In the first quarter of 2024, Dutch Bros, Inc. (BROS) delivered a strong performance with a 39% year-over-year revenue increase, totaling $275 million, and a notable 120% rise in adjusted EBITDA to $53 million.
The company's innovative product launches, including protein coffee and boba, contributed significantly to a 10% growth in same-shop sales. Dutch Bros also continued its expansion efforts, opening 45 new locations and extending its market presence to 17 states, with a particular focus on Texas as a key growth area.
The company's Dutch Rewards program played a crucial role, accounting for 66% of transactions, which underscores the effectiveness of its customer engagement strategies.
Key Takeaways
- Dutch Bros reported a 39% increase in revenue to $275 million and a 120% increase in adjusted EBITDA to $53 million in Q1 2024.
- Same-shop sales grew by 10%, driven by successful product launches and strong performance in morning and afternoon dayparts.
- The company expanded its footprint by opening 45 new shops, tying its record for a single quarter.
- Dutch Bros raised its guidance for the year, planning to accelerate spending to maintain growth momentum.
- The Dutch Rewards program remains a cornerstone of customer engagement, with two-thirds of transactions stemming from it.
- Mobile order-ahead capabilities are being tested, with plans to implement the functionality in most shops by the end of 2024.
- New shops in Florida have performed beyond expectations, indicating the strong appeal of the Dutch Bros brand.
Company Outlook
- Dutch Bros plans to open 150 to 165 new shops throughout the year.
- The company has raised its guidance for the year, signaling confidence in continued growth.
- A focus on refining real estate strategy in new markets is expected to impact in 2025.
Bearish Highlights
- The company anticipates a tighter range of profitability in the second and third quarters.
- New costs are emerging from wage increases in California and tech investments for mobile order and pay systems.
Bullish Highlights
- The company has a robust pipeline with over 375 candidates ready to lead new markets as operators.
- Dutch Bros maintains a well-capitalized position with sufficient liquidity to support its growth.
- The company's innovative product offerings and Dutch Rewards program continue to drive traffic and engagement.
Misses
- There were challenges in Q1, including boba outages and tempering of traffic and ticket, which were attributed to internal factors rather than macroeconomic conditions.
- It's too early to assess the long-term effects of the price increases implemented in California to offset rising minimum wages.
Q&A Highlights
- CEO Christine Barone emphasized the importance of maintaining the brand's differentiator—its exceptional service—even as they deploy teams for mobile order and pay.
- The company is cautiously optimistic about sales growth guidance for the rest of the year, considering the rollover from the previous year's performance.
- Dutch Bros is mindful of the competitive market but believes its focus on brand and customer satisfaction will remain its advantage.
Dutch Bros, Inc. has demonstrated an impressive ability to innovate and grow, as evidenced by its Q1 2024 results. With a strategic expansion plan, a strong focus on customer engagement, and a commitment to innovation, the company appears well-positioned to continue its upward trajectory in the competitive beverage industry.
InvestingPro Insights
Dutch Bros, Inc. (BROS) has shown remarkable performance in the first quarter of 2024, and the outlook seems promising according to the latest InvestingPro data and insights. The company's market capitalization stands at $5.57 billion, reflecting investor confidence in its growth prospects. Despite a high Price/Earnings (P/E) ratio of 1072.05, suggesting a premium market valuation, analysts are optimistic about the company's future. They expect net income to grow this year, which is supported by a robust revenue growth of 30.68% over the last twelve months as of Q1 2023.
InvestingPro Tips indicate that Dutch Bros is trading at a high EBITDA valuation multiple and has liquid assets that exceed short-term obligations, which speaks to the company's financial health and its ability to sustain expansion efforts. Additionally, the company's stock price can be quite volatile, which may present opportunities for investors with a higher risk tolerance.
For those looking to delve deeper into Dutch Bros' financials and future prospects, InvestingPro offers a wealth of additional tips. There are 11 more InvestingPro Tips available that can provide further insights into the company's debt levels, profitability, and stock price movements. To access these insights and enhance your investment strategy, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at https://www.investing.com/pro/BROS.
With the company's strategic growth initiatives and strong customer engagement, as highlighted in the article, these InvestingPro Insights can help investors gauge the potential risks and rewards associated with investing in Dutch Bros as it continues to navigate the competitive beverage industry.
Full transcript - Dutch Bros (BROS) Q1 2024:
Operator: Thank you for standing by and welcome to the Dutch Bros, Inc. First Quarter 2024 Earnings Conference Call and Webcast. This conference call and webcast are being recorded today, May 7, 2024 at 5:00 PM eastern Time and will be available for replay shortly after it has concluded. Following the company's presentation, we will open up the lines for questions. Instructions to queue up will be provided at that time. I would now like to turn the conference over to Paddy Warren, Dutch Bros' Senior Director, Investor Relations and Capital Markets. Please go ahead.
Paddy Warren: Good afternoon and welcome. I'm joined by Christine Barone, CEO and President and Charley Jemley, CFO. We issued our earnings press release for the quarter ended March 31st, 2024, after the market closed today. The earnings press release along with the supplemental information deck have been posted to our Investor Relations website at investors.dutchbros.com. Please be aware that all statements in our prepared remarks and in response to your questions, other than those of historical fact, are forward-looking statements and are subject to risks, uncertainties and assumptions that may cause actual results to differ materially. They are qualified by the cautionary statements in our earnings press release and Risk Factors in our latest SEC filings, including our most recent Annual Report on Form 10-K and our Quarterly Report on Form 10-Q. We assume no obligation to update any forward-looking statements. We will also reference non-GAAP financial measures on today's call. As a reminder, non-GAAP measures are neither substitutes for nor superior to measures that are prepared under GAAP. Please review the reconciliation of non-GAAP measures to comparable GAAP results in our earnings press release. With that, I would now like to turn the call over to Christine.
