Q3 2019 Earnings Call
Gentlemen, thank you for standing by welcome to the Dunkin' Brands' third quarter 2019 earnings call. At this time all participants are in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During this session you'll need to press star one on your telephone as reminder, studies program may be recorded and now I'd like.
To introduce your host for today's program Stacey Caravella Senior Director Investor Relations. Please go ahead.
Thank you Jonathan and good morning, everyone.
Speaking on today's call will be Dunkin' brands, Chief Executive Officer, Dave Hoffman, and Dunkin' brands, Chief Financial Officer, Kate just fine.
Additionally, Scott Murphy, Chief operating officer for Dunkin' U.S. is here and will be available for questions. During the Q and 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 today 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 this call.
Our release can be found on our website investor Dot Dunkin' brands Dotcom, along with any reconciliation of non-GAAP financial measures mentioned on the call with their corresponding GAAP measures now I'll turn the call over to Dave Hoffman.
Thanks Stacy.
Hi, everyone and just to begin we delivered a strong third quarter with global system wide sales growth of 4.7% Global development of 122, net new units and positive same store sales growth across all of our business segments.
Around the world our focus was consistent delivery to more modern guest experience through operational excellence everyday value and relevant new menu innovation.
Okay, starting with Duncan U.S. highlights for the quarter included 4.4% system wide sales growth and 1.5% same store sales growth performance was driven by premium beverages, such as the spreads so and cold brew as well as our national value platform go too.
We were pleased to see beverages drive sequential comp improvement in the third quarter espresso sales grew more than 40% year over year led by the strong performance of new innovation on our signature Latte line.
And most importantly, we've maintained our operational speed, while growing the espresso category.
In fact, Dunkin' was recently named the brand with the fastest speed of service by QSR magazine, and its 2019 Drive-thru performance study.
Spreads. So obviously has not slowed us down great coffee fast is what we do best and what we will continue to drive.
It's been nearly 12 months since we relaunched the spreads so in a big way with new recipes equipment training and marketing and notably the quality improvements are driving our results, but we also know that we can do more we are a beverage led brand and a spread so as a big part of our future how.
However, we will also fight hard to protect our leadership in drip coffee, both hot nice which has experienced increasing competition in recent years.
Better quality enabled by better equipment is a cornerstone of the blueprint for growth.
Over the past few months, we've been out in the field installing new ice coffee Brewers nationwide. We are a leader in ice coffee and are taking meaningful steps to grow our market share.
Our next generation restaurant is in fact built around showcasing their leadership with the addition of an eight had a tap system a true symbol of not only our ice beverage credibility, but the bartender culture were Caribbean or restaurants as well.
Quality drinks served in the clean and friendly environment made right and of course with a smile. So what's your level, but your favorite place than what we're aiming for in our next gen locations as well.
We also know it's critical to offer compelling food value that will drive beverage attachment.
Go to choose our national value platform is doing exactly that.
Approximately 75% of go twos transactions also include a full price beverage with an average total ticket of nearly $9.
Innovation on premium food also contributed to our Q3 comp performance with the launch of the barbecue Bacon breakfast sandwich.
And our lineup of new breakfast bowls.
And finally, we are excited to be the first nationwide U.S. restaurant brand to serve beyond breakfast sausage beginning on November six.
So look forward to that.
I believe Dunkin' as a brand that can democratize trends, we did it with the spreads so and we believe there's an opportunity to do more when it comes to giving consumers great tasting on trend innovation like plant based proteins at an affordable price. This is exactly how we want to use our platform.
No as for our digital initiatives. This is another area, where we made smart investments last year, and where we are beginning to see some positive green shoots.
In September we announced two major enhancements to our digital offering first we made the DD perks loyalty program more flexible by expanding multi tender to members nationwide.
I'd perks members now can earn reward points any way, they pay including cash credit debit or within enrolled Duncan card.
Test results have shown that multi tender is driving incremental active enrollment with no material impact to margin.
We believe multi tender will be a true unlock to grow the DD perks program, both by expanding membership and by enabling more targeted marketing.
We ended the third quarter with more than 12 million loyalty members contributing approximately 13% of rooftop sales.
Also in the third quarter, we announced the addition of guest ordering for mobile on the go. This new feature allows any customer not just perks members to place a mobile order through the Duncan up.
Yes, checkout is just one more way customers can experienced the speed of Duncan exactly the way they want it.
We processed over 18 million on the go mobile orders in the third quarter, which is a 25% increase versus prior year.
By giving guests even broader access to mobile ordering we believe we can build this base and fuel further growth in our digital ecosystem.
There is tremendous runway ahead of us when it comes to growing our digital platform. These latest advances multi tender and guest checkout along with the recent expansion of Duncan delivers are all designed to make the Duncan experience as frictionless as possible.
The strategic investments, we made in the business last year, including into our beverage and digital platforms are enabling us to drive topline results.
And deliver a better guest experience.
While staying true to our asset light model, we will continue to evaluate opportunities for strategic investments in the Dunkin' us business with the goal of driving.
Balance long term growth.
System wide sales expansion strong unit level economics and of course franchisee profitability.
To date, we're very pleased with the returns from our investments that we made last year.
Alright, moving on to development.
