Industry News | February 9, 2017

Dunkin' Donuts Opened 723 Restaurants in 2016

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Dunkin' Brands Group, Inc., the parent company of Dunkin' Donuts (DD) and Baskin-Robbins (BR), reported results for the 14-week fiscal fourth quarter and 53-week fiscal year ended December 31, 2016.

Fiscal year 2016 highlights include:

Dunkin' Donuts U.S. comparable store sales growth of 1.6 percent

Baskin-Robbins U.S. comparable store sales growth of 0.7 percent

Added 723 net new restaurants worldwide, including 397 net new Dunkin' Donuts in the U.S.

Revenues increased 2.2 percent, or 1.1 percent on a 52-week basis

Diluted EPS increased 95.4 percent to $2.11, or 92.6 percent to $2.08 on a 52-week basis

Diluted adjusted EPS increased 17.1 percent to $2.26, or 15.5 percent to $2.23 on a 52-week basis

Fourth quarter highlights include:

Dunkin' Donuts U.S. comparable store sales growth of 1.9 percent

Baskin-Robbins U.S. comparable store sales decline of 0.9 percent

Added 296 net new restaurants worldwide, including 199 net new Dunkin' Donuts in the U.S.

Revenues increased 5.8 percent, or 1.5 percent on a 13-week basis

Diluted EPS increased $0.71 to $0.61, or $0.68 to $0.58 on a 13-week basis

Diluted adjusted EPS increased 23.1 percent to $0.64, or 17.3% to $0.61 on a 13-week basis

"This past year was one of significant achievement for Dunkin' Donuts U.S. We began executing against a six-part strategy to drive growth by positioning Dunkin' as a to-go, coffee beverages brand, and while much work remains, we made considerable progress with our plan, in particular with utilizing digital technology to drive customer loyalty and store traffic. We now have more than 6 million Perks members, have launched On-The-Go ordering nationally, have grown mobile payments by nearly 70 percent, and had nearly $1 billion in systemwide sales on the Dunkin' Gift Card, the backbone of our digital ecosystem, as a form of payment," says Nigel Travis, Dunkin' Brands chairman and CEO. "We also made considerable progress with our efforts to increase consumption of Dunkin' Donuts coffee through our consumer packaged goods initiative and last summer signed an agreement with The Coca-Cola Company, along with its bottling partners, to manufacture, distribute and sell Dunkin' Donuts branded ready-to-drink bottled iced coffee beverages. Between retail sales of Dunkin' bottled iced coffee, K-Cups, bagged coffee and in-restaurant system-wide sales of ready-brewed coffee, we expect consumers to drink nearly 5 billion cups of Dunkin' Donuts coffee globally in 2017."

"We're proud to have delivered our operating income growth target and exceeded our earnings per share target for the fiscal year 2016. Additionally, we're pleased to announce this morning that the Board of Directors increased our quarterly dividend by 7.5 percent over the prior quarter," says Paul Carbone, Dunkin' Brands Chief Financial Officer.

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 78 weeks or more).

Dunkin' Donuts U.S. comparable store sales growth in the fourth quarter was driven by increased average ticket offset by a decline in traffic. Growth was driven by beverage sales, led by Cold Brew; breakfast sandwich sales, led by the Sweet Black Pepper Bacon breakfast sandwich; as well as donut sales.

Baskin-Robbins U.S. comparable store sales were negative during the fourth quarter driven by a decline in traffic offset by increased average ticket. Increased average ticket was driven by cups and cones, due equally to scoops and the new Warm Cookie Sandwich platform. Sales of desserts were also up, driven by both the new Polar Pizza platform and increases in online ordering.

In the fourth quarter, Dunkin' Brands franchisees and licensees opened 296 net new restaurants around the globe. This included 199 net new Dunkin' Donuts U.S. locations (including the closing of 2 Speedway self-serve coffee stations), 41 net new Baskin-Robbins International locations, 51 net new Dunkin' Donuts International locations, and 5 net new Baskin-Robbins U.S. locations. Additionally, Dunkin' Donuts U.S. franchisees remodeled 151 restaurants and Baskin-Robbins U.S. franchisees remodeled 63 restaurants during the quarter.

Revenues for the fourth quarter increased $11.9 million, or 5.8 percent, compared to the prior year period due primarily to increased royalty income driven by the extra week in the current year period, as well as an increase in franchise fees due to additional renewal income. These increases in revenues were offset by a decrease in sales at company-operated restaurants driven by a net decrease in the number of company-operated restaurants. All remaining company-operated points of distribution were sold during the fourth quarter. Revenues for the fourth quarter increased 1.5 percent on a 13-week basis.

Operating income and adjusted operating income for the fourth quarter increased $70.4 million, or 161.9 percent, and $15.3 million, or 14.8 percent, respectively, from the prior year period primarily as a result of the increases in royalty income and franchise fees, as well as gains recognized in connection with the sale of company-operated restaurants, offset by an increase in general and administrative expenses. Additionally, operating income in the prior year period was unfavorably impacted by an impairment of our Japan joint venture. Operating income and adjusted operating income for the fourth quarter increased 147.9 percent and 8.9 percent, respectively, from the prior year period on a 13-week basis.

Net income for the fourth quarter increased by $65.1 million to $56.1 million compared to the prior year period primarily as a result of the impairment of our Japan joint venture recorded in the prior year period, as well as other increases in operating income, offset by increases in income tax expense and interest expense. Net income for the fourth quarter increased $62.5 million to $53.6 million on a 13-week basis.

