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Dunkin Brands Group Inc (NASDAQ:DNKN)

Q2 2013 Earnings Call

July 25, 2013 8:00 am ET

Executives

Stacey Caravella - Director of Investor Relations

Nigel Travis - Chairman and Chief Executive Officer

Paul C. Carbone - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

John H. Costello - President of Global Marketing & Innovation

Analysts

John S. Glass - Morgan Stanley, Research Division

Jeffrey D. Farmer - Wells Fargo Securities, LLC, Research Division

Michael Kelter - Goldman Sachs Group Inc., Research Division

Joseph T. Buckley - BofA Merrill Lynch, Research Division

Jeffrey Andrew Bernstein - Barclays Capital, Research Division

Andrew M. Barish - Jefferies LLC, Research Division

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

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

Matthew J. DiFrisco - Lazard Capital Markets LLC, Research Division

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

Will Slabaugh - Stephens Inc., Research Division

Stephen Anderson - Miller Tabak + Co., LLC, Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Dunkin' Brands Inc. Second Quarter 2013 Earnings Call. [Operator Instructions] I would now like to introduce your host for today's conference, Ms. Stacey Caravella, Director of Investor Relations. Ms. Caravella, please begin.

Stacey Caravella

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

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

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

Nigel Travis

Stacy, thank you, and I'd like to thank everyone for joining today's call to discuss our second quarter 2013 results. We had another strong quarterly performance with 5.9% revenue growth, 15.5% adjusted operating income growth and 24% adjusted earnings per share growth.

Our performance in the second quarter was driven by strong comparable store sales and net unit development for Dunkin' Donuts U.S.A. Innovative marketing and new product innovations, as well as a focus on delivering a great customer experience, continues to deliver attractive franchisee returns and exceptional results for Dunkin' Donuts in the U.S. We feel particularly good about comp store sales for Dunkin' in the U.S. in Q2 after a challenging first quarter, during which the business was significantly impacted by bad weather.

Additionally, we continue to see significant interest, and I mean significant interest, in restaurant development for Dunkin' Donuts in this country. And for the second consecutive quarter, Baskin-Robbins U.S. experienced positive net unit growth. And now on the international front, we continue to build the foundation for the long-term growth for both brands.

Going into the second half of the year, we are confident in our business prospects and are steadfastly focused on delivering profitable store growth both for our franchisees and shareholders.

Now let us talk about our comp sales performance globally for both brands, and I'll start in the U.S.A. Dunkin' Donuts U.S. business had a strong quarter, delivering a 4% comp store sales increase in Q2. It marked the eighth consecutive quarter of 2-year comps that were 8% plus.

In Q2, we saw healthy gains in both traffic and tickets and increases in both the number of units per transaction and the price per unit. Ticket growth was slightly higher than the traffic growth during the quarter. Our franchisee took very little pricing in the quarter, in fact, less than 100 basis points. So the majority of our ticket growth came from consumers purchasing higher-priced cold beverages and differentiated sandwiches.

We also saw gains in the morning and afternoon dayparts as we expand our menu offerings through differentiated limited time and permanent offerings. We continue to see wide-ranging competition in all regions, sustained economic uncertainty and evolving challenges on the regulatory front, but we believe that our continued growth despite these headwinds reflect the strength of our overall business model and our plans.

Let me now talk about our performance across product categories. We had very strong beverage sales growth during the quarter. These gains were driven by our cold beverage platform, such as Iced Coffee, Frozen Coolatta and iced tea, as well as gains in our specialty coffee, espresso and hot tea categories.

The introduction of Baskin-Robbins inspired flavors brought new and incremental traffic to both coffee and espresso products, while the $1.99 small Coolatta promotion, combined with the introduction of the Berry Blast, Minute Maid and Hot Chocolate Coolatta, drove the frozen business.

Our breakfast sandwich business once again delivered very impressive results. We expanded the Turkey Sausage Breakfast Sandwich nationally in May, and the product remains tremendously successful. By the way, that's the one I have every day. At less than 400 calories, it appeals to both our more health-conscious consumers, as well as anyone who wants a great-tasting breakfast sandwich. We also saw a very strong gains in our core sandwich line as the limited time offer messaging spurred repeat trial by our guests of existing favorites as well.

We had our most successful National Donut Day on record, both in terms of sales and press coverage, and the day-long celebration, accelerated the momentum that we already had in the donut category. Coupled with the introduction of the now famous Glazed Donut Breakfast Sandwich and the launch of lemonade and Key Lime donut, National Donut Day was truly a hit and demonstrated the unique consumer buzz that Dunkin' Donuts generates.

We're very excited about our afternoon traffic -- I've lost my point in the script. Just one second. Here we ago. We're very excited about our afternoon traffic and the sales growth in -- as we continue to expand our offerings in the snack and sandwich category. The introduction of the Chicken Salad and Tuna Salad Wraps and the launch of the new chicken sandwiches both exceeded our expectations and are further examples for growing outside of the morning daypart with products that build on our bakery heritage.

We continue to be very excited about our product pipeline, which, of course, we showed investors on our Investor Day. And of course, that is a major contributor to our above-industry comps. In July, we launched our Hot & Spicy Breakfast Sandwich, another differentiated breakfast sandwich LTO. And next week, we will launch the Pretzel Roll Bakery Sandwich.

Total K-Cup sales experienced mid-single-digit growth versus the second quarter of last year. However, K-Cup comps declined slightly. And that decline equated to about 1 fewer box of K-Cups per store per week. Now while this is disappointing, it did not have a meaningful impact on our overall comp performance. We continue to have a very strong K-Cup comps in new markets where the number of points of distribution is low and the demand for the brand is high. And we continue to believe that K-Cups will provide a critical boost to unit economics in our strategic growth markets.