Christine Barone: Thank you, Paddy. Good afternoon, everyone. We delivered exceptional results in quarter one as the momentum we saw leaving 2023 continued into the new year. Headlining this performance was 10% same shop sales growth, the strongest single quarter since Q4 2021. We delivered $275 million in revenue, an increase of 39% year-over-year. These outstanding top-line results were coupled with excellent flow through as we delivered $53 million of adjusted EBITDA, an increase of 120% year-over-year. Our innovation strategy is working. We released two highly successful new products in the quarter with protein coffee followed by boba, driving strong results in both the morning and afternoon dayparts. Our Dutch Rewards program is working with a record 66% of all transactions coming through the program in the quarter, allowing us to efficiently and effectively provide relevant content and offers to our customers. Our investments in driving awareness in new markets are working and we are accelerating spending to capitalize on this momentum. Quarter one same shop sales growth featured a combination of ticket and traffic expansion. Our traffic trajectory improved for a second consecutive quarter. Within the quarter, we experienced some weather disruption in January, rebounding strongly in February and March. In April, traffic and ticket growth tempered as we rolled over the refresh of our rewards program, some product outages due to strong demand and the launch of Mangonada at the beginning of April 2023. Bolstered by strong same shop sales growth, system AUVs expanded to $2 million once again, the highest on record. In quarter one, we opened a record tying 45 new shops, marking the eleventh consecutive quarter of 30 or more new shop openings, demonstrating remarkable consistency as we execute our growth plans. Even when taking into consideration what remains an uncertain and evolving consumer backdrop, the strong start to 2024 gives us the confidence to raise our guidance for the year. Charley will share more context and details in a few minutes. But first, I'd like to walk you through an update on our business. We begin any discussion of Dutch Bros with our fundamental differentiator, our people. Recently, we were awarded a top 10 position in Forbes' first ever best customer service list, one of just two quick service brands in the top 10. Once again, the culture we infuse into each shop, and the skills and abilities of our broistas to make drinks and create relationships are evident. In our view, these are the keys to building brand affinity and fueling growth. Our exceptional culture, exceptional people and exceptional service speak to customers across demographics and generations. We continue to support growth with robust people pipeline. Our pipeline has over 375 candidates with an average tenure of over seven years' experience, ready to be tapped to lead markets as operators. As we expand across the country and enter into new regions, our people are our superpower. They help us achieve our goal of consistently delivering an exceptional customer experience focused on speed, quality and service. We continue to be pleased with our shop-level turnover, which is in line with our expectations. The expansion of our support center in Arizona, which we announced last quarter, remains on track, and we are excited to ramp up our hiring in that market. Phoenix is a terrific market for us, where we enjoy high-brand recognition and affinity. We look forward to capitalizing on this excitement as we continue to build out capabilities in this support center. We anticipate moving into our permanent office location in early 2025. Our leadership team transition continues to go smoothly. Today, we announced Josh Guenser will be officially assuming the CFO role on May 9th. And in April, we announced Sumi Ghosh officially assume the role of president of operations. Both Josh and Sumi have spent significant time in our shops, passing their flow checks, becoming fully certified as broistas and developing a strong understanding and respect for our operations. Our CMO, Tana Davila, has been in her position since June of 2023, and she and her team have been focused on delighting our customers in executing our traffic driving initiatives. We are beginning to see the results of this focus. We have been executing on a multipronged plan to drive traffic, an enhanced focus on innovation, more targeted rewards program efforts, and increased paid advertising design-to-build brand awareness. We saw progress in each of these areas in the quarter as evidenced by traffic growth across our dayparts and continued momentum as these efforts began to take hold. Here is an update on our key traffic driving initiatives. Innovation. We believe innovation plays a foundational role in the next stage of our growth at Dutch Bros. Over the past year, our innovation strategy has evolved from one primarily focused on highlighting items from our extensive secret menu to one with a greater focus on category innovation. While we continue to believe there will be a place for quick fun product drops to keep our menu fresh and exciting, we also recognize the opportunity we have to drive category innovation. The launch of protein coffee and boba exemplified this new approach. Through our research, we determined there was an opportunity to address a customer need state with a high-protein functional beverage. Our protein coffee beverage delivers at least 20 grams of milk protein in each medium-sized serving and quickly resonated with our customer base. It was exciting to see how our customers recognized the value of this new occasion and made it a part of their routines, evidenced by higher repeat purchase behavior than our typical LTO. Encouraged by the high-sustained customer demand, protein coffee is now part of our regular menu. We followed up the success of protein coffee with the launch of boba in March. Boba surpassed all of our expectations. We recognized the recent category growth driven by boba, how nicely this overlaps with our large Gen Z customer base and how seamlessly boba can be integrated into our existing offering. Similar to protein coffee, we saw repeat purchase trends and positive customer response. Beyond driving traffic, boba boosted average ticket and drove what we believe was an increase in group buying behavior. Based on the strong customer and crew response, I am pleased to announce that we will continue to offer strawberry boba as a premium add-on to our regular menu going forward. We intend to continue developing category defining products to help us build sales layers and deepen our competitive moat. As we do so, we plan to remain focused on throughput and customer experience, striking a good balance between innovation and the complexity that often comes with new product launches. Dutch Rewards. Last year, we took some big steps with this program, moving toward more targeted offers and segmenting Dutch