Q4 2024 Dutch Bros Inc Earnings Call
Speaker Change: Thank you for standing by and welcome to the Dutch Bros, Inc. fourth quarter 2024 earnings conference call and webcast. This conference call and webcast is being recorded today, February 12th, 2025, at 5 p.m. Eastern Time and is available for replay shortly after the call is concluded.
Speaker Change: Following the company's presentation, we will open up the lines for questions and instructions. The queue up will be given at that time. I'd like to turn the conference over to Patty Warren, Dutch Bros Senior Director, Investor Relations and Capital Markets. Please go ahead.
Good afternoon and welcome.
Speaker Change: I'm joined by Christine Barone, CEO and President, and Josh Guenser, CFO. We issued our earnings press release for the quarter and year end of December 31st, 2024, after the market closed today. The earnings press release, along with a supplemental information deck, has been posted to our investor relations website at investors.dutchbros.com.
Speaker Change: Please be aware that all statements and 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.
Speaker Change: They are qualified by the cautionary statements in our earnings press release and the risk factors in our latest SEC filings, including our most recent annual report on Form 10-K and quarterly report on Form 10-Q. We assume no obligation to update any forward-looking statements.
Speaker Change: We also referenced 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.
Speaker Change: Please review the Reconciliation of Non-Gap Measures to Comparable Gap Results in our earnings press release.
Speaker Change: As a reminder, we will be hosting our Inaugural Investor Day on March 27, 2025 in the Phoenix, Arizona market. During this event, our leadership team plans to discuss our competitive differentiators and growth plans. We also anticipate providing updates to our long-term financial plan.
Speaker Change: On today's call, we plan to discuss our performance in the fourth quarter of 2024 and provide guidance on certain key metrics for 2025.
Speaker Change: Following our prepared remarks, there will be a question and answer session. We would ask that questions please be focused on these topics as we plan to cover longer time horizon topics next month at our Investor Day. With that, I would like to now turn over the call to Christine.
Christine Barone: Thank you, Patty. Good afternoon, everyone. Dutch Bros. Future has never looked brighter.
and we saw that represented in our 2024 results.
Christine Barone: Revenue growth in 2024 was outstanding. We delivered 33% total revenue growth, driven by a healthy balance of 18% new shop growth with 151 new shop openings and 5.3% system same shop sales growth in the year.
Christine Barone: New Shop performance is strong and improved considerably throughout the year. We enter 2025 with heightened confidence in the size of the brand's white space and the ability of our development and operations teams to execute upon it.
Christine Barone: Adjusted EBITDA grew 44% in 2024, driven by strength in our four-wall P&L and continued adjusted SG&A leverage.
Christine Barone: We have made, and will continue to make, the investments in people and capabilities which we believe only compounds our competitive advantage.
Christine Barone: I am incredibly excited about the strength of our brand, the love from our customers, and our clear path forward.
Christine Barone: As we survey the industry landscape, we believe Dutch Bros is uniquely positioned and on-trend, with an emphasis on ice beverages, personalization, and speed.
Christine Barone: We see an increasing relevance of the customized energy occasion, which has been core to our menu for over a decade.
Christine Barone: We also see the continued importance of genuine connection embodied by our Broistas and a cornerstone of Dutch Bros for the last 33 years.
Thank you.
Zooming into Q4, we saw substantial momentum across the board.
Our brand is resonating with customers.
Christine Barone: In Q4, we saw 6.9% same shop sales growth, as well as our largest quarterly transaction growth since 2022.
Company operated same shop sales grew 9.5%
Christine Barone: We experienced our first full quarter of mobile order and are beginning to see the benefits to our business.
Christine Barone: In Q4, we returned our holiday favorite LTOs, Hazelnut Truffle Mocha and Candy Cane Mocha, offering our customers a spirited way of staying engaged during the holiday season.
Christine Barone: We saw the highest performance ever of our Candy Cane Mocha platform, where we sold almost 40% more total units than when we ran it last year.
Christine Barone: Our enhanced marketing efforts continue to build brand awareness and gain traction, and we are seeing great engagement and response in our Dutch Rewards Program.
Christine Barone: Our real estate strategy is working. Once again, we saw strong new shop productivity as we have shifted our development focus and elevated our site selection process.
Christine Barone: And we continue to demonstrate remarkable consistency in our shop opening cadence with 32 new shops in the quarter. Our pipeline for 2025 is strong.
Our efforts are translating to outstanding financial results.
Christine Barone: In the quarter, we drove a 35% revenue increase and a 41% adjusted EBITDA increase compared to the same quarter last year.
Christine Barone: System-wide AUVs were two million dollars in line with the record we posted earlier this year.
Christine Barone: This month we are celebrating a major milestone as we open our 1000th shop.
We are extremely proud of our results.
Christine Barone: And I would like to take a moment to sincerely thank our entire team.
Christine Barone: Our Broista teams wake up early and stay up late to make a massive difference one cup at a time.
Christine Barone: And our 2024 results are a reflection of this effort, during each shift, in each interaction, every day.
Speaker Change: I'd now like to spend some time walking through our key growth drivers, beginning with how we grow our people and scale our culture.
Speaker Change: Our people are the cornerstone of our strength. Our talented broistas and the service they provide drive our growth and separate us from competitors.
Speaker Change: One of the reasons we have chosen to grow primarily through a company-operated model is because we believe it enables us to scale our culture as we enter new markets.
Speaker Change: We make big investments in seeding our culture as we expand, and we are pleased with how this is translating into strong service.
Our people pipeline includes more than 450 regional operator candidates.
with an average tenure of more than seven years.
Speaker Change: For context, we had approximately 200 operator candidates in our pipeline at the end of 2021.
Speaker Change: It is important to note that in addition to almost doubling our shop count during this period, we also significantly expanded our Operator Candidate Pipeline.
Speaker Change: We are able to attract, train, and retain great people and continue to build a strong foundation for growth for many years into the future.
Speaker Change: This approach also enables us to create compelling futures, providing opportunities for Broistas to grow with us.
