Oct 25, 2018

Dunkin' Brands Reports Third Quarter 2018 Results

CANTON, Mass., Oct. 25, 2018 /PRNewswire/ --

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

Third quarter highlights include:

  • Dunkin' U.S. comparable store sales increase of 1.3%
  • Baskin-Robbins U.S. comparable store sales increase of 1.8%
  • Added 77 net new Dunkin' and Baskin-Robbins locations globally including 52 net new Dunkin' locations in the U.S.
  • Revenues increased 6.0%
  • Diluted EPS increased by 75.6% to $0.79
  • Diluted adjusted EPS increased by 69.4% to $0.83

Dunkin' Brands Group, Inc. (Nasdaq: DNKN), the parent company of Dunkin' and Baskin-Robbins (BR), today reported results for the third quarter ended September 29, 2018.

"For the third quarter 2018, we delivered positive comparable store sales for all four of our business segments.  Dunkin' U.S. comparable store sales growth was led by strong beverage sales, coupled with new product innovation, and the Dunkin' Run snacking platform which delivered our highest afternoon comparable store sales growth in more than two years," said David Hoffmann, Dunkin' Brands Chief Executive Officer and President Dunkin' U.S. "Additionally, our new simplified branding for Dunkin' and our recently announced plans to transform the espresso experience at Dunkin' demonstrate our commitment to our beverage-led strategy and, importantly, we have strong alignment with our franchisees around the world, as evidenced by their record attendance at our 2018 Global Convention." 

"Earlier this year we announced that we would be investing approximately $100 million into Dunkin' U.S., a substantial amount of which will be in equipment to support our multi-year plan to expand our beverage portfolio beyond traditional drip coffee, including new espresso equipment. We, along with our franchisees, who are significantly investing in this new program, are excited to introduce the new Dunkin' espresso to America in the fourth quarter," said Kate Jaspon, Dunkin' Brands Chief Financial Officer.  "We are also pleased to have completed our previously announced $650 million accelerated share repurchase program during the third quarter, demonstrating our continued commitment to utilizing our strong balance sheet to return capital to shareholders."

THIRD QUARTER 2018 KEY FINANCIAL HIGHLIGHTS


(Unaudited, $ in millions, except per share data)

Three months ended


Increase (Decrease)

Amounts and percentages may not recalculate due to rounding

September 29,
 2018

September 30,

 2017(1)


$ / #

%

Financial data:






    Revenues

$

350.0


330.1



19.9


6.0

%

    Operating income

111.6


105.3



6.3


6.0

%

    Operating income margin

31.9

%

31.9

%




    Adjusted operating income(2)

$

116.9


111.1



5.7


5.2

%

    Adjusted operating income margin(2)

33.4

%

33.7

%




    Net income

$

66.1


41.2



24.9


60.5

%

    Adjusted net income(2)

69.9


44.7



25.2


56.3

%

    Earnings per share:






       Common–basic

0.80


0.46



0.34


73.9

%

       Common–diluted

0.79


0.45



0.34


75.6

%

       Diluted adjusted earnings per share(2)

0.83


0.49



0.34


69.4

%

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

84.1


91.4



(7.3)


(8.0)

%

Systemwide sales(3)

$

3,067.8


2,914.8



153.0


5.2

%

Comparable store sales growth (decline):






    Dunkin' U.S.

1.3

%

0.6

%




    BR U.S.

1.8

%

(0.4)

%




    Dunkin' International

2.5

%

1.3

%




    BR International

7.5

%

(4.3)

%




Development data:






    Consolidated global net POD development

77


137



(60)


(43.8)

%

    Dunkin' global PODs at period end

12,740


12,435



305


2.5

%

    BR global PODs at period end

8,024


7,944



80


1.0

%

    Consolidated global PODs at period end

20,764


20,379



385


1.9

%


(1) Prior period amounts have been restated to reflect the adoption of new revenue recognition guidance. See "Adoption of New Accounting Standard" for further detail.


(2) 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. Diluted adjusted earnings per share is a non-GAAP measure calculated using adjusted net income. See "Non-GAAP Measures and Statistical Data" and "Dunkin' Brands Group, Inc. Non-GAAP Reconciliations" for further detail.


(3) Systemwide sales include sales at franchisee-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.

Global systemwide sales growth of 5.2% in the third quarter was primarily attributable to global store development, Dunkin' U.S. comparable store sales growth, and Baskin-Robbins International comparable store sales growth.

