Dunkin' Brands Group (DNKN) Nigel Travis on Q1 2016 Results - Earnings Call Transcript

| About: Dunkin' Brands (DNKN)

Dunkin' Brands Group, Inc. (NASDAQ:DNKN)

Q1 2016 Earnings Call

April 28, 2016 8:00 am ET

Executives

Stacey Caravella - Director-Investor Relations

Nigel Travis - Chairman & Chief Executive Officer

Paul E. Twohig - President-United States & Canada Dunkin Donuts, Dunkin' Brands, Inc.

Scott Hudler - Vice President-Global Consumer Engagement

Chris Fuqua - SVP Dunkin' Donuts Brand Marketing, Global Consumer Insights & Product Innovation, Dunkin' Donuts LLC

Paul C. Carbone - Chief Financial Officer

Scott Murphy - Chief Supply Officer & Senior Vice President

Analysts

John Glass - Morgan Stanley & Co. LLC

Joseph Terrence Buckley - Bank of America Merrill Lynch

John William Ivankoe - JPMorgan Securities LLC

Jason West - Credit Suisse Securities (NYSE:USA) LLC (Broker)

Zachary Schwartzman - RBC Capital Markets LLC

Matthew DiFrisco - Guggenheim Securities LLC

Keith R. Siegner - UBS Securities LLC

Sharon M. Zackfia - William Blair & Co. LLC

Jeffrey Bernstein - Barclays Capital, Inc.

David E. Tarantino - Robert W. Baird & Co., Inc. (Broker)

Karen Holthouse - Goldman Sachs & Co.

Operator

Good day, ladies and gentlemen, and welcome to the Dunkin' Brands First Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, this conference is being recorded.

I would like to introduce your host for today's conference, Ms. Stacey Caravella, Director of Investor Relations. Ma'am, you may begin.

Stacey Caravella - Director-Investor Relations

Thank you, operator, and good morning, everyone. With me today are Dunkin' Brands Chairman and Chief Executive Officer, Nigel Travis, and Dunkin' Brands Chief Financial Officer, Paul Carbone. Additionally, Paul Twohig, President, Dunkin' Donuts U.S. and Canada; Chris Fuqua, Senior Vice President of Brand Marketing, Global Consumer Insights and Product Innovation for Dunkin' Donuts; and Scott Hudler, Chief Digital 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 Nigel, I'd like to provide the tentative dates for our calendar year 2016 quarterly earnings calls. Our second quarter call is scheduled for July 21, and our third quarter call is scheduled for October 20. We hope that by providing these dates in advance, it helps with your planning for each earnings cycle.

Finally, 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'd like to turn the call over to Nigel Travis.

Nigel Travis - Chairman & Chief Executive Officer

Stacey, thank you very much and thanks to everyone for joining today's call to discuss our first quarter 2016 results. We're pleased with our performance in the first quarter of 2016 and are encouraged by the Q1 Dunkin' Donuts U.S. comp store sales growth, which was driven by growth in beverages and breakfast sandwiches, along with price and favorable weather. We believe these results are evidence that our five-part strategic plan is beginning to work.

Let me pause here and say, as many of you have probably seen this morning, we announced that Paul Twohig, President, Dunkin' Donuts U.S. and Canada, will be retiring at the end of March 2017. It is difficult for me to fully summarize the many contributions Paul has made to our business. He is a legendary operations leader, and we have greatly benefited from his wisdom and insights over the past 6.5 years. One of Paul's many talents is people development. As a result, we have strong operations and development leaders in place, ready to take our brands to new levels of success in the future. I am delighted that we are retaining Paul for another year, while we undertake a search that considers both internal and external candidates. I'm confident that we will be successful in appointing a great successor to fill Paul's shoes. And I want to stress that Paul will be actively engaged in the business until he retires next year. Paul, thank you for your immense contributions.

And now, back to our five-part plan. This plan, which is now part of the daily conversations between our franchisees and the brand is designed to enable us to achieve our 2016 comp store sales guidance of 0% to 2% growth, and to drive long-term sustainable growth. To remind you what the plan is: driving coffee innovation and culture; faster-to-market product innovation; targeted value offerings and smart pricing; increased use of digital technologies; and an improved restaurant experience.

But let me be clear. While we're encouraged by our Q1 results, we're still in the early days of executing the plan. In Q1, we continued to expand our national footprint with the addition of 69 net new Dunkin' Donuts restaurants in the U.S. We also laid the groundwork for future store expansion in the U.S.A. by signing new store development agreements with franchisees in New Orleans, Indiana, Texas, Oklahoma, Arkansas, California and Hawaii. I'm truly excited by the level of engagement we are seeing by our new franchisees on the West Coast. An example of this is their determination to find sites with drive-thrus, even if the cost is higher, an investment that further strengthens the long-term prospects for their business.

We also continue to increase the region presence of our brands through the sale of Dunkin' K-Cups in the retail channel. As a reminder, in the first quarter of 2015, we recognized a one-time upfront license fee in connection with the K-Cup licensing agreement. It contributed approximately $0.04 to adjusted earnings per share. I wanted to highlight this rollover, as it impacts our revenue growth in the quarter.

During the first quarter of this year, we sold more than 78 million K-Cups to the consumers via retailers nationwide. And since we launched in grocery stores last year, Dunkin' Original Blend K-Cups have been the number one selling K-Cups SKU in the premium coffee category just about every week. This probably should not come as a surprise, since for the past eight years, Dunkin' Donuts Original Blend bagged coffee has been the top selling 12-ounce product in grocery stores. And the trend continues in 2016. And we have now exceeded the $0.5 billion annual retail sales threshold for Dunkin' Donuts coffee products in total. That's quite a milestone.

Our presence in grocery stores is further strengthening Dunkin' Donuts position as a powerhouse coffee brand in the U.S. And with the number of single cup households expected to continue to grow, we believe there is considerable long-term upside to our channel business given our success to-date with K-Cups. Further underscoring the national power of our brand, the Harris Poll recently named Dunkin' Donuts, the number one brand in the Coffee and QSR category.

Now, let me go into greater depths on Dunkin' Donuts comps for the first quarter. Comp store sales growth in Q1 was 2%, which was pleasing given that we're rolling over one of our strongest quarterly comp performances in 2015. In keeping with the first pillar of our five-part plan, which is to drive growth by focusing on our coffee credentials and beverage innovation, contributors to Dunkin's first quarter comp performance included strong beverage growth. This growth was led by iced coffee and both hot and iced espresso, which was propelled by the macchiato and flavor innovation. We were excited by the beverage growth in the quarter and we're particularly pleased with the espresso growth as It helps capture a younger demographic in a category that has a high product detachment rate.

