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Dunkin' Brands Group Inc (NASDAQ:DNKN)
Q4 2019 Earnings Call
Feb 6, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Dunkin' Brands Fourth Quarter and Fiscal Year-end 2019 Earnings Call. [Operator Instructions] I would now like to introduce your host for today's program, Stacey Caravella, Senior Director, Investor Relations. Please go ahead.

Stacey Caravella -- Senior Director of Investor Relatation & Competitive Intelligence

Thank you, operator, and good morning, everyone. Speaking on today's call will be Dunkin' Brands Chief Executive Officer, Dave Hoffmann; President of Dunkin' Americas, Scott Murphy; and Dunkin' Brands Chief Financial Officer, Kate Jaspon. Following prepared remarks, we'll open the call to questions. 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 the call. Our release can be found on our website, investor.dunkinbrands.com, along with any reconciliation of non-GAAP financial measures mentioned on today's call with their corresponding GAAP measures.

Now I'll turn the call over to Dave.

Dave Hoffmann -- Chief Executive Officer and President

Okay. Thanks, Stacey, and thanks to everyone for joining today's call to discuss our fourth quarter and fiscal year 2019 results. We're pleased with our performance in 2019 and the progress we're making to transform our two beloved 70-plus year old brands around the world. Our full year results continue to demonstrate the strength of our asset-light 100% franchise business model. Each business segment is focused on delivering against the strategic plan, each specifically designed with the goal of delivering a more modern guest experience through operational excellence, everyday value and exciting new menu innovation. And while each segment is at a different stage in the execution of its plan, all three segments delivered positive comparable store sales in the fourth quarter and for the full year, reflecting broad-based momentum across the system. As a global system, we are embracing change and moving quickly to stay modern and relevant for the next generation of consumers. Our relationship with our franchisees has never been stronger. As evidence of this, Dunkin' and Baskin-Robbins were ranked the number one and number 13 brands in this year's Franchise 500 issue of Entrepreneur magazine.

All right. Now on the Dunkin' U.S. A key pillar within our blueprint for growth strategy is centered around beverage leadership, food innovation and consistent value. These three areas worked hard for us in 2019, driving 2.8% comparable store sales growth in the fourth quarter, the highest quarterly comp in six years, and driving our full year comp to the highest point in seven years. Our success was also enabled by the strategic investments we made into our espresso and digital platforms in 2018.

These investments are now driving top line results and delivering a better guest experience. Espresso sales grew by nearly 40% year-over-year. Espresso beverages represent approximately 10% of our sales mix. The category was led by holiday innovation for our Signature Lattes, paired with the compelling value of our $2 espresso p.m. break from 2:00 to 6:00 p.m. The return of our fan favorite, Peppermint Mocha, coupled with new holiday flavors, lifted the category and drove a premium ticket with nearly 70% attachment. Innovation will continue to grow the category. For Valentine's Day, we released our new Pink Velvet Macchiato and Signature Latte; and this spring, we will launch Oatmilk Latte nationally. And that's just a preview of some of the great tasting on-trend innovation guests will see in our restaurants in 2020.

The Beyond Sausage sandwich, an example of premium food innovation, had tremendous media buzz, supporting high consumer trial and repurchase rates. It attached well with premium-priced Cold Brew and espresso beverages, delivering an average check north of $9. It also reached a new consumer and drove incremental occasions for existing guests. Dunkin' is a menu-driven brand, and it is important to give our consumers on-trend choices, democratizing trends like we did with plant-based proteins in espresso is a key tenet to our 2020 marketing strategy. Now to value. Last year was the first time in recent history that we featured 12 months of national value messaging. Our Go2s platform offered choice-based value with full-priced beverage attachment, while our PM breaks were effective at driving afternoon traffic in an underserved daypart. And while our traffic for the fourth quarter and full year remained negative, traffic comps were the best we've experienced in five years despite a challenging competitive environment. Obviously, we are not declaring victory, but we feel the business is moving in the right direction, and we plan to build on this momentum in 2020.

As far as our investment into the digital side of our business, we began to reap the benefits in the fourth quarter. Beginning in October, we gave DD Perks members nationwide the ability to earn reward points no matter how they paid, including cash, credit, debit or a Dunkin' gift card. This represents the first major change to our loyalty program in five years. And as we saw when we tested multi-tender earlier in the year by making the program more flexible, we drive enrollment and participation in the program. We ended the year with more than 13 million loyalty members, representing 38% year-over-year growth contributing approximately 13% of rooftop sales, which is a 140 basis point expansion from 2018.

In Q4, we also opened up our digital ecosystem by allowing any customer to use our Mobile On-The-Go ordering, which was previously exclusive to DD Perks members. This feature allows any customer, not just Perks members, to place a mobile order and their points regardless of their preferred method of payment. These changes, combined with in-app enhancements, has continued our push toward a frictionless digital experience at the speed and convenience of Dunkin', of course. As a result of this, On-The-Go Mobile ordering increased to nearly 5% of rooftop transactions for Q4. We processed more than 20 million On-The-Go orders in the fourth quarter, a new milestone for us represented a 25% increase year-over-year. By giving broader guest access to mobile ordering, we believe we can build this base to drive further growth in our digital ecosystem. Now I would like to ask Scott Murphy, our newly appointed President of Dunkin' Americas, to take you through our restaurant growth plans, strategic investments we're making this year as well of our -- as well as our CPG achievements. Scott?

Scott Murphy -- President

Thanks, Dave. In 2019, our franchisees and licensees opened 385 net new units globally, including 211 net new Dunkin' U.S. locations, 100% of which were outside of our core Northeast markets. Our commitment to quality restaurant growth is paying off. New Dunkin' U.S. restaurants opened last year contributed almost $140 million to systemwide sales. Prioritizing quality over quantity is a key tenet for the operations and development teams, and we expect new restaurants opened this year to contribute more than $140 million to Dunkin' systemwide sales.