During the quarter, we topped 13000 Duncan restaurants globally, including the addition of 55 net new units in the U.S.
In October 14th our 400, Nexgen restaurant opened in Pennsylvania.
Our franchisees continue to be pleased with the results from the next Gen image key elements of the new design are driving double digit category increases with sales and traffic growth coming from core iced beverages delivered through the PTAB system.
Bakery performance from the front facing glass case, and increased mobile order and pay from the enhanced pick up area.
The next Gen store transformation is also driving noticeable change for our customers guests love. The modern appearance as proof of that guest satisfaction scores in nexgen restaurants are trending higher than in the and other Duncan locations.
Next Gen is the embodiment of the blueprint for growth and underscores our commitment to serving great coffee fast.
We're on pace to have 500, nexgen restaurants opened by year end between Newbuilds and Remodels.
And we will address our 2020 remodel pace when we provide guidance in conjunction with Q4 2019 earnings.
All right now to basket in the third quarter Baskin Robbins U.S. stay the same store sales grew 3.6%.
Growth was driven by strong performance of Cups, and cones to take home category as well as the successful partnership with Netflix hit show Stranger things.
Great tasting products that speak to modern and relevant moments and pop culture.
It's a proven formula that resonates around the world and is at the heart of Baskin Robbins.
In the third quarter, we also introduced to dairy free began flavors nationwide our entrance into the plant based dessert category recognizes the changing lifestyle and dietary needs of customers.
Gives customers new options without sacrificing the high quality guests have come to expect from Baskin Robbins ice cream and another great way, we can use our platform.
To scale these great products.
Alright, moving on international.
Q3 was a terrific quarter for both brands abroad, with Duncan and Baskin Robbins, posting same store sales growth of 7.3%.
And 3% respectively.
Q3 marks the ninth consecutive quarter of positive comp store sales growth for Dunkin' International results are reflective of the progress, we're making on or international strategy, which is focused on enhancing the in store experience, establishing a strong delivery infrastructure and growing non traditional sales Jan.
Models.
We're very pleased with the progress we're making on delivery. We now have third party options available in the majority of our international markets.
And some of our most successful markets are seen a double digit lift in restaurant sales from delivery.
This is a major unlock to future growth and we're ready to capitalize on it and Boomerang, our learnings back to the us.
So around the world we're committed the transformation by staying true to the brand heritage of Duncan and Baskin why also stay nimble to meet the unique needs of our local markets and with that I'll now turn it over to Kate.
Thanks, Dave.
Q3 revenues increased 5.9 million or 1.7% compared to the prior year period due primarily to an increase in royalty income as a result of Dunkin' us system wide sales growth.
And an increase in rental income.
Offset by decreases in advertising and.
And franchisees.
As we've discussed in previous quarters, the increase in rental income resulted from the adoption of the new lease accounting standard.
The first quarter fiscal 2019.
It's requires gross presentation of certain lease costs that we passed through to franchisees.
The decrease in advertising feeds and related income was due primarily to a decrease in gift card program service fees.
Offset by an increase in advertising fees as a result of the system wide sales growth.
The decrease in franchise fees was primarily the result of franchisee incentives.
Including investments to support the Dunkin' us blueprint for growth.
That are being recognized over the remaining term of each respective franchise agreement.
Operating income and adjusted operating income for the third quarter increased $9.8 million or 8.7%.
$9.1 million or 7.8%, respectively compared to the prior year period.
The increase was primarily a result of the gross and royalty income.
A decrease in DNA expenses.
And an increase in net income from our South Korean joint venture off.
Offset by the decrease in franchise fees.
Net income and adjusted net income for the third quarter increased by 6.3 million or 9.5%.
And 5.8 million or 8.3% respectively.
Compared to the prior year period.
Primarily as a result of the increases in operating income and adjusted operating income as well as an increase in interest income earned on our cash balances.
Offset by an increase income tax expense.
The increase in income tax expense was driven primarily by excess tax benefits from share based compensation.
Of $1.8 million.
Compared to 7.4 million in the prior year period.
And the increase in pre tax income in the current period.
This was offset by a tax benefit of $2 million related to the ability to utilize additional foreign tax.
Credit carry for it.
Diluted earnings per share and diluted adjusted earnings per share for the third quarter increased by 8.9% to 86 cents.
And 8.4% to 90 cents respectively.
Compared to the prior year period as a result of the increases in net income and adjusted net income respectively.
Excluding the impact of recognized excess tax benefits.
Both diluted earnings per share and diluted adjusted earnings per share we have been lower by approximately two cents.
And nine cents for the third quarter of fiscal 2019 in 2018, respectively.
At the end of the third quarter, we had a debt to adjusted EBITDA ratio of five to one.
During the quarter, we generated approximately 75 million in free cash flow.
We ended the quarter with 617 million in cash and short term restricted cash on our balance sheet.
Of that 617 million.
179 million represents cash associated with our gift card and marketing fund balances.
We returned 46 million in cash to shareholders during the quarter.
Including 31 million and dividends.
15 million through open market share repurchases.
In our press release. This morning, we reiterated the majority of our target with the exception of the following.
We now expect ice cream margin dollars to be approximately 16 million.
Previously, we expected margin would be flat compared to 20 eighteens ice cream margin of 17.8 million.