We launched Iced Coffee K-Cup in July and additional media on K-Cups. And we continue to be very excited about the category, so much so that this morning, we announced that we have extended our promotion, manufacturing and distribution agreement with Green Mountain Coffee Roasters through February 2016. We are pleased to extend our partnership with GMCR and look forward to continuing the highly successful Dunkin' K-Cup program.

We also achieved some major milestones in digital, social and mobile technology during the quarter. We now have more than 10 million Facebook fans, a number that continues to grow at a very healthy pace. We launched our first Vine promotion on Vine Twitter that encourages users to submit videos that demonstrate their passion for Iced Coffee. This is significant as data shows that guests who have followed us on social media channels are more engaged and loyal to the Dunkin' brand.

And we now have digital menu boards in more than 600 restaurants, and that's divided between new restaurants and remodels and franchisees who have opted to install them prior to the remodel requirement. We have many franchisees also planning to add them, demonstrating that they feel there is a very strong business case for digital menu boards versus the traditional static version. I should also add, we're now doing the same on the Baskin-Robbins side of the business.

We launched an updated version of the Dunkin' app, introducing a new language setting that enables users to view content in English or Spanish. With the new setting, we became the first national coffee retailer to make information, features and special offers within its mobile app available in both languages. And we ended the quarter with more than 3 million app downloads.

We're also very pleased with the Baskin-Robbins U.S. comps for the second quarter. After a challenging first quarter, Baskin-Robbins U.S. finished the second quarter with a positive 1.6 comp store sales growth. Our Flavor of the Month lineup in the second quarter, which features Jamoca Heath, Blueberry Shortbread and Triple Vanilla, along with the return of popular seasonal rotators like Baseball Nut and Pink Bubblegum drove strong growth in our core hard scoop ice cream category. We also had solid cake sales around Mother's Day, Father's Day and graduation season. We ran both the limited time flavor offer in pre-packed quarts and a special 2-quarts for $9.99 offer that helped bring attention to the take-home category.

Lastly, we held a successful national 3-day guest appreciation event in late April that was well received by guests and which our franchisees used to jumpstart the prime selling season.

Once again, I want to tell you that I am, and we all are, very encouraged by the turnaround of Baskin-Robbins domestically and continue to be excited about the progress the brand is making on its path to growth.

Now let me switch to international. Earlier this month, I visited Baskin-Robbins and Dunkin' Donuts restaurants in the 8 countries in the Middle and Far East and had the opportunity to meet 50 international franchisees and licensees. It was an incredibly informative trip, and I returned home invigorated about our opportunities for both brands outside the U.S. We have a lot of work remaining to do, but I am convinced that with the right investments and support for our partners, we have the potential to build a really strong international business for the long term.

I was especially excited about the Middle East, which is a region of great strength today but also has tremendous opportunity remaining. And the other place I was particularly excited about was Vietnam, where we're just getting started with both brands. Back in the Middle East, I was pleased to attend the opening of the 650th Baskin-Robbins location in the region.

In Southeast Asia, we have franchisees who have been with the brands for decades and have strong profitability despite the low average weekly sales. And I know that's a question we often get, with our low weekly average sales, how do they make money? These guys make a lot of money. And in China, I feel we're making the changes needed for the long-term success in that country for both brands.

Baskin-Robbins International had a 2.6% comp store sales growth in the second quarter. Cold weather at the beginning of the quarter in many of our core markets, which are, of course, the Middle East, Japan and Korea, slowed momentum heading into the summer. Cake innovation remains the focus for Baskin-Robbins International, and it helped to offset some of the weather impact.

Japan launched the Piece Cake. Now I just want to remind you what the Piece Cake is. It's not actually available in this country, but the Piece Cake is a variety of flavors. It's cut up, so you don't have the same flavor all the way through the cake. We had huge success at the end of last year over Christmas in Korea. We moved it to Japan, and they've had, as I said, tremendous success, and it now represents more than half of truffle cake sales in that country.

In the Middle East, our partners launched new marketing activity focused on everyday cake occasions and doubled the number of cakes sold per store per day. Despite the colder weather, Korea had another great quarter in Baskin-Robbins, and led the segment from a regional perspective, operational focus, unique innovation and strong marketing activity all helped to produce great results in Korea.

The cooler weather also impacted the Dunkin' Donuts International business, which had a negative 1.7% comp store sales decline in the second quarter. The weather impact was primarily felt in Korea where some of the beverage sales suffered. Korea represents 45% of the segment sales and was also rolling over record temperatures in 2012.

Our partners in Korea, India and Spain rolled out a new Frozen Dunkaccino product line, which is helping to grow the frozen beverage category in these markets. Now those markets, of course, were impacted by weather in the near term, but we believe it's an important sales and profitability driver for the business in the long term. It's an example of providing a more consistent experience for our guests globally.

Digital, social and mobile technology is just as important internationally as it is in the U.S. We've rolled out our digital menu boards for Dunkin' International franchisees as the standard for the brand globally, and we're seeing very high acceptance of them around the world. Social and mobile are gaining traction, and we recently launched global Facebook page design, and Korea executed a successful test pilot of the mobile app that's now rolling out to all stores in Seoul. If you haven't seen it, it's kind of cool. It actually wakes you up in the morning and gets you to the store with your breakfast menu.

I feel very good about the health of the business overall. The U.S. businesses have rebounded nicely from challenging weather in the first quarter. Franchisee profitability remains at an all-time high, and franchisee sentiment is very positive. Our U.S. restaurant operations have never been better, and we continue our track record of outstanding product and marketing innovation globally.