As we announced in our press release this morning, we've reached in an agreement with Speedway to exit the approximately 450 Speedway-owned and operated, limited-menu Dunkin' locations along the East Coast. These points of distribution are lower volume units, in total, representing less than 0.5% of Dunkin' U.S. systemwide sales in 2019. By exiting these sites, we're confident we'll be better positioned to serve many of these trade areas with future Dunkin' restaurants that reflect the full expression of our next-generation restaurant design. Guests are continually asking us for espresso, cold beverages from the tap system, sandwiches and even access to perks and mobile ordering, all of which are available in NextGen. We expect that this closing process will be materially complete by the end of the fiscal year. And as a result of this strategic decision, we will report our development results, both with and without the Speedway closures until it is completed. So excluding Speedway closings, we expect to add between 200 and 250 net new restaurants in 2020. We also expect that franchisees will remodel approximately 500 restaurants, which brings me to another important component of our Blueprint for Growth, the rollout of Dunkin' NextGen.

We ended the year with 525 new and remodeled NextGen restaurants across the country. And collectively, we are very pleased with the results we are seeing. The lift in sales and traffic has exceeded our initial targets. Speed, customer satisfaction and, importantly, franchisee profitability, are all better than previous remodel cycles. And there's a natural momentum with NextGen. Once a franchisee has a couple of units open and has worked out any operational kinks, they love it. The crew loves it and, importantly, the customers love it. NextGen represents our best comp and traffic driver in our system. But we continue to value-engineer the cost, identify appropriate levels of scope for different locations and work with franchisees and contractors to minimize downtime and to reopen with pride. We finished last year with 525 NextGens, and with gross openings and remodels in 2020, we expect to end this year with 1,400 total NextGen locations, more than double our 2019 count. The transformation of this Dunkin' brand is well under way. Our mission, our reason for being, is great coffee fast. And last year, QSR magazine named us the fastest drive-thru. But we're not resting. We're continuing to innovate ways to deliver great quality at the speed of Dunkin'.

As you know, in 2018, we worked with our franchisees to successfully revamp our espresso platform by installing new machines at more than 9,000 Dunkin' locations. And in 2019, we worked with our franchisees to install new iced coffee brewers nationwide. Dunkin' franchisees proudly claim they invented iced coffee, and we are taking meaningful steps to grow our market share and maintain our leadership position. And now in 2020, we're investing in our core hot coffee platform. Dunkin' brands will make an investment of approximately $60 million in new state-of-the-art, high-volume brewing equipment for all Dunkin' U.S. restaurants. And similar to the previous beverage equipment investments, our franchisees will make an equal or even larger contribution.

The high-volume brewers will enable us to expand the variety of drip coffee blends, increase operational efficiencies, reduce waste and enhance the quality and consistency across the system. And we know based upon tests that it will also help with restaurant simplification and crew satisfaction. We are already seeing promising results in our NextGen restaurants where this equipment is in place today. Importantly, this equipment, like the espresso machine, is a part of the NextGen image. So when franchisees remodel locations, they will have two critical pieces of the NextGen beverage platform already in place. These investments are helping us to accelerate key components of NextGen to the entire fleet. Better quality enabled by better equipment is a cornerstone of the Blueprint for Growth and foundational to our great coffee fast strategy. Kate will provide more details on the financial impact from this investment later on.

And lastly, our commitment to beverage leadership extends outside the walls of our restaurants, too. Our total CPG portfolio across both brands delivered approximately $940 million in retail sales last year, including more than $150 million in ready-to-drink bottled iced coffee according to IRI. Dunkin' K-Cups continue to outpace the category, growing more than 7%. Dunkin' recently surpassed Maxwell House, and is now the number three coffee brand across U.S. retail, with our packaged coffee and K-Cups now representing nearly 8% from the total coffee category. So the Blueprint for Growth is working. We are opening higher quality, higher volume restaurants. NextGen is on track and even accelerating. Restaurants are improving speed and accuracy. Franchisee profitability remains healthy. And as always, we're working hand-in-hand with our franchisees to transform this brand for the future. Now back to Dave.

Dave Hoffmann -- Chief Executive Officer and President

All right. Thanks, Scott. And I'll take you through the last two segments here. Baskin-Robbins U.S. finished the year strong with comparable store sales growth of 4.1% in the fourth quarter. Performance was led by cups and cones, and was supported by our great flavors, including the introduction of our first non-dairy and vegan-friendly Coffee Caramel Chunk as our November flavor of the month. Great job, Jason, pouring ice cream and coffee together with caramel. For the full year, Baskin posted its best annual comparable store sales growth since 2015. We elevated the brand with smart marketing and partnerships in 2019, including the launch of our non-dairy flavors that I just mentioned, as well as the partnership with Netflix' hit show, Stranger Things. It was a game changer, giving the consumer an opportunity to reevaluate Baskin, and we've seen great momentum coming off of that promotion. In addition, we have an entirely new leadership team under Jason Maceda, which has the franchisees excited and putting us in a great position to win in 2020.

All right. Let me pivot to international. There is also great momentum across both brands, with Dunkin' and Baskin posting Q4 comparable store sales growth of 6.9% and 3.2%, respectively. Q4 marked the 10th consecutive quarter of positive comp store sales growth for Dunkin' International, and the sixth positive quarter in two years for Baskin-Robbins International. Results reflect the progress we're making with our international strategy, which is focused on enhancing the in-store experience, establishing a strong delivery infrastructure and growing nontraditional sales channels. For Dunkin', we've ignited a new base of consumers in places like the Netherlands, Germany and Spain, where we've rolled out our coffee-forward image. We are strengthening our connection with consumers and delivering a more modern experience.

And on the Baskin side, we've done a tremendous job elevating the brand with smart marketing tie-ups, doing some interesting things with movies and ice cream flavors. I spent a lot of time in the Korea and Japan markets, and believe really both of these markets are some of the very finest expressions of the brand anywhere in the world, and they're producing great results for us. Lastly, we recently announced the appointment of three international Vice Presidents, which mirrors changes we've made to the domestic side of our business. We are working to make Dunkin' and Baskin more field-centric for greater diversity of thought leadership, and so that our decision-making processes are more nimble, occur closer to the consumer and in better alignment with our franchisees.

