Dunkin' 1Q boosted by new menu itemsDunkin' 1Q boosted by new menu items

Bret Thorn

Product and marketing innovation helped drive Dunkin’ Brands Group Inc.'s strong performance in the first quarter of 2012, according to company officials.

Net income for the company jumped to $26 million, or 21 cents per share, in the quarter, reversing a net loss $1.7 million in the first quarter of 2011. Revenue jumped 9.5 percent to $152.4 million, up from $139.2 million a year earlier.

“We carried the momentum from 2011 into early 2012,” Dunkin’ Brands president and chief executive Nigel Travis told investors during a conference call announcing the financial results for the quarter ended March 31, 2012.

Travis noted that key financial metrics, including domestic same-store sales growth for both brands, were “solidly up over the same time last year.”

Dunkin’ Brands is the parent company of Dunkin’ Donuts and Baskin-Robbins, both of which are nearly 100 percent franchised. Royalties derived from domestic Dunkin’ Donuts’ units account for more than 70 percent of all corporate revenue, Travis said.

Dunkin’ Donuts saw same-store sales growth of 7.2 percent for the quarter, compared to 2.8 percent in the first quarter of 2011. Baskin-Robbins’ same-store sales were up 9.4 percent, compared to 0.5 percent in the year-earlier quarter.

Travis attributed much of that growth to increases in both customer traffic and average checks, particularly at Dunkin’ Donuts, which continued to enjoy strong beverage sales.

More generally, he said the positive results were driven by product and marketing innovation and operational improvements at both brands.

At Dunkin’ Donuts he said the introduction during the quarter of the Angus steak breakfast sandwich and the bakery sandwiches, intended to help drive lunchtime traffic, performed well, as did the new smoked sausage sandwich. The sausage pancake bites, introduced in January, were a successful limited time offering, and the heart-shaped doughnuts introduced for Valentine’s Day helped drive Dunkin’ Donuts’ best week of doughnut sales in history.

Dunkin’ Donuts introduced K-cups intended for home use last year. Travis said that typically sales of that type of product dip in the first quarter, after the winter holidays, but sale of Dunkin’s K-cups remained steady and represented 30 percent of comp store increases in the quarter. He added that he was confident that K-cups were not cannibalizing sales of coffee in stores.

Travis attributed Baskin-Robbins’ improved performance to the unseasonably warm weather, which he said contributed to 6 percentage points of same-store sales increases.

The rest he attributed to operational improvements and the popularity of limited-time flavors such as the 3-Point Chocolate, introduced as the flavor of the month in March, during the national college basketball tournament. He also said that the cake bites, introduced last year, had proved to be a helpful sampling vehicle for cake sales.

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Poised for expansion

Dunkin’ Brands Group Inc.'s strong first quarter will enable the company to achieve its goal of doubling the number of Dunkin’ Donuts units in the United States over the next 20 years, company officials said.

Travis, who had recently returned from a multi-unit franchising conference in Las Vegas, said Dunkin’ Donuts’ improved performance spurred the interest of potential new franchisees, who flocked to the chain’s booth during the event.

Existing franchisees also were eager to expand, he said, noting that about 400 of them participated in a recent conference call regarding new franchises — four times more than had been expected and accounting for about half of all domestic Dunkin’ Donuts franchisees.

Travis reiterated the company’s strategy of expanding Dunkin’s domestic units into contiguous territories. “We’re intent on bringing our delicious products, our fast service and great value to more parts of the U.S.,” he said.

A total of 45 net new Dunkin’ Donuts units opened domestically during the quarter, of which about 20 percent were in the brand’s core territories and 80 percent were elsewhere, including Chicago, Pittsburgh, Orlando, Tampa, Indianapolis and Raleigh. Travis said the chain is also on track to add 260-280 units in 2012 in markets such as Denver; Houston; El Paso, Texas; Albuquerque, N.M.; St. Joseph, Mo.; and Lincoln, Neb.

Average unit volumes at the restaurants were up slightly in the quarter, to $858,000, from $855,000 a year ago.

In response to a question from an analyst during the call, chief financial officer Neil Moses said average unit volume at new domestic Dunkin’ Donuts locations outside of its core stronghold in the Northeast actually were slightly higher in 2010 and 2011 than new restaurants in core territories. He said that boded well for the company as it continued to expand to new territories. He added that cash-on-cash returns exceeded 25 percent. “That’s very encouraging, because we think that’s the magic number for franchisees … who are interested in coming into the system,” Moses said.

Travis added that Dunkin’ Brands’ agreement to phase in uniform distribution prices over the next three years, signed at the beginning of the quarter with National DCP, a franchisee-owned purchasing and distribution cooperative, would make opening in new territories even more attractive. Currently, Dunkin’ Donuts units in territories with fewer locations generally have higher product costs.

For the first time, Dunkin’ Brands, which went through with an initial public offering in July, 2011, released same-store sales for its international divisions; they rose by 2.3 percent at Dunkin’ Donuts, and by 7.6 percent at Baskin-Robbins.

At the end of the quarter there were 7,060 domestic Dunkin’ Donuts units, up 3.8 percent from 6,799 from a year ago. Dunkin’ Donuts international closed a net seven units during the quarter, mostly due to leases expiring in the Philippines, where about 70 units closed, resulting in a total of 3,061 points of distribution at the end of the quarter.

Baskin-Robbins closed a net 5 units domestically, leaving a total of 2,488 units at the end of the quarter. Internationally, a net 49 Baskin-Robbins units opened, for a total of 4,267 units.

Editor's Note: A previous version of this story incorrectly stated same-store sales for Dunkin’ Donuts and Baskin-Robbins’ first quarter of 2011. Dunkin’ Donuts saw same-store sales growth of 7.2 percent for the quarter, compared to 2.8 percent, and Baskin-Robbins’ same-store sales were up 9.4 percent, compared to 0.5 percent in the year-earlier quarter.

Contact Bret Thorn at [email protected].
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