BRC Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• The third quarter was a solid step forward with strong commercial performance. Black Rifle outperformed the U.S. coffee category, with sales up 36.7% year-over-year while the category grew 13.2%.
• In grocery, ACV increased 6 points year-over-year to 48% and total ACV across tracked channels increased 9 points to 54%, with velocity in grocery improving over 7% despite a 70% increase in average items carried.
• Direct-to-Consumer business is part of the omnichannel strategy, deepening customer relationships and allowing testing of new offerings. Sales declined 4% YOY but showed stabilization in digital channels.
• The Ready-to-Drink coffee category faced headwinds, but Black Rifle's performance was resilient, down just 0.6% overall, with ACV expanding 7 points year-over-year to 53%.
• Black Rifle Energy continues to expand, available in nearly 20,000 retail locations with 22% ACV, and the brand is focused on strategic expansion based on learnings from early markets.
• Mission-related: Working with Born Primitive and ForgiveCo to help forgive up to $25 million in medical debt for over 10,000 veterans, honoring those who have served.

Segment Performance

• Wholesale: Grew 5% year-over-year. Adjusting for nonrecurring items, sales increased 9% in the third quarter, driven by velocity and distribution gains, including growth from Black Rifle Energy.
• Direct-to-Consumer: Sales declined 4% year-over-year in the third quarter. However, excluding a prior year benefit related to the loyalty reserve and timing shift of promotion, revenue was slightly positive. The segment remains part of the omnichannel strategy, with digital channels stabilizing.
• Outpost: Revenue grew 6%, benefiting from higher franchise fees and improved merchandising, with better bundling and in-store presentation driving average order value.

Guidance

• Expect to finish the year with at least $395 million in revenue, at least 35% gross margin, and at least $20 million in adjusted EBITDA, all within previously communicated ranges.
• Fourth quarter revenue is expected to be ~$110 million, with gross margins closer to the first half of the year level due to seasonality and promotional impacts.
• Plan to deliver $8 million to $10 million in annualized cost savings in the second half of 2025 through operational improvement initiatives.
• Confident in long-term growth with 10% to 15% CAGR on top line and approaching 40% margins by 2027, driven by distribution gains and margin expansion efforts.

Risks

• Green coffee inflation: Volatile and elevated green coffee prices, which are largely outside the company's control, impacting gross margin.
• Tariffs and trade investment: Import duties and increased trade investment pose headwinds to margins, though partially offset by productivity initiatives.
• Volatility: Fluctuations in coffee and tariff costs create uncertainty in margin outlook.

Question and Answer

• Q: Two-parter on guidance and confidence in 3-year targets A: Matt Amigh explained guidance remains within range but is at the lower end, with confidence in hitting revenue, margin, and EBITDA targets. Chris Mondzelewski emphasized confidence in long-term growth due to unit growth, distribution room, and segment share gains.
• Q: Color on energy drink acceptance and expansion A: Chris Mondzelewski noted limited launch in 12 markets with positive results, and strategic expansion in 2026, focusing on targeted growth rather than overextension.
• Q: Energy distribution ACV target A: Chris Mondzelewski stated the company is building on learnings from early markets and expanding geography but did not provide specific 2026 guidance yet.
• Q: Green coffee coverage for 2026 A: Matt Amigh indicated approximately 50% of green coffee needs are locked in for 2026.
• Q: Marketing spend and returns A: Matt Amigh and Chris Mondzelewski discussed shifting marketing to working tactics, investing in partnerships, and focusing on returns to ensure marketing activities are profitable and drive sales.