As Same Stores Sizzle, Is Now the Time to Buy Dutch Bros?
Key Points
Dutch Bros turned in another strong quarter of same-store sales growth.
Meanwhile, the company plans to ramp up expansion next year.
The company has one of the best growth profiles in the restaurant space.
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Dutch Bros (NYSE: BROS) continues to deliver strong sales results despite a difficult consumer environment. However, the stock was unable to find any traction after the report, and it's now up just modestly on the year.
Let's take a closer look at the coffeeshop operator's third-quarter results to see if now is a good time to buy the stock.
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Strong growth continues
As many lower-income consumers struggle, the quick-service restaurant industry has been one of the hardest hit. However, Dutch Bros continues to see little impact, growing its same-store sales (comps) by 5.7% in Q3 with same-store transactions jumping 4.7%. Company-owned stores outperformed yet again, with comparable-shop sales climbing 7.4% on a 6.8% increase in transactions.
Same-store sales are one of the most important metrics in the restaurant and retail spaces because they are the best indication of how individual locations are performing. The fact that Dutch Bros was able to see its same-store transaction growth accelerate, given the current industry environment, is impressive.
Order-ahead mobile ordering and its rewards program are helping power its same-store growth. Order-ahead made up about 13% of its transactions in the quarter, which were up from 11.5% in Q2. The company said some newer markets are double that. Reward members, meanwhile, accounted for 72% of transactions, which was a 5-point increase from a year ago. The company also said that paid advertising is starting to increase brand awareness and bring in more customers.
The company also continues to roll out hot food items to its stores, reaching 160 locations at the end of Q3. It expects to complete its rollout by the end of 2026, although it said about a quarter of its current locations are not set up to handle hot food due to their layouts. It is currently seeing a 4% comp lift at stores that are offering hot food items, with 25% of that coming from increased transactions.
Meanwhile, given its strong store performance, Dutch Bros plans to accelerate its shop openings. In Q3, it opened 38 new shops in 17 states, with 34 of them company owned. It brought stores to five new states during the quarter, and it now operates in 24 states.
It now expects to open around 175 shops next year, up from around 160 openings in 2025. At quarter-end, its total shop count was 1,081, of which 759 were company owned. It remains committed to opening 2,029 locations by 2029.
The combination of strong comps and new stores led to a 25% increase in total revenue to $423.6 million. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose 37% year over year to $78 million, while adjusted earnings per share (EPS) climbed 19%, from $0.16 to $0.19.
Image source: Getty Images.
Gross margins for company-owned stores decreased by 120 basis points to 21%. The company expects to see the impact from higher coffee prices begin to accelerate in Q4 and remain high in 2026. It has been said in the past that coffee accounts for about 10% of its cost of goods sold. It will also see some higher costs stemming from its hot food rollout.
Looking ahead, the company once again raised its sales guidance for the full year. It is now projecting revenue of between $1.61 billion to $1.615 billion, with same-store sales growth of approximately 5%. It maintained its adjusted EBITDA guidance of between $285 million and $290 million.
| Guidance | Revenue | Same-Store Sales | Adjusted EBITDA |
|---|---|---|---|
| Original (Feb) | $1.555 billion to $1.575 billion | 2% to 4% | $265 million to $275 million |
| Prior Guidance (Aug) | $1.59 billion to $1.60 billion | 4.5% | $285 million to $290 million |
| New Guidance (Nov) | $1.61 billion to $1.615 billion | 5% | $285 million to $290 million |
Source: Company press releases. EBITDA = earnings before interest, taxes, depreciation, and amortization.
Is the stock a buy?
Dutch Bros is arguably one of the best stories in the restaurant space right now. Even in a tough consumer environment, it is seeing robust same-store sales growth, while the addition of hot food should help lift comps into next year.
On top of that, the company has a strong expansion story ahead. It's still in less than half the states and has plenty of room to grow in those it is already in. Its small-shop, drive-thru model, meanwhile, is relatively low cost to build out, and the costs are easily covered by its strong operating cash flow.
Given its strong operating performance and long runway of expansion, the stock looks like a solid buy at current levels.
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Geoffrey Seiler has positions in Dutch Bros. The Motley Fool recommends Dutch Bros. The Motley Fool has a disclosure policy.
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