Jul 30, 2020

Dunkin' Brands Reports Second Quarter 2020 Results

CANTON, Mass., July 30, 2020 /PRNewswire/ --

Second quarter highlights include:

  • Dunkin' U.S. comparable store sales decline of 18.7%, which improved sequentially in each month of the quarter
  • Baskin-Robbins U.S. comparable store sales decline of 6.0%, which improved sequentially in each month of the quarter
  • Net closure of 229 Dunkin' and Baskin-Robbins locations globally, inclusive of 180 Baskin-Robbins International locations; net closure of 40 Dunkin' U.S. locations, inclusive of the closure of 10 Speedway locations
  • Revenues decreased by 20.0%
  • Diluted EPS decreased by 38.0% to $0.44
  • Diluted adjusted EPS decreased by 43.0% to $0.49
  • The Company's Board of Directors announced the reinstatement of its dividend program
  • The Company ended the second quarter with $291 million of unrestricted cash held in the U.S., excluding cash reserved for gift cards and advertising funds

Dunkin' Brands Group, Inc. (Nasdaq: DNKN), the parent company of Dunkin' and Baskin-Robbins (BR), today reported results for the second quarter ended June 27, 2020.

"For Dunkin' U.S., same store sales improved sequentially throughout the quarter, largely as a result of our ability to pivot quickly and introduce new menu items designed to appeal to customers who are now visiting us later in the day. Our digital platform -- a cornerstone of our Dunkin' Blueprint for Growth -- drove significant customer engagement and rapid recovery during the quarter, and last week we announced the hiring of a Chief Digital & Strategy Officer to accelerate our digital future," said Dave Hoffmann, Chief Executive Officer, Dunkin' Brands Group, Inc. "We are extremely proud of our great franchisees who kept the vast majority of our restaurants open during the quarter and really stepped up with a sense of urgency and grit to keep their team members employed, our guests served, and their communities running."

"This morning we announced that our Board of Directors has reinstated our dividend program, and authorized and declared a quarterly dividend for the third quarter. The reinstatement of our dividend reflects the overall financial health of Dunkin' Brands and our commitment to shareholders," said Kate Jaspon, Chief Financial Officer, Dunkin' Brands Group, Inc. "In addition, the Company repaid all of its borrowings under its variable funding notes during the second quarter and ended the quarter with a strong cash balance to provide ongoing financial flexibility. Given the strength and stability of our franchised model, coupled with our franchisees' ongoing business recovery, we remain confident in our ability to maintain appropriate liquidity through the current crisis."

SECOND QUARTER 2020 KEY FINANCIAL HIGHLIGHTS

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

Three months ended


Increase (Decrease)

Amounts and percentages may not recalculate due to rounding

June 27,
 2020

June 29,
 2019


$ / #

%

Financial data:






Revenues

$

287.4


359.3



(72.0)


(20.0)

%

Operating income

81.6


122.7



(41.0)


(33.5)

%

Operating income margin

28.4

%

34.1

%




Adjusted operating income(1)

$

86.7


127.3



(40.6)


(31.9)

%

Adjusted operating income margin(1)

30.2

%

35.4

%




Net income

$

36.5


59.6



(23.2)


(38.9)

%

Adjusted net income(1)

40.1


72.4



(32.3)


(44.6)

%

Earnings per share:






Common–basic

0.44


0.72



(0.28)


(38.9)

%

Common–diluted

0.44


0.71



(0.27)


(38.0)

%

Diluted adjusted earnings per share(1)

0.49


0.86



(0.37)


(43.0)

%

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

82.6


83.7



(1.1)


(1.3)

%

Systemwide sales(2)

$

2,491.7


3,144.6



(652.9)


(20.8)

%

Comparable store sales growth (decline):






Dunkin' U.S.

(18.7)

%

1.7

%




BR U.S.

