BRC (BRCC) Q1 2025 Earnings Call Transcript

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DATE

Tuesday, May 6, 2025 at 8:30 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Chris Mondzelewski
• Executive Chairman — Evan Hafer
• Chief Financial Officer — Steve Kadenacy
• Head of Investor Relations — Matt McGinley

TAKEAWAYS

• Total Revenue -- $8.5 million in nonrecurring barter transactions and a $3.4 million benefit from a prior-year change in loyalty rewards accruals drove a reported year-over-year decline of 9%; excluding these, revenue grew 4%.
• Wholesale Segment -- Reported sales fell 6% year over year; excluding $8.5 million in prior-year nonrecurring revenue, segment sales rose 9%.
• Direct-to-Consumer (DTC) Segment -- Revenue declined 15%; the decline was 5% when excluding the $3.4 million loyalty accrual from the prior year.
• Outpost Segment -- Grew revenue by 2%, driven by higher franchise revenue and increased average order value from bundling and merchandising improvements.
• Wholesale Distribution -- Tracked channel ACV increased 12 points to 50%; grocery ACV distribution expanded by 25 percentage points, reaching 45%.
• Ready-to-Drink (RTD) Coffee Sales -- Grew 7% in a category that contracted 6%, maintaining #3 U.S. RTD coffee brand status with approximately 50% market distribution.
• Black Rifle Energy Launch -- Product introduced in retail, reaching nearly 12,000 stores by quarter-end and 21% ACV, with expectations to expand further through Keurig Dr Pepper's network covering 180,000 doors.
• DTC Subscribers -- Over 180,000 active subscribers generated two-thirds of DTC segment revenue; new tools include a subscriber store, partner perks, and prepaid options.
• Gross Margin -- Margin declined 680 basis points to 36% of sales; negative drivers were 500 basis points from trade/pricing investments, 330 basis points from green coffee inflation, and 200 basis points from loyalty reward changes, partially offset by 400 basis points of productivity and favorable mix improvements.
• Adjusted EBITDA -- Declined $11.6 million year over year, ending at approximately $1 million due to nonrecurring prior-year revenue, trade, and timing of advertising investments.
• Expense Reduction -- Salaries, wages, and benefits fell 11%; general and administrative expenses decreased 23% through headcount reductions and lower professional services costs.
• Full-Year Revenue Guidance -- Maintained at $395 million to $425 million; management expects sequential revenue growth for the remainder of the year, supported by further distribution gains.
• Gross Margin Outlook -- Now expected in the 35%-37% range due to green coffee inflation (at least 300 basis point impact), 250 basis point hit from energy trade investment, and at least 100 basis points from tariffs, partially offset by 200 basis points of productivity and improved mix.
• Tariff Impact -- Approximately one-third of cost of goods sold is tied to imports; EBITDA impact of tariffs is estimated at $5 million for 2025, with most of the effect expected in the second half.
• Cost Savings Initiatives -- Annualized cost savings of $8 million to $10 million targeted through operational streamlining and productivity improvements.
• Hedging Position -- Company is 95% hedged for green coffee needs in 2025, outpacing competitors' typical 90-day coverage.
• Energy Category Data -- 58% of Black Rifle coffee customers also purchase energy drinks; addressable U.S. energy drink market exceeds $20 billion in annual sales.

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RISKS

• Steve Kadenacy said, "the impact of tariffs under the existing framework will be approximately $5 million to EBITDA in 2025," with nearly all tariff costs expected in the second half of the year.
• Gross margin outlook has been reduced from 37%-39% to 35%-37%, reflecting at least a 300 basis point net impact from green coffee inflation and a 250 basis point hit from trade investment behind energy and increased promotional cadence.
• Adjusted EBITDA is expected to be limited in the first half due to nonrecurring prior-year revenue and higher costs, with improvement dependent on execution of productivity measures and successful ramp in revenue.