Part two of our plan is driving growth through product innovation. And in the first quarter, we introduced one of most successful food LTOs ever, that's the GranDDe Burrito. Additionally, we brought back the Chicken Apple Sausage breakfast sandwich, which we introduced last year and it also performed well. Both are proof that customers want premium breakfast sandwiches as well as premium beverages and baked goods from Dunkin' Donuts. But they also want value, and we worked closely with franchisees over the last few months to develop stronger value offerings. During the first quarter, all of our top markets offered either our local or regional value promotions, and we plan to have several national value offerings through the balance of the year, including our first national price promotion, which we'll launch in May.

I feel it's appropriate that I'd comment on our value approach as I've been asked many questions by the media and investors. At Dunkin' Donuts, we pride ourselves on providing great value all the time, but there is no doubt that we are surrounded by competitors who are fighting a value war. This includes not only the burger chains but also the convenience chains that are focusing on food and beverage to make up the declines in gas and tobacco sales.

Our approach is to be balanced in providing value to our guests, while ensuring we work hard to maintain franchisee profitability, which is so critical to future store development. Remember, our revenue growth comes both from driving comp store sales and development. And last year excluding Speedway closures, we opened 430 net new stores compared to a declining store base by the top three burger chains.

Now, turning to ticket and transaction growth for the quarter. Traffic contributed positive 30 basis points in the quarter, and ticket was 180 basis points. Let me break down the ticket number further. Pricing was approximately 375 basis points, driven by franchisee taking price increases in the quarter as well as a lift in price as a result of the menu board redesign. As a reminder, the new menu boards no longer feature combo orders that included slight discounts. The lift in price was in line with what we saw in our test of the new menu boards. The breakfast sandwich and premium beverage categories also benefited from the new design as guests can more easily see the full breadth of our menu offerings. In fact, guest response to the menu board redesign has been overwhelmingly positive.

Offset in the growth in price that we saw in the quarter was negative product mix shift, which was driven by three things. Firstly, approximately 80 basis points in negative impact as a result of the continued decline in K-Cup and packaged coffee purchases in our restaurants. Two, an increase in overall beverage mix, as well as beverage-only transactions due to our focused efforts on emphasizing our coffee credentials that I spoke about earlier. And lastly, significant declines in hash browns sales also as a result of the elimination of combo offers on the menu boards.

With every downside, we see an opportunity, and we see opportunities in the future for special promotional programs around those deficits I've just laid out.

I'd also like to address weather. Last year in the first quarter, we had record snowfall in many of our core markets. Luckily, we did not experience that again this year. As a result, we estimate that weather was a positive impact to comps by approximately 90 basis points.

Now, on to the fourth pillar of our five-part plan: using technology to drive our business. We now have nearly 18 million app downloads and nearly 4.6 million Dunkin' Donuts Perks members. I'd also like to point out that we've been very opportunistic in the face of a competitor's changes to their loyalty program about pointing out the benefits of our program, including the fact that members of our program earn five points for every dollar they spend and receive a free any-type beverage of their choice once they accrue 200 points. As many news articles have pointed out, this is a strong offer, and members of our Perks program also receive exclusive, personalized special offers to earn bonus points for food and beverage purchases, which are targeted to the individual customer's purchasing profile with the goal of driving incremental business. This is the one-to-one marketing that we've shared with investors for many years.

I want to briefly discuss our philosophy here. We want to drive our overall Perks membership as it increases loyalty to the brand as well as spend, which is particularly important in a very competitive marketplace. We will drive overall Perks membership through a variety of approaches, but we believe one of the biggest drivers will be On-the-Go Ordering as Perks membership is required.

In that regard, we also recently launched a new version of the mobile app that's available for download now. The launch of this new app is a crucial milestone in our plans to broaden the rollout of On-the-Go Ordering as it provides the technology backbone that supports mobile ordering. As we announced this morning, we plan to expand the On-the-Go test to the Metro New York area by mid-May. On-the-Go Ordering enables guests to use our new mobile app to place orders, to pay in advance, and to skip the line in the store.

On-the-Go Ordering is one of the most game-changing initiatives in our history. Not only is it a way to drive membership in our loyalty program, but it is a clear demonstration of our commitment to enhancing convenience for our guests through technology-based initiatives. Later this year, we will test curbside delivery. We believe that curbside can add convenience for many guests, particularly in non-drive-thru locations, which make up nearly half of our system.

Another opportunity available through enhanced technology is delivery, which we have been testing with third-party providers over the past few months. Our goal is to eventually link the On-the-Go and delivery architecture, a step that we believe can be very powerful in providing our guests even greater ease of use and access to the Dunkin' Donuts brand. Consumers are increasingly demanding convenience, and we are challenging ourselves to be a leader in this area, not only here in the U.S., but through the many tests we are carrying out in many markets for both brands internationally. When you total all this together, I believe we have a very clear digital vision.

Finally, the fifth pillar of our five-part strategy: an improved restaurant experience. This quarter, we made steady progress with our restaurant operations. We're seeing better merchandising, friendlier service, more active sampling, better product availability, and crew members are better-prepared for promotions. All of which has led to a modest increase in our guest satisfaction scores. But much work remains to be done, and restaurant operations is an area where we'll always be striving for improvement.

Another highlight of the first quarter is the continued impressive performance by Baskin-Robbins in the U.S. Despite rolling over nearly 9% comps, Baskin was able to grow comps by 5% in the first quarter this year. I continue to be thrilled with the performance of Baskin-Robbins in the U.S., both stand-alone and multi-brand. And I'm confident that our plans for the balance of the year will enable us to maintain the momentum. The brand's comp store sales growth was fueled by all major product categories. The cups and cones category led the way, given by the continued success of the double-scoop trade-up program, and our new Warm Ice Cream Cookie Sandwich (sic) [Warm Cookie Ice Cream Sandwich] (15:54) platform which launched on March 1.

Growth was primarily driven by transactions. That's the good news. Weather was a contributor to growth as we estimate it accounted for approximately 300 basis points of the comp. And online cake ordering continues to be a great success. Online orders were up greater than 20%, and by the end of the quarter, sales by online orders hit 10 million, an impressive feat in only the first two years of the program. I believe there is a long-term upside from the use of technology in the Baskin-Robbins U.S. business. And online cake ordering is a clear demonstration of the potential power for growth.

