Dunkin' Donuts looks to future after tough Q1

May 5, 2017

Dunkin' Donuts will pay a 32 cent cash dividend in June after a flat first quarter, a news release said. Leadership said it sees better future returns ahead as the brand continues pushing forward with what CEO Nigel Travis called a "beverage-led, to-go brand." approach.

First quarter financial highlights include: 
•    Flat Dunkin' Donuts U.S. comparable store sales growth.
•    Baskin-Robbins U.S. comparable store sales decline of 2.4 percent.
•    Added 56 net new Dunkin' Donuts and 1 net new Baskin-Robbins in the U.S. offset by the closure of 28 international locations.
•    Revenues increased 0.5 percent.
•    Diluted EPS increased by 11 cents to 51 cents, including approximately 6 cents from adoption of a new accounting standard.
•    Diluted adjusted EPS grew 10 cents to 54 cents, including approximately 6 cents from adoption of a new accounting standard.
•    DD Perks rewards were more than 10 percent of U.S. sales.
•    "On-the-Go" orders grew to nearly 2 percent of Q1 transactions.

"These results, delivered against an increasingly challenging environment for retail and restaurants, demonstrate the benefits of our asset-light, 100-percent franchised business model," Dunkin' Brands Chairman and CEO Nigel Travis, said in a news release. "Going forward, we will continue to execute against our six-part strategy designed to drive growth and long-term competitive differentiation by positioning Dunkin' as a beverage-led, to-go brand. "

In the release, CFO Kate Jaspon explained that this year the brand updated its fiscal year 2017 EPS guidance to reflect the previously mentioned new accounting standard for share-based compensation. 

"While our updated guidance reflects the realized benefit to our earnings in the first quarter, it does not reflect any potential future material impact as a result of the new accounting standard," Jaspon said in the release."

The company reported that domestically, Q1 comparable store sales were flat. The release said that though average ticket amount increased, traffic decreased, offsetting those gains. Breakfast sandwich sales increased and beverage sales were driven by the iced coffee category, the release said.

Baskin-Robbins U.S. comparable store sales were negative with decreased traffic, but higher ticket average. Cups, cones and warm cookie sandwiches grew along with take-home pint sales, but beveragesm soft-service and sundaies all fell.

Revenues for the first quarter increased $0.9 million, or 0.5 percent, compared to the prior year period due primarily to increased royalty income as a result of system-wide sales growth, as well as an increase in rental income due to an increase in the number of leases for franchised locations. These increases in revenues were offset by a decrease in sales at company-operated restaurants as there were no company-operated points of distribution during the first quarter of 2017, compared to 41 company-operated points of distribution in the prior year period.

Operating income and adjusted operating income for the first quarter increased $6.0 million, or 7.0 percent, and $5.4 million, or 5.9 percent, respectively, from the prior year period primarily as a result of the increase in royalty income. Net income and adjusted net income for the first quarter increased by $10.3 million, or 27.8 percent and $10.0 million, or 24.6 percent, respectively.

Dunkin' Donuts U.S. segment profit in the first quarter increased to $108.0 million, or $7.5 million over the prior year period. Dunkin' Donuts International first quarter system-wide sales increased 4.4 percent from the prior year period driven primarily by sales growth in Asia, the Middle East, and South America, but offset by a decline in South Korea. 

Dunkin' Donuts International first quarter revenues of $5.3 million represented a decrease of 27 percent from the prior year period. The decrease in revenues was primarily a result of a decline in franchise fees as the prior year period included a significant market development fee recognized upon entry into a new market.

The Company is updating these targets for its 2017 performance:

  • GAAP diluted earnings per share of $2.22 to $2.30 (previously it expected $2.16 to $2.24) and diluted adjusted earnings per share of $2.40 to $2.43 (previously it expected $2.34 to $2.37).
  • Full-year weighted-average shares outstanding of approximately 93 million and a 36.5 percent effective tax rate, inclusive of the impact of the excess tax benefit recognized in the first quarter.
  • $6.1 million excess tax benefit recognized in the first quarter reduced the expected full-year effective tax rate by approximately 200 basis points.

 


Topics: Business Strategy and Profitability, Financial News


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