The business is well-positioned for the long haul.
Shares of drive-thru coffee chain Dutch Bros (BROS 1.57%) jumped 30.7% in the first half of 2024, according to data provided by S&P Global Market Intelligence. The stock was underperforming the S&P 500 for the year until it reported financial results for the first quarter of 2024. That’s when it finally picked up steam and pulled ahead of the market in the first half of the year.
On May 7, Dutch Bros reported Q1 revenue of $275 million, which was up a whopping 39% year over year. Investors seemed particularly encouraged with same-store sales growth of 10%, boosted, in part, by higher traffic to its shops. Additionally, the company opened 45 new locations during the quarter, which also boosted sales.
On Feb. 21, Dutch Bros’ management gave financial guidance for 2024 and left it little changed after reporting Q1 results. This means that Q1 results fell mostly inside of expectations.
Still, it seemed to have surprised Wall Street. According to TipRanks, only four analysts recommended buying the stock in March, whereas eight recommended buying it in June after seeing its Q1 report. When the analyst community throws its support at a stock, it’s not uncommon to see the price go higher as investors start buying with a little more confidence.
Selling stockholders kept the price down
More inquisitive investors might be wondering why the stock was underperforming the S&P 500 prior to the Q1 report. After all, Dutch Bros didn’t greatly change its guidance in May, compared to the guidance it gave in February.
As it turned out, investors had initially responded well to the report in February. But shortly thereafter, the company did a secondary stock offering that kept shares grounded.
When Dutch Bros had its initial public offering (IPO) in 2021, one of the risks was the company’s complicated stock structure. There are four classes of shares, and pre-IPO investors, such as TSG Consumer Partners, owned a significant amount.
On Feb. 27, news broke that TSG Consumer Partners was selling 8 million shares of Dutch Bros for $29.05. The company didn’t receive proceeds, but that was a lot to dump on the market, considering there were only 75 million Class A and Class D shares outstanding at the time.
Partly due to the stock structure, the Class A share count for Dutch Bros has been rising, keeping it from larger gains.
BROS Average Diluted Shares Outstanding (Quarterly) data by YCharts.
What’s next for Dutch Bros?
Dutch Bros’ business is in really good shape for the long haul. In Q1, it had operating income of nearly $26 million. Its same-store sales growth suggests that the brand is growing in popularity. And management plans to open thousands of new locations over the long term.
There’s still a good chance that major investors will continue exiting their positions in Dutch Bros, so that’s something to keep an eye on as it could impact returns. But shareholders should be encouraged by the performance of the business.
Jon Quast has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.