(6.0)

%

(1.4)

%




Dunkin' International

(34.9)

%

5.6

%




BR International

(5.3)

%

3.2

%




Development data:






Consolidated global net POD development(3)

(229)


109



(338)


(310.1)

%

Dunkin' global PODs at period end(4)

13,125


12,957



168


1.3

%

BR global PODs at period end(4)

7,981


8,072



(91)


(1.1)

%

Consolidated global PODs at period end(4)

21,106


21,029



77


0.4

%



(1) Adjusted operating income, adjusted operating income margin, and adjusted net income are non-GAAP measures reflecting operating income and net income adjusted for amortization of intangible assets, and long-lived asset impairments, 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.


(2) 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.


(3) Consolidated global net POD development for the three months ended June 27, 2020 reflects the previously-announced closing of 10 limited-menu Dunkin' Speedway locations under a termination agreement entered into with Speedway in February 2020.


(4) Temporary restaurant closures due to the COVID-19 pandemic are not treated as restaurant closures and affected restaurants are included in points of distribution.

Global systemwide sales decline of 20.8% in the second quarter was primarily attributable to global comparable store sales declines and permanent and temporary restaurant closures as a result of the global COVID-19 pandemic. The pandemic had an unfavorable impact on systemwide sales for each of our segments in the second quarter.

Dunkin' U.S. comparable store sales declined 18.7% in the second quarter as a decline in traffic driven by the COVID-19 pandemic was partially offset by an increase in average ticket. The increase in average ticket was driven by favorable mix shift to family-size bulk orders and snacking attachment, as well as premium priced cold beverages, espresso, and other specialty beverages, and partially offset by increased discounting driven by both national and local value platforms. Comparable store sales improved sequentially in each month of the second quarter. Comparable store sales would have been approximately 480 basis points lower if temporarily closed restaurants were included.

Baskin-Robbins U.S. comparable store sales declined 6.0% in the second quarter as a decline in traffic driven by the COVID-19 pandemic was partially offset by an increase in average ticket. The increase in average ticket was driven by strength of take home products, specifically ice cream quarts and cakes. Comparable store sales improved sequentially in each month of the second quarter.

In the second quarter, Dunkin' Brands franchisees and licensees had net closures of 229 restaurants globally. This included net closures of 40 Dunkin' U.S. locations (inclusive of the closure of 10 Speedway locations), 7 Baskin-Robbins U.S. locations, 2 Dunkin' International locations, and 180 Baskin-Robbins International locations primarily driven by Japan, Russia, and India. Dunkin' U.S. franchisees remodeled 34 restaurants and Baskin-Robbins U.S. franchisees remodeled 12 restaurants during the quarter.

Revenues for the second quarter decreased $72.0 million, or 20.0%, compared to the prior year period due primarily to decreases in royalty income and advertising fees driven by a decline in systemwide sales, primarily for the Dunkin' U.S. segment. Royalty income for the second quarter also reflects a reduction of revenue of approximately $8 million related to corporate financial relief provided to franchisees most significantly impacted by the pandemic. Also contributing to the decrease in revenues was a decrease in rental income as the second quarter reflects the impact of rent waivers being provided to our franchisees of approximately $3 million and a decline in variable rental income due to the decline in systemwide sales, as well as a decrease in sales of ice cream and other products.

Operating income and adjusted operating income for the second quarter of fiscal year 2020 decreased $41.0 million, or 33.5%, and $40.6 million, or 31.9%, respectively, compared to the prior year period primarily as a result of the decrease in royalty income and a decrease in rental margin, which includes approximately $2 million of unfavorable impact from rent waivers being provided to our franchisees, net of waivers received from landlords. These decreases in operating income and adjusted operating income were offset by a decrease in general and administrative expenses, including a decrease in incentive compensation and reduced non-essential spending in the current year period to preserve financial flexibility as a result of the COVID-19 pandemic.

