News

Dutch Bros (NYSE: BROS) stock fell 19% in August, according to data provided by S&P Global Market Intelligence . It provided some guidance in its second-quarter earnings report that the market didn't like, and it was negatively impacted by news that the restaurant industry might be facing some trouble.

The hot new name in coffee

Dutch Bros is a chain of coffee shops that has recently developed a countrywide expansion strategy along with an initial public offering (IPO). It's based in Oregon and has most of its stores on the West Coast, but it's been opening new stores at a rapid pace and generating increasing revenue.

It opened 165 new stores last year and plans to open up to 4,000 over the next 10 to 15 years. It's been quickly making its way across the country and now has 912 stores in 18 states.

There are plenty of coffee shops and chains in the U.S. today, so something stands out about Dutch Bros that's attracting shoppers and their dollars. I would say that there are two parts to this formula. One is the culture that it's developed. It's focused on customer service and speed, with innovative beverages that are fun and down to earth. It's honed this concept over the past 30 years at the few locations it had before it realized it could take it nationally. It's proven to resonate with customers all over, and the future looks bright.

The other part is the model that it has distilled for replication in new shops, including franchises. Just as important as the model itself is the ability to recreate it in new environments successfully, which Dutch Bros is doing. That's resulting in customer satisfaction and growth.

Sales increased 30% year over year in the 2024 second quarter. Comparable sales were up 4.1%, which isn't very impressive, but it's accelerating from lows and declines. It's also doing this in a challenging climate full of inflation while expanding margins and generating higher profits.

Near-term pressure is spooking the market

The story isn't as fairytale-like as it sounds so far. Dutch Bros is still a young company, and it comes with the growing pains of young rapid-growth companies. It recently changed its entire C-suite, and it's opening a new, large resource center to aid in its expansion. That comes with high capital expenditures, as do the new stores. Since the company is still new-ish, there's some risk about how things will play out.

For example, based on some changes to store development, management said its new store openings this year will come in on the low side of guidance, around 150. That sent the stock tumbling. It was also affected by a general dive in restaurant stocks after analysts warned of weak summer spending.

At the current price, Dutch Bros looks like a bargain for investors who can handle some risk.

Before you buy stock in Dutch Bros, consider this: