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Hurricanes Affect Dunkin' Brands' Group Comps, Store Openings

Dunkin' Brands Group (NASDAQ: DNKN) reported third-quarter results on Oct. 26. The owner of the Dunkin' Donuts and Baskin-Robbins chains was forced to close restaurants in Texas, Florida, and Puerto Rico because of the damage from recent hurricanes, but management says the company remains on track to hit its full-year revenue and earnings guidance.

Dunkin' Brands Group results: The raw numbers

Metric

Q3 2017

Q3 2017

Year-Over-Year Change

Revenue

$224.2 million

$207.1 million

8.2%

Operating income

$122 million

$109.4 million

11.6%

Earnings per share

$0.57

$0.57

0%

Data source: Dunkin' Brands Group Q3 2017 earnings release.

What happened with Dunkin' Brands Group this quarter?

Dunkin' Donuts franchisees opened 67 net new stores in the United States and 18 stores in international markets, representing year-over-year unit growth of 4.5% and 1.2%, respectively. Dunkin' Donuts ended the third quarter with 9,015 U.S. locations -- about halfway toward management's long-term goal of at least 18,000 stores in the United States -- and 3,420 international locations. Franchisees also opened a total of 52 Baskin-Robbins restaurants, and the chain ended Q3 with 7,944 stores. 

Dunkin' Donuts' U.S. comparable-store sales inched up 0.6%, as a decline in traffic was offset by increased average ticket. Comps at Baskin-Robbins' U.S. locations, however, declined 0.4%, primarily because of lower traffic. Management says that comps at Dunkin' Donuts and Baskin-Robbins would have been about 50 and 120 basis points higher, respectively, if not for the impact of weather-related events.

Image source: Getty Images.

All told, companywide revenue grew 8.2%, to $224.2 million. Higher franchise fees, royalty income, and license fees related to Dunkin' Donuts K-Cup pods and ready-to-drink bottled iced coffee all contributed to the increase.

In turn, operating income rose 11.6%, to $122 million. Yet net income declined less than 1%, to $52.2 million, mostly because of an increase in income tax expense related to Dunkin' Brands' recent debt refinancing.

Looking forward

Dunkin' Brands reiterated its guidance for "low to mid-single-digit" revenue growth and adjusted earnings per share of $2.40 to $2.43. The company also continues to expect low-single-digit comparable sales growth for Dunkin' Donuts' U.S. stores, and slightly negative comps for Baskin-Robbins' U.S. locations.

However, management cut its store opening projections as a result of the impact from hurricanes Harvey and Irma. Dunkin' Donuts' U.S. franchisees are now anticipated to add 300 to 320 net new restaurants in 2017, down from a previous estimate of 330 to 350 stores. The approximately 30 restaurants that had been scheduled to open in 2017 are now slated to open in 2018. And the company kept its international unit growth outlook steady at between 50 to 100 net new restaurants across its two brands.

in addition, Dunkin' Brands' board of directors authorized a new $650 million share-repurchase program.

"Strong cash flow generation from our 100% franchised business model, coupled with the net proceeds from our recent debt refinancing, enables us to continue to return cash to shareholders through our new repurchase authorization while opportunistically investing in our Dunkin' Donuts U.S. business," CFO Kate Jaspon said in a press release.

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Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool recommends Dunkin' Brands Group. The Motley Fool has a disclosure policy.