Dunkin Brands, Inc.
Nov 1, 2011

Dunkin' Brands Reports Third Quarter 2011 Results

Adjusted net income increases approximately 32 percent year-over-year

CANTON, Mass., Nov. 1, 2011 /PRNewswire/ -- Dunkin' Brands Group, Inc. (Nasdaq: DNKN), the parent company of Dunkin' Donuts (DD) and Baskin-Robbins (BR), today reported results for the quarter ended September 24, 2011.  "As a result of our successful product innovation, powerful marketing, and an intense focus on guest satisfaction and operational execution, we delivered robust third quarter results," said Nigel Travis, Chief Executive Officer, Dunkin' Brands Group, Inc. and President, Dunkin' Donuts. "Our strong increases in systemwide sales and consolidated U.S. comparable store sales, which included positive growth for both Dunkin' Donuts and Baskin-Robbins, reflect the strength of our overall business and underscore the opportunity we have to accelerate our profitable growth in the U.S. and around the world."  

(Logo: http://photos.prnewswire.com/prnh/20110317/NY67297LOGO )

   Financial Highlights






   ($ in millions, except percentages and per share data)

Quarter 3


Increase (Decrease)


2011

2010


$/#

%

   Systemwide Sales Growth

8.9%

6.6%




   Consolidated U.S. Comparable Store Sales Growth

5.6%

1.8%




   DD U.S. Comparable Store Sales Growth

6.0%

2.7%




   BR U.S. Comparable Store Sales Growth

1.7%

(5.8)%




   Consolidated Net POD Development

98

214


(116)

(54.2)%

   DD Global PODs at period end

9,900

9,673


227

2.3%

   BR Global PODs at period end

6,625

6,374


251

3.9%

   Consolidated Global PODs at period end

16,525

16,047


478

3.0%







   Revenues

$         163.5

$        149.5


$        14.0

9.3%

   Operating Income

54.1

54.6


(0.5)

(0.8)%

   Adjusted Operating Income (1)

75.9

62.6


13.3

21.3%

   Net Income

7.4

18.8


(11.4)

(60.7)%

   Adjusted Net Income (1)

31.3

23.7


7.7

32.5%

   Earnings (Loss) per Share — Basic and Diluted:






                  Class L

$           4.46

$          1.25


$        3.21

256.8%

                  Common

(1.01)

(0.24)


(0.77)

(320.8)%

   Diluted Adjusted Earnings per Pro Forma Common
   Share (1)

0.28

0.24


0.04

16.7%

(amounts and percentages may not recalculate due to rounding)












(1) Adjusted operating income and adjusted net income are non-GAAP measures reflecting operating income and net income, determined in accordance with GAAP, further adjusted for amortization of intangible assets, impairment charges, and Sponsor management agreement termination fee, and in the case of adjusted net income, loss on debt extinguishment and refinancing charges, net of the tax impact of such adjustments.  Diluted adjusted earnings per pro forma common share is a non-GAAP measure, calculated using adjusted net income, and gives effect to the conversion of Class L common stock as if the conversion were completed at the beginning of the respective fiscal period. Please refer to "Non-GAAP Measures and Statistical Data," "Dunkin' Brands Group, Inc. Non-GAAP Reconciliations," and "Dunkin' Brands Group, Inc. Diluted Adjusted Earnings per Pro Forma Common Share" for further detail.



Consolidated Key Highlights

Third quarter 2011 financial highlights included:

