$BROS Earnings Update

The Headline Numbers

Revenue: $550.9M, up 32.5% YoY, vs. consensus of roughly $524-526M (about a 4.7% beat)

Adjusted EPS: $0.33, vs. $0.29 estimate, up from $0.26 a year ago

GAAP diluted EPS: $0.28, roughly in line with the $0.28 estimate

Adjusted EBITDA: $113.7M, up 27.8% YoY, vs. estimates around $106M (about a 7% beat), though margin narrowed roughly 80bps to 20.6%

Company-operated SSS: +8.3%, with transaction growth of 3.4%

System-wide SSS: +5.8%, with transaction growth of only 1.7% (down from 3.7% last quarter), while ticket growth accelerated to 4.1%

Dutch Rewards penetration reached over 73% of transactions, delivering its strongest contribution to comps since the program’s customer segmentation efforts began. Order Ahead reached roughly 16% of transactions. The food program reached about 750 shops ahead of schedule, and Myst Energy Refreshers are becoming a permanent menu item. Adjusted SG&A improved roughly 90 basis points as a percentage of revenue, cited as evidence of operating leverage

Cost Pressures

Higher coffee costs are expected to add roughly 60 basis points of COGS pressure for the full year.

A strategic shift toward build-to-suit leases is pushing occupancy costs up, expected to hit margins by roughly 50 basis points in 2026.

Unit Growth / M&A

48 system shop openings in Q2 (44 company-operated). Completed the acquisition of 31 Phoenix-area franchise locations, expected to add ~$25M net incremental revenue and ~$5M adjusted EBITDA for the rest of the year. Agreed to acquire up to 65 shuttered Salad and Go locations (~$105M) across Arizona, Texas, and other states for potential 2027 conversions. Long-term target reiterated: 2,029 shops by 2029, with management saying they have roughly 90% of the pipeline needed to get there

Guidance

Revenue: raised to roughly $2.12B at the midpoint (up from ~$2.07B), a beat versus the ~$2.09B analysts expected

Adjusted EBITDA: raised to $387.5M

Same-shop sales growth guidance also raised

Shop openings: maintained at “at least 185” (not raised)

Capex: raised to $350M–$370M (up from $270M–$290M), reflecting the Phoenix deal

My Reaction Against the Market

Shares closed the regular session up 2.4% at $65.67, then dropped about 12% after hours to $57.65. This was mostly driven by the Q3 same-shop sales guide of 4%-5%, which implies a deceleration from Q2’s 5.8%. Investors also focused on the EBITDA margin compression and rising occupancy/capex burden rather than the top-line beat.

I disagree with the reaction as I think it only looks at the top-line margin. As mentioned in my equity report, worse operating margins are tolerable because Dutch Bros is shifting to build-to-suit leases, which increase rent expense but saves them capex. For a growing company, this is beneficial. The increased capex projection doesn’t seem to be unit-related, more so a one-time acquisition cost of Phoenix (a former franchisee who sold back 29 stores). If anything, those have become more positive as management noted record AUV.

I personally loaded up more on my position to take advantage of the dip. The growth story is strong.

I maintain my overweight rating.

Disclaimer:

This blog post is for educational and informational purposes only. It is not financial advice. I am not a licensed financial advisor, and nothing in this post should be interpreted as a recommendation to buy or sell any securities. Trading involves risk, and results are not guaranteed. Past performance is not indicative of future results. Always do your own research and consult with a licensed financial professional before making any investment decisions. None of my statements or points of view are reflective of the views of Deep Knowledge Investing.