All right. Before I turn it over to Kate, I finally wanted to take a minute to address the coronavirus. I know all of you know, I lived over in Asia for 12 years, had a big impression on me. And as a global QSR company, we have all hands on deck monitoring the outbreak. Safety, of course, is our top priority. We have formed a global task force to closely monitor this issue around the globe and report regular updates on the status of this outbreak. And while we have limited presence in China, we believe it's our responsibility to protect our employees, of course, also our partners and guests and are sharing new information with our teams as it becomes available. And so all of us, and I know in this room, on this call, have a lot of friends and colleagues over there, and while it's a smaller part of our business, I think you'd all agree, it's a big part of our concern and in our hearts. And I'll just leave it at that. So anyway, our prayers and wishes to the folks over there. And with that, I'll turn it over to Kate.

Kate Jaspon -- Chief Financial Officer

Thanks, Dave. Revenues in Q4 increased $16.3 million or just over 5% compared to the prior year period due primarily to increases in royalty income and advertising fees as a result of Dunkin' U.S. systemwide sales growth, as well as an increase in rental income offset by decreases in franchise fees, and sales of ice cream and other products. The increase in rental income resulted from the adoption of the new lease accounting standard in the first quarter of fiscal 2019, which requires growth presentation of certain lease costs that we pass-through to our franchisees. The decrease in franchise fees was primarily due to franchisee incentives, including investments to support the Dunkin' U.S. Blueprint for Growth, which are being recognized over the remaining term of each respective franchise agreement. Operating income and adjusted operating income for the fourth quarter increased $9.1 million or 9.4%, and $8.3 million or 8.1%, respectively, compared to the prior year primarily as a result of the increase in royalty income and a decrease in G&A expense, offset by the decrease in franchise fees. Q4 net income and adjusted net income increased by $4.5 million or 8.5%, and $3.9 million or 6.8%, respectively compared to the prior year, primarily as a result of the increases in operating income and adjusted operating income, offset by an increase in income tax expense.

The increase in income tax expense was driven primarily by the increase in income in the current year period, and excess tax benefits of $3.2 million in the prior year period, offset by a valuation allowance recorded on foreign tax credit carryforwards of $1.8 million in the prior year period. Diluted earnings per share and diluted adjusted earnings per share for the fourth quarter increased by 7.8% to $0.69, and 7.4% to $0.73, respectively, compared to the prior year period, as a result of the increases in net income and 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 $0.04 for Q4 2018. Recognized excess tax benefits had no impact on diluted earnings per share and diluted adjusted earnings per share for the fourth quarter of fiscal year 2019.

At the end of the fourth quarter, we had a debt to adjusted EBITDA ratio of 4.8:1. During the quarter, we generated approximately $67 million in free cash flow. We returned $36 million in cash to our shareholders during the quarter, including $31 million in dividends and $5 million through open market share repurchases. Excluding cash reserved for gift cards and advertising funds of $242 million, we ended the quarter with $353 million in unrestricted cash held in the United States, of which $60 million has been earmarked for the high-volume brewer investment that Scott mentioned earlier. In regards to the investment, approximately 80% will be attributed to equipment. Under the new revenue recognition rules, franchisee incentives for equipment are recognized on the P&L as contra revenue through a reduction of our franchise fees over the remaining life of each respective franchisee contract. We expect the remaining approximate 20% of the investment to be recorded as G&A expense on our P&L this year as the costs are incurred.

We expect all of the cash associated with the investment to be deployed by the end of the first quarter of fiscal 2021. Lastly, we announced this morning that the Board of Directors increased our quarterly dividend by 7.3% compared to the prior quarter. We also announced that our Board of Directors approved a new program for this repurchase of up to $250 million of the company's common stock. That authorization is good for a period of two years.

Now to our fiscal 2020 targets that we provided in our press release this morning, which are reflective of our high-volume brewer investments. They are: low-single-digit comp store sales growth for both Dunkin' U.S. and Baskin-Robbins U.S.; we expect Dunkin' U.S. franchisees to open between 200 and 250 net new units, excluding the impact from the closure of Speedway, which was previously discussed; we expect that the new Dunkin' U.S. restaurants to be opened in fiscal 2020 will contribute greater than $140 million to our systemwide sales; we expect Baskin-Robbins U.S. franchisees to close approximately 25 net units, the net decline being driven primarily by continued strategic closures of restaurants, as Baskin U.S. works to optimize its store base; we expect low- to mid-single-digit percent revenue growth; internationally, we expect ice cream margin dollars to be flat when compared to fiscal 2019 from a profit dollar standpoint; and we expect that JV net income will also be flat compared to fiscal 2019. We will return to low-single-digit percent growth for G&A expenses and mid-single-digit percent operating and adjusted operating income growth. As a result of the $60 million investment, we will expect that our fiscal 2020 operating income growth will be at the low end of our mid- to high-single-digit percent growth target. We expect a full year effective tax rate of approximately 27%. The tax rate guidance excludes any potential future impact from material excess tax benefits.

We expect net interest expense of approximately $121 million, and we expect full year weighted average shares outstanding to be approximately 84 million. So let me repeat those. We expect net interest expense of approximately $121 million this year, and that our full year weighted average shares outstanding will be approximately 84 million. This guidance leaves us to project GAAP diluted earnings per share of $2.96 and to $2 -- to $3.05, excuse me. So that's GAAP diluted earnings per share of $2.96 to $3.05, and adjusted earnings per share of $3.16 to $3.21. Lastly, we expect capital expenditures will be approximately $40 million. And with that,

I'll now turn the call back over to the operator to open our lines for Q&A.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of John Ivankoe from JPMorgan. Your question, please.

John William Ivankoe -- JP Morgan Chase & Co -- Analyst

The question is on capital deployment. The cash you have, the cash you're generating. And I'm just really trying to reconcile a few different things, and I want to ask a strategic question as well. I think, if I heard correctly, $353 million of unrestricted stock. I heard you're on the buyback, but you're actually guiding to a similar number of shares in fiscal '20 than you actually had in the fourth quarter of '19, so that would imply you're not guiding much in terms of effective buyback in fiscal '20. So I guess, there's a number of different signaling implications around that, but one possible signal is that, that $60 million of franchisee co-investment that you're making in fiscal '20 could potentially be a much higher number in the out-years, especially as you will complete fiscal '20 with basically the need of 8,000 Dunkin' U.S. stores in the United States that have yet to be remodeled, if you will, to the Next Generation remodel. So could you comment -- I mean, I know I hit on a lot of different things there, in terms of the potential use of some of that cash to really start to attack some of those 8,000 stores the end of fiscal '20 that have yet to be remodeled to the NextGen remodel?

