- The NiemanLab recently profiled the coffee company’s Coffee or Die magazine
- Black Rifle continues to work on growing its military demographic
- Investors might wait until BRCC has broadened its reach before buying its stock
When I first read NiemanLab’s story about the Black Rifle Coffee Company’s (NYSE:BRCC) Coffee or Die magazine, I didn’t know what to make of the right-leaning, military-focused media effort. While commendable, I’m not sure it is a brand extension most businesses would welcome, but I’ll give the company an A for effort.
As for Coffee or Die’s effect on BRCC stock, I don’t think it will sway investors one way or the other.
If you’re long BRCC, you either believe in the company’s focused demographic, or you feel that it is some sort of truth-seeker. And if you think it is all a bunch of marketing spin, you’re unlikely to be swayed by the company’s efforts to create boots-on-the-ground, honest reporting.
I think the company’s journalistic effort is a bridge too far, but I’m not the target demographic. In the end, if BRCC is to succeed both as a company and as an investment, it needs to reach out beyond the military coffee buyer.
There is a great big world out there. But unfortunately, Black Rifle might be missing an opportunity to grab it. Here is why I feel this way.
|BRCC||Black Rifle Coffee Company||$19.83|
BRCC Stock and Coffee or Die Magazine
According to the NiemanLab article, the magazine has a senior editor based in Ukraine who served in the U.S. Air Force as a special operations pilot. Approximately 20 people work full-time to produce news military-types would be interested in reading.
The article suggests that Black Rifle Chief Executive Officer and founder Evan Hafer has no time for the Proud Boys clientele. Instead, he wants to create a brand that supports the military lifestyle. While I have no military experience, I must admit that I can see the attraction of this kind of thing.
Like professional athletes, those who’ve served in the military have undergone rigorous training and development to do their jobs while protecting Americans. It is an admirable gig, even though history tells us that the country has not always had the best intentions for service and sacrifice.
Here is what Coffee or Die executive editor Marty Skovlund, Jr., told NiemanLab’s Laura Hazard Owen:
“‘We are always going to be the ones that are putting people on the ground in matters that matter to [readers],’ he said. Half of Coffee or Die’s 21 full-time employees are veterans or first responders. ‘One guy [Mac Caltrider] is a former Marine who went to the Baltimore PD and then left there to come write [for] us and is now one of our staff writers.’”
There is no doubt that Coffee or Die is focused on reporting the news accurately and professionally. However, I have to wonder if Hafer could achieve this goal without being a brand extension of the coffee company.
Where to Next?
Black Rifle reported its fourth quarter (Q4) 2021 results on Mar. 16. For the most part, they were good. Revenues grew 19.9% to $71.8 million, with all three sales channels experiencing growth in the quarter. Additionally, its gross profit increased 3% to $24.7 million. For all of 2021, it grew sales by 42% to $233.1 million with an $11.57 million operating loss.
One area where it could make improvements is gross margins. In Q4 2020, they were 40%. In Q4 2021, they were 560 basis points lower at 34.4%. Starbucks’ (NASDAQ:SBUX) gross margin in the trailing 12 months was 28.6%, not quite as high as its margins in 2016 (31.6%), but still healthy for a company that generates more than $30 billion in annual revenue.
Another area of concern is BRCC’s direct-to-consumer (DTC) revenue from subscriptions. In Q4 2021, they increased by just 2.9% to $49.6 million. However, DTC revenue increased 20% to $165.3 million for the entire year. In 2020, they grew 87%.
This tells me that investors ought to be concerned that the DTC faucet is slowing before its wholesale and retail store network has had a chance to grow and mature. As a result, when it reports Q1 2022 results in May, there is a good possibility that DTC revenue will be lower year-over-year.
If I owned BRCC stock, I’d be concerned that Hafer and company are more interested in reporting on the soldier’s perspective than building a robust three-pronged revenue model.
It Is Time to Broaden its Base
Black Rifle finished the year with eight company-owned Outposts and eight franchised locations. That is up from four at the end of 2020. In 2022, it plans to open between 15 and 20 company-owned locations.
According to its January 2022 investor presentation, BRCC expects to have 36 locations open. Of those, 13 will be franchised. At least from this presentation, it will open five franchise locations in 2022 and 15 company-owned locations, which is the midpoint of its guidance provided in the Q4 2021 press release.
Black Rifle may take its eye off the DTC ball as it continues to grow its Outposts locations in 2022 and beyond. If that happens, investors can kiss profitability goodbye.
While I don’t have a problem with Coffee or Die magazine, I believe that focusing on such a narrow demographic will ultimately hinder its ability to grow over the long haul.
For this reason, I’m unable to recommend BRCC stock. However, if I feel it is changing its tune in the future, I’d gladly consider changing my position.
BRCC stock is not a buy at this time.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.