  • Global systemwide sales increased 8.9 percent over the third quarter of 2010, primarily attributable to systemwide sales growth of 8.3 percent for Dunkin' Donuts U.S., as well as a 13.0 percent year-over year increase for Baskin-Robbins International sales and a 13.7 percent year-over-year increase for Dunkin' Donuts International sales.  
  • Dunkin' Donuts U.S. comparable store sales (which includes stores open 54 weeks or more) increased 6.0 percent, driven by an increase in ticket and traffic, while Baskin-Robbins U.S. comparable store sales increased 1.7 percent. As a result, consolidated U.S. comparable store sales increased 5.6 percent.
  • Dunkin' Brands' franchisees and licensees opened 98 net new Dunkin' Donuts and Baskin-Robbins locations on a global basis during the quarter and 332 net new locations, including one company-owned store, during the first nine months of 2011, increasing Dunkin' Brands total points of distribution to 16,525. The Company expects franchisees to open more than 600 net new restaurants for the year on a global basis.
  • Revenues grew by more than 9 percent, to $163.5 million, for the third quarter of 2011 compared to the same period in 2010, primarily as a result of increased franchisee fees and royalty income.  
  • Operating income of $54.1 million for the third quarter remained relatively flat with the prior year, decreasing 0.8 percent, primarily due to one-time expenses of $14.7 million incurred in connection with the Company's initial public offering (IPO).    
  • Adjusted operating income was $75.9 million, a 21.3 percent increase over the same time last year. Adjusted operating income margin was 46.4 percent, representing a 450 basis point improvement over the same period last year, as a result of strong revenues and flat expenses.      
  • Net income was $7.4 million, a decrease of 60.7 percent compared to the third quarter of 2010, due to one-time expenses incurred in connection with the Company's IPO and  related retirement of $375 million of senior notes.
  • Adjusted net income for the quarter grew to $31.3 million, a 32.5 percent increase compared to the third quarter of 2010, as a result of an increase in adjusted operating income and lower interest expense.
  • Diluted adjusted earnings per pro forma common share was $0.28, an increase of 17 percent over the third quarter of 2010.

"Our performance for the quarter gives us confidence in our ability to achieve our longer term growth targets," said Neil Moses, Dunkin' Brands Group, Inc. Chief Financial Officer.  "We believe these results demonstrate the opportunity that lies ahead for us and underscore the power of our  nearly all-franchised business model with its high operating margins, low capital expenditure requirements and strong free cash flow."    

Conference Call

As previously announced, Dunkin' Brands will be holding a conference call today at 8:00 am ET hosted by Chief Executive Officer, Nigel Travis, and Chief Financial Officer, Neil Moses. The dial-in number is (866) 393-1607 or (914) 495-8556, conference number 16955214.  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," "would," and similar expressions intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.  These forward-looking statements include all matters that are not historical facts.  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; changes in working relationship 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 success of our growth strategy and international development; changes in commodity and food prices, particularly coffee, dairy products and sugar, and the 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; inability to recover our capital costs; changes in political, legal, economic or other factors in international markets; termination of a master franchise agreement or contracts with the U.S. military; currency exchange rates; the impact of food borne-illness or food safety issues or adverse public or medial opinions regarding the health effects of consuming our products; our ability to collect royalty payments from our franchisees and licensees; uncertainties relating to litigation; changes in regulatory requirements to our and our franchisees and licensees ability to comply with current or future regulatory requirements; review and audit of certain of our tax returns; 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 prospectus filed with the Securities and Exchange Commission on July 27, 2011. 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 results provided in accordance with U.S. generally accepted accounting principles ("GAAP") throughout this document, the Company has provided non-GAAP measurements, adjusted operating income, adjusted operating income margin, adjusted net income, and diluted adjusted earnings per pro forma common 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 measurements are not intended to replace the presentation of our financial results in accordance with GAAP. Use of the term adjusted operating income, adjusted operating income margin, adjusted net income, and diluted adjusted earnings per pro forma common share may differ from similar measures reported by other companies.  Adjusted operating income, adjusted operating income margin, and adjusted net income are reconciled from the respective measures determined under GAAP in the attached table "Dunkin' Brands Group, Inc. Non-GAAP Reconciliations."

On August 1, 2011, the Company completed an initial public offering in which 22,250,000 shares of common stock were sold at an initial public offering price of $19.00 per share. Immediately prior to the offering, each share of the Company's Class L common stock converted into 2.4338 shares of common stock. The number of common shares used in the calculations of diluted adjusted earnings per pro forma common share for the three and nine months ended September 24, 2011 and September 25, 2010 give effect to the conversion of all outstanding shares of Class L common stock at the conversion factor of 2.4338 common shares for each Class L share, as if the conversion was completed at the beginning of the respective fiscal period. The calculations of diluted adjusted earnings per pro forma common share also include the dilutive effect of common restricted shares and stock options, using the treasury stock method. Shares sold in the offering are included in the diluted adjusted earnings per pro forma common share calculations beginning on the date that such shares were actually issued. Diluted adjusted earnings per pro forma common share is calculated using adjusted net income, as defined above.  See the attached table "Dunkin' Brands Group, Inc. Diluted Adjusted Earnings per Pro Forma Common Share" for further detail.

