Black Rifle Coffee reported rising net revenues and gross profits fueled by rapid growth of its RTDs and cafés, called Outposts, during its Q1 2022 earnings call today.
Founded in 2014, the veteran-owned company has attracted attention from within and outside the beverage industry, thanks in large part by both the popularity of its pro-military merchandise and its expanding ready-to-drink product family. In February, Black Rifle went public via SPAC in an IPO valuing the company at around $1.7 billion. The company plans to reorganize as a public benefit corporation to reinforce its mission of serving veterans, law enforcement and first responders, including a commitment to hire 10,000 veterans.
Net revenue rose 35% year-over-year to $65.8 million during Q1 2022, while gross profit increased 18% to $23.2 million. While still primarily a D2C online business, much of that growth was driven by RTD sales in wholesale, where revenue increased 135% to $22.0 million (+28% sequentially from Q4 2021). Building on its current footprint of over 47,000 doors nationwide, Black Rifle has brought on new retail partners in “key geographical markets” including Walmart, which is taking on all four 11 oz. RTDs in over 3,500 stores.
According to Nielsen data cited on the call, Black Rifle’s two 11 oz. SKUs and two 15 oz. SKUs rank in the top 25 across all channels. Excluding private label, all four flavors rank 18th or higher within convenience stores; in some grocery retailers, the RTDs have helped draw interest in taking on Black Rifle’s bagged coffee and K-Cups.
“We see potential well beyond the year-end goal of 75,000 doors, given the much larger universe of 375,000 across convenience stores, food, drug and mass retailers,” said Tom Davin, Black Rifle’s co-CEO.
Yet despite more than doubling its capacity at the start of the year, surging demand for Black Rifle’s RTDs from both first-time and existing customers outpaced its ability to manufacture product, leading to a slowdown in onboarding of new accounts. The company has since partnered with two additional suppliers set to come online in the second half of 2022. The company said demand was “materially higher than our existing capacity,” but declined to quantify how much those missed sales cost Black Rifle overall. It’s also making a $30 million investment in improving roasting and packaging operations at its facility in Manchester, Tennessee.
Over the past year, the company has sought to break into the brick-and-mortar café channel with Outposts, which have grown from a single company-owned location in Q1 2021 to nine in Q1 2022, along with nine franchise locations. The Outposts have enjoyed a strong reception so far: thanks to the new locations, net revenue for the channel was up 397% to $5.5 million, compared to $1.1 million in the same period last year. Black Rifle expects to have 15 to 20 company-owned Outposts open by the end of 2022, and is now seeking to create ground-up prototype shops rather than conversions whenever possible. The Outposts also sell Black Rifle’s bagged coffee, drink-ware and apparel, which the company said is driving an “industry-leading in-store check average” and average unit volumes that “among the highest in the coffee and QSR segments.” Meanwhile, ex-Starbucks SVP and U.S. Army veteran Heath Nielsen, recently hired as chief retail officer, will help refine the in-store experience.
Elsewhere, direct-to-consumer revenue was flat, comprising $38.3 million during the first quarters of both 2022 and 2021. While Coffee Club subscriber numbers (+11%) and revenue were both up, Black Rifle’s non-subscription D2C sales were down, though the company said both were “entirely in line” with internal projections.
As it grows into an omnichannel business, Black Rifle will seek to direct marketing resources towards areas “opportunity-based channels,” according to the company, as it acknowledged that “softness” in D2C has prompted a pivot in media strategy from paid media to owned media via channel-specific influencers, ambassadors and podcasts. With around 12.4 million social media followers across the company’s, the co-founders’ and media partners’ accounts, the company is already doing “billions of impressions across the internet,” said Davin, adding that current investments in D2C-specific marketing will “pay off towards the end of the year.” Brand awareness is around 20% nationally, the company said.
Black Rifle’s success has generated speculation about where it might leverage the brand’s power next, a sign that “gives us the opportunity to expand to other product categories in the future.” Its Outpost customers “want more cold beverages,” the company said, with tea-based fruit fusion drinks set to join its cafe menu in the coming months.
“We’ve had multiple people approached us about doing co branded alcohol based cold beverages, and we really just haven’t had the bandwidth. Eventually, some things like that will come online in more of a (development) cycle to see how they go,” said co-founder and CEO Evan Hafer. “But right now we’re just trying to capture the natural growth of all the other cold beverages.”
Acknowledging the effects of inflationary pressures, Black Rifle said it’s fighting back with “pretty meaningful” price increases across the board, including RTDs starting in June, that will continue through the remainder of the year. The company has contracted a consulting firm to help identify ways to drive efficiencies and enhance margins, but thus far both pricing action and productivity efforts have “lagged behind our inflation in costs.” Gross margins decreased 499 basis points to 35% from 40% in Q1 2022, due in part to higher product cost and lower gross margin in RTDs relative to coffee.
The company recognized significant losses during the quarter from the change in fair value of earn-out liabilities, warrants and derivative liabilities. Net loss was $256.8 million and adjusted EBITDA was negative $6.2 million, compared to less than $1 million loss and adjusted EBITDA of $2.3 million in the same period last year.