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BROS Margins Under Pressure: Can it Balance Growth & Profitability?
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Key Takeaways
BROS' Q1 2025 shop margin fell 40 bps to 29.4% amid rising labor, coffee tariffs and opening costs.
The company expects 110 bps of full-year COGS margin pressure despite fixed coffee prices and cost controls.
BROS is boosting digital efforts while aiming for 2,029 stores by 2029, despite short-term margin strain.
Dutch Bros Inc. (BROS - Free Report) continues to benefit from robust revenue growth and store expansion efforts. However, rising costs continue to challenge its path to higher profitability.
In the first quarter of 2025, the company-operated shop contribution margin was 29.4%, down 40 basis points (bps) year over year. Due to labor investments, tariff-related coffee costs and increased pre-opening expenses, the company has been experiencing ongoing margin pressure. Despite solid top-line gains and improved shop-level productivity, these cost headwinds are weighing on overall profitability metrics.
The company has locked in coffee prices for the remainder of 2025 and is proactively managing cost inflation. Despite BROS’ ongoing efforts, it expects a decline in margin in 2025. BROS anticipates around 110 basis points of net COGS margin pressure for the full year, which includes tariff impacts.
Meanwhile, Dutch Bros is scaling digital initiatives like Order Ahead and Dutch Rewards, which are enhancing customer engagement and throughput. Its calculated push into food offerings also shows promise but adds operational complexity.
While Dutch Bros’ long-term growth potential remains strong with a bold goal of 2,029 stores by 2029, the near-term challenge lies in protecting margins without slowing expansion. Investors will be watching closely to see if the company can maintain its growth pace while gradually rebuilding profitability. For now, balancing growth and margin discipline is the tightrope Dutch Bros must walk.
Other Restaurant Operators Also Facing Rising Costs
Starbucks Corporation (SBUX - Free Report) and Chipotle Mexican Grill, Inc. (CMG - Free Report) are also facing margin pressure.
In second-quarter fiscal 2025, Starbucks' non-GAAP operating margin contracted 460 bps to 8.2% from the prior year. The decline was primarily due to deleverage and increased labor costs associated with the "Back to Starbucks" initiative. Additionally, restructuring expenses linked to the streamlining of its global support organization further pressured margins.
On the other hand, Chipotle’s restaurant-level operating margin reached 26.2% in first-quarter 2025, down from 27.5% reported in the prior-year period. In the first quarter of 2025, Chipotle’s food, beverage and packaging costs, as a percentage of revenues, were 29.2% compared with 28.8% reported in the prior-year quarter. The rise in expenses was due to inflationary costs across avocados, dairy and chicken. Additionally, a shift in protein mix, from limited-time offerings, contributed to the cost uptick. This was partly offset by the positive impact of menu price hikes.
BROS’ Price Performance, Valuation and Estimates
Dutch Bros stock has jumped 17.3% in a month, outpacing the industry and the S&P 500’s rise of 2.1% and 5%, respectively.
Price Performance
Image Source: Zacks Investment Research
BROS is trading at a premium to the industry, with a forward 12-month price-to-sales of 6.69X. The figure is well above the industry average of 4.05X.
P/S(F12M)
Image Source: Zacks Investment Research
Over the past 30 days, BROS' 2025 earnings estimates have inched down to 61 cents per share from 62 cents. Despite this slight revision, the company has been on track for robust growth, with revenues projected to climb 23.5% year over year and earnings expected to rise 24.5%.
Image: Bigstock
BROS Margins Under Pressure: Can it Balance Growth & Profitability?
Key Takeaways
Dutch Bros Inc. (BROS - Free Report) continues to benefit from robust revenue growth and store expansion efforts. However, rising costs continue to challenge its path to higher profitability.
In the first quarter of 2025, the company-operated shop contribution margin was 29.4%, down 40 basis points (bps) year over year. Due to labor investments, tariff-related coffee costs and increased pre-opening expenses, the company has been experiencing ongoing margin pressure. Despite solid top-line gains and improved shop-level productivity, these cost headwinds are weighing on overall profitability metrics.
The company has locked in coffee prices for the remainder of 2025 and is proactively managing cost inflation. Despite BROS’ ongoing efforts, it expects a decline in margin in 2025. BROS anticipates around 110 basis points of net COGS margin pressure for the full year, which includes tariff impacts.
Meanwhile, Dutch Bros is scaling digital initiatives like Order Ahead and Dutch Rewards, which are enhancing customer engagement and throughput. Its calculated push into food offerings also shows promise but adds operational complexity.
While Dutch Bros’ long-term growth potential remains strong with a bold goal of 2,029 stores by 2029, the near-term challenge lies in protecting margins without slowing expansion. Investors will be watching closely to see if the company can maintain its growth pace while gradually rebuilding profitability. For now, balancing growth and margin discipline is the tightrope Dutch Bros must walk.
Other Restaurant Operators Also Facing Rising Costs
Starbucks Corporation (SBUX - Free Report) and Chipotle Mexican Grill, Inc. (CMG - Free Report) are also facing margin pressure.
In second-quarter fiscal 2025, Starbucks' non-GAAP operating margin contracted 460 bps to 8.2% from the prior year. The decline was primarily due to deleverage and increased labor costs associated with the "Back to Starbucks" initiative. Additionally, restructuring expenses linked to the streamlining of its global support organization further pressured margins.
On the other hand, Chipotle’s restaurant-level operating margin reached 26.2% in first-quarter 2025, down from 27.5% reported in the prior-year period. In the first quarter of 2025, Chipotle’s food, beverage and packaging costs, as a percentage of revenues, were 29.2% compared with 28.8% reported in the prior-year quarter. The rise in expenses was due to inflationary costs across avocados, dairy and chicken. Additionally, a shift in protein mix, from limited-time offerings, contributed to the cost uptick. This was partly offset by the positive impact of menu price hikes.
BROS’ Price Performance, Valuation and Estimates
Dutch Bros stock has jumped 17.3% in a month, outpacing the industry and the S&P 500’s rise of 2.1% and 5%, respectively.
Price Performance
Image Source: Zacks Investment Research
BROS is trading at a premium to the industry, with a forward 12-month price-to-sales of 6.69X. The figure is well above the industry average of 4.05X.
P/S(F12M)
Image Source: Zacks Investment Research
Over the past 30 days, BROS' 2025 earnings estimates have inched down to 61 cents per share from 62 cents. Despite this slight revision, the company has been on track for robust growth, with revenues projected to climb 23.5% year over year and earnings expected to rise 24.5%.
Image Source: Zacks Investment Research
The stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.