Summary
Dutch Bros had its IPO debut in September and was one of the year’s hottest IPOs, increasing more than 130% in just 30 trading days.
The strong performance out of the gate was not surprising in a market where investors are hungry for growth, and Dutch Bros serves it with an industry-leading unit growth rate.
However, while Dutch Bros is arguably the best growth story in the restaurant space, it trades near ~55x FY2023 EBITDA estimates, a lofty valuation even when compared to high-growth peers.
So, while the company certainly has most of the ingredients to become a massive winner like Starbucks or Wingstop, I don’t see any way to justify paying above $52.00 for the stock.
Probuxtor/iStock via Getty Images It was a busy year in 2021 in the IPO space, with a record number of IPOs at more than 1,000 and well over $300 billion raised. One of the hottest IPOs of the year was Dutch Bros ( BROS ), a drive-thru coffee chain in the United States with robust unit growth rates. However, while Dutch Bros is arguably the best growth story in the restaurant space, it trades near ~55x FY2023 EBITDA estimates, a lofty valuation even when compared to high-growth peers. So, while the stock certainly has most of the ingredients to become a massive winner like Starbucks or Wingstop, I don’t see any way to justify paying above $52.00 for the stock. (Source: Company Presentation)
Dutch Bros is one of the newest companies to IPO in the restaurant space, debuting in September and enjoying an incredible 130% advance in just 30 trading days. For those unfamiliar, Dutch Bros is a drive-through coffee chain founded in 1992 and is currently headquartered in Oregon. The company’s shops boast impressive unit economics, with average unit volumes [AUVs] of ~$1.7 million in FY2020, despite a very lean footprint, with shops coming in at less than 800 square feet. To date, the company operates just over 500 shops in 11 states and continues to see phenomenal growth despite having to operate through a global pandemic. (Source: Company Presentation)
Looking at the menu below, Dutch Bros is most similar to Starbucks ( SBUX ) given its specialty drink menu, offering a mix of Energy Drinks, Tea, Lattes, Mochas, Cold Brews, Smoothies, Lemonade, and Milkshakes (Dutch Frost). As shown below, the company’s product mix comes in at nearly 40% coffee (iced, cold brew, hot), with the other 50% made up of its energy drink (Blue Rebel), blended coffees, and smoothies, and tea/lemonade. Notably, the company has an enviable split by day-part, with ~70% of sales from before 9 AM to 4 PM, but also a nice contribution in the off-work/evening day-part of just over 30%. (Source: Company Presentation)
If we look at the company’s store footprint as of June 30th, the company had nearly 500 stores in 11 states, with its largest store bases in Oregon (153), California (89), Washington (63), and Arizona (59). The company is moving east into Texas and Oklahoma, with eight stores in these two states as well. It’s worth noting that while the company’s AUVs across its system came in at $1.7 million in FY2020, they managed to increase year-over-year despite the global pandemic, and its California and Arizona store bases are the hottest. This is evidenced by AUVs in these two states of $2.5 million and $2.4 million, respectively, which are incredible for a store of this size.
In comparison, Shake Shack ( SHAK ) is doing a little over $3 million in AUVs but with more than triple the square footage. Given the trend that we’ve seen in AUVs and the fact that new markets continue to perform very well, it looks like Dutch Bros has the potential for ~$2.0 million AUVs across its system. When we compare this figure to an initial investment of $150,000 to $500,000 , these are very attractive sales figures for prospective franchisees, which should help to support franchise growth. Let’s take a look at the company’s unit growth aspirations: (Source: Company Presentation) (Source: QSRMagazine.com, CIREPartners.com, Author’s Chart)
As shown below, Dutch Bros has seen steady growth in its shops since FY2011, growing at a compound annual growth rate of ~12% assuming it finishes FY2021 with 535 shops. However, the company believes that its long-term potential is closer to 4,000 shops, according to its S-1, which would translate to more than 700% growth from FY2021 levels. Notably, the company is expecting to see a meaningful acceleration in its unit growth rate based on […]
Protected by Patchstack