Dutch Bros Inc.

Thank you for standing by and welcome to the Dutch Bros Incorporated first quarter 2025 earnings conference call and webcast. 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. Following the company's presentation, we will open up the lines for questions and instructions to queue up will be provided at that time. I would now like to turn the call over to Patty Warren, Dutch Bros, Senior Director, Investor Relations and Capital Markets. Please go ahead at this time.

Good afternoon and welcome. I'm joined by Christine Brone, CEO and President, and Josh Gunzer, CFO. We issued our earnings press release for the quarter ended March 31st, 2025 after the market closed today. The earnings press release, along with a supplemental information deck, have been posted to our Investor Relations website at investors.dutchbros.com. Please be aware that all statements in our prepared remarks and in response to your questions, other than those of historical fact, are forward-looking statements and are subject to risks, uncertainties, and assumptions that may cause actual results to differ materially. They are qualified by the cautionary statements in our earnings press release and the risk factors in our latest SEC filings, including in our most recent annual report on Form 10-K. We assume no obligation to update any forward-looking statements. We will also reference non-GAAP financial measures on today's call. As a reminder, non-GAAP measures are neither substitutes for nor superior to measures that are prepared under GAAP. Please review the reconciliation of non-GAAP measures to their comparable GAAP results in our earnings press release. Now with that, I'd like to turn the call over to Christine.

