Dunkin' Brands Reports Fourth Quarter and Fiscal Year 2017 Results

CANTON, Mass., Feb. 6, 2018 /PRNewswire/ --

Fiscal year 2017 highlights include:

• Dunkin' Donuts U.S. comparable store sales growth of 0.6%
• Flat Baskin-Robbins U.S. comparable store sales growth
• Added 440 net new restaurants worldwide, including 313 net new Dunkin' Donuts in the U.S.
• Revenues increased 3.8%, or 4.9% on a 52-week basis
• Diluted EPS increased 80.1%, or 82.7% on a 52-week basis, to $3.80
• Diluted adjusted EPS increased 7.5%, or 9.0% on a 52-week basis, to $2.43

Fourth quarter highlights include:

• All four business segments had positive comparable store sales
• Dunkin' Donuts U.S. comparable store sales growth of 0.8%
• Baskin-Robbins U.S. comparable store sales growth of 5.1%
• Added 141 net new restaurants worldwide, including 126 net new Dunkin' Donuts in the U.S.
• Revenues increased 5.3%, or 9.8% on a 13-week basis
• Diluted EPS increased 249.2%, or 267.2% on a 13-week basis, to $2.13
• Diluted adjusted EPS unchanged at $0.64, or increased 4.9% on a 13-week basis

Dunkin' Brands Group, Inc. (Nasdaq: DNKN), the parent company of Dunkin' Donuts (DD) and Baskin-Robbins (BR), today reported results for the 13-week fiscal fourth quarter and 52-week fiscal year ended December 30, 2017.

"In 2017, we made significant progress positioning Dunkin' Donuts as America's most-loved, beverage-led, on-the-go brand. Morning comparable store sales increased each quarter sequentially, and we had our highest quarterly beverage comparable sales of the year in the fourth quarter of 2017, driven by iced coffee and Frozen Dunkin' Coffee. Our strategic focus on morning sales yielded improved customer counts in that critical daypart during the last three quarters of the year and we are actively working to drive afternoon traffic through p.m. beverages and food along with all-day value offers that kicked-off in January. Additionally, in 2017, we believe that Dunkin' Donuts was once again one of the fastest growing retail brands by unit count in the country," said Nigel Travis, Dunkin' Brands Chairman and CEO. "Other accomplishments during 2017 included adding more than two million members to the Perks loyalty program bringing total membership to approximately 8 million, increasing out-of-restaurant retail sales of Dunkin' branded consumer packaged goods by greater than 30 percent, and successfully testing a simplified menu across 1,000 restaurants. We strongly believe the simplified menu, which is expected to roll-out nationally by the end of the first quarter, will improve franchisees' profitability and enable us to better serve customers."

"We're pleased to have delivered our revenue, operating income, and earnings per share targets for 2017, and look forward to sharing our growth targets for 2018 and beyond at our upcoming investor day on February 8 in Boston," said Kate Jaspon, Dunkin' Brands Chief Financial Officer. "In January, we announced an approximately five percent reduction in our general and administrative expense target in 2018 to two percent of systemwide sales. We are also encouraged by the recently passed tax reform act which includes provisions that we expect to be favorable to the majority of our franchisees as well as net beneficial to Dunkin' Brands."

           

The decline in global systemwide sales for the fourth quarter was a result of an extra week in the prior year period. On a 13-week basis, global systemwide sales grew in the fourth quarter. The growth was primarily attributable to global store development and Dunkin' Donuts U.S. comparable store sales growth (which includes stores open 78 weeks or more).

Dunkin' Donuts U.S. comparable store sales growth in the fourth quarter was driven by increased average ticket offset by a decline in traffic. Growth was driven by core breakfast sandwich sales; iced coffee and Frozen Dunkin' Coffee sales; as well as traditional donut sales.

Baskin-Robbins U.S. comparable store sales growth in the fourth quarter was driven by increased average ticket offset by a decline in traffic. Growth was driven by beverages including shakes, smoothies and Cappuccino Blast as well as the take-home category.

In the fourth quarter, Dunkin' Brands franchisees and licensees opened 141 net new restaurants around the globe. This included 126 net new Dunkin' Donuts U.S. locations and 40 net new Baskin-Robbins International locations offset by 23 Dunkin' Donuts International net closures and 2 Baskin-Robbins U.S. net closures. Additionally, Dunkin' Donuts U.S. franchisees remodeled 88 restaurants and Baskin-Robbins U.S. franchisees remodeled 34 restaurants during the quarter.

Revenues for the fourth quarter increased $11.4 million, or 5.3%, compared to the prior year period due primarily to increased franchise fees driven by additional renewal income, offset by a decrease in gross openings. These increases in revenues were offset by a decrease in sales of ice cream and other products, primarily to our licensees in the Middle East, as well as a decrease in royalty income due primarily to the extra week in the prior year period and a decrease in refranchising gains. Revenues for the fourth quarter increased 9.8% on a 13-week basis.

