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Edited Transcript of DNKN earnings conference call or presentation 9-Feb-17 1:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 Dunkin' Brands Group Inc Earnings Call

Canton Feb 9, 2017 (Thomson StreetEvents) -- Edited Transcript of Dunkin' Brands Group Inc earnings conference call or presentation Thursday, February 9, 2017 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Stacey Caravella

Dunkin' Brands Group Inc. - Director of IR

* Nigel Travis

Dunkin' Brands Group Inc. - Chairman and CEO

* Paul Carbone

Dunkin' Brands Group Inc. - CFO

* Chris Fuqua

Dunkin' Brands Group Inc. - SVP of Brand Marketing, Global Consumer Insights and Product Innovation

* Dave Hoffman

Dunkin' Brands Group Inc. - President, Dunkin' Donuts US & Canada

* Paul Twohig

Dunkin' Brands Group Inc. - President

* Scott Hudler

Dunkin' Brands Group Inc. - Chief Supply Officer

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Conference Call Participants

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* John Ivankoe

JPMorgan - Analyst

* Zachary Schwartzman

RBC Capital Markets - Analyst

* Chris Carril

Morgan Stanley - Analyst

* Andy Barish

Jefferies LLC - Analyst

* Jason West

Credit Suisse - Analyst

* Matthew DiFrisco

Guggenheim Securities LLC - Analyst

* Nicole Miller

Piper Jaffray & Co. - Analyst

* Jeff Prestrunk

Barclays Capital - Analyst

* Sam Beres

Robert W. Baird & Co. - Analyst

* Greg Gould

Goldman Sachs - Analyst

* Matt McGinley

Evercore ISI - Analyst

* Michael Gallo

CL King & Associates - Analyst

* Steve Anderson

Maxim Group - Analyst

* Joe Stauff

Susquehanna Financial Group - Analyst

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Presentation

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Operator [1]

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Welcome to the Dunkin' Brands fourth-quarter 2016 earnings conference call.

(Operator Instructions)

As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Ms. Stacey Caravella. Ma'am, you may begin.

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Stacey Caravella, Dunkin' Brands Group Inc. - Director of IR [2]

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Thank you, operator. Good morning, everyone. With me today are Dunkin' Brands' Chairman and Chief Executive Officer Nigel Travis; and Dunkin' Brands' Chief Financial Officer, Paul Carbone.

Additionally, we have Paul Twohig, who is retiring as President of Dunkin' Donuts US and Canada, as well as Dave Hoffmann, who is taking over for Paul both on the call and both will be available for the Q&A session at the end of the call. We also have Chris Fuqua, Senior Vice President of Brand Marketing, Global Consumer Insights and Product Innovation for Dunkin' Donuts; and Scott Hudler, Chief Digital Officer, both of whom will also be available for questions.

Today's call is being webcast live and recorded for replay. For planning purposes, our calendar year 2017 earnings call are tentatively scheduled for April 27 for our Q1 call, July 27 for our Q2 call, and October 26 for our Q3 call. One additional item to add to your calendars is our next Investor and Analyst Day. It will be held in February 2018, likely in the New York City area.

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

Just a reminder that FY16 was a 53-week year for Dunkin' Brands. We will be referring to our results and guidance targets on both a 52- and 53-week basis. Now I will turn the call over to Nigel Travis.

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Nigel Travis, Dunkin' Brands Group Inc. - Chairman and CEO [3]

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Stacey, thank you very much, and good morning, everyone. And thank you for joining us on today's call to discuss our fourth-quarter and full-year 2016 results.

2016 was the year of significant achievements. For the full year, our franchisees, added 415 Dunkin' Donuts restaurants in the US, excluding the closure of 18 self-serve coffee stations in Speedway locations. We grew Dunkin' Donuts' US comp store sales by 1.6% and achieved our goals of 2% revenue growth and 9% adjusted operating income growth and exceeded our adjusted earnings per share target or the guidance we gave, which came in at 17% adjusted EPS growth and that's all on a 53-week basis.

Before we get further into our results, I would like to take a moment to thank Paul Twohig, who as Stacey said, retires at the end of next month. I would like to thank him for his leadership, his remarkable ability to coach people and of course, for everything he has done for the Company over the past seven years. Among his many noteworthy accomplishments for Dunkin' has been his impact on global restaurant growth.

Since he joined the Company in 2009, our franchisees and licensees have added nearly 4,800 net restaurants around the world for both brands, including more than 2,200 net new Dunkin' Donuts restaurants here in the US alone. We are truly a development machine, thanks, in large part, to Paul's hard work. Paul, we have greatly benefited from your wisdom and insights and wish you nothing but the best in your future endeavors.

Now the responsibility for Dunkin' US passes over to Dave Hoffman, who comes to us with a world-class resume and who has spent the last few months digging into our business, working in restaurants where I'm told he's actually quite good, meeting the franchisees, and understanding our customers. He is making a real difference with his candid and collaborative style with the franchisees. His areas of focus are targeted towards strengthening our core business, whether that's optimizing our more than 4,500 drive-through restaurants, simplifying the menu to improve the guest experience, and expanding our value platform.

Now back to Q4 and FY16. As you know we have undertaken the implementation of a six-part plan to fuel Dunkin's strategic growth in the US and better position us as a beverage-led On-the-Go brand. As a reminder, that plan includes building our coffee culture; faster and improved product innovation; targeted values and smart pricing; being a leader in digital; improving the restaurant-like experience; and driving consumer packaged goods and new channels.

We have great deal of confidence in this plan, particularly because it is rooted in the research we conducted with 10,000 consumers, crew members, franchisees and employees. As I look back on 2016, I would sum it up as the year of accomplishments but, and this is important, we still have not unleashed the full potential of Dunkin' Donuts in the US. And I believe we will.

We know our brand can deliver more growth. Our consumer research clearly indicates that if we focus our efforts, we're capable of being the most beloved beverage-led On-the-Go brand in the country. Not only does our consumer research tell us this but the results of the DD Perks multi-program clearly demonstrates our growth potential.

In 2016, Dunkin' Donuts Perks members, who have been in the program for at least a year, and made purchases both Q4 2015 and Q4 2016, and we always talk about this group as our comp members, that group increased their average weekly spend by 9% year over year. This included more than a couple hundred basis points in traffic growth.

I recognize that most of these are our loyal fans but I see this as an indication of the impressive growth we can drive when we get guests into our digital ecosystem. To that end, I'm pleased to announce that we have now surpassed 6 million DD Perks members, with this group making up more than 10% of transactions in Q4.

During the quarter, we held our first-ever Perks week promotion in November, a week that was dedicated to appreciating and celebrating our most loyal guests with daily deals and special prices and which really drove membership. We also launched On-the-Go Ordering nationally in June, a huge operational and systems accomplishment particularly in a franchise system.