Now on to International. Since our last earnings call, I've traveled thousands of miles both domestically and internationally. And while both brands had comp declines in the first quarter, I truly believe we're still in the very early stages of capitalizing on our international opportunity for both Dunkin' Donuts and Baskin-Robbins under Bill Mitchell who is adding real financial and operational rigor to International in the same way he did in Baskin-Robbins U.S.

Dunkin' Donuts International struggled as a result of challenging comp store sales hurdles in Korea, as well as rolling over big store openings in Europe. When we open restaurants in new international Dunkin' markets, we see a huge donut sales surge in the early months, very similar to what we've experienced in the U.S. This drives unsustainable sales levels. Domestically, we've developed a suite of tools and tactics to address this and to smooth out sales as the donut enthusiasm levels off.

Now, we still have a lot to learn about how to tackle this internationally. We're using a lot of the similar tactics to the U.S., but there are also unique market dynamics in the new countries where we open that we need to address.

Finally, on Dunkin' International, I returned from China recently, very enthusiastic about our opportunity in that country where we have two very capable large franchisees.

As for Baskin-Robbins International, we faced poor weather and economic pressures in key markets such as Korea, Saudi – yes, you heard that, Saudi Arabia had poor weather, sandstorms and rain -- and Malaysia. However, one really encouraging aspect for the quarter was Baskin's improved performance in Japan.

In Q2, we are focused on changing the momentum of Baskin-Robbins International with greater advertising spend, although I think the new economic realities in different parts of the world of low oil prices and a high dollar will continue to be challenges around the world. We are also looking at a variety of ways to use technology to drive the brand, from mobile and delivery, as I mentioned earlier, to even more unconventional ways of delivering ice cream such as through e-commerce.

Finally, I'd like to highlight our overall strong financial performance in the first quarter. As I said earlier, we were rolling over the one-time upfront fee from the K-Cup licensing agreement, but we still delivered double-digit adjusted earnings per share growth. And as a result, we remain on track to deliver our full-year growth targets.

And with that, I'll hand over to Paul.

Paul E. Twohig - President-United States & Canada Dunkin Donuts, Dunkin' Brands, Inc.

Thanks, Nigel and good morning, everyone. Now, let me talk about store development results for the first quarter. In Q1, Dunkin' Donuts U.S. franchisees opened 71 net new restaurants versus 80 net new units last year, with both periods, we are excluding two Speedway closures. For the quarter by region, 21% of net development was in the core, 30% in the established markets, 25% in emerging, and 24% in the West. And those percentages are all excluding the two Speedway closures.

In the first quarter, Baskin-Robbins U.S. had 11 net store closings versus three net store closings last year. Baskin-Robbins International had 42 net store openings, versus 25 net store openings last year, and Dunkin' Donuts International had 14 net store openings, versus 21 net store closings in Q1 of the prior year.

Before I move on to our financial results, I'd like to briefly cover Dunkin' Donuts U.S. restaurant-level returns. Now that we have a full year of data in the performance of stores that opened up in 2014, we can confirm that the West and emerging cohort exceeded 20% cash-on-cash returns. It's still too early to discuss the 2015 cohort given the large number of stores that opened in Q4. And we will provide more color on the 2015 cohort's performance later in the year.

Earlier, Nigel mentioned unit economics and with several minimum wage initiatives being launched around the country, our franchisees are concerned about labor cost. We remain very focused on helping them respond to these challenges through initiatives such as simplification, supply-chain cost savings, energy management and lowering capital investments for remodels.

And now let me turn to our financial results, revenues for the first quarter increased 2.1%, compared to the prior year due primarily to increased royalty income as the result of system-wide sales growth and an increase in sales of ice cream and other products. These increases were offset by a decrease in other revenues due primarily to a one-time up-front license fee recognizing connection with the Dunkin' K-Cup pod licensing agreement received in the prior year first quarter, which Nigel referenced earlier.

Operating income and adjusted operating income for the first quarter increased 1.6% million or 1.9%, and $3.6 million or 4.2%, respectively, from the prior year period, primarily as a result of the increases in royalty income as well as an increase in franchise income, good controls on G&A, and the gain recognized in connection with the sale of real estate. These are offset by the decrease in other revenues as discussed earlier.

Operating income in the prior year period was favorably impacted by a reduction in the legal reserves for the Bertico litigation and related matters of $2.8 million. Net income for the first quarter increased by $11.5 million or 45% compared to the prior year period, primarily as a result of the $20.6 million loss on debt extinguishment and refinancing transactions recorded in the prior year period as well as a $1.6 million increase in the operating income. These were offset by $7.9 million increase in income tax expense and additional interest expense of $2.7 million driven by the additional borrowings incurred in conjunction with the securitization refinancing transaction that we completed in January of 2015.

Adjusted net income for the first quarter increased by $0.4 million or 1% compared to the prior year primarily as a result of the $3.6 million increase in adjusted operating income, offset by increases in interest expense and income tax expense. Diluted earnings per share increased by 60% to $0.40 for the first quarter of 2016 compared to the prior year period as a result of the increase in net income, as well as the decrease in shares outstanding.

Diluted adjusted earnings per share increased by 10% to $0.44 for the first quarter of 2016 compared to the prior year period as a result of the decrease in the shares outstanding as well as the increase in adjusted net income. The decrease in shares outstanding from the prior year period is due primarily to the repurchase of shares offset by the exercise of stock options.

During the first quarter, we received nearly 500,000 shares upon the final settlement of the accelerated share repurchase agreement that we entered into in October of 2015. Under the agreement, we repurchased the total of approximately 3 million shares at a weighted-average cost per share of $41.51. Also, during the first quarter, we entered into and completed an additional accelerated share repurchase agreement for $30 million, resulting in the repurchase of approximately 700,000 shares at a weighted-average cost per share of $42.72.

At the end of the first quarter, we had a debt-to-adjusted-EBITDA ratio of 5.2 to 1. Our effective tax rate for the quarter was 38%. And during the quarter, we had $41 million of free cash flow. We ended the first quarter with $291 million in cash and short-term restricted cash on our balance sheet. And of this $291 million, $130 million represents cash associated with our gift card programs and marketing fund balances. And we used $27 million in cash during the quarter to pay our Q1 cash dividend to shareholders.

