- Black rifle coffee (DCFC) posted a big loss for the first quarter.
- The company is growing rapidly but went public at a bad time.
- Investors care more about Black Rifle profit than politics.
I called Black rifle coffee (NASDAQ:DCFC) a “red state Starbucks (NASDAQ:SBUX)” in March and the company tried to be just that.
But it took Starbucks decades to grow into the 10,000-store chain it has become. Trying to go too far down this road too fast costs Black Rifle.
The company’s first quarter results, released on May 12, tell the story. Black Rifle lost more than $62 million, $1.36 per share, on revenue of $65.8 million. That compares to a profit of $149,000 a year ago, before it went public. The loss came on sales of $48.7 million, a year-over-year growth rate of 35%. But the cost was high.
|DCFC||Black Rifle Coffee Co.||$10.09|
BRCC action: excessive losses
BRCC stock is now down 40% from when my story came out. After an operating cash flow loss of $32.6 million for the quarter, Black Rifle had just $110 million in cash on its books. A secondary offering in May was designed to give him a longer cash trail.
Some of what looks like financial problems could be explained by the markets. Non-operating losses were $240 million, primarily due to earn-out liabilities, the value of warrants and derivatives. Black Rifle was only released on February 10. The timing was not right.
But there are deeper issues, as our Stavros Georgiadis reported when the numbers came out. Gross margins were down. There was an operating loss of $15.8 million. At its first-quarter loss rate, Black Rifle didn’t have enough cash to last another year.
Losses also attract lawyers. Black Rifle was hit with a breach of contract lawsuit from an investment firm that was unable to exercise its warrants. This month’s secondary offering prompted a lawsuit accusing it of letting insiders out while keeping shareholders public. Shares fell 20% after the offering, due to dilution.
Too big ambitions
The media does not help Black Rifle to cool its ambitions.
A New York Times feature, despairing of corporate political pressure, began with the Black Rifle fantasy matching Starbucks 20 years from now.
That won’t happen if Black Rifle can’t stay in business until 2023. Black Rifle continues to expand rapidly, with three stores around San Antonio and a new store in Woodstock, Georgia.
Perhaps the company’s most promising news is its attempt to step into Tejano culture, producing a Mexican rapper’s video. Broader market appeal could mean a larger market.
As a result, the BRCC stock retains some fans. There are still three buyers at Tipranks, out of eight analysts. Our Will Ashworth likes the stock to be closer to its current level than before, despite the dilution in its stock. Louis Navillier also sees Black Rifle as a promising growth story.
The essentials on BRCC shares
I’m from Missouri regarding Black Rifle. I want it to show me a profit before placing a bet on it.
The company’s early locations near military bases made strategic sense. Military ties endure. Building in the suburbs just because of their politics makes less sense. The policy is subject to change.
Black Rifle won’t report earnings again until August, so investors can only guess at management’s behavior until then. Will they focus on operations and turn a profit for the second quarter, or will they bleed more money? Will they use the proceeds from the secondary offer wisely? Can they expand their market to represent the culture beyond the politics of the day?
I don’t know the answer to any of these questions, and right now there are more compelling proposals out there looking for my investment.
As of the date of publication, Dana Blankenhorn does not hold any positions in the stories mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of The Big Bang of Technology: Yesterday, Today and Tomorrow with Moore’s Law, available on the Amazon Kindle store. Write to him at firstname.lastname@example.org it to @danablakenhornor subscribe to his Sub-stack.