DNKN - Earnings call transcript Q3 2018

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Operator

Good day, ladies and gentlemen, and welcome to Dunkin' Brands Third Quarter 2018 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be provided at that time. And as a reminder, this conference is being recorded. I'd now like to turn the conference over to Stacey Caravella, Senior Director of Investor Relations. ahead. go Please

Stacey Caravella

and operator, everyone. Thank good you, morning,

Today's on Officer, Dave call and for Brands' Kate replay. be and webcast Chairman, will Executive Chief Dunkin' Jaspon. Officer, Financial Brands' Dunkin' Chief is Hoffmann; recorded Travis; being live Speaking Nigel today's call Dunkin' Executive Brands'

to to the statements Before our included the like earnings to our the during that release Dave, over turn everyone language applies comments in call. made I I'd also call remind on forward-looking

on found of be Our website mentioned investor.dunkinbrands.com the reconciliation can release their any with our measures. non-GAAP on along measures financial corresponding call with GAAP

Now, I'll the over to Dave turn call Hoffmann.

David L. Hoffmann

Stacey. Thanks,

key the we future franchisees a brands unity together. bring at passion the testament by Delivering anything and For our modern even the the value was really Blueprint be of unmatched X,XXX this quarter for of more wins. or milestones as means than vision to the comparable Global all to our happen I've business to positive that seen thrilled segments we delivered see Growth. to system Convention overnight, But but and have Dunkin' U.S. life, the won't across one first progress our XXXX, we early our on by licensees, to to third is execute career. we in longer commitment support suppliers quarter punctuated I'm journey decade. is shareholder made will one they my growth and much our both a Their recently we to be and a chart have our across energy consumers, evolve store sales are The and than more year. and employees growth transformation top great hosted of to To relevant brands sustainable franchisees, and in continuing nearly

in restaurant value, we compelling predictable in our and right. experience. design future. faster and at the All for enable a and a and that our will XXXX, strategy. of XX-year-old It announced extensive of created into affection more Dunkin'. shows resulting our decision value dedication one was for of an ways on beverage-led Generation delivered speed Dunkin' to just is stable from It's we the It's The exciting simplified a operations in the and voice wrapped Dunkin' branding testing impactful our to our our our year we've convention, heritage to success national evolve. is that maximizing our for We've brand. we on when the fast, promise a deliver time, branding one menu step menu new coffee more and Dunkin's careful Dunkin' room simplified many core During new and Growth we for continuing we've simplified sign and the future logo across out U.S. unparalleled learned the we of things premium touch to quarter modernize guests unstoppable to From since are consumer on our first our into third to make and proposition. focused strategic And our that brand doing we restaurant QX have of beverages, we're menu for What on innovation, our rolled great to experience convenience. both is on marked designs, the Blueprint product I overall. before competencies. we've Next food collective providing found brands compelling many like beverages, perfectly restaurants. get But technology combines guest our to offerings, value an and products, which with progress Quality food I'd new innovation and paired be great restaurant specifics, in formula for

beverage drive portfolio in performance We strongest kicked the for compelling Dunkin' X.X% strive recent earlier beverage news quarter. Brew in limited-time in platform had comparable across offer as and and platform, our the our by in sales up beverages, Dunkin' offering strong Iced store our and Hot new best-performing we're well growth products the and sales X.X% business for consumer Systemwide to moving meaningful reinvigorate well. continued as as a history. U.S., led quarter as is flavor our one grew Frozen the afternoon the and the in third Now not third momentum what grow things that outside good launching Coffee. daypart. for of business $X the The for: grew Fries the that off of performance the solid is most but snacking a achievement snacking Complementing Donut sales of Run Drip our resulted A was afternoon line and Frozen boosted launch Brew menu brand Cold from beverages to of years. items known we afternoon Cold beverage QX. good helped bakery and quarter success two for quickly both only became for afternoon growth

are this for but such made QX. as beverage daypart, so It's the pick-me-up room our during spot We categories focus system afternoon. to we that success and of lays as our the afternoon of great the quick platform the quarter a to on compete in We well. the satisfying future afternoon what we recipe win. reclaiming we solid us know made a as our expanding for in foundation grow for the success Espresso leadership we a will progress Dunkin' option have Frozen Run execution past enable effective snacking and When and can our still on

the standpoint they espresso younger our next with go from alignment and installing their announced believe Now while total, produce $XXX initiative, particularly of strategy. skew a Espresso The core portion and franchisees recognize new equipment announced funds pursuit this entire high-growth that dollars quality enables reason, new for we business. restaurant into better a in that beverage-led flavor our And system. critical, we beverage-led richer We significant In of this earlier is the in well and beyond maintaining own Dunkin' Iced towards in XX% who we every quality of would equipment accelerate equipment in advantage Coffee, our perform to to this the consumer are need these and Hot a leadership upgraded our to yesterday, about strategy. step with as for plans investment our expand revitalizing beverages espresso U.S. espresso Drip allocated speed, U.S. a publicly substantial across are bean million the of all are extraction best our into business in afternoon, year, equipment category market. towards the beverage Dunkin' natural of investing day, value. invest will a approximately we this

national for the be of complete which a the for up gearing one holiday most transformative product are will history. relaunch season, our unveilings We in

more state-of-the-art to release past enthusiasm the our look Investor beverages its Together comes is restaurant. extensive to ahead be its value life franchisees, state-of-the-art flavor, and now new is from where With we at with we tremendous good the of a of and on We new deliver packaging we've served in speed and To That feedback shared across handcrafted about. and to our equipment, they feel go Blueprint fast at is from that's a in to positioned Where country iterating and our design modern of proposition know this Next XX quality early more. what in coffee our are is All convention no the restaurant as will Generation track to for was initial ability the system XX out training, we uniquely February. that There have on environment and Day great scalable technology. at right. this a date, a remodeled focus equipment new target great-tasting serve now of but to Dunkin'. been is it's up restaurants than the wondering latte Blueprint able our more XXXX. can truly wakes that all best-in-class model where value, cappuccinos think Dunkin' espresso a we coming NextGen own. lattes, out store on the new We back we one and our stand new to get competitive the and our

development. opened XX XX completed franchisees during and new U.S. on remodels Dunkin' restaurants net Moving the to quarter.

