Shares of coffee chain Dutch Bros (BROS -0.26%) stock declined almost 16% in June according to data provided by S&P Global Market Intelligence. There was no company-specific news in June, but the stock was volatile as inflation remained the hottest topic on investors' minds. Restaurant and retail sales are highly correlated with supply costs and inflation, and investors may be concerned about the company's ability to meet its sales and earnings forecasts in the coming quarters.
Dutch Bros is a coffee shop chain with restaurants along the West Coast and surrounding states. It's quite small right now, with only 538 locations, as compared with Starbucks' 34,000. But it's opening new stores, with plans for 130 in 2022, and it sees a total opportunity for 4,000 stores over the next 10 to 15 years.
It operates a distinct model that focuses on a fun atmosphere, including music and outdoor seating, as well as friendly and quick customer service. This has earned it a legion of loyal fans as well as increasing sales. Revenue increased 54% in the second quarter over last year. However, inflation and supply chain costs are creeping up. Gross profit dipped from $17.6 million last year to $16.6 million this year. Net loss rose from $4.8 million to $16.3 million, although a good chunk of that came from equity-based compensation related to the company's initial public offering (IPO).
Although management kept its previous sales targets for 2022 in the first-quarter report, it also said it expects cost pressures. There's no escaping them in this environment, and the company said it was trying to balance some of that with careful price increases.
Dutch Bros went public last September, and its stock was gaining steadily over several months. It looks like a no-brainer success story, with a unique model, happy customers, and large opportunity to grow. It operates its own stores as well as a franchisee model, and franchisees typically start off as part of the company before going out on their own, often to own several locations. That's another indication of demonstrated value.
However, the stock tanked after the first-quarter report in May after the company raised concerns about short-term pressure. Shares are now trading at 12% below the closing price on the first day of trading.
Investors should expect the stock price to stay dampened in this environment, but it may be a good time to pick up some shares before the market heads back up.