Dutch Bros (BROS -1.04%) came public in late 2021, so it's a fairly young public company. But the coffee chain has big ambitions as it works through an aggressive expansion plan. Growth-minded investors should pay close attention to two key numbers as they consider the stock.
Dutch Bros is opening lots of new locations
When the company held its initial public offering (IPO), it operated 471 locations. From day one, the plan was to open more coffee houses. That's basically how relatively small restaurant chains can most easily grow.
The math isn't hard to figure out, as each new store adds more revenue to the top line. This approach can be successfully applied for years, assuming management doesn't overdo the effort.
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By the end of 2023, Dutch Bros operated 831 locations. Of these, 542 were company-owned and 289 were franchise restaurants. During the fourth quarter of 2023, Dutch Bros opened 37 locations; 32 of them were company-owned. For the full year, the company opened 159 new stores, and 146 were company-operated.
That's a lot of new stores opening up, and they're having the impact you'd expect. In the fourth quarter of 2023, revenue rose 25.9% year over year. For all of 2023, revenue rose 30.7% over 2022. This is exactly what the company is going for as it aggressively rolls out new locations.
That said, it costs money to build new stores, and that led the company to a loss of $0.02 a share in the fourth quarter. That's not shocking as Dutch Bros is clearly plowing money back into its store expansion effort. For the full year, the company posted a profit of $0.03 per share, compared to a $0.09 loss in 2022. That's a positive sign.
The big goal is to reach a tipping point where the company can sustainably open new stores while simultaneously operating a sustainably profitable business. It looks like Dutch Bros may be on the cusp of achieving this. All in, however, new store openings is a key metric that investors need to watch closely.
There's a risk to new stores
Aside from the obvious cost of building new locations, investors should pay close attention to the impact of the new stores on existing locations. This is doubly true for Dutch Bros because of what it has dubbed its "fortressing strategy."
That sounds fancy, but it just means the company is purposefully opening new locations near existing ones. The goal is to effectively get customers from the old store to start using the new one, which helps get the new store off to a strong start.
The problem is that new stores are, by design, cannibalizing the customer base of the company's old stores. In the fourth quarter of 2022, this approach led to a 2.1% drop in same-store sales at company-owned locations. While that outcome makes logical sense, it isn't exactly a trend you want to see on a long-term basis.
Luckily, the story turned around in a big way in the fourth quarter of 2023, when same-store sales rose 4.6% at company-owned locations despite the new stores that were opened. For the full year, same-store sales rose 1.5%, an improvement from 0.6% same-store sales growth in 2022.
It appears that management is doing a decent job of overseeing store growth. It remains a balancing act, though, and investors should watch same-store sales just as closely as they watch the store growth numbers. Ideally, both will continue to head higher at the same time. That may not happen every quarter, but if the two statistics don't trend in the same upward direction, Dutch Bros' growth story will start to look less attractive.
Dutch Bros should interest growth investors
Although the company has been opening new locations at a rapid clip, it's still tiny compared to more mature coffee chains. For example, the company's 831 locations are dwarfed by industry-giant Starbucks, which operates around 38,000 locations globally. That's a hint at the runway for growth at Dutch Bros.
But Dutch Bros doesn't have to become the next Starbucks. Even reaching a quarter of the scale of that industry giant would mean years of growth. With the company's stock down around 60% from its post-IPO peak, long-term growth investors might want to take a closer look at the stock today while it's still proving it can grow and turn a profit at the same time.
