BRC Inc. (BRCC) Earnings

Management highlights

- Strategic Business Discipline * Management is focused on deliberate resource allocation to highest-return opportunities, prioritizing profitable, sustainable growth over aggressive unprofitable expansion. * The company follows a "land and expand" distribution strategy for packaged coffee, growing via both new retail accounts and deeper shelf assortment within existing accounts, which has proven scalable. - Product & Channel Strategy * Packaged coffee growth is balanced between unit volume and pricing, unlike many larger competitors that rely entirely on price increases with declining volumes; sustained unit growth demonstrates strong underlying consumer demand. * DTC business was split between the owned BlackRifleCoffee.com platform (core for subscriptions, repeat purchases and customer engagement) and third-party marketplaces (incremental customer acquisition, complementary to the owned channel). The owned platform was successfully migrated to a more scalable e-commerce infrastructure in May 2026, with early positive results including improved organic search and stabilized subscriber bases. * Channel-specific assortment and pack architecture are tailored to differing consumer shopping behaviors across grocery, mass retail and online marketplaces, with significant white space for growth in underpenetrated large channels. * Prioritize growth in the core packaged coffee business (the highest profit segment), with selective innovation and investment in newer adjacent segments like Energy. - Operational & Financial Improvements * Gross margin expanded 15 bps YoY to 34.1% in Q2 2026, marking the first year-over-year improvement in more than four quarters. Reported operating expenses declined 21% YoY to $35.4 million, driven by lower G&A and legal costs. * Adjusted EBITDA increased more than 160% YoY to $6.3 million, with adjusted EBITDA margin expanding 335 bps to 5.9%. Free cash flow improved $21 million YoY to $11.5 million year-to-date 2026, from negative $9.6 million in the prior year period. * All 2026 green coffee supply requirements are fully secured, with over 50% of 2027 anticipated demand already contracted, providing strong cost visibility. * The company regained compliance with the NYSE minimum bid price requirement in June 2026, retaining board-approved flexibility to execute a reverse stock split if needed. - Community Initiatives * The company donated over $400,000 in Q2 2026 to veteran, military and first responder organizations, launched the multi-year Folded Flag initiative to support Gold Star families, and rolled out the Rewarding Patriotism Initiative for the 250th anniversary of the United States.

Guidance

- Management maintains its full-year 2026 guidance: at least 8% revenue growth to ~$430 million, and at least 35% adjusted EBITDA growth to ~$29 million. Gross margin is expected to land in the 34% to 36% range, in line with prior guidance. - Revenue exceeded management expectations in the first half of 2026 driven by stronger-than-anticipated packaged coffee pipeline fills and DTC performance, so full-year revenue will be more evenly split between the first and second half than the originally planned sequential build. - Q3 2026 guidance: revenue growth of at least 5% YoY to ~$106 million (roughly flat sequentially from Q2), adjusted EBITDA of ~$7 million. Gross margin is expected to approach 36% in both the third and fourth quarters, driven by productivity gains and lower contracted green coffee costs flowing through the P&L. - At the floor of the full-year 2026 guidance, Q4 2026 revenue will be modestly lower YoY, which is entirely attributable to lapping the $5 million non-recurring liquidation revenue recorded in Q4 2025, and reflects improved inventory management. The guidance does not include potential upside from incremental distribution gains, additional pricing or other unconfirmed wins.

