DNKN - Earnings call transcript Q3 2020

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Dunkin' Brands Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. Please be advised that today’s conference call is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today to Stacey Caravella, Senior Director of Investor Relations. Thank you. ahead. go Please

Stacey Caravella

and operator, everyone. Thank good you, morning,

Today's on Officer, Dave call and for Brands Kate replay. be and webcast Americas, will Executive Chief Dunkin' Jaspon. Officer, Financial Brands Dunkin' Chief is Hoffmann; recorded Murphy; being live Speaking Scott today's call President Dunkin' of

to to the statements Before our included the like earnings to our the during that release Dave, over turn everyone language applies comments in call. made I I'd also call remind on forward-looking

on found of be Our website, mentioned investor.dunkinbrands.com, the reconciliation can release their any with our measures. non-GAAP on along measures financial corresponding call with GAAP

Before I session the over Q&A today. will we like to Dave, turn note that to a call be conducting not I'd

Now to Dave.

Dave Hoffmann

and today. Stacey, Thanks, everyone for thanks, joining

our preliminary October we reached. is will Before we get to to discussions no agreement QX Inspire in release have certainty XX, press results, Brands. held be acquired stated as by be any There that on we

ongoing with the given discussions, has of a Directors to However, dividend. respect no Board action the taken cash

will We or All on terminated. until and are discussions agreed unless right. transaction discussions is a to comment not further

third all our have impacted to And economy, we unrest. global by also the thoughts particular, has global has imagined. challenged The restaurants. are never results. XXXX who U.S. that in on Now collectively faced challenges businesses, could prayers and and pandemic our of have world those with in quarter this been including The pandemic small

quickly consumer of and franchisees metrics growth we landscape operating key single-digit our adapted low the and brands achieved across with alignment revenue licensees, tight through income. and to our However, anticipate changing financial

Dunkin' and in sales same-store U.S. Baskin Robbins. positive both for had we Importantly, the

under initiatives of of have strategic we Blueprint, responsible income, under plan, Blueprint in convenience U. for is ticket Dunkin' to performance including Dunkin' our today's. third S. Growth. have environment, fast over convenient two have faster guest a in operating make for the promise. more For our low-touch of place well and Dunkin' the our hallmarks put is and is years frequency, coffee and great past guests. our a the been the brand plays even more Speed than any long affordable been our quarter that the high our segment XX% result we But working our and business U.S., for

Over past both business. smart we've few and into years, the the made direct U.S. strategic indirect Dunkin' investments,

menu simplification. was first The

While to reduction thing this same-store and right at some knew resulted near-term enable product outset, future to it was do the sales growth. we strategic innovation the in to sales

our And drive-thru franchisees espresso speed in-house tools made and digital and app well. to the on bring we co-invested new and along our equipment as with focused capacity. Next, finally, we investment

strategic describe me of returns delivered Let how during moves each these COVID.

menu attending home. regard customers America's from innovation. upended to First, and school morning has in been with children working ritual

that quickly complement As a the room created like innovation. easy Signature able suited with morning visiting result, to dayparts. and for Minis needed as growth we and they handheld menu, and expand respond day in to Dunkin' snacking to with that food our such Because were premium were for later simplified Lattes. all-day for began We product execute, our Bagel items, menu we afternoon beverages our beverages

Oatmilk Matcha products And this, experience at now, premium you, a guests, And been these in a our equipment. permission you new and to crew our can't delivering franchisees the as can espresso -- home that and year Lattes by had without wouldn't products For than have espresso enabled to I we to well. to Macchiatos replicated well. are as made -- more our be easily stretch tell have these

better digital expectation the improving Next, we through on guest a experience. focused

earlier, speed and enabler and of digital Dunkin' to is As a both. key convenience, I said core are

property next we in intellectual lift would have the third family for way open -- crews great also DBI Among Dunkin. driven the who greater completed the in-house, the previously These am of achievements ability the rest This through than has transformation our Value XX% of our COVID, displayed their app. This proudest Dunkin' participation assets our we our during in our resonated to more than running safe, great, also our They of all our to program. make the on has held have by guests. guests with employed been now, We're During the franchisees, as pricing the purchasing and it Scott sales and we loyalty to. and number their I'll on ever taken digital through times right quarter, goal quarter. us and surpassed guests the a quarter, kept COVID. determination turn updates Scott? over X.X for thing cover line communities first shift about before, the And importance with by to of running Dunkin' able I proudest doing and the and active this the grit year. our learning clearly gave behaviors bring restaurants enrollment paving our the enhancements to loyalty guest of their on U.S. clearly

