CANTON, Mass., April 30, 2020 // PRNewswire // --
First quarter highlights include:
Dunkin' Brands Group, Inc. (Nasdaq: DNKN), the parent company of Dunkin' and Baskin-Robbins (BR), today reported results for the first quarter ended March 28, 2020.
"Prior to the crisis, we experienced strong first quarter performance across the system, including Dunkin' U.S. which was on track to have its highest quarterly comps in more than six years and positive traffic," said Dave Hoffmann, Dunkin' Brands Chief Executive Officer. "With the number one priority being the safety of crew members and our guests, early in the crisis we implemented strong safety measures at our restaurants with gloves, masks, and plexiglass shields, and now we are shipping an infrared thermometer to every U.S. restaurant to help monitor crew health. Solidarity with our great franchisees has never been stronger, and as a 100-percent franchised business we are supporting our franchisees and will continue to focus on their overall business health. In addition to the relief we are providing to them, Dunkin' Brands is very grateful for the support from the Federal government to all U.S. small business owners, including many of our franchisees."
Hoffmann continued, "At Dunkin' Brands, we feel an obligation to do our part to keep America working by avoiding any corporate furloughs. Our focus has been to preserve our strong balance sheet by aggressively reducing operating expenses and preserving cash, including suspending our quarterly dividend and share repurchase programs. Simultaneously, our management team and Board of Directors are voluntarily taking salary and fee reductions with the savings generated going to the Dunkin' Brands Family Fund, which supports Dunkin' and Baskin-Robbins crew members in times of crisis. Throughout this pandemic, we have been guided by our corporate values of strong, smart, and kind, which includes striving to do the right thing for our communities."
"This morning we announced that our Board of Directors has suspended our regular dividend program, which will result in cash savings of approximately $33 million in the second quarter, and reinforces our already strong balance sheet. We believe a temporary suspension of our dividend and share repurchase program is the prudent and responsible thing to do in this time of unprecedented uncertainty," said Kate Jaspon, Chief Financial Officer, Dunkin' Brands Group, Inc. "Additionally, due to this uncertainty and the impact of COVID-19 on financial and operational results, we are withdrawing both our fiscal 2020 and long-term growth targets."
FIRST QUARTER 2020 KEY FINANCIAL HIGHLIGHTS
Global systemwide sales decline of 0.2% in the first quarter was primarily attributable to Dunkin' global comparable store sales declines as a result of the global COVID-19 pandemic, partially offset by global store development and Baskin-Robbins comparable store sales growth. The pandemic had an unfavorable impact on systemwide sales for each of our segments in the first quarter.
Dunkin' U.S. comparable store sales declined 2.0% in the first quarter as a decline in traffic, primarily due to the impact of COVID-19 and concentrated in the last three weeks of the quarter, was partially offset by an increase in average ticket. The increase in average ticket was driven by favorable mix shift to premium priced espresso and cold brew beverages, including the launch of Matcha Latte, partially offset by discounting driven by national value platforms. During the first 10 weeks of the quarter, comparable store sales grew 3.5%, and were on pace to be the highest quarterly comparable store sales growth since the third quarter of 2013. Dunkin' U.S. comparable store sales declined 19.4% in the last three weeks of the quarter due to the impact of COVID-19.
Baskin-Robbins U.S. comparable store sales grew 1.8% in the first quarter as an increase in average ticket was partially offset by a decrease in traffic, primarily due to the impact of the COVID-19 pandemic and concentrated in the last three weeks of the quarter. Comparable store sales growth was led by the strong performance of cups and cones, beverages, and sundaes. Comparable store sales growth of 11.0% in the first 10 weeks of the quarter was partially offset by comparable store sales decline of 23.3% in the last three weeks of the quarter due to the impact of COVID-19.
In the first quarter, Dunkin' Brands franchisees and licensees opened 38 net new restaurants globally. This included 7 net new Dunkin' U.S. locations (inclusive of the closure of 12 Speedway locations), 14 Baskin-Robbins International locations, and 23 Dunkin' International locations, offset by net closures of 6 Baskin-Robbins U.S. locations. Additionally, Dunkin' U.S. franchisees remodeled 32 restaurants and Baskin-Robbins U.S. franchisees remodeled 6 restaurants during the quarter.
Revenues for the first quarter increased $4.1 million, or 1.3%, compared to the prior year period due primarily to an increase in sales of ice cream and other products, as well as an increase in other revenues driven primarily by license fees related to Dunkin' K-Cup® pods and retail packaged coffee. The unfavorable impact on systemwide sales as a result of the COVID-19 pandemic had a corresponding unfavorable impact on royalty income, primarily for the Dunkin' U.S. segment.
Operating income and adjusted operating income for the first quarter of fiscal year 2020 of $101.3 million and $106.0 million, respectively, were relatively flat compared to the prior year period as an increase in general and administrative expenses was offset by increases in net margin on ice cream and other products and net income from our South Korea and Japan joint ventures, as well as the increase in other revenues. The increase in general and administrative expenses was primarily due to an increase in reserves for uncollectible receivables and training expense associated with the roll-out of new high volume brewers.