rewards members for the first time. Last summer, we began designing offers to bolster performance in the afternoon daypart. This work is off to a great start, and we are beginning to see how it is resonating with customers and driving our business. The afternoon daypart, where we have been channeling our focus, continues to see strength. When we turn those efforts toward our morning daypart in Q1, we saw a great customer response there as well. We also reintroduced an offer of a free drink to new rewards customers in late 2023. This has allowed us to continue to grow the program and deepen rewards penetration even as we continue to enter new markets. Ultimately, we aspire to become even more sophisticated with our targeting efforts, aiming for more personalized marketing. This will take time and continued investment and iteration, but we believe our program will continue to strengthen our relationship with our customers. Pay advertising. We continue to focus on utilizing paid media to raise awareness, particularly in new markets. Brand awareness is lower in new markets when compared to more mature markets. In some cases, this difference is substantial with mature markets having twice the brand awareness. We began making investments in our new market awareness late last year and have been encouraged by our initial progress. We plan to accelerate these efforts in 2024, which represents an incremental investment and we will focus these efforts in new markets, including Texas, Florida and Tennessee. Earlier this year, we announced that we would begin testing order-ahead capabilities within our Mobile Rewards app. The initial phase of the test is going well and we have expanded it to include several stores in the Arizona market. We have gathered a lot of employee and customer feedback as we work through our stage gate process. We are optimistic that we will have mobile order capabilities in a majority of our shops by the end of 2024. Getting this right before a broader launch is important for us. We have the opportunity to establish a new channel that increases customer convenience while maintaining the high levels of hospitality that have defined our brand for over 30 years. We do not intend to take labor out of our shops despite likely saving considerable time from the order process. Instead, we intend to reinvest this time in production and hospitality. We would hope to more often be a part of the consideration set of potential customers, who may love Dutch Bros, but may be apprehensive of our sometimes long lines. We launched a strategic partnership with Olo to provide the backend technology integration to support this initiative. We are encouraged by the fact that 66% of transactions in Q1 were attributable to Dutch Rewards members. As we continue to roll out mobile order functionality, having such a robust digital penetration will likely provide us a strong foundation, upon which to scale. New shop development continues to be a bright spot. As a high growth company, Dutch Bros has been able to achieve remarkable opening cadence consistency, despite a challenging backdrop over the past few years. Dutch Bros is now a coast-to-coast brand as during the quarter, we opened two shops in our 17th state, Florida. In the Orlando suburbs, these early shops are exceeding our expectations. Our first Florida shop, which are 3,000 miles away from our original start in Grants Pass, Oregon, have been met with enthusiastic customer demand, a testament to the strength of our brand. Texas will continue to be an important growth market for us in 2024, as we expect approximately 30% of new shops will be in Texas, compared to approximately 45% in the past two years. We expect our overall rate of infill will remain elevated in 2024. We believe the refinements in our real estate strategy, which we anticipate to begin taking hold in 2025, along with increased investments in brand awareness and a continued focus on our overall traffic driving initiatives will allow us to strike a good balance as we scale the brand. As we have shared before, we are shifting our real estate strategy to lessen the pace of future deep infill, instead focusing on casting a wider net in new markets and allowing more time to build awareness and for shops to season. We believe the beverage occasion is reliable and habitual. and that it takes time to form new habits. Our existing markets have demonstrated this time and time again. As our learnings evolve, we are placing a greater emphasis on market planning. Evaluating density and other relevant variables and potential new markets, and sequencing of shop openings optimally within new markets to efficiently build excitement and facilitate awareness as we grow. It will take time for these refinements to make their way through the real estate pipeline and we will likely begin seeing an impact in 2025. Concurrently, we have been increasing our advertising investments in these newer markets in an effort to increase awareness. So far, we are pleased by the initial results. Finally, last quarter, we mentioned the intention to begin shifting to a greater mix of build-to-suit leases in 2025 relative to 2024. We would expect this approach provides a more capital-efficient development strategy. That said, we believe we are uniquely positioned given strong cash-on-cash returns that work in both ground lease and build-to-suit lease arrangements. We are pleased with the excellent start to 2024 and we continue to build a strong foundation for growth. We have terrific customer engagement through our rewards program and are excited about opportunities in front of us to further accelerate this platform. We have top-tier growth. We delivered 39% year-over-year revenue growth in Q1 and yet another quarter of at least 30 plus new shop openings, demonstrating remarkable consistency. We have excellent shop margins and have demonstrated that we can drive exceptional growth profitably. We are well capitalized. We believe we have plenty of flexibility, upon which to execute our growth plan and capture a considerable white space. Most importantly, we have great people, anchored by outstanding engaged broistas, and a strong pipeline of operators ready to open new markets and continue to expand in existing markets. With that, I'll turn it over one last time to Charley to review our financials and give more details on our guidance. I want to take a moment to acknowledge Charley and all he's done for Dutch Bros. Charley has worked tirelessly to help this company make a massive difference, one cup at a time, and has spent the last few months ensuring our new leadership team understands not only the financial aspects of Dutch Bros, but the field focus culture as well. I have had the great pleasure of knowing Charley for almost 15 years and having his guidance, mentorship and friendship has been a highlight of my career. I want to personally thank him for all he shared and everything he has done for this company.