As a reminder, On-the-Go is an offering reserved for our Dunkin' Perks members and enables them to also order ahead and speed to the front-of-the-line in-store. It really is a compelling benefit of Perks membership and in the fourth quarter, On-the-Go made up more than 1% of transactions and hitting a record high of 1.6% of transactions during the first week.

Not surprisingly, the majority of On-the-Go Ordering takes place in the morning hours. And importantly, our data shows that On-the-Go guests visit nearly 45% more than a typical guest. We are just in the early days of On-the-Go Ordering.

Imagine the power this offering can have if we grow exponentially as a percent of sales year over year. It does remind me of my days in the pizza industry, when online ordering as a potential sales, was in the mid-single digits and today, make a change greater than 60%. On-the-Go gives us the power to drive customer loyalty and the power to drive efficiency and speed of service in our restaurants but we are not stopping with On-the-Go Ordering.

We're constantly innovating to make it easier than ever for guests to get their Dunkin' fix. For example, at the end of 2016, we launched a curbside pickup test at a store in Massachusetts. If you place an On-the-Go order using the Dunkin' mobile app, one of the options for picking it up at that store is curbside. We think this could be particularly powerful for locations where drive-throughs aren't feasible or where the drive-through is busy in the morning.

We plan to expand this test in the first half of 2017 and already, we are getting many franchise requests. While we are talking about this still, let's not forget the backbone of our digital ecosystem and that is the DD Card. We're close to $1 billion in system-wide sales using the Dunkin' Donuts Card in 2016, with more than half of that on our mobile device.

Since last year, we have grown mobile payments by nearly 70%. The more we can get customers using the DD Card, then enroll them as Perks members and then get them hooked on the convenience by our On-the-Go platform, the easier it is to keep them from straying to the competition. This all contributes to our speed of service, a key differentiator against the competition and flows to -- flows through to comp growth and with that store level profitability.

Now let's shift our focus to the Q4 comparable-store sales performance. For the quarter, we delivered the 1.9%; in the fourth quarter, ticket was approximately 400 basis points and traffic was negative 200 basis points. Let me break down that ticket number.

In Q4, ticket was comprised of approximately 200 basis points of price in addition to nearly 200 basis points attributable to less discounting year over year. The decrease in discounting was approximately half from the elimination of combo meals on our menu boards which, of course, we're rolling over at the end of February this year. The other half came from having fewer discounted offers in 2016 versus 2015.

For the full year, pricing was about 350 basis points, of which 250 basis points was from actual menu board pricing. This was down from more than 300 basis points in menu board pricing taken in the prior year. In an environment where rising labor costs, it would've been easy for franchisees to continue to take price, but over the past year, we have allocated resources to working with franchisees on what we call smart pricing and talking to them about the impact of price increases.

And as a result of this and of course, our strong relationships, they took price most conservatively than they did in the prior year. This is a big win. For the quarter, Cold Brew, again performed well, driving both iced coffee and total coffee sales. As in Q3, our leader in Q4, was [largely] dedicated to beverages with little resources outside of store POP dedicated to food.

Yet we were still able to grow breakfast sandwiches and donut sales, proving that by leading with beverages, our guests will buy food once they are in the restaurant. Offsetting the growth in beverages on food will continue to decline in restaurant take-up sales. For 2017 and beyond, we're focused on building a portfolio of category-leading beverages, along with complementary and craveable food and bakery offerings while, of course, improving the guest experience.

Yet, as we continue to innovate, we're simultaneously focusing on simplifying our menus by removing some of the complexities that have built up over the years. We want to get a little leaner to run faster. Later this month, we will begin testing a streamlined menu, particularly on the food side in 300 stores across a variety of markets.

Franchisees are really excited about this test and we expect it to drive number of benefits in the restaurants and those benefits include, number one, improve throughput and accuracy as we reduce the complexity of the menu. Secondly, superior service through better execution of the basics required to run a restaurant.

Reduce food cost for our franchisees as we remove some of the slower moving SKUs. Less turnover in our franchisees employee base as we make Dunkin' an easier place of which to work. And the last benefit is ultimately stronger restaurant level sales as we focus our marketing spend and operations activity on core big ideas.

Now, of course, you are going to have many questions on this test. Once we have franchisees who have had the time to study the consumer reaction, we will share additional details of this group.

Lastly for Dunkin', I would like to cover the launch of our ready-to-drink bottled iced coffee which is being manufactured, distributed and sold by the Coca-Cola Company, along with bottling partners nationwide. In January, Dunkin' bottled iced coffee began arriving at grocery chains, gas, drug and convenience stores nationally, and then Dunkin' Donuts restaurants.

I must say the response on social media -- and this was during the Super Bowl, where we did extensive sampling on other channels have been strong. We are very excited about the opportunity for sales in our restaurants and retail. Not only does our entry into the ready-to-drink category [of our sample] has been a more beverage focused brand, it will result in more people drinking Dunkin' Donuts coffee every day.

Let me take you through the numbers. By the end of 2017, we expect to deliver nearly 2.6 billion cups of coffee through thousands of locations in addition to our restaurants with Dunkin' K-Cups, bag coffee and our ready-to-drink bottled iced coffee. Add to that, the almost 2 billion cups of coffee our franchisees and licensees will sell in their restaurants around the world this year for a total of nearly 5 billion cups globally in 2017.

So we continue to expand our CPG product portfolio and exploring the other new sales channels is a critical piece of our strategic roadmap for Dunkin' US. And as an added benefit, our franchisees share in the profits for CPG.

In summary, as I've repeatedly said, our work to transform ourselves into a beverage-led On-the-Go brand will not happen overnight. There's going to be ups and downs in our performance as we work to best position in the brand for long-term growth.

Moving to Baskin-Robbins US, we had a 0.9% comp decline for the quarter. From a category perspective, [custom cones] has had a strong performance, driven equally by scoops and the new warm cookie sandwich platform.

Dessert sales were also up, driven by the new polar pizza platform that launched earlier this year and increases in online ordering. We remain excited about the performance of the brand and optimistic about its growth trajectory. We will continue to focus on meeting customer needs for convenience with expanded digital channels, [delivering] high-quality products and on improving shop operations.

As for our international business, I just returned from Asia, where amongst other things, I attended the opening of our newest restaurant in Beijing, marking our 35th Dunkin' Donuts restaurant in China. I was encouraged to see the progress and engagement of our international franchisees and licensees there.

However, with both brands, we continued to experience negative comps in several key international markets, with discretionary spending by consumers coming under pressure as a result of several factors, including sluggish global economies and currency devaluations. Baskin-Robbins posted comp sales led by strong quarter in Japan -- that was pleasing news. Dunkin' Donuts posted negative comp sales due to poor performance in South Korea, Europe and the Middle East.

