In This Article:
Share prices of Dutch Bros (NYSE: BROS) have been racing higher, more than doubling over the past 12 months. That said, the stock is still trading slightly below where it was in the post-IPO excitement that often surrounds new issues. Given the growth that this coffee shop has achieved, it seems reasonable to expect more upside to come. It could help set investors up for life if the growth continues, but there's an important metric they need to monitor if they buy it.
Dutch Bros business is expanding rapidly
The quickest way for a small restaurant brand to grow is to open lots of new locations. That's the big-picture story around Dutch Bros and its coffee shops. For example, in the third quarter of 2024, it opened 38 new locations, 33 of which were company-owned while the rest were operated by franchisees (more on this in a second). Those new openings brought the company's store count up to 950, with 645 of those being company-owned and operated.
At the end of the third quarter of 2023, Dutch Bros had 794 locations, meaning in just one year, it grew its footprint by around 20%. That's a huge amount of store expansion. So it shouldn't be a shock that the company's sales increased by a heady 28% year over year. This is why investors are so excited.
But how big could Dutch Bros get? At the end of September 2024, Starbucks (NASDAQ: SBUX) operated over 40,000 locations around the world. Given that Dutch Bros hasn't even broken 1,000 locations yet, even growing to a quarter of the size of Starbucks would mean there's a massive growth opportunity ahead -- and one that could possibly set you up for life if the stock grows along with the company.
The number to watch at Dutch Bros
Before you get too excited, you need to consider same-store sales, which looks at sales from existing locations. New locations can dramatically increase revenue, which is why this is a growth focus, but same-store sales tell you how the company's existing stores are doing. Far too often, Wall Street pushes young restaurants to expand as quickly as possible, leading management to focus on opening locations at the expense of their existing stores. If same-store sales are weak, the brand may not be doing as well as the growing top line is suggesting.
In the third quarter, Dutch Bros' same-store sales rose 2.7%. That's OK, but not great. For comparison, Cava (NYSE: CAVA), a small Mediterranean-themed restaurant brand, grew same-store sales by 18.1%. That's probably not a sustainable figure, but it suggests that there's way more demand for the Cava concept than for Dutch Bros' concept. However low single-digit same-store sales growth is acceptable if the company continues to open new locations at a rapid clip.