Additionally, the Company has included metrics such as franchisee-reported sales, system-wide sales growth, and comparable store sales growth, which are commonly used statistical measures in the quick-service restaurant industry and are important to understanding Company performance.

Franchisee-reported sales include sales at franchisee restaurants, including joint ventures. The Company uses "System-wide sales growth" to refer to the percentage change in sales at both franchisee- and company-owned restaurants from the comparable period of the prior year. Changes in system-wide sales are driven by changes in average comparable store sales and changes in the number of restaurants.

The Company uses "Consolidated US comparable store sales," "DD domestic comparable store sales" and "BR domestic comparable store sales," which are calculated by including only sales from franchisee- and company-owned restaurants that have been open at least 54 weeks and that have reported sales in the current and comparable prior year week.  

About Dunkin' Brands Group, Inc.

With more than 16,500 points of distribution in 56 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 hardserve ice cream. At the end of 2010, Dunkin' Brands' nearly 100 percent franchised business model included 9,760 Dunkin' Donuts restaurants and 6,433 Baskin-Robbins restaurants, and the company had system-wide sales of approximately $7.7 billion. Dunkin' Brands Group, Inc. is headquartered in Canton, Mass. The Company's website is located at www.dunkinbrands.com.

Contact(s):




Paul Carbone (Investors)

Michelle King (Media)

Vice President, Strategy & Finance

Director, Global Media Relations

Dunkin' Brands, Inc.

Dunkin' Brands, Inc.

investor.relations@dunkinbrands.com

michelle.king@dunkinbrands.com

781-737-3200

781-737-5200



SEGMENT RESULTS


Three months ended




September 24,


September 25,


Increase (Decrease)

Dunkin' Donuts U.S.

2011


2010


$


%


($ in millions)



Systemwide sales growth







8.3%

Franchisee reported sales

$                 1,501.4


$                 1,383.5


$        117.8


8.5%

Revenues

$                    113.9


$                    100.5


$          13.4


13.4%

Segment profit

$                      89.0


$                      72.3


$          16.7


23.0%

Points of distribution

6,895


6,698


197


2.9%

Gross openings

91


81


10


12.3%

Net openings

57


57



—%


















Three months ended




September 24,


September 25,


Increase (Decrease)

Dunkin' Donuts International

2011


2010


$


%


($ in millions)



Systemwide sales







13.7%

Franchisee reported sales

$                    161.5


$                    142.0


$          19.5


13.7%

Revenues

$                        3.7


$                        3.6


$            0.1


3.3%

Segment profit

$                        2.5


$                        3.7


$          (1.2)


(32.5)%

Points of distribution

3,005


2,975


30


1.0%

Gross openings

70


169


(99)


(58.6)%

Net openings (closings)

(24)


92


(116)


(126.1)%


















Three months ended




September 24,


September 25,


Increase (Decrease)

Baskin Robbins U.S.

2011


2010


$


%


($ in millions)



Systemwide sales







(0.1)%

Franchisee reported sales

$                    148.1


$                    148.3


$           (0.2)


(0.1)%

Revenues

$                      12.0


$                      12.3


$           (0.3)


(2.5)%

Segment profit

$                        7.0


$                        8.8


$           (1.8)


(20.5)%

Points of distribution

2,492


2,558


(66)


(2.6)%

Gross openings

12


16


(4)


(25.0)%

Net closings

(18)


(14)


(4)


28.6%


















Three months ended




September 24,


September 25,


Increase (Decrease)

Baskin Robbins International

2011


2010


$


%


($ in millions)



Systemwide sales







13.0%

Franchisee reported sales

$                    390.7


$                    345.9


$          44.8


13.0%

Revenues

$                      28.1


$                      25.3


$            2.8


11.1%

Segment profit

$                      14.5


$                      13.9


$            0.5


3.8%

Points of distribution

4,133


3,816


317


8.3%

Gross openings

126


116


10


8.6%

Net openings

83


79


4


5.1%



DUNKIN' BRANDS GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(In thousands)

