With the recent market sell-off, a number of growth stocks have fallen from their highs. One such stock that could give investors’ portfolios a jolt is Dutch Bros (NYSE: BROS).
The coffeehouse operator has a number of potential growth drivers over the next few years that should help power its stock moving forward.
The biggest growth driver for most restaurant stocks is store expansion. This is what has propelled companies like McDonald’s, Chipotle, and Starbucks (NASDAQ: SBUX) to where they are today.
On this front, Dutch Bros is very well positioned. The company ended last year with 982 locations, of which 670 were company-owned. Meanwhile, it currently operates in just 12 states, most of which are in the western part of the U.S. The farthest east it has expanded to is Tennessee, where it has three locations.
Oregon, where the company was founded, is its biggest market with 155 locations, followed by California with 149. By comparison, Starbucks operated 17,049 total locations in the U.S. at year-end. This included more than 3,000 stores in California alone.
Notably, Dutch Bros stores are very basic with most new builds falling between 800 square feet and 1,000 square feet. Most stores have no inside seating; they rely on a walk-up window and multiple drive-thru lanes. As such, the cost to build out a new location is not particularly high, and the returns are strong.
The company added 151 new stores last year, of which 128 were company-owned. It plans to increase that to around 160 new locations this year, which would represent about 16% unit growth. Most of this growth will come in the second half of 2025 as the company has worked to reevaluate and optimize its real estate strategy.
Now, expansion by itself does not ensure success. Donut shop Krispy Kreme rapidly expanded back in the early 2000s before having to declare bankruptcy. Restaurant operators must grow prudently, and Dutch Bros appears to be doing so, using its operating cash flow to build out its store base.
Dutch Bros has also enjoyed solid same-store sales growth with this metric jumping 6.9% last quarter. This was led by price increases as well as a 2.3% rise in transactions. Company-operated stores performed even better with comparable-store sales climbing 9.5% and transactions up 5.2%.
One driver has been the introduction of mobile ordering. While a bit late to the game, Dutch Bros now has mobile ordering capabilities in 96% of its stores. However, only 8% of its orders come from mobile devices, so this initiative has room to grow. It’s also tying in mobile ordering with its loyalty program. This is a great way to keep in touch with customers and incentivize them to make frequent visits.
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2025-03-22 18:12:00
