Dunkin' Brands lifted by coffee platform

Dunkin' Brands' first quarter 2012 featured a 19.8 percent jump in operating income, and a 9.5 percent increase in revenue. Domestically, the company's two brands yielded strong performances, with Dunkin' Donuts' U.S. comparable store sales up 7.2 percent, and Baskin-Robbins' up 9.4 percent

During this morning's earnings call, CEO Nigel Travis said the core Dunkin' Donuts U.S. segment is thriving. This segment makes up 70 percent of the parent company's revenue.

"We're seeing a growth in both ticket and traffic behind a strong beverage platform - especially cold beverages," he said.

The brand focused on iced coffee during the unseasonably warm Q1 months and, overall, the entire coffee platform was given a boost from the "What Are You Drinkin'?" marketing campaign.

While beverages are Dunkin' Donuts' core product offering, the company also received positive results from strong breakfast sales in Q1.

"This is a key component to drive unit economics for our franchisees. The Angus Steak & Egg Sandwich and a national promotion of our bakery sandwich line continued our strategy of providing innovative and differentiated offerings to give guests a reason to visit throughout the day," Travis said.

Dunkin' Donuts' limited-time offering pipeline was also strong in this quarter, including the sausage pancake bites and heart-shaped donuts launched in February to complement Valentine's Day. This holiday promotion yielded the highest donut sales day and week on record at the company, and Travis said they will keep trying similar programs.

Other drivers of Dunkin' Donuts' Q1 growth were:

  • The K-Cup platform, launched last year. Travis said this momentum has not dissipated as expected following the holiday rush, nor has it cannibalized Dunkin's in-store coffee sales. The company anticipates increased marketing around this platform.
  • Guest satisfaction scores at all-time high. "Where we've improved is in accuracy, cleanliness, service and particularly speed," Travis said.
  • Technology upgrades. As part of Dunkin' Brands' technology platform, 90 percent of restaurants have a new POS system installed and more than 70 percent now have scanners. A complete rollout is expected later this year. "This standardized system has many benefits: better labor, inventory and cash management to improved speed of service and accuracy," said Neil Moses, CFO. "It is also the backbone for more targeted programs coming out, such as mobile payments and loyalty programs."

Executives also expressed excitement about the new partnership with Coca-Cola.

"This will give our guests an even greater array of outstanding beverage choices and we're excited about the marketing opportunities, too," Travis said.

Baskin-Robbins U.S.

Baskin-Robbins U.S. turned in its third consecutive positive comp quarter. Travis said the unusually warm winter helped, but the main drivers were a focus on store-level operations, guest experience innovation and the "More Flavors, More Fun" marketing campaign.

The Valentine's Day cake bites were "very successful," and served as a sampling vehicle for the brand's custom cake business. Travis hinted at expanding this offering. Also performing well were the featured flavors of the month and the seasonal rotation flavors.

Other segments

Dunkin' Brands also provided an update on its Dunkin' Donuts contiguous expansion strategy, and anticipates 260 to 280 net new units in 2012, with a goal of sustaining 5 percent growth in the next few years.

"The best testament of our system is that our franchisees continue to grow with us," Travis said. "We believe it's a sign of their commitment to the brand and the health of their network."

International business for both Dunkin' Donuts and Baskin-Robbins experienced a boost.

Baskin-Robbins' 7.6 percent increase was driven by strong product innovation, including a new cake that features up to eight different flavors in one. Also, a new line of hot desserts, such as brownies and Lava Cake served over ice cream, was launched in the U.K. and Middle East. The new international store design - now in place in 400 restaurants globally - also continues to perform well.

Dunkin' Donuts International is coming off what executives called a challenging year.

"2012 will be a rebuilding year. We're seeing traction in marketing initiatives and using the 'What Are You Drinkin'?' campaign to drive global business. We're also starting to utilize an LTO strategy like we do in the U.S.," Travis said.

Outlook

The company expects Dunkin' Donuts U.S. comp store sales to be in the 4 to 5 percent range for the entire year, while Baskin-Robbins is expected to finish in the 2 to 4 percent range.

Dunkin' Brands continues to target opening 550 to 650 net new units globally. It expects that Dunkin' Donuts U.S. will add between 260 and 280 net new units and Baskin-Robbins U.S. will close between 60 and 80 restaurants.

Internationally, the company continues to target 350 to 450 net new units between the two brands.

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