BRCC

Black Rifle Coffee ($BRCC) Founder Makes Contrarian Bet, Buying Dip After 70% Plunge Despite High Debt

07/19/2025 00:45

Black Rifle Coffee Company ($BRCC) is a veteran-founded premium beverage company established in 2014, building strong brand loyalty among military veterans and patriotic consumers. Headquartered in Salt Lake City, the company specializes in coffee roasting and sales while expanding into apparel, ready-to-drink (RTD) beverages, and outdoor equipment. Through a strategic partnership with Keurig Dr Pepper, the company is distributing Black Rifle Energy drinks across nearly 12,000 retail locations nationwide, seeking new growth drivers. For investors, $BRCC currently presents a complex investment opportunity where extreme undervaluation coexists with high financial risk. The stock has plummeted approximately 70% over the past year, trading at $1.63—less than half of its early-year price of $3.21. However, notably, founder Evan Hafer made a contrarian bet at this low point, purchasing 80,000 shares at $1.25 on July 18. Hafer's recent purchase stands in stark contrast to his massive sell-off in September 2024, when he disposed of 4 million shares at an average price of $3.19, cashing out approximately $12.8 million. During the same period, director Thomas Davin also sold 460,000 shares consecutively, while director Glenn Welling moved in the opposite direction, purchasing 680,000 shares at $3.17 for about $2.17 million. The founder's return to buying at less than half his previous selling price suggests either potential fundamental improvement or extreme undervaluation. $BRCC's financial situation indeed faces serious challenges. Q1 2025 revenue dropped 8.6% year-over-year to $89.97 million, with a loss per share of 4 cents, missing analyst expectations of a 2-cent loss. More concerning is the debt-to-equity ratio of 225.6% with only $3.9 million in cash reserves, creating severe liquidity pressure. In response, the company urgently raised approximately $35 million by issuing 28 million shares at $1.25 on July 17. However, the macroeconomic environment surrounding $BRCC is even more complex. The Trump administration's expanding trade war has doubled green coffee import tariffs, expected to reduce the company's 2025 EBITDA by approximately $5 million. July developments including 50% tariffs on Brazil and escalating trade tensions with BRICS nations are further driving up coffee commodity prices. Indeed, the company's gross margin fell to 36% in Q1, down 680 basis points year-over-year, primarily due to tariff effects and green coffee inflation. Yet investors shouldn't overlook positive signals. In the RTD coffee market, $BRCC achieved 7% growth while the overall category declined 6%, establishing itself as the third-largest RTD coffee brand in the US. The new Black Rifle Energy product, despite being in early launch phase, achieved 21% ACV penetration, showing promising growth potential. The Keurig Dr Pepper partnership significantly enhances manufacturing and distribution capabilities, supporting aggressive distribution expansion over two years. The veteran-centered brand identity remains a powerful differentiator. The company maintains over 180,000 active subscribers who generate two-thirds of DTC segment revenue. The 21% insider ownership also demonstrates management confidence, while approximately 50% institutional ownership indicates substantial professional interest. Considering future investment scenarios, $BRCC faces three main paths. In an optimistic scenario, the energy drink business gains traction and tariff pressures ease, potentially achieving the upper end of 2025 revenue guidance ($425 million). This could offer significant upside from the current extreme undervaluation. The base scenario assumes current conditions persist, with high leverage and limited cash creating continued price volatility. In a risk scenario, intensifying tariff pressures combined with consumption slowdown could necessitate additional capital raising or restructuring. Investors should carefully monitor key indicators. The August 4 Q2 earnings release will be the first checkpoint, focusing on energy drink sales growth and gross margin improvement. Given monthly operating costs around $10 million, cash burn rate requires close monitoring. With DTC channel revenue declining 15% in Q1, subscriber count changes and customer retention rates will be important leading indicators. Additionally, tariff policy changes and green coffee futures pricing directly impact the company's cost structure, requiring ongoing attention. In conclusion, $BRCC currently offers a classic high-risk, high-reward investment opportunity. The founder's bottom-fishing purchase could signal strong fundamental recovery potential, but high leverage and macroeconomic headwinds remain significant risk factors. For risk-tolerant investors who believe in the long-term value of the veteran brand, this could be an intriguing opportunity, though those preferring stability might be wise to wait for earnings improvement and financial stabilization.