Dutch Bros Coffee, a drive-thru coffee chain with headquarters in Oregon, recently reported second-quarter earnings that exceeded analyst expectations, with revenues increasing 44.2% to $186.4 million. The company now offered slightly improved sales guidance to the market, expecting to beat the $715m annual sales they had previously forecast.
The coffee chain, which is celebrating its 30th anniversary this year, opened 31 stores in the second quarter and plans to have 670 shops by the end of the year and 4,000 across the United States within a decade. Those numbers are almost exactly what they predicted they would do, which isn’t a bad thing.
The company managed to both increase prices by 3% and cut costs, resulting in quite significantly improved margins.
The share price has recovered since the stock was heavily sold in May (see chart below), losing half its value. On the Bartalks prices page, we see the share price has recovered about half those losses back in the last quarter.
Part of the reason investors were happy was the way management performed during the inflationary turmoil. In a single quarter, and under complex trading conditions, the company managed to both increase prices by 3% and cut costs, resulting in quite significantly improved margins.
We surpassed two major brand milestones during the second quarter: opening our 600th shop and exceeding $1 billion in systemwide sales on a trailing twelve-month basis. These milestones demonstrate the strength of our people-first culture and our new shop development pipeline.
We have opened 65 shops in the first half of 2022 and are on track for at least 130 shop openings for the full year. Our newest shops are exhibiting predictable and consistent sales and upward margin progression, while our 2020 and 2021 classes are generating annualised volumes that are 10% higher than our system average. As we pursue strategic growth from west to east, Dutch Bros’ portability and brand acceptance have been outstanding.
Joth Ricci, CEO and President, Dutch Bros Coffee
The company’s operating loss of $11.6 million in the first half of 2022 is not troubling for a growth stock. If they can continue to hit sales targets while keeping operating losses to a minimum, then it has a bright future ahead.
Ricci said that the current macroeconomic environment is having an impact on the chain, with company-operated store margins being squeezed by record inflation. After raising prices twice in the last nine months, Dutch Bros said it will consider hiking prices again in the second half of 2022 if necessary.
The company also adjusted its total revenue estimate for 2022 to $715 million, which is $2 million higher than analyst expectations.
Dutch Bros announced earnings after the market closed. After-hours trading saw shares rise 4.5% to $46. Their 52-week range was between $20.05 and $81.40.
In November 2021, Dutch Bros Coffee CFO Charlie Jemley considered the inflation “very mild and tempered.” However, market volatility proved the statement otherwise as increased labour and dairy costs, the company’s own conservative pricing, accelerated accrued expenses for shop maintenance and inefficiency of new stores contributed to a lower adjusted EBITDA at $9.7 million in the first quarter of 2022.
