Dutch Bros, the drive-thru coffee chain, did pretty much everything right last quarter. Its same-store sales rose 4.1% in the second quarter. Revenues and earnings both bested Wall Street expectations. And the company raised guidance for the full year.
What’s more, the Grants Pass, Oregon-based chain’s store margins improved by 50 basis points, to nearly 31% of sales, despite a heavy presence in $20-an-hour California.
All of that should be enough for a good day on Wall Street, yes?
No, apparently.
The company’s stock, instead, plunged by as much as 25% in pre-market trading. Wall Street expected an even stronger raise on earnings guidance than what the company provided.
There is also some concern that the company’s expectations for same-store sales suggests that metric could turn negative in the second half of this year.
And perhaps investors are reacting to comments made by the CEO of Monster Beverage, who noted that the energy drink category experienced lower growth rates in the second quarter in the U.S. Dutch Bros is the closest thing the restaurant business has to an energy drink chain.
Then there’s the company’s valuation. Dutch Bros entered trading Thursday with a market cap of $6.7 billion. That is double the market cap of Wendy’s, one of the five biggest restaurant chains in the U.S. That kind of valuation comes with expectations for perfection among investors.
Still, Dutch Bros combined both improving sales and profitability in the second quarter, continuing strong results in recent quarters at a time when the industry’s leader, Starbucks, is reeling.
The company’s average unit volumes hit a record of $2 million. Revenues increased 30% to $324.9 million, thanks to the increase in organic sales as well as new shop openings, including 36 last quarter.
Two-thirds of the chain’s transactions in the quarter came from members of its Dutch Rewards loyalty program.
Net income more than doubled to $22.2 million, or 12 cents per share.
Dutch Bros now expects annual revenues will be between $1.215 billion and $1.23 billion, up from a high of $1.215 billion it had previously expected. It also raised its expectations for adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization.
It did say that its expected shop openings this year will be on the lower range of between 150 and 165.
The company has generated sales largely through innovation and efforts to build awareness, both through its loyalty program and advertising. Dutch Bros earlier this year launched Boba and Protein Milk, which did well enough that they were added to the permanent menu.
The company doesn’t feel the need to change that despite shifts in the economic environment toward more value offerings.
“Despite the macro environment noise and aggressive price promotion from many peers, we haven’t felt the need to fundamentally adjust our strategy,” CEO Christine Barone told analysts on Wednesday, according to a transcript on the financial services site AlphaSense.
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