We now expect our full year effective tax rate to be approximately 25%.
Previously we expected 27%.
This revised tax rate guidance reflects realize excess tax benefits through the third quarter.
As well as the $2 million tax benefit from foreign tax credit recorded in the third quarter.
This tax guidance excludes any potential future impact from material excess tax benefits that may be recorded in the fourth quarter of fiscal 2019.
We now expect GAAP diluted earnings per share of $2, an 80 cents to $2.85.
Previously, we expected $2.71 to $2.78.
And expect diluted adjusted earnings per share of $3.10.
Q3 dollars and 12 cents.
Previously, we expected $3.02 to $3.05.
This updated guidance reflects the realized tax benefits in Q3 as well as a tightening of our range as we head into our fourth quarter.
And with that I will hand, it over to the operator for questions.
Certainly once again, ladies and gentlemen, if you have a question at this time. Please press Star then one and you touched on telephone. If your question has been answered and you'd like to move yourself from the could you. Please press the pound key our first question comes from the line of John Ivankoe from JP Morgan Your question. Please.
Hi, Thank you.
Obviously has a significantly free cash flow generated company, having a balance sheet kind of in the midpoint new range and.
You are kind of give it to finance for awhile now and a lot of unrestricted cash and the question that I'm going to ask is how you kind of think about future franchise investments whether directly at an operating cost basis, perhaps on a capital cost basis that weve relates you learned anything over the last couple of years, especially in terms of.
<unk> of its processor modernization as we think about the 2021 type of plans. If we should begin to kind of think about you know you may be getting more involved in the franchise system as you see the returns and the benefits to both the franchisees and the system overall.
Yes, John Thanks for the question and look the way I would if we just look back we're pleased with the investments as I said.
In my opening that we've made a 100 million that we invested back into businesses for us so doing very very well for us we're starting to see the green shoots of the investments that we made in digital and Stephanie Meltzer Paul is in the room here to talk about all of those so we're very we're very bullish on that.
As I said at the end of Q2.
All options are on the table in terms of.
Evaluating what's the best place to use the cash right now we're comfortable having to sit there on the balance sheet cake and go through that a bit more but look any any good we look at the economy as well we think the consumer is very healthy, but it's also a prudent for us to.
Make plans and.
Again continue to have good cost controls wholesome cash back to be opportunistic if the economy turns on us.
But we feel very good about where the consumer isn't like I said, we're still working through the first 100 million.
And we'll keep everything on the table in terms of.
That option.
And I guess I you know as you look at the number of Remodels, which are disclosing in the in the third quarter.
A year ago are you at the pace that you thought you would be and is there still some fine tuning our franchisees still waiting to see something from the weather just more experience across the system, whether you're kind of looking at the cost or understanding the sales benefit or maybe some operational changes.
That that they wanted to be convinced of audio to increase the rate of Remodels, which is still relatively small versus the five year system.
Hey, John It's Scott and I'd say, you're right we're still.
The number is still small so far but we're very excited about where we are with the remodel package franchisees are on board will give our actual guidance next year. When we give our Q4 earnings if you remember we released.
The final remodel design image on July Onest. So that is our official design release now we continue to Iterates small things as we see more of them out there in the wild and we get improvements that we start making changes on because we're getting great back from the great feedback from the operators and from customers and we'll continue to tweak, but we feel really good about it right now.
Thanks.
Thank you. Our next question comes on line of Jeffrey Bernstein from Barclays. Your question. Please.
Great. Thank you too as well just first one on breakfast just wondering your thoughts on the the category as a whole with one of the big Burger players getting into the breakfast day part with the National launch in a few months and maybe the implications for a more competitive.
Apart from all your peers, just wondering whether there's any change in your posture on the day part or how you think about that or whether it's business as usual, which is ongoing competition and then I had one follow up.
Yes, Hi, Jeff, yes, thanks for that.
You know you're going to hear me continue to say this all the time everyday we fight a battle on all fronts, everyone wants to get into our space. We've always come out strong so one new competitor won't change that.
I think it's all the more reason why we're very much likely focused on what we do best which is great coffee fast, we're doubling down on quality value exciting new menu innovation and Thats, a big part of the focus going forward, but one new competitor Doesnt change that and we'll keep doing what we do best.
Gotcha and I'm, just a follow up on the U.S. comp for Dunkin' just wondering if you can offer up any maybe sequential trends through the quarter into this quarter. I know you mentioned higher ticket lower traffic I'm, just trying to kind of size of the magnitude of that or if you want to get the specifics on that maybe the directional change in those two metrics relative to earlier in the year as traffic getting better at.
Worse or all the day parts still comping positive. Thank you.
Yes.
Well, we don't.
In Q ticket to too far I will say that quarter sequentially quarter to quarter, we were relatively consistent from the breakdown within our comp, but coming out of the quarter, we actually accelerated.
Through the month out of the quarter from a comp perspective and saw.
Continued to see similar performance in both the am NPM as to the previous quarter.
Thank you.
Thank you. Our next question comes from the line of Andrew channels from Cowen and company. Your question. Please.
Great. Thanks, I was wondering you guys could talk about you saw in the beyond sauces assessment Hatton, particularly if sales at the product ramps or if they honeymooned as awareness grew.
