Sip Happens
Dutch Bros is compounding traffic and throughput with every cup. SHAK and CAVA are scaling boxes, not profitability.
Model Portfolio Action: Long BROS / Short (SHAK + CAVA)
Model Weighting: 2% (1% BROS, -0.5% SHAK, -0.5% CAVA)
Risk Management (Stop Reference): -20% at the pair level
Initial Profit Target (Guidance): Subject to fundamental validation and market context.
Executive Summary
We are long Dutch Bros (BROS) and short a basket of fast-casual bowl brands: Shake Shack (SHAK) and CAVA Group (CAVA). While all three names operate within the broader fast-casual category, their margin trajectories, traffic trends, and unit economics sharply diverge.
Dutch Bros is compounding foot traffic and leveraging loyalty (72% of Q1 transactions through Dutch Rewards) to drive consistent same-store sales and adjusted EBITDA margin expansion. In contrast, SHAK and CAVA are expanding footprint faster than unit-level profitability. Despite topline growth, their ability to scale margins remains unproven. The thesis rests on transaction durability and margin leverage at BROS versus capex creep and valuation fragility at SHAK and CAVA.
Dutch Bros (BROS): Growth Engine with Operating Leverage
Q1 2025 Overview
Revenue: $355M (+29% YoY) "Total revenue increased 29% compared to the same period last year."
Same-Store Sales: +4.7% system-wide; +6.9% company-operated, with 3.7% transaction growth.
Adjusted EBITDA: $63M (+20% YoY) "Our efforts are yielding not only revenue growth, but also strong adjusted EBITDA growth, which grew 20% as compared to the same quarter last year."
Shop Growth: 30 new stores opened in Q1; on pace for 160 new shops in 2025.
Margins: Company-operated contribution margin at 29.4% "Company operated shop contribution margin was 29.4%."
Strategic Drivers
Dutch Rewards Penetration: 72% of system transactions (+500bps YoY).
Order Ahead Adoption: 11% of mix in Q1, +300bps QoQ. Higher adoption in new markets.
Traffic Growth: System-wide transactions up 1.3% YoY, despite lapping two major LTOs (boba and protein coffee).
Innovation Pipeline: New LTOs (Sweet Cereal Sips, Spring Fever Dream) supported comps and engagement.
Unit Economics & Capital Efficiency
Average CapEx per new shop: $1.67M (down 10% QoQ).
Shift toward build-to-suit leases improving capital intensity.
COGS: 25% of revenue, 70bps favorable YoY, driven by pricing.
Key Risks – Long BROS
Tariff Exposure: 10% coffee tariffs on Brazilian, Colombian, and Salvadoran imports impact <10% of COGS. Locked pricing mitigates risk for 2025.
Labor Pressures: California wage adjustments offset leverage; Q1 labor cost at 27.4% of revenue (up 100bps YoY).
Food Program Expansion: Still early-stage; food <2% of sales. Scaling risk tied to Broista workload and throughput impact.
Shake Shack (SHAK): Expanding Footprint, Shrinking Traffic
Q1 2025 Overview
Revenue: $320.9M (+10.5% YoY)
Traffic: Down 4.6% YoY "Traffic was down 4.6% in the quarter due to unfavorable weather and broader industry pressures."
Same-Shack Sales: +0.2% driven by ~4% price and mix, not transaction growth.
New Units: Opened 4 company-operated and 7 licensed Shacks.
Restaurant Margin: 20.7% (+120bps YoY) "Restaurant-level profit margins grew by 120 basis points year-over-year to 20.7%."
Operational Tailwinds
New labor model introduced in Q4 is driving productivity.
Digital mix at 38% (+130bps YoY).
But Structural Red Flags Remain
Comp Decay: April same-store sales down ~1% YoY.
Geographic Drag: NYC, DC, LA lagging due to macro and weather.
Cost Outlook: Beef represents 30%–35% of food basket; Q2 food inflation guidance: low single digits.
Key Risks – Short SHAK
Near-Term Margin Upside: Q2 guide: 23–23.5% restaurant margin, +100 to +150bps YoY.
Digital + Drive-Thru Maturation: Digital menu boards and combo simplification could boost throughput.
Valuation Floor: Brand strength and licensing growth (+10.4% YoY) could support premium multiple despite margin ceiling.
CAVA Group (CAVA): Premium Valuation, Unproven Profitability
Q1 2025 Overview
Revenue: $249.2M (+28.4% YoY) "Revenue for the first quarter grew 28.4% to $249.2 million, reflecting strong unit growth and modest same-restaurant sales growth."
Same-Restaurant Sales: +2.3% YoY "Same-restaurant sales grew 2.3%, lapping 28.4% growth in the prior year."
Traffic: "We experienced traffic softness as guests continued to consolidate visits... we observed positive mix from limited-time items."
Adjusted EBITDA Margin: 2.3% (flat YoY) "Adjusted EBITDA margin was 2.3%, consistent with Q1 2024." (p. 4)
Key Challenges
SG&A: $42.8M, up 32% YoY "SG&A grew 32%, reflecting ongoing investments in brand marketing and digital experience."
Occupancy: 9.3% of revenue, up 70bps YoY, "driven by new store openings in higher-rent urban infill locations."
Unit Profitability: Still no disclosure of store-level contribution margins, a notable gap for a company trading at a growth premium.
Strategic Efforts
Culinary innovation (e.g., lamb meatballs, harissa honey chicken) highlighted but with no quantified impact on traffic.
CPG ambitions reiterated: "We remain excited about expanding our presence in grocery with our dips and spreads business."
Key Risks – Short CAVA
Brand Affinity: High loyalty and health halo could sustain premium revenue per customer.
Category Expansion: Optionality in retail CPG products (Whole Foods, Target) not yet priced in.
New Unit Productivity: AUVs holding above $2.7M for new units continues to drive top-line momentum.
TL;DR – Thesis Summary
Long BROS:
Compounding loyalty, traffic, and adjusted EBITDA.
Strong throughput economics and real estate ROI.
Expansion guided by disciplined pipeline and cost control.
Short SHAK + CAVA:
SHAK: Flat traffic, weak comps, valuation reliant on margin expansion narrative.
CAVA: Revenue growing, but margins elusive and not disclosed.
Both names chasing scale, not demonstrating unit-level leverage.
We believe this positioning captures an asymmetry between sustainable momentum (BROS) and unsustainable hope (SHAK/CAVA).
Disclosures: This is an illustrative model portfolio position. It does not constitute personalized investment advice.
These positions are part of our illustrative model portfolio and is presented for informational purposes only. It does not constitute personalized investment advice.
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