Dunkin' U.S. comparable store sales grew 1.3% in the third quarter as an increase in average ticket was partially offset by a decrease in traffic. Growth was driven primarily by iced coffee, both traditional and cold brew, as well as frozen beverages and breakfast sandwiches.

Baskin-Robbins U.S. comparable store sales grew 1.8% during the third quarter as an increase in average ticket was partially offset by a decrease in traffic. Growth was driven by beverages including shakes and smoothies, as well as the take-home category.

In the third quarter, Dunkin' Brands franchisees and licensees opened 77 net new restaurants globally. This included 52 net new Dunkin' U.S. locations, 16 net new Baskin-Robbins International locations, and 12 net new Dunkin' International locations, offset by net closures of 3 Baskin-Robbins U.S. locations. Additionally, Dunkin' U.S. franchisees remodeled 31 restaurants and Baskin-Robbins U.S. franchisees remodeled 6 restaurants during the quarter.

Revenues for the third quarter increased $19.9 million, or 6.0%, compared to the prior year period due primarily to increased advertising fees and related income, as well as an increase in royalty income as a result of systemwide sales growth.

Operating income and adjusted operating income for the third quarter increased $6.3 million, or 6.0%, and $5.7 million, or 5.2%, respectively, from the prior year period primarily as a result of the increase in royalty income, offset by an increase in general and administrative expenses due primarily to expenses incurred in connection with our 2018 Global Convention held in the third quarter of fiscal year 2018.

Net income and adjusted net income for the third quarter increased by $24.9 million, or 60.5%, and $25.2 million, or 56.3%, respectively, compared to the prior year period primarily as a result of a decrease in income tax expense and the increases in operating income and adjusted operating income, respectively, offset by an increase in net interest expense. Income tax expense for the third quarter of 2017 was unfavorably impacted by an $8.9 million write-down of foreign tax credit carryforwards, whereas income tax expense for the third quarter of 2018 was favorably impacted by excess tax benefits from share-based compensation of $7.4 million. The decrease in income tax expense was also driven by a lower tax rate due to the enactment of the Tax Cuts and Jobs Act in the fourth quarter of fiscal year 2017. The increase in net interest expense was driven by additional borrowings incurred in conjunction with the refinancing transaction completed during the fourth quarter of fiscal year 2017.

Diluted earnings per share and diluted adjusted earnings per share for the third quarter increased by 75.6% to $0.79 and 69.4% to $0.83, respectively, compared to the prior year period as a result of the increases in net income and adjusted net income, respectively, as well as a decrease in shares outstanding. The decrease in shares outstanding from the prior year period was due primarily to the repurchase of shares since the beginning of the third quarter of fiscal year 2017, offset by the exercise of stock options. Excluding the impact of recognized excess tax benefits, both diluted earnings per share and diluted adjusted earnings per share would have been lower by approximately $0.09 and $0.01 for the third quarter of fiscal years 2018 and 2017, respectively.

THIRD QUARTER 2018 SEGMENT RESULTS








Amounts and percentages may not recalculate due to rounding


Three months ended


Increase (Decrease)

Dunkin' U.S.


September 29,
 2018


September 30,
 2017(1)


$ / #

%


(Unaudited, $ in thousands except as otherwise noted)

Revenues:








Royalty income


$

124,805



118,831



5,974


5.0

%

Franchise fees


4,840



4,638



202


4.4

%

Rental income


26,637



26,786



(149)


(0.6)

%

Other revenues


1,002



933



69


7.4

%

Total revenues


$

157,284



151,188



6,096


4.0

%









Segment profit


$

121,667



115,398



6,269


5.4

%









Comparable store sales growth


1.3

%


0.6

%




Systemwide sales (in millions)(2)


$

2,266.9



2,166.3



100.7


4.6

%









Points of distribution


9,313



9,015



298


3.3

%

Gross openings


95



103



(8)


(7.8)

%

Net openings


52



67



(15)


(22.4)

%


(1) Prior period amounts have been restated to reflect the adoption of new revenue recognition guidance. See "Adoption of New Accounting Standard" for further detail.


(2) Systemwide sales include sales at franchisee-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. See "Non-GAAP Measures and Statistical Data" for further detail.

Dunkin' U.S. third quarter revenues of $157.3 million represented an increase of 4.0% compared to the prior year period. The increase was primarily a result of an increase in royalty income driven by systemwide sales growth.

