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Dunkin' Brands Group Inc (NASDAQ:DNKN)
Q2 2019 Earnings Call
Aug 1, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Dunkin' Brands Second Quarter 2019 Earnings Call. [Operator Instructions] . I now would like to introduce your host for today's program Stacey Caravella, Senior Director, Investor Relations. Please go ahead.

Stacey Caravella -- Senior Director of Investor Relations

Thank you operator and good morning, everyone. Speaking on today's call will be Dunkin' Brands' Chief Executive Officer, Dave Hoffmann; and Dunkin' Brands' Chief Financial Officer, Kate Jaspon. Additionally, Scott Murphy, Chief Operating Officer for Dunkin' US and Tony Weisman, Chief Marketing Officer are here and will be available for questions during the Q&A session at the end of the call.

Today's call is being webcast live and recorded for replay. Before I turn the call over to Dave, I'd like to remind everyone that the language on forward-looking statements included in our earnings release also applies to our comments made during this call. Our release can be found on our website in dunkinbrands.com along with any reconciliation of non-GAAP financial measures mentioned on the call with their corresponding GAAP measures. Now I'll turn the call over to Dave Hoffmann.

David Hoffmann -- Chief Executive Officer and President

Thanks Stacy, and good morning everyone. Thank you for being on the call this morning. We are now midway through 2019 and seeing signs of transformation for Dunkin' and Baskin-Robbins around the world.

We've launched new menu innovation with broader consumer appeal, reimagined the restaurant experience, growing digital and delivery platforms and integrated both brands in the modern culture. As we always say it's a journey, but there is no doubt in my mind that the strategic actions we're taking are driving customer noticeable change and of course sustainable results.

For Dunkin' US our second-quarter results, build on the solid momentum we established with our franchisees in the first quarter of the year. Highlights of the quarter included 4.7% systemwide sales growth and 1.7% same store sales growth. Performance was was driven by double-digit espresso growth, national value offerings and terrific consumer reception to our better-for-you power platform. Altogether, we had our strongest two-year quarterly COMP performance since launching cold brew in 2016. These results clearly reflect that the blueprint for growth, our long-term strategy to modernize the brand is working.

We're especially pleased with the sustained performance of espresso in Q2. When we made the decision in 2018 to double down on this category, we did it for two reasons. First, to expand our menu sweet spot beyond hot and iced drip coffee. And second, because we believed there was a significant market for quality espresso at an affordable price, of course delivered at the speed of Dunkin'. It's now been more than six months since we relaunched the category and our 2018 investment continues to pay major dividends. Espresso sales in Q2 grew more than 40% year-over-year, all while maintaining our operational speed and delivering on our brand promise of great coffee fast.

In April, we expanded our line up with the launch of handcrafted signature lattes, which combined our premium espresso with fun flavors that Dunkin' does best. Dunkin' is a brand that can democratize trends. We did it with espresso and we believe there is an opportunity to do more when it comes to giving consumers great tasting, better-for-you options at affordable price points. In April we introduced a new type of food innovation to our menu with the launch of Dunkin' Bowls. The Egg White Bowl features 14 grams of protein and only 250 calories. It was the latest addition to our power platform, which started in January with the Power Breakfast Sandwich and has driven terrific weekly sales.

We will continue innovating this space to broaden our menu and appeal to consumers of all tastes. Last week, we announced our partnership with Beyond Meat one of the fastest growing US food companies offering and a portfolio of plant-based meats. We are the first US restaurant chain to serve a sandwich that features a 100% plant based beyond sausage. Started rolling out last week in Manhattan and our goal is to scale it nationally in the future.

