Dunkin' Brands Reports First Quarter 2020 Results
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Dunkin' Brands Reports First Quarter 2020 Results

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

First quarter highlights include:

  • Dunkin' U.S. comparable store sales decline of 2.0%; comparable store sales growth of 3.5% in the first 10 weeks of the quarter, including positive ticket and traffic, was offset by a comparable store sales decline of 19.4% in the last three weeks of the quarter
  • Baskin-Robbins U.S. comparable store sales growth of 1.8%; comparable store sales growth of 11.0% in the first 10 weeks of the quarter, including positive ticket and traffic, was partially offset by a comparable store sales decline of 23.3% in the last three weeks of the quarter
  • Added 7 net new Dunkin' locations in the U.S. inclusive of the closure of 12 Speedway locations; total of 38 net new Dunkin' and Baskin-Robbins locations globally
  • Revenues increased 1.3%
  • Diluted EPS of $0.63, unchanged from the prior year period
  • Diluted adjusted EPS of $0.67, unchanged from the prior year period
  • Due to the uncertainty related to the duration and impact of the COVID-19 pandemic, the Company withdraws its fiscal year 2020 targets and long-term targets
  • The Company's Board of Directors is suspending its regular dividend program

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

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

Three months ended

 

Increase (Decrease)

Amounts and percentages may not recalculate due to rounding

March 28,
 2020

March 30,
 2019

 

$ / #

%

Financial data:

         

Revenues

$

323.1

 

319.1

   

4.1

 

1.3

%

Operating income

101.3

 

101.4

   

(0.1)

 

(0.1)

%

Operating income margin

31.4

%

31.8

%

     

Adjusted operating income(1)

$

106.0

 

106.3

   

(0.4)

 

(0.3)

%

Adjusted operating income margin(1)

32.8

%

33.3

%

     

Net income

$

52.1

 

52.3

   

(0.2)

 

(0.4)

%

Adjusted net income(1)

55.5

 

55.9

   

(0.4)

 

(0.7)

%

Earnings per share:

         

Common–basic

0.63

 

0.63

   

 

%

Common–diluted

0.63

 

0.63

   

 

%

Diluted adjusted earnings per share(1)

0.67

 

0.67

   

 

%

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

83.2

 

83.4

   

(0.2)

 

(0.3)

%

Systemwide sales(2)

$

2,762.2

 

2,768.2

   

(6.0)

 

(0.2)

%

Comparable store sales growth (decline):

         

Dunkin' U.S.

(2.0)

%

2.4

%

     

BR U.S.

1.8

%

(2.8)

%

     

Dunkin' International

(7.1)

%

2.9

%

     

BR International

2.5

%

(2.0)

%

     

Development data:

         

Consolidated global net POD development(3)

38

 

8

   

30

 

375.0

%

Dunkin' global PODs at period end(4)

13,167

 

12,900

   

267

 

2.1

%

BR global PODs at period end(4)

8,168

 

8,020

   

148

 

1.8

%

Consolidated global PODs at period end(4)

21,335

 

20,920

   

415

 

2.0

%

   

(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, 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 March 28, 2020 reflects the previously-announced closing of 12 limited-menu Dunkin' Speedway locations under a termination agreement entered into with Speedway in February 2020.

 

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

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

Amounts and percentages may not recalculate due to rounding

 

Three months ended

 

Increase (Decrease)

Dunkin' U.S.