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. 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. On February 7th, we opened shop number 1,000 in Orlando, Florida, 33 years after our founding and 3,000 miles from our original push cart in Grants Pass, Oregon. 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. 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 in the productivity of our newer shops. Q1 results provide further evidence that we are well positioned on the journey to capture the growth opportunity that lies ahead of us. We delivered exceptional results in Q1. The momentum we saw exiting 2024 carried forward into the new year. During Q1, total revenue increased 29% when compared to the same period last year. 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. The Dutch Bros brand continues to resonate with our customers, demonstrated by Q1 system same shop sales growth of 4.7%. Transactions grew for another consecutive quarter, reflecting strong momentum in a highly dynamic external environment. Company operated same shop sales grew 6.9%, including exceptional transaction growth of 3.7%. Our foundational transaction driving initiatives continue to propel us forward. We have a coordinated plan and we are executing with tenacity across each of these initiatives. We are still in the early innings of these efforts with significant runway ahead of us. We are seeing the benefits of order ahead while successfully balancing transaction growth and ensuring customer satisfaction. These changes fit seamlessly in our current model without negatively impacting operational flow. This initiative serves as a prime example of addressing structural barriers and driving success and a key area of opportunity, the morning day part. 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. Now let's talk about the driving force and key differentiator behind our brand, the Broistas in our shops that serve our customers each and every day, and our HQ team mobilized to support them. Dutch Bro's exceptional culture, dedicated Broistas, and passion for superior service resonate deeply with our customers, setting us apart and widening our most distinct competitive advantages. This foundation is built with each Broista in our shops from coast to coast. From the very start of the onboarding process, our training and flow checks ensure every Broista is fully trained in our core anchor tenants of speed, quality, and service. A continuous learning playbook allows us to enhance the customer experience. Our shop growth is predicated on the readiness and capabilities within our operations teams. Field leaders are deeply ingrained in the culture, allowing us to create compelling futures for thousands of Broistas as they advance their careers with Dutch Bros. 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. Our current pipeline includes 450 operator candidates with an average tenure of more than seven years ready to lead a market. As we shared during our investor day, this number has more than doubled since our IPO. 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. We are an employer of choice and our team is motivated to deliver this great energy and service. This strategic approach is further exemplified in our real estate strategy. 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. 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. Actions such as these continue to deepen and widen Dutch Bros' competitive moat for long-term success. In February, we welcomed Brian Cahoe as our new Chief Development Officer. Brian brings nearly 25 years of retail experience, most recently serving as Chief Development Officer at Yum! Brand's KFC U.S. division. We are thrilled to have Brian on board as we continue to invest in our real estate capabilities. 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. 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. Our long-term real estate development pipeline is strong giving us confidence to reiterate our expectation of at least 160 system shop openings in 2025. 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. Our goal of 2029 shops in 2029 positions Dutch Bros for multiple years of mid-teens annual percentage new shop growth. 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. Now I would like to discuss our multi-year efforts to grow transactions and develop sales layers. Last year, we outlined a transaction-driving strategy focused on three foundational initiatives to jumpstart transaction growth. Enhanced focus on category-wide innovation, 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. We are continuing to see success as we execute on each of these elements. For the quarter, we saw system same shop transaction growth of 1.3%, which is particularly impressive given we are also lapping two enormously successful LTOs in boba and protein coffee from the prior year. We are still in the early innings and have considerable runway in our foundational transaction driving initiatives. First, innovation. For over 30 years, Dutch Bros has been an innovator, and this will continue to play a pivotal role in our growth story. Relevant innovation helps us deepen our competitive moat and build upon our core menu pillars of coffee, energy, and refreshment. In Q1, we successfully rolled out the Sweet Cereal Sips LTO, offering customers a unique way of enjoying cereal flavors with their favorite latte, freeze, or chai. We also launched the Spring Fever Dream Trio, a Hyper Chrome Rebel with Blue Raz Pop and Boba, the Brownie Batter Mocha, and a Birthday Cake Latte or Freeze with Soft Top and Springs. 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, enabling us to lap last year's strong performance from Boba and Protein Coffee. Second, strategic use of paid advertising. In Q1, we continued our elevated paid advertising strategy in new and mature markets. It's clear to us these efforts are having a positive impact on our business and growth trajectory. given the outperformance we have seen in our newer vintages following the ramping up of this initiative. We expect to continue our paid advertising efforts as we see significant opportunity to drive increased aided awareness in all markets, especially newer ones. 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. Dutch Rewards allows us to reach our customers more effectively with a strong focus on a personalized experience. 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. We strategically incentivize visits across various segments, geographies, and day parts. Dutch Rewards serves as a highly effective direct line of communication with our customers, allowing us to gather real-time feedback from our campaigns and continuously improve our customer experience. For context, this program launched in early 2021 and is just four years old. We expect Dutch rewards to be a strong lever for our future growth. In addition to these foundational sales driving initiatives, we see a clear path forward with order ahead, throughput, and food. Our objectives with the order ahead rollout were clear. Maintain connection throughout the customer experience, remove potential structural barriers, and win more in the morning day part. all without losing the Broista connection that makes coming to Dutch Bros so special. We are encouraged by the continued success of our order ahead program, which saw strong adoption in Q1. As of the end of the quarter, order ahead accounted for approximately 11% of transaction mix, representing a three-point improvement versus Q4. In many new markets, we observe transaction penetration rates nearly two times higher than the system average, driven by this easy way for new customers to discover our brand. 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. This is encouraging as we recognize that at times we have long lines. Order Ahead also meets our need of increasing speed with better throughput outcomes, opening up the underutilized walk-up window channel. We are pleased by the initial throughput driving initiatives we have implemented, and they are already showing promising results. 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. Our objective right now is making sure that we have the right people in the right place doing the right things at the right time to deliver speed and quality with exceptional service. At this early stage, our efforts are aimed at driving incremental throughput during peak hours, because it is simple, clear and measurable. We are challenging our shops to exceed their base targets and early results from a small pilot have been promising. 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. 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. Building on the success we are having with our order ahead initiative, we believe food can generate incrementality in the morning day part and drive frequency. Our approach to this test is both strategic and deliberate. We recognize the potential multi-year growth opportunity with our current food mix at less than 2% of sales. Our goals for this test are clear. Maintain existing high levels of Broista job satisfaction, continue to support throughput efficiency, minimize complexity, and offer a targeted assortment that allows us to satisfy our customers' craving for food while capturing incremental beverage opportunities. The pilot test has informed our decision to now offer eight SKUs, including four hot food offerings. With the completion of an initial pilot, we recently expanded this initiative from eight to 32 shops. Looking ahead, expanding the food test pilot is a crucial step towards a broader test and rollout anticipated to occur throughout 2026. This expansion aims to reach a wider potential audience and positions Dutch Bros more competitively in high value routinized beverage occasions. In closing, momentum in the business is strong and our strategies to build our business are working. We have the most passionate people who are well positioned to succeed and grow our brand. We have top tier growth that we see sustaining well into the future. In Q1, we delivered 29% year over year revenue growth and opened 30 new shops. 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. Our real estate strategy is working and we are building momentum. New shop productivity is strong and system-wide AUVs were $2 million. We have enormous confidence in our future, anchored by our passionate team, our loyal customers, and a clear roadmap to grow Dutch Bros. Together, we are poised to achieve remarkable success and drive our vision forward. With that, I'll turn it over to Josh.