Kate Jaspon -- Chief Financial Officer

Yes, sure. John, this is Kate. Great question. So you're correct. We do have just about $350 million of cash that would be available, of which $60 million has already been earmarked for that investment. So, call it, another $290 million. We have never ever factored in any share repurchase rather than offsetting option dilution in any [Indecipherable], that is not any different than what we've done. So not signaling either way. I think we're always evaluating the best use of our cash, and we have a history of returning both via dividend and share repurchase and reinvesting in the business as we've done. However, at this time, we don't anticipate additional investment into the business. We remain committed to returning our excess cash to our shareholders over time and continue to work with the Board on what the best way to do that is. So for the near future, the $60 million is the investment we're making. And Scott, I think, would tell you, he believes that he has what he needs now, and we're getting the key components into the system from a beverage basis.

John William Ivankoe -- JP Morgan Chase & Co -- Analyst

And maybe it's a little bit early to comment on this, but in terms of you're kind of -- you're hitting that 8,000 remaining stores at the end of fiscal '20. I mean do you expect a very material increase in the number of remodels in fiscal '21, or does that happen in fiscal '22? Or should we just expect it over the life of a typical 10-year type of franchise agreement?

Scott Murphy -- President

Yes. John, it's Scott. I think the number will accelerate. We essentially did 100 remodels last year. We're saying that we'll do 500 this year, and we will probably do more than that 500 the year after. What we're doing is building -- spending this year building the exact infrastructure to support that acceleration that'll happen in the out-year.

Operator

Your next question comes from the line of John Glass from Morgan Stanley. Your question, please.

John Stephenson Glass -- Morgan Stanley -- Analyst

Just going off of the comments on the NextGen remodels. Scott, can you just talk about where you do stand on the capital investment required now that you've got some more experience? I know it's a work in progress, but maybe a waypoint on how much it costs in the NextGen. And what kind of lifts you're experiencing? It sounds like it is your best traffic and comp driver in the system, so that's exciting long term, but can you dimensionalize that at all?

Scott Murphy -- President

Yes, I'll give it a little qualitative answer, John. So we've only got about 100 of those remodels done, and we've collected cost information on about 2/3 of those so far. And I'll tell you a couple of things. It is a little more expensive than the previous generation of remodels, no doubt. If you think about the incremental things we're including, whether it's the tap system, whether it's digital drive-thru menu boards, whether it's some of the technology components that are included, those things cost money, yes, the new Dunkin' signage when we remodel. But I will tell you, the returns we're seeing, so positive sales, positive traffic and an improvement in profitability, it's actually showing that the return on this is faster than the previous iteration of remodel cycles. Now I will tell you that we continue to look to value-engineer it, and every remodel that we're doing is coming in a little lower in cost. But the thing I always caution people on is, our 10,000 stores out there, they're all sort of a snowflake. They all have a slightly different footprint. And so this probably isn't going to be one size fits all. We're going to have slightly different scopes. And what we're looking at now is figuring out exactly which pieces of those -- of the design drive the biggest return and make sure we get those out there the quickest as possible.

John Stephenson Glass -- Morgan Stanley -- Analyst

If I could just follow-up. So Dave, it's well telegraphed that Wendy's is entering the breakfast business at the end of the quarter. How do you prepare the -- how do you prepare your business for that? How do you assess what the potential impact is from their entry from competitive response? How do you understand how consumers might use your brand and their brand together? Or less likely to use your brand versus their brand in the breakfast daypart?

Dave Hoffmann -- Chief Executive Officer and President

Yes, John, we've been very focused on gathering that intel. And you know our footprint doesn't overlay perfectly with them, but we've been using our customer intercept work that we've been doing, and we've been able to microtarget some things around how their footprint overlays with ours. But really, our focus and what we've talked about with the franchisees is just to stay true to our competitive advantage, which is we have both quality coffee and great food delivered at the speed of Dunkin'. And we think we're the only one that can stay claim to that trifecta. So look, whether it's breakfast wars or coffee wars, it's highly competitive out there, and we're fighting every day. So we just look at it. We're not minimizing it. But we're really focused on our competitive advantage and doing what we do best.

John Stephenson Glass -- Morgan Stanley -- Analyst

Okay. Thank you.

Operator

Thank you. Our next question comes from the line of Jeffrey Bernstein from Barclays. Your question please.

Jeffrey Andrew Bernstein -- Barclays Bank PLC -- Analyst

Great. Thank you, very much. Two questions on the Dunkin' U.S. store base. The first one is just a follow-up on the NextGen topic. Just wondering, if it seems like maybe you see a little bit of an uptick from the 500 units that you're going to remodel this year going into 2021, but with the system of 9000 obviously that could be many years coming before you accomplish the ultimate goal. I'm just wondering, if there's ever any discussion similar to the investment you made with franchise equipment as to accelerating through franchise incentives of different varieties again just to accelerate what you think is the most exciting comp driver for you. And then I had one follow-up.

Scott Murphy -- President

Yes I would just say on NextGen, the 500 -- a couple of points. One, the 500 remodels that we're doing this year are some of our biggest highest performing stores, right? They're some of the strongest from an AWS and from an EBITDA standpoint. So we started with that biggest space, working with our franchisees to attack those first.

And like I mentioned earlier, two points, one is, there's some interesting momentum that naturally happens with this. So every time a franchisee does one remodel, they get really excited about the next one. So we're counting on that pull demand that will come. And then third, when we think about sort of an incremental investment for NextGen to further accelerate, I actually think of the fact that we're sort of doing that already, right?

When I think about the investments in the espresso machine, the investment in the high-volume brewers, the things we did for iced coffee last year, those are all consistent with that NextGen image and in theory, reduces the cost of the remodel down the road because that equipment will stay. So, that's how we're thinking about additional investment at this time.