 

March 28,
 2020

 

March 30,
 2019

 

$ / #

%

 

(Unaudited, $ in thousands except as otherwise noted)

Revenues:

             

Royalty income

 

$

117,855

   

117,097

   

758

 

0.6

%

Franchise fees

 

4,887

   

3,626

   

1,261

 

34.8

%

Rental income

 

27,923

   

27,848

   

75

 

0.3

%

Other revenues

 

1,125

   

1,174

   

(49)

 

(4.2)

%

Total revenues

 

$

151,790

   

149,745

   

2,045

 

1.4

%

               

Segment profit

 

$

109,306

   

111,034

   

(1,728)

 

(1.6)

%

               

Comparable store sales growth (decline)

 

(2.0)

%

 

2.4

%

     

Systemwide sales (in millions)(1)

 

$

2,124.5

   

2,126.3

   

(1.7)

 

(0.1)

%

               

Points of distribution(2)

 

9,637

   

9,453

   

184

 

1.9

%

Gross openings

 

66

   

69

   

(3)

 

(4.3)

%

Net openings(3)

 

7

   

34

   

(27)

 

(79.4)

%

   

(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 COVID-19 are not treated as restaurant closures and affected restaurants are included in points of distribution.

 

(3) Net openings for the three months ended March 28, 2020 reflects the previously-announced closing of 12 limited-menu Dunkin' Speedway locations under a termination agreement entered into with Speedway in February 2020.

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.

Amounts and percentages may not recalculate due to rounding

 

Three months ended

 

Increase (Decrease)

Baskin-Robbins U.S.

 

March 28,
 2020

 

March 30,
 2019

 

$ / #

%

 

(Unaudited, $ in thousands except as otherwise noted)

Revenues:

             

Royalty income

 

$

6,237

   

6,103

   

134

 

2.2

%

Franchise fees

 

355

   

312

   

43

 

13.8

%

Rental income

 

783

   

960

   

(177)

 

(18.4)

%

Sales of ice cream and other products

 

1,409

   

671

   

738

 

110.0

%

Other revenues

 

2,060

   

2,231

   

(171)

 

(7.7)

%

Total revenues

 

$

10,844

   

10,277

   

567

 

5.5

%

               

Segment profit

 

$

6,609

   

6,323

   

286

 

4.5

%

               

Comparable store sales growth (decline)

 

1.8

%

 

(2.8)

%

     

Systemwide sales (in millions)(1)

 

$

130.2

   

128.5

   

1.7

 

1.3

%

               

Points of distribution(2)

 

2,518

   

2,547

   

(29)

 

(1.1)

%

Gross openings

 

10

   

12

   

(2)

 

(16.7)

%

Net closings

 

(6)

   

(3)

   

(3)

 

n/m

   

(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 COVID-19 are not treated as restaurant closures and affected restaurants are included in points of distribution.

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.

Amounts and percentages may not recalculate due to rounding

 

Three months ended

 

Increase (Decrease)

Dunkin' International

 

March 28,
 2020

 

March 30,
 2019

 

$ / #

%

 

(Unaudited, $ in thousands except as otherwise noted)

Revenues:

             

Royalty income

 

$

5,046

   

5,913

   

(867)

 

(14.7)

%

Franchise fees

 

337

   

865

   

(528)

 

(61.0)

%

Other revenues

 

100

   

73

   

27

 

37.0

%

Total revenues

 

$

5,483

   

6,851

   

(1,368)

 

(20.0)

%

               

Segment profit

 

$

3,491

   

4,831

   

(1,340)

 

(27.7)

%

               

Comparable store sales growth (decline)

 

(7.1)

%

 

2.9

%

     

Systemwide sales (in millions)(1)

 

$

178.0

   

198.9

   

(20.9)

 

(10.5)

%

               

Points of distribution(2)

 

3,530

   

3,447

   

83

 

2.4

%

Gross openings

 

90

   

72

   

18

 

25.0

%

Net openings (closings)

 

23

   

(5)

   

28

 

n/m

   

(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 COVID-19 are not treated as restaurant closures and affected restaurants are included in points of distribution.

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.