Thanks, Christine. I'll provide a recap of Q1 results and a view of our outlook for 2025. Our Q1 performance has reinforced the confidence we have in our growth prospects. First quarter revenue was $355 million, an increase of 29% or $80 million over the first quarter of last year. We opened 30 new shops in the quarter, of which 25 were company operated, bringing total system shop count to 1,012 shops. We expect to open approximately the same number of shops in the second quarter before accelerating throughout the back half of the year. 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%. In the quarter, we saw 1.3% transaction growth and 3.4% ticket growth. which gives us confidence in our full-year same-shop sales expectations. 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. Our full-year guidance contemplates 3 to 4% system same-shop sales growth in the second quarter, which includes the roll-off of approximately 150 basis points of price. 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. As a reminder, we experienced lower adjusted SG&A in Q1 2024 before ramping up spend throughout the remainder of the year as a part of our overall restructuring efforts. 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. 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%, 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. 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. Coffee is the majority of this, sourced from Brazil, Colombia, and El Salvador. which as of today face a 10% import tariff. 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 coffee prices for the remainder of 2025. Considering this, we continue to expect approximately 110 basis points of net COGS margin pressure for the full year, which now includes the estimated impact of tariffs. Our full year guidance contemplates beverage, food, and packaging costs, of approximately 27% of company-operated shop revenue in Q2. Labor costs 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. 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. 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. Pre-opening expenses were 1.7% of company-operated shop revenue, which is 30 basis points unfavorable year over year, driven primarily by new shop training and travel. 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. Franchising and other revenue was $29 million, up $1.7 million, or 6.4% year-over-year. Franchise and other contribution was $20 million, up $1.2 million, or 6.4% year-over-year. Adjusted SG&A was approximately $54 million, or 15.1% of total revenue, roughly in line with our expectations. We now expect approximately 90 basis points of leverage on adjusted SG&A for the full year of 2025. In the quarter, interest expense net increased $722,000 year over year to $7.1 million. 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. Let me now provide an update on our balance sheet, cash flow, and liquidity. 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. Relative to Q4 of last year, this represents a decrease of approximately $23 million, which is largely related to working capital timing. 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. In Q1, our average capex per shop was approximately $1.67 million, a decline of approximately 10% from Q4. We are pleased with the progress we are making towards shifting our portfolio to more capital-efficient build-to-suit lease arrangements. As of March 31st, we had over $658 million in total liquidity. This total liquidity is comprised of $316 million in cash and cash equivalents and $342 million in our undrawn revolver. Shifting to guidance, we have a strong runway ahead and are well positioned to continue producing healthy financial results in this dynamic microenvironment. Given the strong performance in Q1 and continued momentum into Q2, 2025 total revenues, system SAM shop sales growth, and adjusted EBITDA are trending towards the top half of the previously communicated ranges. As a reminder, those were Total revenues between $1.555 billion and $1.575 billion. System same-shop sales growth in the range of 2% to 4%. Adjusted EBITDA between $265 and $275 million. We would 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 SG&A leverage. Additionally, we continue to expect to open at least 160 shops, representing 16% system shop growth. Capital expenditures remain at our estimated range of $240 to $260 million, primarily made up of new shop construction costs. We are very proud of the results the business delivered in Q1 and the continued momentum into Q2. We believe the combination of strong four-wall economics and strong cash on cash returns will allow us to continue delivering incredible results. We are well positioned to deliver fantastic returns from our new shops and remain bullish on our near-term goal of 2,029 shops in 2029. Thank you, everyone. We'll now take your questions. Operator, please open the lines.