So how do you extrapolate the test experiences you wrote nationally recognizing that Manhattan is likely show a higher mix of sales and beyond real to the rest the system.
Yeah. That's a you know a good insight there we were very pleased with outperformed in Manhattan, Obviously, that's a key market. We also had a tested in other parts of America that resemble more of a coast to coast play we love.
Obviously, we love the awareness that we got out of it but also the retrial as well and so versus the unit versus the initial launch.
It fell off just slightly but held steady.
All the way up to today. So we're very excited about this we love the opportunity to be able to lead in this views our platform to bring this up.
To America.
You've heard me say.
My line is Duncan Democratizes trends in America, we absolutely believe that and we're just happy to be at the forefront of this great innovation and so it just gives us an opportunity to use their platform to get consumers more options and choice but.
Again November six the be ready, it's going live across the country.
Makes sense and then my other question just on 20 on Ting guidance reiterating the low end of the Dunkin' us openings.
These were little bit better than we industry, we're expecting and do the math right looks like 65 implied Duncan us net openings and for Q.
Revenue for Q for between has been public company, we've seen over 100, plus openings and so just curious about the guidance, there's something the fourth quarter Thats, one off or is it really just conservatism.
Yes. This is Kate if not conservatism, we're performing where we thought obviously, we continued to be backend loaded. So the majority of our openings will come in Q4, a lot of those happening at the ended the quarter in stem around things like getting approvals from towns for permitting and some weather built in there so nothing on.
Unusual.
Gotcha, Thanks, guys. Thanks.
Thank you. Our next question comes on line of David Tarantino from Baird. Your question. Please.
Hi, Good morning, I wanted to ask about the DD perks engagement initiatives and I guess I've noticed a pretty significant uptick.
The amount of activity in the program and just wondering if you could talk about the strategy, there, where you are where where you're going and and what type of impact that is having on the business. Thanks.
Yes, David I'm going to turn it over to Stephanie milk, So most of Meltzer Paul Who's our.
Head of digital here and she is in the room and is doing a fabulous job and has been with us probably about a year and a half now and.
Really doing a great job with us so I'll just let her take it from here Hi, David Stephanie. Thanks, So much for the question. We're very excited about our roadmap for DD perks. The multi tender unlock we think is going to give us tremendous upside.
We just launched that in the last month nationally, but based on the pilot that we ran earlier in the year, we know that really going to unlock the program and open it up to a lot more members lowering them to pay anyway and that is just one of our major big enhancements in terms of investment in the DD Perks program as we go into two.
2020.
Yes, David just add.
Good.
Talk for Stephanie as well in terms of how she's approaches I think when she came and she thought there was a lot of handcuffs, maybe on our loyalty program and the way we constricted the top of the funnel and so a big part of what she has done is just tried to open that funnel you see that with multi tender you see that with guest checkout and and again. She has got a really good plan on how we're going to market that.
And drive new usage and there in 2020.
Great and maybe a follow up I think Kate mentioned an acceleration.
And trends at the end of the corridor and.
This was this part of that I guess, that's when we read notice.
Tick in activity or was it something else.
Yet to too early to say on on the digital we're excited about it but.
Too early to say that it's just that.
Really as I mentioned upfront, David it's been a lot around.
We're we're a tough out when we have our one two punch working for us in terms of innovation like signature lot days.
Compelling value like to go twos. So it was really more along those lines, but we're excited about what Stephanie is doing in the investments like I said around the blueprint that we did and digital are starting to bear some fruit in terms of being able to for her to come in and.
Drive further demand to the App.
Great. Thank you. Thanks.
Thank you. Our next question comes from the line of John Glass from Morgan Stanley . Your question. Please.
Thanks, very much I wanted to go back to the Dunkin' us comps and.
Your cross country rivals last night reported very robust sales and traffic in their core business and it was beverage led.
And so.
Looking at Dunkin', how is your core beverage business I understand the special business has done well, but it's on a very small base in the food attachments all good.
But can you just talk about the court drip coffee business, the core ice coffee business, which I still think as the majority of your sales.
And where the trends have been if theres been stabilization or if that's still one of the biggest pressures on your traffic and how do you go about defending that business.
Given that given there maybe some pressure there yes.
And as you and I have talked before a big part of the blueprint was expanding our sweet spot.
Drip coffee in Donuts was very corridor, who we are we will continue to.
Drive that and again you will see.
More news about the up what we're doing around drip coffee in 2020 were excited about that but again news also about getting into new categories, such as the spreads so new for us where we can go after that and the big way So our ice coffee, where the biggest player in the market in terms of ice coffee and.
Look we are still very much in this may sound a bit repetitive and boring we have a five year blueprint plan.
We're working that long term plan, rather than managing to a quarter, we know where our peers are.
What we're delivering is exactly what we guided to.
We're also as you know better than others were 100% franchise.
We've got what we believe is the best partnership and relationship in the industry and bringing the franchisees along with US on this journey has been critical to what we believe is the long term success. So.
Im proud of the balance that we delivered on the quarter.
We especially what we did across both brands domestically and internationally, but clearly we all know that we can do more.
Okay and then.
