Dunkin' K-Cups off to fast start at retail

by Eric Schroeder
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Dunkin' Brands said the nationwide roll-out of Dunkin’ K-Cups into retailers is going well and has exceeded expectations.

CANTON, MASS. — Consumers like their Dunkin’ K-Cups. In a July 23 presentation in connection with the release of second-quarter financial results, Canton-based Dunkin’ Brands Group, Inc. said the nationwide roll-out of Dunkin’ K-Cups into retailers is going well and has exceeded expectations. Dunkin’ in February reached an agreement with the J.M. Smucker Co. and Keurig Green Mountain Inc. to sell single-serve Dunkin’ Donuts branded K-Cups at retail outlets, and began the roll-out in late May.

“We originally did not expect any incremental revenue for the balance of the year following the upfront payment that we received in Q1,” said Paul Carbone, chief financial officer for Dunkin’ Brands. “This was because we expected that the incremental revenue we received from the sale of K-Cups through the retail channel would be offset by the retail packaged coffee and creamer profits that we agreed to share with our franchisees as part of the new agreement we reached in the first quarter.

Paul Carbone, c.e.o. for Dunkin’ Brands.

“However, the launch of K-Cups has gone faster than we expected and has been very well received by retailers. As a result, we had approximately $3 million in incremental revenue year-over-year in Q2 from licensing fees from the sale of Dunkin’ K-Cup packs into the retail channel. And this is net a profit sharing with our franchisees. As we look into the second half of 2015, we continue to not anticipate any additional incremental revenue from the retail channel K-Cups. We believe that the retailers have built their inventories, and similar to what we expected in the first-quarter earnings, incremental revenue will be offset by additional profit sharing with franchisees from our other consumer packaged good products.”

Overall, net income at Dunkin’ Brands in the second quarter ended June 27 was $42.3 million, equal to 44c per share on the common stock, down 8% from $46.2 million, or 44c per share, in the same period a year ago. Revenues climbed 11% to $211.4 million from $190.9 million.

Segment profit at Dunkin’ Donuts U.S. increased 7% in the second quarter, rising to $108,127,000 from $100,981,000 a year ago. Revenues also improved, climbing 10% to $149,768,000 from $136,450,000 a year ago.

“The growth of the Dunkin’ Donuts brand in the U.S. is incredible, and there is still tremendous growth potential for the brand ahead,” Mr. Carbone said. “We recently hit some major milestones in California, where we now have 10 restaurants, with several more slated to open before the end of the year. And we recently sold our second store development agreement for San Francisco and now have commitments to open 275 stores in California over the next several years.”

Dunkin’ said product and marketing innovations resulted in strong beverage sales growth in the United States, led by hot and iced coffee and espresso-based beverages, as well as continued breakfast sandwich momentum across core and limited-time offer products, including the bacon guacamole flatbread sandwich. Donut category growth was spurred by the croissant donut, cheesecake squares, and limited-time offer Oreo and Chips Ahoy! donuts.

In its other units, segment operating profit for Dunkin’ Donuts International increased 7% to $3,218 million from $3,015 million on a 20% gain in revenues to $5,421 million from $4,521 million. Segment profit at Baskin-Robbins U.S. was narrowly higher at $9,381 million, which compared with $9,315 million in the same period a year ago. Revenues in the unit increased 4% to $13,519 million from $12,952 million. At Baskin-Robbins International, segment profit increased 9% to $12,797 million from $11,724 million, while revenues advanced 8% to $36,204 million from $33,631 million.
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