SUMMARY

Management reaffirmed full-year revenue guidance and emphasized sequential improvement for the remainder of the year, supported by new distribution and cost initiatives. Inventory and pricing adjustments, including a recent price increase to offset green coffee inflation, are expected to support gross margin stabilization in the second half, though near-term margin compression remains a factor. Black Rifle Energy's retail rollout delivered rapid initial placement, with strategic focus on 12 key markets and planned scale via Keurig Dr Pepper. Management highlighted a highly hedged green coffee position for 2025, providing cost visibility amid inflation and tariff risk.

• Retail ACV growth and unit volume gains outpaced the coffee category, with Black Rifle recording a 21% sales increase compared to the category's 4%.
• The company maintained adjusted EBITDA guidance of $20 million to $30 million for the year, citing $8 million to $10 million in ongoing cost-saving initiatives and operational streamlining.
• Company leaders stated productivity gains and a more favorable product mix partly offset gross margin pressures from inflation, trade promotion, and loyalty reward changes.
• DTC business showed early signs of stabilization following subscription program enhancements and technology upgrades, even as overall DTC revenue declined.
• Promotional pricing actions in the wholesale channel, especially for new retail partners, supported both shelf presence expansion and volume growth.

INDUSTRY GLOSSARY

• ACV (All Commodity Volume): A metric indicating total retail sales volume or distribution coverage in percentage terms, used to measure product availability across retail channels.
• RTD (Ready-to-Drink): Pre-packaged beverages that are immediately consumable without preparation, such as bottled or canned coffee drinks.
• FDM (Food, Drug, and Mass): Major retail channels including grocery stores, drug stores, and mass merchandisers; used in the industry to describe distribution coverage.
• DTC (Direct-to-Consumer): Direct sales from the company to end customers, typically via e-commerce or subscription platforms, bypassing third-party retailers.

Full Conference Call Transcript

Chris Mondzelewski: Joining me today are Evan Hafer, our Executive Chairman; Steve Kadenacy, our Chief Financial Officer; and Matt McGinley, our Head of Investor Relations. When we held our last quarterly call, we discussed the work completed in 2024 to strengthen our business foundation, streamlining operations, investing in infrastructure and building a more agile, efficient organization. These efforts have made us more adaptive to navigate an evolving operating environment, and we are confident in our positioning for 2025 and beyond. Our first quarter financial results were in line with expectations and consistent with our full year plan.

While we did not anticipate tariffs or a potentially more challenging macro backdrop to start the year, we have built flexibility into our structure to respond effectively to any potential shifts in external conditions. Looking ahead, our focus remains on positioning the business for long-term growth. We're scaling the brand, deepening our partnerships at retail and making sure every dollar we invest in the business is working hard for us. That means leaning into what's already working in core categories while also breaking new ground with initiatives like the launch of Black Rifle Energy. Moving to Slide 6.

In the U.S. food, drug and mass channels, Nielsen data shows the coffee category declined in unit volume during the first quarter, but overall sales remained positive due to pricing actions taken by sellers across the category. Black Rifle took no pricing actions during the period, but still delivered 21% sales growth, well ahead of the category's 4% increase. In grocery, our distribution as measured by ACV, increased by 25 percentage points year-over-year to reach 45%. Across all tracked channels combined, ACV rose 12 points to 50%. We expect to build on this momentum throughout 2025 through new retail partnerships and expanded shelf presence with existing customers. Moving to Slide 7.

Our direct-to-consumer channel remains a key part of the business with over 180,000 active subscribers generating 2/3 of the segment's revenue. It gives us direct access to loyal customers, valuable insights and a platform to test new products while also ensuring brand access where retail distribution is limited. We've made meaningful updates to improve both the subscription and non-subscription experience. Recent upgrades to our website and mobile app have improved functionality, while streamlined onboarding such as simplified ID.me verification and automatic promo application has made it easier to subscribe.

For our Coffee Club members, we've launched a new brand portal offering exclusive partner perks, expanded the subscriber store with BRCC gear only available to active members and are introducing prepaid subscription options. On the back end, we've shifted to more data-driven merchandising to guide product assortment, inventory planning and SKU optimization, while staying true to our roots through founder-led product development. Like many subscription-based DTC businesses, we felt the impact of consumers shifting toward retail purchases, especially as our products have become more widely available in stores. DTC revenue declined 15% in the quarter. Though adjusting for last year's loyalty reserve, the decline was closer to 5%.