Looking at the remodel remodeling as sort of the key piece of bringing the blueprint to life and you talked about how you're going to give some guidance in 2020 do you think at that point, you'll have a multiyear plan that you talk about how this is going to get financed so if there is a corporate contribution you'll be able to layout for us how that plays out or do you does that take more time to really assess how you might.
If you were involved in the funding about how you might be involved in it.
Yes, John will be very transparent on all that so thats all part of our thinking and again, we'll be very transparent as we get too when we release Q4 earnings and talk about it then.
Okay. Thank you.
Thank you. Our next question comes from the lined up Gregory Francfort from Bank of America. Your question. Please.
Hey, guys. Thanks for the question I just had to the first was on Remodels and any help in terms of what the sales lift has been so far or the returns that you're experiencing I know I know you only pointed out 500 by the end of the year, but any early reads. There and then the other question I had was just on on drive through speeds I think you called it.
On the call is.
I think you guys are the fastest drive through in America.
Can you maybe address if thats changed at all I think a few of your larger peers have been able to change that and kind of tilted back down pretty materially and I'm wondering if you guys have been able to see the same or referencing the same thanks.
Yes, Hey, Greg, It's Scott, Here's what I'd say on the remodel piece, we're not releasing the numbers, it's still a relatively small set on the remodel performance, but we're very happy with it as our franchisees. So we're seeing a nice growth out of the three core components of the front counter bakery. The obviously the top system and then the on the go mobile order pickup so very happy with it.
Franchisees are happy with the returns we're seeing.
So we'll we'll give more details on that next year when we get to scale on your second piece on drive through obviously, the blueprint comes to life with great coffee fast and so, especially through the drive through its where a lot of our focus is and whether it's small tactical things like hi, Def audio digital headsets.
Car counters, even the Q and the positioning of the menu boards were making a lot of small changes out. There. We're also doing some bigger things around digital that you'll hear about in the future, but for right now its brass tacks and we're seeing some nice improvements, especially in the am daypart on our speed and it was really nice to get recognized by the QSR magazine.
And maybe just a father when were you able to see that change I think.
A lot other players in the industry, if kind of seen the last six months and improvement there is that kind of also the timeframe for for wind Duncan has seen a change on that front. Thanks. So I would actually go back a little further I think it started with menu simplification. When we did that initiative and got some of the slower moving skews out of there. So the pickup we saw was even a little bit before that.
This summer was actually a nice time for us, though with the beverage focus, especially on Isis Bresseau really helped us with our speed during that season.
Thanks.
The other thing I would add on that one is.
And this is all the credit goes in the world to Scott and his team but.
As for US So rollout was really a challenge from us internally, but all of you, saying, Okay. This is going to slow down ops, and we put that out to the system and rallied around that and so.
There is a big tailwind around that piece as well so just.
Pretty much rolling up your bootstraps and getting after it and Thats what Scott in the team in the franchisees have done.
Thank you. Our next question comes from the line of David Palmer from Evercore ISI. Your question. Please.
Thanks.
Just a question on Reimaging.
I guess I'm wondering.
I guess I'm slightly nervous that you're going to talk about a sizable contribution to help coax the reimaging pace up.
Switching is more than just.
Especially machine is these are big box here and.
I I guess my hope would be that you would value engineer the reimage itself in terms the cost to make it stand on its own in terms of an ROI for the franchisee since the amount of money you could spend as.
The brand owner would be relatively limited.
So any thought on how you're thinking about that.
And making that pace accelerate in the future would be helpful.
Yes. This is Kate and I apologize if we set off any alarms I think what we're trying to say is that we're always evaluating the best use of cash and given our investment last year in their return through digital and espresso that all thoughts are on the table, but obviously have not committed to.
Anything substantial like you're referring to from backing our franchisees and accelerating the remodel I think any investment that we would make would be something similar to espresso as you saw where we were trying to get the system to do something collectively and could accelerate something.
Certainly not into doing something that the franchisees would not do on their own. So they're excited I'm. Please don't read into that they're excited about next gen image. We're just working with them right now Scott teams in the field working with them to figure out the rate and pace and which ones to do at what time. So I apologize if that is that came off incorrectly.
Alright, thank you.
I guess the another like general thought was on value it seems like value in much of fast food, obviously, Starbucks actually had positive traffic.
And what they reported yesterday, but theres traffics been missing from a lot of fast food lately and combos like did go twos have been helpful. In powertrain value, but it's often showed up in check.
It feels like there's going to be a little bit more of a traffic focus and breakfast value.
Focus out there certainly with the new entrant coming in.
I guess, what my my curiosity is what is your ability do you think to really depend on traffic and do you feel like you have some tools that maybe new ones, they're being created through digital.
Really make.
Traffic happen or at least sustain the traffic you you got thank you.
Yes, David I'd look I know values, a big part of.
How you've always talked and thought about the business.
Look we've had the best traffic year to date since 2015.
It's not where we want to be like I said, we're working to long term plan.
With the blueprint, we're succeeding and categories that have.
Traditionally been outside of our core hot drip coffee offerings, such as for US So cold brew signature lot days, we need to do more.
In those areas next gen.
You know quietly has been one of our single best traffic drivers and continues to be so as we add more units. So we're pleased about that.
But that's also part of the long game, but our opportunities are present, but also very much within our control. So you just heard from Stephanie expanding our digital platform as the new customer convenience is going to be keep expanding new revenue streams, such as delivery, but more importantly, catering is going to be key and innovation to market has to be sharper faster and more relevant and these are.