Scott Murphy

Dave. Thanks,

came Sales ended positive, having years multiple earlier, to each week month, low-single-digits, same-store an were As down October our and with COVID into Blueprint September. Dave July positive Growth mentioned turning then strong our sales the August acceleration worked in We same-store third for low-single-digits. delivered the franchisees. improve U.S. quarter a X.X%. Through with sales with continued Dunkin' at for in foundation, XX, sequentially

accessibility. transformation and a is and evolution, our Blueprint As reminder, menu centered around digital convenience

of Milk and later new simply Caramel It's hot evolution. loves ever to calculated Charlie in cold faster menu a visits marketing. Macchiato, me and and tick Charlie process consumer existing equity an promoted building beverages market our XX-year-old it start drawing we with sweet by keeping our to importantly, Chai before. refreshers, premium-priced consumer. through I'll results, to us, transformed attention And Pink The we're We nontraditional talking product, after and this to a to both, it sensation, Velvet in the through took Lattes, genuinely the great drip menu Demilio, and we a talk of and products, Dunkin' who spot, to brew day. did who risks are Lattes, Let Matcha channel, as Oat with pillar example. American We're new is it Dunkin' expanding with each a a are renamed We younger relevant Dunkin'. beyond through media existing coffee. appeal to her, the And products positioned highly taking QX forefront dialogue. social milk, the relates move our innovation on go Blueprint than

the launched a our Apple were and comfort in sales. Spice, August, menu Cider as such significant We because fall This Signature our products, ever in autumn. also of Latte drove the espresso we donuts average increase knew Donuts Pumpkin than craving, and weekly record for Pumpkin guests earlier sales and

emphasize to all customization bringing social. continue our We're tapping we'll leadership, them into by ahead, and in-store lineup. iced consumer touch texture Looking We're beverages and quality, color flavor. engaging to and a points, younger our and and and across adoption advertising, awareness in leveraging driving

Stuffers. to execute with products, existing menu. roll-ups in product We'll hash which snacking continue We innovation priority. Croissant beverages. And well balance is like We'll to browns roll that highlighting Bagel top a Minis, our easy out our products, to simplicity, pair bring always like news snacking our our operational with will also

refresher, ops day powerful Dunkin going are more example better is We're $X and sales critical for the a innovation and, Our beverage profitable plan part a Value opportunity building of snacking forward, introductory and combination. an transactions. all also our offer.

the value the launch While the the beverage of our by our Dunkin', rollout prior LTO working was to offer implemented not. history. But was in with brand franchisees, already quickly our it in across most refreshers product we resulting in successful COVID, country, plans

completely is system. quality first a We're coffee and expand variety brewers away focus our smart of reduce we're of with our installations. While out our specialty importantly, on evolving our menu those The in brewer blends, business. smart enable not enhance rolled beverages, And hot and our drip expect to consistency, high-volume as have the drip from heritage, most continuing to quarter a waste walking across the us will XXXX. coffee

our are retail our brands XX% we products, perks Sales channels Growth active day. seeing notably, a approximately our XX were truly the trusted of Between convenient to and of Dunkin', guests, or all free we an part on CPG Blueprint third in an brand. times omnichannel for continue the Coffee our increase like coffee, purchase. over eclipsed COVID across million three many look was day we the X.X purchase QX selling year. by quarter And before. want most margin digital to increase transformation. sales, driven in ever be than are most more strong donut easiest, our requiring the up XX% transactions. their We net visits QX, business, a are sales, category to trend. nearly Monday, drip In restaurant of Lastly than in up K-Cups initiatives, XX% we in than space. menu, beverage retail XX% drove more incremental according users, Friday, and and and Consumers versus accelerated offers increase IRI. to in more food requiring Both last a Free CPG

