BRC Inc (NYSE: BRCC) - The Black Rifle Coffee Company – reported its Q3 earnings last month, and the BRCC share price has since fallen 21%. Unfortunately, these results missed analyst expectations on earnings and sales, thereby disappointing shareholders.
BRCC Founder and CEO Evan Hafer said:
In the quarter, our (Ready-to-Drink) RTD line continued to be the fastest-growing single-serve RTD coffee across all channels of trade, outpacing the RTD Coffee Category growth by 4.5x. As we look to meet this growing demand from our loyal and growing community, we continue to invest in evolving our omnichannel business model.
What is BRCC?
BRC Inc (BRCC), the Black Rifle Coffee Company, is a rapidly growing, veteran-controlled, and led coffee and media company with a loyal and quickly expanding community of more than 2.1m lifetime consumers, nearly 290,000 active Coffee Club subscribers, and approximately 12.6m social media followers across the company's, its co-founders', and critical media personalities' accounts as of June 30, 2022.
At the heart of everything the company does is its commitment to supporting the active military, veterans, first responders, and those who love America.
BRC's coffee beans are primarily roasted in-house in the United States to ensure product consistency and quality. Its coffee beans have an 83-point grade rating or higher and are sourced only from the highest quality suppliers.
In its latest Management Discussion, the company said:
At Black Rifle Coffee, we develop our roast profiles with the same mission focus we learned as military members serving our country. We produce creative and engaging, cause-related media content, self-produced podcasts, and digital and print journalism in-house to inform, inspire, entertain, and build our community.
The company also sells Black Rifle Coffee-brand apparel, coffee brewing equipment, and outdoor and lifestyle gear that consumers proudly wear to showcase the brand.
The company said its growth was primarily driven by a significant expansion of its Wholesale and Outpost sales channels.
Black Rifle Coffee Earnings Q3 Results
Black Rifle Coffee Company (BRCC) has reported financial results for Q3 2022. The company's net revenue was $75.5m, an increase of 26% YoY, while its gross profit decreased Y/Y to $23.9m, representing a 32% gross margin.
BRCC's CEO, Evan Hafer, said the company's performance was driven by continued success in the RTD (Ready-to-Drink) market and its entry into the FDM (Food, Drug & Mass) channel in collaboration with Walmart.
BRCC's RTD line was the fastest-growing single-serve RTD coffee across all channels, outpacing the RTD Coffee Category growth by 4.5 times. The company said it would continue to invest in its omnichannel business model to meet growing demand from its customer base.
BRCC Q2 Financial Results
In its Q2 earnings release, The Black Rifle Coffee Company (BRCC) delivered actual EPS of -$0.22, below consensus estimates of -$0.04. Meanwhile, revenues came in at $66.36m, missing consensus estimates of $70.94m.
Revenue: $66.4m (up 27% from $52.4m Y/Y)
Cost of Goods Sold (COGS): 43.8m (up 41% from 31m Y/Y)
Gross Margin: 34% (down 16.4% Y/Y)
While revenues are primarily rising due to increases in Ready-to-Drink (RTD) product sales in BRC's wholesale channel, its input costs are also rising. Inflation is affecting its margins and weighing on the financial results.
The company is witnessing higher product costs, including increases in raw coffee beans and RTD. Its product mix shift also impacts margins, as RTD has higher product costs and lower gross margins than bagged coffee.
Furthermore, its salary costs are rising too.
How Does BRC Inc Make Money?
BRC makes money selling its products both directly and indirectly to customers via its physical and online platforms. Its revenue net reflects the impact of product returns and discounts for specific sales programs, promotions, and loyalty rewards.
BRCC Stock Financials
BRCC stock has a price-to-book-value (P/BV) of 10.2, which is well above the industry average of -0.2. BRCC stock does not come with a shareholder dividend (what is a dividend?).
Over the past year, BRC Inc (BRCC) has traded between $5.77 and $34. Today it trades at $5.78. Year-to-date, the BRCC stock price is down by -43%, while the S&P 500 is down -18% over the same period.
Black Rifle Coffee Stock Forecast - Analyst Ratings
Seven FactSet analysts have a consensus Overweight rating on BRCC stock with a target share price of $11.33, which is down from the consensus in August, which was $14.67.
Analyst Stephen Powers of Deutsche Bank Research downgraded his share price target to $12 on August 11 and gave BRCC stock a Hold rating. Powers further reduced his BRCC share price target to $9 on November 11.
BRCC Growth Potential
BRC has historically experienced strong revenue growth and is exposed to multiple revenue streams, thereby increasing its opportunity to continue growing.
Its three-pronged approach to building its brand is to inform, inspire and entertain. The company owns two roasting facilities, one focused on large-batch roasting and the other on small-batch roasting.
Black Rifle Coffee is rapidly evolving its omnichannel business model to maximize profitable growth and return on investment. To accomplish this, BRC is investing in growing its revenue streams and expanding product lines.
The company has also opted to move into the Food, Drug & Mass (FDM) channel, which should unlock a substantial incremental opportunity to get Black Rifle Coffee into the hands of new and existing consumers. This will also aid brand awareness, which is currently below 20% around the United States.
BRCC Stock Risks
Commodity price risk is the primary market risk to BRCC stock. The company margins and profitability are affected by purchases of coffee beans, dairy products, aluminium cans and other materials and commodities.
BRC is subject to interest rate risk on its credit facility. This bears a variable interest rate based on the prime rate plus 1%. It's also subject to rising costs on its equipment financing loan, which is also on a variable rate.
Inflation continues to pose a risk to BRCC stock.
Should You Invest in BRCC?
The popularity of coffee is increasing globally. It is estimated that over 2.25 billion cups of coffee are consumed daily. In the United States, coffee is the second most popular beverage after water, and many people start their day with a cup of coffee. In fact, the coffee industry is a multi-billion dollar industry worldwide.
The Black Rifle Coffee Company is building a solid brand presence and growing its revenues, making it a very exciting investment opportunity. However, this is still an emerging growth company facing several current economic challenges. This makes BRCC stock a highly speculative investment and should only be considered by those investors with an appetite for risk.