Feb 6, 2018

Dunkin' Brands Reports Fourth Quarter and Fiscal Year 2017 Results

CANTON, Mass., Feb. 6, 2018 /PRNewswire/ --

DUNKIN' BRANDS, INC. LOGO. (PRNewsFoto/Dunkin' Brands, Inc.)

Fiscal year 2017 highlights include:

  • Dunkin' Donuts U.S. comparable store sales growth of 0.6%
  • Flat Baskin-Robbins U.S. comparable store sales growth
  • Added 440 net new restaurants worldwide, including 313 net new Dunkin' Donuts in the U.S.
  • Revenues increased 3.8%, or 4.9% on a 52-week basis
  • Diluted EPS increased 80.1%, or 82.7% on a 52-week basis, to $3.80
  • Diluted adjusted EPS increased 7.5%, or 9.0% on a 52-week basis, to $2.43

Fourth quarter highlights include:

  • All four business segments had positive comparable store sales
  • Dunkin' Donuts U.S. comparable store sales growth of 0.8%
  • Baskin-Robbins U.S. comparable store sales growth of 5.1%
  • Added 141 net new restaurants worldwide, including 126 net new Dunkin' Donuts in the U.S.
  • Revenues increased 5.3%, or 9.8% on a 13-week basis
  • Diluted EPS increased 249.2%, or 267.2% on a 13-week basis, to $2.13
  • Diluted adjusted EPS unchanged at $0.64, or increased 4.9% on a 13-week basis

Dunkin' Brands Group, Inc. (Nasdaq: DNKN), the parent company of Dunkin' Donuts (DD) and Baskin-Robbins (BR), today reported results for the 13-week fiscal fourth quarter and 52-week fiscal year ended December 30, 2017.

"In 2017, we made significant progress positioning Dunkin' Donuts as America's most-loved, beverage-led, on-the-go brand. Morning comparable store sales increased each quarter sequentially, and we had our highest quarterly beverage comparable sales of the year in the fourth quarter of 2017, driven by iced coffee and Frozen Dunkin' Coffee. Our strategic focus on morning sales yielded improved customer counts in that critical daypart during the last three quarters of the year and we are actively working to drive afternoon traffic through p.m. beverages and food along with all-day value offers that kicked-off in January. Additionally, in 2017, we believe that Dunkin' Donuts was once again one of the fastest growing retail brands by unit count in the country," said Nigel Travis, Dunkin' Brands Chairman and CEO. "Other accomplishments during 2017 included adding more than two million members to the Perks loyalty program bringing total membership to approximately 8 million, increasing out-of-restaurant retail sales of Dunkin' branded consumer packaged goods by greater than 30 percent, and successfully testing a simplified menu across 1,000 restaurants. We strongly believe the simplified menu, which is expected to roll-out nationally by the end of the first quarter, will improve franchisees' profitability and enable us to better serve customers."

"We're pleased to have delivered our revenue, operating income, and earnings per share targets for 2017, and look forward to sharing our growth targets for 2018 and beyond at our upcoming investor day on February 8 in Boston," said Kate Jaspon, Dunkin' Brands Chief Financial Officer. "In January, we announced an approximately five percent reduction in our general and administrative expense target in 2018 to two percent of systemwide sales. We are also encouraged by the recently passed tax reform act which includes provisions that we expect to be favorable to the majority of our franchisees as well as net beneficial to Dunkin' Brands."

 

FISCAL YEAR 2017 KEY FINANCIAL HIGHLIGHTS


($ in millions, except per share data)

Fiscal year ended


Increase (Decrease)

Amounts and percentages may not recalculate due to rounding

December 30,
 2017

December 31,
 2016


$ / #

%


(52 weeks)

(53 weeks)




Financial data:






Revenues

$

860.5


828.9



31.6


3.8

%

Operating income

447.0


414.7



32.3


7.8

%

Operating income margin

51.9

%

50.0

%




Adjusted operating income1

467.1


436.6



30.5


7.0

%

Adjusted operating income margin1

54.3

%

52.7

%




Net income2

350.9


195.6



155.3


79.4

%

Adjusted net income1,2

223.8


208.7



15.1


7.2

%

Earnings per share:






Common–basic2

3.86


2.14



1.72


80.4

%

Common–diluted2

3.80


2.11



1.69


80.1

%

Diluted adjusted earnings per share1,2

2.43


2.26



0.17


7.5

%

Weighted average number of common shares – diluted (in millions)2

92.2


92.5



(0.3)


(0.3)

%

Systemwide sales3

$

11,146.6


10,844.6



301.9


2.8

%

Comparable store sales growth (decline):






DD U.S.

0.6

%

1.6

%




BR U.S.

%

0.7

%




DD International

0.3

%

(1.9)

%




BR International

(0.1)

%

(4.2)

%




Development data:






Consolidated global net POD development4

440


723



(283)


(39.1)

%

DD global PODs at period end

12,538


12,258



280


2.3

%

BR global PODs at period end

7,982


7,822



160


2.0

%

Consolidated global PODs at period end

20,520


20,080



440


2.2

%



1

Adjusted operating income, adjusted operating income margin, and adjusted net income are non-GAAP measures reflecting operating income and net income
adjusted for amortization of intangible assets, long-lived asset impairments, and certain other items, net of the tax impact of such adjustments in the case of
adjusted net income. Adjusted net income excludes the net tax benefit due to the enactment of the Tax Cuts and Jobs Act. Diluted adjusted earnings per
share is a non-GAAP measure calculated using adjusted net income. Please refer to "Non-GAAP Measures and Statistical Data" and "Dunkin' Brands Group, Inc.
Non-GAAP Reconciliations" for further detail.