All the things that.
We're effort in against as part of the blueprint.
Thank you.
Thank you. Our next question comes on the line to Americans outlets from Keybanc. Your question. Please.
Hey, Thanks, just a question on international it's a small part of your business it doesn't get mentioned that often.
Yeah, you put together three four quarters and accelerating comp growth and Dunkin' International even Baskin International focus on firmer footing. So just wondering how you think about.
The opportunity to accelerate development by either enter new markets or you just existing markets now that you've got the conquest.
Well Michael Thanks.
Yes, thanks for that question.
It's something out there nothing that we wanted to get into right now in terms of new market entries I think for US, it's really been a focus on being better at getting better in the current market. So minimize any surprises that we often dealt within the past has been a big part of this.
Paying more attention to our interest in the Jvs and adding some external talent.
That we brought in to help with that and you're seeing that.
Hey off there and look it's all about working the international blueprint as well better customer experience unlocking delivery pursuing new channels through CPG. That's been the the formula We're happy with sort of the stability in balance that we have now you know we've exited some markets.
And we like the portfolio that we've got and we like what we're doing around both brands, but up.
Look I.
I have opened a lot of markets a in my 25 years as well, so where we think theres opportunities. We will pursue that again, it's just not part of the immediate plan.
Thanks.
Thank you. Our next question comes on line of Nicole Miller from Piper Jaffray. Your question. Please.
Thank you Im just a little bit more on the international market actually.
Especially given the outsize comps for I think at 4567 quarters, how does that customer you do the same act differently than the Dunkin' Donuts U.S. customer.
No I think the one of the things that.
John .
Our gates in the international team have done well is pivoting.
And again this is from my history as well anytime you just export to us model.
And you don't adapted locally.
It tends to get still in that work I think over the last several years John has done a really good job of adapting to local taste. So if you too much to cover in one single answer, but if you look at our offering in the Philippines, Malaysia.
To Saudi Arabia into what we're doing in Europe with.
Putting in a better franchisees the this isn't.
Yes, theres a customer piece to this but it's also.
Just understanding the business model and how to bring that to market and and again like I said, it sounds kind of boring, but just being better at what you do and that Formula has has paid off right now and look I could go all the way across and you guys know I've got a lot of experience in these areas, but pleasantly pleased with what we're doing in Europe .
Across the middle East and even in Southeast Asia, and the Jvs now so.
Yes, I think John again don't over ramp on your models there, but John is doing a nice job of some steady leadership, John and his team.
And that once it's off to talk a little bit about best practices. I mean, you can make a lot of scale how benefits. There. So is there something you are internationally dunkin or is there something you learn it Duncan you asked in terms in investments any marketing and loyalty that you bring back to Baskin Robbins, just maybe as a follow up question from me.
How do you do that internally.
Those benefits of scale at both brands frankly between.
Domestic or international between Dan and Boston, Yeah, we're getting much tighter on sharing those best practices across the pond. So.
The CPG business as you know is very developed in the U.S. So for us and so were you.
You know that team is partnering with the international team to figure out how to pursue new channels.
Conversely, our team has seventies team is partnering with international their way ahead of us on the U.S. side in terms of delivery.
And what's going on there and then I also would say strategic partnerships, we're getting a bit smarter on how we leverage strategic relationships both on the Baskin and the Duncan side in terms of tying up promotional opportunities whether its.
You know they didnt nutella over there or whether its movie properties things like that so.
One more to come on that but we're definitely seeing some synergies and we're definitely trying to boomerang.
Best practices around the globe I was just over recently and so a great idea out of the Philippines don't want to share it but.
It'll end up on our calendar in Dunkin' us because I think it's a really clever ideas. So theres things like that that we're starting to get much smarter about.
Thank you.
Thank you. Our next question comes on the line, Matt fresco from Google Guggenheim Securities. Your question. Please.
Thank you Theres been some reference to the call last night also from one of your competitors. There just with respect to one of their drivers was a little bit of redeployment of labor I'm. Just curious if you could comment sort of on how the model that you have with a franchise side could some of the.
More modest type of comp growth is that reflective of maybe a little tighter labor scheduling or labor management do you have an ability to monitor to that and maybe is there a way to.
Incentivize or.
I guess direct the franchisees to redeploying labor, maybe more effectively or not cutting back on labor as a knee jerk reaction to some other recent wage increases so.
Perhaps they could see maybe better flow through or better comp that over at the end of the day results and better profits.
Yes, Matt, It's Scott and I'd say you hit on one of the biggest focus areas for us and our franchisees. That's what we spent a lot of our time working on those brass tacks in terms of labor scheduling deployment and I'd point to a couple interesting things. We're doing that that gives me optimism for the future. One is obviously everything Stephanie talked about on digital and when we see the growth and on the go.
Mobile ordering and we take that whole process and move it outside of the restaurants. So the ordering the tendering all of that most of that transaction happens on the customers time outside the restaurant, which is just the most efficient and accurate and high quality transaction for our restaurants. So we love that in the in the box. The second thing I'd say is the next gen.
