CANTON, MASS. — Are new coffee beverages and breakfast sandwiches the keys to reigniting sales growth at Dunkin’ Donuts? After a disappointing third quarter, executives of parent company Dunkin’ Brands Group, Inc. are pinning hopes on an innovation pipeline that is “stronger than it’s ever been.”
Dunkin’ Brands had net income for the quarter ended Sept. 26 of $46,216,000, equal to 49c per share on the common stock, down 16% from $54,697,000, or 52c per share, for the year-ago period. Excluding special items, the company said it earned 52c per share. Revenues advanced 8.9% to $209,807,000 from prior-year revenues of $192,640,000, boosted by increased royalty income and higher sales at company-operated restaurants.
|Nigel Travis, chairman and c.e.o. of Dunkin’ Brands|
“We are disappointed in our third-quarter Dunkin’ Donuts U.S. comp store sales performance, and we’re working closely with our franchisees to regain transaction momentum through great products, exceptional guest service, and innovative marketing,” said Nigel Travis, chairman and chief executive officer of Dunkin’ Brands, during an Oct. 22 earnings call. “However, as demonstrated by our Q3 adjusted earnings per share results, our asset-light franchise business model is resilient to fluctuations in comp store sales growth, and as a result we remain on track to deliver our full-year targets.”
Segment profit at Dunkin’ Donuts U.S. increased in the third quarter, rising to $112,932,000 from year ago profit of $106,242,000. Segment revenues climbed 8% to $154,370,000 from $142,951,000, driven by increased royalty income due to higher system-wide sales, as well as an increase in sales at company-operated restaurants and a net increase in company-owned units. Comparable store sales grew 1.1%, driven by an increased average ticket that offset a decline in traffic. Strong beverage sales and the launch of seasonal donuts, including Reese’s peanut butter and pumpkin cheesecake varieties, led growth during the quarter. In the coming months, the chain plans to unveil a new sweet black pepper bacon breakfast sandwich and new croissant donuts.
“We are marketing our breakfast sandwiches and bakery sandwiches as all-day items, including at lunchtime,” Mr. Travis said. “We are very focused on ensuring that pricing reflects value, and we have a number of value offers planned for the coming months.”
Food sales at Dunkin’ Donuts were slightly up during the third quarter on strong results from breakfast sandwiches and premium donuts, said Chris Fuqua, vice-president of marketing for Dunkin’ Brands.
“We’re looking to attach products to beverages, and we think as we sell more beverages in the years ahead, we’ll have the right products to be able to attach to those beverages,” Mr. Fuqua said.
Dunkin’ Donuts also is crafting a stronger coffee business, with new hot and iced products that includes the recent addition of macchiatos to the menu.
Segment profit at Baskin-Robbins U.S. rose 9.2% to $9,643,000 from year-ago profit of $8,828,000, due to increases in other revenues and royalty income that offset an increase in expenses related to brand-building activities and increased personnel costs.
Revenue for the segment increased 3.9% to $13,102,000 from $12,616,000 for the quarter, as a result of increases in licensing income and royalty income that was partially offset by a decline in sales of ice cream and other products as certain franchisees shifted to purchasing ice cream from a third-party manufacturer. Comparable store sales increased 7.5% for the quarter, driven primarily by higher traffic as well as increased sales of cups and cones, beverages, desserts, sundaes and cakes.
“This is particularly impressive, considering Baskin was rolling over a 6% comp in Q3 2014, and the growth we saw this year was primarily driven by traffic,” Mr. Travis said. “Our flavors of the month and creative promotions, as well as on-line cake ordering continue to drive traffic and overall sales.”
In the company’s other units, segment operating profit for Dunkin’ Donuts International decreased to $1,618,000 from $1,885,000 as a result of higher expenses that offset a 5.8% gain in revenue to $4,626,000 from $4,372,000. Segment profit at Baskin-Robbins International fell nearly 18% to $10,276,000 from $12,485,000, as a result of an increase in bad debt expense and a decrease in net income of equity method investments. Segment revenues increased 7.5% to $31,085,000 from $28,903,000 the year before.
For the full year, the company continues to expect comparable sales growth of 1% to 3% at Dunkin’ Donuts U.S. and now expects comparable sales growth of 3% to 5% at Baskin-Robbins U.S., up from the previous target of 1% to 3%. Executives also continue to expect revenue growth of between 6% and 8% and adjusted operating income growth of between 7% and 8% for the year.
The company also announced new roles for three of its senior executives. Bill Mitchell, who most recently was responsible for Baskin-Robbins in the U.S., Canada and Japan and both brands in China and Korea, has been named president of Dunkin’ Brands International. Scott Murphy, chief supply officer, has been named to the additional role of senior vice-president of Dunkin’ Donuts Operations U.S. and Canada. Weldon Spangler, most recently vice-president of Dunkin’ Donuts Operations in the U.S. and Canada, has been named senior vice-president of Baskin-Robbins U.S. and Canada.“These organizational moves provide us with dedicated leadership for our international businesses where we have great growth potential, as well as dedicated leadership for Baskin-Robbins U.S. which is proving to have solid potential,” Mr. Travis said. “Together, they will be working to drive costs, sales and transactions, increase franchise profitability, and help us recognize the margin upside new technologies can bring to our businesses.”