2

In the first quarter of 2017, the Company adopted Accounting Standards Update No. 2016-09, Compensation–Stock Compensation: Improvements to Employee
Share-Based Payment Accounting ("ASU 2016-09"), as issued by the Financial Accounting Standards Board. As required by the updated accounting standard,
excess tax benefits or deficiencies are now recorded to the provision for income taxes in the consolidated statements of operations, on a prospective basis, instead
of additional paid-in capital in the consolidated balance sheets. See "Adoption of New Accounting Standard—Excess Tax Benefits" for further detail.



3

Systemwide sales include sales at franchisee- and company-operated restaurants, including joint ventures. While we do not record sales by franchisees, licensees,
or joint ventures as revenue, and such sales are not included in our consolidated financial statements, we believe that this operating measure is important in
obtaining an understanding of our financial performance. We believe systemwide sales information aids in understanding how we derive royalty revenue and in
evaluating our performance relative to competitors.



4    

Consolidated global net POD development for the fiscal years ended December 30, 2017 and December 31, 2016 reflects the previously-announced closing of 1
and 18 self-serve coffee stations within Speedway locations, respectively.

 

 

FOURTH QUARTER 2017 KEY FINANCIAL HIGHLIGHTS


($ in millions, except per share data)

Three months ended


Increase (Decrease)

Amounts and percentages may not recalculate due to rounding

December 30,
 2017

December 31,
 2016


$ / #

%


(13 weeks)

(14 weeks)




Financial data:






Revenues

$

227.1


215.7



11.4


5.3

%

Operating income

120.1


113.9



6.2


5.5

%

Operating income margin

52.9

%

52.8

%




Adjusted operating income1

123.5


119.3



4.3


3.6

%

Adjusted operating income margin1

54.4

%

55.3

%




Net income2

195.5


56.1



139.4


248.3

%

Adjusted net income1,2

58.4


59.4



(1.0)


(1.7)


Earnings per share:






Common–basic2

2.17


0.61



1.56


255.7

%

Common–diluted2

2.13


0.61



1.52


249.2

%

Diluted adjusted earnings per share1,2

0.64


0.64




%

Weighted average number of common shares – diluted (in millions)2

91.8


92.5



(0.8)


(0.8)

%

Systemwide sales3

$

2,799.2


2,830.2



(31.0)


(1.1)

%

Comparable store sales growth (decline):






DD U.S.

0.8

%

1.9

%




BR U.S.

5.1

%

(0.9)

%




DD International

1.6

%

(1.0)

%




BR International

3.0

%

0.7

%




Development data:






Consolidated global net POD development4

141


296



(155)


(52.4)

%

DD global PODs at period end

12,538


12,258



280


2.3

%

BR global PODs at period end

7,982


7,822



160


2.0

%

Consolidated global PODs at period end

20,520


20,080



440


2.2

%



1    

Adjusted operating income, adjusted operating income margin, and adjusted net income are non-GAAP measures reflecting operating income and net income
adjusted for amortization of intangible assets, long-lived asset impairments, and certain other items, net of the tax impact of such adjustments in the case
of adjusted net income. Adjusted net income excludes the net tax benefit due to the enactment of the Tax Cuts and Jobs Act. Diluted adjusted earnings per
share is a non-GAAP measure calculated using adjusted net income. Please refer to "Non-GAAP Measures and Statistical Data" and "Dunkin' Brands Group,
Inc. Non-GAAP Reconciliations" for further detail.



2 

In the first quarter of 2017, the Company adopted ASU 2016-09, as issued by the Financial Accounting Standards Board. As required by the updated accounting
standard, excess tax benefits or deficiencies are now recorded to the provision for income taxes in the consolidated statements of operations, on a prospective
basis, instead of additional paid-in capital in the consolidated balance sheets. See "Adoption of New Accounting Standard—Excess Tax Benefits" for further detail.



3

Systemwide sales include sales at franchisee- and company-operated restaurants, including joint ventures. While we do not record sales by franchisees, licensees,
or joint ventures as revenue, and such sales are not included in our consolidated financial statements, we believe that this operating measure is important in
obtaining an understanding of our financial performance. We believe systemwide sales information aids in understanding how we derive royalty revenue and in
evaluating our performance relative to competitors.



4

Consolidated global net POD development for the three months ended December 30, 2017 and December 31, 2016 reflects the previously-announced closing of 1
and 2 self-serve coffee stations within Speedway locations, respectively.

           

The decline in global systemwide sales for the fourth quarter was a result of an extra week in the prior year period. On a 13-week basis, global systemwide sales grew in the fourth quarter. The growth was primarily attributable to global store development and Dunkin' Donuts U.S. comparable store sales growth (which includes stores open 78 weeks or more).

Dunkin' Donuts U.S. comparable store sales growth in the fourth quarter was driven by increased average ticket offset by a decline in traffic. Growth was driven by core breakfast sandwich sales; iced coffee and Frozen Dunkin' Coffee sales; as well as traditional donut sales.

Baskin-Robbins U.S. comparable store sales growth in the fourth quarter was driven by increased average ticket offset by a decline in traffic. Growth was driven by beverages including shakes, smoothies and Cappuccino Blast as well as the take-home category.

