Coffee chain Dutch Bros (BROS -1.04%) has been around for 30 years, but it's only recently become a public company and decided to attempt a huge expansion. It's reporting high growth and improving profitability, but investors haven't been so keen on it recently. Where will the company and its stock be a year from now?
What's happened over the past year
2023 was a big year for Dutch Bros. It realized the next phase of its expansion plans, opening 159 stores, more than its target of 150. It now has 831 locations across 16 states -- and growing. There's a new CEO at the helm, and Dutch Bros recently reported an annual net profit.
All those things go together. The co-founder and CEO stepped down to make way for a new top executive to lead the company into its next growth stage. Current CEO Christine Barone comes from Starbucks, as do many of her new hires.
Dutch Bros closed out 2023 in an excellent position. Revenue increased 31% to $966 million. Company-operated shop contribution margin expanded from 24.6% to 28.2%, and net income was $10 million after a $19 million loss in 2022. After dipping into declines, same-store sales growth has been increasing consistently and consecutively, reaching 5% in the fourth quarter and up 2.8% for the year.
A huge market opportunity
Management sees the opportunity to reach at least 4,000 stores over the next few years. Dutch Bros's concept is resonating with its core West Coast market and demonstrating its ability to travel eastward. The company plans to open as many as 165 stores in 2024.
It's also looking at different store models. Dutch Bros focuses on speed, quality, and fun. That includes friendly and quick service for custom-crafted beverages, and drive-thrus are a big part of that.
Anecdotally, Dutch Bros customers love the chain. That was reinforced by it being chosen as the top fast-food brand in Nation's Restaurant News and Technomic's America's Favorite Chains survey. Investors don't always pay attention to these kinds of outside-of-the-numbers factors, but they can make a huge difference to a company's prospects. If customers love Dutch Bros coffee, it likely has a long, strong road ahead.
The company plans to grow strategically in 2024, investing in long-term efforts to fuel greater growth and profitability at scale. In the short term, that includes a high capital investment in a new operational center in Phoenix.
A year from now, Dutch Bros will have more stores and is likely to enter additional states. Revenue growth should continue to be strong. Keep an eye on same-store sales growth, which indicates how much it's increasing sales per store. That's important for a few reasons. For one, it speaks to a company's popularity and long-term potential to increase revenue. It's also another angle on operational efficiency since higher sales per store means it's using its resources more effectively. Although same-store sales are moving in the right direction, Dutch Bros has struggled on this metric lately.
Although Dutch Bros ended 2023 with an annual profit, it took a step backward in the fourth quarter with an increased net loss. Companies in growth mode don't necessarily demonstrate linear progression, but you should expect to see overall progression, such as an increase in annual net income, in 2024.
Buy this growth stock on the dip
Dutch Bros is well positioned to unlock greater value through expansion, and it made the right move by bringing in an experienced team to make that happen. This mitigates some of the risks associated with its young age and only recently profitable status.
Investors seem to be focused on the risk, and Dutch Bros stock is down 11% over the past year. At the current price, Dutch Bros stock traded at less than 2 times trailing-12-month sales. If you have some risk tolerance, this looks like an excellent opportunity to buy shares on the dip.