The Beyond Sandwich is a terrific example of more than just the new menu we're offering at Dunkin'. We listened to our consumers who told us they were looking for more protein choices. So we created a proprietary plant-based option; taste great, it's affordable, priced in line with our other breakfast sandwiches and it's delivered of course at the speed of Dunkin'. Once again this is all about Dunkin' giving consumers options. What you've seen from us today, quality premium beverages such as Espresso or Cold Brew, Better-For-You food innovations like the Egg White Bowls and Beyond Meat, they all represent a new Dunkin', a Dunkin' that is different than the past. We're launching more consumer-driven innovation at a faster pace. We'll never forget our core and in fact on national donor date our guests enjoyed over 11 million donuts, the most we've ever moved in one day. But we're broadening our sweet spot as well. Along with menu innovation, national value offerings including Go2s and PM breaks drove results across all day parts. In Q2 we lap last year's national launch of Go2s, offering two bagels for $4 propelled the category and delivered the best quarterly bagel sales performance on record. Our two-year stack, breakfast sandwiches and bagels achieved more than 15% same store sales growth and approximately 75% of Go2s transactions contained a beverage, with an average total ticket of nearly $9. Afternoon traffic also benefited from the continuity of our PM break platform that features $2 rotating beverages.

Next, great coffee served by great people. We're spending more time than ever making our restaurants, a great place to work. We're making product build simpler and more consistent, we've implemented soft launches on marketing windows to allow for better training and execution, and we are intensely focused on speed and accuracy. Started last year with menu simplification and the installation of label printers in all our restaurants, and this year it continues with a focus on restaurant teams. Overall, we saw a nice improvement in guest satisfaction throughout the second quarter and we will continue to drive better operations for a better customer experience. Great coffee fast is what we do best. We're making the Dunkin' experience as frictionless as possible, in our restaurants, at the drive-through, through our mobile app and other digital channels. In June, we announced the launch of Dunkin' delivers through GrubHub and Seamless across the boroughs of New York City. We work closely with Grubhub in our franchisees to create a Dunkin' delivery system with POS integration, which is key, that doesn't involve significant cost for our franchisees, creates operational efficiencies across the restaurants and delivers an overall better experience for customers. We're excited to scale this to major US markets by year-end as well.

We also launched multi-tender on our app in April and more than 1,000 Dunkin' restaurants across the country. Multi-tender allows guests to earn points regardless of how they pay. Test results have shown the program is driving incremental active enrollments with no material impact to margin. Today loyalty represents approximately 13% of rooftop sales. With multi-tender we believe we can grow that number in a meaningful way by expanding the membership funnel and driving incremental sales through one-to-one marketing. We also plan to roll this out nationally later this year. On-the-go ordering saw average weekly sales increase by more than 30%, 30% year-over-year and made up 4% of total transactions in Q2. At locations without a drive-through it represented more than 7% of transactions and in many urban areas mobile orders actually exceed 25% of transactions during peak hours. Mobile order and pay is clearly a winning proposition for Dunkin', it enables guests to get in, get out and get on their way.

Nearly half of quarterly active perks members use it today and there is still significant opportunity to grow. In the next few quarters we are rolling out new features including guest checkout which enables non-perks members to use On-the-Go Mobile ordering through the app. In other words, this opens up mobile ordering basically to everyone.

And lastly, we're making the Dunkin' app more convenient to use. We completed an app refresh during the quarter and continue to simplify the on-the-go ordering process. A recent improvement to one step enrollment drove over one million new members to sign up for our loyalty program in the second quarter. Total membership now sits at 11.7 million guests. There is tremendous runway ahead of us when it comes to growing our digital platform. These latest advances, delivery, multi-tender, guest checkout, app upgrades, are all making the Dunkin' experience as frictionless as possible.

Our efforts to make Dunkin' more convenient extend beyond our restaurants and into other channels as well. Through mid July, our total portfolio of CPG products across both brands delivered nearly 500 million in retail sales, including more than 80 million in ready-to-drink bottle iced coffee. Dunkin' K-Cups grew nearly 8% or six times the growth rate of the category.

We've also expanded our restaurant footprint across the US as well. During the second quarter, our franchisees added 46 net new units. We're especially proud of the progress we've made together with our franchisees on our next-generation restaurant design. If you recall last year we formalized NextGen as the image [Phonetic] for all new construction and I think we've also mentioned to you before, we spent the last nine months working with franchisees hand-in-hand, shoulder-to-shoulder to optimize the layouts and operating models. We also value engineered equipment and materials to work for remodeling existing restaurants as well.

