Dutch Bros Inc. (NYSE: BROS), a growing brand in the food service and restaurant industry in the United States, is quite well-known among consumers mainly for its cold beverages, such as the Blue Rebel energy drinks. Being in the early stage of its development, the company aims to expand through a minimum of 4,000 shops nationwide over the next 10 to 15 years.
The company, which went public in September 2021, has reported a surprise loss in the first quarter of 2022. Meanwhile, total revenues surpassed analysts’ expectations.
Following the results, shares of the company plunged 37.42% in the extended trading session on Wednesday after closing 15.76% lower on the day.
Results in Detail
Dutch Bros incurred an adjusted loss of $0.02 per share against the Street’s estimated earnings of $0.01 per share.
Total revenues generated during the quarter grew 54% year-over-year and came in at $152.2 million, beating the consensus estimate of $145.63 million. Company-operated shop revenues stood at $130.2 million, up 67.1%, while System same shop sales jumped 6%.
The company opened 34 new shops in the quarter, reflecting the second-highest quarterly opening count.
Adjusted EBITDA was $9.7 million, down 48.1% year-over-year. Elevated dairy costs, labor costs, and the overall increase in operating and other costs negatively impacted EBITDA.
Outlook
Encouragingly, Dutch Bros CEO Joth Ricci, said, “Our ability to increase revenues while successfully developing new shops reinforces our commitment to offering exceptional drive-thru experiences and confidence in our long-term strategy and growth targets.”
“Still, we were not immune to the record inflation that surpassed our expectations and pressured margins in our company-operated shops. While we believe these margin impacts may be short-term, we have opted to take a more conservative stance regarding adjusted EBITDA for 2022 as we monitor our pricing and the escalating cost environment,” Ricci added.
For 2022, management expects total system shop openings to reach 130, including minimum of company-operated 110 shops.
Full-year total revenues are forecast in the range of $700 million to $715 million, while capital expenditures are estimated to land between $175 million and $200 million.
Now, Dutch Bros estimates adjusted EBITDA to be a minimum of $90 million in 2022, lower than the prior range of $115 million to $120 million, incorporating margin pressure in company-operated shops in the near-term and modest price increases during the year.
Wall Street’s Take
Following the results, Stifel Nicolaus analyst Chris O`Cull downgraded Dutch Bros to a Hold from a Buy and significantly decreased his price target to $30 (12.71% downside potential) from $70.
Cull considers Dutch Bros as a compelling growth investment in the restaurant industry impressed by the company’s unit-level economics, expansion potential, and pace of development.
“Despite these favorable attributes,” the analyst believes that “the company may struggle to successfully defend margin if traffic trends remain under pressure, which could lead to depressed EBITDA growth and a lack of margin visibility over the next several quarters.”
Consensus among analysts is a Strong Buy based on four Buys versus one Hold. The average Dutch Bros price target of $58.50 implies 70.21% upside potential from current levels. However, shares have lost 6.3% over the past year.
Bloggers Weigh in
Bloggers seem enthused by the company’s earnings results. TipRanks data shows that financial blogger opinions are 75% Bullish on BROS, compared to a sector average of 67%.
Ending Remarks
Almost at a 52-week low, with high analyst ratings, strong revenues, and the company’s expansion mode as factors in consideration for Dutch Bros, investors might consider buying the dip on this stock for potential long-term gains.
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