Net income and adjusted net income for the second quarter of fiscal year 2020 decreased by $23.2 million, or 38.9%, and $32.3 million, or 44.6%, respectively, compared to the prior year period primarily as a result of the decreases in operating income and adjusted operating income, respectively, as well as a decrease in interest income earned on our cash balances, offset by a decrease in income tax expense. The decrease in income tax expense was driven primarily by the decrease in income in the current year period, offset by excess tax benefits of $1.5 million in the prior year period compared to an immaterial amount recognized in the current year period. Also offsetting the decrease in operating income was a $13.1 million loss on debt extinguishment recorded in the prior year period due to the write-off of debt issuance costs in conjunction with a refinancing transaction completed during the prior year period.

Diluted earnings per share and diluted adjusted earnings per share for the second quarter decreased by 38.0% to $0.44 and 43.0% to $0.49, respectively, compared to the prior year period as a result of the decreases in net income and adjusted net income, respectively. 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 $0.02 for the second quarter of fiscal year 2019. Recognized excess tax benefits had no per share impact on diluted earnings per share and diluted adjusted earnings per share for the second quarter of fiscal year 2020.

SECOND QUARTER 2020 SEGMENT RESULTS

Amounts and percentages may not recalculate due to rounding


Three months ended


Increase (Decrease)

Dunkin' U.S.


June 27,
 2020


June 29,
 2019


$ / #

%


(Unaudited, $ in thousands except as otherwise noted)

Revenues:








Royalty income


$

103,019



131,682



(28,663)


(21.8)

%

Franchise fees


5,131



3,418



1,713


50.1

%

Rental income


25,217



30,491



(5,274)


(17.3)

%

Other revenues


781



986



(205)


(20.8)

%

Total revenues


$

134,148



166,577



(32,429)


(19.5)

%









Segment profit


$

96,158



127,099



(30,941)


(24.3)

%









Comparable store sales growth (decline)


(18.7)

%


1.7

%




Systemwide sales (in millions)(1)


$

1,888.7



2,382.6



(493.9)


(20.7)

%









Points of distribution(2)


9,597



9,499



98


1.0

%

Gross openings


42



93



(51)


(54.8)

%

Net openings (closings)(3)


(40)



46



(86)


(187.0)

%



(1) 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.


(2) Temporary restaurant closures due to the COVID-19 pandemic are not treated as restaurant closures and affected restaurants are included in points of distribution.


(3) Net openings for the three months ended June 27, 2020 reflects the previously-announced closing of 10 limited-menu Dunkin' Speedway locations under a termination agreement entered into with Speedway in February 2020.

Dunkin' U.S. second quarter revenues of $134.1 million represented a decrease of 19.5% compared to the prior year period due primarily to a decrease in royalty income driven by a decline in systemwide sales, as well as a decrease in rental income due to rent waivers being provided to our franchisees and a decline in variable rental income as a result of the decline in systemwide sales. Offsetting these decreases in revenues was an increase in franchise fees as a result of additional deferred revenue recognized in connection with the closure of Speedway locations.

Dunkin' U.S. segment profit in the second quarter decreased to $96.2 million, a decrease of $30.9 million compared to the prior year period, driven primarily by decreases in royalty income and rental margin, offset by the increase in franchise fees.

Amounts and percentages may not recalculate due to rounding


Three months ended


Increase (Decrease)

Baskin-Robbins U.S.


June 27,
 2020


June 29,
 2019


$ / #

%


(Unaudited, $ in thousands except as otherwise noted)

Revenues:








Royalty income


$

8,170



8,828



(658)


(7.5)

%

Franchise fees


245



344



(99)


(28.8)

%

Rental income


623



973



(350)


(36.0)

%

Sales of ice cream and other products


870



1,080



(210)


(19.4)

%

Other revenues


2,499



3,063



(564)


(18.4)

%

Total revenues


$

12,407



14,288



(1,881)


(13.2)

%









Segment profit


$

9,299



10,076



(777)


(7.7)

%









Comparable store sales decline


(6.0)

%


(1.4)

%




Systemwide sales (in millions)(1)


$

171.2



184.8



(13.6)


(7.4)

%









Points of distribution(2)


2,511



2,556



(45)


(1.8)

%

Gross openings


19



24



(5)


(20.8)

%

Net openings (closings)


(7)



9



(16)


(177.8)

%



(1) 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.


