Dutch Bros (BROS 1.26%) certainly isn't the safest business to bet on during a time of sticky inflation. Sure, coffee belongs in the consumer-goods category, but restaurant-served coffee is more of a luxury than a necessity (though some coffee addicts might disagree).
While less audacious coffee chains may respond to macroeconomic pressures by scaling back, Dutch Bros is defying recession fears by expanding its market presence. At the end of the day, one's stance on Dutch Bros stock is an expression of a long-term bullish or bearish outlook on not only the company but also the economy's recovery prospects.
Dutch Bros is unprofitable but improving
Whether Dutch Bros' most recently reported quarterly results were a hit or miss depends on whom you ask. Starting with Dutch Bros' fourth-quarter 2022 revenue, the company generated $201.8 million, up 44.1% year over year and beating the analyst consensus estimate of $196.4 million. This top-line result is undeniably impressive, especially considering 2022's macroeconomic conditions compared to 2021.
Turning to the bottom line, Dutch Bros incurred a $2.8 million net loss in Q4 2022, which might be off-putting to risk-averse investors during a stock market sell-off. However, it's important to put everything into context, as Dutch Bros certainly showed improvement over the year-ago quarter's $8.2 million net loss.
Mainly, Dutch Bros was unprofitable during the quarter because of its rising cost of sales. That's understandable, though, since the cost of coffee and other commodities was much higher in Q4 2022 than in the year-earlier period. So you might not want to invest in Dutch Bros stock if you expect inflation to stay higher for a while longer.
A daring strategy in tough times
A common response among many of today's inflation-beset businesses is to scale back in one way or another and plan price increases. That's understandable, but Dutch Bros is, for better or worse, taking the opposite approach.
"At this point we have no plans to take additional menu pricing in 2023," Dutch Bros declared in the company's quarterly press statement. The customers should certainly appreciate this, but it's a gamble as inflation could persist and keeping product prices at current levels might cause top- and bottom-line problems down the road. On the other hand, Dutch Bros did state its expectation that "low-single digits growth from pricing" will "roll-over into 2023 from menu pricing taken in 2022."
Prospective investors should also consider Dutch Bros' unabashed decision to expand its presence. CEO Joth Ricci proudly proclaimed that Dutch Bros' near 50% 2022 revenue growth was "driven by 133 new shop openings systemwide." Continuing along this trajectory, Ricci declared his company's target of "150 new systemwide shops, which will enable us to achieve our five-year goal of 800 systemwide shops by year-end."
Thus, investors should be fully on board with Dutch Bros' gutsy strategy for 2023 before investing in the company during a stock market sell-off. Additionally, you'll probably need to be optimistic about easing inflation (especially in commodities) and economic recovery in general. Otherwise, it's better to relax, have a cup of joe, and think about investing in something else entirely.
