Dutch Bros is Tuesday's IBD Stock Of The Day as the drive-thru coffee shop stays on track for fast growth, despite labor and inflation headwinds. BROS stock heated up in Tuesday's stock market action, surging past an early entry and then an official buy point.
'Broista' Power
The Grants Pass, Ore., chain has sidestepped the "great resignation" — an exodus of workers looking for greener pastures — CEO Joth Ricci said on the March 1 earnings call.
While shop-level turnover sounds high, at 56% in Q4, Ricci focused on regional operators, who manage multiple shops. Among this group, "we have virtually nonexistent turnover," Ricci said. He credits a people-first culture, career development opportunities and financial incentives.
That loyalty is key to Dutch Bros' ambitions to grow from 538 stores at the end of 2021 to 4,000 in the next 10-15 years, including 125 new locations in 2022. That follows 98 openings last year.
"Currently, we have nearly 200 fully qualified regional operator candidates in the pipeline ready to run a market," Ricci said. Those future operators average about 6.5 years in the Dutch Bros system, working their way up from "Broista," he said.
Speedy Service
Dutch Bros emphasizes speed, quality and service, greeting customers before they reach the drive-thru and taking orders with tablets. Last year's launch of the Dutch Rewards app, which had 3.2 million users at the end of 2021, is meant to help speed the process, while contributing to somewhat bigger orders and more frequent visits.
Same-store sales grew 10.1% in Q4 vs. the year-ago period. That only partly reflects November's 2.9% price increase, which was Dutch Bros' first since Covid hit.
Amid labor and food inflation pressures, Dutch Bros also is investing heavily. Capital spending will range from $175-$200 million this year, including $15-$20 million for a new roasting facility to enable future growth.
That means the earnings payoff may be deferred. Analysts see adjusted EPS up 3% in 2022, before 60% growth in 2023, according to Zacks Investment Research.
Sales growth has been strong and steady, rising 49%, 53%, 50% and 56% in the last four quarters.
Dutch Bros Stock
Dutch Bros stock, a Sept. 2021 IPO, had a sizzling debut. After pricing at 23, BROS stock closed its first session at 36.68, a level which it has yet to undercut.
BROS stock raced as high as 81.40 on Nov. 1, and hasn't regained close to those heights. But volatility around an IPO isn't unusual.
It makes sense to focus on the latest consolidation BROS stock has carved out since hitting an interim peak of 63.20 on Feb. 7.
That offers a nice 6-week cup-with-handle pattern, with a buy point at 62.11, 10 cents above the March 22 handle high.
Dutch Bros stock surged 12% to 62.77 on Tuesday, hitting its best levels since November. On Tuesday morning, aggressive traders had an early entry as BROS stock broke the downtrend within the handle.
The relative strength line, while well off all-time highs, is surging above the high of its short cup base.