Speaker Change: In 2024, our overall shop-level turnover improved approximately 5 percentage points year-over-year.
Speaker Change: We are honored to be an employer of choice and blown away by the excitement of applicants seeking to join us as Barlistas.
Speaker Change: In December, we had the opportunity to reinforce our culture by hosting our shop leadership at an event we called A Better World.
Speaker Change: Almost 3,000 of our field leaders, franchisees, and headquarters team were able to attend and experience this catalytic cultural event, many for the first time.
Speaker Change: The energy was electric, and the team left with a renewed sense of purpose and clarity of mission.
Speaker Change: In mid-December, Venki Krishnababu joined us as our Chief Technology and Information Officer.
Speaker Change: Previously, Vinky served as Chief Technology Officer at Lululemon Athletica and brings nearly 30 years of experience leading transformational enterprise shaping strategies and a proven track record of creating business value through technology, innovation, and partnerships.
Christine Barone: I'll now shift to how we are growing our shop base and capturing our white space.
Speaker Change: We are executing our real estate strategy and are very energized by the results.
Speaker Change: New Shop Productivity continued to increase in Q4, which we believe was a result of enhanced market planning as well as elevated paid ad spending in new markets.
Speaker Change: Once again we delivered our shop development targeting Q4 with 32 new shop openings bringing total shop count to 982.
Speaker Change: We have a strong 2025 pipeline. In the second half of 2024, we made investments in our development, construction, and market planning teams and continued elevating our site selection process.
Speaker Change: These investments, combined with our extensive white space and strong four-wall model, elevate our confidence in our pipeline in 2025 and position us to accelerate quarterly unit growth in the back half of this year.
Speaker Change: Now I'd like to discuss our efforts to grow transactions and develop sales layers.
Speaker Change: Early in 2024 we outlined a transaction driving strategy focused on three foundational initiatives that we plan to use to jump-start transaction growth.
Enhanced focus on innovation
Speaker Change: increased paid advertising designed to build brand awareness and more targeted rewards program efforts.
Speaker Change: We are executing on all these elements, and we are seeing success.
Speaker Change: Transaction growth accelerated as we exited the year reaching 2.3% for the system in Q4.
Our efforts are working.
Speaker Change: and we believe we have considerable runway for further growth. Here is a brief update on the three foundational traffic driving initiatives.
First, innovation.
Speaker Change: In the competitive beverage industry, we believe staying ahead of trends is critical. We utilize innovation to build sales layers and deepen our competitive mode through category-defining products.
Speaker Change: In the quarter, we returned the successful LTO offerings Candy Cane and Hazelnut Truffle Mocha, and added Jingle Nog and Winter Shimmer Rebel as seasonal offerings.
Speaker Change: Furthermore, we continued our strategy of utilizing promotional innovation to surprise and delight our customers with giveaways like the Passenger Princess Straw Topper and our Custom Holiday Ornament.
Speaker Change: These were huge hits that drove both excitement and sales volume. We love doing these innovative promotions as it strengthens our brand loyalty and creates extra moments of connection with our customers.
Second, paid advertising.
Speaker Change: It is becoming increasingly clear that our upsized paid advertising investments are having a positive impact on our business.
Speaker Change: We saw an opportunity to raise brand awareness in new markets and we began increasing our digital ad spend.
Those efforts have been successful.
Speaker Change: We have seen considerable improvements to both brand awareness and traffic.
Speaker Change: During the second half of 2024, we expanded this program to build greater awareness and mature markets.
Speaker Change: We are encouraged by what we are observing in these markets as well.
Speaker Change: and third Dutch Rewards. We continue to see exceptional traction in the Dutch Rewards program with a record 71% of transactions coming from Dutch Rewards members.
Speaker Change: This is an increase of over 500 basis points year over year.
Speaker Change: In the back half of 2024, we accelerated our segmentation efforts, which we believe will enable us to reach customers more efficiently and provide even more personalized and relevant offers.
Speaker Change: While we are still in the early innings, the responses we have seen to date and the opportunity we see in front of us are encouraging.
Speaker Change: Beyond these three foundational transaction drivers, we see a clear path forward with multi-year initiatives that layer on top of this foundation, including food and mobile order.
Speaker Change: We continue to be excited about mobile order, and here are a few program updates. As of December 31, approximately 96% system and 99% company-operated shops have mobile order functionality.
Our customers are enthusiastically embracing the mobile order occasion.
Speaker Change: As of December 31st, our rewards customers have placed approximately 5.4 million mobile order transactions.
Speaker Change: Mobile order continues to over index in a relative rush of the morning and in particular with coffee based beverages.
Speaker Change: This gives us confidence that we are on the right track with our strategy to further unlock the morning day part with greater convenience.
Speaker Change: And finally, we believe mobile order contributed to the traffic outperformance we experienced in Q4.
Speaker Change: As of December 31st, approximately 8% of our channel mix was mobile order, representing a steady and deliberate increase quarter-over-quarter.
Speaker Change: We continue to observe that customers who use mobile order increase their frequency and mobile order penetration is more than twice the level of our overall system in some of our newer markets.
Speaker Change: We believe that by placing the convenience of the digitized menu in the hands of our customers will bode well for us in newer markets as it allows customers to explore and learn our brand.
Speaker Change: Last quarter, we announced that we began a limited food test. This initial test has been focused on understanding the optimal assortment and how an expanded food program interacts with our existing operations.
Speaker Change: Although the test is small, initial signs are encouraging and point towards the viability of an expanded program.
Speaker Change: As we consider a food program, I'd like to share our guardrails.
Speaker Change: First, Broista job satisfaction. As we expand their roles we must consider how to do so in ways that continue to foster a fun and energetic work experience that assures we continue to attract and retain the very best people.
Speaker Change: Second, a targeted assortment focused on capturing the food attach opportunity and the potential incremental beverage opportunity while minimizing complexity.
Third, no impact to throughput.
Thank you for watching. Please subscribe to my channel.
