Q1 2025 Dutch Bros Inc Earnings Call
Speaker Change: © 2015 University of Georgia College of Agricultural and Environmental Sciences UGA Extension Office of Communications and Creative Services
Speaker Change: Thank you for standing by and welcome to the Dutch Bros Inc. 1st quarter 2025 earnings conference call and webcast
Speaker Change: This conference call is being recorded today May 7th, 2025 at 5 p.m. Eastern Time and will be available for replay shortly after it has concluded.
Speaker Change: Following the company's presentation, we will open up the lines for questions and instructions to queue up we'll be provided at that time. I would now like to turn the call over to
Speaker Change: Patty Warren, Dutch Bros, Senior Director and Investor Relations and Capital Markets, please go ahead at this time.
Speaker Change: Good afternoon and welcome. I'm joined by Christine Barone, CEO and President, and Josh Guenser, CFO . We issued our earnings press release for the quarter-ended March 31, 2025 after the market closed today.
Speaker Change: The earnings press release, along with the Supplemental Information Deck, has been posted to our Invest Relations website at investors.dutchbrows.com
Speaker Change: Please be aware that all statements in our prepared remarks and in response to your questions, other than those of historical fact, are forward-looking statements in our 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 in our most recent annual report on Form 10K. We assume no obligation to update any forward looking statements.
Speaker Change: We will also reference non-GAAP financial measures on today's call. As a reminder, non-GAAP measures are neither substitutes for nor superior to measures that are prepared under GAAP.
Speaker Change: Please review the reconciliation of non-GAAP measures to their comparable gap results in our earnings press release.
Christine Barone: Now with that, I'd like to turn the call over to Christine. [inaudible]
Christine Barone: Thank you, Patty. Good afternoon everyone. I am pleased to share that Dutch Bros continues to operate from a position of strength. We are well positioned to thrive in this dynamic environment.
Christine Barone: The enthusiasm for our brand, the loyalty of our customers, the passion of our team, and a clear vision for our future give us great confidence.
Christine Barone: On February 7th, we opened shop number 1,000 in Orlando, Florida.
Christine Barone: 33 years after our founding and 3,000 miles from our original push cart in Gradspeck, Oregon.
Christine Barone: With a long runway ahead and conviction in our brand, we aim to open the next thousand new shops with the goal of 2029 total shops in 2029.
Christine Barone: We see a long-term opportunity to drive sustainable transaction growth by addressing structural barriers, bringing in new customers, enhancing frequency with existing customers and sustaining ongoing momentum and the productivity of our newer shops.
Christine Barone: Q-1 results provide further evidence that we are well positioned on the journey to capture the growth opportunity that lies ahead of us.
Christine Barone: We delivered exceptional results in Q1. The momentum we saw exiting 2024 carried forward into the new year.
Christine Barone: During Q1, total revenue increased 29% when compared to the same period last year.
Christine Barone: Q1's strong top line momentum was driven by a healthy balance of new shop growth and productivity coupled with strong system same shop sales and transaction growth
Christine Barone: The Dutch Bros. brand continues to resonate with our customers, demonstrated by Q1 System Seam Shop Sales Growth of 4.7% [inaudible]
Transactions Group for another consecutive quarter. [inaudible]
Company operated same shop sales grew 6.9%
including exceptional transaction growth of 3.7 percent. Thank you.
Our foundational transaction driving initiatives continue to propel us forward.
Christine Barone: We have a coordinated plan and we are executing with tenacity across each of these initiatives.
Christine Barone: We are still in the early anings of these efforts, with significant runway ahead of us.
Christine Barone: We are seeing the benefits of order ahead, while successfully balancing transaction growth and ensuring customer satisfaction.
Christine Barone: These changes fit seamlessly in our current model without negatively impacting operational flow.
Christine Barone: This initiative serves as a prime example of addressing structural barriers and driving success and a key area of opportunity, the morning day part.
Christine Barone: Our efforts are yielding not only revenue growth but also strong adjusted EBITDA growth, which grew 20% as compared to the same quarter last year.
Christine Barone: Now let's talk about the driving force and key differentiator behind our brand. The broest is in our shops that serve our customers each and every day, and our HQ team mobilized to support them.
Christine Barone: Dutch Bros. Exceptional Culture, Dedicated Roestas and Passion for Superior Service resonate deeply with our customers, setting us apart and widening our most distinct competitive advantages.
Christine Barone: This foundation is built with each broista in our shops from coast to coast.
Christine Barone: From the very start of the onboarding process, our training and flow checks ensure every broista is fully trained in our core anchor tenets of speed, quality and service.
Christine Barone: A continuous learning playbook allows us to enhance the customer experience.
Christine Barone: Our shop growth is predicated on the readiness and capabilities within our operations teams.
Christine Barone: Field leaders are deeply ingrained in the culture, allowing us to create compelling futures for thousands of borrowy stuff as they advance their careers with Dutch Bros.
Christine Barone: It is worth reminding that every new market begins with leaders from inside our system, bringing a level of engagement, experience and consistency to the journey of new employees and new customers.
Christine Barone: Our current pipeline includes 450 operator candidates with an average tenure of more than seven years ready to lead a market.
Christine Barone: As we share during our investor day, this number has more than doubled since our IPO.