Thank you. We will now conduct a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in a question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, that's star one to ask a question at this time. One moment while we pull for our first question. The first question comes from David Tarantino with Baird. Please proceed.

Hi, good afternoon. I had a couple of clarification questions on how you're thinking about the second quarter. Josh, you know, I think you said your plan had contemplated comps up three to four percent. And I just wanted to maybe ask, you know, several times you mentioned momentum into this quarter. So I wanted to maybe understand what exactly that means on how you started the quarter relative to what your plan was.

Yeah, 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, as we think of our role from Q1 into Q2, is we are rolling off about 150 basis points of price coming into Q2. So, like I said, feel good about that traffic trend continuing into Q2 and really sticking in line with our expectations.

Got it. And if the traffic trend from Q1 continues You know, continues in the Q2 are you I think I think you had a negative impact on the traffic and Q1 from the leap day lap, but is that. Are you 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 the expectation.

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 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. The next question comes from Brian Harbor with Morgan Stanley. Please proceed.

Yeah, thanks. Good afternoon, guys. You know, I mean, new store productivity, as you mentioned, looked very good again in the quarter, I guess. Are you assuming that that sort of persists through this year? Is there anything sort of lumpy about, you know, the stores that we might have seen in the 4Q and the 1Q? Or could you just talk about, you know, more about what's driving that?

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. So I think as we look throughout the year that we really contemplate 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.

Okay, cool. Thanks. Josh, just on the food and beverage cost line, was 1Q 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 building a little bit more pressure into the balance of the year, or is this kind of, you know, consistent with what you would have thought before?

Yeah, this is actually right in line with what we had expected. So most of the pressure that we're expecting for the balance of the year is really coming from coffee prices. And, you know, as I highlighted in my prepared remarks, 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. Okay. Thank you.

The next question comes from Dennis Geiger with UBS. Please proceed.

Great. Thanks, guys. I wanted to touch on mobile order. And just as there's any more color to share sort of 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?

Yeah, 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. The other thing that we're seeing, which is really nice, is that we are increasing the rewards signups. And so as we open new markets, we're seeing a quicker kind of adoption of the rewards program of our customers. 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.

Yeah, go ahead.

Yeah, the other thing I was gonna add is just, What we wanted to see was that strength in the morning day part with mobile order, and we are seeing that. So as we look throughout our day, you know, 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.

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 with 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.

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 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 we are not kind of spending more to get there, we are seeing kind of increased efficacy from our efforts.

Great. Thank you.

The next question comes from Andy Barish with Jefferies. Please proceed.

Hey, good afternoon, guys. Just wanted to get the sense of labor, Josh. I know first quarter was still absorbing California. Is the understanding that you'll kind of be flattish going forward and that some of the shop leadership investments should be offset by some of the same-store sales leverage. Is that what you were kind of implying year over year going forward?

That's right, Andy. Yeah, I mean, like I said, we made some investments, some smart 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'd see for sales leverage.

Okay. And then just on... on coffee costs as it all, you know, kind of rolled in. And I think you guys were sort of modeling off of sort of somewhere around $4 on the C. Is that, is that kind of where things wound up as you, you know, finished up locking for the year?

Yeah, so we did price at 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 really kind of reaffirm the estimated impact from coffee and now inclusive of tariffs to be on the company shop level at least 110 basis points of margin pressure.

Okay, thank you very much.

The next question comes from Andrew Charles with TD Cowan. Please proceed.

Great. Thank you. Christine, you talked about increasing the new food pilot to 32 stores from eight stores. If this passes your stage gate process, how do you envision the pacing of rolling this out for the remainder of your system in 2026? Do you think it'll be pretty even or perhaps wait until one half or second half of next year?