Charley Jemley: Thank you, Christine and the Dutch Bros team for those kind words. I would like to add my welcome to Josh as our new CFO. One word for Q1's financial results, outstanding. Here's a brief recap of the financial results Christine just shared with you. Revenue growth accelerated to 39%. System AUVs reached $2 million a record. Same shop sales were 10%, which did include roughly a 1% benefit from February 29. Company net sales grew 43% with very good leverage driving 77% growth in company-operated shop contribution. Four-wall productivity remains strong with company-operated shop contribution margin reaching 29.8%, expanding 560 basis points year-over-year. Adjusted SG&A fell below 15% for the first time since our IPO to 14.7%, 370 basis points lower than Q1 of 2023. Adjusted EBITDA increased to $53 million growing 120% year-over-year. Adjusted EBITDA margin of 19.1% is up to 700 basis points over quarter one last year. Company-operated shops saw strong leverage up and down the P&L, driven primarily by strong comparable sales results and continued strong margins from newer shops. Cost of goods sold improved 260 basis points year-over-year, driven by strong ticket growth, as well as year-over-year moderation in underlying costs. We continue to keep a close watch on key commodity costs as we did see some increases in ingredient costs as the quarter progressed. In particular, we are watching sugar and cocoa prices in the near to medium term. We make note of the elevated coffee seed price, which could become a factor down the road given the lag time from bean to cup. Labor costs improved 160 basis points year-over-year, where the impact of strong comparable sales outweigh the considerable wage investments we have made in the past 12 months. Moving forward, the California minimum wage action that took place April 1 may weigh on our ability to deliver similar leverage in the future. Occupancy and other costs improved 90 basis points year-over-year, driven by sales leverage as well. Pre-opening costs remain moderate as we take advantage of the efficiency in these costs that come from infill. For the quarter, SG&A was approximately $46 million, which includes about $2 million in stock-based compensation. With the exclusion of stock-based compensation and other non-recurring expenses, adjusted SG&A was approximately $40 million or just 14.7% of revenue, compared to 18.4% in Q1 last year. We continue to support a high-growth business with the proper level of investment and resources, while achieving leverage and support costs as we scale. Regarding our balance sheet and liquidity, as of March 31, we had approximately $662 million in total liquidity, compared to approximately $683 million at the end of 2023. And we believe that we have sufficient liquidity at our disposal to support our currently-contemplated growth plans. As of March 31, that liquidity was comprised of the following elements: $263 million in cash and equivalents, $349 million in undrawn revolver, $50 million in undrawn delayed draw term loans. In the quarter, interest expense net declined $1.5 million from one year ago to $6.4 million. This decline is driven by a $3.5 million reduction in interest paid for outstanding balances in our credit facility less the interest income we received on our investments in marketable securities. That decline is driven by an improved net cash position and is a product of the September 2023 follow-on offering. Partially offsetting the decline in interest expense net is an increase in interest expense related to finance leases of $2 million, which rose from $3.5 million in Q1 2023 to $5.5 million in Q1 2024. That increase is a product of new company-operated shop openings and the portion of those openings, where leases have been classified as finance leases for accounting purposes. Not discounting the continuing potential of uncertainty in the consumer landscape going forward, we are updating guidance for the balance of the year on the strength of our Q1 performance. As we look forward, it will always be our desire to remain nimble. In that respect, we are seeing attractive returns on both our people and marketing investments, and we believe the strength of our four-wall model enables us to make and accelerate investments that bolster our brand. With this backdrop, we are issuing the following update to our original 2024 guidance. Total revenues are now projected to be between $1.2 billion and $1.215 billion, or an increase of $10 million from our original guidance. Adjusted EBITDA is now estimated to be between $195 million and $205 million, or an increase of $10 million from our original guidance. When we look at the remainder of the year, we expect to see quarterly adjusted EBITDA results, more close to one another than we have seen in prior years. We would expect Q2 and Q3 will remain slightly stronger quarters seasonally than Q4; however, less pronounced. There are no changes to our original guidance as it relates to the following aspects: total system shop openings remain in the range of 150 to 165, same shop sales growth remain in low single digits, capital expenditures are estimated to remain in the range of $280 million to $320 million. In summary, it was an outstanding first quarter and start to 2024. These results demonstrate that improvements made last year are beginning to take hold and help position us to navigate the dynamic consumer environment. We look forward to a review of our quarter two results in early August. Thank you. And now, we will take your questions. Operator, please open the lines.
Operator: Thank you, sir. [Operator Instructions] Our first question comes from John Ivankoe of JPMorgan. Please go ahead.
John Ivankoe: Hi. Thank you very much. Yes. the question is on mobile order and pay. And as you see it, you mentioned, it would significantly speed up the ordering process. but you don't expect to actually reduce the amount of hours that you have for store-level employees. So, are you expecting to reallocate some of the outside employees to perhaps inside? And as you speed up the ordering process, do you also have similar plans to speed up the production process? In other words, are we just shifting the bottleneck from one thing to another, or can both aspects of the Dutch Bros production system speed up at the same time? Obviously, I'm asking in a long-winded way, how much this actually could, at least in theory, help throughput at peak hours given many of your stores currently being at capacity? Thank you.
Christine Barone: Thanks, John. As we're just getting started on testing mobile order. So, we're in several shops now in Arizona. And as we look at kind of where we can speed up both production and the lines, a couple of things to note is one, we do have variability across our system in our AUVs. and so, we do have a number of shops that are operating at very, very high AUVs, where we have different deployment standards in those shops, because of those very high AUVs. So, as we take that as learning as we go into something like mobile order, we have a very thoughtful way of -- at different volumes how we can best deploy our teams and best get through our lines. And so, you're exactly right that as we look at mobile order and pay, we think it's incredibly important that we really keep our brand differentiator, and that brand differentiator is our service. And so that we will deploy more folks to making sure that we have great conversations with our customers, including both at the window and in line. So, if you drive through the line, you're going to have an awesome conversation as you come through, have someone reach you, and say you got a mobile order. Let me help you with that. If you come up to the window, you're going to come and have that same conversation. And so, it's very intentional that we want reinvest this labor back into both production and into ensuring that we can have great conversations with our customers.
John Ivankoe: And if I can, some of the new stores that you will be building that will be launched with mobile order and pay. Do you expect those stores to actually have some different design or functionality than maybe some of your legacy system that was originally opened without the system?
