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Black Rifle Coffee: Be Patient for Upcoming Earnings


Black Rifle Coffee (NYSE:BRCC) went public on Feb. 10, 2022, via a reverse merger with special purpose acquisition company (SPAC) SilverBox Engaged Merger and its shares are up 5% year-to-date. What should investors know about BRCC stock?

Exterior of Black Rifle Coffee Company Store. BRCC stock.
Source: YuniqueB / Shutterstock

The most important thing to mention is that this “rapidly growing and mission-driven premium coffee company founded to support Veterans, active-duty military, [and] first responders” will announce its fourth-quarter and full-year fiscal 2021 financial results before the U.S. stock market opens on Mar. 16, 2022. This will be a catalyst that will move the stock and shed more light on the company’s financials.

In the meantime, we can look at analysis and the Investor Day Presentation in Jan. 2022 for some useful insights.

Black Rifle Coffee: A $1.7 billion SPAC Deal

A few months ago, the merger valued the combined company at about $1.7 billion. It was stated that “the total capital available to Black Rifle Coffee Company at the end of the deal will be up to $545 million.”

I am puzzled to read that on Feb. 9, 2022, SilverBox Engaged stated that “the business combination is expected to provide BRCC with approximately $150 million in cash to support the implementation of its digital-first, omnichannel strategy and continued rapid growth.”

There is a huge difference between $545 million and $150 million. And it also makes a ton of difference for a company that wants cash to expand its business operations. This amount will be clarified on Mar. 16, so patience is needed.

I also consider the $1.7 billion valuation to be a bit excessive, but it is prudent to wait for the full-year results to be fair before making any conclusions there.

A Firm with a Social Mission

Black Rifle Coffee has a clear social mission as it “is committed to supporting Veterans, active-duty military, first responders and the American way of life.”

The goal is to hire 10,000 veterans during the expansion phase. This is a great goal and I applaud it. It would be the ideal scenario for every public company to have a social purpose like Black Rifle Coffee, but management decides these things, not investors.

The firm has 1.8 million followers on Instagram with a verified business account. It has already succeeded in building a strong brand name and a remarkable social media presence. Can this lead to strong financial results, too?

Traction for BRCC Stock Is Present

The presentation in Jan. 2022 showed plenty of interesting key points.

The product is not just coffee, but premium coffee. Nearly 50% of the employees are veterans or veterans’ spouses. Hence, the social mission is active. Donations in the form of shares, coffee, and cash will be given by the company. This is all great.

What is also great is the business model of Black Rifle Coffee. I assume its management has studied the “start with why” concept by Simon Sinek, which I support. A clear message from any company to its customers should start with the why, then address how and what questions related to its products and services.

Why should customers believe in the cause of the business? If they do, then they may buy into the how and what reasons and sales should follow. The why is a social purpose. What about the what and how?

There is a massive opportunity for Black Rifle Coffee in the more than $47.4 billion total value of the U.S. coffee market. It has an attractive omnichannel model based on a direct-to-consumer subscription business and a low churn ratio. The business is highly scalable with expected sales of $230 million in 2021, representing an increase of 40% compared to revenue of $164 million in 2020 and a gross margin of 40%.

Merchandise sales could also boost revenue, but it is crucial to focus on the main business: selling coffee. Wholesale distribution is also expected to help revenue growth significantly. The ready-to-drink product market presents another opportunity.

I find the projected revenue of $430 in 2023 a bit optimistic. The increased expected capital expenditures in FY 2022 and FY 2023 to support the capacity in coffee roasting will harm free cash flow and the valuation of the stock.

The bottom line for BRCC stock is that it presents considerable growth, but there is a lack of financials. It is prudent to wait and see the margins and actual revenue figures over the next quarters. Even if you want to support the social purpose of the company, give it some time to prove traction is present in its business performance.

On the date of publication, Stavros Georgiadis, CFA  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.

Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.

Article printed from InvestorPlace Media, https://investorplace.com/2022/03/brcc-stock-be-patient-for-upcoming-earnings/.

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