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Dunkin' Brands: Diluted Adjusted Eps Increased

The following excerpt is from the company's SEC filing.

CANTON, Mass. (

October 22, 2015

Dunkin' Brands Group, Inc. (Nasdaq: DNKN), the parent company of Dunkin' Donuts (DD) and Baskin-Robbins (BR), today reported results for the

third quarter

ended

September 26, 2015

“Our overall financial performance in the third quarter, including the strong growth in our revenue, operating income and adjusted earnings per share, demonstrates the benefits and resiliency of our asset-light franchise business model, and the solid Dunkin’ Donuts U.S. net restaurant growth shows the continued demand for the brand. While we were disappointed with our third quarter Dunkin’ Donuts U.S. comparable store sales, we remain on track to deliver our full-year targets, and we are working closely with our franchisees to regain transaction momentum through great products, exceptional guest service, and innovative marketing,” said Dunkin' Brands Chairman and Chief Executive Officer Nigel Travis.

"Dunkin' Brands is a business with tremendous long-term growth potential. At our recent investor day, we provided targets for our growth expectations for the next five years which included mid-to-high single digit revenue growth, 10 percent plus adjusted operating income growth and up to 15 percent adjusted earnings per share growth," said Paul Carbone, Chief Financial Officer, Dunkin' Brands Group, Inc.

THIRD QUARTER

KEY FINANCIAL HIGHLIGHTS

($ in millions, except per share data)

Three months ended

Increase (Decrease)

Amounts and percentages may not recalculate due to rounding

September 27,

Franchisee-reported sales

2,646.5

2,576.3

Systemwide sales growth

Comparable store sales growth (decline):

DD U.S.

BR U.S.

DD International

BR International

Development data:

Consolidated global net POD development

DD global PODs at period end

11,568

11,123

BR global PODs at period end

Consolidated global PODs at period end

19,185

18,602

Financial data:

Revenues

Operating income

Operating income margin

Adjusted operating income

Adjusted operating income margin

Net income

Adjusted net income

Earnings per share:

Common–basic

Common–diluted

Diluted adjusted earnings per share

Weighted average number of common shares – diluted (in millions)

Franchisee-reported sales include sales at franchisee-operated restaurants, including joint ventures. While we do not record sales by franchisees or licensees as revenue and such sales are not included in our consolidated financial statements, we believe that this operating measure is important in obtaining an understanding of our financial performance. We believe franchisee-reported sales information aids in understanding how we derive royalty revenue and in evaluating our performance relative to competitors.

Comparable store sales growth for DD U.S. and BR U.S. for the three months ended September 27, 2014 have been revised to include only those restaurants that have been open at least 78 weeks (approximately 18 months) to conform to the current period calculation, whereas previously reported figures included only those restaurants that were open at least 54 weeks (approximately 12 months). Please refer to "Non-GAAP Measures and Statistical Data" for further detail.

Consolidated global net POD development reflects the previously-announced closing of 31 self-serve coffee stations within Speedway locations.

Adjusted operating income, adjusted operating income margin, and adjusted net income are non-GAAP measures reflecting operating income and net income adjusted for amortization of intangible assets, long-lived asset impairments, and other non-recurring, infrequent, or unusual charges, net of the tax impact of such adjustments in the case of adjusted net income. Diluted adjusted earnings per share is a non-GAAP measure calculated using adjusted net income. Please refer to “Non-GAAP Measures and Statistical Data” and “Dunkin' Brands Group, Inc. Non-GAAP Reconciliations” for further detail.

Global systemwide sales growth in the

was primarily attributable to global store development and Dunkin' Donuts U.S. comparable store sales growth (which includes stores open 78 weeks or more).

Dunkin' Donuts U.S. comparable store sales growth in the

was driven by increased average ticket. Growth was driven by strong beverage sales, led by total coffee including iced coffee and espresso-based beverages, and frozen beverages, which was driven by the launch of blended beverages; and donut category growth driven by the REESE’S Peanut Butter Square and Pumpkin Cheesecake squares. The in-restaurant K-Cup and packaged coffee categories had a negative impact on third quarter comparable store sales. Traffic declined approximately 70 basis points in the quarter.

