Dutch Bros (BROS 6.57%) is a small coffee-shop chain with big ambitions. It has recently grown from a regional presence to operating in 18 states, and the positive reception in different locales bodes well for the future. As the company has swept across the country, its stock has been up and down, but it's up 68% in 2024, beating the market by a landslide. Where might it be five years from now?
What's happened over the last five years
Dutch Bros went public in 2021, but it's been around much longer. The company opened its doors in 1992 as a pushcart in Oregon.
As it expanded into several stores, Dutch Bros. retained its original cultural feel of good times and good music. It's made that a part of its brand as it becomes a large chain, bringing good vibes into each store with a relaxed and customer-friendly atmosphere.
It had 503 stores when it went public, mostly on the West Coast, and has 950 as of the end of the 2024 third quarter, or close to double in three years. It opened around 150 stores in 2024 and plans to have around 4,000 stores over the next 10 to 15 years, which implies accelerating openings.
The company has maintained robust revenue growth since its initial public offering (IPO), including 28% year over year in the third quarter. Less reliable has been its same-shop sales growth. This has been impacted by a number of factors over the past few years in a challenging operating environment.
Dutch Bros. caught up to inflation by raising its prices to meet rising costs and is still managing through a slowdown in consumer spending. Same-shop sales growth has been better and worse by turns over this time and was 2.7% in the third quarter. The quarter also marked its best transaction growth in two years, which means that same-shop increases aren't only coming from price increases.
The company has also gone from sometimes profitable to fully profitable, although it's a short track record. It reported its first full-year profit in 2023 and is on track to report one again for 2024. Net income was $21.7 million in the third quarter, up from $13.4 million in 2023.
What the next five years might bring
Investors were worried when management said earlier this year that it would come in on the low end of its store opening plans for 2024. As it's growing, Dutch Bros. changed some of its real estate strategy, and some targeted locations didn't meet the new criteria.
This could feel like a blow and is definitely not something to ignore. But if the company can open new locations more strategically and efficiently, shareholders will be better off in the long run. Management has yet to provide 2025 guidance, but if its new plans are moving along smoothly, there should be greater expansion plans for the new year, especially if the company still expects to reach its long-term store goals.
As it continues to open new stores in new regions, Dutch Bros. should have an easy time increasing its revenue. The more important number to watch is the same-store sales growth. The company has navigated fairly well under pressure from economic conditions, and it should get easier to report same-store sales growth.
Dutch Bros. recently rolled out mobile ordering throughout its store network. As it opens new stores with mobile ordering in place, it should positively impact the top and bottom lines. The company is building its newer stores to be able to handle multiple types of ordering, from in-store and mobile to walk-up windows.
All of this progress in operations should trickle down to a growing bottom line. Wall Street expects earnings per share (EPS) of $0.45 in 2024, up from $0.30 last year, and it's looking for $0.55 in 2025.
Dutch Bros is rolling out efficiently and should be bigger and better five years from now. Investors who buy today should expect to see their money grow at what could be a market-beating rate.
