Dunkin' Brands Reports Second Quarter 2012 Results

CANTON, Mass., July 26, 2012 /PRNewswire/ -- Dunkin' Brands Group, Inc. (Nasdaq: DNKN), the parent company of Dunkin' Donuts (DD) and Baskin-Robbins (BR), today reported results for the second quarter ended June  30, 2012. "Tomorrow marks our one-year anniversary as a publicly-traded company. We believe our strong performance to date clearly demonstrates the platform for growth that we laid out at the time of our IPO," said Nigel Travis, Chief Executive Officer, Dunkin' Brands Group, Inc., and President, Dunkin' Donuts U.S. "For the quarter, our franchised business model continued to generate consistent revenue growth and high-margins, resulting in a 32 percent increase in adjusted earnings per share. Additionally, our focus on store-level economics, best-in-class product and marketing innovation, and operational execution drove comparable store sales increases across all business segments. We also continued to capitalize on our significant growth prospects in the U.S. and internationally and by the end of the quarter had more than 17,000 restaurants worldwide."

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Consolidated Key Highlights  

Global system-wide sales growth in the second quarter was primarily attributable to Dunkin' Donuts U.S. comparable store sales growth (which includes stores open 54 weeks or more), global store development, and growth in Baskin-Robbins international sales.

Dunkin' Donuts U.S. comparable store sales growth in the second quarter was driven by increased average ticket and higher traffic. The growth resulted from strong beverage sales growth led by cold beverages including Black Cocoa Creme Iced Coffee as part of the Men in Black™3 promotion and a national $0.99 Iced Tea offer; differentiated breakfast sandwich offerings such as the new Breakfast Burrito in Steak and Veggie varieties as well as the continuation of the Angus Steak, Egg and Cheese Breakfast Sandwich;  continued growth in Bakery Sandwiches; sales of Dunkin' Donuts K-Cup portion packs; and the "What Are You Drinkin'"® marketing campaign.  

Baskin-Robbins U.S. comparable store sales growth was driven by new product news around the return of signature Flavors of the Month including Lunar Cheesecake as part of the Men in Black™3 promotion, and Strawberry Lemonade; Mother's and Father's Day custom cake sales; and new beverages such as the Triple Chocolate Cappy Blast and Tropical Banana Smoothie.

In the second quarter, Dunkin' Brands franchisees and licensees opened 140 net new restaurants across the globe. This includes 87 net new Baskin-Robbins International locations, 29 net new Dunkin' Donuts International locations, 19 net new Dunkin' Donuts U.S. locations, and 5 net new Baskin-Robbins U.S. locations. Additionally, Dunkin' Donuts U.S. franchisees remodeled 156 restaurants during the quarter.

Revenues grew by 9.8 percent compared to the second quarter of 2011, primarily from increased royalty income driven by the increase in system-wide sales.

Operating income decreased $15.7 million, or 25.3 percent, from the second quarter of 2011 primarily as a result of a $20.7 million increase in the legal reserve related to the Bertico litigation and $3.7 million of costs related to the closing of the Peterborough, Ontario, Canada ice cream manufacturing plant, offset by the increase in revenues. Adjusted operating income increased $9.7 million, or 14.0 percent, from the second quarter of 2011 primarily as a result of the increase in revenues and continued general and administrative expense leverage.

Net income increased by $1.3 million compared to the second quarter of 2011 as a result of a decrease in interest expense associated with the refinancings completed last year and the repayment of our debt with the proceeds from our initial public offering, offset by the decrease in operating income. Adjusted net income increased by $15.6 million compared to the second quarter of 2011 as a result of the increase in adjusted operating income and the decrease in interest expense, offset by a corresponding increase in tax expense.

Company Updates

• The Company's Board of Directors authorized a program to repurchase up to an aggregate $500 million of its outstanding common stock. The authorization is granted for a period of two years.
• The Company intends to increase its senior secured credit facility by approximately $400 million and to seek certain amendments to the facility.   The facility is expected to be structured to allow the Company the option to draw down the incremental term loan during a specified period of time to use for returning capital to shareholders as well as general corporate purposes.
• The Company today announced that the Board of Directors declared a third quarter cash dividend of $0.15 per share, payable on August 24, 2012 to shareholders of record as of the close of business on August 6, 2012.
• The Company increased its legal reserve in the second quarter in relation to the Quebec Superior Court's ruling in the Bertico litigation, in which the court found for the plaintiffs and issued a judgment against Dunkin' Brands.  The Company increased its legal reserve to $24.6 million during the second quarter of 2012 from $3.9 million. The Company intends to vigorously appeal the decision.
• On July 18, 2012 the Company announced that in October 2012, Baskin-Robbins will close its Peterborough, Ontario, Canada manufacturing plant, which supplies ice cream to certain of the brand's international markets.  Ice cream that had been produced in Peterborough will now be produced by Dean Foods. This will enable Baskin-Robbins to provide ice cream to a growing number of international franchisees and their customers. As a result of the closing, the Company estimates charges of between $16 million and $18 million, of which $4 million is a non-cash charge. Of that estimated total, during the second quarter the Company had $3.7 million in costs related to the closing, $1.1 million of which was non-cash.  Additionally, the Company expects annual savings of approximately $4 million to $5 million beginning in 2013.

