Dutch Bros beats on earnings as the American drive-through coffee chain expands

Dutch Bros earnings beat in Q3 as the coffee chain begins competition with larger companies. Yahoo Finance's Brian Sozzi with the details.

Video Transcript

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JULIE HYMAN: Shares of Dutch Bros up by some 13% this morning. Why is that a Sozzi take? Well, he had the chance to talk to one of the Dutch Bros themselves about this quarter, which was a strong one for the company. Like, is it CE Bro, is that how they do this?

BRIAN SOZZI: No. I don't think they're lifting 300 pounds in their corporate headquarters. They might be, Julie, but that's just my take. I really do, I love this ticker is, in fact, Bros. No, but I caught up with the CEO, Joth Ricci, late last night after his earnings call. He was doing pretty well. I think it was a long evening for him. First earnings report as a public company since debuting in late September.

One quote that stood out to me from our chat is this. "Despite everything happening in the market and the things that we read, our top line continues to do very well. We're hitting our shop opening goals. We hit them in 2020. We're going to hit them again in 2021 and I feel really good about the forecasts we've laid out for 2022." And this comes against the backdrop, guys, I would say disappointing results in terms of sales for a lot of fast food players. You had Wendy's yesterday disappointing in terms of sales. Starbucks disappointed when it reported a couple of weeks ago in the US. Disappointed with their US sales, I should say.

And here, you have an upstart surging coffee chain with farmer and stores come out here and put up a 7.3% same store sales increase. So, I think that's why the market is liking this quarter from Dutch Brows. A couple of quick takes for me, though, on this one here. They did reiterate, Joth did reiterate his long term goal to hit 4,000 stores.

And there I am, right there in the corner kind of staring at that big large Dutch Bro coffee on the right, right there. That is more of a 10 to 15 year goal, Ricci told me. Currently, they have 500 stores. He doesn't see them coming out to the East Coast just yet. He's going to really focus in on opening up in the Midwest. A new store is opening up in our producer Val's favorite town of Nashville. I know she's very excited about that one.

Also too, I am surprised to see that they are not pushing through a lot of price increases. Or they are taking a price increase only of 2.5% on December 1 because of the inflationary pressures they are, in fact, seeing. That would be the first price increase since February 2020, Ricci tells me. I think they do have the opportunity to push through some more price increases, just given the inflation they are, in fact, seeing.

And then last but not least, they've been very aggressive on promotions here. And the street gave them a pass in the most recent quarter, but it's something that bares watching. How promotional do you have to get to wrestle market share from the likes of Dunkin' brands and a Starbucks.

JULIE HYMAN: Have you had a chance to taste that coffee yet since it's not out here?

BRIAN SOZZI: They're not here. I asked him, when are you opening in Astoria, when you come to Long Island, it's not happening. It's not going to happen soon, but I welcome them when they do come.

JULIE HYMAN: Yes, as do. I welcome all coffee. Bring it to me, bring it to me now. All right.