Weather dampens Dunkin' Brands' 1Q results

Dunkin’ Brands Group Inc.’s first-quarter sales and traffic were negatively impacted by severe winter weather in core markets for the company's Dunkin’ Donuts and Baskin-Robbins brands, chief executive Nigel Travis said in an earnings call Thursday.

But despite the “significant impact weather had on both Dunkin’ Donuts and Baskin-Robbins in the United States during the first quarter,” Travis said, “our business is strong, and we remain confident with our full-year targets for 2013. We’re encouraged by our momentum as we enter the second quarter and look forward to the start of key warmer weather selling seasons for both our brands.”

Canton, Mass.-based Dunkin’ Brands reported net income declined 8.3 percent for the quarter ended March 30, to $23.8 million from $26.0 million in the year-ago quarter. Earnings per share, excluding one-time items, rose 16 percent to 29 cents for the period.

The company attributed the decrease to $5.0 million in charges incurred from a February 2013 debt repricing, a $4.1 million increase in interest expense and a $0.9 million increase in income tax expense. The company said an $8.3 million rise in operating income helped offset those charges.

Company-wide revenue for the first quarter rose 6.2 percent to $161.9 million, fueled in part by Dunkin’ Donuts’ modest same-store sales growth and global unit development. The company added 108 net new outlets worldwide, including 78 net new Dunkin’ Donuts locations in the United States.

Dunkin’ Donuts’ U.S. same-store sales growth at units open 54 weeks or more increased 1.7 percent, while Baskin-Robbins’ domestic same-store sales fell 4.4 percent in the quarter. International same-store sales for Dunkin’ Donuts and Baskin-Robbins rose 1.3 percent and 4.2 percent, respectively.

Citing difficult comparisons as a result of 2012’s unseasonably warm winter weather, Travis told analysts that storms easily disrupt guests’ normal morning routines. “We lose that visit, and it is not recoverable,” he said. “And storms [this winter] affected more than half our [domestic] stores.”

The Northeast, which was hit particularly hard by winter storms this year, represents one of Dunkin’ Donuts’ core markets. Travis said overall transactions ended the quarter nearly flat, due to the weather, which Dunkin’ estimates negatively impacted same-store sales by some 1.2 percent compared with the year-ago quarter.

However, Dunkin’ Donuts posted domestic revenues of $119.6 million, a 7.7 percent year-over-year gain from $111.0 million. Dunkin’ Donuts’ international operations reported revenues of $4.6 million, an increase of 17.1 percent over last year’s figure of $3.9 million.

Travis said Dunkin’ Donuts closed 19 units in Taiwan during the quarter when it terminated its current franchise agreement. He said the brand plans to return to Taiwan in the future. A franchisee in Germany also opened the first Dunkin’ Donuts in Frankfurt, bolstering the number of Dunkin’ Donuts in Germany to 36.

Domestically, the quick-service chain said it plans to enter Southern California in 2015, where it could open as many as 1,000 new locations.

Weather also dampened sales at domestic Baskin-Robbins locations by about 6 percent compared with the preceding year, Travis said. With same-store sales down, revenue for U.S. Baskin-Robbins operations fell 2.4 percent to $9.6 million in the first quarter.

Meanwhile, revenues for Baskin-Robbins International rose 4.9 percent to $25.4 million compared with $24.2 million in last year’s quarter.

The chain is looking forward to ambitious overseas development. Earlier this year it signed a master franchise joint agreement with United Arab Emirates-based Galadari Brothers Company LLC, a longtime licensee for the company in the Middle East. Over the next decade, the companies plan to open about 200 additional Baskin-Robbins locations in Australia. Dunkin' Brands will hold a 20-percent stake in the venture.

At the end of the quarter, Dunkin’ Brands had 10,500 Dunkin’ Donuts locations and 7,000 Baskin-Robbins’ restaurants around the world. The company said franchisee-reported sales for full-year 2012 were $8.8 billion.

Contact Paul Frumkin at [email protected].
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