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.
