Dunkin’ Brands reports Q2 earnings; launches K-cups

Aug. 2, 2011 | by Alicia Kelso

Massachusetts-based Dunkin' Brands Group Inc., parent company of Dunkin' Donuts and Baskin-Robbins, today reported results for the second quarter ended June 25, the company's first quarterly earnings call as a public company.

Although net income was down slightly – $17.2 million compared to $17.3 million for the prior-year period – the company's international numbers and expansion are efforts up.

"We delivered strong results for the quarter as a result of our continued focus on driving comparable store sales, expanding contiguously in the U.S., and accelerating international growth across both brands," said Nigel Travis, CEO, Dunkin' Brands Inc. and president, Dunkin' Donuts. "Our emphasis on operational excellence and exciting product innovations, supported by great marketing, produced strong global system-wide sales and comparable store sales growth for Dunkin' Donuts U.S., while our franchisees and licensees continued to drive new store growth, both domestically and internationally."

Highlights from Q2

Global system-wide sales increased approximately 6.9 percent over second quarter 2010, or 5.5 percent on a constant currency basis, for a total revenue increase of 4.4 percent.

Consolidated U.S. comparable store sales increased 3.2 percent. Dunkin' Donuts U.S. comparable store sales were up 3.8 percent, while Baskin-Robbins U.S. comparable store sales were down 2.8 percent.

Dunkin' Brands' franchisees and licensees opened 140 net new Dunkin' Donuts and Baskin-Robbins locations on a global basis during Q2, increasing Dunkin' Brands total points of distribution to 16,427.

Revenues increased by more than 4 percent, to $157.0 million for Q2 2011, compared to $150.4 million for the same period in 2010. The company re-franchised 13 stores between Q2 2010 and Q2 2011.

Excluding company-owned stores for both periods, revenues grew about 6 percent.

Operating income was $61.8 million compared to $57.9 million for the second quarter of 2010, representing a 6.8 percent year-over-year increase. Operating income growth over the prior period was impacted by higher ice cream costs due to rising commodity prices.

Net income was $17.2 million compared to $17.3 million for the second quarter of 2010.

Adjusted net income for the quarter was $24.7 million compared to $25.6 million for the second quarter of 2010. This represents a 3 percent decrease over prior year period, down year over year as result of additional interest expense prior to the retirement of the company's senior notes.

"We have significantly increased the strength of our balance sheet, and after the completion of our initial public offering, have reduced our annual interest expense by 50 percent to approximately $60 million through a combination of debt retirement, restructuring, and repricing," said CFO Neil Moses. "The performance of the business in the second quarter demonstrates the strength of our business model and the integrity of our platform for future growth."

Company objectives

Travis said the main objectives for Dunkin' Brands include driving comparable store sales and profitability in Dunkin' Donuts U.S.; continuing U.S. expansion; accelerating global growth across both brands; and increasing comparable sales growth in Baskin-Robbins U.S.

To drive profitability in Dunkin' Donuts U.S., which makes up more than 70 percent of the business, Travis said Q2 featured an increase in average checks, a new, "extremely successful" marketing campaign that focused on the brand's coffee leadership and new product innovation driven by frozen beverages and breakfast sandwiches. The company recently launched several new frozen beverages, including frozen hot chocolate, Mountain Dew Coolatta, frozen iced tea and lemonade.

"The ice beverage line drove our afternoon business, and the strong breakfast sandwich business complemented our core beverage business," Travis said. "The Big 'N Toasty Sandwich was one of the strongest new product launches in the brand's recent history. It was a differentiated product that drove higher average tickets."

Dunkin' Brands is also implementing a new technology platform. Travis said by the end of 2011, 80 percent of the system is expected to be on the same POS platform.

"This will improve guest experience, help with analytics and provide more sophisticated marketing and loyalty programs," he said. "It will allow our franchisees to manage more efficiently."

Dunkin' Brands continued its U.S. expansion in Q2, with 39 net new Dunkin' Donuts. The company expects 200 to 250 net new outlets by the end of the year, split evenly between the core market (New England, New York), established markets (Chicago, Baltimore, Washington, DC, Philadelphia and Florida) and emerging markets east of the Mississippi.

To accelerate growth of both brands internationally, the company recently appointed Neal Yanofsky to the newly created position of president of International Dunkin' Brands.

Baskin-Robbins international's systemwide sales growth was up 15.3 percent in Q2, or 6.5 percent in constant currencies. Dunkin' Donuts international's systemwide sales grew 10.3 percent, or 4 percent in constant currencies. The company anticipates 450 to 500 new points of distribution globally by the end of 2011.

K-Cup Portion Packs launched

When Dunkin' Brands went public last week, many analysts speculated that it would increase competition in the coffee segment. That was before this week's rollout of K-Cup portion packs at participating Dunkin' Donuts. Coffee rival Starbucks isn't expected to roll out the K-Cups until this fall.

The packs, available for use with the Keurig Single-Cup Brewing system, are available in five flavors, including Original Blend, Dunkin' Decaf, French Vanilla, Hazelnut and Dunkin' Dark Roast. The suggested retail price for a 14-count box is $11.99.

As part of the launch, the company is celebrating with the "Dunkin' Donuts' $1K Giveaway." From Aug. 4 through Aug. 12, Dunkin' Donuts will surprise a total of 12 guests at restaurants throughout the U.S. with a check for $1,000, a Keurig Single-Cup Brewer and a year's supply of Dunkin' K-Cup portion packs.

"This is an extremely exciting day for Dunkin' Donuts, our franchisees and our guests who have been asking us to offer Dunkin' K-Cup portion packs for their Keurig Single-Cup Brewing system," said John Costello, chief global marketing and innovation officer at Dunkin' Brands.

Dunkin' Donuts first announced in February a promotion, manufacturing and distribution agreement with Green Mountain Coffee Roasters Inc. to make Dunkin' Donuts coffee available in single-serve K-Cup portion packs for use with Keurig Single-Cup brewers.

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Topics: Coffee/Bakery/Donut , Financing and capital improvements , Food & Beverage , Franchising & Growth , Marketing / Branding / Promotion , Operations Management

Alicia Kelso / Alicia has been a professional journalist for 15 years. Her work with FastCasual.com, QSRweb.com and PizzaMarketplace.com has been featured in publications around the world, including NPR, Good Morning America, Voice of Russia radio, Consumerist.com and Franchise Asia magazine.
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