On July 1st, we officially released the NextGen Image for remodels. We are working strategically with our franchisees to kick off the next wave of remodels into the new NextGen image and we have solid alignment with franchisees because NextGen remodels are showing great results. Sales and traffic growth is coming from premium iced beverages. Great bakery performance and increased mobile order and pay. This transformation is more than just an improved look of the restaurant. It's a meaningful commitment to serving great coffee fast. NextGen is the true embodiment of the Blueprint for Growth; it shows how we are modernizing while staying true to our core. It's recent release iss a testament to our strong relationship with our franchisees, which remains our number one asset.

Okay, now on the Baskin-Robbins. We recently undertook one of the most exciting promotions and Baskin seven-year history, when we announced a partnership with Netflix number one hit show Stranger Things. To ring in the arrival of the third season in July we combined Stranger Things and Baskin-Robbins on everything from new menu innovation to exclusive merchandise to [Indecipherable] sold outside the restaurant. We made the promotion engaging for not only our guests but for the crew as well, which is critical in today's highly competitive labor environment. And I want to personally thank our Baskin-Robbins franchisees for seizing the moment and really bringing this partnership to life in a powerful way. The terrific consumer reception to our partnership with Stranger Things proves that Baskin-Robbins is on the path to making itself relevant again in a way that is authentic and engaging for consumers.

We see tremendous enthusiasm for the brand around the world, and now it's time we reignited some of that love here in the US as well. We're expanding our home delivery offering, modernizing restaurants, improving operations and bringing more value to the menu as well.

Okay, moving on to international. Q2 was another fantastic quarter for both brands abroad, with Dunkin' and Baskin-Robbins posting same-store sales growth of 5.6% and 3.2% respectively. Q2 marks the eighth consecutive quarter of positive COMP store sales growth for Dunkin' International. The coffee forward image for Dunkin' is continuing to make strong progress, with 400 restaurants now opened between newbuilds and remodels across international markets solidifying the brand's positioning of great coffee fast around the world.

Before I hand it over to Kate here in a second, reflecting back on Q2 and now one year into my role, I'm proud to see these beloved brands succeeding around the world. We've taken some big bets across the board, including the $100 million investment we made into the Dunkin' US business, last year and we're seeing progress.

As we transform our brands. We will continue to evaluate all options, all options for generating returns for our shareholders and franchisees alike, as well as creating a more modern and relevant experience for our great customers.

And so with that, I will now turn it over to Kate to cover our financial results.

Kate Jaspon -- Chief Financial Officer

Thanks, Dave. Revenues for the second quarter increased $8.7 million or 2.5% compared to the prior year period, due primarily to an increase in royalty income as a result of Dunkin' US systemwide sales growth, as well as an increase in rental income, offset by a decrease in advertising fees and related income.

The increase in rental income resulted from the adoption of the new lease accounting standard in the first quarter of fiscal 2019, which require gross presentation of certain lease costs that the company passes through to our franchisees.

The decrease in advertising fees and related income was primarily due to a decrease in gift card program service fees, offset by an increase in advertising fees as a result of systemwide sales growth.

Operating income and adjusted operating income in the second quarter increased 8.8 million or 7.7% and 7.5 million or 6.2% respectively from the prior-year period, primarily as a result of the increase in royalty income, as well as other operating income in the current quarter compared to other operating loss in the prior year period. Net income for the second quarter decreased by nearly $1 million or 1.4% compared to the prior-year period, primarily as a result of a $13 million loss on debt extinguishment recorded in the current period. Offset by the increase in operating income and an increase in interest income earned on our cash balances as well as a decrease in income tax expense.

The loss on debt extinguishment was due to the write-off of debt issuance costs in conjunction with the refinancing transaction completed during the second quarter of fiscal 2019.

