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Dutch Bros reported strong growth and increasing profits.
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The company is also spending a lot of money opening new stores, but it’s reaching scale and generating free cash flow.
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Dutch Bros has a huge long-term opportunity as it plans to nearly double its store count over the next four years.
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Dutch brothers (NYSE: BROTHERS) is a growing coffee chain that establishes a strong brand presence and attracts loyal fans. It looks like it has a long growth period, but does that make it a smart buy for 2026?
Dutch Bros shares have been up and down over the past few years, oscillating between strong growth and growing pains. It has consistently seen healthy increases in sales and has become reliably profitable. It is also investing heavily in expanding its store network, but it is starting to generate positive free cash flow.
Like the rest of its industry, the company faces a challenging operating environment as people struggle with the impacts of inflation on their budgets, further pushing them to cut discretionary spending. In its favor, Dutch Bros products are cheaper than those Starbucks”, which makes them more attractive in this economic climate.
Dutch Bros’ results were generally well received by the market and the company showed strength in the third quarter. Sales increased 25% year over year to $423.6 million, and same-store sales increased 5.7%. Management noted that transaction growth was 4.7%, reflecting that its growth was not only coming from higher prices, but also from stronger engagement. Net income rose to $27.3 million from $21.7 million in the year-ago period, and contribution margin, which measures the company’s efficiency at the store level, was 27.8 percent, up 1.7 percentage points year over year.
The company is still in growth mode and is on track to open at least 160 stores this year. It already has more than 1,000 locations, but relative to its long-term plans, it’s still in the early stages of its growth arc and it’s refining its model, which largely uses stores that serve customers primarily through drive-thrus and walk-up windows. It also has a few stores with dining rooms, as well as others that serve only through walk-up windows. And it’s experimenting with a slightly expanded food menu to increase sales.
Although the company performs almost flawlessly, the stock has performed relatively poorly this year. This is an increase of just over 16%, almost exactly the same as the increase in S&P500.