Speaker Change: We believe we have an opportunity to expand market share in the morning day part. We understand that many people seek the added convenience of a food pairing with their morning beverage choice.
Speaker Change: Food makes up less than 2% of our total sales and we are likely missing morning beverage transactions from would-be customers who are not satisfied with our current food offerings.
Speaker Change: With the expansion of our food program, we are targeting these incremental beverage occasions and aim to compete more aggressively for these high-value routinized occasions with a limited food offering that fulfills our customers' needs.
Speaker Change: In closing, we are incredibly well positioned with a great brand and wonderful people. Momentum in the business is strong.
Speaker Change: We believe our runway is long and our path forward is clear.
Speaker Change: We have top-tier growth. In Q4, we delivered 35% year-over-year revenue growth and 32 new shop openings.
Speaker Change: We have multi-year visibility on key initiatives, including our core foundation of innovation, paid media, and Dutch rewards.
and exciting growth opportunities with mobile order and food.
Speaker Change: Our real estate strategy is working, and we have seen another quarter of excellent new shop productivity. This, combined with our strong pipeline, gives us great confidence as we execute our unit growth plans.
Thank you very much.
Speaker Change: We have an incredibly strong brand that is resonating. I am blown away that as we reach the 1,000 shop milestone, we have customers in mile-long lines to experience those first smiles as we open our doors in new markets.
Speaker Change: Most importantly, we have great people. Anchored by outstanding, engaged Broistas and a strong pipeline of operators ready to grow with us.
With that, I'll turn it over to Josh.
Josh Guenser: Thanks, Christine. I will provide a quick recap of 2024 results and then a deeper dive into Q4 2024 performance.
Josh Guenser: Our performance in 2024 continues to build confidence in achieving that long runway of growth that Christine noted in her comments.
Josh Guenser: For the year, we generated $1.28 billion in revenue and $230 million in adjusted EBITDA. We grew revenue by 33%, including 18% new shop growth on 151 new shop openings.
and 5.3% System Same Shop sales growth.
We delivered 70 basis points of leverage on adjusted SG&A.
Josh Guenser: Our adjusted EBITDA growth was 44% and our adjusted EBITDA margins expanded 140 basis points to 18%.
Josh Guenser: For the year, we delivered 49 cents per share of adjusted EPS.
Josh Guenser: For the fourth quarter, revenue was $343 million, an increase of 35%, or $89 million over the fourth quarter of last year.
Josh Guenser: In the quarter we opened 32 new shops, of which 25 are company operated, representing focused and intentional progress.
Josh Guenser: We remain encouraged by both our new shop productivity and our overall system AUVs of $2 million.
Same shop sales performance in Q4 exceeded expectations.
Josh Guenser: In the quarter, we delivered 6.9% system same shop sales growth, of which 2.3% came from transaction growth and 4.6% from ticket growth, driven by pricing and lower discounting.
Josh Guenser: We attribute Q4 transaction growth to a variety of factors including the maturation of newer markets driven by market planning and marketing efforts to drive brand awareness.
as well as the continued ramping of mobile order.
In the quarter, adjusted EBITDA grew 41%.
Josh Guenser: We delivered $49 million in adjusted EBITDA, an increase of $14 million year-over-year.
Josh Guenser: Our adjusted EPS was $0.07 per share, up from $0.04 per share in Q4 last year.
Josh Guenser: Moving on to our company-operated shops, revenue was $314 million, an increase of 38% or $87 million over the fourth quarter of last year.
Company operated same shop sales growth was 9.5 percent.
of which 5.2% was transaction growth.
Josh Guenser: Company-operated shop contribution was $91 million, an increase of 51%, or $31 million year-over-year.
Josh Guenser: In the quarter, company-operated shop contribution margin was an impressive 28.9%.
Josh Guenser: In Q4, beverage, food, and packaging costs were 25.4% of company-operated shop revenue.
Josh Guenser: This is 120 basis points favorable year over year, driven primarily by pricing.
Josh Guenser: Although coffee prices rose throughout 2024 and into 2025, we did not see a meaningful impact on our margins in 2024.
Josh Guenser: As we look ahead, coffee seed prices have remained elevated for a sustained period and we expect to see the impact in our cost of goods sold in 2025.
Josh Guenser: If current coffee seed price levels are maintained, we would expect approximately 110 basis points of net COGS margin pressure in 2025, with the impacts beginning in Q1 and increasing in Q2.
Josh Guenser: Labor costs were 27.1% of company-operated shop revenue, in line with Q4 of 2023.
Josh Guenser: We anticipate making wage investments in shop leadership in 2025, which will offset the leverage we would otherwise expect on sales growth.
Josh Guenser: Occupancy and other costs were 17.5% of company-operated shop revenue, which was 80 basis points favorable compared to Q4 2023, driven primarily by leverage from sales growth.
Adjusted SG&A was $64 million, or 18.8% of total revenue.
Josh Guenser: For the full year 2024, adjusted SG&A was 15.8%, representing approximately 70 basis points in margin leverage versus the full year 2023.
Josh Guenser: We are pleased by the leverage we have driven in adjusted SG&A during the year while we continue to staff our new office in Arizona and make targeted investments in marketing.
Josh Guenser: In the quarter, interest expense net increased $709,000 from one year ago to $6.8 million.
Josh Guenser: The increase is primarily driven by higher interest expense related to long-term debt. It is partially offset by higher interest income.
Thank you.
Josh Guenser: In 2024, our business demonstrated consistent and measured growth, as evidenced by our balance sheet.
Josh Guenser: Our Q4 results further underscores this momentum, reflecting our robust financial health and growing stability.
Josh Guenser: As of December 31st, we had $293 million in cash and cash equivalents and $235 million in drawn term notes, yielding a net cash position of approximately $59 million.
Josh Guenser: This is approximately $21 million higher than our net cash position for the year ended December 31, 2023, and the majority of this increase is attributable to working capital timing.
Josh Guenser: We remain highly encouraged by the substantial progress this represents towards our goal of having a self-funding business.
Josh Guenser: We continue to shift the composition of our new shop pipeline towards more capital efficient lease arrangements.
