Dutch Bros stock plummets amid competition concerns

Dutch Bros same-store sales increased, but they were lower than expected. Photo: Shutterstock

Not even Dutch Bros is immune to the difficult consumer environment.

The drive-thru beverage chain on Wednesday said that its same-store sales rose 5.4%, including traffic growth of 0.4%, the ninth straight quarter of positive customer counts.

The number came in below expectations, sending shares down more than 16% in off-hours trading on Wednesday. The company blamed rising gas prices for “customer volatility.”

“We did see a heightened level of choppiness in Q3,” Christine Barone, the company’s CEO, told analysts on Wednesday, according to a transcript on the financial services site AlphaSense. “As we look at some of that choppiness in Q3, it could be attributed somewhat to gas prices.

“We didn’t see anything on the competitive front.”

Investors appear unconvinced on that last part. Concern has grown that competition could be siphoning off some customers, such as McDonald’s beverage introductions, including an apparently successful energy introduction last quarter, and the market incursion from the rapidly growing drive-thru competitor 7 Brew.

But executives said that isn’t happening.

“We’ve had lots of competition since 1992,” Barone said. “Most markets, really every single market we enter, we are near other competitors.”

Barone said that Dutch Bros, the third-largest coffee chain in the U.S., and 7 Brew, the fourth largest, are now in four states in which they both have more than 20 shops. And it makes no difference in the company’s volumes, saying that the company has looked at stores that are within a mile radius.

“It actually makes no difference on our AUV,” she said. “So we feel incredibly comfortable going into any different competitive situation.”

The question is a big one for Dutch Bros, which has plans to speed its development. The company finished the third quarter with 1,273 shops and expects to finish the year with 185 total shop openings. The company said on Wednesday that it expects to open 250 next year.

Another factor in Dutch Bros plunging stock price was the company’s tightened guidance. Dutch Bros lowered its guidance for adjusted EBITDA, or earnings before interest, taxes, depreciation, and amortization, to $380 million from a range of between $385 million to $390 million.

The company also appeared to lower its guidance for same-store sales, to “at least” 5% from a range of 5% to 6%. It also said revenue would be “at least” $2.1 million after previously giving a range between $2.1 billion and $2.13 billion.

Executives said that the shift is a reflection of the uncertainty of the environment. We “just want to be thoughtful as we think through how we could perform the rest of the quarter,” Barone said.