of As we focus net development on core XX% come on to our markets. from expansion, our outside for track we remain

reach can convenience of top emerging the XX of XXXX focused products well. We its consumers forward in will line to we development are our our success also thrive of our We for all our to with running encouraged When are Dunkin', and restaurants at range core. to new In results year also consumer-packaged and see tremendous we cohort cash-on-cash XX% leveraged we espresso about on talk and look refreshed new to introduce two markets, branding through returns expanding our outside keep network the know new partnership this brand bottler of cohort Dunkin'. providing to markets in We year. Coke opened super to everywhere full the XXXX of in strong contribute next are to which for the Dunkin' QX, as beverages goods. continue on be XX%

added Pumpkin the new we growing our ready-to-drink to beverages. First, coffee of line flavor iced Spice

build in-store core. strategy. that perfectly Shot these We espresso-based the outside revitalization forward Dark, products the beverage as markets will also believe launched our grow coffee our we footprint credentials an We new in coffee our very complements espresso in

revitalized It's afternoon including simplification, has right team and of what and Growth. it XXXX sequencing for and succeed. franchisees, close year national implementation we let a that been offering. Blueprint takes our the with with rebranding our platform of well, our now saying, espresso by as for value started to been a foundational deliberate So have menu snacking events this world-class me our

our under coffee changed of with this Dunkin' to work the together Next experience, hasn't as implement what restaurant. our commitment Blueprint fast. All great modernize to brought franchisees and we is our But Generation the

Okay.

driven Now packaged on ice cream. as and lineup. The of Baskin. achieving was as innovations Baskin-Robbins such growth, U.S. comparable within by product category established sales beverages focus been as for consistent new to Baskin, mid-single driven the a digits Growth products In X.X%. well primarily shake by a sales store grew smoothies mix a has beverage take-home QX,

as ice by delivery has way, is last seen sales well more Baskin Our increases the accessible on part which, seven focusing of life, six take-home goal quarters. growing as the our cream, during by make of sales packaged of enjoying to everyday a

who have grown DoorDash, we now our U.S. the delivery, BR cover with Regarding XX% of over partnership across stores

option are consumer delivery restaurant. with on is We carrying to a of response that XX% higher ticket orders pleased that the with than this the average

experience design store well previously, over as new I to the relevant the and store first offers for Fresno, As was our displayed few overwhelmingly and more and modern in design recent with feedback positive. more design concept new in showcases a California our premium franchisees way. a We at to mentioned a NextGen slated this products weeks. Baskin-Robbins next is developing convention our guests open store our The the

that, call over So, the we're now. right will to thrilled International. Nigel with that's turn And I where headed cover now with to

Nigel Travis

much. Blueprint Thank particular. Congratulations you progress on against in the great very

Our of of that many and to us. energized. International Dunkin' the into franchisees opportunity licensees to continue convention and attend scope September grow the had to and It they in size extremely the insight convention I the left with opportunity the with them believe is good they had and Brands left both first

next. scaling brands. the our international across and tests a number of driving Our of fast U.S. delivery concepts, in serve is with the And brands two an way leading markets the as International what's for innovation, hub showing example underway key us always this, of new

as QSR the believe the forward, drive-thru that was Looking as industry. to delivery transformative could I be

Thailand's bringing During focused Part And the work product International performance. Dave Dunkin' stabilize Dunkin' continued both offerings, some newly USA, consistent franchisee quarter, formats. including now designed store all stabilizing we two and International International effective more with more outside a the opened underway, the offers QX. in businesses developing Asia-Pacific. seating drive-thru in It's brands group. value under and to it model drive-thru our a on our store new restaurants well are innovation of digital It's larger Dunkin' in The enables of in U.S. markets earlier, much has and more store store and is flagship traffic of markets and Thailand business referenced XX the that features our driving floors. largest first through for as our seasonal XX on technologies. outside new

you've From my and Before in our the over more been investors. I thank Kate, the incredibly as company. our importantly turn I'd will analysts our approach call, like call to all supportive this of challenging last to be present, IPO to your to earnings and

that and future. look sometimes think as true Brands responded ongoing You We my us the leadership. consistent we Dunkin' with Chairman, And with prepare shareholder for role future have to to pushed strong strong in optimism feel for differently as returns. the under have deeper I forward Dave's we

turn will over financial our results. it I to to Now, Kate cover

Katherine Jaspon

Thanks, prior-year compared an and Convention, XX% increases quarter million related increased period, third fiscal quarter primarily Nigel. fees which and the by million advertising royalty quarter for income Revenues offset primarily increased as refinancing period, as These a due expense decrease were increase in excess Global rate tax increase tax for third net the in adjusted write-down well benefited XX%. $X.X for expenses increased increased or the million $XX by due increases $XX in result period. royalty $X.X share-based well million primarily quarter. year and operating X% income driven expense primarily Operating The compensation X.X% tax income resulting by was income, million in or in systemwide in an and the from as million nearly additional during carry-forwards benefits tax offset and to prior-year respectively the from prior-year the from tax of related or the expense nearly and Net from borrowings expense third decrease million income growth. in interest credit as of the income the $XX X% as nearly a quarter result $X.X tax to primarily our in rolling was or income which approximately a of adjusted to the income income, sales approximately adjusted expense, our operating increase fourth the income XXXX. nearly to by tax from of increase or foreign held period driven a reform. to current G&A net and in of $X lower over just also operating Income an during the by was over due as