It's not yet where we want to be, but the actions we've taken are beginning to show encouraging signs of stabilization. Slide 8. Our ready-to-drink coffee business continues to outperform the category with first quarter sales up 7% in a category that declined 6% according to Nielsen. This growth underscores the strength of our brand and our ability to drive sales even in a contracting market. We've maintained our standing as the third largest RTD coffee brand in the U.S. with distribution in only half of the available markets. We see significant runway ahead and are using the operational experience we've gained to support our new energy platform. Slide 9. We launched Black Rifle Energy into retail in January.

And while it was only on shelves for a portion of the quarter, we're encouraged by the early traction. By the end of the first quarter, the product was available in nearly 12,000 retail locations, reaching 21% ACV. Through our partnership with Keurig Dr Pepper, we have access to a national direct store delivery network covering 180,000 doors. Over the next 2 years, we expect to continue expanding our footprint in a disciplined way with a near-term focus on 12 priority markets. We will ramp up energy-specific marketing spend to support awareness and trial, particularly in the convenience channel.

Our decision to enter the energy category was backed by consumer data showing that 58% of our coffee customers also purchase energy drinks with a significant portion of our media audience consuming only energy. While it's a competitive category, it represents a significant addressable market, over $20 billion in annual sales. We're pleased with the early momentum and believe this launch lays the foundation for a long-term growth in a high-value category. Before I turn it over to Steve for a deeper dive on the numbers, I want to take a moment to talk about something core to who we are, not just as a business, but as a brand with a mission.

In the first quarter, we continued making monetary and product donations to military units and first responder organizations across the U.S. and around the world. That included firehouses, police departments and deployed units stationed in both expected and unexpected locations, places where a refreshing beverage or great cup of coffee can make a real difference. We're proud to carry this mission forward into the second quarter with support planned for more than a dozen events in ongoing outreach to those who serve. These efforts aren't side projects. They're fundamental to how we define success. We're building more than a beverage company. We're building a community that stands behind the people who serve.

Whether it's a no-notice deployment or a fire crew running on fumes, our message is simple. You're not alone, we're with you every step of the way. That commitment is what sets Black Rifle apart. It's what drives loyalty from our customers and pride from our team, many of whom have worn the uniform themselves. This mission is not an initiative. It's a core part of our identity, and it continues to guide everything we do. With that, I'll turn it over to Steve.

Steve Kadenacy: I'll start with Slide 11. First quarter revenue declined 9% compared to the prior year, primarily due to the impact of $8.5 million in barter transactions and a $3.4 million benefit from a change in loyalty rewards accruals in the first quarter of 2024. Excluding these items, first quarter revenue increased 4%. Our Wholesale segment, which primarily sells packaged coffee and ready-to-drink beverages to retailers declined 6% year-over-year. However, excluding the $8.5 million in nonrecurring revenue from last year, sales in this segment grew 9% in the first quarter. New distribution and expanded shelf presence drove a fourfold increase in sales to FDM retailers compared to the prior year.

Sales to our largest retail customer grew 3% over the same period. Revenue in our direct-to-consumer segment declined 15% in the first quarter. Excluding the $3.4 million impact from the loyalty rewards accrual change in the prior year, the decline was 5%. This was driven by increased retail availability of Black Rifle products, a broader shift in consumer behavior away from direct-to-consumer channels and our deliberate reallocation of resources towards wholesale. Our Outpost segment grew revenue by 2%, driven by higher franchise revenue and continued growth in the average order value from bundling and improved merchandising. Slide 12. Gross margin declined 680 basis points in the first quarter to 36% of sales.

