This afternoon, shares of quick serve coffee and pastry restaurant Dunkin Brands (DNKN 59.7, -1.14) trade 1.9% lower in reaction to the company’s Q4 beat as management refrained from giving 2018 guidance until its Analyst Day on Thursday.
There wasn’t much not to like in the DNKN Q4 earnings report this morning; namely, earnings off $0.64 per share and revenue growth of 5.3% to $227.1 million were good enough to beat market expectations. Dunkin' Donuts U.S. comparable store sales grew 0.8%, Baskin-Robbins U.S. comparable store sales were up 5.1% and the company added 141 net new restaurants worldwide, including 126 net new Dunkin' Donuts in the U.S.
As a caveat, management noted the decline in global systemwide sales for Q4 was a result of an extra week in the prior year period. On a 13-week basis, global systemwide sales grew in Q4.
Dunkin' Donuts U.S. comparable store sales growth in Q4 was driven by increased average ticket offset by a decline in traffic. Growth was driven by core breakfast sandwich sales; iced coffee and Frozen Dunkin' Coffee sales; as well as traditional donut sales. U.S. revenues were $177.7 million, up 9.0% compared to the prior year period. The increase was primarily a result of increased franchise fees driven by additional renewal income, offset by a decrease in gross openings. Offsetting the increase in franchise fees was a decrease in royalty income due to the extra week in the prior year period.
Baskin-Robbins U.S. comparable store sales growth in the fourth quarter was driven by increased average ticket offset by a decline in traffic. Growth was driven by beverages including shakes, smoothies and Cappuccino Blast as well as the take-home category. Baskin-Robbins U.S. Q4 revenues grew 11.9% from the prior year period to $10.6 million due primarily to an increase in sales of ice cream and other products and an increase in franchise fees driven by additional renewal income. These increases in revenues were offset by a decrease in other revenues due to a decrease in licensing income which was driven by the extra week in the prior year period.
Additionally, results were aided by strength in international markets as Dunkin' Donuts International Q4 systemwide sales increased 6.8% from the prior year period driven primarily by sales growth in the Middle East, Europe, Latin America, and Asia. On a constant currency basis, systemwide sales increased by about 4%. In all, DNKN International Q4 revenues of $5.6 million represented a decrease of 6.0% from the prior year period. The decrease in revenues was primarily a result of a decline in franchise fees, offset by an increase in royalty income. Baskin-Robbins International systemwide sales were up 8.2% in Q4 compared to the prior year period driven by sales growth in South Korea and the Middle East, offset by a decline in Japan. Sales in South Korea were positively impacted by foreign exchange rates, while sales in Japan were negatively impacted by foreign exchange rates. On a constant currency basis, systemwide sales increased by about 7%.
As to tax, management expects that Dunkin' Donuts 2018 effective tax rate will be about 28%, which reflects the impact from the Tax Act, net of state taxes and international provisions. The company also announced it will host its 2018 Investor & Analyst day on Thursday, February 8, 2018 beginning at 9:00 AM ET where management will give its long term and 2018 financial targets.
And lastly, the company announced the adoption of a new accounting standard where the result is a reduction to the provision for income taxes of $0.5 million and $7.8 million for the three months and fiscal year ended December 30, 2017, respectively. The company noted prior year periods have not been revised to reflect excess tax benefits in earnings, as only prospective application is permitted. Additionally, the diluted weighted average number of common shares outstanding for the three months and fiscal year ended December 30, 2017 excludes excess tax benefits from the assumed proceeds available to repurchase shares under the treasury stock method, which did not have a material impact for either of the periods. The adoption of ASU 2016-09 had no impact on cash paid for income taxes.
In May 2014, the Financial Accounting Standards Board issued new guidance for revenue recognition related to contracts with customers, except for contracts within the scope of other standards, which supersedes nearly all existing revenue recognition guidance. The new guidance is effective for the company in fiscal year 2018. DNKN will adopt this new guidance in fiscal year 2018 using the full retrospective transition method, which will result in restating each prior reporting period presented, fiscal years 2016 and 2017, in the year of adoption.
Shares of coffee peers MCD -1.1%, and SBUX -0.1% trade modestly lower today within a choppy broader market.