On the positive side, we're seeing stronger performance in some of our newer markets and our international franchisees are focused on value offerings, product innovation and digital technologies to make our brands more convenient. We all know that international needs to perform better and the team is highly engaged in making this happen.

Before I hand it over to Paul Carbone, as I complete my eighth year here at Dunkin', I think it's appropriate to look back and reiterate some of the key fundamentals that make our business really attractive. One, our asset-light model produces highly predictable results and industry-leading adjusted operating income margin.

I would like to remind you that 2016, the operating income margin is nearly 53%, which is further strengthened by us now being 100% franchised in the US. So we continue to focus on asset-light model.

Secondly, as we explained last quarter, we have strong franchisee restaurant level returns, driven by our highly ritualistic, high-margin coffee and beverage offerings. Thirdly, we are a growth machine. Just in the US alone, our average yearly produced 8,000 more jobs. Being a growth machine, we have significant whitespace remaining in the USA and of course, overseas.

Fourthly, we have developed a fast growing new revenue source in consumer products and we are excited about that. Finally, and probably most importantly, we have a leadership team that is focused every day on improving our business. Most of all, we have a clear strategic roadmap for Dunkin' Donuts US that gives us great confidence in the future.

In short, ladies and gentlemen, I feel good about where we are heading as business. With that, I will hand it over to my friend, Mr. Carbone.

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Paul Carbone, Dunkin' Brands Group Inc. - CFO [4]

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Thanks, Nigel, and good morning, everyone. Let me start with our store development results for Q4 and the full year. In the fourth quarter, Dunkin' Donuts US franchisees opened up 201 net new restaurants, excluding two Speedway closures versus 164 net new units last year, excluding 41 Speedway closures.

For the quarter by region, 29% of net development was in the core, 29% in established markets, 27% in emerging, and 14% in the West. Those percentages are all excluding the Speedway closures. For the full year, Dunkin' Donuts US franchisees opened 415 net new restaurants, excluding 18 Speedway closures versus 430 net new units last year, excluding 81 Speedway closures.

For the year, by region, 24% of net development was in the core, 36% in established markets, 23% in emerging, 17% in the West. Again, those percentages are all excluding Speedway closures.

In the fourth quarter, Baskin-Robbins US had five net store openings versus 14 net store openings last year. For the full year, Baskin-Robbins US had nine net new openings versus no net restaurant openings last year. Baskin-Robbins international had 41 net store openings versus 24 net store closures last year.

Dunkin' Donuts international had 51 net store openings versus 59 net store openings in Q4 of the prior year. For the full year, Baskin-Robbins International had 206 net store openings versus 55 net store openings last year.

Dunkin' Donuts International had 111 net store openings versus 91 net store openings in the prior year. In total, on a global basis for both brands, our franchisees and licensees opened up 741 net new restaurants, excluding the 18 Speedway closures in Dunkin' US around the world in 2016 versus 576 excluding the 81 Speedway closures in 2015.

Now let me turn to the P&L. Revenues for the fourth quarter increased $11.9 million, or 5.8% compared to the prior-year period due primarily to the increase in royalty income driven by the extra week in the current period as well as an increase in franchise fees due to additional renewal income.

These increases in revenue were offset by a decrease in sales at Company-operated restaurants, driven by a net decrease in the number of Company-operated restaurants. All remaining Company-operated points of distribution were sold during the fourth quarter. Revenues for the fourth quarter increased 1.5% on a 13-week basis.

Operating income and adjusted operating income for the fourth quarter increased $70.4 million, or 161.9%, and $15.3 million, or 14.8% respectively from the prior-year period, primarily as a result of the increases in royalty income and franchise fees as well as gains recognized in the connection with the sale of Company-operated restaurants, offset by an increase in G&A expense. Additionally, operating income in the prior-year period was unfavorably impacted by an impairment of our Japan joint venture. Operating income and adjusted operating income for the fourth quarter increased nearly 150% and 9%, respectively, from the prior-year period on a 13 week basis.

Net income for the fourth quarter increased by $65.1 million to $56.1 million and adjusted net income increased $10.5 million, or 21.4% to $59.4 million compared to the prior-year period, primarily as a result of the increases in operating income and adjusted operating income of $70.4 million and $15.3 million, respectively, offset by increases in income tax expense and interest expense.

Diluted earnings per share for the fourth quarter increased by $0.71 to $0.61 and diluted adjusted earnings per share increased $0.12, or 23.1%, to $0.64, compared to the prior-year period as a result of the increases in net income and adjusted net income, respectively, as well as the decrease in shares outstanding.

The decrease in shares outstanding from the prior-year period was due primarily to the repurchase of shares since the fourth quarter of 2015, offset by the exercise of stock options. During the fourth quarter of this year, we repurchased approximately 521,000 shares at an average price of $48.02. On a 13-week basis, diluted earnings per share for the fourth quarter increased $0.68 to $0.58 and diluted adjusted earnings per share increased $0.09, or 17.3% to $0. 61 compared to the prior year period. At the end of the fourth quarter, we had debt to adjusted EBITDA ratio of 4.6 to 1.

Our effective tax rate for the quarter was 35.5%. During the quarter, we generated approximately $75 million in free cash flow. We ended the quarter with $431 million in cash and short-term restricted cash on the balance sheet and of that $431 million, $178 million represents cash associated with our gift card programs and marketing fund balances. We used $27 million in cash during the quarter to pay our Q4 cash dividend to shareholders.

In our press release this morning, we provided certain targets regarding our 2017 performance. Let me cover those now. We expect low single digit comp store sales growth for both Dunkin' Donuts US and Baskin-Robbins US.

We expect Dunkin' Donuts US franchisees to add approximately 385 net new restaurants. We do not expect significant Speedway closures in 2017. We expect Baskin-Robbins US franchisees to add approximately 10 net new restaurants.

Internationally, we expect franchisees and licensees to add approximately 200 net new restaurants across the two brands. We expect low to mid single-digit revenue growth on both a 52- and 53-week basis. We expect mid to high single-digit GAAP operating income and adjusted operating income growth on both a 52- and 53-week basis.

We expect GAAP earnings per share of $2.16 to $2.24, and diluted adjusted earnings per share of $2.34 to $2 37. We expect full-year weighted average shares outstanding of approximately 93 million and a 38.5% effective tax rate.

With that, I will turn it back over to the operator to open it for Q&A. Operator, please?

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Questions and Answers

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Operator [1]

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(Operator Instructions)

John Ivankoe, JPMorgan.

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John Ivankoe, JPMorgan - Analyst [2]

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Thank you very much. Two questions, if I may.

