Q4 2023 Dutch Bros Inc Earnings Call

Participants

Paddy Warren; Director of IR and Corporate Development; Dutch Bros LLC

Christine Barone; CEO and President; Dutch Bros LLC

Charley Jemley; Chief Financial Officer; Dutch Bros LLC

Andrew Charles; Analyst; TD Cowen

Jeffrey Bernstein; Analyst; Barclays PLC

Chris O'Cull; Analyst; Stifel Nicolaus and Company, Incorporated

Sara Senatore; Analyst; Bank of America Global Research

David Tarantino; Analyst; Robert W. Baird & Co, Inc.

John Ivankoe; Analyst; JP Morgan Chase & Co.

Jeff Farmer; Analyst; Gordon Haskett and Co. LP

Andy Barish; Analyst; Jefferies Financial Group, Inc.

Nick Setyan; Analyst; Wedbush Securities, Inc.

Presentation

Operator

Thank you for standing by, and welcome to the Dutch Brothers, Inc. fourth-quarter and fiscal year 2023 earnings conference call and webcast and conference call and webcast are being recorded today, Wednesday, February 21, 2024, at 4:30 PM Eastern tTme and will be available for replay shortly after just concluded. Following the company's presentation, we will open up the lines for questions and instructions for queuing up will be provided at that time.
I would now like to turn the call over to Paddy Warren Director, Investor Relations and Corporate Development. Please go ahead, sir.

Paddy Warren

Good afternoon and welcome. I'm joined by Christine Barone day CEO and President; Charley Jemley, CFO. We issued our earnings press release for the fourth quarter and year ended December 31st, 2023 after the market closed today. The earnings press release along with supplemental information deck, it's closer to our Investor Relations website at investors dot vectrus.com.
Please be aware that all statements in our prepared remarks and in response to your questions other than those of historical fact are forward looking statements are subject to risks, uncertainties and assumptions that may cause actual results to differ materially. They're qualified and by the cautionary statements in our earnings press release and the risk factors, our latest SEC filings, including our most recent annual report on Form 10 K and quarterly report on Form 10 Q.
We assume no obligation to update any forward looking statements. We will also reference non-GAAP financial measures on today's call. As a reminder, non-GAAP measures are neither substitute for nor superior to measures that are prepared under GAAP. Please review the reconciliation of non-GAAP measures to comparable GAAP results in our earnings press release. With that, I'd now like to turn the call over to Christine.