In the fourth quarter, Dunkin' Brands franchisees and licensees opened 141 net new restaurants around the globe. This included 126 net new Dunkin' Donuts U.S. locations and 40 net new Baskin-Robbins International locations offset by 23 Dunkin' Donuts International net closures and 2 Baskin-Robbins U.S. net closures. Additionally, Dunkin' Donuts U.S. franchisees remodeled 88 restaurants and Baskin-Robbins U.S. franchisees remodeled 34 restaurants during the quarter.

Revenues for the fourth quarter increased $11.4 million, or 5.3%, compared to the prior year period due primarily to increased franchise fees driven by additional renewal income, offset by a decrease in gross openings. These increases in revenues were offset by a decrease in sales of ice cream and other products, primarily to our licensees in the Middle East, as well as a decrease in royalty income due primarily to the extra week in the prior year period and a decrease in refranchising gains. Revenues for the fourth quarter increased 9.8% on a 13-week basis.

Operating income and adjusted operating income for the fourth quarter increased $6.2 million, or 5.5%, and $4.3 million, or 3.6%, respectively, from the prior year period primarily as a result of the increase in franchise fees, offset by gains recognized in connection with the sale of company-operated restaurants in the prior year period and a decrease in net margin on ice cream due primarily to the decrease in sales volume and an increase in commodity costs. Also offsetting the increases in operating income and adjusted operating income were expenses incurred to record lease-related liabilities as a result of restaurant closures, as well as the decreases in royalty income and refranchising gains. Adjusted operating income was also unfavorably impacted by an increase in general and administrative expenses. Operating income and adjusted operating income for the fourth quarter increased 11.5% and 9.2%, respectively, on a 13-week basis.

Net income for the fourth quarter increased by $139.4 million, or 248.3%, compared to the prior year period driven by a net benefit from income taxes of $110.6 million compared to income tax expense in the prior year period of $30.9 million, as well as the increase in operating income. The net benefit from income taxes in the current quarter includes a $143.4 million net tax benefit due to the enactment of the Tax Cuts and Jobs Act ("Tax Act"), consisting primarily of the re-measurement of our deferred tax liabilities using the lower enacted corporate tax rate. The increase in net income was offset by a $7.0 million loss on debt extinguishment and refinancing transactions and an increase in net interest expense driven by additional borrowings incurred in conjunction with a refinancing transaction completed during the fourth quarter. Net income for the fourth quarter increased 264.9% on a 13-week basis.

Adjusted net income decreased $1.0 million, or 1.7%, to $58.4 million compared to the prior year period primarily as a result of increases in income tax expense, which excludes the impact of the Tax Act, and net interest expense, offset by the increase in adjusted operating income.  Adjusted net income for the fourth quarter increased 2.7% on a 13-week basis.

Diluted earnings per share for the fourth quarter increased by 249.2% to $2.13 as a result of the increase in net income and a decrease in shares outstanding. Diluted adjusted earnings per share remained flat to the prior year period at $0.64 as the decrease in adjusted net income was offset by a decrease in shares outstanding. The decrease in shares outstanding from the prior year period was due primarily to repurchases of shares since the fourth quarter of 2016, offset by the exercise of stock options and the impact of the new accounting standard related to excess tax benefits adopted in the first quarter of 2017. Excluding the impact of recognized excess tax benefits, diluted earnings per share and diluted adjusted earnings per share would have each been $0.01 lower. On a 13-week basis, diluted earnings per share for the fourth quarter increased $1.55, or 267.2%, and diluted adjusted earnings per share increased $0.03, or 4.9%, compared to the prior year period.

 

FOURTH QUARTER 2017 SEGMENT RESULTS


Amounts and percentages may not recalculate due to rounding


Three months ended


Increase (Decrease)

Dunkin' Donuts U.S.


December 30,
2017


December 31,
2016


$ / #

%



(13 weeks)


(14 weeks)





($ in thousands except as otherwise noted)

Revenues:








Royalty income


$

118,771



121,774



(3,003)


(2.5)

%

Franchise fees


32,826



14,716



18,110


123.1

%

Rental income


24,231



24,255



(24)


(0.1)

%

Sales at company-operated restaurants




51



(51)


(100.0)

%

Other revenues


1,920



2,270



(350)


(15.4)

%

Total revenues


$

177,748



163,066



14,682


9.0

%









Segment profit


$

141,210



131,013



10,197


7.8

%









Comparable store sales growth


0.8

%


1.9

%




Systemwide sales (in millions)1


$

2,160.3



2,228.7



(68.4)


(3.1)

%









Points of distribution


9,141



8,828



313


3.5

%

Gross openings


172



235



(63)


(26.8)

%

Net openings2


126



199



(73)


(36.7)

%



1    

Systemwide sales include sales at franchisee- and company-operated restaurants, including joint ventures. We do not record sales by franchisees, licensees, or
joint ventures as revenue and such sales are not included in our consolidated financial statements. Please refer to "Non-GAAP Measures and Statistical Data" for
further detail



2

Net openings for the three months ended December 30, 2017 and December 31, 2016 reflect the previously-announced closing of 1 and 2 self-serve coffee stations
within Speedway locations, respectively.

 

Dunkin' Donuts U.S. fourth quarter revenues of $177.7 million represented an increase of 9.0% compared to the prior year period. The increase was primarily a result of increased franchise fees driven by additional renewal income, offset by a decrease in gross openings. Offsetting the increase in franchise fees was a decrease in royalty income due to the extra week in the prior year period.

