If you invested $10,000 in shares of coffee giant Starbucks (NASDAQ: SBUX) 30 years ago, you would have well over $900,000 today. It's been a great long-term investment, but 2024 has been a different story.
As of this writing, Starbucks stock is down 24% year to date, greatly underperforming the S&P 500 's nearly 17% gain. What are coffee aficionados to do when looking for a caffeinated investment opportunity?
As it turns out, there are two other coffee stocks outperforming the broad market this year: Dutch Bros (NYSE: BROS) and Black Rifle Coffee (NYSE: BRCC) . Here's what investors need to know.
Data by YCharts .
1. Dutch Bros
Dutch Bros is a drive-thru coffee chain with 831 locations as of the end of the first quarter. And business is booming. In Q1, the company's same-store sales were up a whopping 10%, and this number is quite noteworthy.
Once a location has been open for 15 months, Dutch Bros considers it part of the comparable-store base for measuring same-store sales. It's opened over 150 new locations in the past year, and these newer shops are excluded from that figure. This metric is a good way of monitoring the health of the business with an established base of customers.
Dutch Bros' 10% same-store sales growth last quarter was partially due to an increase in customer traffic. This stands in stark contrast to Starbucks in its fiscal 2024 second quarter (ended Mar. 31) when the company saw a 7% year-over-year drop in transactions in North America -- the same time and place Dutch Bros was enjoying solid growth.
This doesn't mean Starbucks is doomed. But management's commentary about the weather and the need to offer better promotions to drive traffic has a hollow ring to it when looking at the results from Dutch Bros.
Dutch Bros stock has climbed this year on the strength of its Q1 results. The brand indeed seems healthy, which is good in light of the company's goals.
Management plans to open at least 150 new locations this year, and it intends to continue opening new locations at a brisk pace as it marches toward 4,000 locations long term. Given the brand's popularity, this could be a winning strategy, and it's one of the most aggressive growth plans in the restaurant industry .
2. Black Rifle Coffee
Black Rifle Coffee sells coffee beans and grounds direct to consumers through a subscription service. It also operates a select few stores, has ready-to-drink options in convenience stores, and is increasingly getting its products into major retailers such as Walmart . And its growing presence in retail stores -- known as wholesale revenue -- is what's really impressing investors right now.
The comparison to Starbucks is again enlightening. In its fiscal 2023, channel development revenue for Starbucks was roughly flat year over year -- this includes coffee in grocery stores and ready-to-drink products at convenience stores. But management noted a drop in ready-to-drink sales last year.
In the first half of fiscal 2024, Starbucks' channel development revenue is down 10% year over year. In part, this is due to the sale of its Seattle's Best Coffee brand, but management also noted "SKU optimization," which could mean it pulled some products from shelves because they weren't selling well.
By contrast, Black Rifle Coffee seems to be thriving in grocery stores and convenience channels. In Q1 2024, the company's wholesale revenue increased 51% year over year compared to a 48% increase in distribution, suggesting it's generating more sales per point of distribution.
When it comes to ready-to-drink coffee products, Black Rifle Coffee is now in nearly 87,000 doors as of last quarter, up 38%. And data suggests the company is growing sales in its areas of distribution faster than comparable products. Moreover, management recently restructured operations for its ready-to-drink business, hoping to drive better profitability as production scales for these products.
Black Rifle Coffee stock hit an all-time low in late 2023, which is important context for its gains in 2024 so far. However, investors have been increasingly encouraged as the brand has found traction outside of its traditional subscription business. It's why the stock is winning so far this year.
Don't count it out completely, but Starbucks does have some work to do when it comes to winning back some customers and boosting its profit margins. By comparison, Dutch Bros and Black Rifle Coffee are early in their growth stories. Considering both companies have long-term expansion plans, these stocks could continue to outperform the industry leader and the broad market.
Jon Quast has positions in Starbucks. The Motley Fool has positions in and recommends Starbucks and Walmart. The Motley Fool has a disclosure policy .
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