Jeffrey Andrew Bernstein -- Barclays Bank PLC -- Analyst

Got it. And then of course just the other question was just on the new unit growth with improved comps and it seems like the system is excited, I'm just wondering whether there's franchise interest to reaccelerate the U.S. openings. I know you're now hitting the 200 to 250 per year, but clearly years ago it was much higher than that. So I'm just wondering whether the inhibitor to faster growth is a lack of demand from the franchisee side. Perhaps due to the cost pressures we talked about or whether on your end you're tempering it as you mentioned earlier just quality over quantity?

Scott Murphy -- President

Yes. I think we're seeing strong demand. The unit economics are healthy. Everyone seems very excited about the business model especially outside the core. If you think about our net development for last year and 100% of it was outside of New England. So the brand is alive and well and doing extremely well out there and I think our focus is just making sure quality over quantity. You said it. I want every one of those openings for us to be extremely proud of the real estate the asset and how we execute in those restaurants to make sure we have a healthy business.

Jeffrey Andrew Bernstein -- Barclays Bank PLC -- Analyst

Thank you.

Operator

Our next question comes from the line of Matt DiFrisco from Guggenheim Securities. Your question, please.

Matthew James DiFrisco -- Guggenheim Securities -- Analyst

Just looking through the sort of the math here on the espresso growth, 10% of sales, 40% growth, that would imply almost that the majority of your comp came from espresso. Can you sort of just -- how does that reconcile with sort of what you saw throughout your dayparts? Was there one daypart stronger or weaker, given that espresso seemed to have been the strongest contributor to the comp?

Dave Hoffmann -- Chief Executive Officer and President

Yes, Matt. We are very pleased with the investment that we've made into espresso, and we felt like this was all part of the, as Scott laid out, this long-term strategy of really improving our coffee quality credentials. But it wasn't just one thing. And as you heard me say, it was all about the triangle offense. Premium beverages with the Signature Lattes, food innovation with Beyond, compelling value with Go2s, all of that underpinned by better operations and execution. And as Stephanie is in the room here to talk about it, really, greater loyalty through digital as well. So it's not just one thing. We're happy about this, but you can't be so one-dimensional in the marketplace. And again, we're very happy. What you're going to see with us going forward is more premium offerings. We love what we're doing with the Pink Velvet Macchiato in the marketplace. We're the first big national brand to get out there with Oatmilk Lattes. And then returning to March, Irish Creme is going to be a returning favorite. So these are things that only Dunkin' can do.

Matthew James DiFrisco -- Guggenheim Securities -- Analyst

Okay. And then just a follow-up question. With respect to digital, can you give us some metrics on that? Where do you sit now as far as perk membership or percentage of sales done through the -- through your digital app?

Stephanie Lilak -- Vice President and Chief Human Resources Officer

It's Stephanie Meltzer-Paul, I can answer that. So right now, we're at 13.6 million Perks members. We're at 13% of sales. We're really excited about our growth in digital. The introduction of multi-tender near the end of the year definitely accelerated that new membership growth, and we're looking forward to leading off the year strong with activation and engagement of our members for continued growth going forward.

Matthew James DiFrisco -- Guggenheim Securities -- Analyst

Excellent. And then last question, just the 200 to 250 net openings, are there -- are they going to be similar to 2019 where you said, I think it was 100% were outside of the Northeast?

Kate Jaspon -- Chief Financial Officer

Yes, they will.

Matthew James DiFrisco -- Guggenheim Securities -- Analyst

Excellent. Thank you so much.

Kate Jaspon -- Chief Financial Officer

Thank you.

Operator

Our next question comes from the line of David Tarantino from Baird. Your question, please.

David E. Tarantino -- Robert W. Baird & Co. -- Analyst

Just want to come back to the capital allocation question because I think this is a key issue on investors' minds. I guess on the two investments you've made in the espresso platform and now these brewers, are you viewing these as kind of one-off type investments? Or do you think, as you look out at the next several years or longer-term, that you'll continue to make these types of investments in the system? So that's maybe the first part of my question, and then I have a follow-up.

Kate Jaspon -- Chief Financial Officer

Sure. David, this is Kate. I'll take that. We do see them as one-off, obviously, maybe two-off. But as Scott mentioned earlier, these -- we see us investing in the NextGen, right? So everything around NextGen is beverage-led. And by getting the espresso equipment and now the high-volume brewers, and Scott mentioned, we have the ice coffee equipment as well into the system. Although the system hasn't completely transformed into the remodel questions you're asking, we believe we now will have the key components of the beverage strategy in the stores. And so that's why we made these investments. We believe that they would actually provide a return and help accelerate that process, where we can actually shut down and flip all the stores overnight. So that's why we made those investments. As I said before, we don't anticipate additional investments into the business at this point, and so we are committed to returning excess cash to shareholders over time. We did increase our dividend, announced an increase in our dividend this morning. And then, obviously, as you know, we've historically returned other excess cash via share repurchases. But as we have to continue to work with our Board on the timing and the share price and the best use of cash, we don't commit to any of those in our guidance and have not included those in our guidance previously.

Dave Hoffmann -- Chief Executive Officer and President

And David, let me just reiterate from my chair, which I think is important and maybe sometimes the elephant in the room. But I am a staunch supporter and believer in the asset-light model, 100% franchise, the capital structure that we have in place. So love the flow-through that we're doing. So look, these investments that we made, they were the best use and the best investments that we can make at the time. So don't overread into this or think that we're viewing something different and trying to hold back. We solidly are behind the asset-light model and what was put in place, and it's a brilliant model, and you can see it through the flow-through, and we understand how we're valued. And so I just want you to hear it from me.

David E. Tarantino -- Robert W. Baird & Co. -- Analyst

Great. And then on the brewers themselves, I know you mentioned some of the operational benefits, but are you seeing a top line benefit directly from implementing those in your -- where you have them?

Scott Murphy -- President

Yes. I would just say too early to tell. When we think about what we've seen in test, we've really -- we're really excited about the operational, the quality, the consistency, those things I mentioned. They're actually smart brewers, right? So they're RFID-enabled and Wi-Fi-enabled, so we can get all sorts of data on the machines and make sure they've got the preventive maintenance and whatnot. But I think the top line will come when we think about the future expansion into varieties that we talked about earlier.