Yeah, so our, 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 that is really the 1st step that we're doing here before we really fully map out what we think we're going to do from a rollout perspective. Um, the, the initial signs from those eight shops, we were very pleased, uh, from, and that gave us that confidence to, uh, roll it out, uh, inclusive of those eight to 32 shops. And, um, so now we have a broader market test to see what we can do in a market, you know, that, that fully has, has food in it and, and really test some of the, um, all of the operational protocols we've put in place. We've done a lot of work on the distribution front. We've gotten, you know, 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.

Okay. That's great to hear. I want to follow up an earlier question around measuring the incrementality of mobile. And you talked about increased frequency as well as increased loyalty signups. You know, I'm wondering if we could make you think of it through another lens, which is the mix of walk-up sales. At the investor day, you talked about how this is about 50% of mobile sales and growing well above the roughly 10% level or so pre-mobile. Is that another way that you guys think about gauging the incrementality of mobile as well?

I think the benefit of the walk-up window is really from a production perspective. We have these two main production zones, one's at the walk-up window and one's at the drive-through window. 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 shows us how much is going to the walk-up window, but doesn't necessarily measure incrementality in the best way.

Okay. Thank you. The next question comes from Chris O'Call with Stifel. Please proceed.

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.

Yeah, so we're doing a couple of things. One of the things is really big bringing visibility to our peak hours. And so allowing our teams to kind of see what was what was your highest Friday hour over the last couple of months? And there's this fun in 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 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. And so as you think about kind of the cars coming through our drive-through and really timing where beverages are going out the window with that, our teams are working through an exercise where they can look and understand kind of what part is actually causing a bottleneck. And sometimes that's unique depending on the shop itself or the makeup or the way that traffic might arrive with a 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? And so it's a flexible system of deployment is how I would best describe it.

Okay, that's helpful. And then 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.

Yeah, I think there's a couple of things as we approach new markets. So I do think paid advertising is very effective there and just 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 1,000 shop mark, that there are are more potential customers who just know who we are before we come into a market. We are also the rewards program getting folks rapidly into that. Part of the thought behind mobile order was 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. And I think it's kind of that interplay between everything. The other piece is I think some of the fun merch drops we're doing, some of the, I think, really neat innovation that's going on, that is driving just 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.

Great. Congrats on this. Great start to the year.

Thank you. The next question comes from John Ivankov with J.P. Morgan. Please proceed.

Hi. Thank you. When I think about the past four years, I think about how much has changed in terms of 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 hasn't changed very much. It's not a criticism. It's 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 a bros box that looks slightly different or maybe very different as we fully evolve into 26, 27 and beyond?

I think that that's that's always something that we're looking at one of the things I would share, though, is if 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 makeups of those production zones so in some of our highest volume shops will have dedicated what we call pit zones. to allow for the making of smoothies and other kind of unique blended beverages. And so we already have a bit of modularity within our shops that allows for that customization. The other piece that we have is that we know our product mix by markets. And there is some variation in product mix. I think we've shared before we've got higher rebel sales in some of our mature markets. We've got higher Golden 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 mix.

Thank you.

Thank you. The next question comes from Gregory Frankfort with Guggenheim Securities. Please proceed.

Hey, thanks for the question. Christine, I'm just trying to think about the food opportunity. I think a bunch of your competitors do 10% to 20% food mixes. And I'm curious, 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.

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. 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, you know, compared to potentially others out there, we're thinking about this limited SKU 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. 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. And then I think you asked a question, too, on the margin side. So on the margin side, because there are fixed costs 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.

Thank you.

The next question comes from Sarah Senator with Bank of America.

Please proceed. Thank you. I have two 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 sometimes you see the opposite just because it creates sort of higher frequency and maybe a little bit less spend per visit from your regular. So I guess that was the clarification if they're seeing implications for check. And then you mentioned it really benefiting the morning day part. Does that have any, I guess, implications for the demographics of your customer base? I just think the sort of morning routinization, wondering if the sort of younger SKU that you've historically had, if that changes that?

