Dutch Bros’ stock plummets despite strong Q2 performanceDutch Bros’ stock plummets despite strong Q2 performance

Joanna Fantozzi

For a while, it seemed like burgeoning coffee chain Dutch Bros could do no wrong, as the brand outperformed its much larger competitor, Starbucks. But in an indication that investors might be placing too much pressure on the Dutch Bros hype train, the company’s stock value plummeted by nearly $10 this week after slightly missing investor expectations during an otherwise strong quarter for the Grants Pass, Ore.-based brand.

Dutch Bros’ revenues rose by 30% for the second quarter ended June 30, while same-store sales were up 4.1%. While this could be seen as a moderate boost for the company, which saw double-digit same-store sales growth last quarter, Dutch Bros is still outperforming other larger foodservice industry stalwarts, many of which are struggling with price-conscious consumers.

Dutch Bros doesn’t appear to be struggling with demand, as CEO Christine Barone said during Wednesday’s earnings call that last quarter’s launch of boba and protein milk were so successful that the company experienced major boba outages in April and May before supply was restored in June. Menu innovation — including this quarter’s new Churro Freeze and Watermelon Fizz drinks — has been one of the key drivers of Dutch Bros’ momentum and continued work on national brand awareness.

Related:Here’s why Dutch Bros is doing better than Starbucks right now

“Last year, we outlined a multi-pronged plan to drive traffic, which includes an enhanced focus on innovation, increased paid advertising designed to build brand awareness, and more targeted rewards program efforts,” Barone said. “Despite the macroenvironment noise and aggressive price promotion from many peers, we haven't felt the need to fundamentally adjust our strategy. We remain pleased with our progress and how our efforts are working together to drive momentum.”

Although menu innovation has always been one of the brand’s strengths, Dutch Bros has lagged in digital capabilities. The company is in the middle of rolling out mobile ordering capabilities and has expanded the test to 200 stores as of the end of July. Order-ahead capabilities will be available at most stores by the end of the fiscal year.

With the addition of the mobile ordering capability, Dutch Bros is learning how companies like Starbucks feel about managing multiple ordering channels while mitigating long waits, and how it can add to operational complexity for employees:

“Early mobile order data suggest a majority of mobile order customers choose to use our walk-up window,” Barone said. “Our existing kitchen display units are compatible with this system, leading to streamline integration based on learnings from competitors. We recognize the importance of capacity planning and setting customer expectations. We intend to throttle orders where necessary to maintain high levels of customer service across our channel.”

Related:How Dutch Bros pulled ahead of its biggest competition this quarter

One year after evolving the Dutch Bros rewards app to be more of a custom experience, more than two-thirds of company transactions come from Dutch Bros rewards members, and the company will be making further investments into the mobile app.

“Dutch Rewards is a cornerstone in our traffic driving strategy, and allows us to interact directly with our customers,” Barone said. “Through this communication channel, we introduce customers to new, innovative products, communicate special promotions like surprise sticker days and merch drops and incentivize visits across key customer segments…. We focused our promotional efforts in the Dutch rewards channel and elected to not repeat several of our broader based promotions.”

For the second quarter ended June 30, Dutch Bros reported revenues of $324.9 million, compared with revenues of $249.9 million in the same quarter last year. Net income was $22.2 million or $0.12 per share, as compared with $9.7 million or $0.05 per share the same quarter the year prior.

Dutch Bros opened 36 new shops across 13 states, surpassing the 900-shop milestone.

Contact Joanna at [email protected]