Dunkin' U.S. segment profit in the third quarter increased to $121.7 million, an increase of $6.3 million over the prior year period, driven primarily by the increase in royalty income and an increase in rental margin due primarily to the timing of expenses incurred to record lease-related liabilities. These increases were offset by an increase in general and administrative expenses, due primarily to expenses incurred in the third quarter of fiscal year 2018 to support our Blueprint for Growth initiatives.

Amounts and percentages may not recalculate due to rounding


Three months ended


Increase (Decrease)

Dunkin' International


September 29,
 2018


September 30,
 2017(1)


$ / #

%


(Unaudited, $ in thousands except as otherwise noted)

Revenues:








Royalty income


$

5,192



4,442



750


16.9

%

Franchise fees


1,054



460



594


129.1

%

Other revenues


10



11



(1)


(9.1)

%

Total revenues


$

6,256



4,913



1,343


27.3

%









Segment profit


$

4,549



1,195



3,354


280.7

%









Comparable store sales growth


2.5

%


1.3

%




Systemwide sales (in millions)(2)


$

194.9



189.3



5.6


2.9

%









Points of distribution


3,427



3,420



7


0.2

%

Gross openings


95



102



(7)


(6.9)

%

Net openings


12



18



(6)


(33.3)

%


(1) Prior period amounts have been restated to reflect the adoption of new revenue recognition guidance. See "Adoption of New Accounting Standard" for further detail.


(2) Systemwide sales include sales at franchisee-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. See "Non-GAAP Measures and Statistical Data" for further detail.

Dunkin' International third quarter systemwide sales increased 2.9% from the prior year period driven by sales growth in the Middle East, offset by a sales decline in Asia. Sales in Asia were negatively impacted by unfavorable foreign exchange rates. On a constant currency basis, systemwide sales increased by approximately 5%.

Dunkin' International third quarter revenues of $6.3 million represented an increase of 27.3% from the prior year period. The increase in revenues was primarily a result of an increase in royalty income driven by systemwide sales growth, as well as an increase in franchise fees due primarily to recognition of deferred revenue upon the closure of restaurants.

Segment profit for Dunkin' International increased $3.4 million to $4.5 million in the third quarter primarily as a result of the increase in revenues, as well as a decrease in general and administrative expenses.

Amounts and percentages may not recalculate due to rounding


Three months ended


Increase (Decrease)

Baskin-Robbins U.S.


September 29,
 2018


September 30,
 2017(1)


$ / #

%


(Unaudited, $ in thousands except as otherwise noted)

Revenues:








Royalty income


$

8,626



8,501



125


1.5

%

Franchise fees


319



190



129


67.9

%

Rental income


773



798



(25)


(3.1)

%

Sales of ice cream and other products


906



771



135


17.5

%

Other revenues


3,057



3,062



(5)


(0.2)

%

Total revenues


$

13,681



13,322



359


2.7

%









Segment profit


$

10,183



10,035



148


1.5

%









Comparable store sales growth (decline)


1.8

%


(0.4)

%




Systemwide sales (in millions)(2)


$

180.6



177.0



3.6


2.0

%









Points of distribution


2,558



2,562



(4)


(0.2)

%

Gross openings


17



26



(9)


(34.6)

%

Net openings (closings)


(3)



11



(14)


(127.3)

%


(1) Prior period amounts have been restated to reflect the adoption of new revenue recognition guidance. See "Adoption of New Accounting Standard" for further detail.


(2) Systemwide sales include sales at franchisee-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. See "Non-GAAP Measures and Statistical Data" for further detail.

Baskin-Robbins U.S. third quarter revenues increased 2.7% from the prior year period to $13.7 million due primarily to increases in sales of ice cream and other products, franchise fees, and royalty income.

Segment profit for Baskin-Robbins U.S. increased to $10.2 million in the third quarter, an increase of 1.5%, primarily as a result of the increases in franchise fees and royalty income, offset by an increase in general and administrative expenses.

