Dunkin’ Brands Group Inc. has signed its first three Dunkin’ Donuts franchisees in Southern California, the company revealed as it reported that its profit more than doubled during the second quarter.
The three new franchisees are scheduled to open 44 units that will begin opening in 2015, said Dunkin’ Brands chief financial officer Paul C. Carbone.
Carbone also noted that by the end of the year, the first nontraditional Southern California unit might be open at the historic travel center on Route 66. That location, he said, is owned by an existing franchisee.
Dunkin’ Donuts said in January that it would renew its western expansion to Southern California. Dunkin’ Brands chief executive Nigel Travis said at the time that there could eventually be as many 1,000 Dunkin’ Donuts locations in Southern California. Baskin-Robbins, Dunkin’ Donuts’ sister brand, already has about 250 locations in the region.
Last fall, Dunkin’ Donuts opened a distribution center in Phoenix, which brought the brand closer to the Southern California region. And in June, the company opened its first Dunkin’ Donuts location in Utah.
For the second quarter, the parent to the quick-service Dunkin’ Donuts and Baskin-Robbins chains attributed positive results to new Dunkin’ Donuts unit openings in the United States and strong sales of cold beverages and breakfast sandwiches.
“Our performance in the second quarter was driven by strong comparable-store sales and net unit development for Dunkin' Donuts U.S.A.,” said Nigel Travis, Dunkin’ Brands chairman and chief executive. “Innovative marketing and new product innovations, as well as a focus on delivering a great customer experience, continues to deliver attractive franchisee returns and exceptional results for Dunkin' Donuts in the U.S.”
For instance, Dunkin’ Donuts is positioning itself as an all-day snack and food location, Travis said.
“The introduction of the chicken salad and tuna salad wraps and the launch of the new chicken sandwiches both exceeded our expectations and are further examples for growing outside of the morning daypart with products that build on our bakery heritage,” he said, adding that 40 percent of the chain’s doughnut sales occur after 11 a.m.
“There is very consistent growth in the p.m. across all the geographical segments,” he said.
Travis also said high beverage sales contributed to the strong quarter. “These gains were driven by our cold-beverage platform, such as iced coffee, Frozen Coolatta [drinks] and iced tea, as well as gains in our specialty coffee, espresso and hot tea categories,” he said.
The breakfast sandwich business, led by introductions like the Turkey Sausage Breakfast Sandwich, grew as well. The sandwich has fewer than 400 calories and launched nationwide in May.
“We also saw a very strong gains in our core sandwich line, as the limited-time offer messaging spurred repeat trial by our guests of existing favorites as well,” Travis said.
At Baskin-Robbins, a Flavor of the Month promotion boosted sales of hard ice cream scoops, executives said. High sales of ice cream cakes around Mother’s Day, Father’s Day and graduations also contributed to same-store sales growth.
During the quarter ended June 29, Canton, Mass.-based Dunkin’ Brands Group reported net income of $40.8 million, or 41 cents per share, an increase of 120.6 percent compared to $18.5 million, or 33 cents per share, in the prior-year quarter. The company reported revenue of $182.5 million, an increase of 5.9 percent from $172.4 million during the year-earlier quarter.
Same-store sales increased 4 percent at U.S. Dunkin’ Donuts locations and declined 1.7 percent at international locations. At domestic Baskin-Robbins locations, same-store sales rose 1.6 percent; at international Baskin-Robbins locations, same-store sales rose 2.6 percent.
Nicole Miller Regan, senior research analyst at Piper Jaffray, wrote in a report that Dunkin’ Brands should finish 2013 strong. “We remain encouraged by continued momentum of operational initiatives, development of the company's menu pipeline, and continued consumer preference for the Dunkin' and Baskin brands as evidenced by continued strength in top-line trends,” she wrote.
Mark Kalinowski, managing director of restaurants at Janney Capital Markets, was similarly encouraged by the report. “Our Buy rating on DNKN is based on solid same-store sales trends in the core Dunkin’ Donuts U.S. business, menu innovation, and long-term opportunities for unit growth (particularly for the Dunkin’ brand in the U.S., especially west of the Mississippi River),” he wrote in a report.
At the end of the second quarter, Dunkin’ Brands had more than 10,600 Dunkin’ Donuts locations and more than 7,000 Baskin-Robbins units systemwide.