Adjusted net income for the second quarter increased by 7.6 million or 11.7% compared to the prior-year period, primarily as a result of the increases in adjusted operating income and interest income offset by an increase in income tax expense. Diluted earnings per share for the second quarter decreased by one 1.4% to $0.71 compared to the prior year period as a result of the decrease in net income. Diluted adjusted earnings per share increased by 11.7% to $0.86 compared to the prior year period, as a result of the increase in adjusted net income.

Excluding the impact of recognized excess tax benefits, both diluted earnings per share and diluted adjusted earnings per share would have been lower by approximately $0.02 for each of the second quarters of fiscal years 2019 and 2018. At the end of the second quarter, we had a debt to adjusted EBITDA ratio of 5.2 to 1. During the quarter, we generated approximately 54 million in free cash flow. We ended the quarter with 563 million in cash and short-term cash restricted cash on our balance sheet. Out of that 563 million, 157 million represents cash that is associated with our gift card and marketing fund balances. We used 31 million in cash during the quarter to pay our Q2 cash dividends to our shareholders. We also repurchased approximately $10 million in shares during the second quarter.

Now to our fiscal year 2019 target. In our press release this morning, we reiterated the majority of our target with the exception of the following. We now expect flat to slightly negative comp store sales growth for Baskin-Robbins US.

We now expect our full year effective tax rate to be approximately 27%. This includes the year-to-date impact from excess tax benefits as well as other tax favorability. The tax guidance excludes any potential future impact from material excess tax benefits in the second half of fiscal 2019. We now expect our net interest expense to be approximately $119 million resulting from additional interest income. We continue to expect full year weighted average shares outstanding of approximately 84 million.

We now expect GAAP diluted earnings per share of $2.71 to $2.78, previously we had expected $2.63 to $2.72. And diluted adjusted earnings per share we now expect $3.02 to $3.05, previously we had expected $2.94 to $2.99. This updated guidance reflects the revised effective tax rate and net interest expense as well as the tightening of our range, as we go into the second half of the year.

And with that, I will hand the call back over to the operator for questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of Jeffrey Bernstein from Barclays, your question please.

Jeffrey Bernstein -- Barclays -- Analyst

Great, thank you very much. Actually I had one question and then one follow-up. The question just on the Dunkin' US comp, I'm guessing it was driven entirely by average check, I was wondering if you can give some color around the traffic trends in this quarter versus last, and whether you see any underlying change in that trend; we've heard from a few operators that maybe trends has softened a little bit in recent weeks, relative to where it had been prior. So, any color you can give on that would be great.

And then my follow-up was just for Dave, I know at the end of your prepared remarks, you mentioned something about reviewing all options for a return of value to shareholders and franchisees. I don't know if that was commentary above and beyond your traditional dividend and repo and what not, so just wondering, kind of what your thought is in terms of incremental shareholder value creation?

Thank you.

Kate Jaspon -- Chief Financial Officer

Hey Jeff, this is Kate. Thanks for the question. Obviously, we continue our practice of not commenting on trend as we rolled out of the quarter, but in terms of comps within the quarter, traffic was basically flat sequentially from the first quarter but we did see a decent improvement year-over-year that we're pleased with. And while we did see a slight increase in ticket sequentially that resulted from both pure price and favorable mix shifts. Just a reminder that there was less discounting this year in this quarter compared to prior year as it was our roll over the first quarter of the national Go2s program and I will turn it back.

David Hoffmann -- Chief Executive Officer and President

Yes, jump in on on the second one, look, we're still very much focused on driving value for our shareholders and franchisees alike, no different than what we've done in the past with the smart share repurchase, the securitization as Kate's been involved with a lot and including our $100 million investment back in the business. So, but we're not going to say anything more about it, but going forward, we're going to continue to evaluate what's best for the business.

Jeffrey Bernstein -- Barclays -- Analyst

Thank you.

Operator

Thank you. Our next question comes from the line of Matt DiFrisco from Guggenheim. Your question please.

