Dunkin’ Donuts’ emphasis on beverages is paying off, parent company Dunkin’ Brands Group Inc. said Tuesday, citing iced coffee and Frozen Dunkin’ Coffee as key drivers in recent same-store sales gains.
The Canton, Mass.-based company also reinforced the success of its morning-focused strategy and said it now looks to increase traffic throughout the day.
“Morning comparable-store sales increased each quarter sequentially, and we had our highest quarterly beverage comparable sales of the year in the fourth quarter of 2017,” chairman and CEO Nigel Travis said in a statement.
“Our strategic focus on morning sales yielded improved customer counts in that critical daypart during the last three quarters of the year, and we are actively working to drive afternoon traffic through p.m. beverages and food along with all-day value offers that kicked off in January,” he added.
For the fourth quarter, ended Dec. 30, 2017, same-store sales at domestic Dunkin’ Donuts restaurants rose 0.8 percent, matching expectations. At international Dunkin’ Donuts restaurants, same-store sales were up 1.6 percent in the period. Sister brand Baskin-Robbins saw domestic same-store sales rise 5.1 percent in the quarter, and 3.0 at international locations.
Dunkin’ Brands’ net income for the quarter more than tripled to $195.5 million, or $2.13 per share, the company said. Quarterly revenue increased 5.3 percent to $227.1 million, beating analyst expectations.
For the full year, domestic same-store sales grew 0.6 percent for Dunkin' Donuts and were flat for Baskin-Robbins in the U.S. Full-year net income was $350.9 million, or $3.80 per share, and revenues were $860.5 million.
“2017 was about reclaiming our leadership in the morning,” said David Hoffman, Dunkin’s president of U.S., during the company’s earning call. “2018 will be a year of foundation setting — simplifying our menu, improving the restaurant experience, rolling out a superior restaurant back office system, and building back up our innovation pipeline. At the end of it, you will see a stronger more focused Dunkin’.”
Hoffman said the company has faced struggles so far in 2018, including the cold and snowy January, minimum wage increases, greater competition for talent and “value war among QSRs fighting for market share.”
But gains from the recently-passed tax reform would be a bright spot, he said.
The company said it expects its 2018 effective corporate tax rate will be approximately 28 percent, down from 38.5 percent in 2017.
Travis added that the tax reform includes “provisions that we expect to be favorable to a majority of our franchisees.”
Analysts had concerns, however, citing fierce competition in the beverage space.
“We believe that intense competition remains one of the most important challenges that Dunkin’ continues to face in the U.S.,” Nomura analyst Mark Kalinowski wrote in a report. “McDonald’s U.S. raised its beverage game during 2017. Starbucks — while not having a brand and customer base that exactly overlaps Dunkin’ — should still be viewed as a rival.”
“Finally, we believe several convenience store chains have improved their beverage offerings in recent years, particularly when it comes to coffee and coffee-based beverages. All of this combined makes it tougher for Dunkin’ U.S.,” he said.
At the end of the fourth quarter, Dunkin’ Brands' Group Inc. had than 12,500 Dunkin’ Donuts restaurants and nearly 8,000 Baskin-Robbins restaurants.
Contact Gloria Dawson at [email protected]
Follow her on Twitter: @gloriadawson