Josh Guenser: But we still have work to do as we attempt to lower the per-unit cash outlay.
Josh Guenser: In Q4, our average capex per shop was approximately $1.8 million.
Josh Guenser: As of December 31st, we had $383 million in finance lease liabilities and $323 million of operating lease liabilities.
Josh Guenser: During the quarter we added three million dollars in finance lease liabilities and 17 million dollars in operating lease liabilities.
We have access to ample liquidity to fuel our growth.
Josh Guenser: As of December 31st, we had over $687 million in total liquidity, which we believe to be sufficient to support our growth plans.
Josh Guenser: Earlier this month, we drew down an expiring $50 million delayed drop term loan to optimize flexibility, increasing both our cash and debt balance to maintain a consistent liquidity profile.
Thank you.
Finally, I'd like to provide guidance for 2025.
Josh Guenser: Total revenues are projected to be between $1.555 billion and $1.575 billion.
This represents approximately 21-23% growth year over year.
Josh Guenser: We expect to open at least 160 new shops representing system growth of 16 percent.
Josh Guenser: System same shop sales growth is estimated to be in the range of two to four percent for the full year.
Josh Guenser: As a reminder, Q1 represents our toughest same shop sales comparison of the year, as we lap the benefit of leap day and our successful bubble launch.
Josh Guenser: Capital expenditures are estimated to be in the range of $240 million to $260 million, primarily made up of new shop construction costs.
Josh Guenser: We estimate adjusted EBITDA to be between $265 million and $275 million.
representing 15 to 20 percent growth year-over-year.
Josh Guenser: At the midpoint of the range, we would expect 70 to 80 basis points of net adjusted EBITDA margin pressure driven primarily by elevated coffee costs and partially offset by the benefit of approximately 80 basis points of adjusted SG&A leverage.
Josh Guenser: Thank you and now we'll take your questions. Operator, please open the lines.
Josh Guenser: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue.
Josh Guenser: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start keys.
One moment please, we'll report for questions.
Thank you for watching.
Speaker Change: First question is from David Tarantino from Baird. Please go ahead.
Hi, good afternoon and congratulations on such strong results.
David Tarantino: My question's about the company-operated comps. Can you maybe elaborate on why you think you saw such a big acceleration in the company locations?
Speaker Change: Josh, I think you mentioned maturation of new units and, you know, I'm wondering if there was a change in trajectory.
Speaker Change: there, but I guess in general, you know, are you seeing, you know, that being the biggest factor, are you seeing mobile ordering, you know, maybe being a big factor, I guess, how would you deconstruct this big acceleration you saw across the quarter?
Thank you for watching. Please subscribe to my channel.
Speaker Change: David, thanks so much for your question. You know, I would start, I really think it was actually everything firing on all cylinders as we went through the quarter.
Speaker Change: and I think it starts with just the strength of the brand, the amazing service that our people and our baristas continue to provide.
Speaker Change: And then on top of that, I think we saw really all of those things working together. So we saw that rewards program, a 500 basis point increase versus the prior year. When we look at what was happening with rewards,
Speaker Change: we were seeing an acceleration in new shop adoption. So as new shops came online, really getting people into that rewards program quickly. We also saw great results from our paid advertising, especially in our newer markets. And seeing what really drove part of that acceleration in comps in those newer shops, shops like those Texas shops coming online, really helped out. We also saw strength in mobile order.
Speaker Change: to see the newer markets adoption of mobile order happen more quickly. And so that was another factor as we went through.
Speaker Change: So really a lot of things working well at the same time. We were super happy also with the innovation in the quarter. I think some of the merch drops that we did just really drove excitement for the brand.
Speaker Change: So when we look across the quarter, it's actually not just one thing, but we are actually quite happy to see everything kind of performing together with that real acceleration in the new shop performance.
Thank you for joining us. Thank you.
Speaker Change: Yeah, David, the thing I might add to that too is just, you know, we did see really strong traffic performance with the, you know, with the result of that with strong traffic performance, we're actually able to dial back some of our discount position as well.
Speaker Change: and that allowed us to have some strong ticket flow through. So really saw it hitting across the board on all fronts. Yeah, I think the final factor I would add is we also saw strength in the morning. So as we rolled out mobile order, the expectation was that that would really benefit the morning a bit more and we saw that in the numbers.
Speaker Change: Great. And if I could just ask a follow-up. I think you mentioned that, you know, the exit rate.
Speaker Change: Or maybe you made a comment that suggested the exit rate for the quarter might have been much stronger than where you started. Certainly seems evident in the results.
Speaker Change: sort of strength carryover into Q1. I guess is there any context you want to give us about the first quarter and how you expect that to play out?
Speaker Change: Yeah, so I would say we saw strength throughout the quarter and, you know, as far as Q1 goes, we have seen strength in January as well, so we're very pleased with how we're starting the year.
David Tarantino: Yeah, and David maybe just to put a little bit more specificity as we think about 2025, you know, our overall comp guide for the year
David Tarantino: reflects the fact that we're rolling off about three points of net pricing, so the net price roll-off.
David Tarantino: So the year would be about three points and then, you know, we are lapping
10 points of comp from Q1 of 2024.
David Tarantino: And, you know, despite that, given what we've seen so far, we feel confident about the trajectory we're on. That full year guide of 2-4 contemplates about a 2-4 comp performance as well in Q1 and feel really good about that given what we're lapping from last year.
Great, thank you very much.
Thank you.
Thank you very much.
Speaker Change: Next question is from Dennis Geiger from UBS. Please go ahead.
Dennis Geiger: Great, thanks and congrats guys. I wanted to ask a little bit on on the throughput opportunity
Dennis Geiger: for this year. I'm sure this is something we'll hear more about at the Investor Day, but anything to share on, you know, if any of the throughput efforts are in place already, and if there was a benefit in the quarter from that, and really just kind of how to think about how impactful that might be in 2025?
Speaker Change: Yeah, so if we look at the throughput opportunity, it's certainly something we're focused on. We do have long lines in some of our shops.
