Though the on-paper results for the second-quarter results of drive-thru coffee chain Dutch Bros (NYSE:BROS) may have been a mixed bag, the broader economic context likely bolstered market sentiment. Revenue came in at $186.4 million, representing growth of 44.2% on a year-over-year basis. This impressive growth materialized in a very difficult macroenvironment, thus attracting bullish fever in BROS stock.
Separated from the wider economic context, Dutch Bros’ Q2 report represented a mixed bag. On a per-share basis, the coffee chain suffered a loss of 2 cents. When adjusted for one-time gains and costs, earnings arrived at 5 cents per share. However, analysts expected earnings of 7 cents per share, according to an Associated Press report citing data from Zacks Investment Research.
On the other hand, Wall Street expected Q2 revenue to hit $181.5 million. Instead, Dutch Bros delivered a 2.7% positive surprise on sales, contributing to upside enthusiasm for BROS stock. The security shot up 18% on the disclosure, though it pared down gains to about 6% at time of writing.
Adding more encouraging sentiment, management expects full-year revenue to hit $715 million. Previously, the leadership team guided 2022 sales to land between $700 million to $715 million. Last year, the company rang up nearly $498 million on the top line. Therefore, another 44% growth rate – this time for the full year – could be on the books.
BROS Stock Navigating the Inflationary Environment
Notably, Dutch Bros opened 65 shops in the first half of 2022 and is set to open at least 130 more before the Times Square Ball closes out 2022 permanently. It also opened store number 600 in Q2 and surpassed $1 billion in systemwide sales on a trailing-12-month basis.
Still, BROS stock undergirds a consumer-facing business, and virtually every industry has suffered the ravages of soaring inflation. Joth Ricci, CEO and president of Dutch Bros, acknowledged the critical obstacles of the new normal:
“Like many of our peers, the macro-economic environment is impacting various aspects of our business, and our company-operated shop margins continue to be pressured by record inflation in the second quarter. That said, our team accelerated efforts to increase productivity in the middle of our P&L, and we took a 3% price increase in the second quarter. These actions contributed to 630bps of sequential improvement in company-operated shop margins from 18.3% to 24.6% when compared to the first quarter of 2022. We are evaluating further menu pricing action as needed in the back half of the year.”
Where BROS stock differs from other food and beverage competitors is this: The underlying business can pass down cost burdens to its customers without apparently incurring a detrimental loss to revenue. As a contrasting (though not entirely related) example, fast-casual restaurant Sweetgreen (NYSE:SG) saw its equity value decrease yesterday when the company downgraded full-year revenue expectations.
Both companies cited inflation as a major challenge, though Dutch Bros is the only one effectively addressing it.
Why It Matters
A recent initial public offering, BROS stock is up more than 7% against its first closing price in the open market. Though shares are down about 11% for the year, they’re on a tear in the trailing month, gaining almost 29%.
This backdrop represents welcome news for investors of consumer discretionary firms. Although the consumer price index dipped down to 8.5% YOY (compared to June’s 9.1% rating), inflation remains incredibly high relative to historical norms. That BROS stock is able to rise against this extraordinary headwind presents an encouraging picture for the underlying business model.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