I'm now delighted to turn it over to Paul, who will discuss our restaurant growth globally and also our financial results.

Paul C. Carbone

Great. Thanks, Nigel, and good morning to everyone on the call. First, I'd like to share exciting news about our expansion into California. In January, we announced that we're beginning to sell store development agreements, or SDA, for Southern California. We've had an overwhelming response by prospective franchisees interested in opening Dunkin' Donuts restaurant in California and are delighted to welcome the first 3 franchise groups to the Dunkin' Donuts family. The first 3 SDAs represent 44 stores, and we sold one to an existing franchisee with restaurants here in the Northeast and 2 to franchisees new to the Dunkin' system. These franchise groups are committed to each build between 10 and 18 stores. This is an important milestone in our Westward expansion, and we look forward to the first Dunkin' Donuts opening under these agreements in 2015.

We're also excited to announce that the first nontraditional location may open by the end of this year by a couple of existing Dunkin' franchisees at the popular historical -- historic travel center on Route 66 in Southern California.

But California isn't the only development news for Dunkin' in the U.S. In May, we unveiled the new restaurant design for our stores, the brand's first in nearly 7 years. The contemporary new look provides an exciting update for the restaurant appearance and layout, reflecting our evolution from a morning destination into a brand that serves people all day long. This new design called Fresh Brew incorporates many of the new features to enable speed of service in the morning and to create a warm environment for guests who seek a longer, more relaxed visit to Dunkin' Donuts.

This includes more inviting seating areas, convenient electrical outlet and bar top areas for smartphones and computers, all of which go well with the free Wi-Fi that the majority of our major restaurants now offer. The new design includes 4 distinct options for franchisees to choose from, each featuring variations in layout, color schemes, graphics, textures and furniture. You can find pictures of the new design on our franchising website, dunkinfranchising.com.

And we recently celebrated the opening of our 500th of Dunkin' Donuts store in the New York City area. Located in Times Square, the new restaurant, a Dunkin' Donuts/Baskin-Robbins combo is in our new restaurant design and looks spectacular. We're proud to say that we have more locations in the 5 boroughs in New York City than any other retailer.

Now let's talk about Dunkin' U.S. net development for the second quarter. Our franchisees added 63 net new Dunkin' Donuts restaurants in the U.S. during the quarter versus 19 during the same period last year. Of the 63 net opening, 24% were in the core, 37% in established, 24% in emerging and 16% in the West. Once again, more than 90% of the growth was with existing franchisees. Our franchisees also completed 141 remodels during the quarter. This growth was a result of strong unit economics of our Dunkin' U.S. restaurant, the details of which we shared at our Investor Day in May.

Our growth in the first half of the year was primarily in traditional locations. Year to date, traditional net openings represent more than 80% of the locations that have opened. This compares to 60% at the same time last year. For the full year, we expect that traditional net openings will represent approximately 90% of the net openings versus 60% in 2012.

Additionally, in the emerging and West regions, a 100% of the traditional growth opening year to date have a drive-through. And for the full year, we expect 90% of the traditional growth opening in the emerging and West regions to have a drive-through.

In addition to the California deals, which we spoke about earlier, we sold multi-unit store development agreements in markets such as Detroit, Rochester, New York, and several markets across Southern Texas. I think it's important to point out here that while the California news is very exciting, we still have tremendous growth opportunity east of the Mississippi and even still in our established markets. We believe we can add another 3,000 stores east of the Mississippi, in longer term, 5,000 Dunkin' Donuts locations West of the Mississippi, although it will be many years before the West region represents the majority of our restaurant development.

We continue to be very excited about the quantity and quality of demand for the brand from both new and existing franchisees. As we stated at our Investor and Analyst Day back in May, we expect to end the year at the top of our guidance range of 330 to 360 net new Dunkin' Donuts restaurants in the U.S.

And before I move on to Baskin-Robbins in the U.S., I'd like to provide an update on the progress by our franchisee owned and operated, purchasing and distribution cooperative, or the NDCP, towards flat national pricing across the U.S. And as a reminder for everyone, we're referring to the cost of goods to the back door of every Dunkin' restaurant in the United States. We're halfway through our 3-year journey to flat pricing with the NDCP. We are on track to have a single unified order guide for franchisees with consistent product cost delivered anywhere in our U.S. system, providing dramatic relief and attractive unit economics as we expand westward.

We continue to see reductions as recently as last month in Southwestern and Southeastern markets to bring them more in line with the core markets. These Southwestern markets are about 375 basis points of benefits to COGS in 2012. And it realized another 100 basis points so far in 2013, and we expect an additional similar amount by year end. The NDCP has achieved these savings through RFPs, spec optimization and other strategic sourcing and operational improvements in the supply chain. On top of it, the NDCP appointed a new CEO who we believe will bring the efficiency to the organization to a new level.

And now let's turn to Baskin-Robbins U.S. developments. Baskin-Robbins franchisees added 5 net new units during the second quarter, which was flat to last year. This result marked the second straight quarter of positive net development for the BR U.S. We continue to target negative 30 to flat net development on a full year basis for 2013, which will be flat to slightly up from last year.

Baskin-Robbins International added 50 net new restaurants versus 87 last year. Growth was primarily in the Middle East, Japan and Korea. Development was down year-over-year, primarily driven by some additional closings this year in both India and China. And Dunkin' Donuts International added 33 net new restaurants versus 29 last year. Growth was primarily in the middle East and Korea.

