Dutch Bros Inc. ($BROS) reported Q3 earnings. As it’s one of the stocks in my personal coverage and research page, here’s an update on what happened and my analysis after reading the call.
Q3 Earnings Results
- Revenue up 29.8% YoY to $549.8MM vs. $423.6MM last year
- Company operated SSS growth of 5.4%
- Systemwide SSS growth at 4.4%
- 48 new units opened, 42 of which were company-operated
- Company-operated and systemwide same-store customer visits increased 1.0% and 0.4% YoY, respectively.
- Net Income was $37.2MM was up 36% YoY
- Completed the reacquisition of Phoenix East Valley in late-July for 32 locations.
Guidance
- Revenue projected at $2.1B for 2026
- IIQ estimates were $2.14B, right in line with my modeling.
- SSS growth expected to be >5%
- Capex expected around $370MM-$390MM
- 2027 Guidance – 250 new total units
Other Notes
Total shop count reached 1,273, and management notes full visibility on real estate toward its 2,029 goal by 2029. That’s a green flag on the revenue story central to the thesis. With real estate availability and record site approvals, the company is accelerating its full-year growth target for 2027. This is much above IIQ projections of 200, indicating confidence and aggression from the company.
Advertising investments seem to be paying off, as management noted unaided brand awareness hit an all-time high, with more growth on the horizon.
The brand continues to launch new product lines like Myst Energy, which pushed Energy mix to 27% from 25% in May. The fall drink lineup also shows strength.
Order ahead reached 17% of total visits, up 400 bps YoY. Part of this is Dutch Bros beginning to partner more with DoorDash in some markets.
The company also continues its commitment to employee excellence with pet relations and by launching Vibe Check (gives visibility into shop-level behaviors).
Margins:
- 30bp of expansion with beverage, food, and packaging costs. The tariff refund aided this and it was partially offset by the new food program at 25.6%.
- Guidance is for 27.5% for the full year
- Labor costs were 26.7% of company-operated revenue, which is 80bp of expansion due to leverage.
- Occupancy increased 100bp due to shifting lease structure; however, this is largely expected as I noted in my research
- Overall SG&A improved 90 bps due to operating leverage
Takeaway
Dutch Bros’ earnings highlight continued strength on all fronts of the business. Even in the midst of an inflationary macro backdrop, we see that consumers are not only resilient, but the company has been able to support strong comp growth YoY across the board. Traffic and other indicators remain strong, while the culture of the brand continues to impress. The Vibe Check scorecard is exemplary of the company staying true to its own values as it expands rapidly. That belief gives me confidence in the strength of its management, which is imperative to any growth story.
The revenue story is strengthening with every quarter. 250 new units in 2027 is 25% higher than my modeling projections, which is a very bullish sign. Even in the face of confidence and potentially saturated markets, AUV has stayed consistent across quarters at $2.0MM. Stores are maturing nicely, and while the shifting lease structure is increasing rent pressures, this is offset by the capex benefit and operating leverage we see elsewhere.
Speaking of the margin, YoY leverage was extremely strong. As the company builds out market share, gains new customers, and converts more sales, strong margin accretion will follow.
The stock dropped over 20% following the earnings, to which the Motley Fool wrote is “a strange reaction to an earnings beat, [that] by any measure, … was fantastic”
I am concerned about the slowing overall comp growth, however. While it was strong, it’s still down from the past year. It remains to be seen whether this is just general discretionary spending moving elsewhere, competition, etc. These questions will be answered over the next few quarters. Regardless, my PT has been adjusted downward to $82, maintaining an Overweight rating.
Leave a Reply