BRC Inc. (NYSE:BRCC), also known as the Black Rifle Coffee Company, has recently enjoyed a strong run in its share price, climbing over 70% year-to-date. The company’s Q1 earnings outperformed expectations, with the management team making significant strides toward optimizing the brand’s value. With effective marketing, digital innovation, a sound balance sheet, and solid cash flows, BRC is set to solidify its market position and maximize shareholder value, making the stock a lucrative option in the coffee market.
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Moreover, BRC is enhancing and optimizing its supply chain, which could play a pivotal role in improving profit margins and company-wide financial performance. Expansions through retail distribution deals like the recent Keurig Dr Pepper (NASDAQ:KDP) agreement provide the potential to accelerate growth in the coming years.
BRC’s Growing Retail Presence
BRC is a veteran-founded coffee company that was initially established as a direct-to-consumer (DTC) company. From humble beginnings with one roaster in its founder’s garage, BRC has grown remarkably, with revenue generation of nearly $400 million last year and an expectation of at least $430 million this year.
DTC sales now make up only 33% of total sales, indicating a shift in the company’s business model. The company currently sells most of its products through retail, primarily due to successful partnerships with major retailers such as Walmart (NYSE:WMT) and 7-Eleven. These collaborations have significantly boosted the company’s growth and reach. Additionally, BRC has penetrated the convenience store market via partnerships with 7-Eleven, Circle K, and Casey’s General Stores (NASDAQ:CASY), offering ready-to-drink beverages in over 87,000 outlets.
In a strategic move that has further broadened its market, BRC inked a deal with Keurig Dr Pepper and now produces K-Cup pods. This grants them access to larger clubs and retailers that require Keurig’s manufacturing. The company has quickly risen to the bestseller list on Keurig’s website.
BRC’s Q1 Results and Outlook
In the first quarter of Fiscal 2024, BRC posted better-than-expected results. Revenue increased 17.8% to $98.4 million in Q1 FY24, ahead of analysts’ consensus estimate of $97.1 million. Wholesale revenue jumped by 51% to $60.4 million. However, revenues from the Direct-to-Consumer (DTC) sector and Black Rifle Coffee Shops (Outposts) declined by 11.4% and 19.4%, respectively.
Yet, gross profit rose by 53.5% year over year to $42.2 million, driven by multiple factors like a shift in product mix and a decrease in warehousing and green coffee costs. This resulted in a gross margin increase of 990 basis points to 42.9%. The company’s net income of $1.9 million marked a vast improvement from the net loss of $17.3 million in Q1 2023. Earnings per share (EPS) of $0.01 beat analysts’ predicted loss of $0.05.
BRC updated its full-year Fiscal 2024 guidance. The revised net revenue range is between $430 million and $460 million, with expected growth between 9% and 16%. The gross margin is projected to remain in the range of 37% to 40%. The company improved its projections for adjusted EBITDA, with the lower limit increasing from $27 million to $32 million and the upper limit from $40 million to $42 million. Free cash flow is expected to maintain an 80% flow-through.
What is the Price Target for BRCC Stock?
Analysts following BRC have been cautiously optimistic about the stock. DA Davidson analyst Michael Baker recently raised the price target on the shares from $6 to $7 while maintaining a Buy rating, noting the company’s significant growth opportunities.
Overall, BRC is rated a Moderate Buy based on four Buys and three Hold recommendations in the past three months. The average price target for BRCC stock is $7.75, which represents a potential upside of 24.4% from current levels.
The stock has been trending upward, climbing 27% in the past 90 days. It trades at the high end of its 52-week price range of $2.51 to $6.49 and continues to show positive price momentum, trading above the 20-day (5.91) and 50-day (5.36) moving averages. The stock appears relatively fully valued, with its P/S (price-to-sales) ratio of 0.95x in line with the Packaged Foods industry average of 0.95x.
Bottom Line on BRCC
Fresh off its Q1 earnings surprise, BRC is primed to continue its promising financial performance. Significant progress made in retail distribution deals, particularly the recent Keurig Dr Pepper agreement, is set to accelerate its growth in the future, strengthen its market position, and boost shareholder value, making it a solid investment opportunity with upside potential.