So now let's turn to Dunkin' Brands financial results. Revenues for the second quarter increased 5.9% compared to the prior year, primarily from the increased royalty income from the increase in systemwide sales, as well as increased sales of ice cream products.

Operating income for the second quarter increased $30.7 million or 66.6% from the prior year, primarily as a result of a $20.7 million increase in the vertical litigation reserve in the prior year. The increase also -- the increase from royalty income and a gain recognized on the sale of 80% of our Baskin-Robbins Australia business.

As a reminder, back in March, we announced plans to enter into a master franchise joint venture with the Galadari Brothers, a long-time Baskin-Robbins licensee for the Middle East, to open up approximately 200 additional Baskin-Robbins restaurants in Australia over the next 10 years, more than tripling the brand's presence in the country.

We have reinvested much of the gain on the sales back into the international business as we have done before. This was offset by a onetime $7.5 million charge in the second quarter related to our agreement with the franchise-owned supply chain, the NDCP, regarding sales of cooler beverages. This agreement included a guarantee by Dunkin' Brands that our franchisees would achieve a certain level of cooler beverage sales in Dunkin' Donuts restaurants, with any shortfall achieving this levels triggering a payment to the NDCP equivalent to a percentage of the deficit.

Total cooler beverages sales are down versus prior year for a number of reasons, and we will not achieve the sales target. After 9 months of the measurement period, we have seen improvement in sales, but we do not believe we will achieve the target, and therefore, have accrued for the guarantee in the second quarter.

Adjusted operating income increased $12.2 million or 15.5% from the second quarter of 2012, also as a result of the increase in royalty income and the gain from the Australia sales. Net income for the second quarter increased by $22.3 million or 120.6% compared to the prior year as a result of the $30.7 million increase in operating income, offset by a $4.4 million increase in income tax expense and a $3.2 million increase in interest expense due to the $400 million increase in our term loan executed in August of 2012.

Adjusted net income increased by $3.6 million or 8.8% compared to the second quarter of 2012, as of the -- as a result of the increase in adjusted operating income, offset by increases in both interest expense and income tax expense.

Diluted adjusted earnings per share were $0.41 compared to $0.33 for the same quarter last year. This 24% increase in EPS year-over-year was driven by the increase in adjusted net income, as well as the decline in shares outstanding due to the repurchase of 15 million shares in August of 2012 and an addition of 400,000 shares repurchased during the second quarter of 2013. The net impact of the sale of Baskin-Robbins Australia added approximately $0.01 to our adjusted earnings per share.

Our diluted weighting -- our diluted weighted average shares for the quarter were 108 million.

At the end of the second quarter, we had a debt to adjusted EBITDA ratio of 4.9:1. As I've talked about previously, we're exploring potentially taking our leverage above our target range of 4.5 to 5.5. It will be a onetime event to take advantage of attractive interest rate. As you know, interest rates did go up slightly over the past few weeks from previous lows. However, we continue to look for a possible opportunity in the market.

Our effective tax rate for the quarter was 28%. During the quarter, we had -- we generated $42 million in free cash flow. We ended the quarter with $177 million in cash on our balance sheet, and of this $177 million, $92 million represents cash associated with our gift card program and marketing fund balances. We used $20 million in cash during the quarter to pay our Q2 cash dividend to shareholders, an additional $17 million in cash for the share repurchases I mentioned earlier.

And now I'd like to open the call for questions. Operator, you can start the queue.

Question-and-Answer Session

Operator

[Operator Instructions] And the first question is from John Glass of Morgan Stanley.

John S. Glass - Morgan Stanley, Research Division

I guess just first the question that jumps to mind in all these calls is the consumer environment. Nigel, can you talk about -- your comps were strong in the second quarter. Did they erode at all toward the end of the quarter? Qualitatively or quantitatively, can you discuss how they're trending now given there's been -- seem to be a step-down in some consumption that some retailers are experiencing the last several weeks?

Nigel Travis

John, thanks for the question. And I think it's an interesting one. While preparing for the call, I was studying the week-by-week comps, and we saw, actually, a steady improvement, through the quarter. It was actually pretty flat through the quarter, but basically, the back end was stronger than, let's say, the first 2 parts of it. So it's actually the reverse of what you're suggesting. We actually feel pretty good about the consumer, and I think the balance is shown by the fact that our ticket count was up. This is, obviously, always a good metric. And also, the actual ticket was up. And that was the result, not of pricing, but of people upgrading to the higher-priced items like our sandwiches. And so if you took our results, you would have to say the consumers are in a better place than they were. Talking generally, I think the consumers actually faired pretty well when you think of all the sequestration issues, the fact that we had effectively tax -- well, we had a lot of tax increases. So I feel pretty good about the consumer. I know there's a lot of doom and gloom out there. And it was interesting, when I was on TV this morning, I was talking positive about the consumers, but the next presenter from the Southwest was talking about some of the headwinds. So one of the things, I think, we've said before, the -- because we have such great value, we may be a little bit shielded from the consumer, people come anyway. So that may be, if you like, the rationalization of why our numbers seem to point in a different direction from some others.

John S. Glass - Morgan Stanley, Research Division

Okay. Then just 2 quick others. One is can you just explain the decline in the K-Cup sales? Was that something that's just sort of eroded slowly? And is it continuing to erode from a sales -- box per store perspective? And is there anything -- you said advertising. Is there anything other than that, that either stops that or reaccelerates that trend?