Amounts and percentages may not recalculate due to rounding

 

Three months ended

 

Increase (Decrease)

Baskin-Robbins International

 

March 28,
 2020

 

March 30,
 2019

 

$ / #

%

 

(Unaudited, $ in thousands except as otherwise noted)

Revenues:

             

Royalty income

 

$

1,698

   

1,905

   

(207)

 

(10.9)

%

Franchise fees

 

132

   

358

   

(226)

 

(63.1)

%

Rental income

 

226

   

220

   

6

 

2.7

%

Sales of ice cream and other products

 

25,257

   

23,075

   

2,182

 

9.5

%

Other revenues

 

(11)

   

21

   

(32)

 

(152.4)

%

Total revenues

 

$

27,302

   

25,579

   

1,723

 

6.7

%

               

Segment profit

 

$

9,448

   

7,802

   

1,646

 

21.1

%

               

Comparable store sales growth (decline)

 

2.5

%

 

(2.0)

%

     

Systemwide sales (in millions)(1)

 

$

329.6

   

314.6

   

15.0

 

4.8

%

               

Points of distribution(2)

 

5,650

   

5,473

   

177

 

3.2

%

Gross openings

 

58

   

77

   

(19)

 

(24.7)

%

Net openings (closings)

 

14

   

(18)

   

32

 

n/m

   

(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 COVID-19 are not treated as restaurant closures and affected restaurants are included in points of distribution.

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.

   

Three months ended

 

Increase (Decrease)

U.S. Advertising Funds

 

March 28,
 2020

 

March 30,
 2019

 

$ / #

%

 

(Unaudited, $ in thousands)

Revenues:

             

Advertising fees and related income

 

$

108,631

   

108,642

   

(11)

 

0.0

%

Total revenues

 

$

108,631

   

108,642

   

(11)

 

0.0

%

               

Segment profit

 

$

   

   

 

%

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

  • Dunkin' U.S. average weekly systemwide sales leveled off through the first four weeks of the second fiscal quarter and we have seen small increases week-over-week. At the end of March and into early April, Dunkin' U.S. comparable store sales declined approximately 35%. For the week ending April 25, 2020, this decline for open restaurants was approximately 25%.
  • Baskin' U.S. average weekly systemwide sales have increased week-over-week through the first four weeks of the second fiscal quarter. At the end of March and into early April, Baskin U.S. comparable store sales declined approximately 30% to 35%. For the week ending April 25, 2020, this decline for open restaurants was approximately 10%.
  • Approximately 90% of Dunkin' U.S. locations remain open as of April 25. The temporary closures have been primarily on college campuses, transportation hubs, and in dense urban areas.
  • Our restaurants have been deemed an essential business in many jurisdictions allowing them to remain open in some capacity. Dunkin' U.S. has a flexible operating model where it can often continue to offer drive-thru, delivery, and curbside service where in restaurant dining is not permitted.
  • More than 90% of Baskin-Robbins U.S. locations remain open as of April 25.
  • Approximately 50% of international restaurants remain open as of April 25, split about equally between brands.

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

  • The Company took a precautionary measure in March and borrowed $116 million available under its variable funding notes to ensure access to funds and further strengthen financial flexibility. Including the draw down, the Company had $381 million in unrestricted cash held in the U.S. as of the end of Q1 2020.

Share Repurchases

  • The Company suspended share repurchase activity in March 2020 due to the uncertainty related to COVID-19 and its impact on financial and operational results.

Dividend Payment

  • The Board of Directors has suspended the Company's regular dividend program. The suspension of the dividend program will result in cash savings of approximately $33 million in the second quarter. The Board of Directors remains committed to paying dividends over the long term and expects to reinstitute the program when it is appropriate to do so.

Dunkin' Brands Family Fund

  • The Company's CEO, Dave Hoffmann, has voluntarily agreed to take a 30% reduction in base salary along with the senior management team taking a voluntary 20% reduction in base salary. The Board of Directors has voluntarily agreed to take a 50% reduction in cash director fees. The reductions are initially through early August 2020, subject to extension if the situation warrants. The savings from these reductions will be directed to the Dunkin' Brands Family Fund which supports Dunkin' and Baskin-Robbins crew members in times of crisis.

