Franchising Boosts Dunkin’ Brands to Profit

The owner of Dunkin' Donuts benefited from increased royalties and franchise fees as it swung to a $56 million profit in the fourth quarter.
Matthew HellerFebruary 11, 2017
Franchising Boosts Dunkin’ Brands to Profit

Dunkin’ Brands swung to a profit in the fourth quarter as the owner of Dunkin’ Donuts benefited from increased royalty income and franchise fees.

Same-store sales at Dunkin’ Donuts shops in the U.S. grew 1.9% in the quarter, missing Consensus Metrix’s expectations of 2.1% growth, while same-store Baskin-Robbins sales declined 0.9%.

But as The Wall Street Journal reports, “Facing a persistent decline in foot traffic at its restaurants, Dunkin’ Brands has made changes to its business model to become less dependent on store visits and more reliant on royalties and packaged products sales.”

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Dunkin’ Brands sold off its remaining company-operated stores during the quarter and is now 100% franchised. Overall revenues for the quarter increased 5.8% to $215.7 million, due to increased royalties and fees associated with franchise restaurants.

The company reported a profit of $56.1 million, or 61 cents a share, compared with a loss of $8.9 million, or 10 cents a share, a year earlier. Analysts had forecast earnings of 61 cents a share on $215.5 million in revenue.

Operating income and adjusted operating income increased $70.4 million, or 161.9%, and $15.3 million, or 14.8%, respectively.

“This past year was one of significant achievement for Dunkin’ Donuts U.S.,” CEO Nigel Travis said in a news release. “We began executing against a six-part strategy to drive growth by positioning Dunkin’ as a to-go, coffee beverages brand, and while much work remains, we made considerable progress with our plan, in particular with utilizing digital technology to drive customer loyalty and store traffic.”

For 2017, Dunkin’ Brands forecast earnings per share of $2.34 to $2.37, excluding special items, on low-to-mid single digit growth in revenue. Analysts polled by Thomson Reuters were expecting per-share earnings of $2.41 on revenue growth of 3%.

“The initial EPS guidance for 2017 is a bit disappointing, though we see upside potential to this initial guidance,” Maxim Group analyst Stephen Anderson wrote in a client note.