Nigel Travis

I think it's a little bit of a blip. I mean, I think when you look at it, we actually increased our K-Cup sales quite considerably. Overall, the comps, as I said, were down marginally. I think it's something that we think will not continue. Clearly, the fact that we've got more stores is a little bit of an impact because obviously, every store you open has a little bit of an impact. There's obviously a lot of noise with GMCR and other people selling K-Cups in the market. It's not something that we're particularly worried about. I think some of it was how we spent our marketing. And I want to make a point that I made right at the time of the IPO and continue to make it. I think K-Cups may have been blown a little bit out of proportion. I mean, they are 2% of our overall sales, roughly. So yes, we think they're a good thing to have. We're pleased we have them. We think that's particularly good in the newer markets where as I have said in my remarks, they grew. But they're not the be all and end all. I think our breakfast sandwiches, our base beverages and even our doughnuts are much more important as categories. So it's not something that we're concerned about. And as a result of that, I think the fact we're happy with our relationship with Green Mountain, we re-up with them. As I said, many times, we have great relationship with them. So I feel good about the category, but let's not get it out of proportion.

John S. Glass - Morgan Stanley, Research Division

Paul, just 1 clarification. If rates -- are rates still attractive enough at current levels, if you don't get that opportunities that you're looking for to do this leverage event and take onetime above the target range? Or would you need an opportunity in rates really to compel you to do this?

Paul C. Carbone

So I think, John, as you know, these things change on a daily basis. Rates have certainly tightened or gotten better even over the last 72 hours. So we continue to look for an opportunity to get into the market. As you know, our current debt is L plus 2.75%, which is very favorable. So we look at this every single day, and the current environment is very receptive to what's taking leverage up.

Nigel Travis

Yes, can I just make a point? John did a really clever thing there, getting 3 questions. And that's what we failed to say. One question per questioner, please. So let's try and stick with that. But thank you, John, for getting those in.

Operator

The next question is from John -- excuse me, Jeff Farmer of Wells Fargo.

Jeffrey D. Farmer - Wells Fargo Securities, LLC, Research Division

I had a few myself, but I will try to keep myself to one here. So I heard you discussed this, and I apologize if I missed some of it. But you did give us an update on the mobile download. But can you provide some greater detail on the loyalty phase of this, meaning, the testing process, the rollout timeline, promotional plans around it? Anything you can help us with understanding the timing and potentially impact of this launch.

Nigel Travis

Well, I'll start by saying we're excited about everything we're doing. And I'm going to pass over the mic on my right, John Costello.

John H. Costello

Thanks, Jeff. Mobile continues to wrap up -- to ramp up very quickly. As we touched on, we exceeded 3 million downloads at the end of Q2, and that momentum has continued into Q3. Loyalty is on track, and our plans are to put initial tests of our loyalty program into the market in the second 6 months, then leading to -- second 6 months of the year, then leading to expansion as results justify. So mobile is on track. Loyalty is on track. We feel very optimistic about both of those.

Operator

The next question is from Michael Kelter of Goldman Sachs.

Michael Kelter - Goldman Sachs Group Inc., Research Division

First off, maybe I just want to clarify what you said earlier on same-store sales cadence, is it? Just to be sure I understood, you're suggesting June is your best month of the quarter and higher than the 4% same-store sales figure for the full period. That was, one, just a quick clarification to make sure I got that right. And then more broadly, you re-upped the agreement with Green Mountain. Can you talk to any changes in the arrangement, financial or otherwise? Or is this 100% extending the timing? And does it increase the likelihood that you may eventually start to sell your K-Cups in grocery?

Nigel Travis

Okay. So cleverly 1 question. So what I would say is, firstly, we felt good about every single month of our comps during the period. April is actually the lowest. So I think that's as far as I'll go to clarify that. In terms of the Green Mountain, we actually had a deal that was just extended. We had the option to extend it and we did. So essentially, it's the same deal continuing. And I want to reiterate what I just said, the relationship with Green Mountain has been spectacular. Larry Blanford and I had a great relationship when he was the CEO. Brian Kelley has come in. I think he's going to do great things for that company. We're excited about what he's doing. And so we feel very good about that. And then the last question was...

Paul C. Carbone

[indiscernible].

Nigel Travis

Oh, in grocery stores. Yes. I mean, we've said repeatedly that we are happy with the arrangement we have. And unless we saw an opportunity for both us and our franchisees, we don't intend to change our stand from that. We're all about building franchisee profitability. And we think the modus operandi that we currently has been very effective. It's helped us, I think, in new markets. So we don't see a big push to change it, but if we saw an opportunity where our franchisees could benefit at the same time, it's something we'd think about. But it's not going to happen anytime soon.

Operator

The next question is from Joe Buckley of Bank of America.

Joseph T. Buckley - BofA Merrill Lynch, Research Division

Paul, could you clarify a little bit more the gain on the Australian Baskin-Robbins deal? I know you said, net, it was $0.01. Where in the income statement is that -- most of that $7 million reinvested?

Paul C. Carbone

Yes. So thanks, Joe. The gross proceeds were -- $7 million is what you see on the face of the P&L. Some of it is in margins, right, as we transferred over the inventory to the new joint venture. Some of it is in SG&A. A piece of it is in FX. So you see below the line, we had about $800,000 in translation, a bad news, so as we translated the gain back. And then there was almost $1 million impact on tax as we got down there. So to recap, it's in margins, SG&A, the FX and tax, we did inside of SG&A. We've spent it mostly in the international segment to reinvest it. And it did -- as it nets down, it was about $0.01 of EPS accretive, which is included in the $0.41.

