Dutch Bros Stock Soars: Is Now the Right Time to Invest?

Shares of Dutch Bros (BROS) experienced a significant rise after the coffeehouse chain revealed impressive results for the fourth quarter along with a positive outlook for the future. The stock has surged nearly 200% over the past year and over 50% just this year.

This article will delve into Dutch Bros' recent performance and assess whether it is a good time to buy the stock.

Promising Expansion Plans

At its core, Dutch Bros is focused on growth and expansion. In 2024, the company opened 151 new locations, with 128 of them being company-owned. In the fourth quarter alone, they launched 32 new stores, and by year-end, there were 982 locations, of which 670 were company-operated.

Looking ahead, Dutch Bros plans to introduce at least 160 new locations in 2025, which translates to an approximate 16% growth in units. The company aims to speed up this growth in the latter half of the year.

The new stores tend to be smaller, typically ranging from 800 to 1,000 square feet. They feature multiple drive-thru lanes and a designated walk-up window. After going public in 2021, Dutch Bros noted impressive cash-on-cash returns between 35% and 75%, depending on their leasing arrangement. These returns are appealing, and the company is effectively funding new openings through its operating cash flow.

Dutch Bros' store expansion was a significant contributor to a 35% increase in fourth-quarter revenue, reaching $342.8 million, surpassing analyst expectations of $318.8 million.

Same-store sales also showed promising growth, with an increase of 6.9% overall. Notably, company-operated stores saw a larger boost in comparable sales, rising by 9.5%, with a transaction increase of 5.2%. This growth is largely attributed to innovative offerings and successful limited-time promotions.

In terms of technology, Dutch Bros reported that 96% of its locations have adopted mobile ordering, with around 8% of orders coming from mobile apps. Their rewards program is also thriving, accounting for 71% of total transactions.

The gross margins for company-operated stores increased by 280 basis points to 21.4%, despite a rise in coffee prices. Such improvements in gross margins can lead to enhanced profitability.

Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) surged by 41% year-over-year to reach $48.8 million. Meanwhile, adjusted earnings per share (EPS) rose by 75% from $0.04 to $0.07, significantly exceeding analysts' expectations of $0.02 EPS.

As for the future, the company projects 2025 revenue to fall between $1.555 billion and $1.575 billion, indicating a 22% growth at the midpoint. It anticipates same-store sales growth between 2% and 4%, with adjusted EBITDA estimated to be between $265 million and $275 million.

Dutch Bros is also exploring expansion in its food offerings. Initial tests have shown positive results, with the understanding that many customers desire food options alongside their coffee. Currently, food only constitutes 2% of their sales compared to Starbucks, where food sales represented 19% of sales in the last quarter.

Should You Buy Dutch Bros Stock?

Dutch Bros has demonstrated a strong ability to grow same-store sales, and the potential to expand its food offerings presents an exciting opportunity. With less than 1,000 stores currently, the company has substantial room to grow when compared to Starbucks, which has more than 18,000 locations in North America.

In the past year, there were periods when Dutch Bros traded at less than three times its forward price-to-sales (P/S) ratio, on par with or lower than Starbucks. However, following the increase in its share price, it is now trading at around seven times its 2025 estimates, over twice the valuation of Starbucks.

Dutch Bros still has ample growth prospects with its planned expansion and enhanced food offerings likely driving same-store sales higher. Nevertheless, the stock may no longer represent the bargain it once was, prompting some investors to reconsider chasing it at the current price.

This article reflects no personal investment opinions from the author, who holds no positions in the stocks discussed.

stocks, investment, expansion, earnings, growth