Dunkin' Donuts U.S. segment profit in the fourth quarter increased to $141.2 million, an increase of $10.2 million over the prior year period, driven primarily by the increase in revenues, offset by gains recognized in connection with the sale of company-operated restaurants in the prior year period and expenses incurred to record lease-related liabilities as a result of restaurant closures.

Amounts and percentages may not recalculate due to rounding


Three months ended


Increase (Decrease)

Dunkin' Donuts International


December 30,
2017


December 31,
2016


$ / #

%



(13 weeks)


(14 weeks)





($ in thousands except as otherwise noted)

Revenues:








Royalty income


$

4,954



4,208



746


17.7

%

Franchise fees


698



1,799



(1,101)


(61.2)

%

Other revenues


(26)



(21)



(5)


23.8

%

Total revenues


$

5,626



5,986



(360)


(6.0)

%









Segment profit


$

2,188



3,220



(1,032)


(32.0)

%









Comparable store sales growth (decline)


1.6

%


(1.0)

%




Systemwide sales (in millions)1


$

200.0



187.2



12.8


6.8

%









Points of distribution


3,397



3,430



(33)


(1.0)

%

Gross openings


92



137



(45)


(32.8)

%

Net openings (closings)


(23)



51



(74)


(145.1)

%



1    

Systemwide sales include sales at franchisee- and company-operated restaurants, including joint ventures. We do not record sales by franchisees, licensees,
or joint ventures as revenue and such sales are not included in our consolidated financial statements. Please refer to "Non-GAAP Measures and Statistical Data"
for further detail.

 

Dunkin' Donuts International fourth quarter systemwide sales increased 6.8% from the prior year period driven primarily by sales growth in the Middle East, Europe, Latin America, and Asia. On a constant currency basis, systemwide sales increased by approximately 4%.

Dunkin' Donuts International fourth quarter revenues of $5.6 million represented a decrease of 6.0% from the prior year period. The decrease in revenues was primarily a result of a decline in franchise fees, offset by an increase in royalty income.

Segment profit for Dunkin' Donuts International decreased $1.0 million to $2.2 million in the fourth quarter primarily as a result of an increase in general and administrative expenses and the decrease in revenues, offset by a decrease in the net loss from our South Korea joint venture.

Amounts and percentages may not recalculate due to rounding


Three months ended


Increase (Decrease)

Baskin-Robbins U.S.


December 30,
2017


December 31,
2016


$ / #

%



(13 weeks)


(14 weeks)





($ in thousands except as otherwise noted)

Revenues:








Royalty income


$

5,459



5,363



96


1.8

%

Franchise fees


899



287



612


213.2

%

Rental income


743



773



(30)


(3.9)

%

Sales of ice cream and other products


1,269



595



674


113.3

%

Other revenues


2,189



2,414



(225)


(9.3)

%

Total revenues


$

10,559



9,432



1,127


11.9

%









Segment profit


$

5,439



5,117



322


6.3

%









Comparable store sales growth (decline)


5.1

%


(0.9)

%




Systemwide sales (in millions)1


$

112.4



112.5



(0.1)


(0.1)

%









Points of distribution


2,560



2,538



22


0.9

%

Gross openings


32



29



3


10.3

%

Net openings (closings)


(2)



5



(7)


(140.0)

%



 

Systemwide sales include sales at franchisee- and company-operated restaurants, including joint ventures. We do not record sales by franchisees, licensees,
or joint ventures as revenue and such sales are not included in our consolidated financial statements. Please refer to "Non-GAAP Measures and Statistical Data"
for further detail.

 

Baskin-Robbins U.S. fourth quarter revenues increased 11.9% from the prior year period to $10.6 million due primarily to an increase in sales of ice cream and other products and an increase in franchise fees driven by additional renewal income. These increases in revenues were offset by a decrease in other revenues due to a decrease in licensing income which was driven by the extra week in the prior year period.

Segment profit for Baskin-Robbins U.S. increased to $5.4 million in the fourth quarter, an increase of 6.3%, primarily as a result of the increase in franchise fees and an increase in net margin on ice cream driven by an increase in sales volume. These increases in segment profit were offset by expenses incurred to record lease-related liabilities, as well as an increase in general and administrative expenses and the decrease in licensing income.

 

Amounts and percentages may not recalculate due to rounding


Three months ended


Increase (Decrease)

Baskin-Robbins International


December 30,
2017


December 31,
2016


$ / #

%



(13 weeks)


(14 weeks)





($ in thousands except as otherwise noted)

Revenues:








Royalty income


$

1,754



1,392



362


26.0

%

Franchise fees


384



415



(31)


(7.5)

%

Rental income


126



118



8


6.8

%

Sales of ice cream and other products


23,434



27,509



(4,075)


(14.8)

%

Other revenues


106



3



103


3,433.3

%

Total revenues


$

25,804



29,437



(3,633)


(12.3)

%









Segment profit


$

7,436



8,350



(914)


(10.9)

%









Comparable store sales growth


3.0

%


0.7

%




Systemwide sales (in millions)1


$

326.4



301.7



24.8


8.2

%









Points of distribution


5,422



5,284



138


2.6

%

Gross openings


115



151



(36)


(23.8)

%

Net openings


40



41



(1)


(2.4)

%



 

Systemwide sales include sales at franchisee- and company-operated restaurants, including joint ventures. We do not record sales by franchisees, licensees,
or joint ventures as revenue and such sales are not included in our consolidated financial statements. Please refer to "Non-GAAP Measures and Statistical Data"
for further detail.