Nigel Travis

So can I just make a point about this? And you said it in your remarks. We don't get buckets, but I think it's important to say that if we suddenly find we have extra money, we want to build the business. We're about building the business for the long term, and we invested -- what was it? -- Bill Mitchell is sitting in here. What was it? Three years ago, we invested in Baskin-Robbins $4 million. We're doing the same with Dunkin'. Sometimes these investments take a year or so to pay back, but we're now plowing as much money as we can into international because we think international can really be a strong business, as I said. So when money, if it like falls on our laps usually through our good efforts, we don't just put it into profit and sit on it. We want to build it for the long term. And it's that long-term approach that, I think, is helping us to be as successful as we are.

Operator

The next question is from Jeffrey Bernstein of Barclays.

Jeffrey Andrew Bernstein - Barclays Capital, Research Division

Actually, 1 clarification, 1 question. The clarification is just to John, when you talked about the mobile opportunity earlier. I was just wondering, being that it is coming up, it seems like in 4Q, at least with the one-on-one marketing, is there anything that you'd say you're most excited about, that you think could have a near-term benefit to the comp? And then the real question is on the international side of things. I know you mentioned at your Analyst Day that you had started thinking about taking some equity stakes in some of these international businesses. I think you mentioned 2 of them you hadn't test as of your Analyst Day. So I'm just wondering, big picture, how you're going to assess the success of those tests, perhaps over what time frame you assess it, and if it is successful, when might this be the model going forward?

John H. Costello

Yes, I'll -- this is John. I'll start off in mobile and then turn it over to Nigel. I think the -- there really are multiple benefits of mobile. The first is the guest experience where it actually is faster and more convenient to pay with mobile. So we think that, that will not only help drive speed of service but also make it easier for our customer. The second is our ability to target offers to individual customers as we build our loyalty database. Even now, we're doing a combination of national and local offers on mobile so we can use it to launch new products, we can use it to tailor messages by DMA. The third is, with the national rollout of our Spanish language option, it really gives us an opportunity to build an even deeper relationship with the fastest-growing segment of the population, which is Latin consumers. As we continue work on the loyalty side, we'll really be able to deliver loyalty and comp-driving incentives to our guests that are a combination of national offers, regional offers, as well as personalized offers based on their individual purchase habits. So I think what mobile will be is a continuing driver of sales rather than the big bang, as the more we learn, the more powerful it will get. And we're very, very encouraged about how quickly mobile is ramping up and the very positive consumer reaction that we're getting from it. And we expect the same from our loyalty program. I'll now ship it over to Nigel for the second part of that.

Nigel Travis

Okay. So Jeff, on international, I think we've continually said that we're going to make investments, as I mentioned in the prior question, and typically a 2-year payback on those investments. We said, you're quite right, that we may take a stake in various countries when we think it's going to stimulate growth as we have in the U.S. I mean, let me just commentate on that. We're very pleased with our joint venture in Dallas with members of the Dallas Cowboys [indiscernible]. Atlanta has been a huge success and really stimulated growth. Up here in the Northeast, it's more for operational reasons, and that's been a great benefit as well. Internationally, we obviously had investments through Korea and Japan for many years. And it's interesting that, obviously, they are 2 of our biggest areas and 2 of the most innovative areas that we have, which I think shows the benefit. At the Analyst Day, we talked about the fact we're investing in Spain. I think that was a terrific investment because the Spanish economy clearly makes the U.S. look spectacular. So it's been good for us to work in a tough economy. I think we're going to see so many benefits. We've already, if you like, reformulated the supply chain, and that's going to have long-term benefits for Dunkin' in the U.K. I think it's given us a better perspective on Spain as a market, which could actually benefit Baskin-Robbins. So we've got no other ones on the horizon at the moment, but it doesn't mean that 1 or 2 may not suddenly occur. So we will keep it as we have in the U.S., in our quiver ready to us. But you got it exactly right. And we'll continue to look for opportunities when they arise. And you could say actually that Australia is another one because we're still retaining our share in Australia. And I think the relationship with Galadari who I had the pleasure to visit with in UAE a couple of weeks ago. They're going to do a great job in Australia. And the Australia Baskin market, is back, it comping, it's growing, and franchisees seem very happy. So I think this really does make sense.

Operator

The next question is from Andy Barish of Jefferies.

Andrew M. Barish - Jefferies LLC, Research Division

Just in the update on the NDCP. I'm wondering if you could sort of tweeze out, is that net of commodity declines? Or is that sort of isolating that, obviously, with coffee prices being very favorable? And then as you look at coffee continuing, does that provide you an opportunity to maybe get a little bit more offensive on value with low coffee prices moving forward?

Paul C. Carbone

Yes, thanks for the question, Andy. So a couple of things, a couple of parts there. The first is, the savings that I talked about was x commodity. So that's just true savings as we laid out 1.5 years ago of getting to flat national pricing. So that savings is x commodities. As Scott Murphy, our Chief Supply Chain Officer, laid out at our Analyst Day, as we look forward, both this year and next year, while coffee is positive, we're seeing commodities overall benefiting upwards of about 50 bps positive because they are offset to coffee, shortening, packaging, things of that nature, flour and wheat. So that was the second. And the third piece of coffee prices driving -- being more aggressive. And I'll tell you, we like to separate those 2 to a certain degree because we become aggressive or fight the competition every day. And we don't necessarily want to only be able to go back to our franchisees through John Costello's group when they have good news in coffee pricing. So we don't link the 2. We take these each separately. And our focus is always on franchisee profitability. When we talk about getting more aggressive against the competition, because it's the right thing to do for the business, it's about not letting shares slip away, it's about driving profitability. So we don't necessarily link the 2, although it certainly helps that we're at a point today where the franchisees are making more than they ever have. So it puts them in a good mood and certainly gets them in the right frame of mind to fight the competition.

