Espresso Drinks Fuel Dunkin's Sales Growth

Dunkin' Brands Group (NASDAQ: DNKN) reported second-quarter financial results on Thursday, delivering higher sales and profits even as it battles tepid traffic trends at its Dunkin' and Baskin-Robbins chains.

Dunkin' Brands Group results: The raw numbers

Metric Q2 2019 Q2 2018  Change
Revenue $359.3 million $350.6 million 2.5%
Operating income $122.7 million $113.9 million 7.7%
Adjusted EPS $0.86 $0.77 11.7%

Data source: Dunkin' Brands Group Q2 2019 earnings release.

What happened this quarter?

The restaurant operator continued its global expansion as franchisees opened 46 net new Dunkin' stores in the U.S. and a total of 109 combined Dunkin' and Baskin-Robbins locations globally. The company ended the period with more than 21,000 restaurants --  12,957 Dunkin' stores and 8,072 Baskin-Robbins stores.

The new openings, combined with a 1.7% rise in comparable-store sales at Dunkin's U.S. restaurants, helped drive revenue higher by 2.5% year over year to $359.3 million. 

The increase in Dunkin's same-store sales was fueled in part by high customer demand for its new espresso-based drinks. "The investment our system made in espresso equipment and training in 2018 continued to deliver strong returns," CFO Kate Jaspon said in a press release. "Espresso, a critical component of our beverage-led strategy, is now our fastest-growing category with sales for the second quarter up more than 40% versus the prior-year period."

Dunkin's Signature Lattes

Dunkin's signature lattes. Image source: Dunkin' Brands Group.  

Dunkin's comps growth, however, was partially offset by a 1.4% decline in Baskin-Robbins' U.S. comparable-store sales. The ice cream chain's traffic fell in Q2.

Notably, Dunkin's U.S. stores also experienced lower customer traffic -- a trend that could remain a challenge as retail sales continue to migrate to online channels.

Yet despite these traffic issues, Dunkin' Brands' continues to grow more profitable. Operating income increased by 7.7% to $122.7 million. Meanwhile, non-GAAP (adjusted) net income -- which excludes certain amortization, impairment, and debt extinguishment charges -- climbed 11.7% to $72.4 million, or $0.86 per share.

Looking ahead

These results, as well as a lower expected tax rate, prompted Dunkin' Brands Group to raise its fiscal 2019 profit forecast. The company now expects to generate adjusted earnings per share of $3.02 to $3.05, up from its prior guidance range of $2.94 to $2.99.

Management also reiterated several aspects of its full-year guidance, including:

  • A planned 200 to 250 net new Dunkin' U.S. restaurant openings;
  • Low single-digit percentage comps growth for U.S. Dunkin's restaurants;
  • Low- to mid-single-digit percentage revenue growth;
  • Mid- to high-single-digit percentage operating and adjusted operating income growth.

The company, did, however, say that it now expects comps for Baskin-Robbins restaurants in the U.S. will likely be flat to slightly negative, compared to the previous forecast for low-single-digit percentage growth.

Additionally, management said the company will continue to make investments to strengthen the customer experience and drive long-term returns for franchisees and shareholders alike.

"We've launched new menu innovation with broader consumer appeal, reimagined the restaurant experience, grown digital and delivery platforms, and integrated both brands in the modern culture," CEO David Hoffmann said during the conference call with analysts. "As we always say, it's a journey, but there is no doubt in my mind that the strategic actions we're taking are driving customer-noticeable change and, of course, sustainable results."

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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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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