Dennis Geiger: And as we look at that opportunity, right now what we're very focused on is deployment. And so making sure that our broistas
Dennis Geiger: and it also balances our production. And so we continue to see that more of the mobile orders are being picked up at the walk-up window than through the drive-through lane. So that is also something that helps with throughput.
Speaker Change: That's great, thanks for seeing it. And one more maybe related to that shifting over to mobile. It sounds like it all is going well. Just curious as it relates to
Speaker Change: sort of incrementality. You know, you mentioned frequency still sounds really positive. If any sense on incrementality or kind of what the benefit to sales may be, if there's any way to kind of articulate that.
Speaker Change: related sort of as we think about the marketing here it seems like you want to go at a generally measured pace on the mobile adoption. Just curious where we're at from a marketing perspective. Is it just the always-on marketing in the app? Are you doing anything more from a marketing perspective or not yet? Thank you.
Speaker Change: Yeah, so as far as building mobile order, our goal here is really to have this be super stable and steady as it's adopted at our shops so that our bro uses are incredibly successful. We feel, I think, really most proud of the service that we are providing along with mobile order, so feel really good about the pace at which this is growing right now.
Speaker Change: and you know as far as looking at incrementality we really view that in three different ways so I think we've shared from the Dutch Rewards perspective we can measure what happens before and after we as we move through that we are seeing as we add more cohorts that the most likely to order cohorts get added first and so see a little bit of a drop in that but still very pleased with that incrementality that we're seeing directly from Dutch Rewards
The second piece is...
Speaker Change: is that we continue to see that increase in the Dutch Rewards Program. So new members joining and immediately making a mobile order, so really likely joining because of mobile order. And then finally, where you started, those throughput opportunities.
Speaker Change: So, customers coming through the lines and seeing that it's a little shorter or there's less time. And so, we're really pleased across the board with what we're seeing from a mobile order perspective.
Good stuff. Thanks, Christine. Congrats.
Thank you.
Speaker Change: Our next question is from Chris Ockel from Stiefel. Please go ahead.
Chris Ockel: Yeah, thanks. Good afternoon and congrats on a strong finish to the year.
Speaker Change: Josh, the company's CapEx target for 2025 is lower than we expected and I know you mentioned CapEx per shop was $1.8 million in the fourth quarter but what's the company expecting for 2025?
Chris Ockel: in terms of cash outlay per store. And is leasing the primary reason for the lower cash outlay or are there some other cost savings as well?
Chris Ockel: to greater proportion of build-to-suit leases. We are making progress in that way and certainly have focused on that in 2024 and into 2025, and we'll start seeing the benefits of that as we move ourselves into 2025. You know, I think we shared previously that we expected that 2024 would be kind of our peak per unit capex.
Chris Ockel: so we're expecting to see that come down. We are expecting to be able to provide you guys a little bit more granularity and specificity of that as we get into our investor day conversations, but that's what's really driving the CapEx outlook.
Speaker Change: Do you expect additional lease arrangements to impact the shop level margin this year and and how should we think about it impacting the long-term margin goals I think which are in like the high 20% range?
Speaker Change: Yeah, I mean it certainly it is a factor as you're referencing build-to-suit leases tend to be higher rent than
Speaker Change: the ground lease. That's factored into the guidance we're providing so you know we're what we're seeing
Speaker Change: is included in the overall guide for both or for our epidemic guide for the year. I think over the longer term, it's again, it's something as we share a longer term trajectory, something we can provide more specificity on at a later date.
Great. Thanks, guys.
Speaker Change: Next question is from Andy Parrish from Jeffries. Please go ahead.
Speaker Change: Hey, guys. Yeah, tough to find anything concerning, but it was...
Speaker Change: with the 25 company openings in the quarter was the lowest number since the IPO is that just kind of
Speaker Change: the, you know, kind of end result of some of the work done over the past year. And then I think you made some commentary around openings picking up in the back half of the year. At least historically, the 1Q has been the highest number of openings.
Speaker Change: annually on the company-owned side. So can you just kind of give us a little bit of the shape and help us level set on the modeling there?
Thank you.
Speaker Change: Yes, so if we look at the year, we're really pleased with the market planning efforts we've had and the impact that they've had on that new shop productivity. One outcome of that is just shifting some of the units out towards the back half of next year. So if we look at Q1 and Q2, they'll be at about 30, really similar to Q4.
Speaker Change: and then we will ramp as we go into Q3 and Q4 of next year. And again, that is really an outcome from the market planning efforts we've done over the last year, year and a half.
Speaker Change: to really shape that pipeline to drive that new shop productivity and to lower the unit per unit capex for those units, which we're incredibly pleased with the results that we're seeing from that.
Speaker Change: Got it. And then just one quick follow-up, Josh, on the 2% to 4% guide for system same-store sales. Should we...
Speaker Change: Expect the company owned to continue higher or just given the laps will that kind of you know normalize a little bit?
Speaker Change: Yeah, I mean, we have over 2024, what I'd say is we have seen that spread of company performance stronger than the franchise performance, you know, part of that being.
Speaker Change: The contribution of those newer markets were just growing faster on the company side than we are on the franchise side and that contributing certainly to the performance that we've seen overall, but that that has contributed contributed to the spread. So I'd expect there to remain a spread throughout throughout 25 as well.
Thanks, guys.
Speaker Change: Next question is from Andrew Charles from TD Cowen & Company. Please go ahead.
Thank you.
Speaker Change: Great, thank you. Josh, can you expand a little more on how you came up with the 2% to 4% same-stress sales guidance for 2025? You know, you talked about how that's the right level to think about lapping 1Q, your toughest comparison of the year, with all the good stuff you guys have going on for 2025.
Speaker Change: Mobile order mix is increasing, the advertising is obviously paying off.
How did you come up with the 2-4?
Speaker Change: Yeah, I mean, so I guess the few things I'd highlight is as we think about that full year, you know, we're coming over a little over five for 2024. We're all rolling off a net of about three points in price.