Christine Barone: Yes. So, a couple of things on that. I think, one, for the last several years we have opened shops, with a number of escape lanes in them, which will allow us to run drinks out to our customers and then have them lean -- leave that line before they reach the window. As we're drawing shops today, we're certainly highly cognizant that we will have mobile order capabilities in those shops in the future. And so, as we think about that we're thinking about all different types of things like parking, we're thinking about the lines, we're thinking about the escape lanes. But as you know, it does take a while for drawings to work their way through the pipeline and system. That being said, I do think we have an ideal setup, in many of our locations for mobile order, by having both a walk-up window and a drive-through lane. And having that walk-up window, I think, is going to be a very natural behavior for our customers, who can come in, park in our lots and then just walk up and, have a great conversation with our breweries and grab their drink.
John Ivankoe: Look forward to it and Charley, have a great time. Congratulations.
Charley Jemley: Thanks, John.
Operator: Our next question comes from Andy Barish of Jefferies. Please go ahead.
Andy Barish: Hey, guys. Yes, great working with you Charley. Just wondering kind of, on your comments on April and the consumer environment, I mean, your -- after an incredible start, your guide for the rest of the year implies pretty modest things for sales growth. So just kind of wondering, what's in there besides a fair amount of conservatism, I would imagine?
Christine Barone: Thanks for your question, Andy. So, if we look at the rest of the year, one thing, we're being very thoughtful about is, what the rollover looks like from last year. So, we did see acceleration between Q1 and Q2 last year, in our same shop sales and in our traffic between those two quarters and really throughout the rest of the year. As we look at our guidance, we're also taking into consideration numerous price moves. And as I shared, when we look at April, one of the unique things about q1, is that we had one promo in 2023, and we lapped that this year with two promos. So, having protein, coffee and boba, lapping over our white chocolate lavender launch from last year. So that's just something that's a little bit different between the two years of the timing of those promos that we wanted to make sure that we note it.
Charley Jemley: And Andy, some -- as we mentioned in the last quarter, we expect some additional costs to start flowing into the P&L from quarter two onward. Those still hold, that would be the California wage that would be the tech investments that we're making to get ready for mobile order and pay. So, not only the rollover challenge gets more significant as you go from Q2 forward, but our cost change shift is also going to slow things down a little bit.
Andy Barish: Got it. and if I could follow -- yes, that’s...
Christine Barone: And I was just going to note the final piece was around the rewards program. So, if you recall, we made the change to the rewards program at the end of March of 2023. and so, for the rest of the year, we will be lapping over, taking that a little bit of that discount out of the system for the rest of the year. All that said, we're super-happy with how Q1 went and, excited for the rest of the year.
Andy Barish: Yes. If I can just tell your product innovation commentary, I mean, I guess the simple question is why is it working so well for you and not so well for others?
Christine Barone: Yes. So, I think if we look at our product innovation, I think one of the things is, we're in a really unique time, I think in our growth cycle, where we're big enough to really innovate with our partners and bring unique products to market. But we can also do that really quickly, because of our size and scale, and our team's ability to adjust and bring new products in. I think if you look at how we did product innovation and how we looked at it is we were looking kind of externally at what are other things that are happening outside of us, what are things that our customers in particular are talking about and thinking about. And I think that protein coffee, occasion, you're really seeing kind of that growth in that protein market, as a functional beverage and how people are using it sometimes as a meal replacement, sometimes like in combination with their fitness routine. And then boba is just something really fun, I think, straight down the middle for us in our young customer base. And both of these things just felt like they really, really work, with our target customer and who we're going after. And I think that when we look at this, we're super-excited that we're going to have both of these for the rest of the year, as we continue to drive that excitement with our customers.
Andy Barish: Thank you very much.
Christine Barone: Thank you.
Operator: Our next question comes from Sharon Zackfia of William Blair. Please go ahead.
Sharon Zackfia: I guess, just a really basic numbers question. Charley, could you break down the comp for us in terms of traffic versus ticket?
Charley Jemley: Yes. Hi, Sharon. So, out of that 10% comp, February 29 contributed approximately a point of that. Menu pricing contributed approximately six points of that. Discount mix shifts generated about three points of that. The balance is then traffic and note that sales transfer is in there, and that was at the lower end of our expected range of 200 basis points to 300 basis points. And that's how you get the math.
Sharon Zackfia: Thank you. And then I'm just trying to think through kind of the really significant profit upside that we saw in the first quarter at least relative to the street. I know you don't give quarterly guidance. And then the raise for the year, which was kind of more modest than the upside and thinking through your conversation or comments that you made about the rest of the year, okay, more similar than normal, obviously implies some unit level margin degradation the rest of the year on a year-over-year basis. Can you help us think about kind of what you're going to see from a labor perspective in California, like what you're eating there? Because I think you did not take price and correct me if I'm wrong. And then secondarily, are you baking in more inflationary commodities than what you saw in the first quarter?
Christine Barone: Yes. So, let me start with we're obviously super pleased with our performance in Q1 with 120% year-over-year EBITDA growth. When we look at that, a couple of things to note. One is that we did have a pretty rapid acceleration in February, March of our same shop sales. And oftentimes, when you have that type of acceleration in your sales, it's actually hard to staff against that type of growth. And so that is something that as we move into the year, we really want our shops to be staffed in the best way possible. And so, we're just going to be very thoughtful about that and know that we had a unique acceleration throughout the quarter. The second piece is exactly what you noted is that the April, California wage increase happened on April 1st, and so is not in those Q1 numbers. I'll turn it over to Charley to give a few more specifics on that, but those are two of the big themes there.