In our press release this morning, we reiterated each of our targets regarding 2016 performance, and let me review those now. We expect Dunkin' Donuts U.S. comp store sales growth of between 0% and 2%. We expect Baskin-Robbins U.S. comp store sales growth of between 1% and 3%. We expect that Dunkin' Donuts U.S. will add between 430 net new restaurants and 460 net new restaurants, excluding the Speedway closures, and we expect that Baskin-Robbins U.S. will add between 5 new restaurants and 10 new restaurants.

Internationally, we target opening approximately 200 net new restaurants across the two brands, and we expect net income of equity method investments slightly less than 2015 full-year results. We expect revenue growth of between 4% and 6%, adjusted operating income growth of between 8% and 10%, and adjusted earnings per share of $2.20 to $2.22 on a 53-week basis. The adjusted earnings per share range assumes 94 million shares outstanding and a 38.5% tax rate.

And as a reminder, fiscal year 2016 is a 53-week year for us. The target ranges for revenue and adjusted operating income growth are applicable on both a 52-week and 53-week basis. And the impact of the 53rd week on adjusted earnings per share is approximately $0.03, which is included in our per-share range of $2.20 to $2.22, again on a 53-week basis.

And with that, I'd like to turn it over to the operator for Q&A.

Question-and-Answer Session

Operator

Thank you. And our first question comes from John Glass of Morgan Stanley. Your line is now open.

John Glass - Morgan Stanley & Co. LLC

Good morning. Nigel, maybe you can talk a little bit more about your decision to change the menu boards and remove combos? First of all, I guess, what was the motivation behind it? And I guess the question really is, given you want to emphasize value more that takes away value. So, what was your thinking there? And then can you talk about what happens to mix going forward? It seems like the higher single beverage incident is probably a result of that. You talked about hash browns and that only happened partway through the quarter. So, does that get amplified in the coming quarters just because we haven't seen the full effect of it?

Nigel Travis - Chairman & Chief Executive Officer

Okay. So, a lot involved in that, John. So, I'll start and then I'll get my marketing colleagues to weigh in. I think the first thing I would say is we are constantly looking to improve our restaurants and effectively to make them a better experience for our consumers. So, the overall driving motivation behind this is to make our menu, which just to reiterate something I've said a lot in the recent months is available all day and has been for many years, to make it clearer to our guests, to make sure they fully understand the options.

But if you look at our menu, it's basically, I would say broken down into four categories. It's very high margin products, which is beverages that is very closed in terms of margin because it's high, sandwiches and then you have bakery and then you obviously have merchandise, things like K-Cups and cups and T-shirts and assortment like that. So, we wanted to focus on the high margin products. I think I would say based on results of the first quarter and as I said in my remarks, that was a success. So, that was it. We also have digital menu boards in most of our stores now and I think our feeling was we needed to upgrade the look and feel.

So, that's my opening. I'm going to pass it over to Scott Hudler, who managed the whole project, and I'd also say he's just been promoted to Chief Digital Officer, U.S.A. So, Scott.

Scott Hudler - Vice President-Global Consumer Engagement

All right. Thanks, Nigel. So, John, I think just echoing what Nigel said, a couple of things. One of the things we've heard from our guest was that the old combo board structure was somewhat difficult to order from. They didn't really understand the flexibility that they had for ordering. So we wanted to make it cleaner, easier read for our guest and we feel that this new menu board design accomplished that goal.

And then secondly, echoing again what Nigel said, driving the priority categories, as we think about how this design ties back to our five-part plan. One of the biggest drivers is driving the coffee culture and coffee sales. We wanted to give specifically the specialty the espresso category more of a prominent positioning on our board, and we saw that in the results, not only from the research we did with guests but also from the results in Q1. And then...

John Glass - Morgan Stanley & Co. LLC

Can I just follow up. To be clear, it raises the pricing, right, because you're taking away a discount just mechanically, and it hurts mix because you get less attachment? Is that the way we should think about it? And will that be more exaggerated in the second quarter versus the first or is this kind of what you expect going forward?

Nigel Travis - Chairman & Chief Executive Officer

Okay. So, John, I'm going to pass over to Chris. This was always my plan to answer your question, because he looks after – if you like the pure marketing thing and we've also promoted him. So Senior Vice President of our Marketing and Consumer Insights, Chris Fuqua.

Chris Fuqua - SVP Dunkin' Donuts Brand Marketing, Global Consumer Insights & Product Innovation, Dunkin' Donuts LLC

Thanks, Nigel. So, John, I know we talked about this a couple times in the past. I think you're going to continue to see impact on mix from K-Cups going forward, but hash browns coming out of the combos certainly has an impact on mix. I think you'll probably see something similar in the quarters going forward, but we're also working on what are the food attachment items that we can put in place with our beverages that are doing very well.

So this whole strategy is about driving beverages. It's about making sure that we can truly be a coffee company going forward. And we're incredibly happy with the beverage growth that we're seeing. Next step will be the food items that will have a positive impact on mix going forward.

Nigel Travis - Chairman & Chief Executive Officer

And just to finish on this (31:52), I would say that in terms of customer reaction, as I said in the script, it's been fantastic. And at the last count, we've had seven comments about it.

John Glass - Morgan Stanley & Co. LLC

All right. Thank you.

Paul C. Carbone - Chief Financial Officer

Great. Thanks, John. Next question, please.

Operator

Thank you. Our next question comes from Joseph Buckley of Bank of America. Your line is now open.

Joseph Terrence Buckley - Bank of America Merrill Lynch

Thank you. Just to follow up on kind of a value question. I think you said pricing was 3.75% in the quarter. So talk a little bit about that. I know you've been trying to manage that to some extent. I would imagine if the beverage mix is up, profitability for the franchisees is up. So how do you see yourselves managing that versus all the value messages that are out there in QSR right now?

Nigel Travis - Chairman & Chief Executive Officer

Joe, good morning. And great question, and one that we've obviously thought a lot about and we talk to our franchisees a lot about. So I think your question is a major question that we're delighted to answer, because I think we're really making progress. Yes, on the surface, the pricing seems high, and I would actually say it seems too high. We continue to talk to our franchisees about pricing. And I think we're making huge strides in them understanding the effects of pricing.

