Why Dutch Bros Is Tumbling Today

What happened

Shares of Dutch Bros (NYSE:BROS) had tumbled 6.2% by 11:03 a.m. ET on Tuesday as the entire market is in a rout over the latest inflation numbers. The Dow Jones Industrial Average has lost more than 840 points so far, or 2.6%, while the S&P 500 is down 470 points, or 3.8%.

The Bureau of Labor Statistics reported August inflation numbers this morning and instead of falling as expected because energy prices had sharply declined 10.6% for the month, consumer prices rose 8.3%. That was up 0.1% from July, instead of the 0.1% decline forecast.

Even when the government tries to rejigger the numbers by removing food and energy from the equation, the so-called "core" index still rose 6.3% compared to the 6.1% expected.

Image source: Getty Images.

So what

Dutch Bros has been battered by inflation all year long, just like most other retailers. Its commodity costs have risen sharply, and despite the drive-thru coffee shop raising prices several times already to offset some of the expenses, it hasn't been enough. Dutch Bros said it was considering raising prices again in the third quarter.

That's a problem for the coffee shop because prices are hitting customer visits. Where Dutch Bros used to get several visits a day from its customers -- one in the morning, and then one in the afternoon or evening -- it's now finding the late-day dayparts are suffering from declining foot traffic.

Now what

Dutch Bros is still financially sound despite the impact inflation is having on its business, and it continues to expand its footprint by entering new markets. It's also having to contend with higher labor costs in California, where the minimum wage might rocket to as high as $22 per hour next year.

Higher costs may continue to erode margins for the coffee stock, but it's a malaise all retailers are feeling -- not a problem unique to its business.

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Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.