Charley Jemley: Yes. And I think you asked about commodities and there's really no big movement there. We noted in the first quarter, it was pretty neutral, a little bit of help. We don't expect a lot of change there, balance of the year. The other thing is just to remind that we have these costs and investments coming into our P&L as we go through the balance of the year. We mentioned the California wage. We also have the tech investments related to mobile order and pay, and those will start moving into our P&L more fully. And then I talked about the shape of earnings and how we went into the year very confident in the first quarter. We delivered a great number. And so, as we move through the year, we would expect that a more normal sequence from quarter one to two and three than you've seen in the past. So, we expect a tighter absolute range of profitability, as you start looking at two and three, and then less fall off in four than we normally -- than we would have experienced in the past. So, I think looking at your trajectory of the absolute profit dollars in the quarter, just be mindful of that.
Christine Barone: You and Charley, best of luck.
Sharon Zackfia: Thank you.
Operator: The next question comes from Chris O'Cull of Stifel. Please go ahead.
Patrick Johnson: Great. Thanks. Hey, guys. This is Patrick on for Chris. Charley, obviously, been a pleasure. So, Christine, I did want to start with the paid advertising, and I'm curious if you feel like you found an effective marketing mix that you believe will increase brand awareness, specifically in markets like Texas that maybe cannot only help comps, but also start to address some of that new unit volume pressure you've been seeing?
Christine Barone: Thanks, Patrick. Yes. that is an area that we absolutely saw success within Q1. And so, we really started kind of experimenting in earnest in Q4 of last year with different channels, different messaging and how best to reach new customers, particularly in new markets. And we're incredibly encouraged by the results that we're seeing of that work. And I think that with the very strong rewards penetration that we have at that 66% of transactions, we have an awesome channel to talk to existing customers, especially in our mature markets, where that penetration rate is even higher, and we really are using our paid spend and our paid advertising, to go after, introducing new customers to our brand.
Patrick Johnson: Great. That's helpful. And then I did want to follow up on your comments around category defining innovation. And I realize you're not going to share identified opportunities or upcoming products by any means. But can you help us understand the strength of the pipeline of ideas that you currently have that you feel could be category defining or innovative? And then how should we be thinking about the pace of product launches in the similar vein of what you did in the first quarter as we think about the rest of the year or even into 2025, and whether or not there's a certain cadence that we should be sort of thinking about?
Christine Barone: Yes. So, I'll start with, I think, the protein coffee is just a really great example of this, where it really is a new use occasion, for our customers in a way that they likely hadn't used us in the past. So, it can create repeat purchase. It sometimes, I think, can even hit customers that maybe, are new customers to us. And so, the reason we would call something like that category defining is, it's really a whole new group of products for us that's different than the other things that we have. And I think as we go through the rest of the year, one thing to note, I think with the launch of both the keeping the strawberry boba on the menu and having the protein coffee on the menu, I think, you could expect us to continue, to innovate around these two pieces as we go through the year in addition to having a pipeline of other great products as we go through the year. We were very pleased with what we're starting to see with this, like two-month promo cadence. and so, having something around that. But, again, it's an area that we continue to look at to understand what's working best, in -- with our customers in our brewery stores.
Patrick Johnson: Very helpful. Thanks, guys.
Christine Barone: Thank you.
Operator: Our next question comes from Brian Mullan of Piper Sandler. Please go ahead.
Brian Mullan: Hey, thank you. Just a question on the entrance into Florida. Christine, you spoke to a good start in the prepared remarks. Maybe, you could just elaborate, talk about what you're doing on the brand awareness front and seeing what the consumer reception. And then just related, just to confirm, is it fair to say the stores are hitting your underwriting expectations thus far from an AUV and a margin perspective? If you could just comment on that too, that would be great.
Christine Barone: Yes. I would share it's definitely still early. I think what we were very pleased by is to go and open into a new market. We just saw lots of buzz around our openings. We were able to see that we had customers coming from lots of different places away to come and visit us in our new shops. We only have two shops open, but as I shared, these shops are exceeding what we had expected them to do. So, very excited to be in this new market and to be meeting lots of new customers in Florida.
Brian Mullan: Okay. Thank you. And Charley, congrats, best of luck. Thank you.
Charley Jemley: Thanks, Brian.
Operator: Our next question comes from Sara Senatore of Bank of America. Please go ahead.
Sara Senatore: Thank you. I wanted to ask, I guess, a couple of questions. One is, if you could just talk a bit about the mobile order and you -- I think it sounded like the expectation is that, you will be a part of the consideration set of customers. So, that does that mean bringing in new customers and -- or is it a greater frequency with existing customers? I think we've seen from other restaurants that sometimes the mobile app is a good customer acquisition tool. but I wanted to get your thoughts on that and then I do have a follow-up.
Christine Barone: Yes. I think that it actually could be both of how we'd consider it. I do think as, our expectation would be as we roll this out in early days that we have such strong penetration already of our Rewards app that this would likely start with our existing customers and potentially introduce a new occasion, where they had a time crunch or were a little bit worried about potentially waiting in a long line. The other thing I think we've seen in some of the industry comments is that the -- for the AM Day part that, that mobile order might be particularly important just given I think people have a little bit more time crunch sometimes in the morning. And so, our ability to potentially capture new occasions in the morning as we roll out mobile order and pay is something that we're definitely excited about.
Sara Senatore: Understood. Okay. And then the second -- thank you. The second question was just on advertising. I think, a lot of times it appears that advertising spend actually kind of compounds over time. So, as I think about that as a driver, I understand that your compares maybe get a little bit more difficult. But I think you also have sort of this, I guess, virtuous cycle perhaps maybe what to characterize it. So, as you think about advertising, is it just, in each quarter, advertising drive traffic and trial, and then you kind of start from zero again? Or is that something that you would expect to see where it builds on itself over time?