Baskin-Robbins U.S. comparable store sales growth was driven by increased sales of cups and cones, beverages, desserts, and sundaes and increased sales of cakes, stimulated by strong year-over-year growth of online cake ordering. Comparable store sales growth was driven primarily by traffic.

In the

, Dunkin' Brands franchisees and licensees opened

net new restaurants around the globe. This included 68 net new Dunkin' Donuts U.S. locations, 40 net new Dunkin' Donuts International locations, 2 net closures for Baskin-Robbins U.S., and 16 net closures for Baskin-Robbins International. The Dunkin' Donuts U.S. net store growth number reflects the previously-announced closing of 31 self-serve coffee stations within Speedway locations. Additionally, Dunkin' Donuts U.S. franchisees remodeled 116 restaurants and Baskin-Robbins U.S. franchisees remodeled 32 restaurants during the quarter.

Revenues for the

compared to the prior year period due primarily to increased royalty income as a result of systemwide sales growth, an increase in sales at company-operated restaurants due to a net increase in the number of company-operated restaurants, increased sales of ice cream and other products, and licensing fees earned from the sale of Dunkin’ K-Cup® pods.

Operating income and adjusted operating income for the

$7.3 million

$6.5 million

, respectively, from the prior year period primarily as a result of the increases in royalty income, ice cream margin due primarily to the increase in sales, and licensing fees earned from the sale of Dunkin’ K-Cup® pods. The increases in revenues were offset by an increase in general and administrative expenses driven primarily by an increase in personnel costs and bad debt expense.

Net income for the

decreased by

$8.5 million

, compared to the prior year period primarily as a result of additional interest expense of

$8.1 million

, driven by additional borrowings incurred in conjunction with the securitization refinancing transaction completed in January 2015, and an increase in income tax expense of

$7.5 million

as the prior year period was favorably impacted by the settlement of certain tax audits. These decreases were offset by the

increase in operating income.

Adjusted net income for the

$2.0 million

, compared to the third quarter of 2014 primarily as a result of increases in interest expense, offset by the

increase in adjusted operating income.

Diluted earnings per share decreased by

of 2015 compared to the prior year period as a result of the decrease in net income, offset by a decrease in shares outstanding. Diluted adjusted earnings per share increased by

of 2015 compared to the prior year period as a result of the decrease in shares outstanding, offset by the decrease in adjusted net income. The decrease in shares outstanding from the prior year period is due primarily to the repurchase of shares, offset by the exercise of stock options.

SEGMENT RESULTS

($ in thousands except as otherwise noted)

Systemwide sales growth

Franchisee-reported sales (in millions)

1,944.7

1,840.5

Revenues:

Royalty income

105,864

99,758

Franchise fees

12,666

11,704

Rental income

25,290

24,610

Sales at company-operated restaurants

Other revenues

Total revenues

154,370

142,951

11,419

Segment profit

112,932

106,242

Points of distribution

Gross openings

Net openings

Comparable store sales growth for the three months ended September 27, 2014 have been revised to include only those restaurants that have been open at least 78 weeks (approximately 18 months) to conform to the current period calculation. Please refer to "Non-GAAP Measures and Statistical Data" for further detail.

Franchisee-reported sales include sales at franchisee-operated restaurants, including joint ventures. We do not record sales by franchisees or licensees as revenue and such sales are not included in our consolidated financial statements. Please refer to “Non-GAAP Measures and Statistical Data” for further detail.

Net openings reflects the previously-announced closing of 31 self-serve coffee stations within Speedway locations.

Dunkin' Donuts U.S. third quarter revenues of

$154.4 million

represented an increase of

over the prior year period. The increase was primarily a result of increased royalty income...


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