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.

 

 

 

Cision View original content to download multimedia:http://www.prnewswire.com/news-releases/dunkin-brands-reports-third-quarter-2018-results-300737425.html

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

: ()
on

Copyright West LLC. Minimum 15 minutes delayed.