Here's Where We Would Add to Our Cup of Dutch Bros
Despite the market's icy response to a lack of guidance from BROS, we see something good brewing.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
Dutch Bros BROS held its first Investor Day on Thursday and the management team laid out how, despite passing its 1,000 locations earlier this year, it remains a growth company. As part of that, the company announced its long-term goal of hitting 2,029 shops by 2029. Based on its 2025 target of adding at least 160 new shops this year, that implies an acceleration of its footprint expansion to a compound annual growth rate of 15% over the 2026-2029 period. Our thinking is some years will be stronger than others, but the strategy fits with the geographic expansion that has been a staple of others, like McDonald’s MCD, Starbucks SBUX, and others before Dutch Bros.
As part of that, the company said that so far this quarter it has opened 27 new shops and targets an additional three before it's over. That suggests we will see a back-end loaded new store count. Management also shared that through this past Monday, system shop sales were up 4.6% quarter to date, which suggests that even as consumers are becoming more cautious in their spending they are not cutting back on their guilty pleasures.
Leveraging that footprint expansion and low-single-digit comp sales growth, management reiterated its long-term guidance of around 20% annual revenue growth. Helping support that guidance, the company confirmed it will introduce an expanded food menu in 2026. We continue to see this mimicking what Starbucks and others have done, but we appreciate the more conservative approach taken by Dutch. It expects to have a targeted menu offering of around eight items across hot food and bakery items. Management also set out realistic expectations, noting that it does not expect to see its food offering to become as large as 25% of its revenue like it is at Starbucks, but it will move up considerably from around 2% today. We think this is the right menu offering will help bolster demand outside of the key morning hours.
Dutch Bros also announced it will enter the consumer-packaged goods CPG space in a deal with Trilliant Food & Nutrition. Trilliant is one of the largest coffee manufacturers of single-serve cup and ready-to-drink coffee in the U.S. with products available in more than 50,000 retail stores across the country. The deal is a licensing one, which tends to have favorable margins and should help build brand awareness for Dutch as it continues to expand its geographic reach. It’s also another page out of the Starbucks playbook.
All in all, we would characterize the event as a nice update that confirms the use of the industry expansion playbook. It was that opportunity that first attracted us to BROS shares, and it’s clear the story is tracking.
What the event did not contain, and this is likely why BROS shares are trading off some today, was raised guidance. We are not surprised if Dutch held back from providing guidance, given the current economy, but its comments about shop openings and same-store sales point to it being on the right track. As we’ve seen in recent weeks without a formal guidance increase, however, the market is going to be left wanting, at least in the short-term.
The recent pullback in BROS shares offers ample upside to lift the current "Two" rating to a "One," but given the market comments we wrote as we cleared out the Lockheed Martin LMT shares earlier today, we’re going to hold off for now. We will keep an eye on the 100-day moving average near $59.41, a place that could lead us to not only upgrade the shares if they find their way there and successfully test it but pick up some as well.
The Portfolio is long BROS.
