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Why Dutch Bros Stock Rallied 16% at the Open Today

By Reuben Gregg Brewer – Nov 11, 2021 at 1:17PM

Key Points

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Shares of the coffee shop took off after it reported earnings for the first time as a public company. The numbers look good.

What happened

Shares of Dutch Bros (BROS 2.32%), a coffee chain predominantly located in the western half of the United States, rose a dramatic 16% in early trading on Nov. 11. That said, by roughly 12 noon EST the stock had given back around half of that gain and was sitting with an advance of about 8%. The big news was the company's Nov. 10 earnings release after the close.

So what?

Dutch Bros held its initial public offering (IPO) on Sept. 17, meaning the third-quarter earnings release was its first as a public company. The big takeaway is that there's a fair amount of noise in the numbers. Regardless of that fact, investors appeared to like what they saw. And with good reason, noting that the coffee company is still in growth mode. Notably, it opened 33 new locations in the third quarter alone and now has over 500 shops.

The word Growth spelled out with blocks aligned on an upward sloping line on a yellow background.

Image source: Getty Images.

Meanwhile, third-quarter 2021 revenues were up 49.8% year over year. As with most fast-growing food chains, that was heavily driven by new store openings. However, same-store sales were also pretty good, with sales at locations open for more than a year up 7.3%. So this isn't just a store openings story; customers appear to be coming back again and again. That said, the company lost $117.1 million dollars (or a loss of $0.15 per share) in the quarter versus a profit of $6.7 million in the same quarter of 2020. But the current quarter included $124.8 million in stock compensation costs associated with the IPO. Adjusted net income, which pulls one-time items out, was a profit of $11 million (or $0.23 per share) compared to $16.2 million in the prior year. Note that because Dutch Bros was not public last year, there are no per-share figures to use for comparisons here. And, an added caveat is that the company's 2020 results weren't hindered by any of the costs associated with being a public company, so the comparison isn't exactly apples to apples. Still, the upshot here is that this coffee shop looks like it is set to keep growing at a rapid clip and could actually do so fairly profitably, once the haze of the IPO is in the rearview mirror.

Now what?

Dutch Bros plans to open 30 shops in the fourth quarter and it expects same-store sales to expand in the mid to single digits. That's pretty exciting. However, the stock is up around 80% since its very recent IPO, so there's a lot of good news priced in here. For investors with a value bias or those that are more conservative, Dutch Bros will probably not be interesting. But growth investors might want to take some time to get to know this up-and-coming coffee chain.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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