Dutch Bros, Inc. Third Quarter 2026 Conference Call and Webcast - DUTCH BROS INC

Financial Performance:

• Total revenue for Q3 2026 reached $550 million, a 30% year-over-year increase.
• Adjusted EBITDA grew 30% year-over-year to $101 million; adjusted EPS was $0.25, up from $0.19 in Q3 2025.
• System same-shop sales increased 4.4%, while company-operated same-shop sales grew 5.4%.
• Company-operated shop contribution margin improved 30 basis points year-over-year to 28.1%, driven by 30 basis point favorable beverage, food, and packaging costs (partially due to $4 million in tariff refunds).
• Labor costs were 26.7% of company-operated shop revenue (80 basis points favorable due to sales leverage); occupancy costs were 18% of revenue (100 basis points unfavorable due to new shop rent and utility increases).
• Adjusted SG&A was $70 million (12.7% of total revenue), showing 90 basis points of year-over-year leverage.
• Liquidity stood at $625 million as of September 30, 2026, including $195 million in cash and the remainder in an undrawn revolver.
• Q3 average capital expenditures per shop were approximately $1.4 million.

Guidance and Future Outlook:

• Updated 2026 full-year revenue guidance is now at least $2.1 billion.
• Full-year 2026 system same-shop sales growth guidance updated to at least 5%.
• Full-year 2026 adjusted EBITDA guidance raised to approximately $380 million.
• Full-year 2026 capital expenditures guidance increased to a range of $370 million to $390 million.
• Confirmed expectation to open at least 185 system shops in 2026.
• Guidance for 2027 projects approximately 250 system shop openings, primarily in existing states to drive density.
• Long-term goal is to reach 2,029 shops by 2029.
• Q4 guidance reflects harder year-over-year comparisons, the lap of the food program rollout benefit to net ticket, and continued consumer volatility; 2026 four-wall costs (excluding COGS) expected to remain consistent with Q3, while COGS pressure expected due to seasonal mix shift and absence of tariff refunds.

Business Segments and Product Lines:

• Beverage innovation includes a permanent energy menu (MIST, Rebel) now comprising 27% of mix, up from 25% pre-launch.
• A refreshed matcha platform is planned for 2027 following successful market testing; early feedback is positive.
• Hot food platform rollout completed for company-operated shops in Q2, with expansion to eligible franchise shops continuing in H2 2026; attachment rates remain consistent with prior quarters.
• Holiday Sugar Cookie Cake Pop launched this quarter as part of seasonal LTO strategy.
• Dutch Rewards program now accounts for 74% of customer visits, driving record incremental sales contribution.
• Order Ahead penetration reached 17% of total visits (up 400 basis points year-over-year).
• Delivery pilot with DoorDash is underway in select markets.
• 48 system shop openings in Q3 brought total count to 1,273.

Market and Competitive Landscape:

• Dutch Bros continues to gain share in the high-growth beverage category, outperforming industry averages in guest experience and friendly service.
• Company operates in highly competitive markets, often within close proximity to legacy coffee chains and emerging competitors like Seven Brew (present in 4 states with 20+ shops each); AUV consistency remains strong regardless of competitor proximity.
• Unaided brand awareness reached an all-time high, with significant runway to drive trial compared to legacy brands.
• Ad Age named Dutch Bros one of America's hottest brands for 2026 in the "Reinventing the Everyday" category.
• Gen Z customers continue to show strong strength; the brand is taking share, particularly in the Gen X segment.
• Revenue growth of 30% in Q3 significantly outpaced overall beverage market growth.

Risks and Challenges:

• Consumer volatility remains a key concern, with heightened choppiness in Q3 attributed to rising gas prices and macroeconomic conditions.
• Transaction comparisons are expected to become more difficult in Q4 2026 and 2027 due to strong prior-year periods.
• Elevated coffee prices continue to exert pressure on margins, though the company maintains healthy margins north of 28%.
• Shift toward build-to-suit leases (targeting 60% mix) is expected to result in elevated occupancy costs continuing into 2027.
• Seasonal mix shifts and the absence of one-time tariff refunds in Q4 will impact Q4 costs and margins.
• Cannibalization is expected to increase as the company accelerates shop density in existing markets, though this is factored into underwriting models.

Management Commentary and Tone:

• Management expressed high confidence in long-term growth, citing a deep real estate pipeline and a robust people-first culture.
• Christine Barone emphasized the "people-led culture" as a core differentiator, citing specific examples of Broista community engagement.
• Josh Kunzer highlighted the successful acceleration of development and the ability to maintain profitability despite headwinds.
• Tone was optimistic yet cautious regarding short-term consumer volatility, focusing on execution, digital capabilities, and innovation to drive frequency.
• Leadership stressed the importance of density strategies and "building density" in existing markets rather than just entering new ones.

Analyst Questions and Answers:

• Innovation Cadence: Management confirmed plans for faster beverage innovation cycles in 2027, including the matcha relaunch, merch drops, and continued digital segmentation in Dutch Rewards.
• Competition & Cannibalization: Confirmed that cannibalization is a standard part of the model; new shops are underwritten with expected sales transfers, and AUVs remain consistent regardless of competitor proximity.
• Volatility Drivers: Identified rising gas prices and consumer spending behavior as primary drivers of Q3 choppiness, with no significant negative impact from competitors.
• CapEx & Leases: CapEx per shop is expected to remain around $1.4 million, but the shift to build-to-suit leases will increase occupancy costs; the company is progressing faster than anticipated toward its 60% build-to-suit target.
• Food & Digital: Food attachment is stable; opportunities exist to increase morning day-part food attach. Delivery is being piloted as a seamless extension of mobile order capabilities.
• 2027 Outlook: 2027 guidance assumes 250 openings in existing states; new shop performance in 2026 was strong ($2M annualized), though expected to normalize toward the $1.8M underwriting framework in 2027 as density increases.

Other Key Points:

• "Buck for Kids" annual charity event raised over $1.3 million for local youth organizations in 2026, marking the program's 20th anniversary.
• The VibeCheck scorecard is being used to identify best practices from top-performing shops to improve execution across the system.
• Two "filetree events" were held in Q3, driving strong value and trial for the energy menu.
• The company completed the reacquisition of a franchisee in Phoenix in July, funded by cash on hand.