The primary drivers of the decline were a strong 500 basis point impact from increased investment in trade and pricing, 330 basis points from green coffee inflation and a 200 basis point impact from the change in loyalty rewards. These pressures were partially offset by nearly 400 basis points of benefit from productivity gains and favorable product mix. Slide 13. As we suggested in our guidance in March, we expect to generate limited EBITDA in the first half of the year, reflecting the impact of nonrecurring revenue in the prior year, the timing of trade and advertising and revenue gains that are expected to build throughout the year.

As a result, adjusted EBITDA declined by $11.6 million compared to the first quarter of last year, reaching approximately $1 million in the first quarter of 2025. Over the past 18 months, we've made significant progress in driving productivity, enhancing operating efficiency and directing resources towards the highest return initiatives. As a result, salaries, wages and benefits declined 11% due to a reduction in head count, while G&A expenses fell 23% year-over-year, driven by lower professional services spend and reductions in corporate infrastructure. Page 15. We are maintaining our full year revenue guidance of $395 million to $425 million and continue to expect that the first quarter will represent the low point for revenue with sequential growth throughout the year.

This ramp will be supported by ongoing distribution gains in both packaged coffee and energy, along with targeted marketing and trade investments to drive awareness and repeat purchases. As a reminder, $30.4 million in revenue from 2024 will not repeat. We cycled $11.8 million of that nonrecurring revenue in the first quarter and expect an additional $5.8 million impact in the second quarter. While we remain confident in the 3-year outlook we outlined in January and in the 2025 operating plans shared in March, our previous guidance did not contemplate tariffs. Virtually all coffee consumed in the U.S. is imported.

To help frame the potential impact, we estimate that roughly 1/3 of our cost of goods sold is tied to imports. The majority of this is green coffee or coffee extracts with a smaller portion related to packaging, apparel and merchandise. Most of our coffee is sourced from Central America, Brazil and Colombia. While the situation remains fluid, we currently estimate the impact of tariffs under the existing framework will be approximately $5 million to EBITDA in 2025. We are taking proactive steps to protect gross margin and are accelerating initiatives to enhance productivity across our supply chain.

In addition, we recently implemented a price increase, consistent with actions taken by other packaged coffee manufacturers to offset the significant rise in green coffee prices. Even before tariffs were introduced, prices for high-quality arabica coffee more than doubled since the beginning of 2024. We remain mindful of maintaining competitive shelf pricing to support strong retail velocity. So this pricing decision was not made lightly. We expect a modest top line benefit from pricing in the second half of 2025, which will provide a partial offset to the inflationary pressure we are experiencing from green coffee. We now expect gross margin to be in the 35% to 37% range compared to our prior estimate of 37% to 39%.

Key drivers of the outlook compared to prior year results include at least a 300 basis point impact from green coffee inflation, net of pricing, with the incremental pressure due to higher production volume requiring more purchases at spot rates. A 250 basis point impact from trade investment behind energy and a more normalized promotional cadence. At least a 100 basis point impact from tariffs with nearly all of that expected in the second half of the year. These pressures are expected to be partially offset by at least a 200 basis point benefit from productivity initiatives and a more favorable product mix.

While tariffs and green coffee inflation create near-term uncertainty, we remain focused on positioning the business for long-term success. Our cost reduction and efficiency initiatives over the past 2 years have significantly improved margins and cash flow, enabling us to reinvest in the brand and expand into the energy category this year. As part of that effort, we have reviewed our entire cost base and are confident we will achieve $8 million to $10 million in annualized cost savings by streamlining operations and driving continuous improvement. As a direct result of operating expense reductions and additional supply chain productivity, we are maintaining our previous EBITDA guidance of $20 million to $30 million.

To help with modeling, we expect gross margin to be 1 to 2 points lower in the second quarter than the 36% rate in the first quarter, with sequential improvement in the second half as the benefits of pricing and productivity begin to take hold. As previously noted, we anticipate adjusted EBITDA will be limited in the first half with a step-up in the back half as revenue builds. We maintain focus on driving operating leverage by tightening managing gross margins and expenses, ensuring that we can scale efficiently while supporting the long-term growth and resilience of the business.