Christine Barone

Thank you, Patty, and good afternoon, everyone. We had '22 EBITDA 2022. We opened 159 shops, of which 146 for company operated a Q4. We opened 37 new shops, marking our 10th consecutive quarter of 30 or more new shop openings and demonstrating the more remarkable consistency of our growth story. We ended 2023 with our highest AUVs on record $1.97 million, and we delivered 2.8% system same shop sales growth for the year.
These outstanding results were underpinned by excellent flow-through, driving a substantial expansion of our margins. Dutch process, a time-tested people driven company that continues to deliver consistent high quality growth. This growth is underpinned by excellent four-wall economics and is enabled by our shop teams remain focused on our key tenants, speed, quality and service.
Earlier in 2023, we began laying the groundwork with key initiatives to less traffic, which we shared with you during our call one call in May. In Q4, we saw the impact of these efforts culminated with 5% seems shop sales growth of 100-basis-point acceleration from Q3. These results were driven by sequential improvement in customer traffic, with particular strength in the MD&A and afternoon dayparts.
Furthermore, we achieve record that's rewards penetration in Q4 with over 65% of transactions attributable to awards members. Keep in mind that 35% of our shops and 60% penetration number even more impressive was such a successful 2023. As our backdrop, we are optimistic for us next phase of growth. I will now spend a few minutes discussing our key priorities.
We began any discussion of Dutch brands with our fundamental differentiator. Our people we aim to deliver unparalleled and customer connection, recruiting, developing and retaining outstanding people remains our primary focus and one of our greatest strengths. I am proud to say that last month we were named the top queue Storebrand Nation's Restaurant News and Technomics America's favorite chain survey in part because of our high marks for service.
Once again, the culture we infuse into each shop and the skills and abilities of our press release does to make drinks and create relationships are evident. We believe these are the keys to building brand and affinity and fueling our growth. Dutch grows with also the highest scoring consumer brand among Gen-Z and the only coffee brand in the top 10, we've used as a confirmation that exceptional culture, exceptional people and exceptional service speak to customers across demographics and generations.
This was underscored this month when we opened our first shop in Orange County, California, where our reception by the capacity was absolutely electric. Over the three-day opening weekend, we drove over $90,000 in sales. What I find remarkable is that after 32 years and over 800 shops, a shop can open with such a excitement and that line stretch for more than a mile.
It's clear to me, we have something special here and that after all these years and all the shops, our brand resonates, we couldn't open shops like this without our people. And I am pleased to report that our people pipeline continues to be robust. We now have more than 350 qualified operator candidates in the pipeline.
With an average tenure of seven years at scale, we anticipate each operator will be capable of leading three to seven shops. Over the past two years, we've promoted over 60 people to the position of operator. This model allows many of our highest performing and most committed employees to continue to grow with us. We believe this approach enables us to strengthen our culture and values as we grow reinforcing our competitive moat as we expand into new markets, best homegrown, motivated friendly operators, steeped in our unique culture and experts and an operating system.
We have been building and refining for over 30 years. In January, we announced three additions to our leadership team. Sumi Ghosh, incoming President of Operations; Joshua Guenser, incoming CFO; and Jess Elmquist, Chief People Officer. The entire team is looking forward to adding the wealth of experience they bring to what already makes Dutch first, great.
We embarked on a project last year as a leadership team to outline how our corporate team can best support our shops as we scale and grow and expansion at our support center operations into Arizona is a key pillar of this work. We recognize the importance of continuing to attract a top-notch talent, and we believe adding a significant presence in the Phoenix market positions us to better compete for this talent. We also believe this expansion will enable easier access to our operations as we grow across the United States.
As part of this move, we anticipate that approximately 40% of support operations staff will be in Arizona by January of 2025. Many of these positions will focus on driving the strategic direction of the Company and assisting day-to-day operations in the field. We expect to maintain a significant presence in Southern Oregon, where our roasting accounting and select other functions will continue to be based.
Southern Oregon has been a key part of Dutch Pro success, and we will continue to be connected to the community and a meaningful way such poses a growth company and 2023 with a record year for us, we opened 159 new shops across 13 states, the most new shop openings in our history. This exceeded the expectations we communicated with you last year of 150 shops.
Over the past five years, we have now opened over 500 system shops, and we have grown our company operated shop count from 90 to 542, an average annual growth rate of 43% over those years. In 2023, our development represented 24% growth in total system shop count and 37% growth in our Company operated shops.
In 2024, we expect to open 150 to 165 new shops, which would represent another big development year for us, another year of competence in our brand confidence in our people, pipeline competence in our four-wall model and confidence in our team as we grow toward our goal, we have 4,000 plus shops. We continue to make refinements to our development strategy and market planning approach. In 2023, we outline the steps we were beginning to take to shift our strategy, primarily the greater emphasis on balancing speed and market penetration.
