Why Dutch Bros Stock Had a Sensational 2024 With a 65% Gain

Shares of Dutch Bros (NYSE: BROS) climbed 65.4% in 2024, according to data provided by S&P Global Market Intelligence. The coffee company's year is a story of two quarters. Investors were disappointed after its second-quarter report and Dutch Bros stock was consequently flat for the year as of October. But a good reaction to its third-quarter report in November propelled shares to their 65% gain in 2024.

Ironically, Dutch Bros' Q2 report on Aug. 7 looked good in isolation. Its Q2 revenue was up 30% year over year, bolstered by 4% same-store-sales growth. And its net income more than doubled from the previous year. Management also raised its guidance for the rest of 2024. But it didn't raise the guidance as much as investors wanted, so the stock counterintuitively sank.

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After Dutch Bros reported third-quarter results on Nov. 7, it seems that investors finally recognized that they were being shortsighted. None of the numbers looked as good as the numbers in Q2. But business is good and the company's long-term ambitions provide high upside if things continue to go well. And this is why Dutch Bros stock finished 2024 at two-year highs.

Heightened expectations for Dutch Bros' business

The market's reactions to Dutch Bros' financials have been contradictory, sometimes up and sometimes down. Therefore, it's worth drilling down a little further to uncover the competing emotions.

On one hand, there are concerns from investors regarding Dutch Bros' growth plan. The company had 912 locations at the end of Q3, having opened new shops aggressively since it went public with roughly 500 locations back in 2021. In Q2, management said that it's reworking its real estate pipeline to improve the economics of new shops. But reworking the pipeline slows things down.

For perspective, Dutch Bros' management had expected to open between 150 and 165 new locations in 2024. But after its Q3 report, management confirmed that new openings would be on the lower end of guidance. For a stock where growth is almost everything, investors didn't like the potential slowdown.

On the other hand, opening new locations isn't the only path for growth for Dutch Bros. In Q3, management talked about how it's testing food at some of its locations. For a business built almost entirely on beverages, this is a big deal because it's another opportunity to boost the top line.

What's next for Dutch Bros in 2025?

The restaurant industry is emphasizing value in 2025 -- consumers appear to be tired of rapid price increases. This is something to watch for now. In Q3, transactions were up less than 1%. The company needs to be careful to not push consumers away with higher prices.

Longer-term, Dutch Bros is making the right choice to make sure new locations are positioned to have attractive returns. It could slow down growth but it's better for the long-term health of the business. And I think investors should be encouraged by this.

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Jon Quast has no position in any of the stocks mentioned. The Motley Fool recommends Dutch Bros. The Motley Fool has a disclosure policy.