NEW YORK (TheStreet) -- New York State Governor Andrew Cuomo's success in pushing through a hike to the minimum wage to $15 an hour has at least one major fast food chain considering some major changes.
"I think what particularly disappoints us here is that not only was the fast food industry singled out, but the governor chose to skirt the legislature by appointing a wage board that didn't have a representative from our industry to make recommendations about increases to the minimum wage," said Dunkin' Brands (DNKN) CEO Nigel Travis in an interview with TheStreet.
Travis, who said he wrote the governor to no avail, added "the decision targets franchisee businesses" that are run by "people that generate jobs." Dunkin Donuts has 576 locations in New York City and over 1,400 in New York site, most of which are franchisee-owned.
The longtime Dunkin' Brands CEO noted the fast food industry is where many young Americans get their start working. "What's going to happen is that youth unemployment is, in my view, going to become worse because there will be pressure on franchisees to cut back."
Travis' comments come on the heels of a major win for Governor Cuomo and the "Fight for $15" protestors, who have taken to the streets across the country demanding higher hourly wages.
On Wednesday, a panel appointed by the governor recommended that the minimum wage be raised for employees of fast-food chain restaurants throughout the state to $15 an hour over the next few years. Wages would be hiked more quickly in New York City than in the rest of the state to adjust for the higher cost of living.
The current state minimum wage if $8.75 an hour. The panel's decision on minimum wage adds New York to a list of other regions, such as San Francisco and Chicago, that have sought to jack up minimum wages for fast food workers.
Raising those hourly wages will come with several consequences, at least in the case of Dunkin Brands.
According to Travis, Dunkin is working with franchisees to find ways to mitigate the serious wage inflation. One way is through menu price increases, which could make a cup of morning Joe more expensive. Other options include sourcing goods more cheaply, moving people from credit and debit cards to mobile app ordering (which is cheaper for franchisees), and simplifying processes.
At least for the time being, the minimum wage debate, and looming increases in New York, did not prevent Dunkin Brands from dishing out strong second quarter sales and profits. Net sales came in at $221.5 million, surpassing the $204.2 million consensus. Earnings tallied 50 cents a share, higher than the 48 cents a share forecast by analysts.
Shares of Dunkin' Brands fell by about 3% in early morning trading, however, as analysts were looking for the company to lift its full year sales and earnings guidance. Instead, it simply reiterated its same-store sales and profit projections.
In large part, the quarter's strength was fueled by Dunkin Donut's U.S. business, where same-store sales rose 2.9% on the back of demand for new hot and iced beverages and breakfast food, such as a flatbread with eggs and guacamole.
And in a nation of calorie counters, Dunkin Donuts U.S. still managed to notch its 19th straight quarter of sales increases in donuts. "Donuts are in vogue, and are the most favored attachment to all of our products," pointed out Travis. The sales result for Dunkin Donuts U.S. stores marked an improvement from the 2.7% gain seen in the first quarter, as traffic to Dunkin's restaurants bounced back following the impact of wintry conditions in the Northeast.
Meanwhile, ice cream maker Baskin Robbin's U.S. same-store sales increased 3.4%, slightly eclipsing the 3.3% gain analysts anticipated, as online cake sales surged 75% year over year in the quarter. Dunkin's international operations were a sore spot, however.
Same-store restaurant sales at Dunkin Donuts and Baskin Robbins international stores both declined, and fell short of forecasts looking for modest sales increases. Execs pinned the blame on continued challenging conditions in South Korea and Japan.
McDonald's is reportedly looking to roll out all-day breakfast nationwide this fall, but that doesn't have Dunkin concerned.
"We have all day breakfast anyway, we have been marketing it very heavily," said Travis, adding "We don't have McDonald's problem; we don't have a completely different set of menu items that we have to manage at the same time."
Travis noted that Dunkin Donuts has several new breakfast sandwiches set for release later this year to compete with McDonald's.