What happened
Shares of coffee chain Dutch Bros (BROS 1.26%) came crashing down today after the company reported financial results for the fourth quarter of 2022. As of noon ET, Dutch Bros stock was down 14%.
So what
For 2022, Dutch Bros generated revenue of $739 million, which was up 48% year over year. And the company's net loss was only $19.3 million compared to a net loss of $117.8 million in 2021. Take some of the improvement on the bottom line with a grain of salt though. In 2021, Dutch Bros had nonrecurring expenses related to its initial public offering.
Give Dutch Bros some credit -- it exceeded management's guidance for revenue, new store openings, same-store-sales growth, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).
Given Dutch Bros' strong performance in 2022, I expect the market is more concerned about the company's guidance for 2023.
Now what
One number that Dutch Bros management didn't bring attention to was its gross profit margin. In 2022, its gross margin fell to about 24% from nearly 31% in 2021. With its cost of revenue up so much, management raised menu prices.
The benefit of those menu price increases is still expected to be felt in the coming year. Dutch Bros is expecting a low-single-digit increase to same-store sales in 2023. But this is due to these price increases. Therefore, transaction growth -- something you like to see with restaurant companies -- may be low to nonexistent in 2023. And traffic was down in the second half of 2022.
Dutch Bros opened 120 new company-owned locations in 2022 and plans to open another 130 company-owned locations for 2023. Company-owned stores have higher fixed costs than franchised locations, which is why same-store-sales growth is important for this growth model.
Considering traffic at existing Dutch Bros locations appears to be plateauing, I'm not surprised to see the market react negatively to today's guidance.