Christine Barone: Yes. I do think that it could be reasonable to think through that it would build over time. I think we are also getting smarter and learning more with what the most effective channels are for us, what the most effective pacing and sequencing of that paid advertising is. And it really encourages us to make additional investments in paid advertising given the very strong results, we believe we're seeing right now.
Sara Senatore: Got it. Okay. Thank you, and congrats, Charley. You will be missed.
Charley Jemley: Thank you.
Operator: The next question comes from David Tarantino of Baird. Please go ahead.
David Tarantino: Hi. Good afternoon. My question is on the advertising. Christine, I think you mentioned being pleased with the results you're seeing in some of the newer markets. And I was wondering if you could just elaborate on what you're measuring or what results you're looking at when you make that statement. Is it the sales response or is it some sort of awareness metric? Or how are you measuring success at this point?
Christine Barone: The primary success metric that we're looking at right now, is our same shop sales trends. We do also have detailed metrics on views and click throughs, and all of those types of things. but we -- this is something that we're excited when it shows up in our traffic and same shop sales trends.
David Tarantino: Got it. Okay. Thank you for that. And then on the rewards program, it seems like that has been a pretty big driver from a year-over-year perspective, it didn't seem like you were doing much last year. Now, you're doing a lot in that rewards program in terms of communication. So, I wanted to get your thoughts. You're going to be cycling some of that initial surge coming up. I just wanted to get your thoughts on kind of what year two looks like. and how you refine that program in a way to keep this as sales driver as you think about year two year three?
Christine Barone: Yes. So, I'd say as we did the reset at the end of March of 2023. and as we moved into April and had that extra discount that we really deployed against traffic driving, we started with testing more mass offers to really almost our entire audience. As we moved through the balance of 2023, we started to be able to segment a little bit, and we were obviously learning from what was successful, what drives results, and we continue to roll to use that over time. So, I think when you think about a program like this, we are still in the relatively early innings of it, where we still have more segmentation to go. We still are building our database of what works and doesn't work. Obviously, we're always in an evolving consumer landscape. and so, understanding what others are doing and how that impacts the offers that we're doing. And we're also building what I would say is our operational capabilities to deploy offers, even more quickly. So, we can almost slate a whole bunch of offers in a row and then decide which ones to pull as we go through a quarter. And so, a lot of that is actually still new, as we comp through that, over the first half of this year.
David Tarantino: Great. Thank you very much and best of luck, Charley.
Charley Jemley: Thank you, David.
Operator: Thank you. [Operator Instructions] Our next question comes from Jeffrey Bernstein of Barclays. Please go ahead.
Jeffrey Bernstein: Great. Thank you very much. And congrats, Charley, clearly leaving on a high note. Best of luck.
Charley Jemley: Thank you.
Jeffrey Bernstein: I had a question and then a follow-up. So, my question is just -- well, it's actually a follow-up as well. The magnitude of the traffic and ticket, I know you mentioned it was tempered in April versus what would likely have been, I'm guessing a teen exit rate in the first quarter, especially with January being pressured, I would assume, therefore February and March were above that 10% for the full quarter. As you think about that tempering in April, any sign of macro slowdown or pressure from the lower-end consumer, or do you see it all as really just compares and the outages and the lap of the rewards? Just trying to get a sense for the second quarter comp. Obviously, the quarter is almost halfway done and just because it was such a strong Q1 comp, I just want to make sure we're all on the same page as to what we should be thinking for that second quarter comp with that low single-digit full-year guide intact. And then I had one follow-up.
Christine Barone: Yes. I think at this point, from what we see, we believe a lot of it is these internal factors that we were outlining. So, one, looking at kind of that core underlying traffic change between Q1 and Q2of 2023. So, what we're lapping over. The other piece is, is this piece, where we had the extra promo in Q1, and then having so having the implications of that in Q2. We also had such incredibly strong demand for boba as we launched in March that despite ordering more product very quickly, we did have fairly significant outages in our shops at the end of April of boba, which we're starting to replenish now into our shops. And so, all of those different factors are really internal factors that we believe that we're seeing and that start to Q2.
Jeffrey Bernstein: Understood. And then my follow-up is just on the California performance. I know you mentioned that there was reference to price increases that you did or did not take in California. Just looking to clarify what exactly you guys did in California. And have you seen any change in trajectory of your performance or anything you'd note about the industry over the past five or six weeks, just because you have such a significant presence there and it is such an unusual event? Any thoughts would be great. Thank you.
Charley Jemley: So, a couple of facts there. In January, when the legislated minimum wage for all workers went up in California, we took a slight price advance. And then on April 1, when the FAST Act kicked in, we also took a price advance. That price advance was designed to keep us as close to penny profit hole as possible, not margin accretive. And then I think we are watching this very closely. It would be far too early to declare any knowledge of whether this is going to have any lasting effect on traffic at this point.
Jeffrey Bernstein: Thank you.
Operator: Our next question comes from Nick Setyan of Wedbush Securities. Please go ahead.
Nick Setyan: Thanks. And I just want to echo my congratulations for Q1 and it's been great working with you, Charley. I do think this Q2 kind of guidance commentary and the full-year guidance is really important to touch back upon. Just given the strength of Q1, I mean, we could potentially have a negative comp for the rest of the year and still have low single-digit comps. So, to the extent possible, it would just be really helpful if you could kind of maybe incrementally clarify what you're seeing in April and what you expect the comp to be in Q2 if possible?
