Dutch Bros (NYSE: BROS) shares surged after the coffee chain announced strong Q3 earnings and boosted its outlook. Currently, the stock is up over 40% this year.
Investors are asking whether this growth can be sustained or if they missed their chance to buy in. This article explores the recent earnings and evaluates the company’s future prospects to provide some answers.
Strong Results Lead to Optimism
In the previous quarter, Dutch Bros faced some skepticism after announcing a shift in its real estate strategy. However, the latest results were warmly welcomed as the company plans to speed up new store openings in 2025 and 2026.
For the third quarter, revenue soared 28% year-over-year to $338.2 million, surpassing the analyst estimate of $325.1 million. Adjusted earnings per share rose 14% to $0.16, ahead of the $0.12 forecast.
Same-store sales grew by 2.7%, with company-operated locations seeing a 4% increase. The number of same-store transactions climbed 0.8% overall, and 2.4% for company-owned shops.
During this quarter, Dutch Bros opened 38 new shops, with 33 of them owned by the company. This brought its total locations to 950 by the end of Q3, including 645 company-owned stores.
Overall, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) jumped 20% year-over-year to $63.8 million.
Looking ahead, Dutch Bros raised its full-year forecast once more, now projecting revenue between $1.255 billion and $1.260 billion, and adjusted EBITDA between $215 million and $220 million. The company expects same-store sales to grow by 4.25% for the year, with a 1% to 2% increase for Q4.
Here’s a summary of the company’s updated guidance:
| Original Guidance | Prior Guidance | Current Guidance | |
|---|---|---|---|
| Revenue | $1.190 billion to $1.205 billion | $1.215 billion to $1.230 billion | $1.255 billion to $1.260 billion |
| Adjusted EBITDA | $185 million to $195 million | $200 million to $210 million | $215 million to $220 million |
| Same-store sales | low single digits | low single digits | 4.25% |
Data source: Dutch Bros.
Dutch Bros aims to open 150 new shops this year, slightly below its initial forecast of 150 to 165. However, the company anticipates opening at least 160 stores in 2025 and plans to further accelerate openings in 2026.
Image source: Getty Images.
Is Now the Right Time to Invest?
Dutch Bros is primarily a story of expansion, which explains investor enthusiasm following its report. The company operates small drive-thru locations that are easy and cost-effective to build. Despite this, it achieves impressive average unit volumes of $2 million, indicating strong sales performance at these outlets.
Beyond expansion, Dutch Bros is exploring additional growth avenues. It recently started accepting mobile orders, available at 90% of its stores by late September. Although still in early stages, mobile orders now account for 7% of total sales. Additionally, the company is testing new food offerings at six locations, with food currently representing 2% of sales—this portion has room for growth.
From a valuation standpoint, the stock has a price-to-sales ratio of 3.5, higher than rival Starbucks, which stands at 2.7.
BROS PS Ratio (Forward 1y) data by YCharts
While Starbucks may have reached its peak growth phase, Dutch Bros, with 950 locations, is only beginning its expansion journey. With relatively low construction costs and enough cash flow to support new store openings, the company aims to grow to over 4,000 locations in the next decade or so.
I remain optimistic about Dutch Bros. Although the stock price has risen recently, I still believe it holds potential for long-term investors.
Thus, I contend that there’s still an opportunity for investors to buy the stock, even after its price increase.
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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Starbucks. The Motley Fool recommends Dutch Bros. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
