Why Dutch Bros Stock Soared 17% in June

Investors are getting excited about the long-term opportunity.

Shares of Dutch Bros (BROS -0.05%) stock jumped 17% in June according to data provided by S&P Global Market Intelligence. There wasn’t any specific news about it in June, but investors are feeling confident about it after a strong first-quarter report and raised guidance.

The best cup of coffee many Americans have never tried

Dutch Bros is a chain of coffee shops headquartered in Oregon with shops along the West Coast. It’s been in operation for decades, but it only recently went public and created a wide-ranging expansion strategy. It now has 876 stores in 17 states and counting as it spreads east across the country.

Dutch Bros has some signature, bold beverages that customers love and that separate it from other coffee chains. It’s focused on friendly customer service and being a place where people can come in and have a good time. However, it’s also dedicated to quick service, and it has a strong order and drive-thru business. Since it’s still quite small and setting up its infrastructure, it can be nimble in growing to meet consumer demand. This is a problem that’s frustrating coffee chain giant Starbucks right now that Dutch Bros doesn’t have.

Dutch Bros products are also cheaper than Starbucks and seen as a better value, which is helping it in the inflationary environment. Even if customers don’t want to give up their little luxuries like a good cup of coffee, they might switch down to a cheaper alternative.

It originally felt the pressure of inflation in its margins, comparable sales, and profits, but it has been able to raise prices successfully, and it’s rebounded, even though it’s still the cheaper alternative.

Sales growth continues to be robust, with much of it coming from new stores. It’s planning to open up to 165 stores this year, and for a fleet as small as it is, that’s a lot. Comparable sales have returned as an important source of growth, increasing 10% year over year in the 2024 first quarter. That allayed investor concerns over weak comparable growth for several quarters.

A powerful opportunity

Considering its small size and popularity, Dutch Bros has a compelling growth opportunity. It’s taking action to position itself for efficient growth, such as transforming its executive team and opening a new resource center in Arizona to suit its expansion efforts.

Management raised its full-year outlook after the solid first-quarter report, and investors are enthusiastic about the potential.

Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Starbucks. The Motley Fool has a disclosure policy.

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