We also discussed our renewed emphasis on capital efficiency with a longer-term shift toward more build-to-suit leases and flexibility with the exploration of a wider array of prototype units such as endcaps. We would expect to begin seeing the impact of these changes in 2025. Our exceptional four-wall model provide fuel to our growth engine. We continue to work diligently to maintain what we believe is one of the most compelling for all models in the industry.
Last year, we shared with you our intention to achieve at least 100 basis points of adjusted SG&A leverage this year in 2023, we greatly exceeded this objective, delivering 190 basis points of leverage. We accomplished this while continuing to invest in building organizational capacity. Since 2021, a year of our IPO, we have delivered 280 basis points of adjusted SG&A leverage. In total, we delivered 430 basis points of adjusted EBITDA margin expansion in 2023.
This underscores our team's commitment not only to growth but profitable growth. Since I joined a little over a year ago, the team has been focused on delighting our customers and driving traffic. In Q4, total system same shop sales were 5%, a sequential improvement of 100 basis points from Q3. We believe this improvement is largely a result of the increasing momentum of our team traffic driving initiatives as our traffic trajectory improved from Q3 to Q4, consistent with the larger industry, we saw some softness around weather events in January as weather East, our sales trends have strengthened, and we were pleased with the results.
Here's an update on this. We believe innovation plays a large way all in the next stage of growth. Specifically, one of our priorities is category innovation, where we can build sales layers to support visit frequency and introduce new customers and occasions. We believe our operations are uniquely suited for these efforts and that as a brand, we have an opportunity to play a more active role in curating developing and bringing forward innovative products.
Earlier this year, we launched protein coffee, a new beverage that deliver at least 20 grams of protein and each medium-size surfing and could provide a roadmap for future category expansion. Products like this really excite us as they have the potential to drive routine with our customers. We will continue to add exciting LTOs to our lineup and highlight our unique secret menu items as we did in Q4 with our highly successful winter campaign, the buzz around our truckload local platform drove our LTO mix to the highest levels on record during the competitive holiday season.
We believe our innovation strategy will bring in new customers to Dutch growth and drive awareness, interest and loyalty. We are also focused on driving traffic through paid media, utilizing advertising to raise awareness. We believe advertising has a role in educating guest on what Dutch process about, and we're confident that once people visit us, they will have a great experience and want to come back. Our brand insights work supports our strategy as we move into new markets with lower initial brand awareness, we recognize the need to adapt our approach in these new markets.
We lean into top of the funnel activities, particularly through digital channels and local community activations. We look forward to continuing to scale these efforts over time and are optimistic about the long term, some impact of the sustained efforts on Black Friday, we once again recorded our highest sales day on the record we provided to charms with the purchase of any to drinks. This was exciting for many reasons, specifically demonstrating what we believe is our ability to participate or authentically and culturally relevant moments and create strong connections with our Gen Z guest.
Third, we are continuing to increase the sophistication of offers, messaging and capabilities on our app and rewards platform. Last quarter, we discussed entering the second phase of our Dutch rewards program, a more tailored approach to promotions. In Q4, we achieved our highest rewards penetration on record with more than 65% of our transactions attributable to rewards members. Moving forward, our focus will be in refining our personalization capabilities still early.
We are encouraged by the customer response, particularly with effort like gamification and segmentation. Perhaps most excitingly. Today, we are announcing a pilot test and mobile order functionality in our app. We have begun operational testing and intend to begin beta testing our new app with mobile ordering in Arizona. Pending the results, we would expect to conduct a multi shop test as well part of our innovation stage gate process.
We recognized this could be a big opportunity for us and also understand the importance of getting this right levering on our core values of speed, quality and service. As such, it is our goal to roll out this capability to the majority of shops by the end of the year. In 2024, we are taking the steps to build a rock-solid foundation upon which to embark on the next phase of our growth story. I am proud of what the team has accomplished to get us to this point, and I am confident we have the building blocks of long term success.
We have terrific customer engagement with Rewards members, driving a record 65% of our transactions in Q4, and we are excited about opportunities in front of us to further accelerate this platform. We have top tier growth. We delivered 31% year-over-year revenue growth in 2010 three. This growth has been consistent demonstrated by 10 consecutive quarters of opening 30 or more shops on our way to 4,000 plus.
We have excellent shop margins. We have demonstrated that we can drive this exceptional growth with profitability. We are well capitalized with believe our recent primary offering and credit upsizing provides a long runway and plenty of flexibility upon which to execute our growth plan and capture our considerable whitespace. Most importantly, we have great people.
We have outstanding and engage preleased as in our shops in a strong pipeline of operators ready to open our new markets. These factors give us great confidence in our future. With that, I'll turn it over to Charley to review our financials.