Matthew DiFrisco -- Guggenheim Securities -- Analyst

Thank you. A little bit of a follow-up there, I guess in the context of less discounting on a year-over-year basis, the success you're seeing with espresso and the protein clash premium products. Can you give us some color and context as far as the franchise margins and what they've experienced? And then also personally I'd like to know, can you bring back the egg bowls? They seem to be a success, but they're discontinued, can you explain why?

Kate Jaspon -- Chief Financial Officer

Yes, I'll take the first part. I'll let Tony address. I agree with you on that. By the way, so the comment on discounting, we continue to have discounting. So it's not that we have less discounting, it's just that a lot of the programs that we've seen traction with and maintained throughout the quarter. So last year, this quarter was the first year that we had a national Go2s platform. The only change in that was the middle offer, so as Dave mentioned, we went to a 2 for 4 bagel offering, but so that discounting stayed relatively flat, as well as even though the PM break is national now, there were a lot of breaks going on in the afternoon at discounted beverage price in prior year, so discounting remains a focus of ours, it's just, it's been consistent with last year in the first quarter that we actually saw that.

And then from a mixed perspective, you're right, as the quarters have progressed, the franchisees have seen favorable mix shift, which was due to the premium price specialty beverages, as well as the power platform, which is a perfect turn over to Tony.

Tony Weisman -- Chief Marketing Officer

Hey, thanks for the portion on the Egg White Bowls, you're not the only one and so stay tuned. I think what we did in the 60 days that we had the bowls and is that we demonstrated to both consumers and to our own system, that bowls is a form factor that we can do easily, quickly and doesn't get in the way of you're get in, get out and get on your way approach to great coffee fast.

So we're believer in bowls and stay tuned, we do intend to bring them back in the future. But in the interim, I encourage you to be eating our power breakfast sandwich.

Matthew DiFrisco -- Guggenheim Securities -- Analyst

Excellent, thank you.

Operator

Thank you. Our next question comes from the line of Eric Gonzalez from KeyBanc Capital Markets. Your question please.

Eric Gonzalez -- KeyBanc -- Analyst

Hey thanks, Good morning. It's been a few months now since you launched the espresso platform and the growth seems impressive. I was just wondering if you could speak to the customer repeat rate or any other consumer behaviors you've noticed since the launch, our customers trading up from other platforms or drip coffee or are you bringing in a bigger mix of new customers?

Thanks.

Unidentified Speaker

So we're seeing terrific repeat among our customers. We're also seeing more than 60% attachment, we're seeing great basket size, we're not only seeing new customers coming in but we are in fact to Dave's point about democratizing introducing some of our traditional hot and ice drip customers to espresso and they've really take into it. So it's been both a trade-off from current customers who are getting into espresso and learning whether they like a latte or cappuccino and hot and ice etc., as well as the world's-- the number of people in the world who already know these beverages, but have come to appreciate that we've got a world-class espresso product at a good value served at the speed of Dunkin'. Areas in the signature of lattes, in April which are outstanding, and if you haven't had them I encourage you to try them also brought in new customers because their distinctive flavors they're only available at Dunkin', they are incredibly good value, they are delicious and so we're seeing high repeat among those as well, and we've kept those in and continue to see those numbers grow all together, that's why we're seeing this as our fastest growing category, with 40% year-on-year growth.

Eric Gonzalez -- KeyBanc -- Analyst

If I could just slip another one in there on Perks, it seems like you had a nice step-up in perks membership to 11.7 million members. Was the step-up -- what were the factors that attribute that big step-up and then regarding the guest checkout is there a way that you can convert them to active membership once you get all the [Speech Overlap] ?

