News

Dunkin' Brands reports same-store sales bump

October 31, 2011

Dunkin' Brands Group Inc., parent company of Dunkin' Donuts and Baskin-Robbins, has reported results for the quarter ended Sept. 24. The results exceeded goals shared during the last earnings call, according to Nigel Travis, CEO, Dunkin' Brands Group Inc. and president, Dunkin' Donuts.

Dunkin' Donuts

The core Dunkin' Donuts U.S. segment, which makes up almost 75 percent of the company's overall revenues, is "strong and thriving," achieving a 6 percent bump in comparable same-store sales. This result was driven by strong marketing initiatives and product innovations, which led to an increase in ticket and traffic. Also contributing for two months were the K-Cup portion packs.

Products and marketing that helped deliver results include iced beverages and premium sandwiches, including the Big 'N Toasty. "A highly differentiated premium-price breakfast sandwich is a prime example of the products that contributed to Dunkin' Donuts' higher average ticket this quarter," Travis said.

Other contributions to the results include Dunkin's "careful" entry into the deli sandwich business in select cities, and Dunkin's strong beverage lineup, which featured the launch of several new options in the quarter.

Travis said the iced beverage category is an important area of focus for the chain, as it appeals to a wide age demographic and helps drive afternoon food purchases, as well.

Dunkin' Donuts' marketing initiatives during the quarter also yielded positive results, including the "What Are You Drinking," 360-degree campaign, designed to reinforce Dunkin's coffee leadership.

"Our hot coffee trended up in the face of competition and our 'What Are You Drinking' ads continue to drive consumers," Travis said.

Dunkin' Brands also conducted its first-ever cross promotion with a major motion picture, coinciding with the Captain America release. "We believe this drove traffic and generated buzz for our brands," Travis said.

Also generating buzz was the company's partnership with ESPN's Monday Night Countown, as well as with Sims Social and its first national check-in promotion with foursquare and Facebook.

"Our social media initiatives added over 1 million Facebook fans this quarter, which is important because our Facebook fans tend to spend more with us than our non-Facebook fans," Travis said.

The contribution from the K-cup launch is still too early to quantify, but Travis said it has produced solid sales and positive feedback. Contextually, K-cups were introduced in the first month of the quarter and they weren't advertised in the second month of the quarter. Travis added that the K-cups were now about 20 percent of total comps, which is in line with expectations.

"We're pleased with the way our franchisees have operated the K-cups business. In the next couple of months we'll be introducing brews to our stores," he said.

Baskin-Robbins

Baskin-Robbins International also provided a big sales lift for the company, with a 13 percent year-over-year increase this quarter. Baskin-Robbins International contributes about 15 percent of the company's total revenues.

"As we've said before (Baskin-Robbins International) is a real jewel in the crown. It has universal product appeal, strong franchisees and development potential. It is positioned for significant growth both in the near and longer term," Travis said.

Helping the segment's growth is the recently introduced international store design, and unique Baskin-Robbins products such as the snowman cake in the Middle East and Korea, the expansion of ice cream cake sales in the Middle East, and the first-ever television campaign in China.

The U.S. Baskin-Robbins segment contributes about 8 percent of comps for the company. The goal is to focus on driving higher ticket sales, for example, through cake products. Travis said the recently launched cake bites will be a hit for the upcoming holiday season.

Q3 2011 highlights include:

• Global systemwide sales increased 8.9 percent over Q3 2010, primarily attributable to systemwide sales growth of 8.3 percent for Dunkin' Donuts U.S., as well as a 13.0 percent year-over year increase for Baskin-Robbins International sales and a 13.7 percent year-over-year increase for Dunkin' Donuts International sales.
• Baskin-Robbins U.S. comparable store sales increased 1.7 percent. Added with the Dunkin' Donuts' results, consolidated U.S. comparable store sales increased 5.6 percent.Revenues grew by more than 9 percent, to $163.5 million, for the third quarter of 2011 compared to the same period in 2010, primarily as a result of increased franchisee fees and royalty income.
• Operating income of $54.1 million for the third quarter remained relatively flat with the prior year, decreasing 0.8 percent, primarily due to one-time expenses of $14.7 million incurred in connection with the company's initial public offering (IPO).
• Adjusted operating income was $75.9 million, a 21.3 percent increase over the same time last year. Adjusted operating income margin was 46.4 percent, representing a 450 basis point improvement over the same period last year, as a result of strong revenues and flat expenses.
• Net income was $7.4 million, a decrease of 60.7 percent compared to the third quarter of 2010, due to one-time expenses incurred in connection with the Company's IPO and related retirement of $375 million of senior notes.
• Adjusted net income for the quarter grew to $31.3 million, a 32.5 percent increase compared to the third quarter of 2010, as a result of an increase in adjusted operating income and lower interest expense. Diluted adjusted earnings per pro forma common share was $0.28, an increase of 17 percent over the third quarter of 2010.

Dunkin' Brands' franchisees and licensees opened 98 net new Dunkin' Donuts and Baskin-Robbins locations on a global basis during the quarter and 332 net new locations, including one company-owned store, during the first nine months of 2011, increasing Dunkin' Brands total points of distribution to 16,525. The company expects franchisees to open more than 600 net new restaurants for the year on a global basis.

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