Charley Jemley

Thanks, Kristine. As Christine's comments, shared 2023 finished up through excellent all around, including unit openings, revenue and adjusted EBITDA growth and same shop sales, all of which exceeded our expectations. For the financial year 2023, revenue grew 31% to $966 million. We achieved over $1.4 billion in system-wide sales or 24% growth. System AUVs reached $1.97 million, the highest on record system.
Same shop sales were 2.8%, in line with our guidance of low single digits. Company-operated shop contribution reached $242 million, growing an impressive 54%. Company-operated shop contribution margin was 28.2%, spending 360 basis points year over year. Adjusted EBITDA margin was 16.6%, expanding 430 basis points year over year. In the fourth quarter, the Company operated shops segment delivered outstanding performance, generating $227 million in Company-operated shop sales and $60 million and shop contribution year-over-year net sales increased 30% and company-operated shop contribution grew approximately 21%.
As a percentage of company-operated sales, company-operated shop contribution was 26.5% when making a comparison of these results to the prior year. Recall that in Q4 of 2022, our sales and margins were positively impacted by approximately $7.4 million or greater in the revenue line related primarily to the 2021 launch of our Dutch rewards program. Please make reference to our supplemental investor materials, where we demonstrate the changes in Company Shop margins outside the negative impact on a comparable basis of 2022, breakage income company shop margins increased as a result of pricing, sales leverage and beneficial pre-opening costs, partly offset by slightly elevated ingredient costs and other operating expenses.
As I mentioned, we achieved 360 basis points in margin expansion in 2023. Shifting to SG&A. For the quarter, SG&A was approximately $57 million, which includes about $10 million in stock based compensation. We anticipate in 2020 for ongoing stock based compensation will be approximately 30% to 40% of 2023 levels as equity compensation awards associated with the IPO fully vested in January 2024, with the exclusion of stock-based compensation and other nonrecurring expenses, adjusted SG&A was approximately $44 million, 17.4% of revenue compared to 18.9% in Q4 last year.
While we're adding organizational capacity to support scaling the business, we're also making a concerted effort to stage those investments and over time. For the year, adjusted SG&A was 16.6%, an improvement of 190 basis points compared to 2022. Regarding our balance sheet and liquidity. As of December 31, we had approximately $683 million in total liquidity compared to approximately $700 million at the end of Q three.
We believe our liquidity position is sufficiently robust to support our currently contemplated growth plans as we scale towards 4,000 plus shops. As of December 31, that liquidity was comprised of the following $134 million in cash and equivalents, $349 million undrawn revolver, $200 million in undrawn delay draw term loans. Yesterday, prior to the expiration of the end of February, we drew a portion of our delayed draw term loans totaling $150 million.
We intend to utilize these funds for general corporate purpose. This is including but not limited to building new shops. Meanwhile, this cash will be invested in short-term interest-bearing securities until we can fully deployed. Moving on to 2024 guidance. In early January, we shared our expectation to open 150 to 165 new shops. We expect low single digits system.
Same shop sales growth in 2020 for revenue is expected to be within the range of $1.19 billion to $1,205,000,000.000. Midpoint in this range would reflect 24% growth over 2023 and 62% growth on a two-year basis. Adjusted SG&A is expected to be between 15.3% and 15.8% of total revenue at the midpoint of the revenue range. This would represent continued leverage of approximately 75 to 125 basis points as compared to 2023.
Stock-based comp inflation, which is excluded from adjusted SG&A, is expected to be $12 million to $17 million for the year, down from $39 million in 2023. Adjusted EBITDA is expected to be in the range of $185 million to $195 million or approximately 15.9% of total revenue at the midpoint of these ranges. For context, the midpoint of the adjusted EBITDA range represents approximately 19% year over year growth and notably 108% growth on a two year basis. I'd like to highlight a few key assumptions underlying this guidance.
First, we continue to make investments in our people. In Q3 2023, we announced an investment in higher pay nationwide for our shop managers. Further on April one, California wages will rise to $20 per hour minimum represent an increase of approximately 25% year over year. Collectively, we would expect a 50 to 100-basis-points headwind on adjusted EBITDA margins from these pay changes.
Second, we are planning to make P&L investments and increased technology at the shop level to support scheduling, throughput and mobile order initiatives. Collectively, we would expect 75 to 125 basis points headwind on adjusted EBITDA margins from these investments, combined with the expected adjusted SG&A leverage I just mentioned, we would expect these actions to collectively represent 50 to 100 basis points overall margin pressure year over year. Furthermore, we intend to embark on a large-scale organizational change in 2024.
To support this move, we would anticipate incurring between [$24,000,031] million in cost, which we deem as nonrecurring, I would anticipate will be almost entirely excluded from adjusted EBITDA. Capital expenditures are expected to be in the range of 280 to $320 million, up from $227 million in 2023. This year over year increase will be driven primarily by a higher percentage of ground leases 2024 as compared to 2023 last year, we began are proving more future sites using build-to-suit leases to shift our capital back to more normative levels.
We would expect any capital expenditure benefit to take hold more firmly beginning with the class of 2025. In 2023, we spent approximately $18 million on our roasting facility. We expect to spend approximately $10 million in 2024, and we anticipate that this facility will open in the middle of this shrinks and $10 million in capital expenditures related to the Arizona office expansion. Thank you, and now we will take your questions. Operator, please open the lines.

Question and Answer Session

Operator

(Operator Instructions) Andrew Charles, TD Cowen.

Andrew Charles

Thank you. On casino to implement the new enhancements in development in 2025 like more build to suit and focusing more on white space than in billing disputes, you can increase the number of store openings above the roughly 150 per year in 2018 guidance. For '24, we expect a perhaps truncated 2025 opening class to better observed the enhancements we're making.