Amounts and percentages may not recalculate due to rounding


Three months ended


Increase (Decrease)

Baskin-Robbins International


September 29,
 2018


September 30,
 2017(1)


$ / #

%


(Unaudited, $ in thousands except as otherwise noted)

Revenues:








Royalty income


$

2,140



1,966



174


8.9

%

Franchise fees


203



326



(123)


(37.7)

%

Rental income


137



129



8


6.2

%

Sales of ice cream and other products


28,625



26,512



2,113


8.0

%

Other revenues


52



30



22


73.3

%

Total revenues


$

31,157



28,963



2,194


7.6

%









Segment profit


$

12,009



11,573



436


3.8

%









Comparable store sales growth (decline)


7.5

%


(4.3)

%




Systemwide sales (in millions)(2)


$

425.4



382.2



43.1


11.3

%









Points of distribution


5,466



5,382



84


1.6

%

Gross openings


82



95



(13)


(13.7)

%

Net openings


16



41



(25)


(61.0)

%


(1) Prior period amounts have been restated to reflect the adoption of new revenue recognition guidance. See "Adoption of New Accounting Standard" for further detail.


(2) Systemwide sales include sales at franchisee-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. See "Non-GAAP Measures and Statistical Data" for further detail.

Baskin-Robbins International systemwide sales increased 11.3% in the third quarter compared to the prior year period driven by sales growth in South Korea, the Middle East, and Japan, offset by a sales decline in Asia. Sales in South Korea were positively impacted by favorable foreign exchange rates, while all other regions were negatively impacted by unfavorable foreign exchange rates. On a constant currency basis, systemwide sales increased by approximately 12%.

Baskin-Robbins International third quarter revenues of $31.2 million represented an increase of 7.6% from the prior year period due primarily to an increase in sales of ice cream and other products. Systemwide sales and sales of ice cream products are not directly correlated within a given period due to certain licensees sourcing their own ice cream products, the lag between shipment of products to licensees and retail sales at franchised restaurants, and the overall timing of deliveries between fiscal quarters.

Third quarter segment profit increased 3.8% from the prior year period to $12.0 million primarily as a result of an increase in net income from our South Korea joint venture and a decrease in general and administrative expenses, offset by a decrease in net margin on ice cream driven primarily by an increase in commodity costs, as well as a decrease in net income from our Japan joint venture.



Three months ended


Increase (Decrease)

U.S. Advertising Funds


September 29,
 2018


September 30,
 2017(1)


$ / #

%


(Unaudited, $ in thousands)

Revenues:








Advertising fees and related income


$

118,208



113,862



4,346


3.8

%

Total revenues


$

118,208



113,862



4,346


3.8

%









Segment profit


$






%


(1) Prior period amounts have been restated to reflect the adoption of new revenue recognition guidance. See "Adoption of New Accounting Standard" for further detail.

U.S. Advertising Funds third quarter revenues of $118.2 million represented an increase of 3.8% compared to the prior year period driven primarily by Dunkin' U.S. systemwide sales growth. Expenses for the U.S. Advertising Funds were equivalent to revenues in each period, resulting in no segment profit.

COMPANY UPDATES

  • The Company today announced that the Board of Directors declared a cash dividend of $0.3475 per share, payable on December 5, 2018, to shareholders of record as of the close of business on November 26, 2018.
  • During the third quarter, the Company completed its repurchases under the two accelerated share repurchase agreements that it entered into in February 2018 for a total $650 million. At settlement, in August 2018, the Company received an additional 1.7 million shares. Under the agreements, the Company repurchased a total of approximately 10.2 million shares at a weighted average cost per share of $63.91. The Company's shares outstanding as of September 29, 2018 were 82,441,928.

FISCAL YEAR 2018 TARGETS

As described below, the Company is reiterating and updating certain of its 2018 performance targets.

  • The Company continues to expect approximately one percent comparable store sales growth for Dunkin' U.S. and low-single digit comparable sales growth for Baskin-Robbins U.S.
  • The Company continues to expect Dunkin' U.S. franchisees to add greater than 275 net new restaurants.
  • The Company now expects low-to-mid-single digit percent growth in other revenue (previously it expected high-single digit percent growth).
  • The Company continues to expect low-to-mid single digit percent revenue growth.
  • The Company continues to expect ice cream margin dollars to be flat compared to 2017 from a profit dollar standpoint.
  • The Company continues to expect a low-single digit percent reduction to general and administrative expense.
  • The Company continues to expect mid-single digit percent operating and adjusted operating income growth.
  • The Company continues to expect full-year weighted-average shares outstanding of approximately 85 million. It now expects to have an effective tax rate of 23 percent, which is inclusive of the impact of the excess tax benefit recognized in the third quarter. This guidance excludes any potential future impact from material excess tax benefits in the fourth quarter of 2018.
  • The Company now expects GAAP diluted earnings per share of $2.60 to $2.64 (previously it expected $2.48 to $2.56) and diluted adjusted earnings per share of $2.80 to $2.82 (previously it expected $2.68 to $2.72).
  • The Company continues to expect capital expenditures to be approximately $45 to $50 million.

