Dunkin' Brands Group Inc (NASDAQ:DNKN) Q1 2018 Earnings Conference Call - Preliminary Transcript
Apr 26, 2018 • 08:00 am ET
Our first question is from David Palmer from RBC Capital Markets. Your line is now open.
Thanks, good morning. Question on the returns. I just wanted to get this out of the way first. One of the short theses that you hear out there on Dunkin' is that the returns are poor for franchisees outside of the Northeast. Could you perhaps touch on the return and investment the franchisees are seeing on units in growth markets like the West?
And then the second thing I just wanted to ask about was the new prototype and the implications for their pace of reimaging and new unit growth starting in '19, basically, will you have this prototype ready for scalability, do you think by '19 in a good return format? Thanks.
Okay. David, there's a lot there so we're going to try and cut through that and we're going to pass you straight over to Scott Murphy.
Hey, David, thanks for the question. In terms of cash on cash returns, we are actually very happy with what we have seen, not only in our western emerging markets but in those top 10 development states that Dave talked about at Investor Day as a focus for our growth moving forward. We actually have seen the results at the top end of all the ranges we gave at Investor Day in terms of a 20% to 25% target for those top 10 states, coming in well at the top end of that range.
David L. Hoffmann
And David, on the new prototype, we will have that ready for scale.
Our next question is from John Glass from Morgan Stanley. Your line is now open.
Thanks very much. On the Dunkin' comps, a couple of questions. One is, can you update us on the afternoon versus morning sort of split from a comp perspective, and if you got any sort of improvement in the afternoon? I think you suggested you might have. What's been driving that? And then when you look at the impact from menu rationalization, how much of an impact was there in the first quarter?
I know at the Investor Day, you said there's a short period of duration of time when it negatively impacts comp. As you rolled that out, have you seen that come in line with your expectations in terms of the duration of negative impact -- shorter, longer? Any sort of help on that would be great. Thanks.
David L. Hoffmann
Yes, yes, thanks for your question. And look, we feathered it in throughout the quarter. So when we're at 100%, we're still on track with how we are talking about it being a 100 basis point impact headwind for us. We've always known that we view this as a bit of short-term pain for long-term gain, but we felt like over the long haul, the investment is a better work environment for our people, a faster and more accurate experience for our customers, and ultimately, better restaurant margins