Paddy Warren

Thanks for your question, Andrew. I think if we look forward, we're really not talking about guidance today for 2025. We feel good about where our pipeline is about the guidance that we provided for for shops for 2024 and feel like we have a robust pipeline to support our future.

Andrew Charles

Great. And then as soon as but the digital ordering our tests, you know, what are you looking to observed during that time? And how you kind of maybe this is Jordan way how you kind of map this out to not cause congestion distress?

Paddy Warren

Absolutely. So as you know, what really drives our brand as our service. And so having that connection between the VIISta and the customers who have we passed on mobile and digital ordering, we're really looking to continue to have that same experience between our releases and our and our customers. That's really what we're looking for for as we can assess how we're thinking through operations and to what does this do to line speed on how are we slotting and drinks that are ordered all of those different things that we operationally test this.
As you know, we also have drive-throughs shops that are set up with a walk-up window. So looking at how people will come up in pickup entrants from a walk-up window, albeit at a number of our newer shops, we have escaped lanes on. And so we can even begin testing things like delivering a drink to a car that can pull out of the Escape plan as we pick up their mobile order.

Andrew Charles

Thank you.

Operator

Jeffrey Bernstein, Barclays.

Jeffrey Bernstein

Great. Thank you very much. Question just on loan growth outlook on 10 Q with the remainder of 24, we did see strong momentum at some point. If you could just talk about the components you're assuming for the 2024 comp guidance for the dish at a low single-digit, how much pricing we should assume for the the traffic assumption, the color you can provide on the first quarter? I know it's been choppy, as you mentioned the weather to start. Just trying to get a sense for the first quarter is tracking relative to obviously the fourth quarter and what your guidance for full year 24?

Paddy Warren

Hi, Jeff from will have pricing rollover from 2023 in the low single digits. We have not yet refunds how we'll price in '24. And we mentioned in the California wage impact. In those comments, we would expect our sales transfer from new units in dollar terms to be similar, but as a percentage of our comp base to begin to decline versus this year's levels of 203 basis points, and then we're looking at a low single digit comp number. So the balance of that is pretty nominal on the traffic side from a growth perspective book.

Christine Barone

And I would share and add to that. That is we ended Q4 with that 5% same-store sales. We were rolling off 300 basis points of I guess, between Q3 and Q4. So that sequential lift and same shop sales between the two quarters, we would really encourage customer reaction standpoint. Got it.

Jeffrey Bernstein

And just to clarify, Christine, I know you mentioned obviously speed of service within your operations important. Then you also talked about category innovation, which is obviously important to her to encourage more trial and increase frequency. And the balance for two of those were already three new expenses. They were kind of run counter to one another. How do you think about them globally?

Christine Barone

Yes. I think as we think about category and innovation, it really has to be something that's impactful for something that's either driving a new day part or a new occasion for a customer of winning new customers.
And then thinking through what types of what types of things are really within their routines that we are already have some putting sprinkles on top of some things really within our existing routines and doesn't drive really layer of extra complexity, whereas other thing, Mike, to really balancing all of those different things as we think about innovation and adding, but speed of service is really an incredibly important to us as we think through any new innovation, anything that we introduced to the shops were always thinking through how will this impact speed, quality or service for our customers.

Jeffrey Bernstein

Understood. Thank you.

Operator

Chris O'Cull, Stifel.

Chris O'Cull

Thanks. I had a follow-up question regarding related to mobile ordering in terms of the question, but I'm curious if you guys can just offer any touchstones around that, what the size of the mobile ordering opportunity might be or how you're thinking about the contribution? Or and then secondly, Christine, I wanted to ask a question about paid advertising.
It just seems like paid advertising could be an important tool in the company's Arsenal when it comes to transaction growth. It looked like advertising expense last year at least through the third quarter was relatively flat year over year, despite obviously a lot of sales growth. Just wondering if you expect paid advertising to increase meaningfully year over year? And then the Company considered budgeting this line is maybe a percentage of sales going forward?

Christine Barone

Yes. So I'll take the first question on mobile order and size of the opportunity. So if we look at this on the number one, I think that our customers ask for is an app enhancement is mobile ordering. So that would point to a center that our customers really really want this enhancement in our in our app. We also I look across the industry and understand how important this type of technology is for customers across the industry. We don't believe that it will be material to our 2024 numbers. However, we do think it's really a big opportunity. We do believe also that it's something that has the potential to bring in new customers and has the potential to introduce new occasions.
So if you're in a hurry and you remember that we had a really long line one day. You. Can you do that if you mobile order, you can adjust your timing and help you get to wherever you are on time on from an advertising perspective, we would agree with you that we really do bidding opportunities for us, especially as well, reaching scale in some of our new markets where we have low brand awareness. As we went into Q4, we did some testing and top of the funnel on advertising, especially in markets like Texas, where we know we have a really awesome brand awareness opportunity in front of us.

