BRC (NYSE:BRCC) — also known as Black Rifle Coffee — is a mission-driven premium coffee company that supports veterans and active duty military. It announced its first-quarter 2022 financial results on May 12 before the opening bell. And is BRCC stock a buy or a sell after the earnings release? I argue it is a sell.
BRC reported today net revenue of $65.8 million, an increase of 35% over the same quarter last year but also a net loss of -$256.8 million. In the same quarter a year ago the company had reported a net profit of $149,000.
Shares of BRC opened at $10.45 on May 12 and had gains of nearly 5% in 2022 outperforming all major U.S. stock indexes.
The company went public in early 2022 via a merger with a special purpose acquisition company (SPAC) and the early enthusiasm sent the stock making a high of $34 in April before declining 70% off its high. Is the momentum totally lost and is that loss justified?
The good news is that BRC for the full year of 2021 reported an increase of 42.2% in revenue to $233.1 million. But I consider this sales growth to not be enough to be bullish about BRCC stock.
I see three main arguments that build that bearish opinion.
3 Reasons to Avoid BRCC Stock Here
First, remember that the company is unprofitable. Not only was there the net loss of $256.8 million for Q1, it previously reported a net loss of $13.8 million in 2021, compared to a net profit of $4.32 million in 2020.
Second, there’s the decline in gross margin to 38.5% in 2021 compared to 42.3% in 2020, and continued weakness in the operating margin as it has deteriorated in the past three consecutive years. In 2019, 2020 and 2021 the operating margin was -0.1%, -3.5% and -5% respectively.
With inflation near a 40-year high in the U.S. at 8.5%, BRC reported in Q1 2021 an operating loss of -$15.84 million compared to an operating income of $471,000 in Q1 2021.
Lastly, BRC can run for less than a year on its cash, based on its current free cash flow.
In 2021, the firm reported on its balance sheet cash and short-term investments of $18.33 million and generated a free cash flow of -$26.98 million. This trend is very alarming — at this rate, an injection of cash is necessary for survival.
This cash may come from a stock offering, meaning a stock dilution, and that would not make investors happy at all.
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.