Firstly, in terms of testing the streamlined menu, obviously it sounds like it's very significant. And Nigel, I know you said you would get a lot of questions and I think you will. Obviously, the brand has been built on choice and built on variety, and it's been built on customization, really something much more than what the brand was 10 years ago. How significant is this streamlined menu? And if it's possible for you to quantify in terms of the items that you're thinking about taking off the menu, what percentage of sales those particular items represent?

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Nigel Travis, Dunkin' Brands Group Inc. - Chairman and CEO [3]

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So that's your first question, is it, John?

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John Ivankoe, JPMorgan - Analyst [4]

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Yes. My second question will be on US unit development.

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Nigel Travis, Dunkin' Brands Group Inc. - Chairman and CEO [5]

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Okay. All right.

Okay, so obviously we say this is a significant test and this came out of the consumer work we did last year. And as I said in the remarks, it's basically on the food side. We haven't started the test yet. We recognize, as you said, there will be a lot of questions. It's going to be very (inaudible). It's going to be very closely managed. We will be obviously looking at food items in both the morning and the afternoon. I think my remarks in many ways covered it. We are in the process of trying to declutter what has been cluttered up for many years. So this is a process.

Dave is coming in. He's all over it. He's been working with the franchisees, so I'm going to pass that to him, because I know he's excited about the opportunities. Dave? Thanks, Nigel.

John, this is all part of my focus on strengthening the core. As you know, this isn't unique to Dunkin'. I think this is common in other players within the industry; complexity creeps in, and then you have to attack it. But this effort is all around reducing complexity to produce better throughput and accuracy, improve employee satisfaction, reduce labor, and improve food costs. All of those things that Nigel pointed out, all with the aim of delivering a better guest experience. So more to come on that. We're not going to go into specifics around sales at this point, but, again, this is all our focus around strengthening the core right now.

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John Ivankoe, JPMorgan - Analyst [6]

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Certainly, the question was, are we talking about items that are 5% of sales, 10% of sales, 3% of sales? There's obviously a big spectrum possibility here and I just wanted to see if you could help us.

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Nigel Travis, Dunkin' Brands Group Inc. - Chairman and CEO [7]

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Chris Fuqua?

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Chris Fuqua, Dunkin' Brands Group Inc. - SVP of Brand Marketing, Global Consumer Insights and Product Innovation [8]

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John, I think it's a good question. We will obviously get more details in the future. We are looking at lower moving SKUs. So we have a lot of products in our stores that move much lower than some of our core categories. We think removing some of the SKUs will let our core categories grow even more.

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John Ivankoe, JPMorgan - Analyst [9]

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Okay, I won't press that anymore.

Secondly, on development, obviously, a very symbolic fact: 2017 is less than 2016, so I wanted you to elaborate on that. And as we think about that trend of development, is 2017 the so-called slow mile that we talked about before? Nigel, do you expect an acceleration from these levels? Or is this the right level of absolute unit openings longer term? Or do you think that the trend actually begins to slope down from here as we get into 2018 and 2019?

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Paul Carbone, Dunkin' Brands Group Inc. - CFO [10]

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Good morning, John.

As we look at 2017, I think we said approximately 385 is a prudent number. We are -- it's in our 4% to 6% long-term growth, certainly to the lower end, but in that range >> <Dave Hoffman - President, Dunkin' Donuts US & Canada - Dunkin' Brands Group Inc.> <hoffmandave>as we've talked about. We think it's a prudent number. I think there are several factors. Top line has been below both our expectations and franchisees expectations. Certainly, rising costs, the returns while still, as we talked about the 2016 cohort, 18% to 20%, below historical. So -- and then there's a lot of uncertainty out there with minimum wage, et cetera. So I think it's a prudent number. I think that as you look in the future, we continue to believe we are in the 4% to 6%.

And it can grow from there, but we are taking again, and I use that word deliberately, a prudent approach to 2017. We're letting Dave and his team do his work on executing the strategies. As Dave has said to us many times, it's -- we are done thinking about this. Now it's time to put this plan and execute. So we feel like it's the right level of development at this point in time and do expect it to grow over time.

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John Ivankoe, JPMorgan - Analyst [11]

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Thank you.

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Operator [12]

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David Palmer, RBC Capital Markets.

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Zachary Schwartzman, RBC Capital Markets - Analyst [13]

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This is Zachary Schwartzman in for Dave.

Do you have quarterly cadence in sales or earnings that is worth pulling out at this point in particular? Your expectation to the up low single-digit Dunkin' US same-store sales in the first quarter? And does this guidance include the potential impact of the SKU rationalization that you're testing?

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Paul Carbone, Dunkin' Brands Group Inc. - CFO [14]

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Let me take that.

First, we don't guide quarterly. So the low single digit cost is a full year and as we go quarter to quarter, part of it is what happened last year and you look at it two years down. But we don't guide quarterly. And then, to your second question, it's a great question. The test that we're doing is about 300 stores. So we don't expect those 300 stores on a fleet of, call it, nearly 9,000, whatever happens in that test to impact our comps on a full Company. Or said differently, our comp guidance incorporates anything that might happen in that test.

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Zachary Schwartzman, RBC Capital Markets - Analyst [15]

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That makes sense. Thank you.

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Operator [16]

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John Glass, Morgan Stanley.

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Chris Carril, Morgan Stanley - Analyst [17]

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Good morning. It's Chris on for John.

I wanted to ask about the smart pricing program. If there's any additional color you could provide on that, that would be helpful. And then secondly, just how generally the acceptance of the recommendations so far informs your view on the comp guide for 2017?

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Nigel Travis, Dunkin' Brands Group Inc. - Chairman and CEO [18]

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Okay, so I will pick-up (inaudible).

Firstly, as I've said, this is a huge win. I'm really pleased with the progress we've made on this. The work is unbelievably sophisticated and well done. And it's been communicated around the country. Chris will give you the details, but franchise, as the second thing is the franchise's understanding and acceptance is, and I want to make this clear, beyond what I was expecting.

Chris?

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Chris Fuqua, Dunkin' Brands Group Inc. - SVP of Brand Marketing, Global Consumer Insights and Product Innovation [19]

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Thanks for the question.

So we basically have a SWAT team of people that we put in place to concentrate fully on pricing. They go out and they work with franchise, or at committee level franchisees on understanding how to make pricing recommendations across all our categories. So rather than doing blanket recommendations like we may have done in the past five years ago or so, today we're doing specific category recommendations. We don't guide on what pricing is going to be overall for our comp guidance in the year, but I think we have a much better idea about where we think our franchisees will go in the future. And we can really help make them more targeted specific recommendations. I'm much more confident. We've worked with some external partners on building the database and we're going to continue to get more sophisticated on this, so it's something that actually becomes a differentiator for us.