Christine Barone: Our robust training programs, scalability of our culture and fun energy empower us to deliver an unparalleled customer experience anchored by speed and quality with exceptional service.
Christine Barone: We are an employer of choice and our team is motivated to deliver this great energy and service.
Christine Barone: This strategic approach is further exemplified in our real estate strategy.
Speaker Change: When I joined in 2023, we took our new market entry strategy to the next level by adjusting the pace of new market penetration, allowing newer markets the time to build brand awareness and demand.
Speaker Change: In 2024, we enhanced our real estate development team by increasing investment in market planning capabilities and expanding with new members in construction and site acquisition.
We supported these efforts with enhanced data, tools and processes.
Speaker Change: Actions such as these continue to deepen and widen Dutch Bros' competitive mode for long-term success.
Speaker Change: In February , we welcome Brian Cahoe as our new Chief Development Officer.
Brian brings nearly 25 years of retail experience.
Speaker Change: Most recently serving as Chief Development Officer at Young Brand's KFC-US Division. [inaudible]
Speaker Change: We are thrilled to have Brian on board as we continue to invest in our real estate capabilities.
Speaker Change: Once again, in Q1, we saw enhanced new shop productivity. This combination of investment in our real estate capability and paid media is driving this positive trend.
Speaker Change: In Q1, we successfully opened 30 shops and anticipate maintaining this pace next quarter, with plans to accelerate the pace in the second half of the year. [inaudible]
Speaker Change: Our strategic investments in development, construction, and market planning combined with our refined site selection process have enhanced new shop productivity and give us even more confidence in achieving accelerated growth.
Speaker Change: Our goal of 2029 shops in 2029, positions Dutch Bros for multiple years of mid-teens annual
Speaker Change: This goal is supported by those investments in real estate processes and systems, robust new shop economics, and the expansion of our total addressable market to 7,000 shops.
Thank you for watching!
Speaker Change: Now I would like to discuss our multi-year efforts to grow transactions and develop sales layers. [inaudible]
Speaker Change: Last year, we outlined a transaction driving strategy focused on three foundational initiatives to jumpstart transaction growth.
Enhanced Focus on Category-wide Innovation
Speaker Change: Increased paid advertising to build and grow brand awareness and growth in the Dutch rewards program as the primary avenue for targeted customer marketing.
These efforts are working. [inaudible]
Speaker Change: We are continuing to see success as we execute on each of these elements. [inaudible]
Speaker Change: For the quarter, we saw system seam shop transaction growth of 1.3 percent. [inaudible]
Speaker Change: which is particularly impressive, given we are also lapping to enormously successful LTOs and boba and protein coffee from the prior year.
Speaker Change: We are still in the early anings and have considerable runway in our foundational transaction driving initiatives.
First Innovation
Speaker Change: For over 30 years, Dutch Bros has been an innovator, and this will continue to play a pivotal role in our growth story.
Speaker Change: Relevant innovation helps us deepen our competitive mode and build upon our core menu pillars of coffee, energy, and refreshment.
Speaker Change: In Q1, we successfully rolled out the Sweet Serial Sips LTO.
Speaker Change: offering customers a unique way of enjoying cereal flavors with their favorite latte, freeze, or chai.
Speaker Change: We also launched the Spring Fever Dream Trio, a hyper-cromb rebel with blue-raz pop and boba, the Brownie Better Mocha, and a birthday cake latte or freeze with salftop and spranks.
Speaker Change: In March, we delighted our customers with a fun rubber duck, adding a playful touch to their visit. Exciting merch drops like this are another way we make each visit memorable.
Our ongoing innovation efforts are contributors to these outstanding results.
Speaker Change: Enabling us to lap last year's strong performance from Bova and protein coffee. [inaudible]
Second, strategic use of paid advertising.
Speaker Change: In Q1 we continued our elevated paid advertising strategy in new and mature markets.
Speaker Change: It's clear to us these efforts are having a positive impact on our business and growth trajectory given the out performance we have seen and our new advantages following the ramping up of this initiative.
Speaker Change: We expect to continue our paid advertising efforts as we see significant opportunity to drive increased aided awareness in all markets, especially newer ones.
Speaker Change: And finally, Dutch Rewards. In Q1, we attribute approximately 72% of system transactions to our loyalty program, representing a five-point improvement versus the same period last year.
Speaker Change: Dutch Rewards allows us to reach our customers more effectively with a strong focus on a personalized experience.
Speaker Change: Through this dynamic communication channel, we introduce customers to innovative new products and provide unique Dutch experiences.
such as surprise sticker days and merch drops. [inaudible]
Speaker Change: We strategically incentivize visits across various segments, geographies, and day parts. [inaudible]
Speaker Change: Dutch Rewards serves as a highly effective direct line of communication with our customers.
Speaker Change: allowing us to gather real-time feedback from our campaigns and continuously improve our customer experience.
Speaker Change: For context, this program launched in early 2021 and is just four years old.
Speaker Change: We expect Dutch Rewards to be a strong lever for our future growth.
Speaker Change: In addition to these foundational sales driving initiatives, we see a clear path forward with order ahead, throughput and food.
Speaker Change: Our objectives with the order head roll out are clear. Maintain connections throughout the customer experience.