Speaker Change: So that certainly will just take down the ticket side. I think that, you know, as we think about the trajectory through the rest of the year, we have factored in the performance we saw in Q4. We factored in the strength we've seen so far in January. We do have the lap of Q1, the tough lap in Q1.
Speaker Change: So, when you put all those pieces together, we are assuming that that does drive some positive traffic, which we're very pleased with and very encouraged with, just given the momentum we've seen, but I do feel really good about the ability to be able to drive that two to four, despite the lap we have in Q1 and what we've seen today.
Okay, great. And then, Christine, at a high level...
Speaker Change: How are you thinking about the advertising plan for 2025 versus 24? You know, what are the ways that you can build on the success that you've seen while perhaps, you know, as you grow the budget new opportunities that would afford you? And I'm also curious, embedded within the guidance, the EBITDA guidance, is there a step up in advertising and percent of sales embedded in that as well?
Speaker Change: So as we look at 2025 and what we're going to do from an advertising perspective, we've learned a lot in 2024, which we will apply. So I think we continue to get smarter about which channels work best, what we should put in front of our potential customers, and really have honed in on how we're using paid advertising to find new guests.
Speaker Change: Trying to get them into the rewards program as rapidly as possible so that we can speak directly to them with that rewards program
Speaker Change: We did begin testing some increase in paid advertising in our mature markets towards the end of the year. So we're pleased with early results there. And, you know, as we look at
Speaker Change: the year, I think we will continue just to understand how we're driving ROI across our advertising efforts and if we see opportunities to step that up, we might lean in.
Very good, thank you.
Sarah Senator: Next question is from Sarah Senator from Bank of America. Please go ahead.
Thank you very much.
Sarah Senator: Yeah, hi, thank you. A quick housekeeping and then a question on new store productivity.
You mentioned three points of prices rolling off, so...
Sarah Senator: You had, I think, four points in the quarter. I just wanted to confirm that. And then, as you think about.
Speaker Change: 2025, that implies pretty modest pricing. And then the question is on new unit productivity. I mean, Christine, you mentioned how strong it's been. This is the first quarter, and it's always kind of confounded by opening timing, where it actually looks like maybe the new unit productivity is.
Speaker Change: is perhaps even higher than the system average. I guess if you could just speak to that and maybe anything you're seeing early days in Florida. Thanks.
Speaker Change: Yes, sir, I'll start with your pricing question. You're right, so we had about four points of price in Q4, a bit more than that for the full year, but we are rolling off a net of three for the full year as we go through the year, which does imply a very modest price.
Incremental price coming in for the balance of $25.
Speaker Change: Yeah, and on New Shop Productivity, we were very pleased with the fourth quarter. As we look overall, some of the openings, we have had some very, very strong openings in Southern California.
Speaker Change: And so as some of those came into the system, just saw the results from that.
Speaker Change: So definitely pleased with what we're seeing. And then as far as Florida, still really early days, but very excited by what we're seeing from a customer reception. Last week I was just at one of our openings in Florida.
Speaker Change: And amazing to see that folks were waiting in line at 11 p.m. the night before we opened. And just a neat reception to see and a very new market very far away from where it all started.
Speaker Change: Yeah, certainly, what we saw was very exciting. I guess if I could just sneak one more in, does what you're doing with advertising or real estate strategy, does that change how I should think about sales transfer? Something that, you know, I think you talked about last quarter, but not this quarter, so just as I look at traffic.
Speaker Change: Yeah, I mean, I think as we've shared before, we feel comfortable with sales transfer in the range we've talked about previously, you know, as we are opening shops and creating greater convenience for customers, that's going to result in some intentional transfer. So I think, you know, I feel good about that range. Over time, certainly as we grow and that comp base grows, it will come down. So again, very consistent with what we've referenced in the past.
Thank you.
Speaker Change: Next question is from Jeffery Bernstein from Barclays. Please go ahead.
Thank you. Bye. Bye.
Thank you.
Speaker Change: I mean, clearly comps come and go depending on the consumer and promotions and whatnot, but the unit growth is obviously the key driver of the top line. So can you just talk about, you know, the mix of new versus existing markets?
Speaker Change: Maybe you can compare and contrast Florida versus Texas performance. Sounds like you're pleased with Florida. I know you have a more of a refined new market approach, so just trying to get a sense for that white space opportunity and maybe comparing and contrasting those two big markets that you had a different approach in. And I had one follow-up.
Speaker Change: So we're just getting started in Florida and I would say the learnings from Texas were as we go in, we will still go in with the same number and the same penetration into the market, we just might time it over time a little bit differently and so we are pleased with what we're seeing from that so far, but this is certainly, we have customers that come to us quite often so we can put shops quite close together.
Speaker Change: next year, but we continue to have a lot of infill still in our existing markets as we grow. So Florida, I mean, we are like at seven or eight shops right now, so we are just getting started in the state of Florida. And we'll have some new cities that will open in next year as we go. And I do think at our Investor Day, we're going to share a little bit more about how we're performing in some of these newer markets as well.
Thank you. Thank you.
Thank you. Bye.
Speaker Change: Great, and then just following up on the coffee cost question, Josh I think you said 110 basis point headwind in 25.
Speaker Change: But I got the impression I guess you're thinking that pace of the headwind accelerates through the year So I'm just wondering how we should think about that whether there's any potential for contracting to mitigate
Speaker Change: or whether at some point you would consider incremental pricing to offset and I mentioned you're really not planning on taking much but
Just curious why
Speaker Change: Before I process around whether it makes sense to take or whether you're trying to protect your value scores or how you think about that
Thank you.
Speaker Change: Yeah, yeah, happy to talk your copy a little bit. So the 110 basis points you referenced is the company margin impact that we're expecting. I'd add to that there's a franchise margin as well, so overall adjusted EBITDA margin impact we were expecting to be about 150 basis points.
for purposes of guidance and as we've looked at this.
Speaker Change: I'm guessing not all of you are in the coffee market as much as maybe I am, but coffee's been trading at very high levels.