diluted diluted XX.X% a to per adjusted income compared in third increased and by share per the For GAAP prior-year net quarter, Both $X.XX, increased result was $X.XX earnings to XX.X% to increases period. earnings the share of the in due decrease stock QX was net outstanding. income of The since well exercise by in repurchase the as a shares of adjusted and XXXX, offset beginning shares outstanding options. as the decrease shares primarily to of

of diluted excess we end have Excluding benefits, share the tax had earnings EBITDA adjusted would and XXXX both impact XXXX by and diluted ratio third of X. periods QX quarter, At recognized the of QX for lower and share per $X.XX respectively. to the a $X.XX been per debt-to-adjusted X.X earnings approximately the

associated unrestricted quarter million card During and $XX ended during represents marketing the shareholders. We in cash quarter, on dividend we million funds million that We our with to $XXX million $XXX cash $XX million, with balances. cash our our generated pay balance free cash used QX in cash approximately the to in the sheet. Of flow. quarter $XXX the gift

announced We during our to demonstrating strong have are also continued commitment we shareholders. share completed our our repurchase $XXX million the to third programs pleased sheet that quarter, to accelerated capital return utilizing balance our previously

XXXX certain press performance our in described reiterating release targets. are our and we updating this of morning, As

and store We for comp X% U.S. continue for growth Baskin-Robbins Dunkin' comp to expect low-single-digit sales U.S. approximately growth sales

the we to We net continue growth growth. growth in confident We fact But are later had for expect add restaurants revision retail other we than fiscal new the revenue. goods shelves mid-single-digit portfolio. that percent This consumer-packaged Dunkin' the now was overall expected our U.S. high-single-digit consumer-packaged to we long-term to expect by greater ultimately, Previously, few the of had in franchisees XXXX. goods low planned. very than in originally driven hit a primarily our prospects XXX

last up year. on remained retail XX% basis, strong, sales versus fact, In a of products our CPG XX-week

revenue We continue growth. to to expect low- mid-single-digit

We compared cream a XXXX flat dollars profit when be standpoint. continue to to from fiscal to expect ice dollar margin

a expect low-single-digit G&A expense. to continue We to reduction

growth. tax continue per expect expect million. tax expect earnings earnings updated expected adjusted an guidance $X.XX. but effective material material any from $X.XX Previously to we per range XX%. rate This the and and This recorded of approximately excess expect tax tax quarter. also outstanding had weighted guidance to $X.XX. benefits $X.XX mid-single-digit $X.XX. to expected updated enter that full-year now income in excess third we realized benefits impact potential rate share impact reflects We $X.XX impact And diluted Previously GAAP adjusted excess we the $X.XX. average to in shares XX benefits. continue expect tax XXXX. approximately the benefits quarter, from of now excess future future also QX occur to during guidance EPS excludes operating of And from excludes we quarter of diluted operating may We share now tightens to of $X.XX fourth We tax potential as the the any reflects our into had fourth

Lastly, be million the for over it Q&A. for million. to the expenditures approximately turn that, open $XX with year we I operator the capital expect will call continue to to will to And $XX

Operator

Thank you.

first Markets. Our RBC David with comes from Palmer Capital question

is now line open. Your

David Palmer

morning. Good Thanks.

questions Just may. if I two

early for XXXX? noticed there value with are to you XXXX fast would that are be in to color that regard that And unit you the and might traffic in how growth, know traffic, sight do if everyone Thanks. food. reimaging, by been so, almost it's for get you bundles have than check a there? then would elusive think more going investment traffic the even driving seems I And be out growth up things to or you on helpful. On Any NextGen that said scale be in then. per scalable And you'd

David L. Hoffmann

David for Yes. those. Thanks,

on Peel. Let beverage food to we're Blueprint. in where to as the Run we work our need and see the at backwards pleased working another relates it snack me where same We're have tough was improvement. we menu did And But in sequential your QX innovation It's the and together traffic Win. thing, pretty the I'd to another primary quarter biggest on time, know for and but has last beating that of beat be, the the contributors both the the you've game were with us focus a the during and to I not point and been sequential of value was we this some key similar for And the transactions, others the improvement. quarter that's these say together, Dunkin' quarter. it still to the been when of very Sip. quarter, – drum industry. topic point we're on. marketplace.

As that laid to on that construct when is in some we've that stable I a out result, for a found we testing, and will talk and with in see you'll GoXs wanted going forward to We it that we believe testing forward. more various lot to be going you'll value way on predictable as in relates landed magic see be And QX. going I us about and in iterations more a of platforms think QX, do right QX. a XXXX,

what and transactions doing on around that's So we're value.

and came convention. around out excited that that. NextGen enthusiasm some about our of the color of We're on the Look, we're a journey terms with franchisees. In

it partnership is progress, be working to where see this numbers cost. on you'd continues and continue this Blueprint. the with get franchisees do pleased transformational. QX. results. model pleased the that. to it's But to to we We that's reflected It everything with I the iterate that scalable know embodies in that think with cost on our engineer outpaced again, we've we're with the that to the something we clearly on that in franchisees in the again, But We're commitment

we So, release QX looking would in to that or XXXX that's early that the that why is timeframe system-wide. be