Speaker Change: Remove potential structural barriers and win more in the morning day part, all without losing the broeced connection that makes coming to Dutch Bros so special.
Speaker Change: We are encouraged by the continued success of our order ahead program, which saw strong adoption in Q1.
Speaker Change: As of the end of the quarter, Order Ahead accounted for approximately 11% of transaction mix.
representing a three-point improvement versus Q4.
Speaker Change: In many new markets, we observed transaction penetration rates nearly two times higher than the system average driven by this easy way for new customers to discover our brand.
Speaker Change: Our order ahead thesis is playing out as anticipated at this early stage with transactions over indexing in the morning. A day part where many customers are more time sensitive.
Speaker Change: This is encouraging as we recognize that at times we have long lines [inaudible]
Speaker Change: Order ahead also meets your need of increasing speed with better throughput outcomes.
Opening up the underutilized walk up window channel. [inaudible]
Speaker Change: We are pleased by the initial throughput driving initiatives we have implemented and they are already showing promising results.
Speaker Change: Our throughput work is focused on fundamental blocking and tackling, with an emphasis on specific actions to address bottlenecks.
Remove unnecessary steps and elevate our productivity.
Speaker Change: Our objective right now is making sure that we have the right people in the right place during the right things at the right time to deliver speed and quality with exceptional service.
Speaker Change: At this early stage, our efforts are aimed at driving incremental throughput during peak hours because it is simple, clear and measurable.
Speaker Change: We are challenging our shops to exceed their base targets and early results from a small pilot have been promising.
Speaker Change: We believe this initiative will enhance our ability to improve speed of service across our shop base as we implement a set of simple and proven techniques.
Speaker Change: We are thrilled with the success of our limited food test launched late last year and are excited to continue testing and refining this initiative throughout 2025.
Speaker Change: Building on the success we are having with our order ahead initiative, we believe food can generate incrementality in the morning day part and dry frequency.
Our approach to this test is both strategic and deliberate.
Speaker Change: We recognize the potential multi-year growth opportunity with our current food mix at less than 2% of sales.
Thank you.
Our goals for this test are clear.
Maintain existing high levels of release to job satisfaction.
Continue to support throughput efficiency.
Speaker Change: Minimized Complexity, and offer a targeted assortment that allows us to satisfy our customers craving for food while capturing incremental beverage opportunities.
Speaker Change: The pilot test has informed our decision to now offer eight skews, including four hot food offerings.
Speaker Change: With the completion of an initial pilot, we recently expanded this initiative from 8 to 32 shops.
Speaker Change: Looking ahead, expanding the food test pilot is a crucial step towards a broader test and rollout, anticipated to occur throughout 2026.
Speaker Change: This expansion aims to reach a wider potential audience and positions Dutch Bros more competitively and high-value, routinized beverage occasions.
Speaker Change: Inclosing momentum in the business is strong and our strategies to build our business are working.
Speaker Change: We have the most passionate people who are well positioned to succeed and grow our brand.
Speaker Change: We have topped your growth that we see sustaining well into the future.
Speaker Change: In Q1, we delivered 29% year-over-year revenue growth and opened 30 new shops.
Speaker Change: We have a multi-year roadmap with visibility to the path ahead. Our foundational transaction driving initiatives are working and we have clear plans on order ahead, throughput and food.
Speaker Change: Our real estate strategy is working, and we are building momentum. New shop productivity is strong, and system-wide AUVs were $2 million.
Speaker Change: We have enormous confidence in our future, anchored by our passionate team, our loyal customers, and a clear roadmap to grow Dutch Bros.
Speaker Change: Together, we are poised to achieve remarkable success and drive our vision forward. With that,
Speaker Change: Thanks Christine, I'll provide a recap of Q1 results and a view of our outlook for 2025.
Speaker Change: Our Q1 performance has reinforced the confidence we have in our growth prospects.
Speaker Change: First Quarter Revenue was $355 million, an increase of 29% or $80 million over the first quarter of last year
Speaker Change: We open 30 new shops in the quarter of which 25 were company operated bringing total system shop count to 1,012 shops.
Speaker Change: We expect to open approximately the same number of shops in the second quarter, before accelerating throughout the back half of the year.
Speaker Change: Our pipeline is strong and we remain confident in opening at least 160 system shops in 2025.
System Same Shop Sales Growth was 4.7% [inaudible]
Speaker Change: In a quarter, we saw 1.3% transaction growth and 3.4% ticket growth, which gives us confidence in our full-year same-shop sales expectations.
Speaker Change: While we're cognizant of the potential uncertainty in the broader consumer environment, we've seen strong traffic trends into April which remain in line with our expectations. [inaudible]
Speaker Change: Our full-year guidance contemplates three to four percent system-same shop sales growth in the second quarter, which includes the roll-off of approximately 150 basis points of price.
Speaker Change: In the quarter, Adjusted EBITDA was $63 million, an increase of 20% or $10 million over the first quarter of last year.
This represents 140% growth on a two-year basis. [inaudible]
Speaker Change: As a reminder, we experienced lower adjusted SGNA in Q1 2024 before ramping up spend throughout the remainder of the year as a part of our overall restructuring efforts.
Speaker Change: Transitioning to our company-operated shops, revenue for Q1 was $326 million, an increase of 32% or $78 million over the first quarter of last year.