ordering launching daily X% to we day and active by DD in of strongest growth TikTok these demand during five to the push as of customers channel. available. hit accessibility And and continue curbside We in ordering, ordering. point digital weeks on Mobile new have bonus have active easier our offers were the as new increased in users. app well contactless the convenience represents mobile consumer this Charli love. launch More and is features now record transactions, app brands quick one three a the a the as offers through enrollment pulsing partnership, now for they exponentially Dunkin' like record we On-the-go perks purchasing on transactions delivery than the

expanded our area a design. fixture delivery larger more have prominent made X.X permanent footprint with the restaurants area. pickup fueled more in restaurant in to versus grew also to partnership weekly sales In average X,XXX nearly NextGen on-the-go and our Eats. restaurants, In U.S. DoorDash They times Grubhub, and and We existing adding were visuals QX, we're QX. our by shelving pickup Uber expanding

well free national DoorDash's count such as orders $XX. as on than greater delivery and offering promotions free compelling XX As Munchkins

X,XXX our drive-thru significantly are restaurants, restaurants. in more it's our franchisees now the drive-thru non be Non As core an to approximately may work locations to Curbside, drive-thru the We're outperforming continuing curbside with rest particularly sites. option. where in available of activate not markets for with

store development. touch Finally, me let on

kiosks. self-service in profit franchisees our with restaurants. have franchisees to U.S. XXX base by Dunkin' we are we closing volume, asset announced low great teams, Year-to-date, made QX, eliminating locations, with XXX including along our field Speedway scrub As working low our our progress,

closing to add many them restaurants or the next-gen remodels, to whether drive-thru. traffic higher brand, For a these will new capital franchisees, they through restaurants enable building areas into restaurants redeploy can relocating where

third the for quantity, over targets with year-to-date the Dunkin' XXXX units in XX for Speedway total gross new sales. excluding year our initial on our development of U.S. XX franchisees opened are folks units, quarter, openings first net quality Specifically, In keeping exceeding our gross negative closures. new a

drive-thru COVID, and franchisees So are are opening our this to removable new contact' is XXX. during evident. the during restaurant. XX completed as and the we restaurants generating COVID, they for lessons the ones are reconfigured we while number window learned no-touch opening units from NextGen frontline social the of includes both bringing quarter, learnings all faucets, COVID, seating, further to the our options than fewer distancing a encourage now was have third sales our Franchisees 'low power to Leveraging queue. per such total more a the also in year customers a Of higher remodels walk-up overwhelmingly that of remodeled NextGen and remodel due

XX% traditional approximately than portfolio double-digit our markets newer in had restaurants of drive-thru QX. same-store our sales Our locations, of XX% in more growth and

and and We're in We to new system. incorporate options adding the also existing as franchisees technology various low-contact with select line first have digital exterior such safety high-definition speaker outdoor including features, to working test drive-through busting more a accelerated tablets remodels our tests, handheld restaurants. menu boards,

pandemic. Our beverages our With most significant in markets, service everyday rapid West they're have continues the guests concepts value-priced performance growth making of to QX our where be closed, strong everyday innovative, potential, specialty newer supporting and double-digit new a low-contact not during the and we us traffic, but and other discovered the cash-on-cash and options, enthusiasm, franchisee markets, saw positive sales strong In Southwest part comps, ritual. adoption, their returns. beverage highlight digital only

