What You Need To Know
Dutch Bros Inc (NYSE: BROS) has announced the pricing of a secondary public offering of 8,000,000 shares of its Class A common stock. The selling stockholders will receive the proceeds from this offering, and Dutch Bros Inc. will not benefit from it.
Dutch Bros Inc. has a remarkable journey, evolving from a modest pushcart operation in 1992 to becoming one of the leading and fastest-growing brands in the quick-service beverage industry across the United States. Founded by brothers Dane and Travis Boersma in Grants Pass, Oregon, Dutch Bros initially operated with just a double-head espresso machine and a pushcart. This humble beginning laid the foundation for what would become a widely recognized and beloved coffee brand.
In 2021, as part of its journey towards further growth and expansion, Dutch Bros underwent a significant organizational restructuring in connection with its Initial Public Offering (IPO). This reorganization was designed to streamline its corporate structure, facilitate future growth, and enhance shareholder value. Dutch Bros Inc., established as a Delaware corporation, became the holding company for Dutch Bros operations.
These reorganization transactions were pivotal in setting up Dutch Bros for its IPO, allowing it to raise capital from public markets while maintaining a corporate structure that supports its growth strategies. Following the reorganization and IPO, Dutch Bros Inc. maintained significant control over Dutch Bros OpCo's operations, continuing to drive the brand's expansion and innovation in the beverage industry.
Dutch Bros operates a network of 830 drive-thru coffee stands across 16 states, achieving business revenues of $254 million in the fourth quarter of 2023.
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Why This Is Important for Retail Investors
No Proceeds to Dutch Bros: Although the offering could potentially increase the company's visibility and trading volume, Dutch Bros itself will not receive any proceeds from the sale of shares by the selling stockholders. This means the company misses out on a potential influx of capital that could be used for expansion, debt reduction, or other corporate purposes.
Costs Incurred by Dutch Bros: Despite not benefiting financially from the offering, Dutch Bros will bear a portion of the costs associated with the sale of shares. These costs can include legal, accounting, and other fees related to the offering process. Such expenses without direct financial benefit could impact the company's financial position, especially if the costs are substantial.
Change in Board Composition: Following the completion of this offering, a director nominated by the selling stockholders will resign from the Dutch Bros board of directors. Additionally, the selling stockholders' rights to designate directors to the board will be reduced. This change could alter the dynamics of the board and potentially impact decision-making and strategic direction, depending on the expertise and influence of the departing and remaining board members.
Market Perception: Market reaction to the offering could be mixed. On one hand, the sale of a significant number of shares by major stockholders might be viewed as a lack of confidence in the company's future prospects, potentially leading to negative market sentiment. On the other hand, increased stock liquidity and the involvement of a reputable underwriter like Morgan Stanley could be perceived positively.
Share Price Volatility: The offering could introduce volatility to Dutch Bros' share price. The increased supply of shares available for trading might lead to price fluctuations, especially if demand does not match the increased supply. Investors' interpretation of the offering and its implications for the company's future could also contribute to share price movements.
Potential for Dilution: Although the offering itself involves the sale of existing shares rather than the issuance of new shares, and therefore does not dilute current shareholders' ownership percentages, the perception of potential future dilution or additional offerings could influence investor sentiment and stock price.
How Can You Use This Information?
Here are some of the investing ideas that can be explored using this information:
Growth Investing
Retail investors can explore the potential for growth by investing in Dutch Bros Inc., a rapidly expanding brand in the quick-service beverage industry.
Growth investing focuses on stocks of companies expected to grow at an above-average rate compared to other stocks in the market; learn more in our article titled 'What is Growth Investing?'.
Thematic Investing
Retail investors interested in the quick-service beverage industry or the growth of recognized brands can explore Dutch Bros Inc. as a potential thematic investment opportunity.
Thematic Investing selects assets based on projected trends or themes believed to offer growth opportunities.
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Popular ETFs
Some investors prefer to invest in stocks via an exchange-traded fund for ease and reduced risk. Some popular ETFs include the following:
Consumer Discretionary Select Sector SPDR Fund (XLY): This ETF seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of publicly traded equity securities of companies in the Consumer Discretionary Select Sector Index. It includes companies from sectors like restaurants, entertainment, and consumer goods, which could encompass businesses similar to Dutch Bros.
Vanguard Consumer Discretionary ETF (VCR): VCR aims to track the performance of the MSCI US Investable Market Consumer Discretionary 25/50 Index, which includes stocks of U.S. companies within the consumer discretionary sector. This sector covers a range of industries, including automotive, household durable goods, textiles and apparel, hotels, restaurants, leisure, media production and services, and consumer retailing and services.
Invesco Dynamic Food & Beverage ETF (PBJ): Though narrowly focused, PBJ seeks to track the Dynamic Food & Beverage Intellidex Index, which could include companies operating in the fast-food and coffee shop sub-sectors. This ETF aims to provide exposure to the food and beverage segment of the U.S. stock market, including companies like Dutch Bros that operate within the quick-service restaurant industry.
iShares U.S. Consumer Services ETF (IYC): This ETF aims to track the investment results of an index composed of U.S. equities in the consumer services sector. This sector includes companies primarily engaged in producing goods and services based on consumer spending. Companies within this ETF operate in industries such as media, retail, hotels, and restaurants.
First Trust NASDAQ Global Auto Index Fund (CARZ): While focused on the auto industry, CARZ invests in a broader range of consumer discretionary companies, indirectly exposing consumer spending trends that could affect businesses like Dutch Bros.