Speaker Change: Company operated same shop sales growth was an impressive 6.9% of which 3.7% was transaction growth.
Company Operated Shop Contribution was $96 million.
an increase of 30% or $22 million year-over-year.
During the quarter, company operated shop contribution margin was 29.4%
Speaker Change: Beverage, food and packaging costs were 25% of company operated shop revenue, which is 70 basis points favorable year over year driven primarily by pricing.
Speaker Change: Looking ahead, we evaluated the estimated impact of tariffs within our cogs basket and believe our exposure is limited, with less than 10% of our current cogs basket being sourced internationally.
Speaker Change: Coffee is the majority of this, source from Brazil, Colombia, and El Salvador, which has of today face a 10% import tariff
Speaker Change: Based on what we know now, we believe we can navigate this cost pressure in 2025, within our existing guidance, as we have now substantially locked in copy prices for the remainder of 2025.
Speaker Change: Considering this, we continue to expect approximately 110 basis points of net cogs margin pressure for the four-year, which now includes the estimated impact of tariffs.
Speaker Change: Our full year guidance contemplates beverage, food, and packaging costs of approximately 27% of company operated shop revenue in Q2.
Speaker Change: Labor Coss were 27.4% of company operated shop revenue, which is 100 basis points unfavorable year over year driven primarily by wage investments made last April in California.
Speaker Change: As we look ahead, we made strategic investments in our shop leadership compensation in early April of this year which would offset any benefit from sales leverage for the remainder of the year.
Speaker Change: Occupancy and other costs were 16.5% of company operated shop revenue, which is 20 basis points favorable year over year driven primarily by leverage from sales growth.
Speaker Change: Pre-opening expenses were 1.7% of company operated shock revenue, which is 30 basis points unfavorable year-over-year, driven primarily by new shop training and travel.
Speaker Change: Considering all of this, our full year guidance contemplates a company operated shop contribution margin of approximately 29% in Q2.
Let me turn to other P&L items
Speaker Change: Franchising another revenue was $29 million, up $1.7 million, or 6.4% year-over-year
Speaker Change: Franchise another contribution was $20 million, up $1.2 million or 6.4% year-over-year.
Speaker Change: Adjusted S-GNA was approximately $54 million, or 15.1% of total revenue, roughly in line with our expectations.
Speaker Change: We now expect approximately 90 basis points of leverage on adjusted S-GNA for the full year 2025.
Speaker Change: In the quarter, Intersex Pensinet increased $722,000 a year over year to $7.1 million $7.1 million.
Speaker Change: The increase is primarily driven by higher interest expense on long-term debt and finance leases for new shops, and partially offset by higher interest income on invested cash.
For the quarter, we delivered 14 cents of adjusted EPS.
Up from 9 cents in Q1 of last year. [inaudible]
Speaker Change: Let me now provide an update on our balance sheet, cash flow and liquidity.
Speaker Change: As of March 31st, we had $316 million in cash and cash equivalents and $281 million in drawn term notes resulting in a net cash position of approximately $36 million in dollars.
Speaker Change: Relative to Q4 of last year, this represented decrease of approximately $23 million, which is largely related to working capital timing
Speaker Change: The combination of strong cash generation from our core business, cash on our balance sheet, and access to additional liquidity through an existing credit facility, gives us great confidence in continuing our growth trajectory.
Speaker Change: In Q1, our average capex per shop was approximately $1.67 million, a decline of approximately 10% from Q4.
Speaker Change: We are pleased with the progress we are making towards shifting our portfolio to more capital, efficient, build-to-suit lease arrangements. Thank you very much.
Speaker Change: As of March 31st, we had over $658 million in total liquidity. [inaudible]
Speaker Change: This total liquidity is comprised of $316 million in cash and cash equivalence and $342 million in our
Speaker Change: Shifting to guidance, we have a strong runway ahead and are well positioned to continue producing healthy financial results in this dynamic macro environment.
Speaker Change: Given the strong performance in Q1 and continued momentum into Q2, 2025 Total Revenues, System Samshop Sales Growth, and adjusted EBITDA are trending towards the top half of the previously communicated ranges.
Speaker Change: As a reminder, those were total revenues between $1.555 billion and $1.575 billion [inaudible]
Speaker Change: System Same Shop Sales Growth in the range of 2-4%
Ajusted EBITDA between $265 and $275 million. [inaudible]
Speaker Change: Food Expect 60 basis points of net adjusted EBITDA margin pressure, driven primarily by elevated beverage, food, and packaging costs, and partially offset by the benefit of approximately 90 basis points of adjusted S.G. and A. leverage.
Speaker Change: Additionally, we continue to expect to open at least 160 shops, representing 16% systems shop growth.
Speaker Change: Capital expenditures remain at our estimated range of $240 to $260 million, primarily made up of new shop construction costs.
Speaker Change: We were very proud of the results of the business delivered in Q1 and the continued momentum in Q2.
Speaker Change: We believe the combination of strong four wall economics and strong cash on cash returns will allow us to continue delivering incredible results [inaudible]
Speaker Change: We are well-positioned to deliver fantastic returns from our new shops and remain bullish on our near-term goal of 2029 shops in 2029.
Speaker Change: Thank you everyone. We'll now take your questions. Operator, please open the lines.