 

Baskin-Robbins International systemwide sales increased 8.2% in the fourth quarter compared to the prior year period driven by sales growth in South Korea and the Middle East, offset by a decline in Japan. Sales in South Korea were positively impacted by foreign exchange rates, while sales in Japan were negatively impacted by foreign exchange rates. On a constant currency basis, systemwide sales increased by approximately 7%.

Baskin-Robbins International fourth quarter revenues decreased 12.3% from the prior year period to $25.8 million due primarily to a decrease in sales of ice cream products to our licensees in the Middle East, offset by increases in royalty income and other revenues. Systemwide sales and sales of ice cream products are not directly correlated within a given period due to the lag between shipment of products to licensees and retail sales at franchised restaurants, as well as the overall timing of deliveries between fiscal quarters.

Segment profit for Baskin-Robbins International decreased 10.9% from the prior year period to $7.4 million as a result of a decrease in net margin on ice cream due to the decrease in sales volume, as well as an increase in general and administrative expenses. These decreases in segment profit were offset by an increase in net income from our South Korea joint venture and the increases in royalty income and other revenues.

COMPANY UPDATES

  • The Company today announced that the Board of Directors declared a cash dividend of $0.3475 per share, payable on March 21, 2018 to shareholders of record as of the close of business on March 12, 2018. This represents a 7.75 percent increase over the prior quarter's dividend.
  • In January, the Company announced that it was reducing its general and administrative expense target in 2018 by approximately five percent from 2017 to a target of two percent of systemwide sales.
  • The Company expects that its 2018 effective tax rate will be approximately 28 percent, which reflects the impact from the Tax Act, net of state taxes and international provisions.
  • The Company will be hosting its 2018 Investor & Analyst day on Thursday, February 8, 2018, at Fenway Park in Boston, Mass. Attendance at the event is by invitation only; however a live audio webcast of the conference including slide presentations will be accessible via the Company's website at: http://investor.dunkinbrands.com under "Events & Presentations". The conference is scheduled to begin at 9:00 AM Eastern Time and will continue until approximately 3:00 PM Eastern Time. A replay of the webcast, along with slide presentations, will remain accessible on the Company's website through March 9, 2018.

FINANCIAL TARGETS

  • The Company will provide its 2018 and long-term financial targets at its upcoming Investor & Analyst day.

Adoption of New Accounting Standard—Excess Tax Benefits

The Company adopted ASU 2016-09 in the first quarter of 2017, which simplifies several aspects of accounting for share-based payment transactions, including excess tax benefits and classification in the statements of cash flows. The adoption resulted in a reduction to the provision for income taxes of $0.5 million and $7.8 million for the three months and fiscal year ended December 30, 2017, respectively. Prior year periods have not been revised to reflect excess tax benefits in earnings, as only prospective application is permitted. Excess tax benefits will vary in future periods, as such amounts are dependent on the number of employee stock options exercised and fluctuations in the Company's stock price. Additionally, the diluted weighted average number of common shares outstanding for the three months and fiscal year ended December 30, 2017 excludes excess tax benefits from the assumed proceeds available to repurchase shares under the treasury stock method, which did not have a material impact for either of the periods. The adoption of ASU 2016-09 had no impact on cash paid for income taxes.

New Accounting Standard Not Yet Adopted as of December 30, 2017—Revenue Recognition

In May 2014, the Financial Accounting Standards Board issued new guidance for revenue recognition related to contracts with customers, except for contracts within the scope of other standards, which supersedes nearly all existing revenue recognition guidance. The new guidance is effective for the Company in fiscal year 2018. The Company will adopt this new guidance in fiscal year 2018 using the full retrospective transition method, which will result in restating each prior reporting period presented, fiscal years 2016 and 2017, in the year of adoption. Additional information regarding the Company's adoption of the new revenue recognition guidance and the impact to historical financial results is contained in Exhibit 99.2 to the Company's filing on Form 8-K, filed with the Securities and Exchange Commission on February 6, 2018.

Conference Call

As previously announced, Dunkin' Brands will be holding a conference call today at 8:00 am ET hosted by Nigel Travis, Chairman & Chief Executive Officer, and Kate Jaspon, Chief Financial Officer. The dial-in number is (866) 393-1607 or (914) 495-8556, conference number 1769679. Dunkin' Brands will broadcast the conference call live over the Internet at http://investor.dunkinbrands.com. A replay of the conference call will be available on the Company's website at http://investor.dunkinbrands.com.

The Company's consolidated statements of operations, consolidated balance sheets, condensed consolidated statements of cash flows and other additional information have been provided with this press release. This information should be reviewed in conjunction with this press release.

