Dutch Bros recently increased its store opening target from 4,000 to 7,000.
It has a multi-yield growth strategy involving product innovation, paid advertising spending and its rewards program.
Dutch brothers are unlikely to be affected by tariffs.
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The U.S. and China lowered tariffs after an amazing news earlier this week, S&P 500 Almost back to where the year started. There is no way to know that it will continue to climb any time soon and break out in new highs again, but it is full of confidence in the economy.
Meanwhile, the coffee shop chain Dutch brothers (NYSE: Brothers) Continue to surpass the market. Growth stocks have incredible opportunities to open new stores and build their business. However, it has plummeted 18% over the past few months. Let's see why the market is scared and whether this is a buying opportunity.
Dutch Bros recently celebrated its 1,000th new store (this store in Florida) and also announced plans to open another 1,000 stores by 2029. Its store count has increased from 500 years since it went public in 2021 to today, but it remains a bold statement to imagine doing so again in the next four years. It plans to open at least 160 stores in 2025, so the ambitious plan means that the rate will accelerate significantly in the coming years.
Customers love coffee, which enhances its confidence that it can achieve this goal. It offers further long-term goals for reaching 7,000 stores. This is the goal from the previous goal to reach 4,000 stores, and with its successful expansion, of course, even this goal can be surpassed.
Some recent indicators highlight why investors are so enthusiastic. In the first quarter of 2025, revenue grew 29% year-on-year, driven by 30 new stores and comparable sales increased by 4.7%. Some of this is due to pricing, but transactions also grew by 1.3%, which bodes well for consumer participation, despite the higher prices.
CEO Christine Barone attributes success to three factors: innovation, marketing and the company’s rewards program.
The Dutch Brothers are known for their unique custom drinks, especially their cold drinks. It has had a huge success in the latest launches like Boba and Protein Coffee, recently launched a limited-time popular cereal flavor to add to custom drinks. It also trials new food menus in some places. Food currently accounts for only 2% of sales, but management believes that providing targeted food menus for specific items can lead to higher beverage sales. This may be an important addition to capturing the share of the most important morning run without adding to the unnecessary complexity of its "broken chicken". It launched eight new products in pilot testing at eight stores, including four popular products. Based on its initial success, it expanded the program to 32 stores.
Paid advertising is an integral part of how the company builds its brand when it enters a new market. Since it is not well known outside the current market, it is an important strategy to make its name stand out and raise excitement for the product. But this is equally successful in more mature markets.
Finally, it is enhancing its rewards program with mobile ordering, while pre-approval of orders adds a layer to sales. Reward members accounted for 72% of sales in the first quarter, up 5 percentage points from last year and adopted faster in new markets. Barone expects the rewards program to be a strong growth driver.
Dutch Brothers stocks are falling with other markets as investors fear cooling the economy if tariffs are raised. Management addressed how tariffs would affect its operations, which was a confident option, as approximately 10% of its estimated cost would be affected. However, this does not resolve the callback in general consumer spending.
Market sentiment has recovered with new restrictions on tariffs between the United States and China. Although Dutch brothers’ fees are affected like coffee beans, but not from China, but may still be affected by tariffs, consumer spending may not be worried.
The future of Dutch Brothers has a strong future, but it comes at a price. Even at a lower price, it has an upfront P/E ratio of 85 in 85, which is quite a premium. The market sees huge opportunities here and price accordingly.
If you have a long view, I don't think it's disappointing to own this stock. However, because the valuation is so abundant, the stock is prone to drop in any bad news. If you can stride forward and have possible bumps on the way, the Dutch Brothers is a great choice.
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Jennifer Saibil has no position in any of the stocks mentioned. Motley Fool recommends Dutch brothers. MotleyFool has a disclosure policy.
Dutch Brothers shares just fell 18%. Is it time to buy it now? Originally published by Motley Fool