Unidentified Speaker

Yes. So part of the step up to the increase is a number of things. First of all you probably notice that we are marketing our On-the-Go Mobile at the end of every commercial that we run. Secondly, we are doing more to make the purchase program and on-the-go mobile more visible in the stores, particularly, as Dave mentioned is prominent in our NextGen stores. Third, we've made the app experience lighter, more frictionless faster and the one step enrollment has really been an easy way for people to get in and get on. Yes, the biggest [Indecipherable] we've had in the past with people using the app, was forcing them to pre-load on our card in order to use On-The-Go Mobile. Now, we with our multi-tender and guest checkout out we're making it even easier for people to pay whenever, where they want, so we're seeing an increase, some of that number is a function of people joining the program and being able to pay with credit, debit or cash and ultimately as we truly expand guest checkout we'll afford people the opportunity to pay without joining the program. But the real factors have been visibility in the starting the advertising ease of ease of enrollment, and then the ability to secure points and the benefits of membership paying anyway you want and we are in fact seeing ways of converting them with more one-to-one marketing based on their behaviors, what we see them purchasing and we've gotten into much more sophisticated and individualized targeted market.

Eric Gonzalez -- KeyBanc -- Analyst

Thanks.

Operator

Thank you. Our next question comes from the line of [Indecipherable] from JPMorgan. Your question please.

Unidentified Participant

Yes, thanks guys. First, could you comment on whether you feel wage inflation pressures have plateaued for franchisees or does it kind of feel the same. And then relatedly, just to be clear is franchisee cash flow up year-over-year?

Scott Murphy -- Chief Operating Officer

So, this is Scott. Thanks for the question. I'd say, wage inflation is still out there. We continue to see one of the biggest challenges for our franchisees not just inflation, but certainly the availability of labor. So we've seen about a 0.4 impact to the stores in terms of labor inflation over the last quarter, but it's -- I think plateau is probably the right word used the way you described it, because the good news is it's being offset by some commodity favorability and some other things on the P&L as well.

Unidentified Participant

Okay and then franchisee cash flow is it up year-over-year. Could you comment on that?

Scott Murphy -- Chief Operating Officer

It's essentially stable.

Unidentified Participant

Okay. And that's helpful and then you've mentioned that you've seen a nice improvement in guests at stores in the second quarter. Curious if that applies to accuracy, speed, food and beverage quality or perhaps all.

Scott Murphy -- Chief Operating Officer

Yeah. So most of those metrics move together we talked about overall satisfaction. We saw a nice improvement sequentially all three months throughout the quarter and I think it's a lot of the things that we've done over the last year. So I know we've talked about it a lot, but things like menu simplification, things like the label printers, some new equipment, and more importantly a complexity model we rolled out to make sure we're not putting too much on those restaurant managers. We're seeing a nice improvement in accuracy and speed and even more so in our NextGen restaurants where it all comes to life.

Unidentified Participant

Very helpful. Thanks guys.

Operator

Thank you. Our next question comes from the line of Nicole Miller from Piper Jaffray. Your question please.

Nicole Miller -- Piper Jaffray -- Analyst

Thank you. Good morning, appreciate the update. I'm very curious about your Beyond Sausage, and the ability to price that in mind, can you talk a little bit about that decision because some of the things that we've been looking at in your peer group everyone's price set are premium. Thank you.

Tony Weisman -- Chief Marketing Officer

Yeah, hi, this is Tony. It was an intentional move on our part in the Manhattan launch, which is exactly one week on to price in line with our other premium sandwiches, which is consistent with our whole view of democratizing trends and making value as part of this new plant-based meat option. A part of it for Dunkin' because it just means that more people will be able to enjoy it, learn to enjoy new enjoy plant-based sandwiches. So it's very much a focus for us to price it in line with premium sandwiches. We were helped in part by all the innovation that our friends at Beyond Meat have done. They have a very specific stated goal of creating plant-based meat that is in line at a per ounce price the same as animal-based meat. And so all the work that they've done, that was able -- this factored into our cost structure, made it possible for us to sell it at that price at our margin comparable to what our other sandwiches to sell for and it's very consistent with our view that this is an enormous trend more and more consumers are trying it on and there is no reason that a price barrier should get in the way.