Dave Hoffmann -- Chief Executive Officer and President

Yes. And the other thing, David, just to throw a nice bouquet at Scott, this has been part of his strategy and journey to take the organization from investments in espresso. We haven't talked much about, but we've made a total overhaul in the ice brewers as well. And we all know the importance of iced beverages, so that was number two. And now this is a natural evolution to go after these high-volume brewers. So I love what they're doing around capacity. I love what they're doing around productivity and making it easier for the crew, and we think this is going to be a nice unlock for us around variety as well. So that's really the thought behind it.

David E. Tarantino -- Robert W. Baird & Co. -- Analyst

Great. Thank you very much.

Kate Jaspon -- Chief Financial Officer

Thanks, David.

Operator

Our next question comes from the line of Katherine Fogertey from Goldman Sachs. Your question, please.

Katherine Irene Fogertey -- Goldman Sachs Group Inc. -- Analyst

I have a few questions here. First of all, on the guidance that you're giving for the U.S. comp, low single digits. Are you guys expecting or anticipating any kind of shift in the competitive landscape, maybe not exactly in response to just one single competitor moving into breakfast, but maybe an overall more competition around coffee and the beverage attach, especially from kind of the largest restaurant in this system? And then on the new brewers that you're putting in place, could you quantify how much of a throughput benefit that has been?

Dave Hoffmann -- Chief Executive Officer and President

Yes. Thanks, Katherine. I'll take the first one and give Scott the second one. Look, we often talk here internally, we've got momentum. Momentum is hard to get, easy to lose. And we know there's potential headwinds out there, just like everybody else is saying these past couple of weeks in the industry. But we're very focused on the Dunkin' side. We're very focused on this triangle offense, which we think is -- gives us a competitive advantage, which is premium beverages and innovation around the Signature Lattes. And look, when we did the simplification a couple of years ago, that was all about where we are today, which is creating room for growth, the food innovation, the Beyond Sausage sandwich, and you guys know I've got a nice relationship with Ethan Brown over there, and we continue to talk about ways to extend that. But when we have beverage innovation and food innovation, coupled with compelling value and we like what we're seeing out of Go2s, that continues to be work hard for us. And we do all of that, and he's not in the room, but Rick Colon and the RVPs are executing with the franchisees better than we ever have been before. And Stephanie right here, is -- look, she's done a lot of work on infrastructure and putting technologies and removing friction in the app to make it easier for the customers to use. And I think this year, you're going to start seeing us really go after customer engagement like we never had before. So again, a lot of work to do. Third year of the Blueprint. We love where we stand right now with progress and that we're making against it, and again, the franchisees are with us, which is the key here.

Scott Murphy -- President

And I would just say on the brewers, let me just give a little context around that. This new technology, this new equipment, is really exciting. And from a throughput standpoint, the advantages come from a couple of places. One is just simply a reduction in waste, which helps the franchisee EBITDA and profitability. So we've got a longer shelf life and a holding mechanism to keep the quality coffee. And that's an important piece. These really help with the consistency and the quality of our hot drip coffee. So they're easier to calibrate. They're easier to clean. They hold calibration longer. And then more importantly, from a crew standpoint, there's significantly fewer brew cycles a week. So there's less room for error behind the counter, and we've got a better tasting, higher quality, more consistent product that we can serve faster to our customers.

Operator

Our next question comes from the line of Gregory Francfort from Bank of America. Your question, please.

Gregory Ryan Francfort -- BofA Merrill Lynch -- Analyst

I just had two questions. The first is, I think you said that 20% of the $60 million investment flows through G&A. Is that complement -- or is contemplated within the low single-digit guidance already? And then the other question I had was just, I think a few quarters ago, you talked about operationally rejiggering some of the stores a little bit more for mobile ordering. Where do you stand in that journey today?

Kate Jaspon -- Chief Financial Officer

Greg, it's Kate. I'll take the first part of that question. So yes, that approximately 20% of the $60 million investment is included in our guide, and that's why we would be on the slightly higher end of that guide this year. That includes things like training and the rollout of the equipment, similar to what we incurred for espresso. So that is included in that guide.

Scott Murphy -- President

And then in terms of mobile ordering, there's a lot we're doing to take friction out of the transaction for our customers. Just like Stephanie is doing a lot with the app to remove buttons and make it simpler to order, we're trying to make it simpler to pick up in store. So if you go into a NextGen store, you'll see a much bigger dedicated space. You may actually see an order confirmation board hanging above that, that says your name and that your order is ready. In traditional stores, we started four years ago with a simple pink mat, and we've now grown to carts and sort of other hardware to organize those. We've got some alphabetical separators to make it very clear where to pick up your product versus another. And then we're doing some innovation in the drive-thru with technology to make sure that it's as seamless as possible and as quick as possible when you do that. So we've got a host of solutions that we're bringing to different stores out there today.

Gregory Ryan Francfort -- BofA Merrill Lynch -- Analyst

And is that 13% digital mix, is that primarily in-store today? Or I mean, I think a big question for the industry a few years ago was, how you get digital and mobile tool works through the drive-through? Have you been able to find success? Or is that mix kind of more skewed to the in-store business?

Stephanie Lilak -- Vice President and Chief Human Resources Officer

This is Stephanie. We see about 1/3 of all of our perk sales coming through mobile ordering, and that's definitely fueling that 25% year-over-year growth via mobile ordering and hitting that 20 millionth mobile order transaction count for Q4 was huge for us, and it just shows how much our Perks members are adopting mobile ordering. We see half of all of our Perks members consistently using mobile ordering during their life cycle as a Perks member.

Gregory Ryan Francfort -- BofA Merrill Lynch -- Analyst

Thank you.

Operator

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

Eric Andrew Gonzalez -- KeyBanc Capital Markets Inc -- Analyst

Hey, thanks for taking the question. You had a decent step-up in your Perks membership to 13.6 million members which you said accounted for 13% of sales during the quarter. But I just want to compare that to your Seattle-based competitor which generates over 40% of sales on the roughly 19 million members.

