Dunkin' Brands Group Sees Progress

The restaurant chain's investors can expect a larger cash payout in the quarters ahead.

Joe Tenebruso
Joe Tenebruso
Feb 8, 2019 at 12:28PM
Consumer Goods

Dunkin' Brands Group (NASDAQ:DNKN) reported fourth-quarter financial results on Feb. 7. The parent company of Dunkin' and Baskin-Robbins restaurants delivered sharply higher earnings thanks in part to the benefits of tax reform, prompting it to boost its capital returns to shareholders. 

Dunkin' Brands Group results: The raw numbers

Metric

Q4 2018

Q4 2017

Year-Over-Year Change

Revenue

$319.6 million

$314.9 million

1.5%

Operating income

$96.6 million

$92.2 million

4.8%

Adjusted EPS

$0.68

$0.48

41.7%

Data source: Dunkin' Brands Group Q4 2018 earnings release. EPS = earnings per share.

What happened with Dunkin' Brands Group this quarter?

Comparable sales for Dunkin's U.S. stores were flat year over year, as the benefit from price increases was offset by a decline in traffic. Lower guest counts also took a toll on Baskin-Robbins' comps, which fell 3.7%. 

"While we did not drive consistent traffic momentum for the full year, we laid the foundation for future growth and, most importantly, along with our franchisees, are unified and well-positioned to capitalize in 2019 on our brand promise of 'great coffee, fast,' " CEO David Hoffmann said in a press release.

Despite these challenges, the company's nationwide expansion continues to progress. Franchisees opened 106 net new Dunkin' restaurants in the U.S. in the fourth quarter and a total of 278 locations during 2018.

During a conference call with analysts, Hoffmann said that 90% of these new restaurant openings were outside of Dunkin's core markets -- an important aspect of the company's growth strategy. Moreover, the new stores are generating strong returns on investment for franchisees.

"The 2017 cohort of new store openings in our top 10 developing markets continues to track comfortably between 20% [and] 25% cash-on-cash returns," Hoffmann said. "As a reminder, all of these top 10 markets are outside of the core Northeast, in states such as California, Florida, Georgia, and Tennessee."

All told, Dunkin' Brands Group's revenue rose 1.5% to $319.6 million. Operating income -- adjusted to exclude certain amortization and impairment charges -- increased 6.9% to $102.2 million. Adjusted net income -- which benefited from a lower effective tax rate brought about by the Tax Cuts and Jobs Act -- leapt 29.8% to $57.3 million. And adjusted earnings per share -- boosted by share repurchases -- surged 41.7% to $0.68.

Check out the latest Dunkin' earnings call transcript.

Rolls of dollar bills rising in a stair-step fashion

Higher profits equal higher capital returns for Dunkin' Brands Group investors. Image source: Getty Images.

Looking forward

Dunkin' Brands Group issued guidance for fiscal 2019, including:

  • 200 to 250 net new U.S. Dunkin' restaurant openings.
  • Comparable-store sales growth for Dunkin' and Baskin-Robbins restaurants in the U.S. in the low single digits.
  • Revenue growth in the low to mid-single digits.
  • Operating and adjusted operating income growth in the mid- to high-single digits.
  • GAAP EPS of $2.74 to $2.83.
  • Adjusted EPS of $2.94 to $2.99.

The company also introduced long-term financial targets for the upcoming three-year period. They include:

  • 200 to 250 net new Dunkin' U.S. restaurant openings annually.
  • Comps growth for Dunkin' U.S. in the low-single digits.
  • Revenue growth in the low- to mid-single digits.
  • Operating and adjusted operating income growth in the mid- to high-single digits.

"2018 was clearly a foundational year for the implementation of our blueprint for growth," Hoffmann said. "2019 will be about building on this foundation to modernize the Dunkin' experience and deliver great coffee fast to consumers everywhere."

Dunkin' Brands Group also announced an 8% increase to its quarterly cash dividend, to $0.375 per share. The dividend is payable on March 20 to shareholders of record as of the close of business on March 11. The dividend gives the stock a 2.2% yield at Thursday's closing price.