Forward-Looking Statements

Certain statements contained herein are not based on historical fact and are "forward-looking statements" within the meaning of the applicable securities laws and regulations. Generally, these statements can be identified by the use of words such as "anticipate," "believe," "could," "estimate," "expect," "feel," "forecast," "intend," "may," "plan," "potential," "project," "should," or "would," and similar expressions intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. These risk and uncertainties include, but are not limited to: the ongoing level of profitability of franchisees and licensees; our franchisees' and licensees' ability to sustain same store sales growth;  changes in working relationships with our franchisees and licensees and the actions of our franchisees and licensees; our master franchisees' relationships with sub-franchisees; the strength of our brand in the markets in which we compete; changes in competition within the quick-service restaurant segment of the food industry; changes in consumer behavior resulting from changes in technologies or alternative methods of delivery; economic and political conditions in the countries where we operate; our substantial indebtedness; our ability to protect our intellectual property rights; consumer preferences, spending patterns and demographic trends; the impact of seasonal changes, including weather effects, on our business; the success of our growth strategy and international development; changes in commodity and food prices, particularly coffee, dairy products and sugar, and other operating costs; shortages of coffee; failure of our network and information technology systems; interruptions or shortages in the supply of products to our franchisees and licensees; the impact of food borne-illness or food safety issues or adverse public or media opinions regarding the health effects of consuming our products; our ability to collect royalty payments from our franchisees and licensees; the ability of our franchisees and licensees to open new restaurants and keep existing restaurants in operation; our ability to retain key personnel; any inability to protect consumer credit card data and catastrophic events.

Forward-looking statements reflect management's analysis as of the date of this press release. Important factors that could cause actual results to differ materially from our expectations are more fully described in our other filings with the Securities and Exchange Commission, including under the section headed "Risk Factors" in our most recent annual report on Form 10-K. Except as required by applicable law, we do not undertake to publicly update or revise any of these forward-looking statements, whether as a result of new information, future events or otherwise.

Non-GAAP Measures and Statistical Data

In addition to the GAAP financial measures set forth in this press release, the Company has included certain non-GAAP measurements such as adjusted operating income, adjusted operating income margin, adjusted net income, and diluted adjusted earnings per share, which present operating results on a basis adjusted for certain items. The Company uses these non-GAAP measures as key performance measures for the purpose of evaluating performance internally. We also believe these non-GAAP measures provide our investors with useful information regarding our historical operating results. These non-GAAP measures are not intended to replace the presentation of our financial results in accordance with GAAP. Use of the terms adjusted operating income, adjusted operating income margin, adjusted net income, and diluted adjusted earnings per share may differ from similar measures reported by other companies. These non-GAAP measures are reconciled from the respective measures determined under GAAP in the attached tables "Dunkin' Brands Group, Inc. and Subsidiaries Non-GAAP Reconciliations."

The three months and fiscal year ended December 31, 2016 include 14 weeks and 53 weeks, respectively, as compared to 13 weeks and 52 weeks for the three months and fiscal year ended December 30, 2017, respectively. Certain financial measures and other metrics in this release have been presented on a 13-week and 52-week basis for the three months and fiscal year ended December 31, 2016, respectively, to provide improved comparability to the respective current year periods. The impact of the extra week in the three months and fiscal year ended December 31, 2016 reflects our estimate of the additional week in those fiscal periods on certain revenues and expenses, net of tax. These non-GAAP measures are not intended to replace the presentation of our financial results in accordance with GAAP. These non-GAAP measures are reconciled from the respective measures determined under GAAP in the attached tables "Dunkin' Brands Group, Inc. and Subsidiaries Non-GAAP Reconciliations."

Additionally, the Company has included metrics such as systemwide sales and comparable store sales growth, which are commonly used statistical measures in the quick service restaurant industry and are important to understanding the Company's performance.

Systemwide sales include sales at franchisee- and company-operated restaurants, including joint ventures. While we do not record sales by franchisees, licensees, or joint ventures as revenue, and such sales are not included in our consolidated financial statements, we believe that this operating measure is important in obtaining an understanding of our financial performance. We believe systemwide sales information aids in understanding how we derive royalty revenue and in evaluating our performance relative to competitors.

The Company uses "DD U.S. comparable store sales growth" and "BR U.S. comparable store sales growth," which are calculated by including only sales from franchisee- and company-operated restaurants that have been open at least 78 weeks and that have reported sales in the current and comparable prior year week.

The Company uses "DD International comparable store sales growth" and "BR International comparable store sales growth," which generally represents the growth in local currency average monthly sales for franchisee-operated restaurants, including joint ventures, that have been open at least 13 months and that have reported sales in the current and comparable prior year month.

About Dunkin' Brands Group, Inc.

With more than 20,500 points of distribution in more than 60 countries worldwide, Dunkin' Brands Group, Inc. (Nasdaq: DNKN) is one of the world's leading franchisors of quick service restaurants (QSR) serving hot and cold coffee and baked goods, as well as hard-serve ice cream. At the end of the fourth quarter 2017, Dunkin' Brands' 100 percent franchised business model included more than 12,500 Dunkin' Donuts restaurants and nearly 8,000 Baskin-Robbins restaurants. Dunkin' Brands Group, Inc. is headquartered in Canton, Mass.