Segment performance

1. Packaged Coffee: Drove 28.2% year-over-year retail sales growth in Q2, outpacing the category's 9.9% growth. 52-week retail sales grew 32.5% (16.6% from unit growth, 15.9% from pricing), reaching a 3.3% bagged coffee market share (+60 bps YoY) and 2.2% pod market share (+30 bps YoY). Packaged coffee distribution reached 56.5% ACV (+250 bps YoY), with existing grocery accounts carrying 1.3 more SKUs on average than a year prior. This segment is the company's most profitable product line. 2. Direct-to-Consumer (DTC): Total DTC revenue grew 14% YoY in Q2, accelerating from 7% growth in Q1 2026. Core owned-channel (BlackRifleCoffee.com) revenue grew 13.6% YoY, marking the third consecutive quarter of growth and the strongest performance in over four years. Third-party marketplace sales grew 90% YoY, acting as an incremental customer acquisition channel complementary to the owned site. 3. Ready-to-Drink (RTD) Coffee: Market conditions remain challenging, particularly in the convenience channel; performance outpaces the category in grocery, the company's priority channel for the segment. The company is prioritizing improving segment economics over indiscriminate distribution expansion. 4. Black Rifle Energy: Ended Q2 at ~21% ACV across 22,000 retail doors, with footprint consistent with Q1 2026. The company is prioritizing improving productivity in existing locations rather than broad expansion. Channel-level performance: Wholesale revenue grew 15% YoY, with mass merchant revenue up 20% and grocery revenue nearly doubling YoY.

Risks & headwinds

- Renewed volatility in global green coffee prices creates uncertainty for future gross margin, though this risk is partially mitigated by advance contracting for supply. - Weak consumer demand and soft category conditions persist for the ready-to-drink coffee segment, particularly in the convenience channel, due in part to lower channel traffic from high fuel prices. - The company faces execution risk when expanding distribution and entering new channels, though management mitigates this via disciplined, incremental investment focused on high-return opportunities. - While the company regained NYSE minimum bid price compliance, adverse market movements could create future compliance risk, mitigated by retained reverse stock split flexibility.

Analyst Q&A

• Q: Analyst Mike Baker asked for clarity on why back half 2026 adjusted EBITDA is projected to decline year-over-year after very strong first half growth, and for confirmation of contracted green coffee pricing levels. /

  A: Management clarified that its guidance only includes confirmed, already realized distribution and pricing gains, with no upside from unannounced wins. The projected back half EBITDA decline is due to easier year-over-year comparisons in 2025, when 85% of full-year EBITDA was generated in the back half, plus normalized management bonus payouts this year versus discounted payouts in 2025, and a planned $5 to $6 million increase in back half marketing spend tied to America's 250th anniversary tentpole events. 2026 green coffee is contracted at $2.95 per pound, 50% of 2027 demand is locked in at $2.65 per pound, and 2025 average cost was $2.85 per pound.

• Q: Analyst Sarang Vora asked if gross margin is the primary driver of long-term margin expansion, after the company already streamlined its operating cost structure. /

  A: Management confirmed that gross margin will be the core long-term expansion driver, supported by four key factors: organic mix improvement from faster growth in the higher-margin packaged coffee and wholesale channels, improved trade promotion spending efficiency, ongoing supply chain productivity projects, and potential declines in green coffee prices. Operating expense leverage will also continue to expand, as marketing investment grows more slowly than revenue. Management reaffirmed its long-term target of 40% gross margin.

• Q: Vora also asked for details on the fast-growing third-party marketplace business, including customer profile, fulfillment, and margin. /

  A: Management explained that third-party marketplaces complement the owned DTC channel: most loyal customers shop on BlackRifleCoffee.com, while marketplaces capture incremental demand from consumers who prefer to shop on large platforms, which is a $4 billion annual U.S. coffee category where Black Rifle is heavily underpenetrated. Third-party marketplace fulfillment is handled by the platform, which increases fulfillment costs but enables 2-day delivery for consumers, meeting consumer demand for convenience.

• Q: Analyst Eric Deloria asked how management prioritizes white space growth between grocery and large online marketplaces, given the opportunity in both channels. /

  A: Management noted that grocery has large growth opportunities from expanding ACV distribution to the mid-50s percentile and adding more SKUs to existing accounts, with existing mature accounts already carrying 12-14 SKUs on average versus a current company-wide average of 5.6. Large online marketplaces have an even larger relative opportunity, as current penetration and share are much lower than in other channels, and the channel has a favorable low customer acquisition cost profile. Marketplace also complements the owned channel because it is heavily skewed to pods, while the owned site is skewed to bagged coffee.