Unidentified Participant

It's very helpful to understand the democratizing it. Sorry to sneak this in but if we just think that the margin profile, maybe with this desk, you know and a couple of other things so we don't need to worry about it was or is there something we need to consider if

Unidentified Speaker

No, I don't think there's anything you need to worry about.

Unidentified Participant

Thank you.

Operator

Thank you. Our next question comes from the line of Catherine [Indecipherable] from Goldman Sachs. Your question please.

Katherine Fogertey -- Goldman Sachs -- Analyst

Great, thank you. So espresso here is clearly seeing a lot of strong reception. Can you help us better understand the overall mix on your beverage side now? What is traditional versus espresso? And then kind of on that point the 40% growth we saw in the quarter year-on-year, that's very impressive. How much of that momentum can we attribute to the stores that had already been running espresso versus rolling more stores on to the platform?

Thank You.

Unidentified Speaker

So we're looking at overall espresso around 10% of our mix, which is as we stated, the 40% year-on-year increase. On which, I think answers your first question. I believe your second question is, the stores that we're on it as opposed to the ones that weren't, and as a reminder, in November of last year we rolled our entire system at the same time onto the new espresso platform, which was new machines, newbuilds, new recipes, new training all simultaneously in November of '18.

Katherine Fogertey -- Goldman Sachs -- Analyst

All right, thank you.

Operator

Thank you. Our next question comes from line of Andy Barish from Jefferies, your question please.

Andy Barish -- Jefferies -- Analyst

Hey, guys on the question on Next-Gen as we look out to 2020 and remodels, I forget exactly where you are in the cycle but can you give us a sense of whether or not you expect that to be a significant contributor in terms of number of remodels in the fleet and any other things we should consider especially given what a big brand that maybe Dave used to work for is going through in terms of downtime and things like that as remodel start to move through the system?

Scott Murphy -- Chief Operating Officer

Yes. Andy, this is Scott. Great question. We spent a lot of time working on the Next-Gen remodel with our franchisees. As Dave mentioned, we released at July 1st, and now we're going fast and furious with our franchisees after that first wave of remodels. I think we'll end up having, call it 500 Next-Gens at the end of this year, and I expect us to actually almost be at double the historic rate of remodels in the next couple years as we go. Now we have such a large fleet, it will take a while to get the entire asset base transformed, but the good news is we're seeing such strong results out of it, we've got some decent pull demand from the franchisees for the remodels.

Andy Barish -- Jefferies -- Analyst

Thank you.

Operator

Thank you. Our next question comes from the line [Indecipherable] with [Indecipherable]. Your question please.

Unidentified Participant 4

Thank you. I had a follow-up on the Next-Gen image as well. How should we think about the cost today, just any more color there? And if anything note where they came into the model or out of the model versus what we saw at the Analyst Day. And also sort of this cost versus the old model. And I know we've talked historically about, once you establish this new prototype, you did expect that unit growth to accelerate in 2020 and beyond, so just making sure that's still the case.

Unidentified Speaker

Yeah, I think that's the way we think about it. First of all, I'd say the cost for our Next-Gen remodel, it's a little bit tricky to answer because there is a wide variety just given the different size of footprint of our stores and the way they are laid out, but if I compare to previous remodel design releases, it is a little bit more expensive, but certainly not out of the realm for what is reasonable and I will tell you the return that the franchisees are getting it has a much quicker payback than the previous releases. So that's why, us and the franchisees feel really good about this model. In terms of what you saw at Investor Day and the things that have changed, a few things have changed here and there. We certainly learned from the couple hundred that we've built, so we continue to iterate that design relates to make small tweaks here and there, we've moved certain pieces of the drive-through, we've positioned equipment a little differently and most importantly we've added a level of flexibility, not in the operating model but in the equipment place -- in the equipment placement. Things that we've learned from the crew members and the restaurant managers from having real life examples out there. So we feel really good about the operating model and the way the equipments laid out now to move forward. Thank you.

Operator

Thank you. Our next question comes from the line of Andrew Strelzik from BMO Capital Markets, your question please.