 


DUNKIN' BRANDS GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)




Three months ended


Fiscal year ended



December 30,
2017


December 31,
2016


December 30,
2017


December 31,
2016



(13 weeks)


(14 weeks)


(52 weeks)


(53 weeks)

Revenues:









Franchise fees and royalty income


$

165,745



149,954



592,689



549,571


Rental income


25,100



25,146



104,643



101,020


Sales of ice cream and other products


24,949



28,432



110,659



114,857


Sales at company-operated restaurants




51





11,975


Other revenues


11,345



12,122



52,510



51,466


Total revenues


227,139



215,705



860,501



828,889


Operating costs and expenses:









Occupancy expenses—franchised restaurants


16,543



14,718



60,301



57,409


Cost of ice cream and other products


18,434



19,163



77,012



77,608


Company-operated restaurant expenses




119





13,591


General and administrative expenses, net


63,362



62,786



248,975



246,814


Depreciation


4,988



5,097



20,084



20,458


Amortization of other intangible assets


5,334



5,353



21,335



22,079


Long-lived asset impairment charges


974



45



1,617



149


Total operating costs and expenses


109,635



107,281



429,324



438,108


Net income of equity method investments


2,586



2,404



15,198



14,552


Other operating income, net


36



3,052



627



9,381


Operating income


120,126



113,880



447,002



414,714


Other income (expense), net:









Interest income


1,943



148



3,313



582


Interest expense


(30,231)



(26,396)



(104,423)



(100,852)


Loss on debt extinguishment and refinancing transactions


(6,996)





(6,996)




Other gains (losses), net


21



(599)



391



(1,195)


Total other expense, net


(35,263)



(26,847)



(107,715)



(101,465)


Income before income taxes


84,863



87,033



339,287



313,249


Provision (benefit) for income taxes


(110,629)



30,913



(11,622)



117,673


Net income


$

195,492



56,120



350,909



195,576











Earnings per share—basic


$

2.17



0.61



3.86



2.14


Earnings per share—diluted


2.13



0.61



3.80



2.11


 


DUNKIN' BRANDS GROUP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands)

(Unaudited)




December 30,
 2017


December 31,
 2016

Assets





Current assets:





Cash and cash equivalents


$

1,018,317



361,425


Restricted cash


94,047



69,746


Accounts receivable, net


51,442



44,512


Notes and other receivables, net


51,082



40,672


Restricted assets of advertising funds


47,373



40,338


Prepaid income taxes


21,879



20,926


Prepaid expenses and other current assets


32,695



28,739


Total current assets


1,316,835



606,358


Property and equipment, net


169,005



176,662


Equity method investments


140,615



114,738


Goodwill


888,308



888,272


Other intangibles assets, net


1,357,157



1,378,720


Other assets


65,464



62,632


Total assets


$

3,937,384



3,227,382


Liabilities and Stockholders' Equity (Deficit)





Current liabilities:





Current portion of long-term debt


$

31,500



25,000


Capital lease obligations


596



589


Accounts payable


16,307



12,682


Liabilities of advertising funds


58,014



52,271


Deferred income


39,395



35,393


Other current liabilities


326,078



298,266


Total current liabilities


471,890



424,201


Long-term debt, net


3,035,857



2,401,998


Capital lease obligations


7,180



7,550


Unfavorable operating leases acquired


9,780



11,378


Deferred income


11,158



12,154


Deferred income taxes, net


315,249



461,810


Other long-term liabilities


77,823



71,549


Total long-term liabilities


3,457,047



2,966,439


Stockholders' equity (deficit):





Preferred stock





Common stock


90



91


Additional paid-in-capital


724,114



807,492


Treasury stock, at cost


(1,060)



(1,060)


Accumulated deficit


(705,007)



(945,797)


Accumulated other comprehensive loss


(9,690)



(23,984)


Stockholders' equity (deficit)


8,447



(163,258)


Total liabilities and stockholders' equity (deficit)


$

3,937,384



3,227,382


 

 


DUNKIN' BRANDS GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)




Fiscal year ended



December 30,
2017


December 31,
2016



(52 weeks)


(53 weeks)






Net cash provided by operating activities(a)


$

276,908



276,827


Cash flows from investing activities:





Additions to property and equipment


(14,606)



(15,174)


Proceeds from sale of real estate and company-operated restaurants


854



20,523


Other, net


(102)



(4,006)


Net cash provided by (used in) investing activities


(13,854)



1,343


Cash flows from financing activities:





Proceeds from issuance of long-term debt


1,400,000




Repayment of long-term debt


(754,375)



(25,000)


Payment of debt issuance and other debt-related costs


(18,441)




Dividends paid on common stock


(117,003)



(109,703)


Repurchases of common stock, including accelerated share repurchases


(127,186)



(55,000)


Exercise of stock options


36,344



10,647


Other, net


(698)



(122)


Net cash provided by (used in) financing activities(a)


418,641



(179,178)


Effect of exchange rates on cash, cash equivalents, and restricted cash(a)


572



(275)


Increase in cash, cash equivalents, and restricted cash


682,267



98,717


Cash, cash equivalents, and restricted cash, beginning of period(a)


431,832



333,115


Cash, cash equivalents, and restricted cash, end of period(a)


$

1,114,099



431,832



(a) Changes in restricted cash that have historically been included within operating and financing activities have been eliminated, and restricted cash is combined with cash and cash equivalents when reconciling the beginning and end of period balances. Additionally, the impact of excess tax benefits from share-based compensation have been reclassified from financing activities to operating activities. These changes were made based on the adoption of new accounting standards. The prior period has been revised to conform to the current period presentation for all such changes.

