27% and expects net interest expense to be approximately $121 million.
  • The Company expects full-year weighted-average shares outstanding of approximately 84 million.
  • The Company expects GAAP diluted earnings per share of $2.96 to $3.05 and diluted adjusted earnings per share of $3.16 to $3.21.
  • The Company expects capital expenditures to be approximately $40 million.

LONG-TERM TARGETS*

The Company reiterates its previously announced long-term targets through fiscal year 2021:

  • The Company expects low-single digit percent comparable store sales growth for Dunkin' U.S.
  • The Company expects Dunkin' U.S. franchisees to open between 200 and 250 net new units annually.
  • The Company expects low-to-mid single digit percent revenue growth.
  • The Company expects low-single digit percent general and administrative expense growth.
  • The Company expects mid-to-high single digit percent operating and adjusted operating income growth (in 2021).

*Dunkin' Brands announced its long-term targets on February 7, 2019.

About Dunkin' Brands Group, Inc.

With more than 21,000 points of distribution in more than 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 the fourth quarter 2019, Dunkin' Brands' 100 percent franchised business model included over 13,000 Dunkin' restaurants and more than 8,000 Baskin-Robbins restaurants. Dunkin' Brands Group, Inc. is headquartered in Canton, Mass.



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