Speaker Change: Thank you. We will now conduct a question and answer session.
Speaker Change: If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speech equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: Once again, that star won to ask a question at this time. One moment while we pull for our first question.
Speaker Change: The first question comes from David Tarantino with Baird. Please proceed.
David Tarantino: Hi, good afternoon. I had a couple of clarification questions on how you're thinking about this second quarter.
David Tarantino: Josh, I think you said your plan had contemplated, comps up three to four percent and I just wanted to maybe ask several times you mentioned momentum into this quarter.
David Tarantino: So I wanted to maybe understand what exactly that means on how you started the quarter relative to what your plan looked like.
Speaker Change: David, thanks for the question. Yeah, we're feeling really good about the momentum, as you pointed out, into Q2, really coming in line with our expectations. You know, the piece I'd remind is...
David Tarantino: As we think of our roll from Q1 into Q2s, we are rolling off about 150 basis points of price [inaudible]
Speaker Change: in the Q2, so feel, feel, like I said, feel good about that, that traffic trend continuing into Q2 and really stick in, in line with our expectations.
Speaker Change: Got it, and if the traffic trend from Q1, you know, continues in the Q2, are you I think I think you had a negative impact on the traffic in Q1.
Speaker Change: from the Leap Day lap, but are you making an adjustment for that as you think about the underlying traffic or should we just think about reported traffic is the right way to think about the expectation. [inaudible]
Speaker Change: Yeah, we are making an adjustment for that leap day so thinking through the kind of the normalized run rate trend there is what we're seeing continue into into Q2. Yeah, we're feeling really good about the underlying traffic and what it's looking like in the early part of Q2.
Excellent. Thank you very much.
Thank you [inaudible]
Speaker Change: The next question comes from Bryan Harbour with Morgan Stanley. Please proceed.
Thanks. Good afternoon, guys.
Speaker Change: You know, I mean, new store productivity as you, as you mentioned, looked very good again in the quarter, I guess. Are you...
Speaker Change: Assuming that that sort of persists through this year, is there anything sort of lumpy about the stores that we might have seen in the 4Q and the 1Q, or could you just talk about more about what's driving that?
Thank you.
Speaker Change: Yeah, so as we look at the new shop productivity, we had a really great Q1, we were really pleased with the openings. We had some of the top openings of all time in this quarter, so it was definitely a great signal, I think of how the brand is being received as we're opening these new shops.
Speaker Change: I think as we look throughout the year that we really caught to plate what we shared with investor day about having strong new shop productivity and strong new shop AUVs. We did see some particular strength in Q1 that we were really pleased with.
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Okay, cool, thanks.
Speaker Change: Joshua's, just on the food and beverage cost line was...
Speaker Change: Was one cue more favorable than you expected? And I guess, you know, because the comment about the full year impact, I think is the same. So are you?
Speaker Change: building a little bit more pressure into the balance of the year, is this kind of, you know, consistent with what you're with.
I've taught before
Speaker Change: Yeah, this is actually right in line with what we had expected so most of the pressure that we're expecting for the bouncyers really coming from coffee prices and you know as I highlighted in my prepare remarks. Thanks for your time.
Speaker Change: Given how we've been able to lock in price, we took a look at the expected tariff impact and do believe we can absorb the tariff impact in that overall guidance range. But we had always contemplated that it would be stepping up more significantly in Q2 and then into Q3. So I think this is fitting right in line with what we expected. And like I said, really stepping up more meaningfully, beginning in Q2. [inaudible]
Okay, thank you.
Dennis Geiger: The next question comes from Dennis Geiger with UBS, please proceed. [inaudible]
Dennis Geiger: Great, thanks guys. I wanted to touch on mobile order and just as there's any more color to share on what you're seeing there, if you have any sense for kind of incrementality there perhaps, or perhaps how notable some of the throughput benefits through the mobile order channel are.
Speaker Change: Yes, so we are seeing incrementality from mobile order. And as we look at what we're seeing there, I think it's coming from a couple of things. So what we are measuring is we're looking at when a customer either joins the rewards program or was a rewards member, we look at what happens. And so that pre and post behavior, we are seeing a lift in frequency.
Speaker Change: The other thing that we're seeing, which is really nice, is that we are increasing the rewards sign-ups.
Speaker Change: And so as we open new markets, we're seeing a quicker kind of adoption of the rewards program of our customers.
Speaker Change: And so there's both a rewards benefit to that and a mobile order benefit from that. And I think that that increased functionality as a reminder it was the number one thing that our customers were asking for. And so I do think we're seeing that in those increased downloads and that increased adoption of the app. [inaudible]
Thank you.
Girl for it, may be just up. Yeah, go ahead [inaudible]
Oh, keep going. Oh, the other one.
Speaker Change: Yeah, the other thing I was going to add is just what we want it to see was that strength in the morning day part with mobile order and we are seeing that.
Speaker Change: So as we looked throughout our day, our traditional traffic has been really even throughout the day with a third in the morning, a third midday and a third in the afternoon. And mobile order is really driving that additional morning day part traffic, which is great to see.
Speaker Change: That's great. Just to follow up then, just as it relates to maybe some of the promotions and offers, I know there's different channels here. Has that changed much the intensity which you sort of have pushed those offers, or that your customer has utilized those offers? Is that the right way to think about it? And is there any kind of notable change that you've seen in the business from that perspective? Thank you.