David Palmer

you. Thank

Operator

you. Thank

with next Morgan Stanley. from Glass Our comes question John

is now open. line Your

John Glass

the a and U.S. didn't business the the comps Dave, mentioned improve morning. weak earlier. in afternoon of pleased was and you're aggregate spot couple Thanks a times you sequentially. good that that with But

are weaker stores, got was like, And does that so AM So here or PM on how of remodels? one us across give from versus are street in is transactions the difference? overall you remodeled a seeing mix updated product some around of color the the people I've office. Or what days maybe? early imply in mix Sort AM business the those got XX early the you've business. respond my What differently, or

David L. Hoffmann

Thanks, Yeah. John.

there's in AM tough offers. In our comps. line in see an along to one-two stray some the from XXXX, predictable Hour think, the we're upcoming Happy value with momentum for on Espresso On the won't we're beat. the morning daypart croissant zero time, good I in now on daypart, construct well, day that AM, the like in we iterations in as said, very X the our various a as in Run. that of the sandwiches our upside journey marketplace some in going move for what we when value we QX, with we making progress to and the with a and offer. do we doing I we again, the we're you're think win for pairings, outside pulsating beverage stable the more AM we we together pleased this. we But punch Dunkin' the continue far relaunch. got innovation franchisees today, afternoon and think $X QX, think and to great more morning both It – with were we're got the food I to of as same long-term And we at towards just both foundation again, get all We're And got with Laid lot a on tested we right. mentioned. PM especially this

And feeling to one. NextGen, both Murphy with this over on And kick good to are so we Scott on it going we're dayparts. about I'm where

Scott Murphy

interested restaurants. in in NextGen the the Thanks sort that in. Dave, seeing think beverages growth and If One we're John iced four of thanks those for stores, things about most is, probably I'm the I question.

the tap our you've if notice all restaurant iced your other that eight-headed and Cold has you'd Brew, in across office, of that been system Nitro from So beverages.

So, nice growth we're out category. seeing that of some

would be second Espresso. The

saw new Lots our line, of front there but theater equipment and seeing the really we're the it entire with where comes You and NextGen people in see good can growth life, in is the to experience. that lower yesterday, store announcement espresso category. the

third The would be one donuts.

So, we've actually upfront. moved the case bakery

can category. So, come for they see nice on-the-go right we're of bakery And seeing that there the really for growth final folks it's when our all orders. then in exciting in, really some items and thing I'd is, say mobile,

So, store drive the in big way. that technology orders is that growth and up the we're layout about everything in set with a to and on-the-go seeing

John Glass

you. Okay. Thank

Operator

you. Thank

Our John JPMorgan. next with comes question from Ivankoe

open. now is line Your

John William Ivankoe

the and employment years franchisees perspective. turnover But don't that labor a your a coming labor gets in more the from the stronger? what might a extent again recovery, see comps that was market the that up so your Thank Hi. environment we you're mean, drive-thru of this be about It's and speeding we then quality up to aren't some some its have sometimes stage you've goals you. in times. point. couple can terms one of I think to itself telling that in of talk of late reason the you speeding up, of secondly are of of franchisees go I terms expensive, staffing labor I related may simplification seen achieved, are the execution that that, year in the first wondering seeing. times, the in And

David L. Hoffmann

Yeah.

jump what on simplification me John. we strategically. very did with there Let again, We're pleased

pain create me you growth gain. on think the for of use line, I a side. room for bit the long-term was innovation of Part heard to short-term that

us on-the-go for as Tony And as fast. like look, in great strategy things around so faster look it's surveys our we've to know things to been And third-party give don't some many that we all of so and brand, we the even pleased getting relates coffee we're journey. but as out beverage-led that's this of reposition then, all a that, and team the with it external you at part and area, faster,

for on are our improvements brand, we seeing simplification not room of and creating with operational we're So, as franchisees pleased are terms well. very in our only efforts but what as repositioning the speed around well growth

the side, a great of On on training, flexible environment, we're people from really for the employees the staffing smiles be the belabor labor restaurants. that's on good strong culture challenge. in rather hire the look everything to minds a work franchisees' that's a an than continues one the restaurants there. But reflection focused to and And proper internally just look, number for staffing out in franchisees. to look, the creating of to overall It's experience economy is that,

know got I of think, the only as of but think we've that, we're great strong I it's and you what tailwinds commitment focus on staffing, also say across not just marketplace. develop can so out I internally seeing the to cross the really the biggest some out enthusiasm mind, is board. And right trying we now the operators convention that facing cash-on-cash I facing offset the and do of the to that on headwind But And one franchisees' NextGen of the grow, headwinds in we're we're weighing that's we're some of to would at restaurants. with to currents. terms that what I look like these continuing good returns in again

John William Ivankoe

you. Thank

Operator

you. Thank

with question next Jeffrey comes Our from Barclays. Bernstein

is now open. line Your

Jeffrey A. Bernstein

Two questions. talked a very Dave, it convention franchisee a sounds bullish perspective. you about and much. One, Great. the you was like from it quite Thank lot

for rates rising the from plan and more at costs, we negative of both which others them interest construction franchisee to be about you restaurants hear and Just as Dunkin'. a growth, is for would seem wondering, accelerating unit new

on sure the confidence year. not pipeline, the is perhaps the you to the just roll-out that Especially impacting higher about rates talk whether but NextGen corporate just the question, for with interest growth XXXX, until XXXX based confidence unit your could how your commitments like or and I'm thoughts U.S. sentiment, primarily won't XXXX. whatnot, I'm elevated or own So and trying franchise sense wondering, your sounds it leverage. a in first if if early accelerating in happen that in in just get

just just Another peers I'm QSR support. seems on question corporate like more remodel about wondering, some was your occasionally aggressive with plans, talking remodels, are

wondering incentivize Thanks. provide to an whether way if update you there's timeframe complete I'm just So roll-out that NextGen franchisees accelerate can rate. and for on maybe your a to the

