Dutch Bros Shares Surge: Analyzing its Future

Shares of Dutch Bros (BROS) are witnessing a significant upward trend following the company's strong fourth-quarter results and positive future projections. The stock has increased almost 200% over the past year and has seen a rise of more than 50% just in the current year.

This article provides a detailed exploration of Dutch Bros' performance and evaluates whether now is a good time to invest in its stocks.

Future Expansion Plans

At its core, Dutch Bros is primarily an expansion-focused business. In 2024, the company inaugurated 151 new locations, 128 of which were company-owned. This includes 32 locations in the fourth quarter alone. By the end of the year, Dutch Bros had a total of 982 locations, with 670 of them owned by the company.

The company plans to launch at least 160 new outlets in 2025, which amounts to approximately 16% growth in units. Moreover, Dutch Bros intends to hasten its expansion in the latter half of the year.

Its newer stores are generally smaller, ranging from 800 to 1,000 square feet. These locations include multiple drive-thru lanes served by a single window and an additional walk-up window. At the time of its initial public offering (IPO) in 2021, the company reported year-two cash-on-cash returns ranging from 35% to 75%, depending on whether it opted for a build-to-suit arrangement or a ground lease. This impressive return allows the company to finance new openings with its operating cash flow.

The increase in store numbers contributed to a 35% boost in revenue during the fourth quarter, totaling $342.8 million. This figure surpassed analysts' predictions of $318.8 million.

In terms of same-store sales, Dutch Bros saw a 6.9% increase, with transactions going up by 2.3%. More notably, same-store sales at company-operated locations surged by 9.5%, while transactions in those stores rose by 5.2%. Since company-owned stores are more influential in revenue generation than franchises, these results underscore the brand's effective marketing. The company attributed this sales success to its innovative approaches and appealing limited-time offers (LTOs).

Currently, 96% of Dutch Bros locations support mobile ordering, with about 8% of all orders being placed through mobile devices. The effectiveness of its rewards program is commendable, as 71% of transactions are conducted by rewards members.

Gross margins for company-operated stores climbed by 280 basis points to reach 21.4%, even in the face of rising coffee prices. Higher gross margins can lead to increased profitability, which is promising for investors.

Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) saw a year-over-year increase of 41%, amounting to $48.8 million, and the adjusted earnings per share (EPS) surged by 75%, from $0.04 to $0.07, well above analysts' forecast of $0.02.

For 2025, Dutch Bros anticipates revenue between $1.555 billion and $1.575 billion, marking a 22% growth at the midpoint. It expects same-store sales growth to be between 2% and 4%, with adjusted EBITDA likely between $265 million and $275 million.

The company also expressed optimism about initial food tests, recognizing that many customers want food alongside their coffee. Currently, food sales only account for 2% of its revenue, significantly lower than that of major competitor Starbucks, where food made up 19% of sales last quarter. As a result, Dutch Bros aims to expand its food offerings without negatively impacting barista job satisfaction or service speed.

Is It Time to Buy Dutch Bros Stock?

Dutch Bros has consistently performed well in boosting same-store sales, and there remains significant potential to grow its food sales. The company, with fewer than 1,000 stores, has a considerable opportunity for further expansion, especially when compared to Starbucks, which had 11,242 company-owned locations and over 18,000 total stores in North America by year-end.

In the past, Dutch Bros shares traded at a forward price-to-sales (P/S) ratio of 3 times or lower, sometimes even comparable to Starbucks. However, following the significant rise in stock price, it currently trades at around 7 times its 2025 estimates, which is more than double the valuation of Starbucks.

While Dutch Bros demonstrates encouraging growth potential through its expansion strategies and enhanced food offerings, the stock no longer presents itself as a bargain. Therefore, potential investors might want to exercise caution before investing at present levels.

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