Dutch Bros. results milked a 25% rise in milk prices in the first quarter

Shares of Dutch Bros Inc. fell 27.6% in Thursday trading after inflationary prices, particularly a rise in milk costs, prompted a downward revision of the coffee chain’s full-year outlook.

“We expected higher expenses. However, we failed to appreciate the speed and scale of cost escalation during the quarter,” Dutch Bros. chief executive Joth Ricci said on the conference call, according to FactSet.

“Dairy, for example, which makes up 28% of our basket, is up almost 25% in the first quarter. While expenses increased during the quarter, we saw a change in revenue performance from mid-March as macro headwinds accelerated and comparables turned negative.”

These headwinds included higher gas prices.

See: Starbucks is adding Chocolate Cream Cold Brew to the summer menu

And: Starbucks plans to invest approximately $200 million to meet increasing demand for customized cold beverage orders

Dutch Bros. BROS,
Like so many other companies, they’ve raised prices to curb inflation, but Ricci says the increases are “less than half what many of our peers are doing.”

The company late Wednesday reported a bigger-than-expected loss for the quarter, despite earnings beating expectations. Same-store sales increased 6%.

It now expects “at least $90 million” in adjusted earnings before interest, taxes, depreciation and amortization (Ebitda) for the year, versus a previously targeted range of $115 million to $120 million. And for the second quarter, the company expects flat to slightly negative same-store sales. The FactSet Consensus is for an increase of 1.1%.

Despite the results, JPMorgan said “buy the reset”.

“Dutch Bros completed its IPO on September 14, 2021 at a price of $23 per share. Shares have traded above $50 on approximately 60% of trading days since then,” analysts say.

“Shares’ down about 16% on the day earnings were released after the IPO and down about 37% in after-hours trading is a major rebalancing of the company’s valuation.”

JPMorgan rates Dutch Bros. as overweight and lowers its price target to $36 from $58.

Stifel downgraded Dutch Bros.’ stock rating to hold from buy and lowered its price target to $30 from $70.

“We believe the situation Dutch Bros. is in increases the risk that pricing actions could have unforeseen consequences for frequency and traffic trends,” analysts said.

“For example, management highlighted that younger consumers had reduced purchase frequency, affecting late afternoon and evening hours of the day.”

Dutch Bros. shares are down 51% year to date, while the S&P 500 Index SPX,
has decreased by 18.1%. Dutch Bros. results milked a 25% rise in milk prices in the first quarter

Brian Lowry

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