Dutch Bros (NYSE:BROS) stock is quickly closing in on its 52-week high following a strong first-quarter financial report. Tuesday’s investor update marked the fifth consecutive quarter that the coffee chain outperformed the consensus earnings estimate. After advancing 12% in 2023, the mid-cap Starbucks (NASDAQ:SBUX) challenger is up another 13.8% year-to-date.
Headquartered in Oregon, Dutch Bros operates and franchises drive-through beverage shops with a focus on quality, speed, and service. The company sells its signature coffee and Rebel energy drinks at 876 locations across 17 U.S. states.
Dutch Bros energized investors by announcing that 2024 first-quarter same-shop sales increased 10% year-over-year due to higher customer traffic and ticket size. The performance builds off a solid fourth quarter of 2023 when same-shop sales grew 5%.
I am bullish on Dutch Bros as a long-term restaurant industry growth story. A recent study from Technomic Ignite revealed that Dutch Bros is America’s third favorite restaurant chain, thanks to its unique offerings and customer service. The company’s strong 2024 start is especially impressive because Starbucks reported a 2% revenue decline for its most recent quarter and warned of slower demand in the U.S. and China.
The market’s caffeinated reaction to the Dutch Bros first-quarter release couldn’t have come at a better time. Dutch Bros stock was on a seven-week losing streak before the recent run, as you can see in the chart below. Is this the start of a lengthy reversal?
Let’s dive deeper into the first quarter numbers, management’s full-year outlook, and Wall Street’s latest forecasts.
Dutch Bros Opened a Record Number of Stores in Q1
Driven by a record number of new locations, first-quarter revenue jumped 39% to $275 million. Dutch Bros opened 45 shops during the period, most of which were the faster-growing company-operated kind. This tied a previous record and marked the 11th straight quarter of at least 30 new shop openings.
Dutch Bros backed up the top-line numbers with strong profit metrics. Its company-operated gross profit margin expanded a whopping 520 basis points. Further, at a time when industry peers are grappling with higher labor costs, SG&A expenses were relatively flat compared to the prior year period. This helped Dutch Bros deliver an adjusted net profit per share of $0.09 and beat the $0.02 consensus estimate.
CEO Christine Barone commented that customer trends are “particularly encouraging” after traffic improved in each of the last two quarters. This is likely a result of the brand’s strong connection with Generation Z consumers, who have embraced the chain’s trendy drinks. After bringing back its popular Chocolate Crunch Cold Brew last year, Dutch Bros has launched protein milk coffee and several Poppin Boba coffees, teas, and energy drinks this year.
Dutch Bros is also benefiting from greater brand loyalty. A record 66% of first-quarter transactions were placed by Dutch Rewards loyalty program members. Increasing brand awareness and loyalty is typically a winning recipe for restaurant chains.
Management Boosted Its 2024 Outlook
Dutch Bros doesn’t appear to be pumping the brakes on its aggressive expansion strategy. The company plans to open 150 to 165 shops this year, which would bring its total above 1,000. It is also expected to bring 2024 revenue to $1.20-1.215 billion. Management previously forecast full-year revenue of $1.190-1.205 billion.
The company also raised its 2024 adjusted EBITDA estimate to $195-205 million. Wall Street analysts expect this to translate to EPS of $0.36. This gives Dutch Bros stock a 2024 P/E ratio of approximately 100x. It is no doubt a lofty valuation, but it’s one that the market is willing to award the company given its high growth prospects and potential to grab market share from Starbucks.
What Is the Consensus Price Target for BROS Stock?
Dutch Bros has a Strong Buy consensus rating, and the average BROS stock price target is $38.38. Following the stock’s post-earnings rally, this suggests that the upside (6.5%) is limited from here. However, as we saw on Friday, analyst price targets may trend higher this summer ahead of the second quarter earnings release.
On Friday, five-star analyst Andrew Charles at TD Cowen upgraded BROS from Hold to Buy. Charles gave the stock a $46.00 price target, which is currently the highest on the Street and points to nearly 30% upside over the next 12 months.
It’ll be interesting to see if similar price target increases happen, potentially bumping the consensus target above $40.00. If not, a meaningful pullback could be an entry point for BROS bulls.
The Bottom Line on BROS Stock
Dutch Bros posted strong first-quarter growth, driven by healthy customer traffic and order trends. As a result, the stock staged a high-volume rally in response, but it remains well off its 2021 IPO highs. Continued execution of management’s aggressive expansion strategy could draw more investors to this Gen Z favorite, making me bullish for the long term.