Actions to Support the Company's Franchise System

  • The Company hosted multiple calls with its franchisee lender banks, reminding them that the Company's franchisees are small business owners and that, in addition to the relief provided by the Company as franchisor, they also need the banks' help. The Company's franchisees have indicated that their banks have been largely supportive to date, with many deferring principal and/or interest payments due from franchisees and also extending letters of credit.
  • The Company extended payment terms for royalties and advertising fees (and certain other items) for franchisees in the U.S. and Canada from 12 to 45 days through mid-May to provide them with more financial flexibility to better support their employees and guests. In addition, the Company waived up to one month of rental payments and allowed franchisees to defer two months of rent on the approximately 900 properties leased by the Company to franchisees. The Company does not expect these actions to impact its ability to meet its cash needs or to comply with the covenants under its securitization documents.

WITHDRAWING FISCAL YEAR 2020 TARGETS AND LONG-TERM TARGETS

  • Due to the evolving nature and inherent uncertainty related to the COVID-19 pandemic and its impact on financial and operational results, the Company is withdrawing its fiscal year 2020 targets issued on February 6, 2020 and its long-term targets issued on February 7, 2019.

COMPANY UPDATES

  • During the first quarter, the Company returned $97.4 million to shareholders, including $33.1 million in dividends and $64.3 million through open market repurchases of approximately 881,000 shares. The Company's shares outstanding as of March 28, 2020 were 82,087,373. The last open market repurchase was executed on March 6, 2020.

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.

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 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.

DUNKIN' BRANDS GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

   

Three months ended

   

March 28,
2020

 

March 30,
2019

Revenues:

       

Franchise fees and royalty income(1)

 

$

139,476

   

139,328

 

Advertising fees and related income

 

116,970

   

117,198

 

Rental income

 

28,932

   

29,028

 

Sales of ice cream and other products(1)

 

23,947

   

20,733

 

Other revenues

 

13,819

   

12,804

 

Total revenues

 

323,144

   

319,091

 

Operating costs and expenses:

       

Occupancy expenses—franchised restaurants

 

19,499

   

19,475

 

Cost of ice cream and other products

 

18,148

   

16,640

 

Advertising expenses

 

118,269

   

118,091

 

General and administrative expenses

 

60,535

   

56,203

 

Depreciation

 

5,049

   

4,621

 

Amortization of other intangible assets

 

4,592

   

4,633

 

Long-lived asset impairment charges

 

74

   

323

 

Total operating costs and expenses

 

226,166

   

219,986

 

Net income of equity method investments

 

3,666

   

2,230

 

Other operating income, net

 

668

   

37

 

Operating income

 

101,312

   

101,372

 

Other income (expense), net:

       

Interest income

 

2,055

   

1,831

 

Interest expense

 

(32,037)

   

(32,129)

 

Other loss, net

 

(670)

   

(4)

 

Total other expense, net

 

(30,652)

   

(30,302)

 

Income before income taxes

 

70,660

   

71,070

 

Provision for income taxes

 

18,547

   

18,747

 

Net income

 

$

52,113

   

52,323

 
         

Earnings per share—basic

 

$

0.63

   

0.63

 

Earnings per share—diluted

 

0.63

   

0.63

 
   

(1) For the three months ended March 28, 2020 and March 30, 2019, $2.9 million and $3.1 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)

   

March 28,
 2020

 

December 28,
2019

Assets

       

Current assets:

       

Cash and cash equivalents

 

$

601,226

   

621,152

 

Restricted cash

 

72,793

   

85,644

 

Accounts receivable, net

 

87,676

   

76,019

 

Notes and other receivables, net

 

32,162

   

57,174

 

Prepaid income taxes

 

25,063

   

16,701

 

Prepaid expenses and other current assets

 

63,275

   

50,611

 

Total current assets

 

882,195

   

907,301

 

Property, equipment, and software, net

 

222,973

   

223,120

 

Operating lease assets

 

366,447

   

371,264

 

Equity method investments

 

151,718

   

154,812

 

Goodwill

 

888,253

   