"We have made significant progress in driving supply chain efficiencies for both Dunkin' Donuts and Baskin-Robbins while maintaining our high product quality," said Neil Moses, Dunkin' Brands Chief Strategy Officer. "Our decision to close our Baskin-Robbins plant in October is in keeping with this strategy.  Moving our international ice cream production to a trusted, long-term dairy manufacturing partner is aligned with our asset-light model and is expected to generate significant annual savings for the Company. Most importantly, this transition will enable us to provide better support for our growing international Baskin-Robbins business."

Fiscal Year 2012 Targets

As described below, the Company is increasing certain targets and reaffirming others that it has previously provided regarding its 2012 performance.

• The Company continues to expect Dunkin' Donuts U.S. comparable store sales growth to be in the range of 4 to 5 percent and Baskin-Robbins U.S. comparable store sales growth to be in the range of 2 to 4 percent.
• The Company is increasing its global growth target to between 600 to 700 net new units. It continues to expect that Dunkin' Donuts U.S. will add between 260 and 280 net new restaurants and now expects Baskin-Robbins U.S. will close between 40 and 60 restaurants net (previously the range was 60 to 80 net closures).  Internationally, the Company targets opening 400 to 450 net new units across the two brands, an increase from 350 to 450.
• The Company continues to expect revenue growth of between 7 and 8 percent with adjusted operating income growth of between 12 and 14 percent. The targets for revenue and adjusted operating income growth are based on a 52-week year in 2011.
• The Company is increasing its range for adjusted earnings per share to $1.22 to $1.25 which would represent 30 to 33 percent growth over its $0.94 adjusted earnings per share in 2011 and is an increase from the previous target of $1.21 to $1.24.

"We are pleased by Dunkin' Brands' strong, consistent performance in the quarter and we have many levers to help drive further growth in the second half of 2012. On the strength of this performance, we are increasing both our 2012 adjusted earnings per share and our global restaurant development targets," said Paul Carbone, Dunkin' Brands Chief Financial Officer. "Our highly-leverageable, franchised business model and significant white space growth opportunities uniquely position us to continue to grow our business and deliver shareholder value despite an increasingly challenging economic environment."

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, Chief Global Strategy Officer, Neil Moses, and Chief Financial Officer, Paul Carbone. The dial-in number is (866) 393-1607 or (914) 495-8556, conference number 96970168.  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.   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 relationships with our franchisees and licensees and the actions of our franchisees and licensees; our master franchisees' relationships with sub-franchisees; the strength of our brand in the markets in which we compete; changes in competition within the quick-service restaurant segment of the food industry; changes in consumer behavior resulting from changes in technologies or alternative methods of delivery; economic and political conditions in the countries where we operate; our substantial indebtedness; our ability to protect our intellectual property rights; consumer preferences, spending patterns and demographic trends; the 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, 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 and/or reflecting the conversion of our previously outstanding Class L common stock into shares of common stock. The Company uses these non-GAAP measures as key performance measures for the purpose of evaluating performance internally. We also believe these non-GAAP measures provide our investors with useful information regarding our historical operating results. These non-GAAP measures are not intended to replace the presentation of our financial results in accordance with GAAP. Use of the terms adjusted operating income, adjusted operating income margin, adjusted net income, and diluted adjusted earnings per pro forma common share may differ from similar measures reported by other companies.  Adjusted operating income and adjusted net income are reconciled from the respective measures determined under GAAP in the attached table "Dunkin' Brands Group, Inc. Non-GAAP Reconciliation."

On August 1, 2011, the Company completed an initial public offering in which the Company sold 22,250,000 shares of common stock 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 calculation of diluted adjusted earnings per pro forma common share for the three months ended June 25, 2011 gives 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 fiscal period. The calculation of diluted adjusted earnings per pro forma common share also includes the dilutive effect of common restricted shares and stock options, using the treasury stock method. 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 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.

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 "DD U.S. comparable store sales growth," "BR U.S. comparable store sales growth" and "International comparable store sales growth," 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 17,000 points of distribution in nearly 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 second quarter 2012, Dunkin' Brands' nearly 100 percent franchised business model included more than 10,000 Dunkin' Donuts restaurants and nearly 7,000 Baskin-Robbins restaurants. For the full-year 2011, the company had franchisee-reported sales of approximately $8.3 billion. Dunkin' Brands Group, Inc. is headquartered in Canton, Mass.  

SOURCE Dunkin' Brands Group, Inc.