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Nigel Travis, Dunkin' Brands Group Inc. - Chairman and CEO [20]

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And I will just add one point. Chris has been so successful, we've now been doing the same thing on the Baskin-Robbins side as well.

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Operator [21]

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Andy Barish, Jefferies.

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Andy Barish, Jefferies LLC - Analyst [22]

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Hello, guys. Good morning.

Just wondering on the full-year earnings guide, below your operating income growth targets and below consensus out there, what are the thought processes behind the 2017 earnings guide at this point?

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Paul Carbone, Dunkin' Brands Group Inc. - CFO [23]

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Let me start with the second half of that question.

It's below consensus; obviously those are your numbers, not ours. But if you look at consensus, I think it's all share comp. As we go into the year, the way we think about this is, we are going to guide on flat share counts to offset dilution. We don't really have additional buybacks in our guide and that happens as we go throughout the year. If it does or does not, we'll update with that. I think if you add back, if you come back to the 93 million shares, I think you get really close to -- our consensus will get really close to our guide.

And then just, is 2017 below our long-term? Yes, it is. But the op income and EPS growth is the output of everything else. So low single digits in Dunkin' US, that's below our long-term guidance comps. So this is again, a year we want to get to reset our core, as Dave talked about, to accelerate comps into the future, development inside our long-term guidance of 4% to 6% at the low end, so again, being prudent. So when I think about the op income and EPS growth, that's kind of the outcome of the business metrics. And on the consensus side, it's a share count, mainly a share count, disconnect between the 93 million that we guided to and what's in consensus.

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Andy Barish, Jefferies LLC - Analyst [24]

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And then, just quickly on the gain in the fourth quarter on the Company-owned restaurant sales -- what was that, approximately?

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Paul Carbone, Dunkin' Brands Group Inc. - CFO [25]

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That was on the P&L, about $3.2 million for the quarter. And I'm happy to report, as I said in the script, we are no longer a Company-owned store business.

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Andy Barish, Jefferies LLC - Analyst [26]

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Thank you very much.

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Operator [27]

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Jason West, Credit Suisse.

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Jason West, Credit Suisse - Analyst [28]

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Thanks.

Just going back to the comments on the CPG business, I believe Nigel, you pointed out that the amount of cups being sold there is somewhat equivalent to the retail business, but the visibility we get on those cups is pretty low. I don't know if you can share any big picture thoughts on the profitability per cup? Or how to think about the value of a cup sold in CPG versus at your retail stores? And if there's ever going to be a little bit more disclosure on some of these agreements you guys have on the CPG side? Thanks.

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Paul Carbone, Dunkin' Brands Group Inc. - CFO [29]

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Let me take that. This is Paul again.

Certainly, I would say a cup of coffee sold in the restaurant is going to be the most profitable for both the franchisee and for Dunkin' Brands. We are a restaurant company above all else. We believe in CPG. We believe in driving people between CPG and the restaurant. But in the end, we will always be a restaurant company first. That is where we will make the bulk of our profit, our revenue, and our profits. As far as disclosing the agreement, I don't think we are going to disclose further on the agreement, but I will tell you, this past year, if you look at other revenue where all the CPG revenue goes, we ended the year approximately $52 million, most of that is CPG. And we expect that to grow mid to high single digits next year, with K-Cup growth and the introduction of RTD, which we are very excited about. And we are going to continue to grow that business with new product introductions, et cetera.

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Nigel Travis, Dunkin' Brands Group Inc. - Chairman and CEO [30]

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I think I will just add one point -- or two points.

One is, this is a business that, in many ways, is relatively new for us. We see opportunities as we go along. I think our partners have done a good job, but we're always pushing them to do even more and get more SKUs, and more facings in supermarkets, for example. The online continues to be an opportunity that we need to grow. If we then talk about the yield, which is also going to add to the agreements, it's one of the things that I think we're pretty good at, is managing P&L. And down the road, we see opportunities to improve it. Remember, every time we improve it, it's not just good for Dunkin' Brands, it's good for our franchisees as well, which is the great thing about sharing relationship. So I would sum it all up: we are excited and we see opportunities and Paul and the team are good doing a great job pushing this business.

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Operator [31]

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Matthew DiFrisco, Guggenheim.

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Matthew DiFrisco, Guggenheim Securities LLC - Analyst [32]

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Thank you.

My question is with respect to the streamlining of the menu and the 300-store test. I was curious also, does that have a meaningful impact on potentially reducing the investment cost? Have you set out a target to reduce that investment cost? I know a couple of -- maybe it was Analyst Day or couple of quarters ago on one of the calls, you mentioned that some of the West Coast returns and development were a little bit hampered by the initial stores that you went into. They beared higher investment costs. I wondered if this streamlining also might help in addressing some of that, that could lead to maybe even stabilization or resumption of faster growth in those markets?

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Nigel Travis, Dunkin' Brands Group Inc. - Chairman and CEO [33]

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Okay so there's a lot rolled into your question. I will try and separate it out.

Firstly, the test, to be honest, has nothing really to do with investments. It's about how to -- Dave went through all the benefits of this: throughput; it's about helping employees have a simpler store because we have a pretty complex store that we want to simplify. But I would think about it in line with the benefits that he spelled out earlier. In terms of the impact; and a little bit of history: when we went out to California, we picked up some sites and some of them were relatively high-priced sites. We talked about that before. I'm pleased we got into the market early. And before anyone else asks a question, we are delighted with California and we've been delighted, I think, on every call we've had for the last four or five quarters; so that's a continuing story. As we go forward, I would like to believe that, as we are the beverage-ready On-the-Go brand, and you take the stores that have drive-throughs, 70% of the business goes through the drive-through.

If you wanted a Nigel prediction, this is in the guidance, a Nigel prediction is: drive-through will continue to increase. I'm really pleased with Dave here, because he's a drive-through expert and he's having terrific value already on thinking about the drive-through. On-the-Go is a real benefit. I think we are going to gradually require less space in our restaurants, which should bring down capital investment. So I would disconnect the test, the simplifying test. I'd focus very largely on the fact that we're a to-go brand, and as a result of that, I think ultimately we will require less capital investment because we will need less space for people to sit inside the store.

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Matthew DiFrisco, Guggenheim Securities LLC - Analyst [34]

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Okay. If you don't mind, I have a follow-up regarding discounting also. Just curious, in light of one of the larger competitors mentioning leading with discounting for breakfast on coffee, how that might impact your outlook for pricing in 2017? Or any tactics that you might take as far as when McDonald's starts discounting more aggressively nationally?

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Dave Hoffman, Dunkin' Brands Group Inc. - President, Dunkin' Donuts US & Canada [35]

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It's Dave.