David L. Hoffmann

Yeah. Jeff. Thanks,

On We're you there a those. guidance. the and to and convention what well we're committed staffing and We know returns had throw We the that. off of three-year these one, still the of NextGen coming as and we vigilant of out like one the we feel some first quantity on in our over restaurant. that quality out seeing what, where as are would good you not on headwinds cash-on-cash on of we've journey. uptake remain But, I enthusiasm our about focus mentioned over any real the

on of those are we've program the I the think some extremely right that the we can and paused sure that of making I back is But cost pent-up you of demand. some have that so we've would know engineering held got we hard thing a remodels working that scaled. lot we say, on one be

it push that there's the in in working XX or franchisees an right of terms we grow why enthusiasm now be to core. of in we're got to and projects continue sure do we've where collaboratively that up look, scalable. now and XX the to make cost area that's the with lot over So But, a can

be convenience putting items types et cetera. strategy of it of a more here, You're going asset remodel more like drive-thrus, on see to optimization

us good where years, remodels. do I And in we we that really we've time say, over would continue any to West. terms feeling good in fill-ins on but then, store growth, really the of So terms we and about new these as are great of where well. we these pipelines the are for development, the But remodels Southeast, we're circles win those as Midwest built push also

coming good And it and the was convention, so, we enthusiasm on all I of NextGen think, the out focused about that. feel

Katherine Jaspon

Jeff, is And this Kate.

lending leverage perspective. and the On the

watch so do from well in XXXX. debt up, both the just of X% are we're curve to a rates take yield working watching interest due about perspective, and lenders, XXXX, banks balance rates a February forward February in continue own interest great I'll our the in all, as got the interest the at of best appear that a benefit par although, corporate as what's of our doing of ticking First franchisees, monitor billion to risk. and as we we've our franchisees. on to well be as one. And comes it's with below rate and but $X.X to what of tranche that interest We callable the interest From out

their of at to They're February actually banks the NextGen the something now On for the the great can the need for our penalty or with ourselves, very we have just franchisees. an rates have them them model, have interest watch our where But for their many we we the constant when our they just zero franchisees issue but is it's plan financial charge also obviously growth team XXXX back to as to the soon and with experts and side, as best to helping approach of typically are them in as it's highlight program lending a finance. do corporate business, with then we so work And of and what that refinance, models with lending with Dave's own And when with until to own business present actually for determine franchisees. comfortable and own that personal CFOs financials lend their so do not the we right lending, will are a our banks franchisees. – then, get but to refinance tranche. no into market that do

David L. Hoffmann

the And on question incentive. thing around was other that an your was Jeff,

demand. we're place to or this that we in into enough We've obligations and pleased around don't business got put $XXX juice new with remodels. the around a got and investment. that And incentive this. The there the positioning good incentive that's plans as point that we're beverage-led million looking at contractual in you We to stores see nothing the did the incentivize and an as to invest at pent-up visibility no so brand business, investment We've got into was our though. know we all have for what we've in XXXX reason enough

Operator

you. Thank

Tarantino Baird. from Our David next question with comes

now open. Your line is

David E. Tarantino

morning. Good Hi.

a Just wanted on questions. couple a comps. I clarification

where your headwind? now I and NextGen on talking And think, end would the XXXX. be the then early Was a menu a second point you're this for us that was on basis mentioned be prototype, question to is the prior comps. just simplification scalable quarter you I suggest that think maybe XXX that remarks last stands available Could update that you and year that QX? about on continuing headwind by

to cost that a So what it of Is wondering it's done but working maybe or difference delayed? Thanks. process been whether And on? model. to the has you're be order else needs that in validate something just more scalable that big engineering not

David L. Hoffmann

as on over I'm points. give But But out Yes. you it's more we piece, the than but to is you can for the year. can but the continue anything to less safely that. simplification still piece. David, headwind NextGen we there's going see say, that, Scott basis it's on but it XXX dwindling, shrink a it just kick to don't thanks go throughout than

Scott Murphy

us open what was important markets And the mixes country different to just process. nothing these I the thought. more And with little each one actually NextGen, we to wrong to would really is with was add, across different each learn. continue actually iterate a opened is sure than different for and work. the interesting And would we make We've what's in because of components product there's have

lock in that got touch our showrooms from in-line. be could as it them then And some and to opened drive-thru actually have for have double look, markets. feel, and some franchisees many the only, we wanted of they We to we've drive-thrus, freestanding as different their to out effort have and now really to building to are elements, go, we for on as so about go. then ready really chain the supply it's mentioned, the material, for Dave engineering press the and proper design the value components, all once the as we we franchisees equipment our that is return in sure end-cap We go learn make so formats

David E. Tarantino

on When have in the they the now? get place that. follow-up quick to trying proper are you relative franchisees one for the you're trying Or improve you you returns? to what say returns maintain returns are trying to And to the

David L. Hoffmann

we're that say safely with our pleased cash-on cash can returns. You

better So, I in think to pleased improve look, I we and we even we're line be on but that's to where do today than line and want with right we with that. with those, is we NextGen as think, those, aim in I where believe well. mean, can our cash-on-cash

David E. Tarantino

very much. you Thank Great.

Operator

comes with Thank Slabaugh from Will question our Stephens. you. And next

now is line Your open.