Speaker Change: Yeah, we haven't seen a notable change in that. You know, when we look at kind of the contribution from that discount space, it was really kind of very even versus where it was last year. And so, so we're not seeing an increase. However, what I would share is I think our sophistication of how we are making this offer is how we're thinking about points that has increased. So I think that although if we are not kind of spending more to get there, we are seeing kind of [inaudible]
and increased efficacy from our efforts. [inaudible]
Thank you for watching!
Great, thank you
Speaker Change: The next question comes from Andy Barish with Jeffries. Please proceed.
Andy Barish: Take it after you guys. Just wanted to get the sense of labor, Josh, I know, you know, first quarter was still absorbing California. Is the understanding that you'll kind of be flatish going forward in that, you know, some of the shop leadership investment should be offset by some, you know, some of the same store sales leverages that what you were kind of implying you were over a year going forward. [inaudible]
Andy Barish: That's right, Andy. Like I said, we made some investments in our shop leadership at the beginning of Q2 here and we would expect that to offset in the labor line what otherwise we would see for sale of leverage. So.
Speaker Change: Okay, and then just on coffee costs as it all kind of rolled in, and I think you guys were sort of...
Speaker Change: modeling off of sort of somewhere around $4 on the sea, is that kind of where things wound up as you you know finished up locking for the year? [inaudible]
Speaker Change: Yeah, so we did price a variety of different points during the quarter at a rate slightly below the four that allowed us to absorb the estimated impact of tariffs. So that's...
How we were able to...
Speaker Change: who really reaffirmed the estimated impact from coffee and now inclusive of tariffs to be on the company's shop level at these 110 basis points of margin pressure.
Okay. Thank you very much.
Speaker Change: The next question comes from Andrew Charles with TD Cowen. Please proceed.
Andrew Charles: Great, thank you. Christine, you talked about increasing the new food pilot to 32 stores from eight stores. If this passes your stagegate process, how do you envision the pacing of rolling this out that remained a review system in 2026? Do you think it'll be pretty even or perhaps waited to one half or second half of next year?
Andrew Charles: Yeah, so our goal right now was to get to this broader market test piece, so really testing 32 shops so we can look at kind of what we think our assumptions are and then how we need to change those. So that is really the first step that we're doing here, you know, before we really fully map out what we think we're going to do from a rollout perspective. Let's go.
Andrew Charles: The initial signs from those eight shops we were very pleased from and that gave us that confidence to roll it out inclusive of those eight to 32 shops.
Andrew Charles: And so now we have a broader market test to see what we can do in a market that fully has food in it and really test all of the operational protocols we've put in place. We've done a lot of work on the distribution front.
Andrew Charles: We've gotten really nailed down the equipment that we think is the right equipment for our teams to be using and are super pleased with what we're seeing initially.
Speaker Change: Okay, that's great to hear. I want to follow up an earlier question about measuring the incrementality of mobile and you talk about increased frequency as well as increased loyalty signups.
Speaker Change: You know, I'm wondering if we could make you think of it through another lens which is the mix of walk-up sales. About at the investor day you talked about how this is about 50% of mobile sales and growing, you know, well about the roughly 10% level or so pre-mobile. Is that another way that you guys think about gauging the incrementality of mobile as well? No.
Speaker Change: and so balancing out that production and that demand is quite helpful. From an incrementality, we're obviously looking at what's happening at the walk-up window, but we really need to look more before and after what's happening. We're doing all different types of cuts to really understand what the incrementality is, but that in itself...
Speaker Change: Show us how much is going to the walk-up window but doesn't necessarily measure ankle mentality in the best way.
Okay, thank you.
Speaker Change: The next question comes from Chris O'Call with Steeple. Please proceed.
Chris O'Call: Yeah, thanks. Good afternoon, guys. Christine, I had a question about operational improvements. I was hoping you could describe what tools or processes you're developing to improve productivity and throughput and how you expect to roll it out across the system.
Speaker Change: Yeah, so we're doing a couple of things. One of the things is really big bringing visibility to our peak hours.
Speaker Change: and so allowing our teams to kind of see what was your highest Friday hour over the last couple of months and there's this fun and trying to kind of beat that hour and to see how quickly you can go. So part of what we're doing right now is really just bringing enhanced visibility through very easy to use kind of.
Speaker Change: Speed Dashboards and things like that. The other piece we're doing is we're working with our teams so they can kind of identify where there might be bottlenecks in their shops. [inaudible]
Speaker Change: Our teams are working through an exercise where they can look and understand what part is actually causing a bottle neck.
Speaker Change: and sometimes that's unique depending on the shop itself or the makeup or the way the traffic might arrive with red light things like that. And so then we have a system, a series of tools you can use and really it's more deployment of thinking through, you know, when do you want to make sure that you've got more of the team staying in production? When do you want to send one runner out to start taking orders? When do you want to send that second runner out to taking orders? Yes, of course.
Speaker Change: and so it's a flexible system of deployment as how I would best describe it. [inaudible]
Okay, it's helpful and then...