Just stepping back as a brand, we're going to continue to be about convenience and affordability. And driving traffic is, as you pointed out as well, is a lingering opportunity for us. And taking those two into account, along with what you mentioned around the competitive landscape, not just the company you mentioned, but we've got opportunities to strengthen our national value voice. And so with that, one of the things going into 2017, working with Chris and the franchisees, we saw an opportunity to do this, but we're -- I'm not going to discuss individual tactics at this point in timing, but we've got five new initiatives that we're layering in for 2017. And we are excited about that, because affordability is part of our DNA going forward as well.

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Nigel Travis, Dunkin' Brands Group Inc. - Chairman and CEO [36]

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I think it's fair to say that's been pretty well accepted in all of discussions that you've had with franchisees, as recently as yesterday.

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Dave Hoffman, Dunkin' Brands Group Inc. - President, Dunkin' Donuts US & Canada [37]

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That's right. Franchisees are aggressive and hungry.

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Matthew DiFrisco, Guggenheim Securities LLC - Analyst [38]

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Excellent. Thank you so much.

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Nigel Travis, Dunkin' Brands Group Inc. - Chairman and CEO [39]

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Great. Thanks Matthew.

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Operator [40]

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Nicole Miller, Piper Jaffray.

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Nicole Miller, Piper Jaffray & Co. - Analyst [41]

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Good morning.

Looking at the US franchisees, the ones that are opening, accelerating openings, like in the white space and infill store openings, how is their mood post-election? And is there more of an appetite or is there more optimism for growing a little bit faster with a lower cost model approved, and then some of the streamlining processes that you're talking about?

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Nigel Travis, Dunkin' Brands Group Inc. - Chairman and CEO [42]

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Good question. Probably most of it doesn't have anything to do with the election, but Dave has been out and about talking to franchisees a lot. So, I'll turn it to Dave.

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Dave Hoffman, Dunkin' Brands Group Inc. - President, Dunkin' Donuts US & Canada [43]

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Coming in here, the way I talk about development, the past couple of years, look at -- the slowdown was driven a lot by rising costs and [deficit] sales. I think you just have to throw that out there. We think this has huge upside. We think an environment going forward that would -- if you have government policies that are pro-growth, less regulation and a clean and efficient tax system with some infrastructure spending, we think that's going to be a reason to ignite this. At this point, we've got a balance between -- we've got some internal challenges that we're working through and external upside. And we're confident that the runway for us, not just west of the Mississippi but also east of the Mississippi, is bright in terms of growth.

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Nicole Miller, Piper Jaffray & Co. - Analyst [44]

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Thank you.

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Operator [45]

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Jeff Bernstein, Barclays.

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Jeff Prestrunk, Barclays Capital - Analyst [46]

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This is Jeff [Prestrunk] on for Jeff Bernstein.

So going back to the unit guidance, historically, you've given a range versus this year, you gave an exact figure. So I was wondering the rationale behind that? And then, going forward on G&A, is growing at half the rate of revenue still the right way to think about it? Thanks.

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Dave Hoffman, Dunkin' Brands Group Inc. - President, Dunkin' Donuts US & Canada [47]

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We didn't -- what we said is approximately 385. So I would prefer you think about that not as an exact point. I know it sounds exact to put the word approximately in front of, but we're approximately 385. So we're not giving -- think about that not as a precise number. And then on G&A, yes, I would continue to think about that growing at about half the rate of revenue.

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Jeff Prestrunk, Barclays Capital - Analyst [48]

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Perfect, thank you.

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Operator [49]

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Sam Beres, Robert W. Baird.

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Sam Beres, Robert W. Baird & Co. - Analyst [50]

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Hi, good morning, thanks for taking the questions. Maybe first, in terms of the Dunkin' unit growth in Q4, was there anything specific that may have caused the opening to fall slightly below your expectations? And maybe said differently, were there any factors that just caused some timing shifts from Q4 openings to Q1 openings?

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Paul Twohig, Dunkin' Brands Group Inc. - President [51]

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This is Paul Twohig. When we look at -- go back and look at Q4, we opened over 200 stores in the quarter, which was a pretty solid performance. But admittedly, it was light from where we thought it would be. We missed for the year from our guidance by 15 stores. Were there a couple of things here and there that impacted that? Did I move some contractors in the Southeast because of the hurricane? Did I have some permitting problems? On the margin, there were two or three here and there.

But the thing I would think about is, when you look at opening stores in 2016, the decision to do that was made back in 2015. Some of the concerns about -- or uncertainty our franchisees were looking at from a minimum wage standpoint, labor standpoint, overall business climate, may have caused them to look at things a bit differently or to be a bit cautious going into 2016. Some of those remain unresolved, when you look at California and New York and their minimum wage issues. Again, as Paul spoke earlier about the 385 or the approximate 385, it's a prudent number. The sentiment of our franchisees remain to be very aggressive to grow but they're going to be prudent.

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Nigel Travis, Dunkin' Brands Group Inc. - Chairman and CEO [52]

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I think I will just add to that, the number we did the fourth quarter was actually more -- the most our Company did in the whole year with the exception of one. I remain very firm on the fact that we are development machine. As Paul said, perhaps we missed one or two at the margin, but to develop all those stores in the fourth quarter compared with what everyone else did, I think demonstrates that the development machine is very much still on track.

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Sam Beres, Robert W. Baird & Co. - Analyst [53]

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Great. Thanks. And maybe a follow up.

Paul, would you be willing to share maybe a guidance for interest expense in 2017? And then, as we think about a potential releveraging event over time, what factors would cause you to look at that, whether it's 2017 or 2018 potential timing? And in terms of the interest rate environment, with rising rates, any rate level where you would be more hesitant to do another releveraging event in the next couple years here?

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Paul Carbone, Dunkin' Brands Group Inc. - CFO [54]

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Sure. On your first question, our interest expense for the year is going to be, call it, between $98 million and $99 million. Because it's obviously all fixed-rate debt, and net debt, I'm just giving you current status. We finished the quarter at 4.7 times levered and we set our range is 4.5 to 5.5 and we delever 50 basis points for the year. As we think about it, and this is still the pieces of the Company still returning cash to shareholders, high cash generation and returning it to shareholders. As we look out there, before I get to the interest rate question, we see this time next year we will be down in the 4.2-ish range. So sometime between now and then we think about how we relever.

Additionally, the other thing that factors in there is, we do have four-year bonds. That will be -- they are two years old now. This time next year, it will be three years, and make whole payments will go away. So that's another factor there of refinancing and getting on the cadence of -- we like to have bonds coming due every three to four years in thinking about relevering the Company.

And then on interest rate, everything is fixed. We do see rising interest rates into the future, although as we've seen for many years, the yield curve is never in actual as steep as the yield curve is looking out. That would be number one. Secondly, in the securitization market, those yields move or those rates move much slower than they do in the traditional bank and bond market. But we do look at rates. This is not a rate I can tell you, Sam. Actually, I'm not going to do a relever and why we would. I mean, we look at it and we look at what it does for the Company, but this is a cash flow and return capital to shareholders story and it continues to be.

