Naughty and Nice ER Review: BROS

I hope brother Ears doesn’t see this - maybe I can sneak it in somehow.

Dutch Bros, Inc. - Wanna Be Emperor of Drive-Thru Coffee Emporiums.

BROS Reported Q1 2022 Earnings May 11.…

  • Revenue of $152.16M (+54.0% Y/Y) beats by $6.6M: ATTA BOY!

  • Beat on Revenue by $6.6M (4.5%) - below the standard of 5% required for new money if you have old money in it: Very Light OH POOP!

  • Whiffed on EPS: OH POOP!

  • Opened 34 Shops: ATTA BOY!

  • Increases Development Target to at least 130 Shop Openings in 2022: ATTA BOY

  • Maintained Previous Full Year Guidance - which, in this economic environment is an: ATTA BOY!

  • Experienced Higher Labor Turnover Numbers: OH POOP!

  • "While we are pleased that the strength of our revenue and shop development in the first quarter, margin pressure in our company shops… ": OH POOP!

  • “Based upon our revised cost forecast we are taking a more conservative stance in our 2022 annual outlook and for adjusted EBITDA”: OH POOP!

  • System same shop sales grew 6% in the first quarter compared to 10.1% in the previous QTR: Big OH POOP!

  • Notably trends were stronger in the first half of the quarter before tempering in mid-March, which we believe were primarily driven by macroeconomic headwinds related to decrease in consumer discretionary income such as rapidly rising gas prices and the discontinuation of federal COVID stimulus checks: OH POOP!

  • For Q1, company operated shop contribution decreased from 26.8% of company-operated shop revenue to 18.3%: OH POOP!

  • However, as Q1 unfolded, we experienced three significant rapid cost escalations that, on an individual basis, would not have caused distress but when taken collectively did overwhelm our P&L. Faster input cost inflation, especially in dairy and also labor cost increases. The pull forward of expenses related to the ongoing caring condition of shops and new and normal new store inefficiency amplified by the sheer volume of new and ramping units in quarter one: OH POOP!

  • Same shop sales are estimated to be flat to slightly negative as we face macroeconomic headwinds impacting consumer discretionary income. April same shop sales were negative 3.7% in 2022 compared to plus 22.6% in 2021, our largest rollover of the year: OH POOP!

Market Reaction: OH POOP!


LIST and RANKING Assignments: Naughty #5

Note: The company is selling off today to the tune of around 30%. If one were to believe that the long term story and thesis for investing in BROS remains intact then a Scout Team position might be appropriate. On the other hand - it appears that the economy and inflation are taking a large toll on BROS operations and until those headwinds abate BROS is a Black Tent.

All the Best,