Will Slabaugh

I well? might in performance that? the afternoon likely at bit Thank afternoon as question positive. the any in higher that to Could visit year-over-year up they were food the assume the beverage your morning? time, both where positive so somewhat is And on store or evidence afternoon, is be had the you. opportunities how a seeing guys. you, Are comments about given Thank a then the there mentioned less to there customer in that trade-off afternoon a in morning of earlier. improve of And and kind the similarly a same I you the you a comes and we're if you view mix help sales just talk what and be you may

David L. Hoffmann

Will. that, Yeah. Thanks for

sequencing was strategic of doing the the Run You are a here, of place Dunkin' launch kind a QX. to menu in We in this terms And plan. blueprint what – prior spot afternoon. food as in before we're always but of on Espresso the you've of look exactly don't in me here on say the performance strategic putting heard telegraph

So, intent. that the was

a seeing in you the complementing a felt that that terms offering. today are us our frozen that QX in market missing our and piece good we afternoon really got of really in strong was like well. juice And uptake was of beverages. that think, the saw and one that. And I summer carried We We've portfolio terms as into Espresso was – over

So platform like our well to Run, introduce portfolio. the because a items we with to use we the continue going those Dunkin' as we're new think pair offerings, that snacking coffee

that So, second end. Will, on was? And that's question your then,

Will Slabaugh

afternoon, to of Right, more visit they're in either the see do if less a any customer evidence trade-off, a or in you likely comes morning? the

Tony Weisman

get have finally where Dave the they see back giving as reason want No. with they you've among And the are done. bakery place us that that. them It's a LCOs (XX:XX) Fries say popular didn't Tony. come Donut we that could a fast. offering, most Dunkin' And the to coffee we great an heard ever the No, mentioned, to to Run, know we've

for we beverages. to them saw the see the trade-off, well didn't that we didn't them paired comeback that a them see we afternoon, something in with choosing a have now just we making no, So, choice,

David L. Hoffmann

a for if that us years. binary, underscore extremely going seen of don't they the switchers be continue And as The strong. what our buy those in after of so really loyalists to turning as we're those And continues buy consistent the would That But and were kind now in those I is name morning. to of loyalists the of a loyalists then it's Yeah. any afternoon, it The ones. say if number been the switchers, couple strategy Will, switchers not things around could into the they right are of that's for I after the has well. Tony's just in be marketplace. converting is in his game – those lot there, going

Will Slabaugh

Great. Thank you.

David L. Hoffmann

Thanks.

Operator

you. Thank

comes question Gregory Bank Francfort next from America. with of Our

Your line is now open.

Gregory R. Francfort

guys. Hey,

the in that in Just on the seeing Is of it is sales NextGen remodels. What or Any benefit? are labor be terms terms helpful. of of in would mix it terms around lift, you metrics costs?

Scott Murphy

Yeah. Hey, Greg. is Scott. This

we're the them efficiency so sales So well we're our we're we're that ones But release not and that to on working tracking might those improvements across all seeing the the all, franchisees. as ready with you are labor as traffic, numbers actual imagine. metrics

Gregory R. Francfort

acquisition? And going business? to of it it then clearly, platform. Is you Where sales to be it big to a it to customer mean, boost be the you expect Espresso I an to frequency? driver? just Is going deal. check new how expect the most? sort on primarily But average the benefit you it's expect it do be do Do

Tony Weisman

very a it's have Number is hey, Millennials. projected the growth market platform And of high continued think it's the above. one Espresso know beverages beverages is. Espresso Well, the really all responding among that where to I Tony. growth. We

in in the example, lattes, that caffeine a for their So, into putting lot We lovers cappuccino, our and restaurants for some for are one already consideration great It's a espresso adults. for loyalist Millennials. of our into set. then combination applies bringing teens folks they've the beverage the particularly younger us, profile into it young cases gateway And number been elsewhere know consumers. among it's latte, that and going Americano of like a the giving a that product to and

we we so been the proud put as a that a see do value us speed forward to And Dunkin' lot has of. product at them this fabulous at coming great of going

David L. Hoffmann

it's as machines in the Yeah. And quality say killer would internally great a space best we in to talk I marketplace this app to the in here the put new espresso. get again we just question. is Gregory, us in for had

three the whole combine unique You piece. number the three to than better Dunkin', a our that what right, with proposition. going When speed get you're that's price and that's those find with the in marketplace of you

speed a killer we for So, the that's going and app at Dunkin', good what nobody's you that's waking price a latte, a latte at is this can they of like to said believe unique in make where us up where area. the we this or compelling get can wondering get

Gregory R. Francfort

Thank you.

Operator

Thank you.

Our Matthew DiFrisco next question comes from with Guggenheim.

now line open. Your is

Matthew DiFrisco

question flow into your and the down pressure existing some the Are flow of of comments X% cash a per for then had in bookkeeping also some overall brand Thank for versus the is just then have your guys the the disclose store how not questions. that franchisees. sales to perspective? of just there you year-over-year you still being on sales wage disappointed were? sort of you of I follow-up on-the-go peers? that's context little flow that higher? I you the peers a with just a know, digital put other Could and And you. what cash Did of percentage said one base. Thank into with – some free And question pushing can the I you being put view wonder mobile-only that cash you. out