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Operator [55]

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Karen Holthouse, Goldman Sachs.

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Greg Gould , Goldman Sachs - Analyst [56]

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Good morning. This is actually Greg Gould on for Karen this morning.

As traffic growth has continued to be a challenge, can you maybe just dive into what you think the drivers are? Do you think it's retail weakness and some of the off-peak hours? Maybe frequency declines or customers lapsing? And then, if it is the customers lapsing, where do you think they're going for coffee instead?

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Chris Fuqua, Dunkin' Brands Group Inc. - SVP of Brand Marketing, Global Consumer Insights and Product Innovation [57]

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Traffic is something that I think you've heard a bunch of our industry peers talk about. Overall, traffic is a challenge. We're focused on our six-point plan. We think that one of the key measures of success will be a return to traffic growth. And, like Dave mentioned before, this layer that we're putting in on value, we think it helps tackle some of those traffic challenges. Additionally, as we move more towards a beverage-led On-the-Go brand, we expect to drive traffic with that shift in strategy. I think it's a good question. We are really focused on it, and positive traffic is going to be our measure of success, and we will be able to declare victory when we get there.

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Nigel Travis, Dunkin' Brands Group Inc. - Chairman and CEO [58]

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(multiple speakers) This may be a good opportunity -- you've heard [Paul provide] many years, Dave's been here about four to five months. What's your thoughts, Dave, about how we stand?

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Dave Hoffman, Dunkin' Brands Group Inc. - President, Dunkin' Donuts US & Canada [59]

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Just to add on to your question on traffic, I will dive into the other piece as well. I think there's also -- you have to acknowledge I don't know the science behind that, but you have to acknowledge a fundamental -- also a fundamental shift in consumer behavior with staples -- we are an impulse-driven business. Impulse is going a way of, where you can get that -- a lot of things that you can, staples and things like that you can get online as well. That's where loyalty and digital that you heard upfront in Nigel's speech become such a big play for us. And so again, value is going to be an element of that, to neutralize it. But down the road, loyalty and digital platform, and I would say ours is right there with the best of them in terms of leading-edge.

In terms of just getting back to Nigel's question, I believe those on the call know this, January is my first full month taking over the US business. And I say it's a tribute to Nigel and his leadership team for a well-planned thoughtful transition between Paul Twohig and myself. But, look, I came here because I believe in this brand, our future, and the growth levers that are in front of us. If I had to take those off, the strategic roadmap is solid. The brand positioning of a beverage-led On-the-Go brand is clear, progressive, and forward leaning. We are driving a greater exposure to high growth and high-margin beverages. Like I said, if you listened to Nigel's opening around digital platform, it's leading-edge, what we are doing there. There is a lot of runway in terms of unit expansion. I've got a lot of experience doing that overseas. And we've got a great drive-through advantage in our existing fleet as well.

I think most people forget that we are also the category leader in donuts, bagels, and muffins, and these have great attachments. We're not -- we're doubling down on these particular areas because they have great attachments to what we're doing around beverages. I think the final thing, and this team knows it well, I've been on the road a lot this coming year with our franchisees and their restaurants. And net-net, I leave you with the message that the system is fired up. The franchisees are energized and hungry. We just saw it in some leadership meetings yesterday and they are hungry to drive the business. Everything is pointing north.

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Greg Gould , Goldman Sachs - Analyst [60]

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Thank you.

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Operator [61]

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Will Slabaugh, Stephens.

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Dave Hoffman, Dunkin' Brands Group Inc. - President, Dunkin' Donuts US & Canada [62]

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Seeing how successful the cold brew has been for you, and overall innovation taking place in the coffee segment, should we think about you all being more aggressive in finding additional growth platform opportunities in the future? And then, could you just talk about how you feel about your beverage pipeline in general? Thanks.

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Chris Fuqua, Dunkin' Brands Group Inc. - SVP of Brand Marketing, Global Consumer Insights and Product Innovation [63]

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Yes, we feel great about the beverage pipeline; it's where a lot of our innovation team is spending a lot of time. Cold brew is a great success and we expect more things like that in the future.

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Nigel Travis, Dunkin' Brands Group Inc. - Chairman and CEO [64]

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(inaudible) We're really excited about it. We're not going to reveal all the things about the pipeline.

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Operator [65]

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Matt McGinley, Evercore.

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Matt McGinley, Evercore ISI - Analyst [66]

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Thanks for taking my question.

My first one is on the implied composition in comp into 2017. As you went through the course of the year, price was obviously a key driver of the comp. As you exited the year, you were obviously a lot more disciplined on price, but you didn't necessarily see a step-up in traffic. So the question is, does taking a less price risk the comp growth? Or do you feel that the six-point plan and just reducing price overall will have the impact of driving more traffic in 2017?

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Chris Fuqua, Dunkin' Brands Group Inc. - SVP of Brand Marketing, Global Consumer Insights and Product Innovation [67]

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This is Chris again.

I think we are going to -- the price is going to be a part of our growth in the future. I think the reality is, we were take the targeted strategic price increases. We think a healthy growth is a balance between taking price and traffic growth, and our six-point plan is designed to do both of those. So I wouldn't expect the majority of our growth to come from either side. We need to get to a point where both transactions and price are driving our growth

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Matt McGinley, Evercore ISI - Analyst [68]

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And then, on the store growth for 2017, is the composition on a region basis about the same as what you saw in 2016 for that 385? Or do you have more to shift out into the emerging and West market?

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Paul Carbone, Dunkin' Brands Group Inc. - CFO [69]

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Two things. Again, I'm going to take the opportunity to say we are at approximately 385. Not using a pinhead there on the exact number. And then secondly, we stopped guiding on regional development. We will update you on its quarterly, as we have, but over the long term of the business, to answer, and I know this isn't your exact question, yes, growth will continue to accelerate out West vis-a-vis the core, but we don't do quarterly or yearly guidance on regional development.

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Matt McGinley, Evercore ISI - Analyst [70]

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Okay. Thank you.

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Operator [71]

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Michael Gallo, CL King.

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Michael Gallo, CL King & Associates - Analyst [72]

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Good morning. Thanks for taking my question.

My question is on the repositioning On-the-Go beverage, whether you see any signs if that's changing the mix towards beverage, especially in new markets like West Coast markets? And how you see that evolving in 2017? Thanks.