While tariffs were not contemplated in our original plan, we're encouraged by the operational progress so far this year, particularly the early distribution gains for Black Rifle Energy. We remain confident in our ability to deliver both top line growth and adjusted EBITDA in line with the 3-year plan we laid out in January. Operator, we are now ready for Q&A.

Operator: [Operator Instructions] Today's first question is coming from Michael Baker of D.A. Davidson.

Michael Baker: One bigger picture question and then a more specific follow-up. Bigger picture, how do you think your business reacts to what looks like an economic slowdown? I suppose on one hand, if things get tough for the consumer, you get a little bit more coffee at home rather than going out to Starbucks or other restaurants. On the other hand, you guys have a little bit of a premium positioning. So do you think you get any trade down? Have you seen any kind of trade down? Any sort of view on the consumer right now?

Chris Mondzelewski: I think you nailed a component of it already, but just to elaborate a bit on that. We've seen this a number of times in the business. When the economy slows down, what you said is true. We do see a shift of consumers that move from coffee shop to at-home coffee. In that case, those are coffee heads that want a high-quality product. They tend to shift to super premium brands, and we see a tailwind around that. We obviously do have coffee shops, but that's a very small percentage of our portfolio overall versus other brands in the category. So we feel great about that.

As far as the category then within grocery, yes, some of the lower-priced brands are doing well. But overall, the category is doing very well. A lot of that is on the back of some of the price increases. But even on a unit standpoint, there's reasonable stabilization in the category even given some of these price increases. And for us, we're seeing our units up 34% across the market in Q1. So we feel great about just the number of Black Rifle products that are being taken home.

Michael Baker: My more specific question on the outlook on the guidance, a couple of changes, particularly in gross margin, the trade spend and normal promotion, that's now going to be a 250 basis point hit. I think last quarter, you talked about it being a 150 basis point hit. So are you spending more now than you had originally anticipated? And if so, why?

Steve Kadenacy: We're really driving the energy launch on the trade side, although we did have some pricing actions actually pricing down in some of our grocery retailers to drive trial. We don't expect it to be quite as significant over the course of the full year, but it was an impact in the quarter. And then obviously, coffee inflation is a significant piece of that because of the higher volumes that we're driving. We actually had to go out into the spot markets versus utilizing the contracts that we have already in place at lower prices. So that drove some of it.

And then we have in that gross margin full year outlook, we've got some indication in there around tariffs, which actually should push us to below the midpoint of our EBITDA range if those do materialize, we think we can make up and keep within the range given our actions within the business to be more efficient and more productive, but those tariffs are another element of it.

Michael Baker: But specific to the 2.5 point impact from trade spending and normal promotional cadence again, I think that was 150 in the fourth quarter report. That's due to driving some trial from lower pricing. Is that right?

Steve Kadenacy: Correct.

Operator: The next question is coming from Sarang Vora of Telsey Advisory Group.

Sarang Vora: My first question is on the energy drink. I mean, very good launch in the last 3 months on the energy side. Can you share any early feedback? I know you talked about positive and the ramp is strong, but any early feedbacks on like pricing, taste, flavor, distribution that positively surprised you? And anything that you feel like you can change as the year goes by?

Chris Mondzelewski: Yes, so far, we feel great about the launch. It is early days. We're not in a position to be able to talk to some of the specific numbers around how we're doing in any particular retailer. We're just not far enough into the season yet and deep enough into the distribution. But we are ahead of our expectations, as I mentioned in the prepared comments, on distribution at over 20% of the market already. And just as a reminder, the way we're doing this strategically, so we do have our largest customer in distribution. There will be other food customers in distribution.

And then we're focusing from a convenience standpoint in 12 key markets, which we're working hand-in-hand with Keurig Dr Pepper on not only the regional or national customers in those markets, which can be tracked, but many of the C-stores in those markets are what we call up and down the street or UDS convenience stores. And those actually cannot be publicly tracked. We will, as we get deeper into the season, start to release some information around those customers as well, which we'll work hand-in-hand with Dr Pepper on. But yes, some of the upfront non-quantitative feedback is that the product is selling well. Marketing programs are just now turning on in those markets.