Entrepreneur We've well-capitalized franchise operators, restaurants. franchisees to working field additional been the sophisticated believe is interest brand expansion brand never performance markets. into top Our long-term And recently that enthusiasm seeing our Dunkin' closely named turn potential the we're unchanged. We with are the from our the increased restaurant by in more and teams new about excited were for in and Magazine. newer

still thriving we and is With fast, We our in the a excited are growth focus about are Dunkin' brand. COVID great coffee world, on future. a

and International. partnership That us the strong. Dave? will Dave with pandemic. asset, our that, this it biggest I we to as Our serve franchisees well Baskin cover relationship is emerge back remains turn it I'll U.S. and to know And with from

Dave Hoffmann

Comp trying of these was Okay. launch been up new provided during known consumers is rolling impressive, X.X%. options COVID. a consumption. QX sales Baskin brand achieved looking delivery for performance than the families a particularly improvement sales positive stranger year through sequential XXX% DoorDash times. same-store of our imaginations more last take-home than which another more bringing by year. impressive program, were a sales despite Online Creations over with true were Baskin-Robbins versus and And had of consumers' especially more promotion captured This Thanks, together, for Creature U.S. XXX%. the was delivering at-home escape for families driven during is which fun Scott. traffic-driving items were up as quarter, last from things cakes, people, quarts and has growth and

more trust. of restaurants. than Dunkin' During total, Baskin our years now delivery our the U.S. going they is to a this brands in are Uber environment. with to in Eats XX and we heritage, of as available And added Baskin with Consumers in XX% partner approximately customers delivery quarter, system. X,XXX continues In brand resonate

Okay.

franchisees the QX, strategic awareness, K-pop, collaboration accelerated of critical as our In the curbside has transformation Nutella value, recently International. a in markets, Malaysian estate markets earlier international licensee as our real Dunkin' a app, local offerings. brands in international across we cake as to Middle Korea of in East a is up partnerships, Digital global sales BTS as course, up menu as cream licensees to High- our Golden Scoop, to quarter, offered well. are with plans. international driving And brands pickup are spread many during XX to improvement QX, Baskin-Robbins In to easy to as plays pandemic were in U.S. with delivery our prior investment, versus COVID in innovation with saw last sales. weeks. engagement proving stand referenced the on what and Digital Baskin-Robbins a use as improve same-store discussed Now, and year XX% resilient of ice through both sequential our our continues and similar we well. Scott and, partnered our performing sensation cakes, international role assets, for digital access And such as well sales.

our restaurant and our quarter. of unprofitable Again, are in conjunction the and over closures, tall run both our brands franchisees licensees with is not been licensees XXX the and Our have anticipated which expression. stood few representative Globally, volume for sales through these years, locations, strategic of licensees, true low in work, XXX had really franchisees of franchisees COVID, the international off. and closed paying past brand all third our

Kate, Kate? to cover to turn over And with that, I'll so it our financials.

Kate Jaspon

Dave. Thanks,

of our model solid G&A. operating pleased was to the sales and in positive franchised, asset-light We to Dunkin' than income major Its Dunkin' U.S. U.S. in the reflected our are a very ability growth, milestone. was revenue XXX% business for continued expected our same-store Getting with and faster leverage QX our given recovery business. impact

And Including of U.S. XX% result be an to XXXX in will closely positive negative. a Dunkin' to such New Keep initial population many be New in York now franchisee areas, is City. York many exceed this flow, our As well return where to comps, fully Boston, as corporate thought would average. We of where the Paycheck a cash we have flow have offices Protection we performance the hit coming we're of harder restaurants as of. Program, factoring urban City cash likely mind, urban markets will expect be when expect And year-over-year the of it year. open. in expectation into like we other yet monitoring still that And as small positive.

seen have Therefore, their extending levels. early first a We slight But calendar franchisee many week-to-week still close during primarily recovery with not are they we of year, cash of support, financial sales traffic the on improvements to are flow, to basis, and end relief, the in help through quarter period. stabilize royalty them.

