Black Rifle Coffee Company ($BRCC), a veteran-founded company specializing in premium coffee, beat revenue expectations for the Q3 driven by solid market growth compared to the flat trend of peers in the category. Amidst this growth, the company has announced its new energy drink distribution partnership with Keurig Dr. Pepper ($KDP). This partnership will provide nationwide accessibility to over 180,000 retail outlets, reaching 80% of the U.S. population. Despite this news, the stock continues to post lackluster performance after dropping over 50% from recent highs in the summer.
The stock appears relatively undervalued, suggesting an opportunity for value-oriented investors, especially if the new energy drink is additive to the bottom line.
Black Rifle Targeting a Much Larger Market Opportunity
Black Rifle Coffee Company (BRC), established by Green Beret Evan Hafer, is a veteran-owned business that strongly supports Veterans, active-duty military, and first responders while providing distinctive roast profiles.
Recently, the company announced the launch of a new product, Black Rifle Energy. This has been facilitated by a key strategic partnership with Keurig Dr. Pepper, aiding in product distribution. The nationwide reach of Keurig’s Direct Store Delivery (DSD) network currently reaches 80% of the U.S. population, with access to over 180,000 retail outlets, providing significant market expansion opportunities.
The energy drink market represents more than $20 billion in retail sales, significantly larger than the coffee ($11 billion) and ready-to-drink coffee ($4 billion) markets in which Black Rifle currently operates. The new product targets the notably younger consumers of the energy drink market, expanding its customer base and product usage scenarios.
Adding Black Rifle Energy to Keurig Dr. Pepper’s offerings creates a roster of four differentiated brands, all catering to varying consumer tastes, needs, and demographics. With more products flowing through its distribution network, all brands in the portfolio are expected to see benefits.
Product Mix Shows Improvement
In the third quarter of 2024, Black Rifle reported revenue of $98.2 million, exceeding expectations by $2.9 million, representing a 2.3% year-over-year decrease. While the company’s wholesale revenue saw a 3.5% increase, the Direct-to-Consumer and Outpost segments experienced an 11.4% decline. However, gross profit grew by 21.4% compared to the previous year, thanks to an effective product mix shift and other productivity improvements.
For the quarter, the company’s total expenses increased. Marketing expenses rose by 22.4% due to expanded partnerships, higher advertising investments, and increased shopper marketing initiatives. Salaries, wages, and benefits expenses escalated by 19.0% due to lower incentive compensation the previous year. However, there was a 36.7% decrease in general and administrative expenses due to cutting down on inefficient or duplicative aspects of corporate infrastructure and support. Net loss for the quarter amounted to $1.4 million with an adjusted EBITDA of $7.1 million, showing some improvement from last year’s net loss of $10.7 million. The GAAP earnings per share (EPS) of -$0.01 exceeded expectations by $0.01.
BRCC’s management has updated financial guidance for Fiscal year 2024 based on current market conditions. The company forecasts net revenue between $390.0 and $395.0, indicating a potential decrease from the previous year’s $395.6. The gross margin is projected to remain stable at 40% to 42%, similar to the previous estimate. Adjusted EBITDA is expected to range from $35.0 to $40.0, showing a potential increase from the prior year’s $13.3.
Negative Price Momentum Takes Stock Into Value Territory
The stock enjoyed a run-up to $6.80 in mid-summer but has cascaded down since and sits at -19.28% year-to-date. It trades near the low end of its 52-week price range of $2.78 – $7.14 and demonstrates ongoing negative price momentum as it trades below the major moving averages. The stock trades at a relative discount, with a P/S ratio of 0.5x compared to the Consumer Staples sector average of 1.17x.
Analysts following BRCC stock have mostly been bullish. For example, DA Davidson’s Michael Baker, a five-star analyst according to Tipranks’ ratings, recently reiterated a Buy rating and $5.00 price target on the shares, noting that the company’s sales and volume trends continue to outperform industry peers.
Based on recent recommendations from three analysts, BRCC is rated a moderate buy overall. Their average price target for the stock is $5.00, which represents a potential 70.65% upside from current levels.
Bottom Line on BRCC
Black Rifle Coffee Company is showing resilience, surpassing Q3 revenue expectations while showing solid market growth. The company extended its product range by launching Black Rifle Energy with the help of a distribution partnership with Keurig Dr. Pepper. This move has the potential to tap into the larger energy drink market, thus expanding its customer base. However, the stock’s performance has been disappointing, dropping over 50% from recent highs in the summer, pushing it into a significant discount.
Despite the stock’s poor performance, the financial future looks promising, with the company projecting a potential increase in adjusted EBITDA for Fiscal year 2024. With the new product and a possible upside from the current levels, value-oriented investors might consider BRCC an attractive addition to their portfolio.