Chris O'Cull

Thank you.

Operator

Sara Senatore, Bank of America.

Sara Senatore

Thank you. And I was wondering two questions, actually. The first is just if you could maybe decompose that traffic improvement, sequential improvement you saw, I think you've done in previous quarters, you know, obviously you had some easier comparisons on traffic. But then kind of understanding how much of that you saw us add amortizing versus digital versus either that any kind of LTOs just as it as a sort of underlying comp driver question.

Paddy Warren

Yes. I'll start with the underlying comp driver, our question and turn it over to Charlie for the specific. So we looked at on customer behavior in the fourth quarter. We really saw strength in both the midday and afternoon daypart. We saw growth of us, especially our proprietary menu items. So things like Dutch freeze and level of.
We also saw continued strength in the cold beverage platforms and an increase in mix in cold beverage. We felt like our LTOs really resonated with our customers over over the quarter as well. So I think it's a lot of different drivers that really helped to drive an excellent Q4 about qualitatively, the decomposition of our same-store sales, as you know, we reported five plus five from our pricing. Rollover is approximately 5%. Our sales transfer estimate is right in our range of 200 to 300 basis points. And then the balance of that really is the traffic underlying traffic, which is growing, and we note sequentially grew.
And so back to Christine comments, we really think some of the activities that we we activated in Q4 really did help us move from the traffic position in Q three sequentially to a better performance in Q4. I think as we noted, we also had some really strong performance in the rewards program. So that 60 transactions and again, just noting that so many new shops in the base to have that continuing to stay at that nice steady rate is really encouraging to us.

Sara Senatore

Got it. Thank you. Very helpful. And then just a follow-up to that is how are you thinking are feeling about the your ability to use the data you are accruing about your customers and fewer transactions through a loyalty or through digital ordering at pretty anomaly there helping to inform what you do across the board.
But I guess, where are you at that, whether you are pushing innings or some kind of other measurement like to sort of how much progress you're making and the analytics piece this?

Paddy Warren

Yes. I think we're kind of in the second inning moving into the third is what I would say. And I'm feeling really good one. And we continue to test on different types of offers to Millipore's program. So understanding what level of points on what types of promotions work. We also added in a number of giveaway, things like BEST bracelets and the huge charms I mentioned. I'm still looking at that.
And all of that is giving us data on how to our customers react to the types of things we're doing. Then we combine this with looking at how our new customers coming in the brands are bringing in external research as well. And looking at that all together to really map out calendar for the year that drives and new customers drive communications. And so we feel we're feeling good about the path that we're on in the way that we're able to use data.

Sara Senatore

Terrific. Thank you so much.

Operator

David Tarantino, Robert W. Baird.

David Tarantino

Hi, good afternoon. My question, Charlie's on the new unit productivity. And as I was just wondering if you could maybe give us an update on on what you're seeing on that front for the most recent class of openings as you completed the most recent fiscal year? And then I wanted to understand a bit more about what you're assuming in there guidance for this year on new stores specifically. Because I guess by our math, it looks a little lower than what it was in 2023, but I might have that math wrong. So could you help us out on that front?

Paddy Warren

Okay. David. And so we did have a great year of 31% revenue growth, EBITDA levered up 76%, same shop sales plus plus five. And our system AUVs notably reached a record high in 2023 of $1.97 million. So we do believe we have opportunities and new markets to both refine that strategy and to build customer awareness. As we mentioned, we've refined the real estate strategy and reflecting those learnings on impact and sequence and how we go into new markets.
Some customers. We know they love us and new markets once they've tried us and we see for the differential really is an awareness between our new and existing markets, but not a difference in satisfaction of visit. We have an opportunity to build those AUVs and the markets with a combination of top of the funnel, which Christian just mentioned, our testing that and how we do continue building. We're very focused on that. We're very pleased with our early results, but we recognize brand building does take place and building sales over time with new sales leaders like mobile order that we just announced.
So we do share, though system, either your vehicles Company operated AUVs every quarter reflects how the system is evolving. And we realized that that pretty much all ships are going to rise a bit tired of how we drive traffic, focus on awareness, focus on brand building. And um, and really, we're going to continue that into next year. And tried-and-true achieve similar better results in 2024. In terms of these new market openings.

