Dutch Bros Inc (NYSE:BROS) caught our attention shortly after the IPO. The company operates a growing chain of coffee and specialty-drink establishments with a focus on drive-through capability. The company is not only growing but snowballing within Starbucks’ home territory.
With 500 stores in the network now and an outlook for at least 4,000 in total, we view this stock as a growth opportunity with legs. The Q3 results underscore that outlook and put the company on track to once again outperform even its optimistic expectations for fiscal 2022.
Joth Ricci, Chief Executive Officer and President of Dutch Bros Inc., stated,
“We are very pleased with the strength of our third quarter and year-to-date results which are exceeding the optimistic set of expectations we established going into 2021. While we are excited to have recently begun our journey as a public company, we are already focused on a clear set of growth-minded objectives that make Dutch Bros a national brand.”
Dutch Bros Inc. Exceeds Expectations, Guides Higher
Dutch Bros Inc had a great quarter exceeding all expectations by significant margins. The company reported $129.8 million in revenue for a gain of 49.8% over last year and beating consensus by 370 basis points. The strength was driven by company expansion, and the company added 33 new stores during the quarter and organic traffic. Comps are up 7.3% systemwide with a slightly smaller 4.7% gain at company-owned stores. On a two-year basis, comps are up 10.7%.
There was some pressure on the margins but less than expected. The company’s gross profit increased by 18% at company-owned stores, 23.8% adjusted, leaving both the GAAP and adjusted earnings well above target. The company posted a loss on a GAAP basis, but there is a mitigating factor.
The company recognized non-cash impairments related to IPO costs and stock-based compensation that more than make up the loss. Regardless, the GAAP earnings of -$0.15 beat the consensus by $0.39, and the adjusted results are just as good. On an adjusted basis, the company posted $0.23 in EPS to beat the Marketbeat.com consensus estimate by $0.15.
The best news, perhaps, is the guidance above the consensus and includes a forecast for the addition of “at least 112” new stores. The new stores alone are worth more than 20% of the current footprint and will likely be coupled with organic strength, but that’s next year.
As for the guidance this year, the company is expecting Q4 revenue in a range of $125 to $128 million versus the consensus of $121.5 million, and new stores will be involved here as well.
Analysts Remain Bullish
The analysts have been bullish on Dutch Bros Inc. from the start, and the sentiment is getting rosier. There have been at least four major sell-side notes out since the earnings release, and they are all bullish. The Marketbeat.com consensus sentiment is a firm buy with a price target that assumes the stock is fairly valued at $64.
This, however, doesn’t reflect the latest activity, which included four price target increases that have the stock trading in the $70 to $85 range. The high price target of $85 was set by Piper Sandler and implied a 30% of upside for the stock.
Technical Outlook
Shares of Dutch Bros have been in an uptrend since the IPO and look like they will continue higher. Although price action met resistance in the wake of the report, the movement is ultimately bullish and helps confirm support at the moving average and freshly established trend line.
Price action may continue to move sideways over the next few days but we would expect to see it move higher in line with the trend. The risk is resistance at the $80 level and the current all-time high. If price action fails to break above that level the stock could break the trend and enter a trading range.