 


               

 

DUNKIN' BRANDS GROUP, INC. AND SUBSIDIARIES

Non-GAAP Reconciliations

(In thousands, except share and per share data)

(Unaudited)




Three months ended


Fiscal year ended



December 30,
2017


December 31,
2016


December 30,
2017


December 31,
2016



(13 weeks)


(14 weeks)


(52 weeks)


(53 weeks)

Operating income


$

120,126



113,880



447,002



414,714


Operating income margin


52.9

%


52.8

%


51.9

%


50.0

%

Adjustments:









Amortization of other intangible assets


$

5,334



5,353



21,335



22,079


Long-lived asset impairment charges


974



45



1,617



149


Transaction-related costs(a)








64


Bertico-related litigation(b)


(2,898)





(2,898)



(428)


Adjusted operating income


$

123,536



119,278



467,056



436,578


Adjusted operating income margin


54.4

%


55.3

%


54.3

%


52.7

%










Net income attributable to Dunkin' Brands


$

195,492



56,120



350,909



195,576


Adjustments:









Amortization of other intangible assets


5,334



5,353



21,335



22,079


Long-lived asset impairment charges


974



45



1,617



149


Transaction-related costs(a)








64


Bertico-related litigation(b)


(2,898)





(2,898)



(428)


Loss on debt extinguishment and refinancing transactions


6,996





6,996




Tax impact of adjustments(c)


(4,162)



(2,160)



(10,820)



(8,746)


Impact of tax reform(d)


(143,382)





(143,382)




Adjusted net income


$

58,354



59,358



223,757



208,694











Adjusted net income


$

58,354



59,358



223,757



208,694


Weighted average number of common shares – diluted


91,765,911



92,518,754



92,231,436



92,538,282


Diluted adjusted earnings per share


$

0.64



0.64



2.43



2.26











(a) Represents non-capitalizable costs incurred as a result of the securitized financing facility, which was completed in January 2015.

(b) Adjustments for the three months and fiscal year ended December 30, 2017 represent a reduction to legal reserves for Bertico-related litigation based upon final settlement of such matters. Adjustment for the fiscal year ended December 31, 2016 represents a net reduction to legal reserves for the Bertico litigation and related matters based upon final agreement of interest and related costs associated with the judgment.

(c) Tax impact of adjustments calculated at a 40% effective tax rate.

(d) Net tax benefit due to the enactment of the Tax Act during the three months ended December 30, 2017, consisting primarily of the re-measurement of deferred tax liabilities using the lower enacted corporate tax rate.

 

 

DUNKIN' BRANDS GROUP, INC. AND SUBSIDIARIES

Non-GAAP Reconciliations (continued)

(In thousands, except per share data)

(Unaudited)




Three months ended


Fiscal year ended



December 30,
2017


December 31,
2016


%


December 30,
2017


December 31,
2016


%

Total revenues


$

227,139



215,705



5.3

%


860,501



828,889



3.8

%

Impact of extra week(a)




(8,756)







(8,756)




Total revenues, 13-week / 52-week basis


$

227,139



206,949



9.8

%


860,501



820,133



4.9

%














Operating income


$

120,126



113,880



5.5

%


447,002



414,714



7.8

%

Impact of extra week(a)




(6,112)







(6,112)




Operating income, 13-week / 52-week 
     basis


$

120,126



107,768



11.5

%


447,002



408,602



9.4

%














Adjusted operating income


$

123,536



119,278



3.6

%


467,056



436,578



7.0

%

Impact of extra week(a)




(6,112)







(6,112)




Adjusted operating income, 13-week / 
     52-week basis


$

123,536



113,166



9.2

%


467,056



430,466



8.5

%














Net income attributable to Dunkin' Brands


$

195,492



56,120



248.3

%


350,909



195,576



79.4

%

Impact of extra week(a)




(4,247)







(4,247)




Tax impact of extra week(b)




1,699







1,699




Net income, 13-week / 52-week basis


$

195,492



53,572



264.9

%


350,909



193,028



81.8

%














Adjusted net income


$

58,354



59,358



(1.7)

%


223,757



208,694



7.2

%

Impact of extra week(a)




(4,247)







(4,247)




Tax impact of extra week(b)




1,699







1,699




Adjusted net income, 13-week / 52-week 
     basis


$

58,354



56,810



2.7

%


223,757



206,146



8.5

%














Diluted earnings per share


$

2.13



0.61



249.2

%


3.80



2.11



80.1

%

Impact of extra week(a)




(0.05)







(0.05)




Tax impact of extra week(b)




0.02







0.02




Diluted earnings per share, 13-week / 
     52-week basis


$

2.13



0.58



267.2

%


3.80



2.08



82.7

%














Diluted adjusted earnings per share


$

0.64



0.64



%


2.43



2.26



7.5

%

Impact of extra week(a)




(0.05)







(0.05)




Tax impact of extra week(b)




0.02







0.02




Diluted adjusted earnings per share, 13-week / 
     52-week basis


$

0.64



0.61



4.9

%


2.43



2.23



9.0

%














(a) The three months and fiscal year ended December 31, 2016 include 14 weeks and 53 weeks, respectively, as compared to 13 weeks and 52 weeks for the three months and fiscal year ended December 30, 2017, respectively. The impact of the extra week in the three months and fiscal year ended December 31, 2016 reflects our estimate of the additional week in those fiscal periods on certain revenues and expenses.

(b) Tax impact of adjustments for the extra week calculated at a 40% effective tax rate.

 

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SOURCE Dunkin' Brands Group, Inc.

Stacey Caravella (Investors), Sr. Director, IR & Market Intelligence, Dunkin' Brands Group, Inc., investor.relations@dunkinbrands.com, 781-737-3200 or Karen Raskopf (Media), SVP, Corporate Communications, Dunkin' Brands Group, Inc., karen.raskopf@dunkinbrands.com, 781-737-5200

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