Speaker Change: Can you describe what you've learned that has helped activate consumer trial in your markets? It sounded like from your presentation that paid advertising still has an opportunity to drive trial further so just curious if that just requires additional spending or changes to the message or offer or what seems to be working the best?
Speaker Change: Kind of giving a broad description of who Dutch Bros is and getting you excited to come into the brand. I also think if we continue to gain momentum and pass that thousand shop mark, that there are more potential customers who just know who we are before we come into our market.
Speaker Change: We are also the rewards program getting folks rapidly into that part of the thought behind mobile order.
Speaker Change: with getting that full menu online so there could be some exploration of the menu before we go into new markets. So that other piece seems to be working as well because we are seeing accelerated adoption in many of our new markets of the rewards program.
Speaker Change: And I think it's kind of that interplay between everything. The other piece is I think some of the fun, fun merch drops we're doing, some of the, I think, really neat innovation that's going on, that is driving just an engagement even in markets where we're not in. And so all of that kind of just works together to bring that broader brand awareness as we go into a new market. [inaudible]
Great, congrats on this great start to the year.
Thank you
Speaker Change: The next question comes from John Ivankoe with JP Morgan, please proceed. [inaudible]
Speaker Change: Dutch rewards in terms of order ahead, in terms of food, in terms of some of the operational deployment that you've been making. But at least from my perspective, the 900 square foot box from the past four years really haven't changed very much.
Speaker Change: Sonic Criticism, just an observation, certainly correct me if I'm wrong. Do you think there might be an opportunity as some of these initiatives really get to be fully deployed and really firing on all cylinders that maybe we can be thinking about?
Speaker Change: Box, that looks slightly different or maybe very different as we fully evolve into 26, 27 and beyond.
Speaker Change: I think that's always something that we're looking at. One of the things I would share though is we do have a wide variation in volumes across our system right now. And we also have the ability to add different production zones and different make-ups of those production zones.
Speaker Change: So in some of our highest volume shops we'll have dedicated what we call pit zones
Speaker Change: to allow for the making of smoothies and other kind of unique blended beverages.
Speaker Change: We already have a bit of modularity within our shops that allows for that customization.
Speaker Change: The other piece that we have is that we know our product mixed by markets and there is some variation in product mix I think we've shared before we've got higher rebel sales
and some of our mature markets.
Speaker Change: We've got a higher gold and eagle sales in some of our new markets and so we're really thoughtful about placement of syrups and placement of tools and things like that within our shops. So, although it may look the same, we're actually pretty good at adjusting depending on the volume and the makeup of our beverage fix. [inaudible]
Thank you [inaudible]
Speaker Change: Thank you. The next question comes from Gregory Francfort with Guggenheim Securities, please proceed.
Speaker Change: Hey, thanks for the question. Christine, I'm just trying to think about the food opportunity.
Speaker Change: I think a bunch of your competitors can attend to 20% food mixes and I'm curious.
Speaker Change: Do you have a reason for maybe why you would be in line or higher or lower than any of those long term? And as you look at the margin of that business, I'm curious what the margin profile looks like versus the beverage profile. Thanks.
Speaker Change: Yeah, I think as we really kind of launch more fully into a food business, we're being very thoughtful about kind of what the strategic intent there is.
Speaker Change: and it is really to capture additional beverage opportunities and so what is the lowest amount of complexity kind of required to capture those beverage opportunities? So I do think that
Speaker Change: You know, compared to potentially others out there, we're thinking about this limited skew count that's really going to help us, you know, manage throughput, manage the complexity in our business but still provide some of those really important hot protein options in the morning that drive those routinized beverage routines. [inaudible]
Speaker Change: So I think that as you look at that we're really thoughtful about exactly what we want the food program to do and feel that we've landed in a good place to kind of fulfill that strategy.
Thank you.
Speaker Change: And then I think you have a question too on the margin side. So on the margin side because there are fixed cost within the business that although you know food margins are a bit lower than beverage margins, overall it actually plays out quite nicely. And then if you add into that that there's this incremental beverage opportunity that goes along with the food, we're actually excited, you know quite excited about what this could do from a business perspective. And then I would like to ask you a question. I would like to ask you a question.
Thank you.
Speaker Change: The next question comes from Sarah Sinatore with Bank of America. Please proceed.
Sarah Sinatore: Thank you. I have a few questions about mobile order. One's really just a clarification. The first, the clarification is I think Christine, you mentioned increasing frequency. Do you see higher check, too? I know you referenced kind of menu discovery and I wasn't sure if you were getting benefit from that with the order ahead or you know sometimes you see the opposite just because it creates sort of higher frequency and maybe a little bit less bend per visit from your regular. So I guess that was the clarification.
Speaker Change: and if they're seeing implications for check. And then, you mentioned it really benefiting the morning day part. Does that have any...
I guess...
Speaker Change: Implications for the demographics of your customer base, I just think, you know, the sort of morning rutinization, wondering, you know, if the sort of younger skew that you've historically had, if that changes that? [inaudible]
Speaker Change: Yeah, so as we look at all the youngers first, I don't think that what we're seeing right now is any difference there.
Speaker Change: But that's something that we'll continue to look into. I think we actually have a customer base that spans across different demographics. We do happen to resonate quite well with Gen Z but I don't think we're seeing something there. Let's go.
and then on the check make up piece for mobile order.