Remember, they control pricing, not us, so it's about influence. But I'm beginning to see a real breakthrough here. They're beginning to understand what pricing is about. The question that John asked about the menu board clearly compounded that somewhat. We thought long and hard about whether to do it and when to do it, and we concluded it's better to do it and the timing, and I think so far the results prove that to be successful.

So we will continue to point out to our franchisees when we think they're overpriced. We've got all kinds of tools that we've got now. We're actually developing brand new, very sophisticated tools to help them, and we will continue to make sure they understand pricing.

Now, your question, how it relates to value. Firstly, we are very focused on franchisee profitability. No one has ever taken their focus off that because, as I've said in my remarks, we are conscious we want to have great unit economics for our stores because development is probably the most important aspect of our revenue growth. I contrast us, as I've said in my remarks, from the burger chains who, because they have essentially no development, they have to focus on comps. So driving value and driving deals to drive their comps is very important to them.

In terms of that, we also believe value is important and we've just come off a very important monthly meeting here. Franchisees are excited about our approach to value. They're committed to it. We've talked about 2017 in depth and the enthusiasm and understanding about driving transactions, which is what it's all about, I think, has never been higher in this company.

Joseph Terrence Buckley - Bank of America Merrill Lynch

Thank you.

Paul C. Carbone - Chief Financial Officer

Great, thanks, Joe. Next question, please.

Operator

Thank you. Our next question comes from John Ivankoe of JPMorgan. Your line is now open

John William Ivankoe - JPMorgan Securities LLC

Hi. Thank you. Obviously understanding that fiscal 2016 development is firmly in place, I think there were two different comments made on the conference call that I wanted to see what the meaning of them was. The first, Nigel, I think you said the West Coast franchisees are really looking for drive-thrus, even at an expense cost. That does take more time, especially in California, a lot more time in California, maybe relative to some other markets you've been in. So is there a signal there in terms of the pace of West Coast development despite the very good returns that you got in 2014?

And secondly, with not only current wages but the anticipation of much higher wages, is that influencing your franchisees' pace of future development, especially as we begin to pencil in 2017 and perhaps even 2018?

Nigel Travis - Chairman & Chief Executive Officer

Okay. Wow, you guys keep coming up with big questions today. So, firstly, I'll start and I'll let Paul Twohig to come in. I actually spent quite a bit of time in Los Angeles recently talking to our franchisees, and I must say, I came away absolutely as enthusiastic as I could be by their spirit, their focus on development, and the point which -- John, your listening skills are clearly superior -- is that they really understand that drive-thru is very important for convenience. We kept being told that we wouldn't find drive-thru sites in the West, in California in particular. We found them. Now, some of them are old Burger Kings or other fast-food drive-thru locations, and we did have to pay a little bit more. But franchisees, as I've repeatedly said, don't necessarily look at it on a cash-on-cash return. They look at how they can build their business for the 20 years which is the life of their franchise agreement, and they believe drive-thrus will become even more important in the future, and that's why they took on that higher commitment. It also meant they could grow stores at a faster and earlier rate because they found locations that were perfect and didn't have to be built out.

In terms of minimum wage, clearly there's a lot happening. For those who are not totally familiar with it, obviously there's a lot of discussion going on in the national political front about federal minimum wage, and then you've got state minimum wage. And you have the Hillary and discussion about $12 or $15. But in California, they came up with a plan to take it to $15 by 2022. In New York, they came back with a revised plan. The original plan which, just to remind you, accelerated the minimum wage in New York City by 71% over three years, is essentially still in place, but does not discriminate against fast food.

So many of our competitors are now included in the new standards that New York has come out with. We have and we are probably, I would suggest, ahead of anyone else, a full-fronted plan to tackle minimum wage across the country. We've talked to our franchisees about it. And just to link back to the start of your question, we feel pretty good about the unit economics that we saw of our whole system in Q1. Paul, I've probably taken all your thunder away. Do you have anything to add?

Paul E. Twohig - President-United States & Canada Dunkin Donuts, Dunkin' Brands, Inc.

No. Good morning, John. And thanks, Nigel, for answering the question so thoroughly. No, we've been fortunate in California to be able to find almost entirely drive-thru sites, couple of them are non-drive-thru but have done exceedingly well despite that. Certainly on the minimum wage, California good news is there's clarity. Everybody now knows what they have to deal with, and I think many times that's all the franchisee is looking for is to understand what are the rules and what's the cost going to be. But no question as it rises, franchisees may be look twice. We've seen no slowdown per se in California, and we're right on budget for growth, and we're headed towards Northern California right now and expect to have some exciting openings occur there. So, so far, so good. And, yes, that's probably it.

John William Ivankoe - JPMorgan Securities LLC

And if I can, just maybe to revisit the overall premise of the question was, are you in a place where you're considering those constraints? And it sounds like neither one really is a constraint. Where that pace of development from what's already an extremely high absolute number at 430 net new restaurants to 460 net new restaurants. Can that continue to step up in 2017 and beyond? When you look at all the different pieces of that puzzle in terms of the number of stores that you should be opening, can that number continue to rise annually?

Nigel Travis - Chairman & Chief Executive Officer

Okay. So, John, the way I would approach this, clearly California said, I'll lead, New York followed, we don't know what other people are going to do or other states are going to do. We continue to watch it and to lobby actively. I just want to repeat our position. We believe the minimum wage should go up on a state-by-state basis. We've always said that. But we don't want it to accelerate at a rate that is unsustainable for the people who are really important to us, which is our franchisees and building their businesses. We don't intend to sit down and look at the guidance for 2017 for several months yet. I think a lot's going to happen politically and through the election process. So I think this year, we will probably decide on our guidance for 2017 later than we normally do as a result of that.

John William Ivankoe - JPMorgan Securities LLC

Understood. Thank you.

Nigel Travis - Chairman & Chief Executive Officer

Thanks.

Paul C. Carbone - Chief Financial Officer

Thanks, John. Next question, please?

Operator

Our next question comes from Jason West of Credit Suisse. Your line is now open.

Jason West - Credit Suisse Securities (USA) LLC (Broker)

Yes, thanks. Just one clarification and then a bigger picture question. On the menu pricing, the 375 basis points, could you guys break out how much of that was from the menu board change versus just pricing increases across the menu versus the 2.2% I think in the fourth quarter?

And then secondly, I'm based here in Boston. I've been trying out the new app. On the On-the-Go, it seems to work really well, but I did have to go and download a new version of app to kind of get that started. And I'm just wondering if you guys are concerned about people's willingness to go and get the new app for the ones that have already downloaded the old app, and how that transition is going would be helpful? Thanks.