David L. Hoffmann

Perks on-the-go transactions. Matthew. still here, And the Yeah. over I'll X% digital we're look, percentage XX% and pay one at is right, at the right trend, take now, of of mobile sales got you

year run with Our par rate this prior on years. is

wasn't and the and get it's believe CardFree it's aspects industry the for But really expand all trial we're become approach with one much quarter us in-house who past year-to-date be the But And our is to was So, to very of Stephanie Meltzer-Paul, continues coffee so the that us. in a for part architects where to a of there our great you've you thoughtful for Perks mobile true of we driver machine new going pay business, best-in-class The going – And key piece Digital, think, have very this. control. fast real and of in to very that still too in say this of million confident we overall forward before building said we're unlock this to be focused last and in Perks. all out new about step piece. Head about of awareness going our greater awareness, consumers. base. all We me in again previous our we've app be loyalty going though fast And started but app coupon heard and the the it's platform. the look of a X.X sequential loyalty. on fast, the is us is a And to brand, see a digital unlock to that brought this strategy Starwood that topline great for of announcement users order user coffee when on added the bringing to promise mobile help trial I gain look you're digital was key calls, one one and

added, program is our machine, looking they're app we being a ease but seeing So, what loyal our rate, taken and convenience again any and What of our step doesn't which in run coupon and of start really loyalty of new of users. the loyalty. to terms the build the for going just rather than we've piece backs terms up, terms get you're in that in haven't propped

Scott Murphy

the And in say year-over-year, headwinds, franchisee I on restaurants, you we've we on but numbers, Obviously, might if don't given cash the overall and relatively as details recent labor essentially upticks give the I'd seen some neutral for imagine what stable those the especially of about year-over-year. COGS those some but performance question flows. think of

Matthew DiFrisco

Okay. Thank you.

Operator

you. Thank

question William comes Blair. next from from Sharon Our Zackfia

open. now is line Your

Sharon Zackfia

and a had Hi, morning. clarifying question. question good a I separate then just

delivery third or guess, being be think Dunkin' stable accelerate on in So, comp to ticket, I earlier I wasn't quarter but happened or on I secondarily that delivery? on order, kind the U.S. you is that clear could the small relatively you something I what And message, color donut-led then you Dunkin' traffic at do that? finding value delivery, it of did you the are could order, any clarify that big seeing if catering, that's Run give beverage-led despite might assume on with what us delivery, you're mentioned

David L. Hoffmann

line QX, On mentioned, quarter. right. I both look I'd In saw as And sequential you're throughout traffic in with comps. Yeah. transactions say we all-day the AM PM were in improvement and making QX coming franchisees that sure we value biggest go-tos, out where on of magic our for on thing journey with we're construct a the found with got us right. long-term we the

going think when again on extremely to one-two look it's business. value are is both we what QX. do a with on working landed those time, for food lot right value well. did the same we of we've like, And lot at we punch testing our the beverage together is of in innovation, So, We believe a

terms traffic the piece it, and on of delivery... that's of So, in then

Scott Murphy

on menu you best as We've individual we're orders provides like Yeah, individual. partnering, the what out partners consumer beverage-led, with of think, lot variety to and trying figure seeing who been know, best delivery a delivery an on is the one I the look a basis experience.

You we way mimic the the there is think upside going. more is industry there of pattern mentioned the to catering;

of through order. to delivery more And moment drive at the so to we individual have some as tends awareness beverage-led but catering opportunity well, in mimic

David L. Hoffmann

the as so us, on of hub making is Nigel of International lot his opening, I'd say a now. other for they're delivery in right sort Sharon of And innovation advances is the mentioned thing

the in So here is Baskin U.S.

than portfolio I in existing comments think has Baskin The scripted greater U.S., XX% the delivery about coverage you've in-store that the check with heard is my the check. the rate. DoorDash got XX% here a about

of going the internationally morning state is this So on that going mentioned, in we're that a looking play for in could great we occasion focus space. the primary right and pursue for quality delivery can where at and need of us. what's and be delivery meeting think as Dunkin' And the Dunkin'. safely we Tony can probably to the delivered products Dunkin' this that's within BR win have such now for at catering to assume where speed that like But U.S. think in we you meeting as we're you in have here us

Sharon Zackfia

you. Thank

David L. Hoffmann

Thanks.

Operator

Thank you.

Our Charles next comes with Andrew Cowen. question from

is line Your now open.

Andrew Charles

it was coming Espresso help the new if up is it OTG and tool we more behind existing these of the revamped guests? trade you Espresso, really spur brand. saw latter, Great. with into Based Espresso the users testing Perks a that, Thank was you. product can think guests as on the brand? And what it of increase amongst Or the customer in is to to

Scott Murphy

Yeah.

and Scott. here. is then you this start can So, in I'll Tony chime

Tony Weisman

Yeah.

Scott Murphy

as not about of I think as our only we we the tested think season, saw And in. but app certainly of is traffic we Baltimore importantly up, be the trade our Perks if for And about where lot part saw coming this, in at at mobile is we more will messaging the relaunch and both both, holy new a we customers grail it That do that. says, and externally saw us. look the the of driving a this test we Espresso. towards of we Dunkin' speed that when big Dave (XX:XX) additional actually holiday can

Tony Weisman

Yeah.

market used What real are they so Iced are a associating could providing espresso with and were customers for anywhere get that good a found and us based good delight really to Hot value them as Coffee was they've that. in they a as the relatively and quickly. that that we surprised routine us drinks felt think with Drip we we got around in were Espresso at I

with consistent experience get-out, their get-on-your-way was it So of Dunkin'. get-in

to for newer get primarily we these places their had that who for customers had beverages were favorite net So, quickly. beverages them their making already easy favorite discovering it

Andrew Charles

Thanks.