888,286

 

Other intangible assets, net

 

1,298,112

   

1,302,721

 

Other assets

 

67,571

   

72,520

 

Total assets

 

$

3,877,269

   

3,920,024

 

Liabilities and Stockholders' Deficit

       

Current liabilities:

       

Current portion of debt

 

$

139,400

   

31,150

 

Operating lease liabilities

 

34,839

   

35,863

 

Accounts payable

 

92,949

   

89,413

 

Deferred revenue

 

37,510

   

39,950

 

Other current liabilities

 

290,318

   

386,050

 

Total current liabilities

 

595,016

   

582,426

 

Long-term debt, net

 

3,005,415

   

3,004,216

 

Operating lease liabilities

 

375,112

   

380,647

 

Deferred revenue

 

315,782

   

324,854

 

Deferred income taxes, net

 

202,175

   

197,673

 

Other long-term liabilities

 

20,056

   

18,218

 

Total long-term liabilities

 

3,918,540

   

3,925,608

 

Stockholders' deficit:

       

Common stock

 

82

   

83

 

Additional paid-in capital

 

529,179

   

561,345

 

Treasury stock, at cost

 

(64)

   

(64)

 

Accumulated deficit

 

(1,138,697)

   

(1,129,565)

 

Accumulated other comprehensive loss

 

(26,787)

   

(19,809)

 

Total stockholders' deficit

 

(636,287)

   

(588,010)

 

Total liabilities and stockholders' deficit

 

$

3,877,269

   

3,920,024

 

 

 

DUNKIN' BRANDS GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

   

Three months ended

   

March 28,
2020

 

March 30,
2019

         

Net cash used in operating activities

 

$

(37,255)

   

(15,992)

 

Cash flows from investing activities:

       

Additions to property, equipment, and software

 

(6,145)

   

(1,946)

 

Other, net

 

(128)

   

(304)

 

Net cash used in investing activities

 

(6,273)

   

(2,250)

 

Cash flows from financing activities:

       

Borrowings under variable funding notes

 

116,000

   

 

Repayment of long-term debt

 

(7,787)

   

(7,912)

 

Dividends paid on common stock

 

(33,057)

   

(30,975)

 

Repurchases of common stock

 

(64,292)

   

(129)

 

Exercise of stock options

 

3,251

   

3,830

 

Other, net

 

(2,880)

   

(5,065)

 

Net cash provided by (used in) financing activities

 

11,235

   

(40,251)

 

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

 

(641)

   

89

 

Decrease in cash, cash equivalents, and restricted cash

 

(32,934)

   

(58,404)

 

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

 

707,977

   

598,321

 

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

 

$

675,043

   

539,917

 

                               

DUNKIN' BRANDS GROUP, INC. AND SUBSIDIARIES

Non-GAAP Reconciliations

(In thousands, except share and per share data)

(Unaudited)

   

Three months ended

   

March 28,
2020

 

March 30,
2019

         

Operating income

 

$

101,312

   

101,372

 

Operating income margin

 

31.4

%

 

31.8

%

Adjustments:

       

Amortization of other intangible assets

 

$

4,592

   

4,633

 

Long-lived asset impairment charges

 

74

   

323

 

Adjusted operating income

 

$

105,978

   

106,328

 

Adjusted operating income margin

 

32.8

%

 

33.3

%

         

Net income

 

$

52,113

   

52,323

 

Adjustments:

       

Amortization of other intangible assets

 

4,592

   

4,633

 

Long-lived asset impairment charges

 

74

   

323

 

Tax impact of adjustments(1)

 

(1,306)

   

(1,388)

 

Adjusted net income

 

$

55,473

   

55,891

 
         

Adjusted net income

 

$

55,473

   

55,891

 

Weighted-average number of common shares – diluted

 

83,222,485

   

83,432,042

 

Diluted adjusted earnings per share

 

$

0.67

   

0.67

 
         

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

SOURCE Dunkin' Brands Group, Inc.

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