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Dunkin' Brands Group (DNKN)

Q2 2012 Earnings Call

July 26, 2012 8:00 am ET


Stacey Caravella - Director of Investor Relations

Nigel Travis - Chief Executive Officer, Director and President of Dunkin' Donuts Incorporated

Neil Moses - Chief Global Strategy Officer

Paul C. Carbone - Chief Financial Officer

John H. Costello - Chief Global Marketing & Innovation Officer


John S. Glass - Morgan Stanley, Research Division

Andrew M. Barish - Jefferies & Company, Inc., Research Division

Jeffrey Andrew Bernstein - Barclays Capital, Research Division

Joseph T. Buckley - BofA Merrill Lynch, Research Division

Michael Kelter - Goldman Sachs Group Inc., Research Division

Michael W. Gallo - CL King & Associates, Inc.

David E. Tarantino - Robert W. Baird & Co. Incorporated, Research Division

John W. Ivankoe - JP Morgan Chase & Co, Research Division



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Good day, ladies and gentlemen, and welcome to the Dunkin' Brands Second Quarter 2012 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, Ms. Stacey Caravella, Director of Investor Relations. Please go ahead.

Stacey Caravella

Thank you, operator, and good morning, everyone. With me today are Dunkin' Brands Chief Executive Officer and Dunkin' Donuts President, Nigel Travis; Dunkin' Brands Chief Global Strategy Officer, Neil Moses; and Dunkin' Brands Chief Financial Officer, Paul Carbone, each of whom will speak on the call. Additionally, Dunkin' Brands Chief Global Marketing and Innovation Officer, John Costello, is here, and he'll be available for questions during the Q&A session. Today's call is being webcast live and recorded for replay.

Before I turn the call over to Nigel, I'd like to remind everyone that the language on forward-looking statements included in our earnings release also applies to our comments made on the call. Our release can be found on our website,, along with any reconciliation of non-GAAP financial measures mentioned on the call with their corresponding GAAP measures.

Now, I'd like to turn the call over to Nigel Travis.

Nigel Travis

Well, good morning, everyone, and thank you for joining us on our second quarter results call.

Before I begin, I'd like to recognize the recent management change that we announced in June. Neil Moses, formerly Chief Financial Officer, is now Chief Global Strategy Officer. And Paul Carbone, formerly Vice President, Finance and Strategy, is now Chief Financial Officer. These moves recognize Neil's and Paul's terrific contribution to the success of Dunkin' Brands and also further solidify our world-class management team and position us well for the future. Later in the call, Paul will cover our corporate finance announcements that we made in our release this morning.

While the last few months have certainly been busy, and tomorrow marks our 1-year anniversary as a public-traded company, it seems only like yesterday that we were actually at NASDAQ, saying -- talking about our IPO. But our strong performance this past year clearly demonstrates the platform for growth that we laid out at the time of our IPO. Our asset-light, nearly 100% franchise model continues to generate consistent revenue growth and higher margins. We continue to further our unique asset-light model with last week's announcement that we're closing the Baskin-Robbins Peterborough, Ontario, Canada ice cream manufacturing plant this October, and we'll shift production to existing suppliers. This move will enable us to better support future growth of one of our fastest growing segments, which is Baskin-Robbins International.

Neil, in his role of having responsibility for supply chain, will speak in greater detail on this initiative later during the call. We continue to capitalize on the significant global growth opportunities for both brands and added 140 net new units globally during the quarter, passing the 17,000 restaurant milestone.

At the restaurant level, our component Dunkin' Donuts U.S. unit economics are driving strong and high-quality demand, and our relentless focus on franchisee profitability has resulted in an average of 25% plus cash-on-cash returns for franchisees that opened their restaurants in the past 2 years. Best-in-class product and marketing innovation coupled with strong operational execution by our franchisees and licensees worldwide is driving comparable store sales increases across all 4 business segments. And, of course, all this was achieved against a backdrop of an increasingly challenging economic environment across the world.

Now let's look at our Q2 performance in greater detail. So I'll walk you through our results in order of our strategic initiatives. As we always do, firstly, let's look at Dunkin' Donuts U.S. comp performance.

Dunkin' U.S. delivered a solid 4% comp store sales increase during the quarter. This was driven by growth in cold beverages, innovative Breakfast and Bakery Sandwiches limited time offers and the continued success of K-Cups in our restaurants, with increases in both traffic and ticket across all-day products. The ticket increases were due to increased sales of mix of cold and frozen beverages as well as Breakfast and Bakery Sandwiches.

The cold beverage category was led by both the Men in Black 3 movie product tie-in with Black Cocoa Creme Iced Coffee in May and the national $0.99 Iced Tea offer in April. We continued our very successful streak of highly successful and innovative breakfast sandwich rollouts with our new Breakfast Burrito, which was available in both steak and veggie varieties.

Our Breakfast Sandwiches are a powerful complement to our beverage lineup, and I'd like to remind you that they are nearly as profitable for our franchisees as our beverages. Our new Bakery Sandwich line continues to drive traffic and sales in the p.m. day part, and we added a roast beef sandwich to this lineup in key Northeastern markets, which provided a nice boost to the category in June.

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