Operator

you. Thank

Our Goldman Karen next question with comes Sachs. Holthouse from

Your line is open. now

Karen Holthouse

drip housekeeping price be thinking view coffee quick about and the little we which And question, on what would coffees was Hi. going? business imply system terms commentary or is a quarter. bit versus up extent the do in afternoon, core might then just that this softer drip you Frozen sort was One across that have a it's trade of share Thanks. with in the on losses share Cold quarter. the How that and where of should be to the latter,

David L. Hoffmann

and I don't do... Why do will you the prices

Katherine Jaspon

Karen, is this Kate.

comp the you slightly, improved but a so So imagine price. total Dave traffic in that quite we I haven't given mentioned what can think while, down means sequentially on rate

we've offerings mix underestimate just as grown some say, particularly don't that GoXs. of the made I'd has these So the and contribution

have going it feel to where understand not comfortable with to they when it. we're can give So take price we're take can on handle price and price. our that they like We than a a other franchisees and say

David L. Hoffmann

felt it Roast coffee, Not again, going we pretty drip more play Dark just way. think this when you'll host coffee. We a espresso that think Under and the going Original in we're of Yeah. big But looking it's well, of still out, us. number And probably from forward. underlying drip hard quality – have the part blueprint of as consumers assumptions we're works talk think know Choice again, anyone We can It a to think a We hard in do. Karen like choice, is a extremely our from do I expand one lot that game about but of we than when about things XXXX us. great blends better lot and under big standpoint, we step really was works choice laying are to choice. in of But come still relates are to marketing us first see of to we drip whole get other of for I for else sequential Blend seller coffee. it's assault the going be talk good. the coffee as back. Look, there's a though for on players. of but a into the our going it I ways to marketplace, discount to this on it's your

And espresso really still being, the time sometimes generation. is gateway back like to innovation that. well But younger on the but feel we unlock some come see equipment that. is for around come you'll for us do in but coffee, drip the But now XXXX, doing for drip we're with and more coffee, the

Karen Holthouse

Thank Great. Okay. you.

Operator

our you. will question Matt from Thank come with final And ISI. McGinley Evercore

open. now is line Your

Matthew Robert McGinley

you. Thank

at had you you've open, the in shouldn't have standpoint, a all those closures a there in year? in that grow was any other prices more of getting obviously shelf revenues? present of the and theme do this but revenues? guidance, headwind change other revenue – more store the know to or other a standpoint On isn't need had or competitive the you you making to modest The new commodity either space And other – stay is from it's the a And in that those from uptick related geographic that a I seems you a products do to timing that to in if get money, in this said arena. but in it closure common or rate new products new closures format year. product, it And as restaurant attribute

David L. Hoffmann

Yeah.

Let those on work backwards me Matt.

a some be don't about we're sites, quantity, into on can these might they read accelerate positioning. the they closures. think can piece focused give relates you off it comment where revenues. we heavily to then chance piece, we may And the so be closures, in are the We QX they're to relates in right and our but big opportunistic second that smaller of the on as quality strategy, opportunistic more brand look, On other customer over be experience. not do a closures, and it new a had particular as And not We to really quarter. part it's

Katherine Jaspon

Yeah.

Dark this. K-Cups beverage say, mean, partnerships we roll seeing flavors and question with our our we quarter that able challenges, a I I quarter. was I late the launched new think we partnership see then been fourth grow and J.M. can out you'll are to offer quarter, in first is We've I this with in our RTD would Coke which grow. to great no, comment on around, continues Smucker your on think, mentioned the Shot Dave on in will let have I we in the

so handled are of structured we through make channel, partners no. our the question are the around that cost more work those sells commodity that Your licensing and deals what those the and do product product through we the of being of are licensing impacts in build line, by of CPG and such the the a then like that contracts off so way contracts feel percentage

that. The reminder, add grow, other we'll that to continues continue to as a just, to is as thing category

the category sharing taking that growth continue from was of that's are to that as a as low change couple of our to it the franchisees, a guidance from growth grow growth that down and their overall expect commentary continues been And on P&L. guidance. our we to to was with single-digit categories in those and just mid the We timing it out just We just line guide well. single-digit to franchisees to dollars will a million bottom CPG was taking reminder so XX% our to see a because a high it call that wanted

Matthew Robert McGinley

you. Thank Okay.

Operator

Mr. Hoffman that, with remarks. the closing back like to Thank you. for over And turn to I'd conference

David L. Hoffmann

U.S. XXXX, foundational say for $XXX year for invested a We being we've restaurants the you, Look, been Thank call. the across our thanks progress Brands. Dunkin' everyone on has I wanted as continued of tremendous and Dunkin'. It's Okay. segments. developed say all We've into the million Dunkin' year just to all to been for NextGen a of business.

ever. really slate for first the rebranding of implementing Dunkin' where introduced the side. We entire on here, hired national we mentioned got menu we QX innovative products effort and products time cups, Run Kate ad as an agencies, front, we value On just out the completed the CPG we've into have well comprehensive transitioned for all the as new menu new while of sustainability a simplified afternoon in on foam as, Dunkin'

side, Nigel So, about free drama Nigel's between the franchisees this with well. Baskin as a all we have we only well not on excited convention decade. hand are and Dunkin' this really side you can put convention but with where and look, a a for and comments into, where are the going on didn't enthused a off the as culminated the about And I as nearly Blueprint,

I now we have world-class franchisees, So this to this all and of say team with because right what it succeed. our takes

so, we appreciate and excited future what our all do we're about going us guys forward. follow And of you to

for thanks everyone. on Take the again, care, so, And being call.

Operator

conclude gentlemen and participation. your much Ladies today's you conference. that does very Thank you. Thank for

have Everybody disconnect. wonderful a now may You day.

Dunkin Brands (DNKN) 25 Oct 182018 Q3 Earnings call transcript