Dunkin' Brands Group Inc said on Wednesday its franchisees are raising prices at Dunkin' Donuts and Baskin-Robbins stores to help cover the higher costs of key ingredients such as coffee and milk.

The shares of the company, which had its initial public offering last week, were down 4 percent after it also reported profits in the most recent quarter were down slightly from a year ago.

Dunkin' Donuts franchisees raised some prices during the second quarter, largely due to the spike in coffee costs, Nigel Travis, chief executive of Dunkin' Brands and president of Dunkin' Donuts, said on a conference call.

However, many of them chose not to raise coffee prices, but to focus price increases on our more differentiated products, such as breakfast sandwiches and cold beverages, Travis said.

For Baskin-Robbins, we anticipate ice cream dairy ingredients will remain at current high levels, he said.

Owners of Baskin-Robbins ice cream shops plan to raise prices in the third quarter as the parent company also works to lower commodity costs by taking steps such as using secondary suppliers and negotiating contracts.

Dunkin' Brands' second-quarter net income slipped to $17.2 million from $17.3 million, a year earlier, while adjusted profit fell to $24.7 million from $25.6 million.

Revenue rose more than 4 percent to $157 million.

The Canton, Massachusetts-based company said same-store sales at all of its established U.S. stores were up 3.2 percent for the quarter.

That included a 3.8 percent rise at Dunkin' Donuts, as customers spent more per visit, and a 2.8 percent drop at Baskin-Robbins, where sales were hurt by severe winter weather.

The U.S. Dunkin' Donuts business accounts for the lion's share of sales at Dunkin' Brands.

Dunkin' Donuts customers rank as the most loyal in the U.S. coffee segment, ahead of Starbucks Corp , McDonald's Corp and Canadian chain Tim Hortons Inc , and the chain plans to more than double its U.S. outlets from roughly 6,800 over the next 20 years.

U.S. Dunkin' Donuts stores have begun selling so-called K-cups filled with the brand's coffee for use with Green Mountain Coffee Roasters Inc's popular Keurig single-cup brewing machine. That product is expected to boost sales.

The K-cups will be available only at Dunkin' Donuts stores, Travis said.

Dunkin' Donuts, which sells coffee drinks and food such as bagels and breakfast sandwiches, also has more than 3,000 international stores.

Dunkin' Brands made its debut as a publicly traded company last week and its shares jumped as much as 56 percent in their first day of trading.

Chief Financial Officer Neil Moses said the company used most of the proceeds from the IPO to pay down debt.

As a result, Moses said, Dunkin' Brands reduced its debt to $1.5 billion from $1.88 billion and cut its annual interest expense by half to around $60 million.

Dunkin' Brands shares, which have traded as high as $31.94 since the IPO, were down $1.13 cents at $26.63 in midday trading on the Nasdaq.

(Additional reporting by Mihir Dalal and Jochelle Mendonca; editing by Joyjeet Das and Andre Grenon)

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