Dutch Bros: Trends Are Starting To Slip, Take Profits Here (Rating Downgrade)

seekingalpha11-20 16:57

Dutch Bros has surged over 50% YTD, but slowing growth and competitive pressures prompt me to downgrade it to neutral. I recommend taking profits on this trade.Despite international growth potential ...

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I recommend taking profits on this trade.Despite international growth potential ...</p>\n\n<a href=\"https://seekingalpha.com/article/4738900-dutch-bros-trends-starting-to-slip-take-profits-rating-downgrade\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Dutch Bros: Trends Are Starting To Slip, Take Profits Here (Rating Downgrade)</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nDutch Bros: Trends Are Starting To Slip, Take Profits Here (Rating Downgrade)\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-11-20 16:57 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4738900-dutch-bros-trends-starting-to-slip-take-profits-rating-downgrade><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Dutch Bros has surged over 50% YTD, but slowing growth and competitive pressures prompt me to downgrade it to neutral. I recommend taking profits on this trade.Despite international growth potential ...</p>\n\n<a href=\"https://seekingalpha.com/article/4738900-dutch-bros-trends-starting-to-slip-take-profits-rating-downgrade\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BROS","symbol_name":"Dutch Bros Inc.","start_time":0,"source_url":"https://seekingalpha.com/article/4738900-dutch-bros-trends-starting-to-slip-take-profits-rating-downgrade","article_id":"2484164643","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1366904393/image_1366904393.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2484164643","pubTimestamp":1732093031,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Dutch Bros has surged over 50% YTD, but slowing growth and competitive pressures prompt me to downgrade it to neutral. I recommend taking profits on this trade.Despite international growth potential a","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":["rate"],"viewcount":null,"language":"en","relate_stocks":{"BROS":"Dutch Bros Inc."},"translate_title":"荷兰兄弟：趋势开始下滑，在此获利了结（评级下调）","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"BROS":0.9},"content_text":"Dutch Bros has surged over 50% YTD, but slowing growth and competitive pressures prompt me to downgrade it to neutral. I recommend taking profits on this trade.Despite international growth potential and cost-efficient store formats, BROS faces unsustainable same-store sales growth driven by prior price increases.The coffee industry is highly competitive, with Dutch Bros facing threats from giants like Starbucks and local roasters, squeezing its market viability.Q3 results show revenue growth deceleration and concerning same-store sales trends, signaling a need to reassess investment in Dutch Bros.   hapabapa  With the stock market continuing to dance nervously around all-time highs, there has never been a better time for investors to exercise cautious stock-picking. The old adage that past performance is no guarantee of future results holds very true here, and we should be careful not to fall into the trap of thinking that this year's big winners can continue to rally. Dutch Bros (NYSE:BROS) is a stock on my chopping block. The fast-growing coffee chain has surged more than 50% year to date, but at the same time, growth is slowing down - in an industry that is incredibly competitive. With this in mind, it's time for us to re-assess whether we hold onto this name. Data by YCharts I last wrote a bullish note on Dutch Bros in September, when the stock was still trading at $35. Since then, Dutch Bros has released (at least, in my view) disappointing Q3 results that showed a weakening of same-store sales amid a lapping of recent price increases, while at the same time, the stock has rallied in response: allowing me to pocket 30%+ gains on my position since then. As a result of this, I'm dropping my rating on Dutch Bros to neutral, and I am recommending investors to lock in gains on this trade. In my view, at current share prices, there's a mixed bull and bear case for Dutch Bros. A couple of positives for this stock still remain:   International growth opportunities. Despite its international-sounding name, Dutch Bros is still a domestic company with a store count of less than 1,000 (roughly a third of these are franchisee-operated). Starbucks, meanwhile, has just under 40,000 locations (of which just under half are in North America).  