Paul C. Carbone - Chief Financial Officer

Yes, Jason. It's Paul. Thanks for your question. I'll take the first part and then give it to Scott Hudler on the app. So it's nearly impossible to bifurcate the pure menu pricing and the elimination of the combos out of the 375 basis points. We tried and we couldn't really get a good look at it. So, in total, it was 375 basis points. We were coming off about a 220 basis-point price increase in the fourth quarter. So we did step up. We know the franchisees took some pricing in the menu board, as Nigel mentioned. But, again, we couldn't dissect the menu board from combo impact on the 375 basis points.

Nigel Travis - Chairman & Chief Executive Officer

Scott?

Scott Hudler - Vice President-Global Consumer Engagement

Yes, and on the new app, Jason, it's Scott Hudler. So I'm glad to hear you're having a good experience. And the version that you have is the testing app, so the foundation that we've been using to test on-the-go both in 100 stores in Portland, Maine and 28 stores here on the Boston area. Completely new platform, completely new infrastructure. So we have been sending notifications to transition people to use and the old app will be sun-setting in the future, and then we will just have the single On-the-Go app.

Jason West - Credit Suisse Securities (USA) LLC (Broker)

Great.

Paul C. Carbone - Chief Financial Officer

Thanks, Jason. Next question, please.

Operator

Our next question comes from David Palmer of RBC Capital Markets. Your line is now open.

Zachary Schwartzman - RBC Capital Markets LLC

Hi. It's Zachary Schwartzman in for Dave. Do you guys view the comparisons will be meaningfully easier in the second half of the year from lapping the Dunkin' K-Cup launch in grocery and CPG channels in May of last year?

Nigel Travis - Chairman & Chief Executive Officer

So I'll answer that in a couple of ways. So, mathematically, yes, the comparisons are easier as we get to the back half of the year. So Q2 is our highest rollover. We did a 2.9% last year and then Q3 is 1.1%, and Q4 negative 0.8%. So mathematically, they certainly get easier in the back half of the year.

And then, yes, I also believe once you roll over the launch in May that will make it easier. With that said, we're one quarter into this. We maintain the zero to 2% guidance. We feel good about Q1 and it's the beginning of the year. We're off to a good start. So that's why I say, yes. The math does get easier, but we're just one quarter in.

Zachary Schwartzman - RBC Capital Markets LLC

Great. Thank you.

Paul C. Carbone - Chief Financial Officer

Thanks. Next question, please.

Operator

Our next question comes from Matthew DiFrisco of Guggenheim Securities. Your line is now open.

Matthew DiFrisco - Guggenheim Securities LLC

Thank you. I just want to reconcile sort of the comp. I guess, you said traffic was 30 basis points, weather was a 90-basis-point aid. So, in the quarter, you had a little bit of a negative downdraft on traffic. I was curious if you could just describe where you saw that? What dayparts? And then looking at the guidance with those easier year ago compares, with the easier or the benefit of having the 80 basis points from K-Cup dissipate as the year goes on, the zero to 2% comp guidance looks like it's somewhat conservative? I wonder if that's indicative of potentially this ongoing trend of – or is the negative traffic sort of accelerated. Are you seeing that choppiness in some other restaurants might be?

Paul C. Carbone - Chief Financial Officer

Yes. So, Matt, good question. I'm going to start and then maybe pass it to Chris as well. And that's a combination of retail metrics and then the weather. So transactions were plus 30 basis points for the quarter. Weather was plus 90 basis points to the quarter. Your point being you usually see weather impact to transactions. So net of the weather, our transactions' negative. And I think, I'll start with overall I kind of agree with you that weather does impact transactions.

To your next question of then if transactions were negative, what daypart. Hard to break that. So now you're asking us, and if I'd ask the team to break down weather impact by day part, very difficult to do and probably more academic than not. So I don't have weather by daypart to then bring back to transactions.

And then I would say lastly, and again, I'll continue with your logic for this that weather impacts transactions. Q4 transactions were down negative 1%, so negative 100 basis points. With your logic, again, transactions will be down 60 basis points. So sequentially, actually, while still negative, again, using that logic, it was an improvement from Q4. So I'm happy with that.

Lastly, and then I'm going to let Chris give his comments. Yes, the back half of the year is, again, easier rollovers. That being said, we maintain the 0% to 2%. We're one quarter in. The comp was 2%. It's within our range of zero to 2%. And as we go further in the year, if we believe there is upside, we will share that with you, and obviously the other way as well. But we maintain the zero to 2% guidance. Chris?

Chris Fuqua - SVP Dunkin' Donuts Brand Marketing, Global Consumer Insights & Product Innovation, Dunkin' Donuts LLC

Thanks, Paul. So Paul and I talk about this all the time what's the trend on transactions. Nigel is laser-focused on making sure that we're always looking at driving transactions. It's a key measurable for how we think about the business. That being said, I'll go back to the idea, we are transitioning to a world where beverages are at the center of how we're moving forward. We're incredibly happy with our beverage growth, and we're really excited about the things that we have down the line.

As I look at transactions, I think you're going to see them up and down. Our business can be impacted by whether because of the large number of stores that we have in part of the country. But we know we need to get beyond the weather being something that impacts the business. And we have to continue to grow. We think beverages are the way out of this or are the key to growth in the future. And we're excited about the results that we've seen to-date. But I would also want to echo Paul's statement, we guided zero to 2%, we're through one quarter of 2016, and we're through one quarter of implementing our new plan, and we are being very patient with how this is implemented across the system.

Matthew DiFrisco - Guggenheim Securities LLC

Okay. I guess just specific on the dayparts, I wasn't necessarily asking weather where it affected the dayparts. More so, the comp trend. Was there anything to call out as far as pre-10:00 AM, post 10:00 AM, if you said that in your prepared remarks, I'm sorry I missed that.

Paul C. Carbone - Chief Financial Officer

Sure. Okay. Maybe I misunderstood. So on a sales comp, not a transaction comp, on a sales comp, we were positive in both morning and rest of the day, so our morning ends at 11:00. Actually, the morning was stronger than the rest of day. But that's how it broke out, both dayparts were positive.

Matthew DiFrisco - Guggenheim Securities LLC

Excellent. Thank you.

Paul C. Carbone - Chief Financial Officer

Thanks. Next question, please?

Operator

Thank you. Our next question comes from Keith Siegner of UBS. Your line is now open.

