Coffee chain Dutch Bros (BROS +0.00%) has been around since 1992, but joined the public stock market much later. The company raised $557 million in its initial public offering (IPO) on Sept. 17, 2021.
How have early investors fared in the roughly four years since then?
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Dutch Bros beat the market, but just barely
As of Dec. 9, Dutch Bros stock has gained 60.6% since the IPO. The S&P 500 (^GSPC +0.18%) stock market index rose 53% over the same period, though. In other words, Dutch Bros hasn't exactly crushed the market since going public.
Move the goalposts, change the story
Dutch Bros' stock returns change dramatically if I shift the starting point of the comparison by just a few days. For example, the stock posted an underwhelming 14% return since Sept. 20, 2021 -- just three calendar days after the IPO. I could also cherry-pick a starting date to make Dutch Bros look mighty good:
The market cap grew faster than your portfolio
Either way, Dutch Bros' stock has seen robust but not mind-blowing returns over time. But the stock started out with a modest $1.71 billion market cap, and now it's up to $7.48 billion. That's a 336% increase -- far ahead of the double-digit gains its investors experienced.
That mismatch is the result of massive stock dilution. That's a two-part issue:
- Dutch Bros ran several secondary stock offerings in 2023 and 2024, bolstering a cash-poor balance sheet. The company had 57.4 million fully diluted shares outstanding in the second quarter of 2023. By the end of 2024, the diluted share count had ballooned to 115.2 million.
- The company also offers stock-based compensation to some employees. That non-cash expense accounted for 19% of Dutch Bros' selling, general, and administrative costs in 2023, for instance. Backing out just that line item from 2023's bottom line would lift full-year earnings from $0.03 to $0.27 per diluted share. This program also adds a significant number of additional shares every year, on top of the company's secondary stock offerings.
NYSE: BROS
Key Data Points
Why Dutch Bros keeps selling stock
Dutch Bros is raising capital for a reason, of course. The store count has exploded from 503 drive-through coffee shops in September 2021 to 1,043 locations in the latest report. And nearly all of the additional stores are company-owned, while the number of franchised operations only increased by 20%.
Management aims to have a cheeky 2,029 coffee shops in operation by the year 2029. Those stores don't just build themselves. So Dutch Bros sells stock, takes on loans, and builds company-owned locations across the country in a spirited growth effort.
Just keep in mind that the ambitious growth strategy also limits its stock returns due to heavy dilution along the way.