Charley Jemley: Well, we won't give you a Q2 comp. but I think it's important to get some context. So, last year, we had a negative 2% comp in the first quarter. Last year, we had a positive 4% comp in the second quarter. So, that's a four-point swing. This year, we had a six we mentioned a six-point price help in the quarter. That will moderate particularly as we move the balance of the year. So, you both have -- you just have this pricing rollover is going down. And so, we're just -- we're moving through an average of about a four comp we have to lap in the back three quarters of this year versus lapping a negative 2%. So, it's -- it isn't that we have a negative or not an optimistic view of the balance of the year. It is just -- it is a product of the math, when you look at it.
Nick Setyan: Fair enough. And just as a follow-up, maybe just on the pricing piece, there was six points in Q1. What do we expect pricing to be in Q2?
Charley Jemley: So, approximately 6% to 7% rollover health in Q2. and then that will moderate significantly as you go to 3% and 4%.
Nick Setyan: Okay. Thank you very much.
Operator: Our next question comes from Andrew Charles of TD Cowen. Please go ahead.
Andrew Charles: Great. Thank you. Just want to start by saying congratulations to both Charley and Josh. Christine, very exciting commentary about the new store performance you're seeing in Florida. Can you speak to what you're seeing relative to the overall base with new store productivity? you're curious how this has been trending recognized that you had been guiding to a flat year for new store volumes for 2024 relatively 2023. I wonder if that's still on track and that's still the way to think about this economics for this year.
Christine Barone: Yes. So, as we look at new shop productivity, again, we're just getting started in Florida and with those two shops, although we're incredibly pleased with their performance, we do still plan to open 150 to 165 shops this year. So, Florida is not going to be the lion's share of the openings for this year. We did see new shop productivity improve in Q1 of 2024. On the back of our strong new unit openings and sales growth, we're continuing to see some really big openings in some of our mature markets and then are pleased with the results that we're seeing from kind of the building awareness efforts in that paid advertising.
Andrew Charles: Great. And just maybe, moving into the advertising, can you help us quantify how much more investment you're putting into that relative to the expectations you previously had? I know it's been an area of focus and now you're stepping up in 2024. Thanks.
Christine Barone: Yes. So, we haven't shared that number in particular. We do expect a small step-up in our advertising spend and we're continuing to evaluate that though as we go throughout the year. And one of the things is we can measure that and as we're looking more closely as what is happening to our traffic trends and our same shop sales trends from that, we are allowing ourselves kind of the ability to spend up in those areas as we see results from it.
Andrew Charles: Great. Thank you so much and best wishes, Charley.
Charley Jemley: Thank you.
Operator: The next question comes from Jeff Farmer of Gordon Haskett. Please go ahead.
Jeff Farmer: Thank you. And Charley, enjoy everything that you pursue in the future. I have a quick question and a follow-up. On the question, roughly ballpark, how many Texas shops have actually made it into the comparable store base? I think it's roughly 15 months. And of those shops, Texas shops that are in the comp base, are they acting as a same-store sales tailwind? How are they showing up in the comp base?
Charley Jemley: Yes. We don't disclose individual state comps. But there were 77 shops, am I correct here, Paddy, in the comp base in the first quarter for Texas, 77 out of roughly 175 there now.
Jeff Farmer: Okay. And then just on the follow-up, how are you thinking about sales transfer in coming quarters? You mentioned that it was, I think 200 basis points of headwinds, a little bit better than you thought it was going to be. How should we be thinking about sales transfer moving forward?
Charley Jemley: Yes. So, we have a range and expected range of 200 basis points to 300 basis points. You're correct there that we said this quarter, it was in the lower end of that range. And as we go through the year, as the comp base gets bigger, the impact of sales transfer starts to moderate. So, we would expect to move towards the lower end of that range as we go throughout the year.
Jeff Farmer: All right. Thank you. Best of luck, Charley.
Charley Jemley: Thank you.
Operator: Our final question comes from Dennis Geiger of UBS. Please go ahead.
Dennis Geiger: Thanks, guys. Just wondering if you could speak to competition at all as others try to replicate your success and get into energy or other categories that you've gotten into. Any updated or latest thoughts on that dynamic? Is it something, where it's maybe a benefit as marketing, advertising draws attention to the category? Any latest thoughts on that?
Christine Barone: Yes. I think that as we look across, there we've always been in a very competitive market. And so, we will continue to be in a competitive market. As I look at like others trying to do some of the things that we're doing, I do think if big advertising budgets come in and share some of the things that are important to us. it very likely could be a benefit to us. I think most importantly, for us, it's really staying very, very true to who we are, understanding why our customers are coming back to us and continuing to have beverages with us and enjoy our service is what's super important. And I think that, at a time like this, where you do have customers, who are really thinking through how to spend their wallets, that it's really important to stay true to what makes you incredibly successful. And for us, it absolutely is our broistas and the service they offer to our customers.
Dennis Geiger: Makes sense. Thank you, and congrats.
Christine Barone: Thank you. Thanks for your questions. In closing, I'd also like to invite everyone to join us for our 18th annual Drink One for Dane Day. On May 17th, our customers and crews will honor our co-founder, Dane Boersma, who passed away in 2009 following a battle with ALS. Drink One for Dane is one of the most meaningful days of the year for Dutch Bros. Last year, our customers, franchisees and vendors joined together to support our foundation in donating $2.5 million to the Muscular Dystrophy Association to help find a cause and cure for ALS. We look forward to continuing to make an impact in 2024 and beyond. The impact Dutch Bros is making in our communities and the lives of our broistas continues to grow. We are pleased with our results in Q1 and believe our business is in a position of strength. I want to thank all of our teams that create this exceptional performance by connecting with our customers and communities every single day. Thank you.
Operator: Thank you. Ladies and gentlemen, that concludes today's event. Thank you for attending and you may now disconnect your lines.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.