The foregoing non-GAAP forward-looking financial measures are reconciled from the respective measures determined under GAAP in the attached tables "Dunkin' Brands Group, Inc. and Subsidiaries Non-GAAP Reconciliations."

Adoption of New Accounting Standard

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 was effective for the Company beginning in fiscal year 2018. The Company adopted this new guidance in fiscal year 2018 using the full retrospective transition method, which results in restating each prior reporting period presented in the year of adoption, including the three and nine months ended September 30, 2017, included herein. As a result of adopting this new guidance in the first quarter of fiscal year 2018, we identified an additional operating segment consisting of the Dunkin' U.S. and Baskin-Robbins U.S. advertising funds. 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 David Hoffmann, Chief Executive Officer and President of Dunkin' U.S., and Kate Jaspon, Chief Financial Officer. The dial-in number is (866) 393-1607 or (914) 495-8556, conference number 4660239. 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, condensed 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 success of our investments in the Dunkin' U.S. Blueprint for Growth; 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 operating income growth, 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 operating income growth, 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."

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-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 "Dunkin' U.S. comparable store sales growth" and "BR U.S. comparable store sales growth," which are calculated by including only sales from franchisee-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 "Dunkin' 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 20,700 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 third quarter 2018, Dunkin' Brands' 100 percent franchised business model included more than 12,700 Dunkin' restaurants and more than 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


Nine months ended



September 29,
2018


September 30,
 2017(1)


September 29,
2018


September 30,
 2017(1)

Revenues:









Franchise fees and royalty income(2)


$

151,991



143,734



435,740



415,343


Advertising fees and related income


132,471



122,660



375,017



355,224


Rental income


27,547



27,713



79,425



79,543


Sales of ice cream and other products(2)


24,867



23,173



74,784



74,358


Other revenues


13,135



12,791



37,027



36,137


Total revenues


350,011



330,071



1,001,993



960,605


Operating costs and expenses:









Occupancy expenses—franchised restaurants


14,765



15,333



43,059



43,758


Cost of ice cream and other products


21,311



19,457



60,956



58,578


Advertising expenses


133,732



124,080



378,283



358,828


General and administrative expenses, net


63,997



60,580



183,122



182,023


Depreciation


4,937



4,941



15,095



15,096


Amortization of other intangible assets


5,230



5,341



15,912



16,001


Long-lived asset impairment charges


55



536



1,209



643


Total operating costs and expenses


244,027



230,268



697,636



674,927


Net income of equity method investments


5,787



5,466



11,665



12,612


Other operating income (loss), net


(179)



3



(749)



591


Operating income


111,592



105,272



315,273



298,881


Other income (expense), net:









Interest income


1,930



624



5,088



1,370


Interest expense


(31,932)



(24,436)



(96,947)



(74,192)


Other income (loss), net


(101)



155



(700)



370


Total other expense, net


(30,103)



(23,657)



(92,559)



(72,452)


Income before income taxes


81,489



81,615



222,714



226,429


Provision for income taxes


15,422



40,445



45,997



89,874


Net income


$

66,067



41,170



176,717



136,555











Earnings per share—basic


$

0.80



0.46



2.10



1.50


Earnings per share—diluted


0.79



0.45



2.07



1.48



(1) Prior period amounts have been restated to reflect the adoption of new revenue recognition guidance. See "Adoption of New Accounting Standard" for further detail.


(2) For the three months ended September 29, 2018 and September 30, 2017, $4.8 million and $4.4 million, respectively, and for the nine months ended September 29, 2018 and September 30, 2017, $12.2 million and $11.4 million, respectively, of sales of ice cream and other products have been allocated to franchise fees and royalty income as consideration for the use of the franchise license.

