Dutch Bros Inc. (NYSE:BROS) Q3 2023 Earnings Call Transcript

Christine Barone: Yes. So, we actually don’t provide regular updates on state level performance. We did provide some updates when we did our follow-on offering in early September. And as we shared at that point, we’re very pleased with kind of how the Texas market is developing. We entered the Texas market in January of 2021, so less than three years ago. We have 148 shops now in Texas at the end of Q3. As we’ve gone into that market, we’ve rapidly been able to build scale, and we believe that our brand awareness is catching up with us a little bit in that market. So again, given the rapid, rapid growth that we’ve had in the state, we’re quite pleased with where the AUVs are.

Operator: Our next question is from Jeffrey Bernstein with Barclays.

Jeffrey Bernstein: Great. Two questions as well. First one, just a follow-on in terms of the traffic trends. I think you noted a little bit of easing from the second quarter to the third quarter, oftentimes in conjunction with that price increase. So, I’m just wondering if you can share maybe how much pricing you’re running in the third and fourth quarter? And maybe how you think about that? I don’t know how you measure the affordability or how you think about pricing into a slowing macro. Just trying to size up maybe you have data on trends by income cohort. Just trying to get a sense for your confidence in your ability to take that incremental price without degradation of traffic over time? And then I had one follow-up.

Charley Jemley: Jeff, it’s Charley. I’ll talk about the pricing facts, and then I’ll kick it over to Christine to give a qualitative answer. So, pricing impact on same shop sales in the third quarter is approximately 8% to 9%. That is then going to drop to between 4% and 5% for the fourth quarter.

Christine Barone: Yes. And then as we think about pricing and look at where we have opportunity, we’re actually building in a new layer to the work that we do from a pricing perspective. So, we’re looking at willingness to pay kind of by size, by product, by geography. And we believe that we’re in a really good place from a pricing perspective and feel comfortable with what we’ve taken. And although that we don’t have plans right now to take additional price, I do believe that we have room for that.

Jeffrey Bernstein: Okay. Are you able to look at your customer base by income level to be at to size up maybe traffic trends across different income levels? Like how do you test that just to get confidence that you have that pricing power?

Christine Barone: Yes. So, we don’t look at our base by income level right now, but the couple of cuts that we do, do is we’re looking at things by geography. This last pricing move we took, we actually took in tranches. And so, we were able to look pretty surgically at what we did with the pricing move and look specifically at how different geographies responded as we did each of those pricing moves over those different times. And the other thing that we look at is we look a lot at our rewards data, just understand kind of what’s happening with frequency over those customers, we look at different frequency that they come in with and what happens when we take different pricing moves and do different promotions, things like that. So, we’re looking at price from a number of different angles.

Jeffrey Bernstein: Got it. And just my follow-up. You mentioned some new markets I’m sure it’s too new, but Alabama and Kentucky being most recent. But whether it’s those dates or whether new markets over the past 12 months, the receptivity into new markets, can you talk qualitatively about what you’ve seen versus perhaps your expectation? Obviously, it’s a brand going into new markets, so you probably get some mixed results depending on where you’re headed. So, I’m just curious, over the past year, the newest markets you’ve entered into, whether it’s cities or states if you can just share any best or worst how those — how the performance has gone thus far?