Dutch Bros (NYSE:BROS) Q3: Beats On Revenue, Full-Year Sales Guidance Is Optimistic

Coffee chain Dutch Bros (NYSE:BROS) reported results ahead of analysts’ expectations in Q3 FY2023, with revenue up 33.2% year on year to $264.5 million. Its full-year revenue guidance of $975 million at the midpoint came in 1.9% above analysts’ estimates. Turning to EPS, Dutch Bros made a GAAP profit of $0.07 per share, improving from its profit of $0.03 per share in the same quarter last year.

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Dutch Bros (BROS) Q3 FY2023 Highlights:

• Revenue: $264.5 million vs analyst estimates of $258.4 million (2.4% beat)
• EPS: $0.07 vs analyst estimates of $0.01 ($0.06 beat)
• The company reconfirmed its revenue guidance for the full year of $975 million at the midpoint
• Free Cash Flow of $49.1 million, up 14.7% from the previous quarter
• Gross Margin (GAAP): 28.4%, up from 25.5% in the same quarter last year
• Same-Store Sales were up 4% year on year (beat vs. expectations of just under 2% year on year growth)
• Store Locations: 794 at quarter end, increasing by 153 over the last 12 months

Joth Ricci, Chief Executive Officer of Dutch Bros, stated, “By all accounts, Q3 was a fantastic quarter, and we are extremely pleased with our unit openings, same shop sales, revenue, and profitability results. I am very proud of the team for their accomplishments, and I am encouraged by the strength of the underlying business as we execute on our plan. In Q3, we opened 39 shops systemwide and entered two new states: Alabama and Kentucky. Despite a difficult consumer backdrop, we drove a 4.0% increase in systemwide same shop sales and delivered 33% growth in our top-line revenue.”

Started in 1992 by two brothers as a single pushcart, Dutch Bros (NYSE:BROS) is a dynamic coffee chain that’s captured the hearts of coffee enthusiasts across the United States.

Traditional Fast FoodTraditional fast-food restaurants are renowned for their speed and convenience, boasting menus filled with familiar and budget-friendly items. Their reputations for on-the-go consumption make them favored destinations for individuals and families needing a quick meal. This class of restaurants, however, is fighting the perception that their meals are unhealthy and made with inferior ingredients, a battle that’s especially relevant today given the consumers increasing focus on health and wellness.

Sales GrowthDutch Bros is a mid-sized restaurant chain, which sometimes brings disadvantages compared to larger competitors benefiting from better brand awareness and economies of scale. On the other hand, Dutch Bros can still achieve high growth rates because its revenue base is not yet monstrous.

As you can see below, the company’s annualized revenue growth rate of 44.2% over the last four years (we compare to 2019 to normalize for COVID-19 impacts) was incredible as it added more dining locations and increased sales at existing, established restaurants.

This quarter, Dutch Bros reported wonderful year-on-year revenue growth of 33.2% and its $264.5 million of revenue exceeded Wall Street’s estimates by 2.4%. Looking ahead, the analysts covering the company expect sales to grow 25.1% over the next 12 months.

Number of StoresA restaurant chain’s total number of dining locations is a crucial factor influencing how much it can sell and how quickly company-level sales can grow.

When a chain like Dutch Bros is opening new restaurants, it usually means it’s investing for growth because there’s healthy demand for its meals and there are markets where the concept has few or no locations. Dutch Bros’s restaurant count increased by 153, or 23.9%, over the last 12 months to 794 locations in the most recently reported quarter.

Taking a step back, Dutch Bros has rapidly opened new restaurants over the last eight quarters, averaging 25.2% annual increases in new locations. This growth is much higher than other restaurant businesses and gives Dutch Bros an opportunity to become a large company over time. Analyzing a restaurant’s location growth is important because expansion means Dutch Bros has more opportunities to feed customers and generate sales.

Same-Store SalesDutch Bros’s demand within its existing restaurants has been relatively stable over the last eight quarters but fallen behind the broader sector. On average, the company’s same-store sales have grown by 2.5% year on year. With positive same-store sales growth amid an increasing number of restaurants, Dutch Bros is reaching more diners and growing sales.

In the latest quarter, Dutch Bros’s same-store sales rose 4% year on year. This growth was an acceleration from the 1.7% year-on-year increase it posted 12 months ago, which is always an encouraging sign.

Key Takeaways from Dutch Bros’s Q3 Results
With a market capitalization of $1.9 billion, Dutch Bros is among smaller companies, but its $149.8 million cash balance and positive free cash flow over the last 12 months give us confidence that it has the resources needed to pursue a high-growth business strategy.

We were impressed that Dutch Bros beat on same store sales, revenue, adjusted EBITDA, and EPS. While same store sales and revenue guidance for the full year were maintained, adjusted EBITDA guidance was increased. Overall, we think this was a solid quarter that should please many shareholders. The stock is up 1.3% after reporting and currently trades at $26.93 per share.

The author has no position in any of the stocks mentioned in this report.