There is good reason to expect coffee shop chain Dutch Bros (BROS +5.61%) will post some caffeinated results when it reports earnings on Tuesday. Even though Starbucks' (SBUX +1.67%) earnings report was disappointing, suggesting there could be clouds on the horizon for the upstart coffee shop, it also means Dutch Bros has a good chance of surprising the market.
We already know the fast-growing chain is finishing its year on strong footing as it released preliminary results in January showing a better than 10% gain in comparable sales for the year, but the details of overall sales growth and earnings increases may be the real eye-openers.
Image source: Getty Images.
Driving customer traffic
In a recent analysis of customer foot traffic to Dutch Bros, Starbucks, and Dunkin Brands (DNKN +0.00%), Placer.ai found it was Dutch Bros that showed the most impressive growth compared to pre-pandemic periods.
While a good part of the gains Dutch Bros is realizing come from its accelerated expansion, both into new markets as well as opening more stores in existing ones, its drive-thru model also sets it apart and was an especially pertinent method of delivering service during the worst parts of the COVID-19 outbreak.
Chart by Placer.ai.
Placer.ai analyzes the geolocation of mobile phones to gather data about consumer retail visits and found customer traffic exploded over the past two years as Dutch Bros expanded from 240 locations to over 500. The data analytics company also discovered Starbucks and Dunkin customers were visiting Dutch Bros in greater numbers.
Placer.ai said that while the cross-competitor visits didn't hurt the two coffee giants as their own visits grew over time, "the rise of the new-ish kid on the block has the potential to alter the balance of power between the major coffee giants."
There is room in the market for at least three major coffee chains. With Dutch Bros intent on growing to 4,000 locations across the country, it's the coffee shop to watch.
In expansion mode
Dutch Bros currently has 538 drive-thru coffee shops in 12 western and southwestern states, making it the third-largest coffee chain behind Starbucks and Dunkin. It opened 98 stores in 2021 -- six more than it had originally guided for -- and it entered three new states.
Because of the success it is enjoying with its new locations, which it says are performing above average, Dutch Bros now expects to open 125 shops in 2022, up from its prior guidance of 112 new locations.
NYSE: BROS
Key Data Points
The coffee joint also didn't experience the same sort of staffing problems that plagued Starbucks and most of the rest of retail. Dutch Bros attributes that to its company culture and operating model, and that could give it a competitive edge.
Dutch Bros switched from a franchise model to a company-owned store model several years ago, and though existing franchisees will still be able to open more locations, virtually all of the ones the coffee shop opens in the future will be company stores.
Although there are arguments in favor of the franchise model, such as allowing for faster growth and keeping expenses lower, the company-owned model ensures there are no deviations from the branding in a quickly evolving market.
Image source: Dutch Bros.
Ready for some stimulating growth
Dutch Bros went public last September at an offer price of $23 a share and quickly shot to over $81 a share. It closed last Friday at $47.25 a share, a nice double, but it's off 41% from those highs and is down 7% year to date.
With a strong response to its existing stores, greater performance from newly opened ones, and massive traffic increases that are leading to accelerated same-store sales gains -- it has 15 consecutive years of comps growth -- investors in this coffee stock might just get served a piping hot cup of outstanding earnings surprises when Dutch Bros reports fourth-quarter results.