Andrew Strelzik -- BMO Capital Markets -- Analyst

Hey, good morning. Excuse me, I'm curious on the elasticity of demand as you're seeing the premiums premiumization and check building with more bundling and food attach. Specifically if you could talk maybe about the frequency of our customer that would have a $9 roughly average check, how does that fit in with the broader cohorts and does that customer tend to be more frequent, less frequent and just a broader thoughts around elasticity. Thanks.

Tony Weisman -- Chief Marketing Officer

Hi, it's Tony. So I think that the-- the way we look at the Go2s platform, which was the reference to the 90% attachment and the $9 check looks very much like our other customers in terms of high frequency, what we've simply delivered is a platform that provides persistent, consistent choice based value of three different price points. And so we're seeing of a high level of frequency and repeat. And the fact that we are now more than a year into offering this has made it something that customers count on in every restaurant every day and it's just becoming habitual.

Andrew Strelzik -- BMO Capital Markets -- Analyst

Great, thank you.

Operator

Thank you. Our next question comes from the line of Jeremy Scott from Mizuho, your question please.

Jeremy Scott -- Mizuho -- Analyst

Hi, good morning. Just maybe a follow-up to Andy and [Indecipherable] question on the NextGen model, are you comfortable with the incentive structure that you have set up now for the campaign? I know you said it will take a while to get to reformat the whole asset base, but is there a timeline we should think about to get to a critical mass, call it 50% if that's tricky on the way up, mayybe there is different versions of the remodel let you might be willing to offer?

Scott Murphy -- Chief Operating Officer

Yeah, this is Scott. I'd say we're comfortable where we are now, but we're always looking to go faster, right. So we've kicked off another wave of 600 remodels with our franchisees that we're working through right now and I think we'll learn a lot through that process over the next six to nine months as we go through there. And then we'll come back and see if there is opportunity to go faster because I think there's nothing that anyone want more than our entire asset base transformed into that NextGen Image.

Jeremy Scott -- Mizuho -- Analyst

Great, thank you.

Operator

Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Dave Hoffmann for any further remarks.

David Hoffmann -- Chief Executive Officer and President

Okay. Thanks, operator. And more importantly, thanks everyone for joining us this morning. I know you've got another busy day with earning season and we really appreciate you being on. Hey, look, I just wanted to close by saying we're on a journey Dunkin' and Baskin Robbins or 2 brands with tremendous heritage and consumer love. We like to say you can start today with the coffee at Duncan. And we also like to say, hey, let's in the day with a scoop of ice cream a Baskin and we think that's a really good one-2 punch for both brands. On the Dunkin' side, we've made terrific progress pulling off some really big bets over the last year and you're seeing the impact of those moves today. Some of them are menu simplification, espresso, national value programs, the name change investment in digital as Tony just talked about And of course our recent Beyond Meat partnership.

This is a different Dunkin' today than we were yesterday but the blueprint for growth, what's driving all of this change is a five-year plan and we're still working. We're staying focused patient and true to who we are, which is great coffee fast. So much more to come from us but know that we believe in this plan and we intend to keep driving transformation in everything we do so. Thanks very much everyone. Take care.

Operator

[Operator Closing Remarks]

Duration: 41 minutes

Call participants:

Stacey Caravella -- Senior Director of Investor Relations

David Hoffmann -- Chief Executive Officer and President

Kate Jaspon -- Chief Financial Officer

Tony Weisman -- Chief Marketing Officer

Unidentified Speaker

Scott Murphy -- Chief Operating Officer

Jeffrey Bernstein -- Barclays -- Analyst

Matthew DiFrisco -- Guggenheim Securities -- Analyst

Eric Gonzalez -- KeyBanc -- Analyst

Unidentified Participant

Nicole Miller -- Piper Jaffray -- Analyst

Katherine Fogertey -- Goldman Sachs -- Analyst

Andy Barish -- Jefferies -- Analyst

Unidentified Participant 4

Andrew Strelzik -- BMO Capital Markets -- Analyst

Jeremy Scott -- Mizuho -- Analyst

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