Dutch Bros stock plummets amid competition concerns
The drive-thru beverage chain’s stock fell 17% in off-hours trading as the chain’s same-store sales came in below expectations amid “customer volatility.”
Dutch Bros can’t escape the challenging customer landscape.
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 fell short of expectations causing shares to plummet by over 16% during Wednesday’s off-hours trading. The company attributed the volatility in its customers to the increase in gas prices.
The firm experienced greater “choppiness” in the third quarter, the company’s chief executive officer, Christine Barone, told analysts Wednesday in the transcript posted on the financial services site, AlphaSense. As we just consider some of that choppy stuff in Q3, it’s because of gas prices, I would say, a little bit.”
On the competitive front, there was nothing to see, says we.
But it doesn’t seem to please investors on that last point. 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.
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However, executives said this isn’t occurring.
Since 1992, there’s been a lot of competition,” Barone said. “In most markets, if not all markets that we go in, we’re close to 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. It doesn’t matter if the company has a big store or a small store, and it doesn’t matter how close it is, as the company has considered stores that are within a mile radius.
“Well, it doesn’t matter in our AUV,” she responded. “So we are very relaxed when we get into any situation that is competitive.”
The question is a big one for Dutch Bros, which has plans to speed its development. The company closed the third quarter with 1,273 shops and anticipates having 185 total shop openings at the end of this year. On Wednesday, the company announced it plans 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 business also seemed to have reduced its same-store sales guidance to ‘at least 5%’ from the prior range of 5% – 6%. It also announced that it would make “at least” $2.1 million, up from a previous range of $2.1 billion to $2.13 billion.
The change, the executives said, is in response to the uncertainty of the environment. What we’re looking to do is “just be thoughtful as we think about how we could do the remainder of the quarter,” Barone said.