Yeah, so if we look at, I'll answer the younger first. I don't think that what we're seeing right now is any difference there, but that's something that we'll continue to look into. I think we're We actually have a customer base that stands across different demographics. We do happen to resonate quite well with Gen Z, but I don't think we're seeing something there. And then on the check makeup piece for mobile order, we do typically see that the items per transaction to the beverage makeup is a little bit lower. in mobile orders, which makes a ton of sense that they're more in the morning day part. You might be on your way to work, you're driving alone. So all of that kind of makes sense with what we thought we would see. 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.

Thank you. The next question comes from Jeffrey Bernstein with Barclays. Please proceed.

Great. Thank you very much, Christine. I had more of a macro question for you. You mentioned that the brand can thrive despite the dynamic environment that is contrary to obviously some peers. And 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 slowing macro. Obviously, you have lots of idiosyncratic drivers and initiatives right now which 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 slowing macro that we might be entering into now. And then I had one follow-up.

Yeah, thanks, Jeff. I think from what we are seeing, Q1 was super strong. Q2 is off to a great start. And we are looking at this from multiple different dimensions and are 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. And all of those things really give us confidence in what we're seeing right now, despite what we're hearing in the broader macro environment. I do think, too, we are in this unique position in that Even with things like innovation and Dutch rewards and the paid advertising that we still are kind of peeling the layers back on that and driving the advocacy across those programs. So, I think that, and then being able to layer mobile order on top and then going into 2026, being able to label layer food on top of that, that we do think we are in a unique position in this environment.

No doubt you definitely have those idiosyncratic drivers. My follow-up is on the CPG channel. I know you dropped that news at the Investor Day. I'm just wondering if there's any incremental color you can share on your vision for Dutch Bros 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.

Yeah, so thanks. On the CPG, we are excited about that opportunity. It is more of a longer-term opportunity. As we, you know, look into next year and think about the strategy behind this, it's that, you know, as we did a lot of research with our customers and contemplating this idea, it really does appear to be a separate occasion. And then I think there are broader opportunities to drive brand awareness in being in both places. And so having these two channels 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 benefits there. And as a quick reminder on this, it's a licensed deal, so it's a light touch from our perspective, but we feel it will be an important part to grow the brand as we grow.

Thanks for your questions. Next question comes from Jeff Farmer with Gordon Haskett. Please proceed.

Thank you. Just wanted to follow up on one of the questions Jeff just asked, and that's just about the environment. So you guys did point to the high end of your guidance ranges, but I am curious if there was an impact that you were taking into account as it relates to the more uncertain consumer.

Yeah, so great question. You know, what we've seen, what we saw in Q1, we're really pleased with the momentum we saw into Q2. Again, we've been, you know, just reaffirmed our confidence in the underlying business. 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 how everybody else is experiencing the consumer today.

Okay. And then just the second final question. I'm just looking at the case. It looks like you do have 70 Texas shops entering the comparable store base at some point in 2025. I could have that plus or minus. But 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. What can you share with us as it relates to the potential impact they have as they enter the comp base?

Yeah, so I might just step more broadly and talk about newer markets. I think we shared both at the Investor Day and have shared in the past that we continue to see really strong performance from those newer vintages. We really believe that's the sum of the great marketing efforts we've put in to drive brand awareness, that higher adoption of mobile order in newer markets combined with just the maturation of those shops as they come into the comp base. So we do see outsized performance coming from the newer vintages, although see strong and strength across all vintages. So we do, you know, it's not isolated to those vintages, but certainly we see stronger performance out of those. Thank you.

Thank you. At this time, I would like to turn the floor back to Christine Barone for closing remarks.

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 give back days, we supported local organizations committed to creating compelling futures. This year, we were thrilled to support over 200 organizations nationwide. contributing more than $1 million to the local communities we serve. Additionally, more than 250 shops hosted local give-back days this quarter, creating another way to make an impact in the communities where our BroEast does live and work. 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.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation. Have a great day.