Operator

Next is John Ivankoe of JPMorgan.

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

Just as a follow-up on the leverage question, if I may. Where is the mindset currently around fixing the floating portion of your debt, I guess, is kind of the first part? And secondly, within your current agreements, can you add, I mean, 1 turn, 1.5 turns, 2 turns of leverage without affecting your current facility?

Paul C. Carbone

Yes. So thanks, John, and good morning. So on the fixed versus floating, so our current -- roughly, we have $1.8 billion of debt outstanding, and we have about half of it fixed. And just for everyone, and I know you're intimately knowledgeable about this, that our rate is L plus 2.75%, with a 1% floor. So I'm currently on that floating part of it 3.75%. So we have half of it fixed. Certainly, as -- if we were to re-lever, and we look at this all the time, we feel we should be greater than 0% fixed and probably less than 100%. So it's kind of how we got to -- as we looked at this and looked at the yields curve going out last year at this time when we fixed half of it. So we're comfortable having half our debt fixed. Under the current credit facility, we could probably go up a turn. But candidly, I'd tell you that if we were to lever up, we would probably go out and also do an amendment to it. If you remember, last year, at this time, when we did the $400 million add-on, basically, what we did is we did an amendment to carve out that upside. So it didn't hit my restricted payment basket, et cetera. So we would do -- if we were to go out, we would probably do something of similar, but it is important to say, I can go up a turn of leverage with no amendment to my current credit facility.

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

That's very helpful. And just for the sake of modeling, at least for this point, maybe we should just consider, as you say, half fixed, half floating. I guess that would be a good ballpark even with the additional leverage.

Paul C. Carbone

I think that's a good ballpark.

Operator

The next question is from David Tarantino of Robert W. Baird.

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

Just a quick clarification question since you didn't really update your guidance. I was just wondering if the previous targets for EPS and some of the lines underneath for revenue are still valid or if anything changed on those.

Paul C. Carbone

No. Other than -- so we did not state anything this morning. And our current EPS guidance is $1.50 to $1.53. And as we said back in Investor Day, DD U.S. net development, while we kept the range at 3.30% to 3.60%, we would be at the high end of that range. So no updates. We're still comfortable with DD U.S. comps 3% to 4%. and everything else down the line, revenue growth of 6% to 8%. So no changes to what we gave for guidance back at the end of the fourth quarter.

Nigel Travis

I think it's worth saying, in terms of process, every quarter, we go through that list and check that we've got it right. So just for everyone's benefit, if we don't mention it, it means it hasn't changed. So even though we only give annual guidance, we do update it as the year goes through.

Operator

The next question is from Matthew DiFrisco of Lazard.

Matthew J. DiFrisco - Lazard Capital Markets LLC, Research Division

I just have a follow-up on that, actually. I'm just curious, as far as looking at the year-ago compare, if you can take it into context what you just did now in 2Q, any weather benefit potentially, given -- it sounds like you called out some iced drinks, and as we're all pretty well aware, it's been a pretty hot beginning in the summer. And then is there anything to consider when looking ahead why that trend couldn't continue on a 2-year basis, which would imply, I guess, an acceleration from what -- given the easier year-ago compare that you're lapping? Or is there other things that we should consider?

Nigel Travis

John is going to answer this.

John H. Costello

Yes. I think we saw some rainy weather in April, which we kind of talked about. But other than that, weather has not been a factor. Yes, what's really driving the business on both brands is the combination of product innovation, marketing innovation and a relentless focus on the guest experience on both Dunkin' Donuts and Baskin-Robbins. And while there will be blips up and down, if it's a little hot, a little cold or a little rainy, what we're seeing is the ability to drive our business through that.

Nigel Travis

So we focus very much on the 2-year comps, which I'm looking at, at our chart in front of me now. If I go back through the last 7 quarters, as we said in our remarks, we've hit 8% 2-year comps every quarter. So I think we feel good about that frame. We feel good about the programs, as John said. And I think I just like to clarify. The only weather thing that we really saw apart from the April that John mentioned is in the international. I know there's been some strange weather effects going on over the last couple of months. I know the weather over there -- they've got excessive rain. I think it's been pretty well-documented in the newspapers.

Paul C. Carbone

And then not to pile on just, Matthew, your last point of the back half of the year. So year-to-date in Dunkin' U.S., the comp is 2.9%. We're maintaining our 3% to 4% range. So where everyone has their model, pick the middle point for this conversation of 3.5%, you would see some acceleration in the back half of the year. As everyone knows, it's -- as you mentioned, we have easier compares in the back half of the year than we did the front half. So I think that's hit all your points.

Nigel Travis

Well, just as for everyone's benefit so you don't have to look it up, and it's in front of me, Q1 '12 was 7.2%, Q2 '12 was 4%, Q3 '12 was 3.8% and Q4 was 4.2%.

Operator

The next question is from Michael Gallo of CL King.

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

Most of my questions have been answered. I just had a question on the charge you took associated with the cooler sales. I was wondering if you can give us just a little more clarity on, is this a onetime thing? Or is this something that gets reevaluated every year and some of the things you're doing to kind of improve the cooler sales so you don't have a similar charge going forward?

