Article

Breakfast, coffee, marketing initiatives push Dunkin' Brands profits up

February 9, 2012 by Alicia Kelso — Editor, QSRWeb.com

Dunkin' Brands Group Inc., parent company of Dunkin' Donuts and Baskin-Robbins, reported its fourth quarter and full year 2011 financial results, including a Q4 adjusted net income increase of 36.6 percent.

This figure was driven by a 7.4 percent jump in Dunkin' Donuts U.S. same-store sales.

"We had a strong finish to the year. Our operational execution, innovative product introductions, and break-through marketing are differentiating us competitively and delivering results," said Nigel Travis, CEO, Dunkin' Brands Group Inc., and president, Dunkin' Donuts U.S.

Fourth quarter highlights

• Worldwide system-wide sales grew 15.0 percent over Q4 2010;
• Dunkin' Donuts U.S. comparable store sales were up 7.4 percent, and Baskin-Robbins U.S. comparable store sales were up 5.8 percent;
• 269 net new Dunkin' Donuts and Baskin-Robbins locations globally;
• Revenues increased 12.5 percent to $168.5 million;
• Operating income increased 0.4 percent to $44.6 million;
• Net income increased $26.8 million over the fourth quarter of 2010 to $11.6 million; adjusted net income increased 36.6 percent to $36.2 million.

Fiscal year 2011 highlights include:

• Worldwide system-wide sales grew 9.1 percent over fiscal year 2010;
• Dunkin' Donuts U.S. comparable store sales were up 5.1 percent and Baskin-Robbins U.S. comparable store sales were up 0.5 percent;
• 601 net new Dunkin' Donuts and Baskin-Robbins locations globally bringing Dunkin' Brands total points of distribution to 16,794 as of year end;
• Revenues increased 8.8 percent to $628.2 million from $577.1 million in fiscal year 2010;
• Operating income increased 6.1 percent to $205.3 million; adjusted operating income increased 16.2 percent to $270.7 million;
• Net income increased 28.2 percent to $34.4 million; adjusted net income increased 15.9 percent to $101.7 million.

Worldwide system-wide sales growth in the fourth quarter was primarily attributed to Dunkin' Donuts U.S. comp sales growth, global store development, growth in Baskin-Robbins international sales, and the impact of the extra week in 2011.

Dunkin' Donuts U.S. same-store sales gains in the fourth quarter were driven by increased average ticket and higher traffic resulting from strong beverage sales growth; differentiated breakfast sandwich limited time offers, including the Smoked Sausage Breakfast Sandwich; sales of Dunkin' Donuts K-Cup portion packs; and the "What Are You Drinkin'" marketing campaign.

Baskin-Robbins U.S. comparable store sales growth was driven by new product news around holiday cakes and cake bites as well as improvements in operational execution.

In the fourth quarter, Dunkin' Brands franchisees and licensees opened 120 net new Dunkin' Donuts locations in the U.S. -- with more than 80 percent of net openings located outside of the brand's core markets — and 184 net Dunkin' Donuts and Baskin-Robbins locations outside the U.S.

Additionally, Dunkin' Donuts U.S. franchisees remodeled 248 restaurants during the quarter and 636 during fiscal year 2011.

Earnings call highlights

During the earnings call, executives discussed the success of the Dunkin' Donuts loyalty program – DD Perks – and its social media initiatives. Both reached record-high participation during the latter part of 2011.

Travis said new, differentiated products are driving the business, with the culinary and marketing teams working closely together to make sure the operational implications of new products are vetted before they're rolled out.

In 2012, Dunkin' Donuts will continue to focus on its beverage, breakfast sandwich and bakery sandwich lines.

"The demand for these items is increasing, and we're excited about this. People like them, and we have a long way to go," Travis said.

National marketing also will accelerate, as the company continues its aggressive expansion outside of its core – Northeast U.S. quadrant – market.

Specifically, Dunkin' Donuts' footprint will grow in the Southeast, Midwest and West. Within the next couple of years, 20 percent of the brand's development will take place in core markets, and 80 percent will be in new/non-core markets.

"New markets are benefiting from more sophisticated site selection and national marketing and better local marketing," Travis said. He added that the K-Cup launch continues to provide strong results and he doesn't expect that to slow down now that the holiday season is over.

For the unpredictable commodities market, the company expects coffee prices to ease a bit in 2012 – "not significantly, but moving in the right direction," Travis said. Baskin-Robbins is trickier to predict, as sugar prices are rising, cocoa is stable, and cream is falling slightly.

This year, the company plans to open 550 to 600 new units globally, including 260 to 280 Dunkin' Donuts in the U.S. It anticipates closing 60 to 80 underperforming Baskin-Robbins domestically, but a majority of its new global units will be the ice cream chain. Currently, the company has about 16,800 total units internationally.

Westward expansion continues

Dunkin' Donuts has signed a multi-unit store development agreement with a newly formed subsidiary of Sizzling Platter LLC (Sizzling Donuts LLC) for 11 new restaurants in Denver, and eight new restaurants in El Paso, Texas.

The company also acquired two additional existing restaurants in El Paso.

Sizzling Platter LLC is a restaurant management company which operates restaurants in seven states in the Mountain West, Southwest and Pacific Northwest under the Little Caesars, Sizzler, Red Robin Gourmet Burgers, Ruby River Steakhouse and Hoppers Gill & Brew Pub brand names.

Franchise opportunities are still available in Denver and Houston.

Read more about operations management.

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