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Dunkin’ sees sales slump at the end of a strong first quarter

Coffee chain Dunkin' reports United States comparable store sales growth of 3.5 per cent in the first 10 weeks of 2020. However, a sharp decline of 19.4 per cent in the following three weeks due to COVID-19 resulted in a total decline of 2 per cent for the first quarter of 2020.

"Prior to the crisis, we experienced strong first quarter performance across the system, including Dunkin' US which was on track to have its highest quarterly comps in more than six years and positive traffic," Dunking Brands CEO Dave Hoffmann says.

"With the number one priority being the safety of crew members and our guests, early in the crisis we implemented strong safety measures at our restaurants with gloves, masks, and plexiglass shields, and now we are shipping an infrared thermometer to every US restaurant to help monitor crew health.

“Solidarity with our great franchisees has never been stronger, and as a 100-percent franchised business we are supporting our franchisees and will continue to focus on their overall business health."

In the first quarter of 2020, Dunkin' Brands franchisees and licensees opened 38 net new restaurants globally. This included seven net new Dunkin' US locations – inclusive of the closure of 12 Speedway locations, 14 Baskin-Robbins International locations, and 23 Dunkin' International locations, offset by net closures of six Baskin-Robbins US locations. Additionally, Dunkin' US franchisees remodelled 32 restaurants during the quarter.

Revenues for the first quarter increased US$4.1 million, or 1.3 per cent compared to the prior year, to US$323.1 million. This was primarily due to an increase in sales of ice cream and other products, as well as an increase in other revenues, driven primarily by license fees related to Dunkin' K-Cup pods and retail packaged coffee. The unfavourable impact on systemwide sales as a result of the COVID-19 pandemic had a corresponding unfavourable impact on royalty income, primarily for the Dunkin' US segment.

Operating income and adjusted operating income for the first quarter of fiscal year 2020 of US$101.3 million and US$106.0 million, respectively, were relatively flat compared to the prior year period. An increase in general and administrative expenses was offset by increases in net margin on ice cream and other products, net income from South Korea and Japan joint ventures, and other revenues.

"At Dunkin' Brands, we feel an obligation to do our part to keep America working by avoiding any corporate furloughs. Our focus has been to preserve our strong balance sheet by aggressively reducing operating expenses and preserving cash, including suspending our quarterly dividend and share repurchase programs,” Hoffman says.

“Simultaneously, our management team and Board of Directors are voluntarily taking salary and fee reductions with the savings generated going to the Dunkin' Brands Family Fund, which supports Dunkin' and Baskin-Robbins crew members in times of crisis. Throughout this pandemic, we have been guided by our corporate values of strong, smart, and kind, which includes striving to do the right thing for our communities."

Dunkin' US first quarter revenues of $151.8 million represented an increase of 1.4 per cent compared to the prior year period. This was due to an increase in franchise fees as a result of additional deferred revenue, recognised in connection with the planned closure of Speedway locations, as well as an increase in royalty income.

Dunkin' US segment profit in the first quarter decreased by US$1.7 million to US$109.3 million, driven primarily by increases in reserves for uncollectible receivables and training expense, associated with the roll-out of new high-volume brewers, offset by the increases in franchise fees and royalty income.

Dunkin' International first quarter systemwide sales decreased 10.5 per cent from the prior year period, driven by sales declines across all regions. Sales in South Korea and Latin America were negatively impacted by unfavourable foreign exchange rates. On a constant currency basis, systemwide sales decreased by approximately 8 per cent.

Dunkin' International first quarter revenues of US$5.5 million represented a decrease of 20 per cent from the prior year period. The decrease in revenues was primarily a result of a decrease in royalty income, driven by a decline in systemwide sales and a recovery of prior period royalties recorded in the first quarter of 2019.

Segment profit for Dunkin' International decreased US$1.3 million to US$3.5 million in the first quarter primarily as a result of the decrease in revenues.

"This morning we announced that our Board of Directors has suspended our regular dividend program, which will result in cash savings of approximately US$33 million in the second quarter, and reinforces our already strong balance sheet. We believe a temporary suspension of our dividend and share repurchase program is the prudent and responsible thing to do in this time of unprecedented uncertainty," Dunkin' Brands Group CFO Kate Jaspon says.

"Additionally, due to this uncertainty and the impact of COVID-19 on financial and operational results, we are withdrawing both our fiscal 2020 and long-term growth targets."

Dunkin' US average weekly systemwide sales levelled off through the first four weeks of the second fiscal quarter. The chain says it has seen small increases week-over-week. At the end of March and into early April, Dunkin' US comparable store sales declined approximately 35 per cent. For the week ending 25 April 2020, this decline for open restaurants was approximately 25 per cent.

Approximately 90 per cent of Dunkin' US locations remain open as of 25 April. Temporary closures have been primarily on college campuses, transportation hubs, and in dense urban areas.

Approximately 50 per cent of international restaurants remain open as of 25 April 25, split about equally between Dunkin’ and Baskin Robbins.

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