Adjusted net income increased $10.5 million, or 21.4 percent, to $59.4 million compared to the prior year period primarily as a result of the increase in adjusted operating income of $15.3 million, offset by increases in income tax expense and interest expense. Adjusted net income for the fourth quarter increased 16.2 percent on a 13-week basis.

Diluted earnings per share for the fourth quarter increased by $0.71 to $0.61, and diluted adjusted earnings per share increased $0.12, or 23.1 percent, to $0.64, compared to the prior year period as a result of the increases in net income and adjusted net income, respectively, as well as a decrease in shares outstanding. The decrease in shares outstanding from the prior year period was due primarily to the repurchase of shares since the fourth quarter of 2015, offset by the exercise of stock options. On a 13-week basis, diluted earnings per share for the fourth quarter increased $0.68 to $0.58, and diluted adjusted earnings per share increased $0.09, or 17.3%, to $0.61, compared to the prior year period.

Dunkin' Donuts U.S. fourth quarter revenues of $163.1 million represented an increase of 6.5 percent compared to the prior year period. The increase was primarily a result of increased royalty income driven by the extra week in the current year period, as well as an increase in franchise fees due to an increase in renewal income. These increases in revenues were offset by a decline in sales at company-operated restaurants driven by a net decrease in the number of company-operated restaurants. All remaining company-operated points of distribution were sold during the fourth quarter.

Dunkin' Donuts U.S. segment profit in the fourth quarter increased to $131 million, an increase of $15.2 million over the prior year period, driven primarily by the increase in royalty income and a gain recognized in connection with the sale of company-operated restaurants, as well as the increase in franchise fees. These increases in segment profit were offset by an increase in general and administrative expenses.

Dunkin' Donuts International fourth quarter systemwide sales increased 8.6 percent from the prior year period driven primarily by sales growth in the Middle East, Asia, South Korea, and South America. On a constant currency basis, systemwide sales increased by approximately 9%.

Dunkin' Donuts International fourth quarter revenues of $6.0 million represented a decrease of 5.7 percent from the prior year period. The decrease in revenues was primarily a result of a decline in franchise fees, offset by an increase in royalty income.

Segment profit for Dunkin' Donuts International increased $0.2 million to $3.2 million in the fourth quarter primarily as a result of a reduction in general and administrative expenses driven by a recovery of bad debt related to our Spain joint venture, offset by a decrease in net income from our South Korea joint venture and the decrease in revenues.

Baskin-Robbins U.S. fourth quarter revenues increased 3.7% from the prior year period to $9.4 million due primarily to an increase in other revenues driven by an increase in licensing income, as well as an increase in royalty income, both of which were driven by the extra week in the current year period. These increases in revenues were offset by a decrease in sales of ice cream and other products.

Segment profit for Baskin-Robbins U.S. increased to $5.1 million in the fourth quarter, an increase of 33.4%, primarily as a result of a reduction in general and administrative expenses, due primarily to expenses incurred in the prior year period related to brand-building activities, as well as the increases in other revenues and royalty income.

Baskin-Robbins International systemwide sales increased 6.5% in the fourth quarter compared to the prior year period driven by sales growth in Japan and South Korea, offset by declines in the Middle East and Europe. Sales in both Japan and South Korea were positively impacted by favorable foreign exchange rates. On a constant currency basis, systemwide sales increased by approximately 3 percent.

Baskin-Robbins International fourth quarter revenues increased 6.0% from the prior year period to $29.4 million due primarily to an increase in sales of ice cream products to our licensees in Asia and the Middle East. Systemwide sales and sales of ice cream products are not directly correlated within a given period due to the lag between shipment of products to licensees and retail sales at franchised restaurants, as well as the overall timing of deliveries between fiscal quarters.

Fourth quarter segment profit increased 4.6% from the prior year period to $8.4 million as a result of an increase in net income from our Japan joint venture, as well as an increase in net margin on ice cream driven by the increase in sales volume. These increases in segment profit were offset by a decrease in net income from our South Korea joint venture and an increase in general and administrative expenses.

COMPANY UPDATES

The company announced that the Board of Directors declared a cash dividend of $0.3225 per share, payable on March 22, 2017, to shareholders of record as of the close of business on March 13, 2017. This represents a 7.5 percent increase over the prior quarter's dividend.

FISCAL YEAR 2017 TARGETS

As described below, the company is providing the following targets regarding its 2017 performance:

The company expects low single digit comparable store sales growth for Dunkin' Donuts U.S. and Baskin-Robbins U.S.

The company expects Dunkin' Donuts U.S. franchisees to add approximately 385 net new restaurants. It expects Baskin-Robbins U.S. franchisees to add approximately 10 net new restaurants.

Internationally, the company expects franchisees and licensees to add approximately 200 net new restaurants across the two brands.

The company expects low-to-mid single digit revenue growth on both a 52- and 53-week basis (fiscal year 2016 was a 53-week year).

The company expects mid-to-high single digit GAAP operating income and adjusted operating income growth on both a 52- and 53-week basis.

The company expects GAAP diluted earnings per share of $2.16 to $2.24 and diluted adjusted earnings per share of $2.34 to $2.37.

The company expects full-year weighted-average shares outstanding of approximately 93 million and a 38.5 percent effective tax rate.

News and information presented in this release has not been corroborated by QSR, Food News Media, or Journalistic, Inc.