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Dutch Bros: A Rollercoaster Ride Since Its IPO
Dutch Bros (NYSE: BROS) has experienced significant ups and downs since it went public in September 2021. The drive-thru coffee chain debuted at $23 per share, skyrocketing to a high of $76.25 just two months later, but now trades around $35.
Initially, investors were excited about Dutch Bros’ rapid growth and its potential to rival Starbucks. However, as growth slowed and interest rates rose, some lost confidence. Could the company see renewed success in the next three years as the economic landscape improves?
Image source: Dutch Bros.
The Evolution of Dutch Bros Over the Last Three Years
Dutch Bros started its journey with its first drive-thru store in 1994. The company grew quickly after franchising in 1999. By the time it went public, it expanded from 254 stores in seven states in 2015 to 471 in 11 states by June 2021.
Today, it has nearly doubled its locations to 912 stores, including 600 company-operated and 312 franchised. In the first half of 2024, company-operated locations contributed 91% of total revenue.
Over the past few years, Dutch Bros achieved consistent growth in same-store sales, opened new shops, and reported impressive double-digit revenue increases. Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margins also improved, demonstrating profitability under Generally Accepted Accounting Principles (GAAP) for the last year and a half.
|
Metric |
2021 |
2022 |
2023 |
1H 2024 |
|---|---|---|---|---|
|
Total Revenue Growth (YOY) |
52.1% |
48.4% |
30.7% |
34.2% |
|
Same-Store Sales Growth (YOY) |
8.4% |
1% |
2.8% |
6.8% |
|
Total Store Count Growth (YOY) |
22% |
24.7% |
23.8% |
21% |
|
Adjusted EBITDA Margin |
16.5% |
12.3% |
16.6% |
19.6% |
|
Net Profit Margin (GAAP) |
(24.3%) |
(2.6%) |
1% |
6.4% |
Data source: Dutch Bros. YOY = Year-over-year.
Dutch Bros’ impressive growth came from its “fortressing strategy,” which involves opening numerous stores in a region to increase brand awareness and market share without heavy advertising costs. Additionally, the company raised prices to manage inflation’s impact on profit margins.
Looking Ahead: The Future of Dutch Bros
For 2024, Dutch Bros plans to open at least 150 new locations, aiming for low single-digit growth in same-store sales and total revenue increases of 26% to 27%. The company anticipates adjusted EBITDA growth of 25% to 31%, targeting a midpoint full-year margin of 16.8%.
During a second-quarter conference call in August, CEO Christine Barone acknowledged “macro environment noise” and “aggressive price promotion” from competitors but emphasized the company’s commitment to its long-term strategies. This includes expanding their advertising efforts, enhancing their rewards program, and introducing new menu items like boba, protein coffee, sodas, and teas to stand out from rivals.
Analysts project that from 2023 to 2026, Dutch Bros will achieve a compound annual growth rate (CAGR) of 22% in revenue and a 24% CAGR in adjusted EBITDA. Earnings per share (EPS) are expected to rise from $0.03 in 2023 to $0.46 in 2026.
In contrast, Starbucks is forecasted to grow at a CAGR of 5% in revenue and 6% in EPS during the same period, but this growth hinges on the new CEO’s effectiveness in revitalizing its North American and Chinese operations.
Is Dutch Bros a Good Investment Choice?
Given these forecasts, Dutch Bros shares appear reasonably valued, trading at three times next year’s sales and 18 times its adjusted EBITDA. If the company can maintain its successful growth strategies, its stock may rise significantly over the next three years, potentially outperforming industry competitors.
Should You Invest $1,000 in Dutch Bros Now?
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Leo Sun has no positions 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.
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