So the question is, you've done a great job acquiring the customers, how do you drive more sales or incrementality from that existing base? And are there other technology enhancements in addition to multi-tender guest checkout that need to be made or additional capabilities that could be unlocked to bridge that gap? And then lastly as you think about 2020 is the focus on customer acquisition? Or is it engagement with those existing users? Thanks.

Stephanie Lilak -- Vice President and Chief Human Resources Officer

Hi. This is Stephanie. I'll answer your last question, first. It's both. We definitely want new members into the funnel. We're being very aggressive with our acquisition effort, signage, in-store promotions. We plan to have a lot of news out there, this year to gain excitement to get new members working with our stores to promote it to get new sign-ups is also very key for us.

But for every member we bring in the engagement side of it is key. Multi-tender is a big unlock, so when members join they don't feel constrained that they have to constantly be preloading funds. So we feel that will be a big unlock for us this year.

Also leaning into our marketing calendar, doing a lot of rich promotions point-based we've definitely gained a lot of learnings last year around this and making Perks buzzworthy. And our consumers -- our Perks numbers are reacting to those. So we tend to be leaning into that even more this year.

Operator

Our next question comes from the line of Andy Barish from Jefferies. Your question, please.

Andrew Marc Barish -- Jefferies LLC -- Analyst

I'm wondering if you could dive into Beyond a little bit more, you talked about espresso and Cold Brew attach. Is that indicative of kind of a new customer? Or are you seeing trade-up? Just a little bit more context around your early successes with Beyond.

Dave Hoffmann -- Chief Executive Officer and President

Yes. And look, it's both of those, but we were really pleased with the new customers that we brought in and that were coming in and reappraising Dunkin' for the first time. We saw that in Manhattan, and that continues to be the case as we scaled it. And look, we think our core offer is beverages, right? And so bringing interesting food that pairs well with that, we like how the Beyond pairs well with Cold Brew and espresso, and we saw that average check, I mentioned earlier, was around $9. But things like that, that are on trend, we're a brand, a big brand that can democratize those trends, and we want to use our platform to do that. So we were very pleased. Again, this was a strategic relationship with Beyond and Ethan Brown over there, and we continue to have discussions on how we look at different types of innovation with their products and our platform.

Andrew Marc Barish -- Jefferies LLC -- Analyst

And then just one quick follow-up on -- a little bit more color on the traffic. You said it certainly improved. Are the areas of weakness still kind of in the core hot and iced that you're obviously addressing with the -- with some of the equipment stuff?

Dave Hoffmann -- Chief Executive Officer and President

You know what -- look, and just to take a step back, we're maniacally focused on traffic, and it's -- really underpins the Blueprint for Growth. As I've said, this is our best traffic in five years. It's still negative. We like how it's performing. We like the two-year stack over in '19, over the two year stack in '18, significant improvements. But it's not just going to be one thing that really takes us into positive. It's going to be that, again, I come back to that triangle offense of, it's going to be about premium beverages, food innovation and compelling value, all underpinned by a better customer experience in the restaurant. And so that is what we're focused on. And we're seeing the improvements right now year three of the Blueprint.

Andrew Marc Barish -- Jefferies LLC -- Analyst

Thank you.

Operator

Thank you. Our next question comes from the line of David Palmer from Evercore ISI. Your question please.

David Sterling Palmer -- Evercore ISI -- Analyst

Thanks. Good morning. And congrats on the improving comps. Question on the remodeling what

Dave Hoffmann -- Chief Executive Officer and President

Hi, David.

David Sterling Palmer -- Evercore ISI -- Analyst

Congrats on the improving comps. Question on the remodeling, what -- could you just speak to what the average investment is on NextGen? Are you developing multiple tiers as you go through this, thinking about flexibility? And perhaps getting a sense of what gives you the best ratio and return for those franchisees? And then just relatedly, even thinking about this philosophically, is this something where you're getting a discrete store-by-store comp boost, such that in a year from now, you will be able to look back and say, "Well, we got the x points of comp contribution from reimaging?" Or is this just kind of one of those things where, "Look, if we don't do this, the brand dies. And if we do, do it, we'll get a brand halo eventually. Just trust us, we've got to all do this, guys," and it's not really that much of a comp benefit per store? And I have a quick follow-up.

Scott Murphy -- President

Sure. David, this is Scott. I'll take a crack at that. And the first thing I'd say is, we've -- the remodels are a little more expensive than the previous set of remodels. And that's because of the new equipment that we're asking franchisees to invest in. But it's actually a smart investment. It's returning nicely for them from a profitability standpoint. And based on what we're performing on these remodels, these early ones that we've seen, they're returning faster than previous remodel cycles. I will say the 500 that we started with this year are some of our biggest AWS and profitability stores. So they're going to have all those bells and whistles of all those components. And I can often ask the question, is every store going to have the exact same thing? And the answer is no. And that's what we're really doing on this next phase of remodels where we're testing maybe a slightly smaller scope, being very aware and cognizant of franchisee balance sheet and making sure we're making smart investments. And what I'd say to you on the last question of whether we're seeing a discrete uptick. I'll tell you, the remodels we're tracking, we're seeing an improvement in sales and traffic, and that's relative to their control stores, and that's relative to the markets broadly that they're in. So we feel really good about the results. And I think in past iterations of our remodel design image, it was really just kind of, you had to do it, and it was kind of the cost of doing business. I think what we're seeing here is it's not just that, but it's also one of our best comp and traffic drivers. And I think that's why you're starting to see the pull demand from the franchisees.

David Sterling Palmer -- Evercore ISI -- Analyst

And just a follow-up just on regions. We hear about all the different costs hitting different areas, obviously, minimum wage hits one area or another. And as you're doing the asks -- making these asks for spending, obviously, unit growth, the -- where that's happening and where the remodels are happening, could you just talk about that battle? You see certain areas that have gotten hit on profitability as the reimaging happening as quickly there. Is the unit growth happening in one region or another faster?

Scott Murphy -- President

Sure. And I would say it's an interesting cost environment out there for our franchisees. I think the good news, our franchisee owned co-op has done a nice job on food cost and looking forward on commodity costs to make sure we manage the P&L. And in a lot of cases, over the last year, that's helped to offset some labor that we've seen through minimum wage and other increases, whether it be sustainability improvements in packaging or regulatory things that are hitting their P&L. And I would say, overall, some markets are getting hit harder than other markets. But in general, the remodels that we have opened so far and that we will continue to open up the 500 are across the U.S., and they're performing just as well everywhere.