Keith R. Siegner - UBS Securities LLC

Thank you. A question on the fifth pillar and on the service experience in the store and some of the efforts here to help those scores get better, can you talk about some of the efforts there? How is the menu simplification process benefiting the service experience? What about new cup marking procedures? In the test in Boston and in Portland, how is mobile affecting that service experience? Can you give us some color, even if anecdotal there about what you're seeing in the stores, anything along those lines about that fifth pillar would be great. Thanks.

Nigel Travis - Chairman & Chief Executive Officer

Okay. So, I'm going to kick off and then pass it over to Scott Murphy who, just to remind you, runs all our operations, reporting to Paul Twohig. I think, at the time we've made huge strides there. We talked about it before, I've talked about measurements of improving it over the last few years by about 30%. We need to take that to a new level. Scott's very focused on it. So, Scott.

Scott Murphy - Chief Supply Officer & Senior Vice President

Yes. Great. Thanks, Nigel. And great question. It's something we focus on every day. So improving the restaurant experience, I think of it in four different components. Certainly, speed is one of our core competencies and something we compete on every day. So it's about having the right people in the store. It's about having the right equipment. It's doing the cup marking to ease the crew actions to deliver it the right way. It's around window execution, so we do 12 windows a year with LTOs. So how do we make sure those crew members are prepared? We've got the right POP up and we're right and tight heading into the new LTO window.

And then it's around product availability, so making sure that we have all the right products, whether it's the bakery products in the back case, whether it's a new beverage or a GranDDe Burrito, so that we can meet that consumer need. And that's about using tools to plan our demand and be prepared for it. And then ultimately how do we handle guest recovery, if something does go wrong? So how do we empower our managers and our crewmembers to make it right? It's all underpinned with a people-first culture to make sure we're doing the right training, we're doing the right on boarding, we're managing turnover of our people to create that right culture in the network.

And then I'd say On-the-Go ordering mobile is a huge piece of the solution for us. So when we think about the average transaction, maybe about 30% of that is the actual ordering process, ringing it up and transacting it. With the On-the-Go platform, we actually shift that outside of the restaurant. That helps with order accuracy, it helps with throughput and actually help with profitability of the restaurant.

Keith R. Siegner - UBS Securities LLC

Okay. Just as one quick follow-up on that then because that order accuracy is such an important part of this process. In those test markets, can you give us some indication, like where has order accuracy gone from to, just even directionally, please? Thanks.

Scott Murphy - Chief Supply Officer & Senior Vice President

Yes. I think it's certainly too early to say with the mobile app. I'll tell you with cup marking, it's probably still too early, but it's a huge part of our building the coffee culture, our DD commitment of how we get that right, and we're seeing some improvements, but too early to show any numbers on that.

Nigel Travis - Chairman & Chief Executive Officer

Yes. I just want to comment. On-the-Go ordering, we have gone through a very planful process. We started in Portland, Maine, which we didn't think would stress the system too much. We actually added our own stress testing to it. We then moved to 30 stores in Boston and now moving to New York is a very important part of our testing.

And as you suggest, we will be out there looking at all the measurements to make sure it's doing what we think it should do, but we think the benefits of this multiple, I won't go through them again because Scott covered them earlier, but we will be measuring it, and this New York test is very critical and it's a very critical stage in getting to national.

Paul C. Carbone - Chief Financial Officer

Great. Thanks, Keith. Next question, please?

Operator

Thank you. Our next question comes from Sharon Zackfia of William Blair. Your line is now open.

Sharon M. Zackfia - William Blair & Co. LLC

Hi. Good morning. Paul, just a couple of quick questions. I wanted to clarify the gain on the sale of the real estate. I didn't know if that was the $2.6 million that was in the cash flows? And then secondarily, I don't remember ever seeing unfavorable mix or less renewal income in the Dunkin' Donuts U.S. commentary before in the press release. Could you go over kind of what those refer to?

Paul C. Carbone - Chief Financial Officer

Yes. So two things. And let me just flip to the income statement. So on the gain, the gain on the P&L for the sale of real estate was about $1.7 million. That's the gain, and then you do see that on the cash flows, the proceeds from the sale of real estate. $2.7 million is the cash, right, but the gain obviously goes in the P&L.

On the negative development mix, so it's two things. The first is last year our net development was plus 80 restaurants, and this year it's plus 71 restaurants, so down 9 restaurants, right. And that's net so it's really gross obviously that drives the income. So it's down 9 restaurants. And then where those restaurants opened. So here's the good news and the bad news. The good news is we're opening less restaurants in core and more out of core, so that's good. Here's the bad news: when I open a restaurant in core, I collect a lot more in upfront fees per restaurant than I do outside of core. So that's the bad news. So that's the negative shift. So, again, we're shifting out of the core, which I think investors and we all want, but that does have that negative shift. And that is what was referenced in the press release in the Dunkin' U.S. P&L. Does that help?

Sharon M. Zackfia - William Blair & Co. LLC

Yes. Thank you so much.

Paul C. Carbone - Chief Financial Officer

Good. Thanks, Sharon. Next question?

Operator

Thank you. Our next question comes from Jeffrey Bernstein of Barclays. Your line is now open.

Jeffrey Bernstein - Barclays Capital, Inc.

Great. Thank you. Just two related questions, I guess, on the Dunkin' U.S. side. One, I'm just wondering, Nigel, it seems like you mentioned couple times it was still too early to call a sustainable trend with the reversal, unfortunately, you've seen with those comps. But I'm just thinking broadly speaking with McDonald's all-day breakfast still doing well and strength across broader quick-service from value and bundling still apparent, and strength at Starbucks and the convenience stores, and it all still seems like there are the same headwinds that they were the last couple of quarters. I was just wondering from your vantage point, besides the weather, what would you say was the biggest factor that changed your reversal of course?

And then my other question was just on the – I think you mentioned a first national value promotion, I think you said with a price point in May. So I'm just wondering if you could talk a little bit about maybe what were your concerns in the past, why you haven't done that before or what the implications might be. Any color on that price point promotion will be great.

Nigel Travis - Chairman & Chief Executive Officer

Yes. Okay, so one of the things, I think, that happens in most companies is you hit a comp wall. Fortunately, our comp wall wasn't as big as many others, and I just saw a piece of research by an analyst the other day that went through every major company and shows that they all hit negative comps at some stage. And I think what it does it makes you sit back and reflect, and we did with our franchisees, and the result was the five pillars of our strategy, which, as I've said earlier, people talk about all the time. I've been to some small markets like Little Rock and New Orleans, they talk about the five pillars.

