Black Rifle is grappling with sales declines in its cafes and direct-to-consumer businesses, both of which contributed to a 2.3% year-over-year revenue drop in Q3 earnings.
On Tuesday morning, the company reported net revenue fell to $98.2 million, while gross margins rose to 42.1% on the back of elevated gross profit of $41.3 million, a 21% year-over-year increase.
Revenue from Black Rifle’s “Outpost” cafes fell 11.4% to $5.5 million, while e-comm sales also slid 11.4% to $29 million. Wholesale revenue ticked up 3.5%; its RTD coffee business grew 1.3% in the quarter, with Food Lion and Harris Teeter joining its retailer network.
Black Rifle used the earnings call to hype up its newest release slated for next month, Black Rifle Energy, part of a strategic distribution partnership with Keurig Dr Pepper (KDP) that the company is betting “will open new market opportunities and further accelerate our growth.”
The three-SKU, 16 oz. canned line is expected to complement KDP’s growing energy portfolio which includes C4 and the recently announced acquisition of GHOST.
“One thing we’re most excited about is (KDP’s) overall ambition to be winners in the energy space,” said BRCC CEO and president Chris Mondzelewski. “There’s never complete exclusivity between brands that compete in the same category. But I would tell you that it is a very carefully constructed portfolio. When you look at each of those brands, they really do play in completely different segments of the energy market.”
BRCC leadership reported that KDP’s distribution footprint reaches about 80% of the U.S. population and has access to “over 180,000 retail outlets.”
“While our soul will always be in coffee, we are proud to soon offer energy products in a format that broadens both our audience and the occasions for consumption,” Mondzelewski said.
Company leadership asserted that it was not concerned about energy drinks cannibalizing BRCC’s RTD coffee business but it would bring new consumers to the brand who prefer “cold, more refreshing flavor-profile beverages.”
By using KDP’s muscle, BRCC is expecting to eventually reach 80% ACV on its energy drink line, he said. “That won’t be something that happens in the first year. That happens over a period of years. The ramp up next year will focus on those high ‘immediate demand’ channels like C stores or gas stations.”
CFO Steve Kadenacy added that energy drink margins are expected to be “under 40%” in the first year due to slotting and trade expenses in the rollout.
BRCC leadership said that with KDP taking on a lot of the work of sales and inventory management of the energy line will allow the company to focus on brand building in the category.
Mondzelewski pointed to comments on the Q2 earnings call where he said building margins with the expansion of its center-store coffee business would free up working capital for advertising.
While packaged coffee is not expected to be an “explosive category,” BRCC is optimistic there will be a return to growth in 2025 with the company focused on adding new retailers and driving category share.
BRCC updated its FY2024 guidance up forecasting gross margin between 40% and 42% (previously 39% to 42%). It narrowed its net revenue expectations to between $390 million and $395 million (previously $385 million to $415 million).