Operating income and adjusted operating income for the fourth quarter increased $6.2 million, or 5.5%, and $4.3 million, or 3.6%, respectively, from the prior year period primarily as a result of the increase in franchise fees, offset by gains recognized in connection with the sale of company-operated restaurants in the prior year period and a decrease in net margin on ice cream due primarily to the decrease in sales volume and an increase in commodity costs. Also offsetting the increases in operating income and adjusted operating income were expenses incurred to record lease-related liabilities as a result of restaurant closures, as well as the decreases in royalty income and refranchising gains. Adjusted operating income was also unfavorably impacted by an increase in general and administrative expenses. Operating income and adjusted operating income for the fourth quarter increased 11.5% and 9.2%, respectively, on a 13-week basis.

Net income for the fourth quarter increased by $139.4 million, or 248.3%, compared to the prior year period driven by a net benefit from income taxes of $110.6 million compared to income tax expense in the prior year period of $30.9 million, as well as the increase in operating income. The net benefit from income taxes in the current quarter includes a $143.4 million net tax benefit due to the enactment of the Tax Cuts and Jobs Act ("Tax Act"), consisting primarily of the re-measurement of our deferred tax liabilities using the lower enacted corporate tax rate. The increase in net income was offset by a $7.0 million loss on debt extinguishment and refinancing transactions and an increase in net interest expense driven by additional borrowings incurred in conjunction with a refinancing transaction completed during the fourth quarter. Net income for the fourth quarter increased 264.9% on a 13-week basis.

Adjusted net income decreased $1.0 million, or 1.7%, to $58.4 million compared to the prior year period primarily as a result of increases in income tax expense, which excludes the impact of the Tax Act, and net interest expense, offset by the increase in adjusted operating income.  Adjusted net income for the fourth quarter increased 2.7% on a 13-week basis.

Diluted earnings per share for the fourth quarter increased by 249.2% to $2.13 as a result of the increase in net income and a decrease in shares outstanding. Diluted adjusted earnings per share remained flat to the prior year period at $0.64 as the decrease in adjusted net income was offset by a decrease in shares outstanding. The decrease in shares outstanding from the prior year period was due primarily to repurchases of shares since the fourth quarter of 2016, offset by the exercise of stock options and the impact of the new accounting standard related to excess tax benefits adopted in the first quarter of 2017. Excluding the impact of recognized excess tax benefits, diluted earnings per share and diluted adjusted earnings per share would have each been $0.01 lower. On a 13-week basis, diluted earnings per share for the fourth quarter increased $1.55, or 267.2%, and diluted adjusted earnings per share increased $0.03, or 4.9%, compared to the prior year period.

Dunkin' Donuts U.S. fourth quarter revenues of $177.7 million represented an increase of 9.0% compared to the prior year period. The increase was primarily a result of increased franchise fees driven by additional renewal income, offset by a decrease in gross openings. Offsetting the increase in franchise fees was a decrease in royalty income due to the extra week in the prior year period.

Dunkin' Donuts U.S. segment profit in the fourth quarter increased to $141.2 million, an increase of $10.2 million over the prior year period, driven primarily by the increase in revenues, offset by gains recognized in connection with the sale of company-operated restaurants in the prior year period and expenses incurred to record lease-related liabilities as a result of restaurant closures.

Dunkin' Donuts International fourth quarter systemwide sales increased 6.8% from the prior year period driven primarily by sales growth in the Middle East, Europe, Latin America, and Asia. On a constant currency basis, systemwide sales increased by approximately 4%.

Dunkin' Donuts International fourth quarter revenues of $5.6 million represented a decrease of 6.0% from the prior year period. The decrease in revenues was primarily a result of a decline in franchise fees, offset by an increase in royalty income.

Segment profit for Dunkin' Donuts International decreased $1.0 million to $2.2 million in the fourth quarter primarily as a result of an increase in general and administrative expenses and the decrease in revenues, offset by a decrease in the net loss from our South Korea joint venture.

Baskin-Robbins U.S. fourth quarter revenues increased 11.9% from the prior year period to $10.6 million due primarily to an increase in sales of ice cream and other products and an increase in franchise fees driven by additional renewal income. These increases in revenues were offset by a decrease in other revenues due to a decrease in licensing income which was driven by the extra week in the prior year period.

Segment profit for Baskin-Robbins U.S. increased to $5.4 million in the fourth quarter, an increase of 6.3%, primarily as a result of the increase in franchise fees and an increase in net margin on ice cream driven by an increase in sales volume. These increases in segment profit were offset by expenses incurred to record lease-related liabilities, as well as an increase in general and administrative expenses and the decrease in licensing income.