Speaker Change: We do typically see that the items per transaction to the beverage makeup is a little bit lower in in mobile orders which makes a ton of sense that they're more in the morning gay part you might be on your way to work you're driving alone so so all of that kind of makes sense with what we thought we would see
Speaker Change: The other piece is I think typically where folks might see that checklist is when you have things like food and so that actually over time could change as we broaden our assortment.
Thank you.
Jeffrey Bernstein: Thank you. The next question comes from Jeffrey Bernstein with Barclays, please proceed. [inaudible]
David Tarantino, David Tarantino, David Tarantino,
Jeffrey Bernstein: Great, thank you very much. Christina had more of a macro question for you. You mentioned that the brand...
Can thrive despite the dynamic environment. [inaudible]
Jeffrey Bernstein: That is contrary obviously some peers, I think it's contrary to the long held view that a beverage-led concept which targets more modest income and a younger consumer is perhaps more vulnerable to a slow and macro [inaudible]
Jeffrey Bernstein: Obviously, you have lots of idiosyncratic drivers and initiatives right now which...
Speaker Change: You know, are allowing you to put up these strong results. I'm just curious your thoughts on that perspective that a brand like yours might be more vulnerable to a slow and macro that we might be entering into now. And then I'd one follow-up.
Speaker Change: Thanks, Jeff. I think from what we are seeing, Q1 with Super Strong, Q2 is all to a great start. All right.
Speaker Change: And we are looking at this from multiple different dimensions are now really seeing strength across the brand I think that we are just rooted in an excellent value proposition right now so we continue to look at that and see how the brand is resonating with customers
Speaker Change: Pealing the layers back on that and driving the efficacy across those programs. So I think that, and then, you know, being able to layer mobile order on top and then, you know, going into 2026, being able to layer food on top of that, that we do think we are in a unique position in this environment.
David Tarantino, David Tarantino,
Speaker Change: No doubt you definitely have those idiosyncratic drivers. My follow-up is on the CPG channel and you drop that news at the investor day. I'm just wondering if there's any incremental color you can share
Speaker Change: Brillies within the CPG channel, or whether or not it's just kind of more of a longer term view, but not much has been formulated just yet. Thank you.
Speaker Change: Yes, so thanks on the CPG. We are excited about that opportunity. It is more of a longer term opportunity as we look into next year and think about the strategy behind this.
Speaker Change: It's that as we did a lot of research with our customers and contemplating this idea, it really does appear to be a separate occasion.
Speaker Change: and then I think there are broader opportunities to drive brand awareness in being in both places and so having these two channels.
Speaker Change: And so that is one of the things that, as we continue to grow this brand, that beverage is such a frequent occasion that the more that you're reminding of your brand, we think that there could be some great benefit there.
Speaker Change: But now the quick reminder on this, it's a license deal, so it's a life touch from our perspective, but we feel will be an important part to grow the brand as we grow.
Speaker Change: Thanks for your questions. Next question comes from Jeff Farmer with Gordon Haskett, please proceed.
Speaker Change: Thank you, just wanted to follow up on one of the questions Jeff just asked and not just about the environment so you guys did point to the high end of your guidance ranges but I am curious if if there was an impact that you were taking into account as it relates to the more uncertain consumer.
Speaker Change: Yeah, so great question, you know, what we've seen was on Q1, we're really pleased with the momentum we saw, Indicute 2, again, we've been, you know, just reaffirmed our confidence in the underlying business.
Speaker Change: We certainly are very mindful of what's going on in the environment around us and listening to what others are experiencing. We're not seeing that with our customer today, but certainly as we think about our guidance, I want to be mindful of.
Speaker Change: How everybody else is experiencing the consumer today? Okay, and then just the second final question. I'm just looking at the the the case. It looks like you do have 70 Texas shops. [inaudible]
Speaker Change: How should we be thinking about the impact that these Texas shops have when they enter the comparable store base? So I know you can't share too much about the waterfall but I think most investors I've spoken to are expecting a nice tailwind from those Texas shops.
Speaker Change: What can you share with us as a relates to the potential impact they have is they enter the the compass?
Speaker Change: Yeah, so I might just step more broadly and talk about newer markets. I think we shared both of the investor day and have shared them in the past that we continue to see really strong performance from those newer ventages. We really believe that's the sum of the great marketing efforts we put in to drive brand awareness.
that hire adoption of mobile order in newer markets.
Thank you.
Speaker Change: Well, thank you for your questions. In Q1, we proudly embodied our core values of radiate kindness, get up early, stay up late and change the world. During our annual Dutch Love Day of Giving on February 14th, one of our three company-wide gift-back days, we supported local organizations committed to creating compelling futures.
Speaker Change: This year we were thrilled to support over 200 organizations nationwide, contributing more than $1 million to the local communities we serve.
Speaker Change: Additionally, more than 250 shops hosted local give-back days this quarter, creating another way to make an impact in the communities where a
Speaker Change: As we embark on an exciting multi-year journey, it is the impact we make with our people and the communities around us that fuels the heartbeat of our great company. We are excited to continue on this clear path forward, making a massive difference one cup at a time.
Speaker Change: Thank you. This does conclude today's teleconference. You make this connect your life at this time. Thank you for your participation. Have a great day. Thank you.
and the rest.