Dave Hoffmann -- Chief Executive Officer and President

And David, my color on this, and what the team has really done a remarkable job on is, look, as we go into the Blueprint and transforming a 70-year-old brand, the equipment investments, the investments that we're making in people, the remodels, the new stores, these exogenous costs that you just referenced. Look, we're -- this is part of being asset-light. We're working with franchisees, managing their P&L and their balance sheet at the same time. But look, this is the best -- that's why we continue to say, this is the best alignment with our franchisees that we ever have. They're solely with us. But there's a lot that goes into transforming our brand, but it's not -- NextGen is in the panacea, it's one of the elements of the Blueprint. But there's great work, as you saw in Q4 that's going on where we can win in the marketplace.

David Sterling Palmer -- Evercore ISI -- Analyst

Thank you.

Operator

Next question comes from the line of Sharon Zackfia from William Blair. Your question, please.

Sharon Zackfia -- William Blair & Company -- Analyst

I wanted to ask another question on digital. I think the Perks membership sign-ups in the quarter might have been the highest that we've seen in quite a while. So as you start to get, what I guess I would call, increasing scale in Perks. I mean how do you think about transitioning away from more open promotional offers toward more targeted app-based offers? And also, that cadence of sign-ups, is that something that we should continue to expect on an elevated pace over the next few quarters?

Stephanie Lilak -- Vice President and Chief Human Resources Officer

Sharon, it's Stephanie. We're feeling really good around sign-ups, and as I mentioned previously, we are going very aggressive. We're trying to bring new members into the funnel, especially educating them around the fact that we now are multi-tender. A lot of customers might have tried to sign-up years ago and realized that they had to load funds. So getting that word out is very important to drive new members in. From a promotional standpoint, we leaned in both to broad promotions that are open for everyone and did a lot of targeted marketing this year. Our plan for 2020 is to do both, big buzzworthy promotions, whether they're offer-based, point-based. Our members love those, and they're really important for new members in terms of educating them around our benefit. But then we are leaning into personalization in a very big way, both from back end, what type of systems and technology we need to be able to do that at scale. And then the learnings on the type of promotions, whether it's trip-based, spend-based, driving, daypart is all about we're leaning into.

Operator

And our final question for today comes from the line of Andrew Charles from Cowen & Company. Your question, please.

Andrew Joseph Crespo -- Cowen and Company -- Analyst

This is actually Andrew Crespo on for Andrew Charles. And just piggybacking on an earlier question about Beyond, what are your early learnings with who the plant-based customer is? Do they skew more digital? Or are these more lapsed users coming back to the brand? And I guess, I'm speculating here, but the loyalty adds, did they skew toward the end of the quarter, meaning that the Beyond launch really brought a younger consumer back to the brand? Or was it really about the tender-agnostic approach and the other recent modifications that drove the growth?

Dave Hoffmann -- Chief Executive Officer and President

Yes. On the first one with Beyond, skews -- it definitely skews younger. It also skewed what we're seeing on our early reads that skews more female than male. And obviously, it skews more on the coast as well. So very pleased with the performance. That's why we did the, again, the significant rehit in January as well. So very pleased with that. And then, as it relates to your question around digital, look, I'll answer for Stephanie, but she would say, it's more around tender-agnostic and what we did there, the multi-tender approach. Beyond helps. Any time we can get new customers. And again, the Blueprint was all about broadening our sweet spot as well with different customer segmentations. Beyond happens to touch on one that we're going after, which is health-aware on a budget. And we think our Power Platform, the Bowls, Beyond, what you've seen around Oatmilk Lattes, we've got a Power Muffin coming up. We think those are -- that Power Platform is what speaks to that consumer, and Beyond plays a role in there, but it's not the only offering. And so we like how the consumer is responding, and we like new customers appraising us. And again, when they do skews younger, they're looking at what Stephanie is doing on the digital side, and getting into our digital ecosystem. So this is -- that boomerang effect is what's going on. But again, more work to be done here.

Operator

And I'd like to hand the program back to Dave Hoffmann for any further remarks.

Dave Hoffmann -- Chief Executive Officer and President

Okay. Just briefly, thanks, everyone, for accommodating us on this time change at 10:00 here. I also -- I know there's a number of franchisees that listen, and I want to thank our franchisees in the U.S., but also around the world. Like I said to David's question, this is the best alignment that we've ever had. And I'm really pleased and proud that both brands in all three segments delivered. And these were some of the best numbers since 2013. A big attribute to that was the smart investments that we made, and again, we announced the second investment this year. And look, we're in the third year of the Blueprint and it's all about deliberate, intentional smart sequencing, and that's what you've seen out of us in the past, and that's what you'll continue to see with us going forward. So again, thanks very much for the time and look forward to the post calls. Take care, everyone.

Operator

[Operator Closing Remarks]

Duration: 63 minutes

Call participants:

Stacey Caravella -- Senior Director of Investor Relatation & Competitive Intelligence

Dave Hoffmann -- Chief Executive Officer and President

Scott Murphy -- President

Kate Jaspon -- Chief Financial Officer

Stephanie Lilak -- Vice President and Chief Human Resources Officer

John William Ivankoe -- JP Morgan Chase & Co -- Analyst

John Stephenson Glass -- Morgan Stanley -- Analyst

Jeffrey Andrew Bernstein -- Barclays Bank PLC -- Analyst

Matthew James DiFrisco -- Guggenheim Securities -- Analyst

David E. Tarantino -- Robert W. Baird & Co. -- Analyst

Katherine Irene Fogertey -- Goldman Sachs Group Inc. -- Analyst

Gregory Ryan Francfort -- BofA Merrill Lynch -- Analyst

Eric Andrew Gonzalez -- KeyBanc Capital Markets Inc -- Analyst

Andrew Marc Barish -- Jefferies LLC -- Analyst

David Sterling Palmer -- Evercore ISI -- Analyst

Sharon Zackfia -- William Blair & Company -- Analyst

Andrew Joseph Crespo -- Cowen and Company -- Analyst

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