David Tarantino

Understood. I guess maybe I'll ask it a different way of the guidance for 2024 include. And when you think about the average weekly sales average volumes for the 2024 classes, that are you assuming something similar to what you realized in 2023, at least directionally, could you comment on proximately similar understand that we will do more sites in existing markets like California.

Christine Barone

We will do less relative sites in Texas and as we go through this year, and we note that we're opening Florida this week, and that's going to be a new market for us. So no, we would assume a similar result. It will it will come out and partly how new markets like Florida do. And we're very optimistic about that.

Paddy Warren

Yes, David, I think it is as we look at how were we are continuing to update our real estate models as we grow, adding in the new data from each of the new shops are open to looking at that performance and again, continuing to refine that real estate strategy. So, you know, assuming assuming a similar level, the volume, but we're continuing to look at ways to enhance both unit and voice.

David Tarantino

Great. Thank you very much.

Operator

John Ivankoe, JPMorgan.

John Ivankoe

Hi, thank you. The question for the topic, I guess is on category innovation and building sales layers. And certainly that leads me to think about your morning business, particularly habitual morning business and how Bros. under indexes relative to some peers.
So I wanted to talk about the opportunity that you may have to increase in frequency, particularly in them morning and Christine, especially given some of your background at a previous employer around executing of food programs that, in fact, could drive beverage sales if Bros. has any closer to kind of considering piloting some food in some markets, especially as we have Mobile Order & Pay finally discussed as an incremental initiative. Thank you.

Paddy Warren

I think for the question, John. So no, we are excited about Protein Milk that we launched in Q1. And you think that that actually does serve the unique needs set for folks who are trying to get that all in one protein as they start their morning or continue their afternoon the U.S., we look at innovation going forward in building those sales layers for now, we're really, really focused on mobile order.
And we think that this can be something that is really strong for us and we test this getting this just right and doing it in a way that works for Dutch Boy is going to be incredibly important to us. And I do recognize in I think we do recognize as we look at where we might have opportunities that the morning daypart is one of those areas. So continuing to think through like what worked for others and ITO, what would be uniquely data growth and what can work for us. Thank you.

John Ivankoe

Thank you.

Operator

Jeff Farmer, Gordon Haskett.

Jeff Farmer

Thank you. I'm just curious how your Florida development strategy in 24 and moving into 25 has been impacted or influenced by everything we've learned with what happened with your Texas development strategy over the last couple of years. So basically lessons from Texas that you're applying the Florida?
Yes. So a couple of things up to one. I think starting with how do we enter the market, we've actually had our mobile data growth unit in Florida and for the last little bit. So building kind of that excite and some really nice take-up on from the activities that we've done with that we we are planning on opening our first shopped in Orlando at the end of at the end of the week.

Paddy Warren

We're also with me as we look at approving sites through our pipeline, we have kicked every single year given the amount of shops for openings were including that in our new models as we go out. And so each time that we will open new shops like an updated as we look at, including sites in both newsroom market. So we also are not feeling I think we're really looking at that infill strategy, and we're finding that a little bit. So we believe that the ultimate outcome is exactly the same as we would have ended up on I know on our way to 4,000 plus shops. But we do believe that we can tweak that a little bit as we as we go into these new markets like Florida.

Jeff Farmer

That's helpful. Thank you for that. And unrelated a little bit of a pivot here. Just moving back to the potential California price increase that would come in spring of 2020 for are you guys looking to protect dollar profit? Are you looking to protect margin on where you take sort of a wait-and-see attitude to at some of the peers? Do? Are you guys thinking about that bigger picture?

Paddy Warren

I think in general we'll look at profitability, not percentage margin and we are aware of what others are doing. We also want to time anything we do with the, you know, with the media event in the market, not lag too much into that, that. So so we'll take some price. We know that, and we're a value evaluating that right now. We're ready when that happens.

Jeff Farmer

Thank you.

Operator

Andy Barish, Jefferies.

Andy Barish

Thanks. Good evening. I'm just wanted to kind of your question about margin on puts and takes you gave us to the to share the restaurant level shop level of profitability. Charlie, and I just wanted to make sure we have just mentioned on California as well as the and the manager and pay increases standing in for Q2. Is that combined expected to be about 50 to 100 basis point impact on the labor line for questions? 24?
And is that kind of the you know that the primary mover in shop level margins or do you anticipate kind of any other lines that we should be paying attention to there?