Baskin-Robbins International systemwide sales increased 8.2% in the fourth quarter compared to the prior year period driven by sales growth in South Korea and the Middle East, offset by a decline in Japan. Sales in South Korea were positively impacted by foreign exchange rates, while sales in Japan were negatively impacted by foreign exchange rates. On a constant currency basis, systemwide sales increased by approximately 7%.

Baskin-Robbins International fourth quarter revenues decreased 12.3% from the prior year period to $25.8 million due primarily to a decrease in sales of ice cream products to our licensees in the Middle East, offset by increases in royalty income and other revenues. Systemwide sales and sales of ice cream products are not directly correlated within a given period due to the lag between shipment of products to licensees and retail sales at franchised restaurants, as well as the overall timing of deliveries between fiscal quarters.

Segment profit for Baskin-Robbins International decreased 10.9% from the prior year period to $7.4 million as a result of a decrease in net margin on ice cream due to the decrease in sales volume, as well as an increase in general and administrative expenses. These decreases in segment profit were offset by an increase in net income from our South Korea joint venture and the increases in royalty income and other revenues.

COMPANY UPDATES

• The Company today announced that the Board of Directors declared a cash dividend of $0.3475 per share, payable on March 21, 2018 to shareholders of record as of the close of business on March 12, 2018. This represents a 7.75 percent increase over the prior quarter's dividend.
• In January, the Company announced that it was reducing its general and administrative expense target in 2018 by approximately five percent from 2017 to a target of two percent of systemwide sales.
• The Company expects that its 2018 effective tax rate will be approximately 28 percent, which reflects the impact from the Tax Act, net of state taxes and international provisions.
• The Company will be hosting its 2018 Investor & Analyst day on Thursday, February 8, 2018, at Fenway Park in Boston, Mass. Attendance at the event is by invitation only; however a live audio webcast of the conference including slide presentations will be accessible via the Company's website at: http://investor.dunkinbrands.com under "Events & Presentations". The conference is scheduled to begin at 9:00 AM Eastern Time and will continue until approximately 3:00 PM Eastern Time. A replay of the webcast, along with slide presentations, will remain accessible on the Company's website through March 9, 2018.

FINANCIAL TARGETS

• The Company will provide its 2018 and long-term financial targets at its upcoming Investor & Analyst day.

Adoption of New Accounting Standard—Excess Tax Benefits

The Company adopted ASU 2016-09 in the first quarter of 2017, which simplifies several aspects of accounting for share-based payment transactions, including excess tax benefits and classification in the statements of cash flows. The adoption resulted in a reduction to the provision for income taxes of $0.5 million and $7.8 million for the three months and fiscal year ended December 30, 2017, respectively. Prior year periods have not been revised to reflect excess tax benefits in earnings, as only prospective application is permitted. Excess tax benefits will vary in future periods, as such amounts are dependent on the number of employee stock options exercised and fluctuations in the Company's stock price. Additionally, the diluted weighted average number of common shares outstanding for the three months and fiscal year ended December 30, 2017 excludes excess tax benefits from the assumed proceeds available to repurchase shares under the treasury stock method, which did not have a material impact for either of the periods. The adoption of ASU 2016-09 had no impact on cash paid for income taxes.

New Accounting Standard Not Yet Adopted as of December 30, 2017—Revenue Recognition

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 is effective for the Company in fiscal year 2018. The Company will adopt this new guidance in fiscal year 2018 using the full retrospective transition method, which will result in restating each prior reporting period presented, fiscal years 2016 and 2017, in the year of adoption. 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 Nigel Travis, Chairman & Chief Executive Officer, and Kate Jaspon, Chief Financial Officer. The dial-in number is (866) 393-1607 or (914) 495-8556, conference number 1769679. 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, 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 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 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 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."

The three months and fiscal year ended December 31, 2016 include 14 weeks and 53 weeks, respectively, as compared to 13 weeks and 52 weeks for the three months and fiscal year ended December 30, 2017, respectively. Certain financial measures and other metrics in this release have been presented on a 13-week and 52-week basis for the three months and fiscal year ended December 31, 2016, respectively, to provide improved comparability to the respective current year periods. The impact of the extra week in the three months and fiscal year ended December 31, 2016 reflects our estimate of the additional week in those fiscal periods on certain revenues and expenses, net of tax. These non-GAAP measures are not intended to replace the presentation of our financial results in accordance with GAAP. 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- and company-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 "DD U.S. comparable store sales growth" and "BR U.S. comparable store sales growth," which are calculated by including only sales from franchisee- and company-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 "DD 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 20,500 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 fourth quarter 2017, Dunkin' Brands' 100 percent franchised business model included more than 12,500 Dunkin' Donuts restaurants and nearly 8,000 Baskin-Robbins restaurants. Dunkin' Brands Group, Inc. is headquartered in Canton, Mass.

               

SOURCE Dunkin' Brands Group, Inc.