Net income and adjusted net income for the first quarter of fiscal year 2020 of $52.1 million and $55.5 million, respectively, were relatively flat compared to the prior year period. The drivers of net income and adjusted net income for the first quarter compared to the prior year period were consistent with those for operating income and adjusted operating income, respectively.
Diluted earnings per share and diluted adjusted earnings per share of $0.63 and $0.67, respectively, remained flat compared to the prior year period as slight decreases in net income and adjusted net income were offset by a decrease in shares outstanding. 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 $0.01 for each of the first quarters of fiscal years 2020 and 2019.
FIRST QUARTER 2020 SEGMENT RESULTS
Dunkin' U.S. first quarter revenues of $151.8 million represented an increase of 1.4% compared to the prior year period due primarily to an increase in franchise fees as a result of additional deferred revenue recognized in connection with the planned closure of Speedway locations, as well as an increase in royalty income.
Dunkin' U.S. segment profit in the first quarter decreased to $109.3 million, a decrease of $1.7 million compared to the prior year period, driven primarily by increases in reserves for uncollectible receivables and training expense associated with the roll-out of new high volume brewers, offset by the increases in franchise fees and royalty income.
Baskin-Robbins U.S. first quarter revenues increased 5.5% from the prior year period to $10.8 million due primarily to an increase in sales of ice cream and other products, offset by decreases in rental income and other revenues.
Segment profit for Baskin-Robbins U.S. increased to $6.6 million in the first quarter, an increase of 4.5%, primarily as a result of an increase in net margin on ice cream.
Dunkin' International first quarter systemwide sales decreased 10.5% from the prior year period driven by sales declines across all regions. Sales in South Korea and Latin America were negatively impacted by unfavorable foreign exchange rates. On a constant currency basis, systemwide sales decreased by approximately 8%.
Dunkin' International first quarter revenues of $5.5 million represented a decrease of 20.0% 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 and a recovery of prior period royalties recorded in the first quarter of 2019, as well as a decrease in franchise fees due primarily to additional deferred revenue recognized in the prior year period upon closure of certain international markets.
Segment profit for Dunkin' International decreased $1.3 million to $3.5 million in the first quarter primarily as a result of the decrease in revenues.
Baskin-Robbins International systemwide sales increased 4.8% in the first quarter compared to the prior year period driven by sales growth in South Korea and Japan, offset by sales declines in other Asian markets, the Middle East, and Australia. Sales in South Korea were negatively impacted by unfavorable foreign exchange rates, while sales in Japan were positively impacted by favorable foreign exchange rates. On a constant currency basis, systemwide sales increased by approximately 8%.
Baskin-Robbins International first quarter revenues of $27.3 million represented an increase of 6.7% from the prior year period due primarily to an increase in sales of ice cream and other products, offset by decreases in franchise fees and royalty income. Systemwide sales and sales of ice cream products are not directly correlated within a given period due to certain licensees sourcing their own ice cream products, the lag between shipment of products to licensees and retail sales at franchised restaurants, and the overall timing of deliveries between fiscal quarters. As a result, the unfavorable impact on systemwide sales in the first quarter due to the COVID-19 pandemic could negatively impact sales of ice cream products in future quarters of fiscal year 2020.
First quarter segment profit increased 21.1% from the prior year period to $9.4 million primarily as a result of favorable results from our Japan and South Korea joint ventures compared to the prior year period and an increase in net margin on ice cream due primarily to an increase in sales volume. Offsetting these increases was an increase in general and administrative expenses due primarily to an increase in reserves for uncollectible receivables and the decreases in franchise fees and royalty income.
U.S. Advertising Funds first quarter revenues of $108.6 million remained flat compared to the prior year period. Expenses for the U.S. Advertising Funds were equivalent to revenues in each period, resulting in no segment profit.
SEGMENT UPDATES
ACTIONS TAKEN IN RESPONSE TO COVID-19
As a 100-percent franchised business, the Company has taken a series of actions in direct response to the current global pandemic meant to preserve financial flexibility and support its franchisees during this time of uncertainty, including the actions described below.
Draw Down of Revolving Financing Facility
Share Repurchases
Dividend Payment
Dunkin' Brands Family Fund
Actions to Support the Company's Franchise System
WITHDRAWING FISCAL YEAR 2020 TARGETS AND LONG-TERM TARGETS
COMPANY UPDATES
The foregoing non-GAAP forward-looking financial measures are reconciled from the respective measures determined under GAAP in the attached tables "Dunkin' Brands Group, Inc. and Subsidiaries Non-GAAP Reconciliations."
Conference Call
As previously announced, Dunkin' Brands will be holding a conference call today at 7:30 am ET hosted by Dave Hoffmann, Chief Executive Officer, Scott Murphy, President of Dunkin' Americas, and Kate Jaspon, Chief Financial Officer.
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 and our share repurchase and dividend programs 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.
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 first quarter of fiscal year 2020, Dunkin' Brands' 100 percent franchised business model included over 13,000 Dunkin' restaurants and more than 8,000 Baskin-Robbins restaurants. Dunkin' Brands Group, Inc. is headquartered in Canton, Mass.
SOURCE Dunkin' Brands Group, Inc.
Dunkin' Brands Group, Inc. is a franchisor of quick service restaurants (QSR) serving hot and cold coffee and baked goods, as well as hard-serve ice cream.