Nigel Travis

Okay. So I think the key point there is a onetime thing. We feel actually good about all the actions we've taken. We think that some of it was the transition we had. There were, earlier in the year, some weather impacts that we think impacted it. But we decided that -- we've made this guarantee. We should get it out of the way, announced it. And we feel good about our ability in that business going forward. Obviously, that business has some competitions with our core business, and that may have been part of the effect. The more we do on frozen and iced beverages at Dunkin', the more that we can, if you like, take away from the cooler sales. But I don't think that's necessarily a huge effect, but it is one of the effects. But we're building it up. We're focused with our franchisees on developing that business because it's a nice incremental business for our franchisees. Let me just clarify because I'm told I misread some of the numbers earlier. So I'm just going to go through it again, which goes back to the earlier question. Q1 '12 was 7.2%, Q2 '12 was 4%, Q3 was 2.8% and Q4 '12 was 4.2%. So I guess to add it out, the first quarter was, if you like, 7.2% and 4%, and the second half was 2.8% and 4%. So it is lower in the second half, hence the point that Paul made. And just to reiterate, we feel good about all our summer programs for the cooler and in total.

Operator

The next question is from Will Slabaugh of Stephens Inc.

Will Slabaugh - Stephens Inc., Research Division

On Dunkin' U.S., curious if you're seeing similar moves in transaction and ticket across both your core and newer markets. And just typically there, are your loyal core market customers trading up to those premium breakfast sandwiches and other premium items as much as you would like? Or do you see that as more of an opportunity down the road?

Paul C. Carbone

So -- yes. The -- what we're seeing is we're seeing broad-based growth on tickets and transactions across all of our regions. So it's very, very broad-based growth. And answer to your question on the core is, yes, we're seeing very good acceptance of our premium breakfast sandwiches in our core market. And we're also seeing very good acceptance of our p.m. bakery. So on the core market, for example, the Turkey Sausage Breakfast Sandwich continues to do very well in the core, as well as nationally. We launched our new chicken sandwich in the second quarter, and that has generated broad-based acceptance across all regions. So, yes, to answer your question, we're seeing a broad-based ticket and transaction growth across regions, and we're seeing broad-based acceptance of our differentiated food and beverage items across regions.

Nigel Travis

I think what I'd also like to add to that is what was in my remarks, that it isn't just the morning. We're trying to migrate our business to be more of an all-day business, and there is very consistent growth in the p.m. across all the geographical segments. And one thing that people often forget is, and I've perhaps been one of those at fault, we often talk about the strengths of the morning, 40% of our doughnut sales come after 11:00. So we feel good about geography and day clock.

John H. Costello

And just to reiterate the comment that we made in the prepared remarks, we're getting the -- not only getting strong transaction or traffic growth. We're getting the ticket growth through people by trading up, not through pricing. Our pricing, just to reiterate, was below 100 basis points.

Operator

The last question will be from Steve Anderson of Miller Tabak.

Stephen Anderson - Miller Tabak + Co., LLC, Research Division

You discussed in your prepared remarks about, internationally, you went to detail about Korea, but can you give us any color on what's going on in China? And on the Analyst Day, did you discuss about your transformation for -- from Dunkin' International in China from a special occasion that's mentioned to a daily beverage center destination, similar to a Dunkin' U.S. base years ago. Can you talk about comps and growth -- unit growth there?

Nigel Travis

Yes. Yes, obviously, I was in China recently. We're all going through exactly the word you used to say them, transformation. It means looking at our franchisees, it's the people we have, and we are. It means looking at our programs, and we are. It means looking at our store, real estate discipline, which is what we're doing. Our personal view is we may have over-localized. I think -- it's interesting that one of the lessons from other brands there is they may not have localized as much as us. There is certainly some learning from Korea that we tried to apply. A good example is, in Korea, they've had this self-service concept on bakery, which -- I went to a store in Korea. When I was there, within 40,000 brand-new [ph] store, it was absolutely booming. And some of those -- some of that thinking, I think, can apply to China, and we're testing that. So if you like, a bit like we did in Dunkin' U.S. back in '09. It's an all-out blitz from just about everything. It's going to take some time. But I actually came back from China feeling more confident than I did say on the Analyst Day that we're going to get it right. And I think the lesson from the competition certainly help us. And I think given what I see with the fact we're focusing in some franchisees on 1 region rather than many regions, we're bringing in a group -- or we hope to bring in a group who we think is going to be really good. I think long term, we're going to be happy with China, but it's going to be probably a bit more pain and a bit more -- some more hard work, certainly more hard work in the short term. But I'm convinced we'll build a strong business there on the Dunkin' side. Baskin, I feel more optimistic about. Baskin, we're bringing a lot of new franchisees. We're changing out some legacy franchisees, and their agreement franchisees are stepping up to the plate and then put it in place [indiscernible]. We are also rolling out a more affordable pay option, let's put it that way that I think is going to make us much more competitive. So I feel -- so standing back, I feel better about Baskin than Dunkin'. But I feel better about Dunkin' than I did on Analyst Day. So if there's any follow-up to that, I'm happy to take it, but I think we're making steady and solid progress as getting the models right in China.

Stephen Anderson - Miller Tabak + Co., LLC, Research Division

Yes. Has there been any new unit growth in China, specifically?

Nigel Travis

We've actually -- there has been overall. But as we've gone back, we've closed a number of stores, and we're trying to get the stores right. I think there was a tendency previously to reengineer to what hit the economics rather than choose a site that's high profile, with by necessity in China means higher rent. So there has been a personalizing of the store count, but I think this will put us in a much better position to move forward.

Nigel Travis

Okay. So with that, can I thank everyone for their questions, as always? We feel we had a pretty terrific quarter. We think that we're making progress all the way around. I want to reiterate the point, as I said in the middle of all those questions, that we're about building long-term shareholder value. Occasionally you have to make investments that perhaps impact the short term. But we keep a very solid guide on what is the short-term goal. And I think that balance has helped us in the past and will help us in the future. So with that, have a great day, and thanks.

Paul C. Carbone

Thank you.

Operator

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

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