Despite hurricanes, Dunkin' Brands rings up revenue increase

by Jeff Gelski
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Dunkin' Donuts coffee and donut
Dunkin’ Donuts U.S. had segment profit of $129,719,000 in the third quarter, up 8.6% from the previous year’s third quarter.
 

CANTON, MASS. — Breakfast promotions, an increase in mobile orders and retail sales of consumer packaged goods all helped Dunkin’ Brands Group, Inc. overcome a negative impact from hurricanes in the third quarter ended Sept. 30.

Net income slipped 0.9% to $52,246,000, equal to 58c per share on the common stock, which compared with $52,712,000, or 58c per share, in the previous year’s third quarter. The decrease came primarily because of an increase in income tax expense. Revenues increased 8.2% to $224,168,000 from $207,099,000, primarily because of increased franchise fees and increased royalty income.

Nigel Travis, Dunkin' Brands
Nigel Travis, chairman and c.e.o. of Dunkin’ Brands

“We had a turbulent quarter from a weather standpoint although the impact to our earnings was muted due to our asset-light model,” said Nigel Travis, chairman and chief executive officer of Dunkin’ Brands, in an Oct. 26 earnings call.

Hurricane Harvey in the quarter hit the Houston area, where the company has 42 Baskin-Robbins locations and 28 Dunkin’ Donuts locations. All the locations now are back open, Mr. Travis said. More than 1,000 restaurants, primarily Dunkin’ Donuts, closed when Hurricane Irma swept through Florida, but all are back open. Hurricane Maria devastated Puerto Rico, which has 21 Baskin-Robbins locations. Ten remain closed.

Dunkin' Donuts and Baskin-Robbins co-branded restaurant, Dunkin' Brands
Hurricane Harvey affected 42 Baskin-Robbins locations and 28 Dunkin’ Donuts locations.
 

The hurricanes changed plans for new store openings. Dunkin’ Brands now expects Dunkin’ Donuts U.S. to add about 300 to 320 net new restaurants in 2017, which is down from a previous expectation of 330 to 350. About 30 restaurants originally scheduled to open in 2017 now will open in 2018.

Dunkin’ Donuts U.S. had segment profit of $129,719,000 in the third quarter, which was up 8.6% from the previous year’s third quarter, and total revenues of $165,106,000, up 8.3%. Systemwide sales were $2,166,300,000, up 4.4%. Weather, primarily the hurricanes in the United States, had a negative impact of about 50 basis points to comparable stores sales, which still were up 0.6% in the quarter driven by an increased average ticket.

Value messaging around wake-up wraps drove an increase in breakfast sales. Increases in hot coffee and espresso drove gains in beverage sales.

David Hoffman, Dunkin' Brands
David Hoffman, president of Dunkin’ Donuts U.S. and Canada

“The 2-for-$2 egg and cheese wake-up wrap offer drove record breakfast sandwich sales in Q3 as we sold over 1,000 breakfast sandwiches per restaurant, per week during the quarter, another milestone for us,” said David L. Hoffman, president of Dunkin’ Donuts U.S. and Canada, in the Oct. 26 call. “In fact, the average ticket for the offer was greater than $7 versus our average ticket of about $5, demonstrating the power of our value strategy of having a food offer to drive beverage attachment, and in its early stages, we’re also optimistic of the performance of our current national value offer, the 2-for-$5 bacon, egg and cheese croissant.”

Dunkin’ has offered on-the-go mobile ordering for more than a year. Internal data show it has a retrial rate of more than 70%, Mr. Hoffman said.

Dunkin' Donuts egg and cheese wake-up wraps
Dunkin' Donuts' 2-for-$2 egg and cheese wake-up wrap offer drove record breakfast sandwich sales in the third quarter.
 

“On-the-go orders, mobile orders, reached 3% of total transactions during the quarter, and many of our urban and high-volume locations are seeing nearly 20% of their transactions go through mobile ordering,” he said. “We continue to believe this is the future of how many of our guests will interact with our brand.”

In consumer packaged goods, third-party data showed Dunkin’ packaged coffee and K-Cups achieved more than $600 million in retail sales over the past year. The company’s total portfolio of consumer packaged goods generated more than $800 million in retail sales over one year, Mr. Hoffman said.

Dunkin’ Donuts International reported segment profit of $1,439,000, which was more than double the $705,000 in the previous year’s third quarter. Revenues were $5,157,000, up 16%, and systemwide sales were $189,300,000, up 6.7%.

Dunkin' Donuts on-the-go mobile ordering
Mobile orders reached 3% of total transactions for Dunkin' Donuts during the quarter.
 

Baskin-Robbins U.S. comparable stores sales were negative when compared to the previous year’s third quarter because of a decline in traffic. Weather had a negative impact of about 120 basis points to comparable stores sales. Segment profit of $10,466,000 in the third quarter was down 5.6%. Total revenues inched up 0.2% to $13,751,000, and systemwide sales were $177,000,000, down 0.7%. Baskin-Robbins International had segment profit of $11,420,000, up 2.4% from the previous year’s third quarter, revenues of $28,810,000, up 3.2%, and systemwide sales of $382,200,000, down 2%.

Companywide in the nine months ended Sept. 30, Dunkin’ Brands posted net income of $155,417,000, or $1.71 per share, which was up 3.3% from $139,456,000, or $1.52 per share, during the same time of the previous year. Total nine-month revenues were $633,362,000, up 11% from $613,184,000. 
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