Innovative store formats that lead to cost optimization. Dutch Bros often uses small-format stores and coffee drive throughs that minimize labor requirements per store, which over the long run can help the company earn significant margins.  Achieving significant margin leverage. The company is starting to mint healthy levels of adjusted EBITDA as more locations in its system mature and contribute positive profits.  At the same time, however, I'm wary of several risks:   Same-store sales growth is due to pricing, which isn't a sustainable growth lever. Growth is slowing down as Dutch Bros is lapping its prior price increases. The company (which is positioned as a more casual drive-through concept in many locations) doesn't have much room to increase prices further without alienating customers in a very inflation-conscious environment.  Incredibly competitive industry. Is there an industry more competitive than coffee? Dutch Bros faces threats from international chains like Starbucks (SBUX) as well as local third-wave roasters, squeezing its viability in the marketplace.  To me, it's time to take profits here and move to the sidelines. However, I'd be interested in jumping back in if the company sees a re-acceleration in same-store sales or sees a double-digit decline in share prices, hence my hold position. Q3 recap A number of red flags popped up in Dutch Bros' recent Q3 earnings release that are driving my reconsideration of the stock's merits. Take a look at the Q3 results below: Dutch Bros Q3 results (Dutch Bros Q3 earnings release) Dutch Bros' revenue grew 28% y/y to $338.2 million, ahead of Wall Street's expectations of $325.0 million (+23% y/y) but decelerating two points versus 30% y/y growth in Q2. More concerning to me, however, is the deceleration in same store sales (which, as a reminder, strips out the contribution from Dutch Bros' newly opened locations to measure the growth from the existing base of shops). As shown in the chart below, systemwide same-store sales growth slowed to 2.7%, the lowest reading since Q1 of last year and decelerating 140 bps q/q.  Dutch Bros SSS trends (Dutch Bros Q3 earnings release) It's worth noting as well that 1.9% (or two-thirds) of the company's same-store sales growth is driven by ticket price increases, which as noted previously isn't a sustainable growth lever (especially when Americans are hyper-sensitive about the economy and inflation, as evidenced by the results of the U.S. elections). As Dutch Bros laps these price increases, growth will continue to decelerate. (On the bright side, Dutch Bros' company-operated stores are doing a bit better, with 4.0% same-store sales growth with a slight majority of that growth accruing from a 2.4% y/y pickup in transactions). The company still remains laser-focused on expanding its store count. Per CEO Christine Barone's remarks on the Q3 earnings call: Our development pipeline is deeper today than it was at the same time last year. We expect shop openings to accelerate in 2025 to at least 160 shops and further accelerate in 2026. In closing, momentum in the business is strong. We believe our runway is long and our path forward is clear. We have top-tier growth. We delivered 28% year-over-year revenue growth and 38 new shop openings. We expect to open at least 160 shops in 2025 and driven by our investments in our development team, we see an opportunity to further accelerate unit growth in 2026.\" Still: slowing same-store sales growth will blunt the impacts of the company's aggressive store expansion. We note as well that the company's contribution margins have started to slip, down 150bps y/y to 29.5%. The company's price increases have been offset by higher labor costs and discounting: Dutch Bros margin trends (Dutch Bros Q3 earnings release) In turn, as shown in the chart below, adjusted EBITDA still grew on a nominal basis, up 20% y/y to $63.7 million: but margins fell 110bps y/y to 18.9%: Dutch Bros adjusted EBITDA (Dutch Bros Q3 earnings release) Valuation and key takeaways For next year FY25, Wall Street analysts are expecting Dutch Bros to generate $1.52 billion in revenue (+21% y/y) and $0.54 in pro forma EPS (+20% y/y). This puts the stock's valuation at 92x P/E, or a 4.6x PEG ratio - quite overpriced in tandem with the broader S&P 500.  Considering the multiple fundamental risks weighing against Dutch Bros at the moment: decelerating same-store sales growth and tough pricing comps, declining profitability margins, and a hyper-competitive coffee shop industry, it's best to take gains on this trade and invest elsewhere - at least until we see evidence of improving same-store sales growth or a new entry point at a better valuation.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2484164643"}