(2) Temporary restaurant closures due to the COVID-19 pandemic are not treated as restaurant closures and affected restaurants are included in points of distribution.

Baskin-Robbins U.S. second quarter revenues decreased 13.2% from the prior year period to $12.4 million due primarily to decreases in royalty income driven by a decline in systemwide sales, other revenues driven by a decrease in licensing income, rental income due to rent waivers being provided to our franchisees and a decrease in the number of leases, and sales of ice cream and other products.

Segment profit for Baskin-Robbins U.S. decreased to $9.3 million in the second quarter, a decrease of 7.7%, primarily as a result of the decreases in royalty income and other revenues, offset by a decrease in general and administrative expenses.

Amounts and percentages may not recalculate due to rounding


Three months ended


Increase (Decrease)

Dunkin' International


June 27,
 2020


June 29,
 2019


$ / #

%


(Unaudited, $ in thousands except as otherwise noted)

Revenues:








Royalty income


$

2,296



5,396



(3,100)


(57.4)

%

Franchise fees


423



2,030



(1,607)


(79.2)

%

Other revenues


74



44



30


68.2

%

Total revenues


$

2,793



7,470



(4,677)


(62.6)

%









Segment profit


$

1,845



5,484



(3,639)


(66.4)

%









Comparable store sales growth (decline)


(34.9)

%


5.6

%




Systemwide sales (in millions)(1)


$

112.8



199.5



(86.7)


(43.4)

%









Points of distribution(2)


3,528



3,458



70


2.0

%

Gross openings


49



97



(48)


(49.5)

%

Net openings (closings)


(2)



11



(13)


(118.2)

%



(1) 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.


(2) Temporary restaurant closures due to the COVID-19 pandemic are not treated as restaurant closures and affected restaurants are included in points of distribution.

Dunkin' International second quarter systemwide sales decreased 43.4% from the prior year period driven by sales declines in Asia, Latin America, Europe, and South Korea. Sales in Latin America, South Korea, and Europe were negatively impacted by unfavorable foreign exchange rates. On a constant currency basis, systemwide sales decreased by approximately 42%.

Dunkin' International second quarter revenues of $2.8 million represented a decrease of 62.6% from the prior year period. The decrease in revenues was primarily a result of a decrease in royalty income driven by a decline in systemwide sales, as well as a decrease in franchise fees due primarily to additional deferred revenue recognized in the prior year period upon closure of an international market.

Segment profit for Dunkin' International decreased $3.6 million to $1.8 million in the second quarter primarily as a result of the decrease in revenues, offset by a decrease in general and administrative expenses.

Amounts and percentages may not recalculate due to rounding


Three months ended


Increase (Decrease)

Baskin-Robbins International


June 27,
 2020


June 29,
 2019


$ / #

%


(Unaudited, $ in thousands except as otherwise noted)

Revenues:








Royalty income


$

1,686



1,953



(267)


(13.7)

%

Franchise fees


173



520



(347)


(66.7)

%

Rental income


177



215



(38)


(17.7)

%

Sales of ice cream and other products


24,529



29,997



(5,468)


(18.2)

%

Other revenues


(8)



(8)




%

Total revenues


$

26,557



32,677



(6,120)


(18.7)

%









Segment profit


$

9,930



12,089



(2,159)


(17.9)

%









Comparable store sales growth (decline)


(5.3)

%


3.2

%




Systemwide sales (in millions)(1)


$

319.0



377.7



(58.7)


(15.5)

%









Points of distribution(2)


5,470



5,516



(46)


(0.8)

%

Gross openings


62



111



(49)


(44.1)

%

Net openings (closings)


(180)



43



(223)


(518.6)

%



(1) 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.


(2) Temporary restaurant closures due to the COVID-19 pandemic are not treated as restaurant closures and affected restaurants are included in points of distribution.