I mean, that is a huge move forward because I think what it's done is give us a strategic framework that everyone can relate to. So my quick answer to your first question is we've now got a framework that everyone buys into. And since the end of the year, we've done a lot of work to really make sure people understand it. We've also done a lot of work. We've had consultants in different areas working with us, and I'm beginning to become pretty confident over the long term, despite those headwinds you mentioned. The headwinds of value: the question I would ask is it's tough to comp against aggressive value. We are trying to find strategies that work and make us both differentiated and also build the business for the long term.

Chris said very eloquently all about coffee. That's very important. Innovation is about finding products that we can bring in that will give us extra attachment and, hopefully, also bring in some new customers. Digital is huge, and I would suggest, apart from one other major competitor, we're second in the digital arms race. That is a huge advantage. And I think elements of all helped us in the first quarter.

In terms of national pricing, clearly the country has different prices. And that's because America is a big country. So, again, to the national price point, it's taken some time. I think everyone's on the same page now. We also had a few technology hurdles we had to get over. That's all fixed now. So, Chris, do you want to talk about it.

Chris Fuqua - SVP Dunkin' Donuts Brand Marketing, Global Consumer Insights & Product Innovation, Dunkin' Donuts LLC

Sure. So I would add a couple things to what Nigel said. I think we do have some of the same headwinds. And I think it speaks to the power and the strength of our brand and the relevance we have as a company. Dunkin' Donuts is something people are excited to talk about, and it's something that's been here a long time. It's going to be here and be successful for a long time.

On the national price point, we had more than 90% of our system on some rather aggressive value offers in the first quarter.

They were regionally appropriate or locally appropriate to help drive traffic in local areas. A few times a year as part of our third pillar, which is targeted value and smart pricing, we're going to use the national ad fund to do national price-pointed promotions. In May, we have a $1.99 Coolatta offer that really helps us kick off the frozen and cold beverage season in a smart way. It gets people in to look at some new products that we have coming out. And we believe that a few times during the year, we're going to use the full power of the national ad fund to drive a similar type of price point in every store in the system. Our franchisees are buying into the approach. And we're very excited about the impact that we think it'll have on the business.

Nigel Travis - Chairman & Chief Executive Officer

And that is the first national price promotion, I think, in something like eight years, nine years.

Paul C. Carbone - Chief Financial Officer

Great. Thanks. Thanks, Jeffrey. Operator, we're coming to the top of the hour, let's do two more questions, please.

Operator

Thank you. And our next question comes from David Tarantino of Baird. Your line is now open.

David E. Tarantino - Robert W. Baird & Co., Inc. (Broker)

Hi. Good morning. My question's on franchisee cash flows, and I think it was referenced a couple of times as being the best indicator for the overall health of the system. So, I was wondering if you could give us an update on what the cash flows look like on a year-over-year basis in whatever most recent periods you're willing to talk about.

Paul C. Carbone - Chief Financial Officer

Yeah. Thanks, David. So, what we talk about here is EBITDA, not necessarily cash flows, but we use that as a proxy. Here's what I'd tell you. As we look both Q4 into Q1, EBITDA dollars in percents are both very high. I don't know if they're the highest they have been in the past. I don't have that on my fingertips. But if they're not the number one, they're in the top one or two of past periods.

So, that's good news, right, because franchisee profitability is so important. And you would expect that. Again, if you look at our comp, even of the plus 2% with 375 bps coming from pricing, obviously the flow through on pricing is very high.

So, franchisee profitability has maintained and grown, again, and I think Nigel mentioned this, it's given us a little bit of a challenge of getting them focused on transactions, right, because their profitability is growing. But it has maintained and grown over the last six months which, again, is very important to us and really driven by the makeup of the comp.

Nigel Travis - Chairman & Chief Executive Officer

Yeah. I think what I'd say is franchise profitability is very, very important. But one of the things I think we've done a great job in the quarter is educating them on the fact that transactions is the lifeblood that will build their business over the long-term. And I think to quote the words I used in the last release, the hearts and minds have moved not only from comps but to transactions. And I came away from this marketing meeting, I referenced yesterday, really excited that everyone is on the same page. And in a franchise system of 1,100 franchisees with all kinds of different experiences of use, that is a huge achievement.

David E. Tarantino - Robert W. Baird & Co., Inc. (Broker)

Great. That's very helpful. Thank you.

Paul C. Carbone - Chief Financial Officer

Thanks, David. And we'll take the last question, please?

Operator

Thank you and our last question comes from Karen Holthouse of Goldman Sachs. Your line is now open.

Karen Holthouse - Goldman Sachs & Co.

Thanks. Another question on the pricing – on price. Just what's sort of the outlook for the rest of the year, clearly you'll keep the rolling off of bundles piece for the full year? But then sort of the underlying price, even if it's a little bit hard to disaggregate between the two? Are you getting a sense franchisees are comfortable at the level of price they have, or you are worried if they've taken too much? You feel like they have room to be a little bit more aggressive? Just any thoughts there?

Paul C. Carbone - Chief Financial Officer

Yes. Thanks, Karen. So, like we said, we are 375 basis points in Q1. We are looking at about 300 basis points for the full year on pricing. And in that, we have built in assumptions of what happens over the summer time. But again, to Nigel's point, it is the franchisees' decision. And I say the summer time because generally our franchisees have taken price at the beginning of the year and then in the middle of the year, July seems like the main time over the last few years. So, they're rolling over pricing from last July.

Again, our assumption, 300 basis points roughly for the year, but again, that's predicated on something we don't control, but that's as we see it in conversations Chris and Scott has had with the franchisees through their marketing meetings is what we expect at this point in time.

Karen Holthouse - Goldman Sachs & Co.

Great. Thank you.

Nigel Travis - Chairman & Chief Executive Officer

So, thank you very much. Thanks for all the questions. So, in conclusion, we feel we've come a long way in a few months. Our journey using our five-part plan as our roadmap has only just started. The journey maybe bumpy at times, but we're confident that our approach will ensure we have an even better business in the future.

So, with that, thank you very much, and we'll speak to you again soon.

Operator

Ladies and gentlemen, thank you for your participation on today's conference. This concludes your program. You may now disconnect. Everyone have a great day.

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