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Nigel Travis, Dunkin' Brands Group Inc. - Chairman and CEO [73]

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I think what I will say is, one of the reasons we've gone down that way is we see not only an opportunity but we see performance. I would say, not necessarily scientific analysis, in the newer markets, we seem to be getting a higher beverage mix far throughout the day than we did previously. But that's probably due to the fact that we've learned a lot. If I go back and take market [for Phoenix], which, when I came to the business, it was really struggling with fairly low beverage mix, which is the (inaudible) of the total beverage dollars that we look at. That's far astronomically, but we've learned many lessons from those early days. We are applying them to the new market.

I think two things that we used to talk about at the IPO, but they are really important still, is the fact that national media that covers all these markets. If you're in a brand-new market, with one or two stores, you have national media like everyone else. And secondly, one of the benefits of our CPG strategy is that we are developing the face profile for Dunkin' products (inaudible).

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Operator [74]

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Steve Anderson, Maxim Group.

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Steve Anderson, Maxim Group - Analyst [75]

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Good morning.

I wanted to ask [if you realize] your new development goals for 2016. I wanted to ask about your plan to expand within the BJ Wholesale Club. I noticed before the year end you opened about 20 or more stores within BJ's in the New York area. I wanted how that plays in with your development goals?

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Nigel Travis, Dunkin' Brands Group Inc. - Chairman and CEO [76]

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Let me just clarify, development goals of 2016 or 2017?

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Steve Anderson, Maxim Group - Analyst [77]

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It was in the -- that's inclusive in those stores for 2017?

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Nigel Travis, Dunkin' Brands Group Inc. - Chairman and CEO [78]

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Those opened in 2016 and they are in our numbers in 2016 that we reported of a little bit over 200 for Q4. We will have a few more openings of BJ's in 2017 and again, it's in that approximately 385 number.

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Steve Anderson, Maxim Group - Analyst [79]

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Thank you.

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Paul Carbone, Dunkin' Brands Group Inc. - CFO [80]

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Thanks, Steve. I know we are at the top of the hour. There's two more people in the queue, so let's take these last two questions and then we will wrap up.

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Operator [81]

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Joe Stauff, Susquehanna.

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Joe Stauff, Susquehanna Financial Group - Analyst [82]

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Thanks a lot for taking the question.

I just wanted to come back -- you addressed it in various capacities that your ability to grow units, and there have been some factors that maybe have discouraged, or your ability to grow units at that 5%-plus level. And I just wondered, as a potential investor franchisor, isn't the traffic a significant contributor in terms of the return dynamics and the unease with respect to investing and attracting that incremental franchisor? Could you just talk about that? I know you've addressed that you've got the six-point plan, but it seems unlikely your traffic issue is going to correct itself for the foreseeable future. Is that accurate?

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Dave Hoffman, Dunkin' Brands Group Inc. - President, Dunkin' Donuts US & Canada [83]

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So let me start at the end there. So will the traffic correct itself? We have a six-point plan and these guys are working on it. Everything, -- and then making operations less complex, making it a better place to work, so, yes, I think all of that will address the traffic issues. Now to restart it, yes, traffic overall comp performance, right, has been softer then we and our franchisees would expect. That has certainly dampened enthusiasm to open up restaurants. Now, within that, we're going to open up [great and] 4% restaurants next year, so I don't want to overindex -- we're not opening up any restaurants. Again, we're going to open up approximately 385 net restaurants next year. There are a lot of franchisees building a lot of restaurants. But that being said, we get transactions positive and our long term, as we look at our long-term comp goals in the 2% to 4% range, when you get to a 3.5% comp, it's a different story than a 1.6% comp, right?

So yes, I think it's all those things, it's no one thing but comps get better, the restaurant operations get simplified. Guest experience gets better. We focus on beverage-led On-the-Go; I think all these things are going to come together to really drive development.

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Joe Stauff, Susquehanna Financial Group - Analyst [84]

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Okay. I appreciate the response, and I just want to just -- the ability, again, to correct in a meaningful way your traffic declines, call it, roughly 200 basis points this year -- or this past year, I'm sorry, that's something that is still going to take time. When you inferred to it in your previous comments and so forth, is that a fair critique?

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Nigel Travis, Dunkin' Brands Group Inc. - Chairman and CEO [85]

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We've been down this road before. So let me just give some facts. Until the last couple years, we grew traffic every year through (inaudible). Can we get back to posted traffic? Yes. Do we have the plan to get back to posted traffic? Absolutely. I'm probably more optimistic than I was at the start of the year, because Dave's really driving it. He's really focused on the national values that some of you will probably point out and they are right (inaudible). It will take a little bit of time, but I'm more optimistic than I was last year. And I want to point out something that Dave said: if you look at just about everyone else in our industry, there is negative traffic, and that includes in the coffee and bakery segment. I think if you look at our traffic, we outperform many of those other companies.

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Operator [86]

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Matthew DiFrisco, Guggenheim.

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Matthew DiFrisco, Guggenheim Securities LLC - Analyst [87]

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Thank you. I appreciate the second question.

With respect, I don't think I heard it on the call: did you guys mention a percent of sales done on mobile order and pay? And I was just curious, is potentially the streamlining also a benefit that might help unleash maybe even more greater flowthrough on the mobile order and pay before it would potentially be, call it, a bottleneck problem at some of those stores? Just curious if that's in the back of your minds also as you test this through the 300 stores?

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Scott Hudler, Dunkin' Brands Group Inc. - Chief Supply Officer [88]

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Matt, it's Scott Hudler.

We did [call it], and it's about 1% of sales from mobile ordering. We think it's an absolute unlock for making the restaurant experience better. So you can have that experience where you can order outside of the restaurant, come in, speed past the line, and get your coffee and food items. We think that's a huge unlock. We will be looking at that as we tie into the streamlined menu in that 300 store test. But we think we are in very early days still. We've only had mobile ordering available for a little over six months. We think we're just scratching the surface, and we feel like we built our program and the delivery of it in the restaurant to avoid some of the bottlenecks that you may have been hearing about. I think what we have planned for the future, this is a real focus of ours, is making that experience even better as it scales to become 3%, 4%, 5% of sales in the future.

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Nigel Travis, Dunkin' Brands Group Inc. - Chairman and CEO [89]

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Thank you, everyone, for coming to listen to us today, if you're surrounded by snow, like we are. I want to say I think we had an excellent year. I want to pick up on what Scott said. We have all this technology installed in a franchise system. We are excited about that, as Scott was just describing. Other companies sometimes do it in their Company stores but they don't do it in their franchise stores. We've done it right across our store base. I think we had an excellent year in 2016. I think we have a wonderful plan that's been validated by consumer insight. I want to comment, I spent most of the middle of last summer recruiting [and moving] for Dunkin' US and it took a lot of time and it's been worthwhile. Dave has added new energy that is compelling to our business.

We are in great shape as we go into 2017, and we look forward to talking to you again soon. Thanks.

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Operator [90]

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Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a wonderful day.