Baskin-Robbins International systemwide sales decreased 15.5% in the second quarter compared to the prior year period driven by sales declines in Japan, the Middle East, Asia, and Europe, offset by sales growth in South Korea. Sales in Japan were positively impacted by favorable foreign exchange rates while sales across all other regions were negatively impacted by unfavorable foreign exchange rates. On a constant currency basis, systemwide sales decreased by approximately 14%.

Baskin-Robbins International second quarter revenues of $26.6 million represented a decrease of 18.7% from the prior year period due primarily to decreases in sales of ice cream and other products and franchise fees, as well as a decrease in royalty income driven by a decline in systemwide sales.

Second quarter segment profit decreased 17.9% from the prior year period to $9.9 million primarily as a result of a decrease in net margin on ice cream due primarily to a decrease in sales volume, as well as the decreases in franchise fees and royalty income and unfavorable results from our Japan joint venture compared to the prior year period. Offsetting these decreases in segment profit was an increase in net income from our South Korea joint venture.



Three months ended


Increase (Decrease)

U.S. Advertising Funds


June 27,
 2020


June 29,
 2019


$ / #

%


(Unaudited, $ in thousands)

Revenues:








Advertising fees and related income


$

99,483



123,588



(24,105)


(19.5)

%

Total revenues


$

99,483



123,588



(24,105)


(19.5)

%









Segment profit


$






%

U.S. Advertising Funds second quarter revenues of $99.5 million represented a decrease of 19.5% compared to the prior year period driven primarily by a decline in Dunkin' U.S. systemwide sales. Expenses for the U.S. Advertising Funds were equivalent to revenues in each period, resulting in no segment profit.

SEGMENT UPDATES

Dunkin' U.S.

  • Dunkin' U.S. comparable store sales have been improving week-over-week during the beginning of the third quarter. As of the week ended July 25, 2020, quarter-to-date comparable store sales declines were low-single digits for open stores.
  • Approximately 96% of Dunkin' U.S. locations were open as of July 25. The majority of the locations that remain closed are in transportation hubs, on college campuses, in sports venues, and other alternative points of distribution.
  • The Company expects that approximately 800 Dunkin' U.S. locations, including the previously announced 450 limited-menu Speedway locations, may permanently close in 2020 on a gross basis as part of a real estate portfolio rationalization, being performed in conjunction with its franchisees, with the goal of setting the U.S. system up for continued strong, profitable future growth. The 800 locations would represent approximately 8 percent of the Dunkin' U.S. total restaurant footprint and approximately 2 percent of 2019 Dunkin' U.S. systemwide sales, inclusive of the Speedway closings.

Baskin-Robbins U.S.

  • As of the week ended July 25, 2020, Baskin-Robbins U.S. quarter-to-date comparable store sales declines were low-single digits for open stores.
  • Approximately 98% of Baskin-Robbins U.S. locations were open as of July 25. The majority of the locations that remain closed are non-traditional locations.

International

  • Approximately 90% of each of Dunkin' and Baskin-Robbins International locations were open as of July 25.
  • The Company expects that approximately 350 restaurants may permanently close on a gross basis internationally in the second half of 2020. Similar to the closures in the U.S., the majority of these closures are expected to be from low-volume sales locations.

COMPANY UPDATES

Liquidity and Use of Cash

As of the end of Q2 2020, the Company had approximately:

  • $291 million of unrestricted cash held in the U.S., which excludes cash reserved for gift cards and advertising funds; and
  • $117 million of available borrowings under its $150 million variable funding notes, providing ongoing financial flexibility. As previously disclosed, given the market uncertainty arising from the COVID-19 pandemic, the Company took a precautionary measure and borrowed approximately $116 million under its variable funding notes during the first quarter of 2020. The Company repaid all of these borrowings during the second quarter of 2020.

Dividend Program

  • The Company today announced that the Board of Directors reinstated its dividend program and declared a cash dividend of $0.4025 per share, payable on September 9, 2020, to shareholders of record as of the close of business on September 1, 2020.