Charley Jemley

So in terms of the forward guide, you're correct. It's the combination of those two wage events that are the largest driver of any margin contractions. We are making some other P&L investments. We will support what we need and Mobile Order & Pay towards the end of the year and other technology things that we're going to be ready to go and make sure our point-of-sale system in our operations are ready for some investment there.
And then we get to offset that by continuing to get SG&A leverage service and the net margin contraction, we're expecting it into an adjusted EBITDA level is what we mentioned there, which is about 50 to 100 basis points in aggregate. We actually helpful. And then Christine, there was some early back in the previous regime discussion on operational efficiency opportunities through TAP systems.
And I know a lot of other things have moved to the forefront. But where do you where do you envision that at this point on, you know, in terms of from revisiting that that potential initiative down the road? Yes, I'm what I would share on that as throughput is still really important to us. We know that our long lines can be an inhibitor sometimes to our customers visiting us more frequently specifically on as we as we lapse. And we have rolled out to over 100 shops now on the tap system.
And so we are encouraged by the results that we're continuing to see with the tap system. We are also planning on investing in the tap system to put it into a majority. We have our new shops as we roll out new shops as well.

Andy Barish

Great. Thank you very much.

Operator

Nick Setyan, Wedbush Securities.

Nick Setyan

Thank you and congrats on a great Q4. My question is, you mentioned sort of a margin impact from the labor investments that before any pricing actions or does that actually contemplate the pricing actions within that guidance?

Paddy Warren

Yes, it does contemplate some pricing within the guidance. We did take price a little bit of price in January related to some of the minimum wage movers and legislated markets already. And then it does contemplate a level that will take through the through the year, the California situation and others as well. So that's and that's really the net impact.

Nick Setyan

Got it. And so going into the call, I had about 4% in Q1 and Q2 in terms of pricing, is that correct? 4% in Q1 and Q2 in terms of menu pricing that are roughly low, low single digit rollover is our is in the 24 come in from 23.

Paddy Warren

If you look at our price move, and I think it's also very important to note that we had been bolstering our margins throughout 23 to help us to prepare to take off on what's coming at us in 24, focus on low single-digit percentage in Q1 and Q4. That's the rollover.
So that's the rollover that's in place already from 2023 pricing. And then there's additional pricing that we're clearly signaling that we're going to take in 2024. And then we did take on some pricing in Q. one and Phase one in January and in line with some wage increases in some of the western states, including Arizona, California, Colorado and Washington.

Nick Setyan

Okay. Fair enough. And then, you know, you mentioned entering 2024 with a lot of comp momentum on any sort of incremental clarity around what quarter-to-date trends look like relative to Q4?

Paddy Warren

No. I mean what we what we shared in our prepared remarks is kind of where we are is I think like everyone else, we saw some impacts of weather, but outside of the weather will really pleased with what we saw in January.

Nick Setyan

Got it. And then just on the COGS line, sequentially, a little bit of an uptick on the COGS line of Charlie, are we thinking about sort of COGS in 2024? Could we actually see some leverage there.

Paddy Warren

So direct ingredient costs have moderated, but we also know that sugar is continuing to rise, and that's a that's part of our basket and that our distribution costs are still pretty sticky, given energy costs and wages involved in that given or a small drop business. So we think COGS is a pretty benign impact in 24 were not expecting a lot of benefit there.

Nick Setyan

Fair enough. Thank you very much.

Operator

Now back to Christine Barone for closing comments.

Paddy Warren

Thank you for your questions. As we conclude, I wanted to highlight our recently completed Dutch. Let's get back each year. Our shops, customers, franchisees and foundation work together to donate to local organizations working to end hunger in our communities. This year, we adjusted the give back and pivoted from one Dave giving to a camp pain that allowed us to make a donation for each touch lump feature drink full from February first through the 18th.
This campaign not only drove traffic and also give our customers an opportunity to give each time they came to our window and it was a huge success. I look forward to announcing our results, and I'm grateful for the opportunity we truly live up to our mission of making a massive difference cup1 at a time. In closing, we are pleased with our strong results in Q4 and believe we are in a position of strength entering into 2024.
I want to thank all of our teams to create this exceptional performance by connecting them with our customers and communities. Every single. Thank you.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.