(Unaudited)








Three months ended


Nine months ended



September 24,


September 25,


September 24,


September 25,



2011


2010


2011


2010





(As Adjusted)




(As Adjusted)

Revenues:










Franchise fees and royalty income

$

104,562


92,125


288,660


263,020


Rental income 


23,676


23,375


69,950


69,807


Sales of ice cream products


25,591


23,415


73,532


65,116


Other revenues


9,679


10,616


27,551


29,416






Total revenues


163,508


149,531


459,693


427,359

Operating costs and expenses:










Occupancy expenses - franchised restaurants


13,073


12,657


38,278


39,147


Cost of ice cream products


18,975


16,419


52,795


44,568


General and administrative expenses, net


71,465


59,220


179,408


163,083


Depreciation 


6,128


6,211


18,350


19,159


Amortization of other intangible assets


7,001


7,762


21,106


25,315


Impairment charges


163


265


1,220


2,955






Total operating costs and expenses


116,805


102,534


311,157


294,227


Equity in net income of joint ventures


7,409


7,577


12,206


16,013






Operating income


54,112


54,574


160,742


149,145

Other income (expense):










Interest income


138


37


403


123


Interest expense


(24,065)


(25,648)


(86,905)


(80,721)


Loss on debt extinguishment and refinancing transactions


(18,050)



(34,222)


(3,693)


Other gains, net


(423)


(4)


(11)


(33)






Total other expense


(42,400)


(25,615)


(120,735)


(84,324)






Income before income taxes


11,712


28,959


40,007


64,821

Provision for income taxes


4,300


10,117


17,156


22,704






Net income

$

7,412


18,842


22,851


42,117










Earnings (loss) per share:










Class L - basic and diluted

$

4.46


1.25


6.14


3.69


Common - basic and diluted

$

(1.01)


(0.24)


(2.00)


(1.02)



DUNKIN' BRANDS GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)








September 24,


December 25,

Assets


2011


2010

Current assets:






Cash and cash equivalents

$

181,849


134,100


Accounts, notes, and other receivable, net


46,768


79,943


Other current assets


61,010


70,334






Total current assets


289,627


284,377

Property and equipment, net


185,297


193,273

Investments in joint ventures


181,280


169,276

Goodwill and other intangible assets, net


2,402,994


2,424,312

Other assets


70,247


76,050






Total assets

$

3,129,445


3,147,288

Liabilities, Common Stock, and Stockholders' Equity (Deficit)





Current liabilities:






Current portion of long-term debt

$

14,965


12,500


Accounts payable


12,598


9,822


Other current liabilities


207,089


258,233






Total current liabilities


234,652


280,555

Long-term debt, net


1,472,359


1,847,016

Deferred income taxes, net


563,703


586,337

Other long-term liabilities


125,494


127,139






Total long-term liabilities


2,161,556


2,560,492

Common stock, Class L



840,582

Stockholders' equity (deficit):










Total stockholders' equity (deficit)


733,237


(534,341)






Total liabilities, common stock, and stockholders' equity (deficit)

$

3,129,445


3,147,288



DUNKIN' BRANDS GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)






Nine months ended



September 24,


September 25,



2011


2010

Cash flows from operating activities:






Net income

$

22,851


42,117


Adjustments to reconcile net income to net cash provided by operating







activities:








Depreciation and amortization


39,456


44,474




Loss on debt extinguishment and refinancing transactions


34,222


3,693




Deferred income taxes


488


(7,001)




Equity in net income of joint ventures


(12,206)


(16,013)




Dividends received from joint ventures


7,362


6,603




Other non-cash adjustments, net


6,837


8,034




Change in operating assets and liabilities:









Restricted cash



18,161





Accounts, notes, and other receivables, net


32,047


21,334





Other current liabilities


(48,420)


(38,503)





Liabilities of advertising funds, net


(1,645)


1,568





Other, net


(9,951)


7,733






Net cash provided by operating activities


71,041


92,200

Cash flows from investing activities:






Additions to property and equipment


(12,800)


(11,109)


Other, net


2,115







Net cash used in investing activities


(10,685)


(11,109)

Cash flows from financing activities:






