Coffee chain Dutch Bros (NYSE:BROS) reported revenue ahead of Wall Street’s expectations in Q3 CY2024, with sales up 27.9% year on year to $338.2 million. The company’s full-year revenue guidance of $1.26 billion at the midpoint came in 2.2% above analysts’ estimates. Its non-GAAP profit of $0.16 per share was also 37.1% above analysts’ consensus estimates.
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Dutch Bros (BROS) Q3 CY2024 Highlights:
- Revenue: $338.2 million vs analyst estimates of $325 million (4.1% beat)
- Adjusted EPS: $0.16 vs analyst estimates of $0.12 (37.1% beat)
- EBITDA: $63.76 million vs analyst estimates of $57.3 million (11.3% beat)
- The company lifted its revenue guidance for the full year to $1.26 billion at the midpoint from $1.22 billion, a 2.9% increase
- EBITDA guidance for the full year is $217.5 million at the midpoint, above analyst estimates of $209.4 million
- Gross Margin (GAAP): 26.6%, down from 28.4% in the same quarter last year
- Operating Margin: 9.6%, in line with the same quarter last year
- EBITDA Margin: 18.9%, down from 20% in the same quarter last year
- Locations: 950 at quarter end, up from 794 in the same quarter last year
- Same-Store Sales rose 2.7% year on year (4% in the same quarter last year)
- Market Capitalization: $3.83 billion
Company Overview
Started in 1992 by two brothers as a single pushcart, Dutch Bros (NYSE:BROS) is a dynamic coffee chain that’s captured the hearts of coffee enthusiasts across the United States.
Traditional Fast Food
Traditional fast-food restaurants are renowned for their speed and convenience, boasting menus filled with familiar and budget-friendly items. Their reputations for on-the-go consumption make them favored destinations for individuals and families needing a quick meal. This class of restaurants, however, is fighting the perception that their meals are unhealthy and made with inferior ingredients, a battle that's especially relevant today given the consumers increasing focus on health and wellness.
Sales Growth
A company’s long-term performance is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for multiple years.
Dutch Bros is a mid-sized restaurant chain, which sometimes brings disadvantages compared to larger competitors benefiting from better brand awareness and economies of scale. On the other hand, it has an edge over smaller competitors with fewer resources and can still flex high growth rates because it’s working from a smaller revenue base.
As you can see below, Dutch Bros’s 39.4% annualized revenue growth over the last five years (we compare to 2019 to normalize for COVID-19 impacts) was incredible as it opened new restaurants and increased sales at existing, established dining locations.
This quarter, Dutch Bros reported robust year-on-year revenue growth of 27.9%, and its $338.2 million of revenue topped Wall Street estimates by 4.1%.
Looking ahead, sell-side analysts expect revenue to grow 19.2% over the next 12 months, a deceleration versus the last five years. Still, this projection is healthy and indicates the market sees success for its offerings.
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Restaurant Performance
Number of Restaurants
Dutch Bros operated 950 locations in the latest quarter. It has opened new restaurants at a rapid clip over the last two years and averaged 23.2% annual growth, much faster than the broader restaurant sector. This gives it a chance to become a large, scaled business over time.
When a chain opens new restaurants, it usually means it’s investing for growth because there’s healthy demand for its meals and there are markets where the concept has few or no locations.
Same-Store Sales
The change in a company's restaurant base only tells one side of the story. The other is the performance of its existing locations, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales is an industry measure of whether revenue is growing at those existing restaurants and is driven by customer visits (often called traffic) and the average spending per customer (ticket).
Dutch Bros’s demand has been spectacular for a restaurant chain over the last two years. On average, the company has increased its same-store sales by an impressive 3.4% per year. This performance along with its meaningful buildout of new restaurants suggest it’s playing some aggressive offense.
In the latest quarter, Dutch Bros’s same-store sales rose 2.7% annually. This growth was a deceleration from the 4% year-on-year increase it posted 12 months ago, showing the business is still performing well but lost a bit of steam.
Key Takeaways from Dutch Bros’s Q3 Results
We were impressed by how significantly Dutch Bros blew past analysts’ revenue and EBITDA expectations this quarter. We were also glad it raised its full-year revenue and EBITDA guidance. Zooming out, we think this was a solid quarter. The stock traded up 14.8% to $40.08 immediately following the results.
Indeed, Dutch Bros had a rock-solid quarterly earnings result, but is this stock a good investment here? If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free.