Speaker Change: We've, for modeling purposes, assumed that it maintains about $4 for the balance of the year.
Speaker Change: For historical context and even 24, we're closer to the $2 mark per pound. So, you know, substantial increase year over year. We are, you know, here to look at the future curve and look at how that might shape up.
Speaker Change: The future market would suggest that it might come down in the back part of the year, but we're assuming that it holds at that $4 for the balance.
Speaker Change: You know, as we think about this longer term, you know, history in the coffee market would suggest that these are temporary spikes that should not have a prolonged impact.
Speaker Change: And therefore, you know, as we think about pricing, we're taking the longer view of making sure that we maintain our value proposition, make sure we're taking a pricing, you know, according to the overall structure of the business.
Speaker Change: If, for some reason, the coffee prices were to be a more structural change, a more foundational change, that were to be more persistent, certainly there's other factors we could look at, considering price being one, and then potentially other offsets in the P&L. So that's one we'll...
It's been incredibly volatile.
Speaker Change: especially more recently. It's one we'll just keep you guys updated on as we progress throughout the year. And Jeff, the only thing I would add to that is our customer value proposition is really strong right now. And when we look at what's driving our performance overall, we continue to feel incredibly good about where we are in that space.
Speaker Change: and so I think from a price perspective we have we have great shop level margins and so ensuring that we're continuing to provide our customers with the incredible value that they see today is a top priority for us.
Thank you.
Makes total sense. Thank you.
Speaker Change: Next question is from John Ivanko from JP Morgan. Please go ahead.
Speaker Change: Hi, thank you. I wanted to get back to the topic of using paid media for existing legacy or you know maybe even more mature markets. What is the, you know, I guess addressable need that you think that marketing would actually achieve? I mean do you still have...
Speaker Change: You know, a lack of awareness for certain consumer cohorts, do you think that paid media could generate? And when we talk about paid media, you know, is it billboards? Is it, you know, drive-time radio? If there's still such a thing, is it broadcast TV? Or, you know, is it highly targeted digital? Or is it influencer digital? Just give us a sense in terms of...
Speaker Change: What that marketing might look like because clearly in many of these markets you would have a fairly big System wide sales budget to spread those dollars across. Thank you
Speaker Change: Yes, so from a marketing perspective, we're doing, I would say, targeted digital marketing for the most part.
Speaker Change: And we are doing some unique things within communities where they make sense as well that are a little bit broader than that.
Speaker Change: And as far as mature markets go, that we certainly have a big opportunity to grow brand awareness in our new markets where it is quite low. However, even in many of our mature markets, we really are much lower from a brand awareness than other large players in those markets. And so we do believe that there's an opportunity even in those markets to drive that awareness.
Speaker Change: So, I think that as we look at this, we can look at our returns as we do different things across the advertising spectrum and are really making targeted investments that we believe make sense for us from a financial perspective.
Speaker Change: Yeah, John, and maybe just on the cost side of it, of how we're thinking about it, you know, we did really start ramping up more of those marketing efforts in the back part of last year.
Speaker Change: So I'd expect that we'll maintain that. All this is contemplated in that full guide that we provided, but I would expect that that would be a little bit more level throughout the year this year. That combined with the people investments that we've made throughout the year, really would create a flatter shape to that curve than what we saw in 24.
Speaker Change: Yeah, and there's advertising costs for making an FD&A, yeah. That's right.
Speaker Change: Okay, thank you. I'll follow up on that. And I know there's obviously been a lot of success from the brand using unpaid organic influencer marketing. Does it make sense, you know, to maybe do some incentivized influencer, you know, marketing at some point? As, you know, some of these, you know, assets obviously, you know, are realizing their worth, especially when it comes to brands like your own.
Speaker Change: So we do continue to speak with our superfans and find them out there and send sometimes special boxes to some of our superfans. What we are really thoughtful about is that for us it has to be super authentic and really people that love our brand and are already users of the brand and actually reaching out to them, engaging with them in ways that are fun for them and fun for their followers.
Speaker Change: We do believe that there is something there, but I think we're going to definitely do it in a unique Dutch Bros way.
Thank you.
Thank you.
Thank you very much.
Speaker Change: Next question is from Gregory Frankford from Guggenheim Securities. Please go ahead.
Speaker Change: Hey, thanks for the question. Josh, I need to talk about that waterfall effect on the new stores, maybe helping the comp, but can you just update us on what kind of the year two, year three AUV ramp is for your new stores, and how are your maybe most mature markets comping?
Speaker Change: Yeah, so I mean, Greg, thanks for the question. I'd say we're seeing strength across the board. What we have seen is really strong performance as those newer vintages are maturing, really through the combination of the paid media that we've been leading into, the market planning efforts that we have to
Speaker Change: really improve the overall shop productivity as well as the adoption of what we've seen in in mobile order. So feel like there's really good strength in those new markets and strength across the board.
Speaker Change: As we think about just kind of the geographic breakdown of vintages, that's something we can talk a bit more about in our investor day, not something that we're that we're dissecting right now.
Okay, thank you very much.
Thank you for watching.
Speaker Change: Our next question is from Jeff Farmer from Gordon-Haskett. Please go ahead.
Speaker Change: Great, thank you. You did share a lot of information on the drivers of that very strong 6.9% comp in the corner.
Speaker Change: But I'm curious, again you touched on it, but what were some of the biggest upside surprises relative to what you were thinking about when you guided to low single-digit percents for sales in November? So the big upside, what were you guys seeing there?
Speaker Change: Yes, so I think if you if you break it down that seeing that real strength in in transactions so that two points of traffic
Speaker Change: and all of the drivers behind it. Again, everything really just...
Speaker Change: hitting in the right way. So it coming together with mobile order and the paid advertising and all of those pieces and having a strong lineup for for the holidays with our beverages. So all of those things plus
Speaker Change: We increased those merch drops that we did throughout the quarter. And although they do drive outsized sales on the day that we launched them, they also drive interest in the brand. And so all of those things together are what we believe were really driving the traffic. The other piece, as we were seeing the strength in the quarter, we were able to pull back on discounts.