 

 


DUNKIN' BRANDS GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)




September 29,
 2018


December 30,

 2017(1)

Assets





Current assets:





Cash and cash equivalents


$

428,179



1,018,317


Restricted cash


79,432



94,047


Accounts, notes, and other receivables, net


133,711



121,849


Other current assets


69,040



70,120


Total current assets


710,362



1,304,333


Property and equipment, net


205,860



181,542


Equity method investments


142,954



140,615


Goodwill and other intangible assets, net


2,228,327



2,245,465


Other assets


66,650



65,478


Total assets


$

3,354,153



3,937,433


Liabilities and Stockholders' Deficit





Current liabilities:





Current portion of long-term debt


$

31,650



31,500


Accounts payable


55,862



53,417


Deferred revenue


43,752



44,876


Other current liabilities


297,176



355,706


Total current liabilities


428,440



485,499


Long-term debt, net


3,017,281



3,035,857


Deferred revenue


354,472



361,458


Deferred income taxes, net


200,196



214,345


Other long-term liabilities


89,322



94,813


Total long-term liabilities


3,661,271



3,706,473


Total stockholders' deficit


(735,558)



(254,539)


Total liabilities and stockholders' deficit


$

3,354,153



3,937,433



(1) Prior period amounts have been restated to reflect the adoption of new revenue recognition guidance.
See "Adoption of New Accounting Standard" for further detail.

 

 


DUNKIN' BRANDS GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)



Nine months ended



September 29,
 2018


September 30,

 2017(1)






Net cash provided by operating activities


$

126,529



126,180


Cash flows from investing activities:





Additions to property and equipment


(41,450)



(13,649)


Other, net


20



(101)


Net cash used in investing activities


(41,430)



(13,750)


Cash flows from financing activities:





Repayment of long-term debt


(23,688)



(18,750)


Payment of debt issuance and other debt-related costs




(312)


Dividends paid on common stock


(86,035)



(87,911)


Repurchases of common stock, including accelerated share repurchases


(650,368)



(127,186)


Exercise of stock options


71,657



33,267


Other, net


(1,101)



(214)


Net cash used in financing activities


(689,535)



(201,106)


Effect of exchange rates on cash, cash equivalents, and restricted cash


(350)



576


Decrease in cash, cash equivalents, and restricted cash


(604,786)



(88,100)


Cash, cash equivalents, and restricted cash, beginning of period


1,114,099



431,832


Cash, cash equivalents, and restricted cash, end of period


$

509,313



343,732



(1) Prior period amounts have been restated to reflect the adoption of new revenue recognition guidance. See "Adoption of New Accounting Standard" for further detail.

 

 

DUNKIN' BRANDS GROUP, INC. AND SUBSIDIARIES

Non-GAAP Reconciliations

(In thousands, except share and per share data)

(Unaudited)




Three months ended


Nine months ended



September 29,
2018


September 30,

 2017(1)


September 29,
2018


September 30,
 2017(1)










Operating income


$

111,592



105,272



315,273



298,881


Operating income margin


31.9

%


31.9

%


31.5

%


31.1

%

Adjustments:









Amortization of other intangible assets


$

5,230



5,341



15,912



16,001


Long-lived asset impairment charges


55



536



1,209



643


Adjusted operating income


$

116,877



111,149



332,394



315,525


Adjusted operating income margin


33.4

%


33.7

%


33.2

%


32.8

%










Net income


$

66,067



41,170



176,717



136,555


Adjustments:









Amortization of other intangible assets


5,230



5,341



15,912



16,001


Long-lived asset impairment charges


55



536



1,209



643


Tax impact of adjustments(2)


(1,480)



(2,351)



(4,794)



(6,658)


Adjusted net income


$

69,872



44,696



189,044



146,541











Adjusted net income


$

69,872



44,696



189,044



146,541


Weighted average number of common shares – diluted


84,107,840



91,433,076



85,366,264



92,386,611


Diluted adjusted earnings per share


$

0.83



0.49



2.21



1.59











(1) Prior period amounts have been restated to reflect the adoption of new revenue recognition guidance. See "Adoption of New Accounting Standard" for
further detail.


(2) Tax impact of adjustments calculated at effective tax rates of 28% for the three and nine months ended September 29, 2018 and 40% for the three and nine months ended September 30, 2017.

 

 

DUNKIN' BRANDS GROUP, INC. AND SUBSIDIARIES

Non-GAAP Reconciliations (continued)

(Unaudited)



Fiscal year ended

December 29, 2018



Low


High



(projected)


(projected)

Diluted earnings per share


$

2.60



2.64


Adjustments:





Amortization of other intangible assets


0.25



0.24


Long-lived asset impairment charges


0.03



0.01


Tax impact of adjustments(1)


(0.08)



(0.07)


Diluted adjusted earnings per share


$

2.80



2.82







(1) Tax impact of adjustments calculated at a 28% 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; Karen Raskopf (Media), SVP, Corporate Communications, Dunkin' Brands Group, Inc., karen.raskopf@dunkinbrands.com, 781-737-5200

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