You'll start to see them across those 12 markets. Some of the programs, obviously, will be national, particularly in our owned media. And then you asked on product. We feel good about the product. We're tracking this very closely. We talked about this. We went after a very clean flavor profile to match the clean ingredients that we're using in Black Rifle Energy. We're not putting a lot of the same chemicals that are in other products into our product. And with that clean product delivery, we're getting a very good feedback on a clean crisp flavor profile. Again, meeting what we intended, but a long way to go.

Sarang Vora: Steve, there's a question on your second half guidance. Now it includes tariff, there's trade promotion, as we talked before. They all stepped up, coffee inflation stepped up. But you maintained the EBITDA guidance of $20 million and obviously, the savings went up in the back half of about $8 million to $10 million. Can you share some of the incremental cost-saving initiatives or buckets that gives you a greater confidence in achieving the EBITDA range?

Steve Kadenacy: Well, at a high level, Sarang, we can share. I mean we are always focused on continuous improvement. So a lot of the things that we're focused on are just being more efficient as a business, cutting out inefficiencies that slow us down, being quick to market. We're clearly facing a fair number of headwinds in terms of inflation and tariffs. So I think that just kind of comes with the territory for us. I don't want to get into specifics of the 8% to 10% specifically. We will give you more details on that as we go.

But it's kind of across the board in terms of the business, largely positioning us so that we can be agile and nimble going forward and continue to scale off a low base. We're already scaling off of our salaries and wages and SG&A costs in general from the prior year. We just think we can do it even better.

Operator: The next question is coming from Glenn West of William Blair.

Glenn West: I was hoping to touch on the DTC business quickly. I know in the past, we've kind of been talking about approaching a stabilization there. And then it was down 5% adjusted for those loyalty reserves. I guess I'm curious kind of what strategies are being implemented to kind of further prevent the decline and ultimately get to a more stabilization there in light of kind of the reallocated investment in ad spend away from there?

Chris Mondzelewski: So as you called out, this is a part of our business that it declined last year. We've talked about how our consumers are shifting from a behavioral standpoint to buying in wholesale, either brick-and-mortar wholesale or digital wholesale. We feel great about the growth. As I talked about, we got 34% unit increase, 24% revenue increase on the wholesale side of our coffee business. For DTC, the idea for us is to create stabilization, which we feel like we've been able to do in Q1. So as you mentioned, 5% after you adjust for the loyalty points decline. And that is with less dollars going into that business.

As you would expect, we are shifting our spending towards our energy launch towards the continued support of our great coffee business in pods and bags and of course, our RTD coffee business, where we're #3 in the market right now. With DTC, there's less spending, which means you're going to have less folks coming in the front or the top of the funnel. But we're operating much more efficiently with the folks that are coming in.

So with a focus on the mobile app, in particular, because we know over 2/3 of our consumers are using the mobile app, we've been able to really increase our conversion numbers significantly so that even with a declined number of folks coming in with less spending to drive them in the top of the funnel, we're still able to get close to a stable revenue number. And most importantly, for us, we are seeing a full stabilization of our subscription business. And those are our most valuable consumers. We love all of our consumers, but those that want to subscribe with us, of course, that long-term value for us is significant.

So the focus will continue to be on conversion and in particular, conversion to our subscription-based products. You're going to see more and more benefits for subscribers in order to be able to incent that. And we expect the stabilization to continue through the rest of the year.

Operator: The next question is coming from George Kelly of ROTH Capital Partners.

George Kelly: So a couple of different topics I wanted to cover. The first is just on gross margin. I was hoping you could give a little more detail on the pricing that you took. How much was it? When did you take it? And then secondly, how long -- or I guess, how the forward green coffee buying that you have under contract, how far does that get you? And kind of how should we think high level about 2026? And I know it's a long time from now. But when do you start sort of buying your 2026 needs?

