Dutch Bros' (BROS 0.39%) stock made some dramatic moves on Friday morning. The drive-through coffee shop operator started the day 17.7% above Thursday's closing price, inspired by a Street-stumping earnings report. But the increase didn't last long, and investors quickly refocused on Dutch Bros' guidance targets. By 11 a.m. ET, the stock had reversed, dropping 1.8% instead.
NYSE: BROS
Key Data Points
The earnings were great, so what went wrong?
Dutch Bros' fourth-quarter sales rose 29% year-over-year to $443.6 million. The analyst consensus called for $424 million. On the bottom line, unadjusted earnings soared from $0.03 to $0.17 per diluted share. Here, your average analyst would have settled for $0.09 per share.
The company beat Wall Street's revenue target by 5% and nearly doubled the average earnings projection. With numbers like these, it's no surprise that the stock soared in Thursday's after-hours and Friday's market-open action.
So why did the gains fade so quickly? I see two separate issues coming together.
- Management's revenue guidance for fiscal year 2026 was just below analyst estimates, indicating a slower full-year growth rate of roughly 22%. Amid rising ingredient prices, the pending introduction of non-drinkable food items, and greater reliance on custom build-to-suit leases, Dutch Bros also expects profit margins to shrink by 0.6 percentage points next year.
- The Bureau of Labor Statistics' latest inflation report underscored the challenge: coffee prices rose 18% year-over-year in January, validating management's warning about ingredient cost pressures.
All of this data was available hours before the opening bell, but the combined impact of these distinct reports wasn't immediately obvious.
Image source: Getty Images.
The long-term story is still brewing
Honestly, the initial price jump looked like an accurate market reaction. Even at the peak, Dutch Bros' stock only returned to prices not seen since Jan. 23, three weeks ago.
I don't mind a longer buy-in opportunity, of course. Dutch Bros is still a tremendous growth story, targeting at least 2,029 locations by the end of 2029. That's up from 1,136 coffee shops in this report.
A broader menu with breakfast sandwiches and pastries should also boost the business in the long run, though the rollout process will lower operating margins in 2026.
It was fun to see the stock soar for a minute, but the real gains still lie ahead. Dutch Bros' stock is still on sale.
