Dunkin’ Donuts reported fourth quarter and fiscal 2017 earnings Tuesday morning, just two days before its much-anticipated investor earnings day at Fenway Park in Boston. The timing meant executives dangled instead of shared certain key details, although a conference call and release offered some insight into what was a solid period for the brand.
In the fourth quarter, Dunkin’ posted same-store sales growth of 0.8 percent. Baskin-Robbins grew its sales 5.1 percent in the quarter versus the prior-year period. The company added 141 net new restaurants worldwide, including 126 net Dunkin’ Donuts in the U.S. Revenues boosted 5.3 percent, or 9.8 percent on a 13-week basis, and diluted earnings per share jumped 249.2 percent, or $267.2 percent on a 13-week basis to $2.13.
The results just beat Wall Street expectations. Diluted adjusted EPS of 64 cents edged forecasts of 63 cents.
Dunkin’ made progress, executives said in a conference call, when it came to reinforcing its standing as a morning daypart leader—a target Dunkin’ set to start the year.
“Morning comparable store sales increased each quarter sequentially, and we had our highest quarterly beverage comparable sales of the year in the fourth quarter of 2017, driven by iced coffee and Frozen Dunkin' Coffee,” chairman and CEO Nigel Travis said in a statement. “Our strategic focus on morning sales yielded improved customer counts in that critical daypart during the last three quarters of the year and we are actively working to drive afternoon traffic through p.m. beverages and food along with all-day value offers that kicked-off in January.”
David Hoffman, Dunkin’s president of U.S., said in the call that morning 4Q traffic numbers were the strongest they’ve been in two years and improved each quarter, as Travis noted. The quarter also saw record-breaking sales for Dunkin’s breakfast sandwiches, which have gained sales momentum for five straight quarters, Hoffman said, all thanks to a “direct reflection of the strategy we made heading into the year.”
This success is powering Dunkin’ forward and deeper into the clock, Hoffman added. The brand said it now would focus initiatives on bolstering its afternoon business. Again, though, Dunkin’ said more details were forthcoming at Thursday’s investor day.
Dunkin' said its U.S. comps growth in the fourth quarter was driven by increased average ticket offset by a decline in traffic. Growth credited to core breakfast sandwich sales, iced coffee and Frozen Dunkin' Coffee sales, and traditional donut sales.
For fiscal 2017, Dunkin’ saw its U.S. comparable same-store sales grow 0.6 percent. Baskin-Robbins was flat, and the company added 440 net new restaurants, including 313 net new Dunkin’ Donuts in the U.S.
The company also posted robust growth in its retail business. Out-of-restaurant retail sales of Dunkin’ branded consumer packaged goods increased more than 30 percent, delivering about $850 million to the brand, including $150 million in beverage sales.
Dunkin’ also tested a simplified menu across 1,000 restaurants in 2017. Dunkin's new menu removed items such as afternoon sandwich selections and bakery items like danish and cookies, in an effort to reduce operational complexities. The brand said this simplification would reduce labor turnover and allow operators and employees to focus on the basics of customer service. The streamlined menu rolled out to restaurants in two waves beginning in August before expanding out. Dunkin' also announced in early January that it removed artificial dyes from its donuts in the U.S., and that all donuts now sold at Dunkin’ Donuts restaurants nationwide are no longer being made using colors from artificial sources.
By the end of this year, Dunkin’ also said it will remove artificial dyes across its menu, including donut icings, fillings and toppings, as well as frozen beverages such as Coolatta frozen beverages, baked goods, breakfast sandwiches ,and coffee flavorings. Baskin-Robbins will remove synthetic dyes from its menu, including ice cream sold both at its restaurants and in quarts and pints at retail locations, as well as its syrups, sauces, sprinkles and beverages, including Cappuccino Blast as well.
“We strongly believe the simplified menu, which is expected to roll-out nationally by the end of the first quarter, will improve franchisees' profitability and enable us to better serve customers,” Travis said.
Dunkin’ added more than 2 million members to its loyalty Perks program, bringing total membership to about 8 million. Leveraging this expanding base will be a goal for Dunkin’ moving forward.
An example of that is the company’s next-generation store, which debuted January in Quincy, Massachusetts, the home of the brand’s first location nearly seven decades ago.
The restaurant has a drive-thru lane dedicated exclusively to mobile ordering and allows Perks members who order ahead to bypass the ordering lane and merge straight into the line for the pickup window. Dunkin’ claims to be the first national restaurant brand to offer a drive-thru lane specifically for mobile ordering. Back in October, Dunkin’ said its mobile ordering platform, which launched a year ago, now comprises about 3 percent of all transactions.
Dunkin’ said it would speak more about this new look and its potential Thursday. For the quarter, however, 88 restaurants in the U.S. were remodeled to an updated, albeit not this updated, store design.
The company also offered some color into recent tax reform and some of the benefits being seen around the industry. “In January, we announced an approximately 5 percent reduction in our general and administrative expense target in 2018 to two percent of systemwide sales. We are also encouraged by the recently passed tax reform act which includes provisions that we expect to be favorable to the majority of our franchisees as well as net beneficial to Dunkin' Brands,” said Kate Jaspon, Dunkin’s chief financial officer, in a statement.
Jaspon said in the call Dunkin’ expects its 2018 effective tax rate to be about 28 percent, which is a significant reduction from 2017’s 38.5 percent. How this measures out exactly is also something the company will delve further into at its investor day, Jaspon said.
But Jaspon, as well as Travis, mentioned they expect a positive impact for the chain’s 100 percent franchised system moving forward.
Hoffman said in the call that 2018 will be “a year of foundation setting” for Dunkin’ Donuts, and that people can expect menu improvements, more value, back-of-the house and design improvements, as well as a strengthening innovation pipeline to take form.