Dutch Bros (BROS)

Coffee chain Dutch Bros (NYSE:BROS) beat Wall Street’s revenue expectations in Q1 CY2025, with sales up 29.1% year on year to $355.2 million. On the other hand, the company’s full-year revenue guidance of $1.57 billion at the midpoint came in 1.2% below analysts’ estimates. Its non-GAAP profit of $0.14 per share was 32.7% above analysts’ consensus estimates.

Company Overview

Started in 1992 by two brothers as a single pushcart, Dutch Bros (NYSE:BROS) is a dynamic coffee chain that’s captured the hearts of coffee enthusiasts across the United States.

Traditional fast-food restaurants are renowned for their speed and convenience, boasting menus filled with familiar and budget-friendly items. Their reputations for on-the-go consumption make them favored destinations for individuals and families needing a quick meal. This class of restaurants, however, is fighting the perception that their meals are unhealthy and made with inferior ingredients, a battle that's especially relevant today given the consumers increasing focus on health and wellness.

Some competitors that sell caffeinated beverages include private company Dunkin’ as well as public companies McDonald’s (NYSE:MCD), Starbucks (NASDAQ:SBUX), and Tim Hortons (owned by Restaurant Brands, NYSE:QSR).

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years.

With $1.36 billion in revenue over the past 12 months, Dutch Bros is a mid-sized restaurant chain, which sometimes brings disadvantages compared to larger competitors benefiting from better brand awareness and economies of scale. On the bright side, it can still flex high growth rates because it’s working from a smaller revenue base.

As you can see below, Dutch Bros’s sales grew at an incredible 39.9% compounded annual growth rate over the last five years (we compare to 2019 to normalize for COVID-19 impacts) as it opened new restaurants and increased sales at existing, established dining locations.

This quarter, Dutch Bros reported robust year-on-year revenue growth of 29.1%, and its $355.2 million of revenue topped Wall Street estimates by 3%.

Looking ahead, sell-side analysts expect revenue to grow 22.4% over the next 12 months, a deceleration versus the last five years. Still, this projection is admirable and indicates the market is forecasting success for its menu offerings.

Number of Restaurants

The number of dining locations a restaurant chain operates is a critical driver of how quickly company-level sales can grow.

Dutch Bros operated 1,012 locations in the latest quarter. It has opened new restaurants at a rapid clip over the last two years, averaging 21.2% annual growth, much faster than the broader restaurant sector. This gives it a chance to become a large, scaled business over time.

When a chain opens new restaurants, it usually means it’s investing for growth because there’s healthy demand for its meals and there are markets where its concepts have few or no locations.

Same-Store Sales

The change in a company's restaurant base only tells one side of the story. The other is the performance of its existing locations, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales provides a deeper understanding of this issue because it measures organic growth at restaurants open for at least a year.

Dutch Bros has been one of the most successful restaurant chains over the last two years thanks to skyrocketing demand within its existing dining locations. On average, the company has posted exceptional year-on-year same-store sales growth of 5.2%. This performance along with its meaningful buildout of new restaurants suggest it’s playing some aggressive offense.

In the latest quarter, Dutch Bros’s same-store sales rose 4.7% year on year. This performance was more or less in line with its historical levels.

We prefer higher gross margins because they not only make it easier to generate more operating profits but also indicate pricing power and differentiation, whether it be the dining experience or quality and taste of food.

Dutch Bros’s unit economics are higher than the typical restaurant company, giving it the flexibility to invest in areas such as marketing and talent to reach more consumers. As you can see below, it averaged a decent 26.4% gross margin over the last two years. Said differently, Dutch Bros paid its suppliers $73.57 for every $100 in revenue.

In Q1, Dutch Bros produced a 25.3% gross profit margin, in line with the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as ingredients and transportation expenses) have been stable and it isn’t under pressure to lower prices.

Dutch Bros was profitable over the last two years but held back by its large cost base. Its average operating margin of 7.6% was weak for a restaurant business.

On the plus side, Dutch Bros’s operating margin rose by 1.3 percentage points over the last year, as its sales growth gave it operating leverage.

In Q1, Dutch Bros generated an operating profit margin of 8.7%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Dutch Bros’s EPS grew at an unimpressive 8.7% compounded annual growth rate over the last five years, lower than its 39.9% annualized revenue growth. We can see the difference stemmed from higher interest expenses or taxes as the company actually grew its operating margin and repurchased its shares during this time.

In Q1, Dutch Bros reported EPS at $0.14, up from $0.09 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Dutch Bros’s full-year EPS of $0.56 to grow 15.6%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Over the last two years, Dutch Bros’s capital-intensive business model and large investments in new physical locations have drained its resources, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 1.2%, meaning it lit $1.15 of cash on fire for every $100 in revenue.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although Dutch Bros has shown solid business quality lately, it struggled to grow profitably in the past. Its five-year average ROIC was negative 10.1%, meaning management lost money while trying to expand the business.

Dutch Bros reported $316.4 million of cash and $1.02 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $240.6 million of EBITDA over the last 12 months, we view Dutch Bros’s 2.9× net-debt-to-EBITDA ratio as safe. We also see its $13.51 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Dutch Bros blew past analysts’ EBITDA expectations this quarter. We were also excited its revenue outperformed Wall Street’s estimates by a wide margin. On the other hand, its full-year revenue guidance slightly missed and its full-year EBITDA guidance fell short of Wall Street’s estimates. Overall, this print was mixed but still had some key positives. The stock traded up 4.6% to $61.80 immediately after reporting.

Updated: July 9, 2025 at 10:49 PM EDT

When considering an investment in Dutch Bros, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

In our opinion, Dutch Bros is a good company. To kick things off, its revenue growth was exceptional over the last five years. And while its relatively low ROIC suggests management has struggled to find compelling investment opportunities, its marvelous same-store sales growth is on another level. On top of that, its new restaurant openings have increased its brand equity.

Dutch Bros’s P/E ratio based on the next 12 months is 102.9x. This multiple tells us that a lot of good news is priced in. Add this one to your watchlist and come back to it later.

Wall Street analysts have a consensus one-year price target of $78.42 on the company (compared to the current share price of $66.35).