New image and so we love to talk about what it looks like from the outside the building we love to talk about the inside in the top system and the fit and finish and how it has a modern atmosphere, we probably don't do enough talking about and what the franchisees love is the true change in the operating model behind the counter so we've got a much more efficient.
Coffee line, we've got high volume equipment in there that the crew absolutely loves and we're seeing efficiencies not just in how they make the products, but we've got a new technology system that we're starting to roll out that will help with that labor scheduling in the management of staff and I think there is some room to be optimistic for that in the future.
So the labor scheduling as part of the Nexgen or is that.
And element that will be parallel to it but not necessarily essential to the next to having a next gen store.
So we're going to roll it out in conjunction with the next Gen image. So it goes with it and that's our new technology platform for back office, yes.
And did you say, what mobile order and pay I think it was 3% last year, what is mobile order and pay now.
4%.
Thank you so much thanks.
Thank you. Our next question comes on line of will slow from Stephens incorporated your question. Please.
Yes. Thank you you mentioned the success of allowing customers to order on mobile that arent perks members and I'm curious what that conversion story to perks looks like if that's successful in converting those customers and how that customer behaves comparing to a typical perks member as they're ordering.
Hi, it's definitely thanks to the question, we just rolled out guest ordering and about a month ago. So it's very very early but we are pleased so far we're seeing around 25%.
Test orders convert over to perks within the first.
Few days after they please the guest order.
One is because we promote that within the mobile app. After the guest order and then we follow up with direct marketing over email. So we're actually really pleased with those numbers very early on that is the goal for guest ordering is to give them the option that to join perks or not but ultimately we do want to get them over to our perks program for an even bigger.
Unlock.
Got it and just a quick follow up on value of OCA in the go to use in particular can you speak broadly to how those mixed in the quarter performed versus previous quarters.
No I don't know off the top Maher had my head right now I have to get back to you on that one but look it was a big part of.
Delivering against the quarter, but there was the combination of that with.
With the signature latte. So we were very pleased with both of those.
And how it performed it still has a lot of legs for us. So there's a key driver for for Q3, but we'll have to maybe on the side calls will follow up and gets you more details on that and just just because of Kate sorry, just to add on from a year over year perspective, we certainly sorry, sorry mix increase so.
You may recall that this quarter last year, we had come off the national go to them. We are actually testing several of the regional offers so this year, we've had a consistent sustain messaging on value and so we've seen an increase in our mix within our ticket.
I'll be here.
Great. Thank you.
Thank you. Our next question comes from the line of Dennis Geiger from UBI ask your question. Please.
Thank you, Dave you touched a whole bunch of sales initiatives in place across a variety of buckets, I guess crest technology innovation, Remodels ops et cetera. Some of them that are established others that are newer just launching but I guess, if you could kind of help frame that the contribution potential as you layer some of the new technology developments on beyond going.
National somebody other innovation for 2020, and some of these newer drivers the be close to as significant I guess as some of the drivers for the business. This year as you looked at as you looked at 20. Thanks.
Yeah that Dennis good question and look going forward menu innovation.
Our focus on speed in our digital platform as the new convenience tool is going to be a key for us.
You know a big part of the strategy as I mentioned before is expanding our sweet spot love drip coffee, but as for US. So a showed us we can get into other areas that speak to these coffee adventures, so espresso cold brew.
Our signature lot todays theres a lot there that our R&D team is working on.
Not only around hot but we've got some of the best credentials in the industry around ice. So continue to see us be very heavily focused on a beverage innovation and again, a key element to that were.
I think we have some opportunity is is around attachment go twos is one piece of the attachment, but there's other opportunities for us to have.
Better attachment.
Those beverages and then just on the digital platform again.
What Stephanie is doing is unlocking a lot of the I guess, you said the handcuffs around usage and accessing our app and our loyalty program. So she has been effort and against that and we want to market against that next year more in App offers.
Things along those lines that we think.
Is going to be.
Incremental and additive and then finally.
Strategic partnerships, we love the partnership with beyond.
You know my relationship with Ethan Brown over there, we like that Theres other opportunities for us and we're already talking to folks to lead in certain areas and use our platform.
For the greater good so there's a lot there under menu innovation that we like under digital and then of course always elevating the customer experience that skus job 24, seven and doesn't amazing job at it.
Great. Thanks.
Thank you. Our next question comes from the line of Brian Bittner from Oppenheimer. Your question. Please.
Thanks, guys.
Two questions first is following up on the App usage and on the go ordering I realize it's 4% of sales for the system, but I also understand it's a way above that in certain markets. So in the stores or markets, where it is way above do you actually see better sales trends than the overall system in those markets.
And my second question is just an update on express so how does it performing relative to last quarter.
Is the impact directly after rollout bigger than it is today or are you seeing a sustained or even accelerated lift from expressive. Thanks.
Yes, Brian ill Essar answer the first one and Scott will do the second one of those for US. So in terms of as we've mentioned to you at urban areas, and especially where you guys are located.
We are seeing much better throughput and is translating into that what we're also designing now is obviously our next gen restaurants, and again continued work on this but not designing a mobile order and pay that's 5%, but that's a significantly greater threex fourx.
That which is where we think that trends will go.
In the future not just for us, but for the industry as a whole. So again, it's building the restaurant with that mine first but we're very pleased we get up to 2020, 5%.