Repayment of long-term debt, net


(385,366)


(100,765)


Payment of deferred financing and other debt-related costs


(20,087)



Proceeds from issuance of common stock, net


393,304


895


Repurchases of common stock


(286)


(3,890)


Change in restricted cash


177


548


Other, net


26


(199)






Net cash used in financing activities


(12,232)


(103,411)

Effect of exchange rates on cash and cash equivalents


(375)


34






Increase (decrease) in cash and cash equivalents


47,749


(22,286)

Cash and cash equivalents, beginning of period


134,100


53,210

Cash and cash equivalents, end of period

$

181,849


30,924



DUNKIN' BRANDS GROUP, INC.

Non-GAAP Reconciliations

(In thousands)








Three months ended


Nine months ended



September 24,


September 25,


September 24,


September 25,



2011


2010


2011


2010

Operating income

$

54,112

$

54,574

$

160,742

$

149,145

Adjustments:










Sponsor termination fee


14,671



14,671



Amortization of other intangible assets


7,001


7,762


21,106


25,315


Impairment charges


163


265


1,220


2,955

Adjusted operating income

$

75,947

$

62,601

$

197,739

$

177,415










Operating income margin


33.1%


36.5%


35.0%


34.9%

Adjustments:










Sponsor termination fee


8.9%


0.0%


3.2%


0.0%


Amortization of other intangible assets


4.3%


5.2%


4.6%


5.9%


Impairment charges


0.1%


0.2%


0.2%


0.7%

Adjusted operating income margin


46.4%


41.9%


43.0%


41.5%










Net income

$

7,412

$

18,842

$

22,851

$

42,117

Adjustments:










Sponsor termination fee


14,671



14,671



Amortization of other intangible assets


7,001


7,762


21,106


25,315


Impairment charges


163


265


1,220


2,955


Loss on debt extinguishment and refinancing transactions


18,050



34,222


3,693


Tax impact of adjustments (a)


(15,954)


(3,211)


(28,488)


(12,785)

Adjusted net income

$

31,343

$

23,658

$

65,582

$

61,295


(a) Tax impact of adjustments calculated at a 40% effective tax rate for each period presented.



DUNKIN' BRANDS GROUP, INC.

Diluted Adjusted Earnings per Pro Forma Common Share










Three months ended


Nine months ended




September 24,


September 25,


September 24,


September 25,




2011


2010


2011


2010

Adjusted net income (in thousands)

$

31,343

$

23,658

$

65,582

$

61,295











Pro forma weighted average number of common shares — diluted:









Weighted average number of Class L shares over period in which Class L shares were outstanding (1)


22,866,379


22,802,457


22,845,378


22,807,674

Adjustment to weight Class L shares over respective fiscal period (1)


(15,328,012)


-


(5,104,722)


-

Weighted average number of Class L shares over respective fiscal period


7,538,367


22,802,457


17,740,656


22,807,674

Class L conversion factor


2.4338


2.4338


2.4338


2.4338

Weighted average number of converted Class L shares


18,347,071


55,497,206


43,177,665


55,509,904

Weighted average number of common shares


93,529,128


41,323,438


58,807,271


41,288,341

Pro forma weighted average number of common shares — basic


111,876,199


96,820,644


101,984,936


96,798,245

Incremental dilutive common shares (2)


1,401,643


225,445


735,242


190,867

Pro forma weighted average number of common shares — diluted


113,277,842


97,046,089


102,720,178


96,989,112

Diluted adjusted earnings per pro forma common share

$

0.28

$

0.24

$

0.64

$

0.63


(1) The weighted average number of Class L shares in the actual Class L earnings per share calculation for the three and nine months ended September 24, 2011 represents the weighted average from the beginning of the period up through the date of conversion of the Class L shares into common shares. As such, the pro forma weighted average number of common shares includes an adjustment to the weighted average number of Class L shares outstanding to reflect the length of time the Class L shares were outstanding prior to conversion relative to the respective three and nine month periods.  The converted Class L shares are already included in the weighted average number of common shares outstanding for the period after their conversion.


(2) Represents the dilutive effect of restricted shares and stock options, using the treasury stock method.



SOURCE Dunkin' Brands Group, Inc.

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