Speaker Change: And so that discount rate added, you know, a little bit over a point as well.
Speaker Change: to what we saw. So, you know, very excited that everything was able to hit. I think the brand is resonating. And then the strength and just as we continue to read where we sit from a customer value proposition and what our customers think about us.
Speaker Change: from that perspective, it's really working that way. And then I would just finally add this new shop performance. And so those newer vintages coming into the comp were also something that were certainly at the high end of where we thought they might be.
Okay, that's very helpful and just two follow-ups on that.
Speaker Change: I'm pulling back on discounting. I'm curious how that will continue or how you expect that to continue over the next few quarters.
Speaker Change: and then also sort of the tailwind associated with the newer shops entering the comparable store base.
Speaker Change: Sounds like that's been a question, but a healthy tailwind here, but if we put those things together, not looking for the math, but again in terms of thinking about you guys pulling back on discounting, does that continue and should we expect to continue to see a pretty nice tailwind as it relates to new stores entering the comparable store base?
Speaker Change: No, so what I would say was a pretty it was a relatively minor pullback on the discounting. And one of the things when you think about customer value proposition, it's made up a lot of a lot of things. It's what what our customers are receiving.
Speaker Change: We believe the strength of the rewards program and the value that our customers see from that rewards program is a big factor in helping to drive our customer value proposition strength right now. And so those extra points, getting those free rewards, are an important part of being a customer at Dutch Bros.
And so, although we, you know, we'll look at.
Speaker Change: look at that discount rate consistently with how we're performing, we will also continue to add value to our customers in that way.
So that's something important to us.
and then on the new shops entering the comp base.
Speaker Change: Again, just saw strength from that and I think that that's driven by, you know, getting to a place where you're driving past a lot of Dutch Bros as we have more shops in new markets.
Speaker Change: all of the paid advertising that we've had throughout the last year into those new markets. And then that real concerted effort to get customers into the rewards program quickly so that we can speak to them directly, share with them new drinks, share with them when we're doing a sticker drop. And all of that is just building on each other.
Thank you, appreciate it.
Thank you. Thank you.
Speaker Change: Next question is from Nick Sagan from Web of Securities, please go ahead.
Thanks for the question.
Speaker Change: Aside from the coffee impact on COGS, where do you think all-in inflation could be? How should we think about sort of all-in COGS aside from the 150 bps headwind from coffee?
Speaker Change: impacts of pricing that we plan to take, as well as other impacts of commodities. So I would say that the majority of that, as we referenced, is coming from coffee. The vast majority of that's coming from coffee. But there are some other factors, other impacts that we've included in that as well.
Speaker Change: Okay, thank you. And, you know, you shared a lot of information on the on the food test. Would you mind just reminding us what percentage of system that test is taking place in, whether you plan to expand a test as the year progresses, and any other, you know, helpful information like attach rates or, you know, where it's mixing in?
and the Tustin-Tustin Orchids.
Speaker Change: Yeah, so as we look at the food test, we are just in eight shops right now, so we are still in assortment testing. We are planning out how we're going to do this from a supply chain perspective and we are refining all of the operational protocols that we want to use as we look at this.
Speaker Change: So we're definitely not at a place right now where we would share additional numbers from that.
Got it, thank you very much.
Speaker Change: Next question is from Sharon Zaxia from William Blair. Please go ahead.
Hi, thanks for taking the question.
Sharon Zaxia: I guess I wanted to talk about the development pipeline, which I know is in great shape. I'm curious how you're kind of handicapping
potential construction delays with
you know, deportations, and...
Sharon Zaxia: How you're also thinking about raw materials kind of coming into play for the actual building costs.
Sharon Zaxia: So as we look at our development pipeline, we do consider those things.
Sharon Zaxia: We are definitely in an environment that is changing right now, and so, you know, can't consider everything that we haven't heard about yet.
potential delays, and other pieces.
Speaker Change: And just one follow-up, on the mobile journey, I mean, it's very impressive that it's already 8%, you know, as of the end of December. In your experience, kind of, how does that look as we kind of build going forward? Is it...
Sharon Zaxia: something where it's a gradual build over time? Is there a concerted marketing push for it at some point? I mean, how are you viewing that internally?
Sharon Zaxia: Yes, the way that we view it internally as we always have is one mobile order has to fit within our brand We we have to continue to deliver the awesome service
Sharon Zaxia: that we're known for and that awesome connection with our baristas.
Sharon Zaxia: And so what we are most pleased by is that feels like it's going incredibly well right now.
Sharon Zaxia: And as we think about growth in mobile order, that steady growth of it is really what works best from an operation standpoint.
Sharon Zaxia: and, you know, continuing to listen to our baristas and what can make it easier for them, continuing to listen to our customers and what additional updates they want on our app and pieces like that.
Sharon Zaxia: So all of those things are in consideration, but I would say we are very pleased with the pace at which it's going because it's what sets us up in the best way possible from an operations perspective.
Great, thank you.
Speaker Change: Thank you. This concludes the question and answer session. I'd like to turn the floor back to management for any closing comments.
Thanks for all your questions.
Speaker Change: At A Better World in December, we felt the energy of our field crews and leaders. Afterwards, they shared with us how important it was to get together, celebrate the culture, and bring our core values to life.
Speaker Change: Those core values are radiate kindness, get up early, stay up late, and change the world.
Speaker Change: Our teams live those values every single day. Our customers feel it when they go to the window, and our communities feel it as we partner to make a meaningful impact.
Speaker Change: In 2024, our company, customers, and crews work together to give more than $5 million to our communities. That includes a donation to support a local children's museum in our home of Grants Pass and funds raised to support nonprofits through our company-wide giving days and local givebacks.
In total, we supported more than 500 local organizations.
Speaker Change: Our growth is a compelling story, but it's the difference Dutch Bros makes and the opportunities we provide both within the company and in our communities that drives us. We look forward to continuing our momentum so we can truly make a massive difference one cup at a time.
Thank you.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.