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Dutch Bros (BROS -6%) remains in need of a pick-me-up after its reiterated long-term growth strategy and Q1 update last night during its Investor Day presentation fell flat. Since spiking to all-time highs in February following Q4 results, shares of the coffee chain, predominately located on the West Coast, have tumbled by roughly 30%. Much of the decline can be attributed to the broader market weakness, which can have an outsized adverse impact on stocks trading at frothy multiples, such as BROS, which was carrying a forward earnings multiple of 135x following Q4 results.

• One item that stood out from Investor Day was BROS reaffirming its same-store sales growth target of +2.0-4.0% despite the figure increasing by +4.6% through March 24. Given how much the company exceeded its comp goal for the previous year, exceeding forecasts by over 100 bps, perhaps the market was looking for BROS to raise its annual forecast, particularly given how it is already tracking ahead of its projection for FY25.
• Another piece to today's selling pressure could be the general sentiment about the economy. BROS did not provide any updates on input prices. However, the coffee market has been volatile, with tariffs potentially increasing volatility further and upping input costs. BROS has taken some price to offset inflation at the beginning of the year.
• If it is forced to continue on this path, demand could begin to take a hit, especially since BROS specializes in more premium, highly customized beverages. Rival Starbucks (SBUX) has continued to see a shift into lower-priced beverages lately as consumers grapple with stubborn inflationary pressures.

Other than this, there were not many surprises with BROS's long-term financial targets, reiterating its annual revenue growth rate of around +20%, underpinned by annual new shop growth in the mid-teens. The company also anticipates annual adjusted EBITDA growth of over 20% above its annual sales growth rate target. Another item worth noting was BROS's decision to launch a line of Dutch Bros packaged coffee products to be sold in retail outlets. The announcement aligns with the company's plan to roll out an expanded food program, trying to reach more individuals to raise brand awareness.

Nevertheless, given its still-rich valuation, trading at around 92x forward earnings, considerably above SBUX, which commands a 30x forward earnings multiple, BROS likely needed to step up its comp outlook for the year following its solid start to Q1. Furthermore, the economy is currently generating apprehension among investors who are worried about a material downturn in consumer spending. While coffee tends to top consumers' list of daily priorities, like SBUX is witnessing, people may be finding ways to consume it less expensively. Similarly, at-home coffee consumption could be on the rise. Keurig Dr Pepper (KDP) noted last month that at-home coffee trends improved sequentially in Q4, with December marking the strongest month of the quarter. As such, CEO Christine Barone, who took over on January 1, 2024, could be staring at a roadblock to her comprehensive turnaround plan in the near future.