Shares Outstanding

  • The Company's shares outstanding as of June 27, 2020 were 82,257,776. In order to preserve cash in light of the ongoing COVID-19 pandemic, the Company did not repurchase any shares during the second quarter of 2020.

Conference Call

As previously announced, Dunkin' Brands will be holding a conference call today at 7:00 am ET hosted by Dave Hoffmann, Chief Executive Officer, Scott Murphy, President of Dunkin' Americas, and Kate Jaspon, Chief Financial Officer. The dial-in number is (866) 393-1607 or (914) 495-8556, conference number 1472558. 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 including statements about our expected financial results, dividend program and liquidity 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 risks and uncertainties include, but are not limited to: the continuing and uncertain impact of the current COVID-19 global pandemic on our business; 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 failure to protect consumer payment card data or other personally identifiable information; 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 (decline)" and "BR U.S. comparable store sales growth (decline)," 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 (decline)" and "BR International comparable store sales growth (decline)," 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 21,000 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 second quarter of fiscal year 2020, Dunkin' Brands' 100 percent franchised business model included over 13,000 Dunkin' restaurants and approximately 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


Six months ended



June 27, 2020


June 29, 2019


June 27, 2020


June 29, 2019

Revenues:









Franchise fees and royalty income(1)


$

115,965



158,258



255,441



297,586


Advertising fees and related income


109,631



129,259



226,601



246,457


Rental income


26,017



31,679



54,949



60,707


Sales of ice cream and other products(1)


22,703



27,258



46,650



47,991


Other revenues


13,060



12,883



26,879



25,687


Total revenues


287,376



359,337



610,520



678,428


Operating costs and expenses:









Occupancy expenses—franchised restaurants


18,133



19,697



37,632



39,172


Cost of ice cream and other products


17,986



22,018



36,134



38,658


Advertising expenses


111,081



130,961



229,350



249,052


General and administrative expenses


52,159



59,922



112,694



116,125


Depreciation


5,771



4,711



10,820



9,332


Amortization of other intangible assets


4,588



4,626



9,180



9,259


Long-lived asset impairment charges


486



2



560



325


Total operating costs and expenses


210,204



241,937



436,370



461,923


Net income of equity method investments


4,283



4,427



7,949



6,657


Other operating income, net


161



825



829



862


Operating income


81,616



122,652



182,928



224,024


Other income (expense), net:









Interest income


312



3,079



2,367



4,910


Interest expense


(32,650)



(32,842)



(64,687)



(64,971)


Loss on debt extinguishment




(13,076)





(13,076)


Other income (loss), net


214



(46)



(456)



(50)


Total other expense, net


(32,124)



(42,885)



(62,776)



(73,187)


Income before income taxes


49,492



79,767



120,152



150,837


Provision for income taxes


13,042



20,145



31,589



38,892


Net income


$

36,450



59,622



88,563



111,945











Earnings per share—basic


$

0.44



0.72



1.07



1.35


Earnings per share—diluted


0.44



0.71



1.07



1.34




(1) For the three months ended June 27, 2020 and June 29, 2019, $2.8 million and $4.1 million, respectively, and for the six months ended June 27, 2020 and June 29, 2019, $5.8 million and $7.2 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

Consolidated Balance Sheets

(In thousands)

(Unaudited)



June 27,
 2020


December 28,
2019

Assets





Current assets:





Cash and cash equivalents


$

515,857



621,152


Restricted cash


95,060



85,644


Accounts receivable, net


113,232



76,019


Notes and other receivables, net


49,765



57,174


Prepaid income taxes


11,730



16,701


Prepaid expenses and other current assets


62,813



50,611


Total current assets


848,457



907,301


Property, equipment, and software, net


218,485



223,120


Operating lease assets


358,705



371,264


Equity method investments


152,961



154,812


Goodwill


888,263



888,286


Other intangible assets, net


1,293,530



1,302,721


Other assets


68,932



72,520


Total assets


$

3,829,333



3,920,024


Liabilities and Stockholders' Deficit





Current liabilities:





