BROS EVENT TODAY
Dutch Bros reported -0.6% comps (-7% decline in traffic from -3% in 3Q22) with ~11% pricing, and it was clear from their earnings call that this management team was not ready to be called up to the big leagues. We are adding Dutch Bros (BROS) as a Hedgeye Restaurants Best Idea Short. We see ~50% downside from here. The relentless focus on excessive unit growth and not balancing that with profitability can create long-term issues for the company (i.e., SHAK). We don't see the company generating enough OCF to cover capital spending until FY2026 (and that might be a generous assumption).
EVENT DETAILS:
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BLACK BOX
Same-store sales growth calculated based on 3-year comparisons is also showing signs of deceleration, although it has held up better due to rising guest check growth.
As a result of easy comparisons, same-store sales jumped to +14.2% YoY in January 2023, up 9.3% MoM. Similarly, same-store traffic growth accelerated to +5.0%, an improvement of 8.5% MoM. This was the best month for year-over-year sales and traffic growth for the industry since February of 2022. It was also the first time during that same period that the industry achieved positive traffic growth. All industry segments experienced a strong rebound in their same-store sales growth due to the tailwinds from the Omicron downturn a year ago, but clearly, the biggest winners from this easier lap in the comparisons were Casual Dining. The top-performing segments during the month were fine dining, family dining, and upscale casual. The segments with the softest sales growth were those in limited service: quick service and fast casual. Same-store traffic growth for January 2023 compared with the same month in 2020 was the weakest 3-year traffic growth in the last 10 months. Same-store sales growth calculated based on 3-year comparisons is also showing signs of deceleration, although it has held up better due to rising guest check growth.