to reinforce in areas networks positioned, franchisee these that ensure hard remains, goal traffic stability when for returns. Our well our of to remain financial the hit they

year for by X%, increased at the This as fees, Now franchise and or due a prior to million of well revenues $X.X million was recognized, locations. Operating increased adjusted variable same as a to decline quarter interest period. balances. quarter decrease primarily as compared offset a X.X% adjusted on the our and sales or to or net from an income. the related increase driven a income a the primarily in our result million $X.X operating to revenue margin a income, last resulting result result current was million Income restaurants, the to as in and deferred by of million operating a income franchise our respectively increase cash decrease increase income and the results, fees in income earned and or tax or an X.X%, operating income Net in $X.X expenses compared the period due income reduced share-based in rental closure This third including well of in fees a an year as quarter to was for -- the leased from and as This third current quarter prior result offset benefits to prior an was financial by for income the strategic third period. in advertising period, of and increase $X.X year This Speedway year the primarily in in $X.X period. in $X.X increases year. tax by $X.X ice cream expense and G&A was in compared decrease the tax increase of the up, in compared third X.X% the million income year income compensation increased X.X% excess the COVID. in and due to as expense spending of million in adjusted increase

by the Third a benefit and and decrease return. income foreign a quarter tax and year to X.X% share compared for the increased per to per period related reflects Diluted in million X.X% upon to and net tax expense of and as credits net our approximately adjusted foreign increases diluted shares respectively, tax a earnings in QX income, $X.XX filing respectively, $X.XX, of XXXX result prior to earnings income also adjusted outstanding. $X.X fiscal share

Excluding respectively. diluted both benefits, $X.XX earnings years adjusted the XXXX, diluted per earnings of lower $X.XX would and by tax quarter for and share and the have recognized approximately impact XXXX third excess of fiscal been share per

advertising in funds the accounts third million held ended million, cash cards quarter Excluding reserved gift cash and United $XXX outside held States. in of of and unrestricted we $XX domestically the million with for $XXX

in $XXX funding under million notes. our capacity available We also have variable

reserve principal restricted includes agreements, of $XX our million, including debt service cash approximately amounts, required debt months under of interest. three As our

ratio Moving third a quarter our the with X.X:X. leverage. We debt-to-adjusted ended EBITDA of to

any other have and don't morning's on sales of financial until release two continue tranches November goes considerations. penalty to maturities XXXX accordingly. well in markets as on the In information to away maturities of fiscal monitor debt some those our the domestic debt closing, in highlight prepayment like so I'd XXXX quarter-to-date reiterate we as we Although, our this to QX

week low-single-digit and U.S. XX, for same-store positive open for As Baskin-Robbins stores of U.S. Dunkin' October were the quarter-to-date high-single-digit sales for positive ended

up royalty depressed of continued networks income. impacted we sales certain million, result provide most in a relief we'll which markets, of will to QX our $X reduce anticipate urban As

basis significantly other G&A While corporate this line we with G&A, third a given we quarter. down travel in remain QX expect be and expenses, on year-over-year reduced to in

employee continues COVID. on have business technologies hold to we projects, and reinstituted certain have resumed to made at recover, As digital put benefits that of we expedite the were contributions onset

relative QX. interest with to expect to for expense income. line XX.X%, foreign for our a we tax tax, We QX QX be rate as favorability our of to result in be expect net approximately And anticipated

the will call to over Now, I turn back Dave.

Dave Hoffmann

Kate. Thanks, Okay.

had to Over transformation of our three execution backs of years, the stood to the proud not two including business and that to of several franchisees communities. well-known tall the and much We guests collaboration and their led crews, mention we strategic of, the accomplished rebranding in their Dunkin'. past be supported creation, COVID iconic plans their our brands, the of have our during for who, segments turn,

principle guiding without are world-class people that strong and of exclusive. licensees, was possible results, been our proving suppliers Our unique two and strong, line over resulted of employees. the bottom profits, this franchisees, group with have top would in relationship None our not and line mutually

on our DBI thank everyone. So, of you. Thanks, family, behalf

End of Q&A

for and call. concludes today's Ladies this you participating. Thank gentlemen, conference

You may disconnect. now

Dunkin Brands (DNKN) 29 Oct 202020 Q3 Earnings call transcript