Dutch Bros (BROS 3.67%) demonstrated why it is one of the most exciting stories in the restaurant space when it reported its second-quarter results. The stock shot higher and recently was up more than 30% on the year.
Let's take a closer look at the coffeeshop operator's results and its future prospects to see whether it's too late to buy the stock or if its momentum can continue.
Image source: Getty Images.
The long-term story is intact
While it has been a mixed picture for restaurant operators in the current environment, Dutch Bros has been just humming along. In Q2, it posted another solid quarter of same-store sales (comps) growth, with systemwide comps up 6.1% and same-store transactions climbing 3.7%. Company-owned stores once again performed even better, with comps climbing 7.8% and transactions up 5.9%.
Same-store sales are one of the most closely watched metrics in the restaurant and retail spaces, as they show how individual locations are performing.
The company said its new order-ahead mobile ordering is helping drive growth, accounting for approximately 11.5% of its transactions in the quarter. It also remains excited by its expanded food pilots, with stores offering new food items seeing incremental growth in the morning daypart. It noted, however, that to expand its food offerings, it needs to add freezers, ovens, and different racks to shops. So, this will take time to roll out. But in stores that are piloting its new food items, it has been seeing a lift in tickets and transactions.
The company also highlighted that it has started to lean into paid advertising. It said this has significantly improved both its aided and unaided awareness compared to a year ago. Dutch Bros also continues to innovate, with its new drinks helping to drive traffic.
Expansion continues to be a major growth driver for the company. In the quarter, it opened 31 new shops in 13 states, with all but one company-owned. It expects to open at least 160 shops this year, which would amount to 16% growth. At quarter-end, its total shop count was 1,043, of which 725 were company-owned.
It said it is well positioned to reach its goal of having 2,029 locations by 2029. The company still sees a total nationwide addressable market of 7,000 shops. Dutch Bros added that new shop productivity has been robust, with customers lining up on the first day a shop opens.
The combination of strong comps and new stores led to a 28% jump in total revenue to $415.8 million. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) climbed nearly 37% year over year to $89 million, while adjusted earnings per share (EPS) jumped 67%, from $0.12 to $0.20.
Gross margins for company-owned stores rose 60 basis points to 24.3%. The company has locked in its coffee prices for the year, but it continues to monitor the impact of tariffs. About half its coffee is sourced from Brazil, and coffee accounts for about 10% of its cost of goods sold.
Looking ahead, the company raised its guidance for the full year. It now expects revenue of $1.59 billion to $1.6 billion, with same-store sales growth of approximately 4.5%. It projected adjusted EBITDA to be between $285 million and $290 million.
| Guidance | Revenue | Same-Store Sales | Adjusted EBITDA |
|---|---|---|---|
| Original | $1.56 billion to $1.58 billion | 2.0% to 4.0% | $265 million to $275 million |
| Updated | $1.59 billion to $1.60 billion | 4.5% | $295 million to $290 million |
Source: Company press releases. EBITDA = earnings before interest, taxes, depreciation, and amortization.
Is it too late to buy the stock?
Dutch Bros continues to be hitting on all cylinders, but the best could still be ahead for the company. Mobile ordering is still in its early days, while food is in its infancy. Both are seeing good early traction and should be solid growth drivers in the coming years.
Meanwhile, the company has a huge expansion opportunity in front of it. Its small-shop, drive-thru model is cost-efficient, allowing it a quick payback period. It's also generating solid operating cash flow, allowing it to self-fund its store expansion without having to take on debt.
Despite their size, the company's shops produce average annual sales of more than $2 million (average unit volume), so the opportunity is quite large. As such, I don't think it's too late for long-term investors to own shares of Dutch Bros, as it remains one of the best growth stocks in the restaurant space.