Current portion of long-term debt


$

31,150



31,150


Operating lease liabilities


36,741



35,863


Accounts payable


55,156



89,413


Deferred revenue


37,718



39,950


Other current liabilities


368,260



386,050


Total current liabilities


529,025



582,426


Long-term debt, net


2,998,875



3,004,216


Operating lease liabilities


367,148



380,647


Deferred revenue


301,569



324,854


Deferred income taxes, net


199,334



197,673


Other long-term liabilities


21,114



18,218


Total long-term liabilities


3,888,040



3,925,608


Stockholders' deficit:





Common stock


82



83


Additional paid-in capital


539,847



561,345


Treasury stock, at cost


(64)



(64)


Accumulated deficit


(1,102,284)



(1,129,565)


Accumulated other comprehensive loss


(25,313)



(19,809)


Total stockholders' deficit


(587,732)



(588,010)


Total liabilities and stockholders' deficit


$

3,829,333



3,920,024


 

DUNKIN' BRANDS GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)



Six months ended



June 27, 2020


June 29, 2019






Net cash provided by operating activities


$

11,721



53,077


Cash flows from investing activities:





Additions to property, equipment, and software


(10,972)



(19,000)


Other, net


347



1,168


Net cash used in investing activities


(10,625)



(17,832)


Cash flows from financing activities:





Proceeds from issuance of long-term debt




1,700,000


Repayment of long-term debt


(7,825)



(1,691,450)


Payment of debt issuance and other debt-related costs




(17,937)


Dividends paid on common stock


(33,057)



(61,985)


Repurchases of common stock


(64,292)



(10,129)


Exercise of stock options


10,243



16,745


Other, net


(2,305)



(4,443)


Net cash used in financing activities


(97,236)



(69,199)


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


(371)



49


Decrease in cash, cash equivalents, and restricted cash


(96,511)



(33,905)


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


707,977



598,321


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


$

611,466



564,416


 

DUNKIN' BRANDS GROUP, INC. AND SUBSIDIARIES

Non-GAAP Reconciliations

(In thousands, except share and per share data)

(Unaudited)




Three months ended


Six months ended



June 27, 2020


June 29, 2019


June 27, 2020


June 29, 2019










Operating income


$

81,616



122,652



182,928



224,024


Operating income margin


28.4

%


34.1

%


30.0

%


33.0

%

Adjustments:









Amortization of other intangible assets


$

4,588



4,626



9,180



9,259


Long-lived asset impairment charges


486



2



560



325


Adjusted operating income


$

86,690



127,280



192,668



233,608


Adjusted operating income margin


30.2

%


35.4

%


31.6

%


34.4

%










Net income


$

36,450



59,622



88,563



111,945


Adjustments:









Amortization of other intangible assets


4,588



4,626



9,180



9,259


Long-lived asset impairment charges


486



2



560



325


Loss on debt extinguishment




13,076





13,076


Tax impact of adjustments(1)


(1,421)



(4,957)



(2,727)



(6,345)


Adjusted net income


$

40,103



72,369



95,576



128,260











Adjusted net income


$

40,103



72,369



95,576



128,260


Weighted-average number of common shares – diluted


82,588,746



83,696,721



82,905,616



83,564,388


Diluted adjusted earnings per share


$

0.49



0.86



1.15



1.53











(1) Tax impact of adjustments calculated at a 28% effective tax rate.





 

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SOURCE Dunkin' Brands Group, Inc.

Contact(s): Stacey Caravella (Investors), Senior Director, Investor Relations, Dunkin' Brands Group, Inc., investor.relations@dunkinbrands.com, 781-737-3200, or Karen Raskopf (Media), SVP, Corporate Communications, Dunkin' Brands Group, Inc., karen.raskopf@dunkinbrands.com, 781-737-5200

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