We are able to get into a duncan into a lot of nooks and crannies as you know in so moving beyond just traditional ordering and into this type of pick up has been key for our throughput so.
Yes, it's a big part of our strategy and yes, we're seeing success with it.
Especially with the signature lot is in the flavors and we're really excited about the holiday season as well for this platform and I think it goes to a couple of things one all the training that we mentioned for the crews who were executing espresso at the speed of Dunkin', which is a great value proposition for the consumer the PM break that we've done in the afternoon is driving great.
Traffic to the restaurant for that offer and we're seeing that Bresseau has a nice attachment, obviously with donuts and other savory items and it skews a little younger a little more female and a little more towards our target growth areas for the future. So very excited about espresso and I think there's even more to come.
Thank you. Our next question comes in the line of Catherine focus from Goldman Sachs. Your question. Please.
Thank you. So wondering cousins is this going back on the espresso point you guys had previously disclose the percentage of sales that were coming from espresso I think last quarter was increased from 6% of sales to 10%. So just curious side, where that is tracking right now and I have a follow up thank you.
Yes, so it's tracking at about 10% mix right now.
Okay, great. Thank you and then on the unit additions in the U.S.
This quarter was there anything what did you see any units kind of pull forward that maybe would have been.
Had a special about this quarter I ask this because leaving kind of tracking kind of down 40 down 30% on the units on a year over year basis, and then add somebody else I'm not call alluded to again this quarter was up 6% year on year I'm wondering if there was any kind of choppiness. There that we should think about when thinking about the cadence have units as a handful.
Alright. Thanks.
Yes, great question. Thanks, Catherine there was nothing unusual this quarter, maybe a few stores that pulled forward that we are expecting in Q4 into Q3, but nothing unusual in still expecting on the lower end of the.
Alright, thank you.
Thank you. Our next question comes down the line of Andrews Stringency from BMO capital markets. Your question. Please.
Hey, Good morning, I said a question on Tech investments Crusher kind of limited service peer group, there's a lot of focus there in a lot of investment going in that direction. So my question is how do you evaluate the right level of investment behind technology to ensure that your remaining competitive and not just on the consumer facing elements, but also maybe on some of the capability.
Look we we thought this was a big opportunity when we did the 100 million dollar investment.
Last year and the idea that we could secure the our IP App, which we thought was state of the our bring that in house and be a bit more nimble.
So we're in the process right now of doing that to give us that flexibility. So everything you've heard us say is really around creating a frictionless.
Experience for the consumer so early days Thats why I did want to over ramp on anything more than a green shoots around that and.
Obviously were asset light and we look at what the.
Always with the competitors are doing but we've got some great relationships and strategic partners in this area.
And Stephanie as all over this and so.
We feel good about the path. We're on we don't feel like we're at a competitive disadvantage. We've always been one of the leaders in the in the market around this we know we've got some gaps to close in terms of.
You know our loyalty and also a mobile order and pay but.
Good morning.
To follow up on the ashes on some of the recent changes in management, notably the departure of a tiny wiseman over in marketing and Swat as.
What youve up and look forward in terms of your search and if you can comment on that serves to date.
Tony had a great two year run with us decided to step away and we wish him well and thank him for his contributions and going forward we're actively.
Someone who knows how to market to and develop a greater user experience in our digital flat platform and then finally somebody who understands our brand purpose and brand voice and how to weave that into how we communicate through our agencies and strategic partnership. So I think thats pretty much a sort of a brief for a job description for any CMO, but that's what we're looking for.
And that's our.
Are there were looking at right now so more to come on that when we.
I have announcement in the future.
Thank you thanks.
Thank you. Our final question comes from the line of Peterson from BT.
A question please.
Great. Thanks.
Yes, I heard you guys talk a lot about digital.
Definitely the partnership with beyond but.
Got any update on your delivery partnership with Robin how that may be going can you give us some thoughts on how you guys are viewing delivery and is that still part of this strategy.
Hi, it's definitely thanks for the question Yeah, we're still very excited about delivery, we're still very excited about our partnership with Grubhub Rpos integration with them is key for efficiency for our franchisees at our operators around delivery and we think that is definitely a winning proposition. We're live now in three major.
And we are continuing on with jordache at the moment. We also have some stores live with them, but we're still very excited about the space as we learn more and that will scale into the future and Peter the only thing I'd add is look we read their letter. This is grubhub value their transparency about what they're doing to shift their strategy and better compete in such a competitively.
Limits. So we appreciate that.
But as Stephanie said, we continue to have relationships with multi delivery partners and are focused on increasing convenience for our customers through any channel. So.
Thanks, Peter Okay, that's I think that clears the Q.
Operator, and I'm, just going to say thanks, everyone for being on.
You know, we're we're delivering exactly what we guided to and exactly what we said.
I am confident I know around the table work, we're confident in thrilled that we've got the best franchisees and the best partnership in the industry and we're bringing them along on this journey.
Thats been critical to long term success and I'm looked as it relates to Q3 I'm proud of the balance we had across both brands domestically and internationally, but we all know we can do more and so you can count on that from this team. So thanks again, everyone have a safe Halloween and just remember Munchkins go well.
During Halloween and they're great to be handed out to the kids. So thanks, everyone take care.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.