Steve Kadenacy: On the pricing side, so we're a challenger brand. So we do not lead on the pricing side. So our comments in the prepared comments is about the future, and we plan to take pricing going forward. That will largely hit towards the end of second quarter and into the third and fourth quarter. We're very meticulous about how we do that. We're looking at the prices of the brands that we're challenging. We want to stay competitive to them. So it really varies depending on whether you're buying bag coffee, ground or pods. We tend to be at a premium to our competitors in the bag coffee and ground.

However, we tend to be more on par relative to the pods. We will continue to do that. So we're pricing against what our competitors are doing, and they've all taken price. So we'll continue to kind of be where we want to be relative to them. We're not going to give you specifics on each category, but we've done a heck of a lot of research around pricing actions and understanding the elasticity of the segment in general, which tends to be quite low so that we are not putting ourselves at risk in terms of the pricing actions to impact our volumes.

There could be some, but we think where we're going to end up limits that risk dramatically. On the green coffee side, great question. We are about 95% hedged out for 2025. We're happy about that. On average, our competitors based on our understanding and speaking with folks out there in the coffee market are about 90 days out. So we're in a better position. Even though there's a 40% increase relative to where we were last year, our competitors are looking at over 100% increase relative to where they were last year. We are already looking out in 2026. It's a complex environment to try and understand.

We look at that on a quarter-by-quarter basis and future contracts are priced on a quarter-by-quarter basis. You're generally seeing the prices of those forward contracts being lower than what current coffee prices are. The closer you get to Q1, the higher price outside of Q1, Q2, Q3 and Q4, you see the cost of those futures going down. Our intention in 2026 will be to get hedged against whatever plan we put in place and whatever guidance we give to the Street rather than taking risk in similar to how we're priced now.

So right now, we certainly are staring at higher coffee prices out in 2026, but we continue to look at that on an active basis, and we'll limit that risk as we go.

George Kelly: And then second question for me on your FDM business. You gave a lot of numbers that I just had a hard time keeping up with. So I guess the one I was hoping that you could revisit or expand on, you gave your largest customer, I think you said was plus 3% in the quarter. Can you give a breakdown on volume and price there? Because I noticed that you lowered price a bit on shelf at least. So just wondering kind of how that all shook out. And then just broadly, you also gave a growth number for your smaller FDM partners outside of that large customer. And I think it was huge, but I maybe missed that.

So just if you could give a little bit more about volume and price about both your largest and then the smaller partners there, too, that would be great.

Steve Kadenacy: In general, it is volume and price. We don't get into the details of both at a customer level. But you're right, our largest customer was up 3% net of all of that. And you are also correct that we have had aggressive pricing in that customer against our competitors, and that has paid off. And that's the result of that 3% increase. And the rest of FDM, I believe the number we said was we're up 400% in the rest of grocery, and that's largely through the ACV distribution gains that we've had year-over-year.

Chris Mondzelewski: I think just to build on Steve's comment, when we look at our delivery, the number I mentioned earlier in the questions was for the total market, if I look at all the customers combined, our coffee business was up 24% in dollars and 34% in units. And for a brand and our position, we feel great about that. To Steve's point, we did sharpen the price in a number of customers promotionally. Obviously, we talked about the base price increase that we're taking on the business. That doesn't mean that we won't sharpen up promotion prices in order to be able to drive trial. And we feel great about the effectiveness of that given the 34% increase in units.

That's 34% more units being trialed by our consumers. We believe in our product quality. So when that happens, that allows us to build the long-term business. And yes, just to further elaborate on Walmart, where we feel great about our partnership. They're with us since day 1, fantastic partners to us. As Steve said, we don't talk in detail about specific numbers.

But suffice to say, based off of what continues to be category-leading numbers that we have driven year after year with our largest customer, we have great plans in place for the back part of the year to continue to be able to increase our expansion of the business, not only through our coffee business, but as we've talked about in energy as well.

Operator: The next question is coming from Joseph Altobello of Raymond James.

Joseph Altobello: I just want to touch on the pricing and sort of the guide for sales because that hasn't moved at all, but you did mention that you took up pricing and that it could provide a modest tailwind to 2H. So just trying to gauge, was that originally contemplated in the guidance? And would that sort of imply maybe lower volumes in the second half? Or should we take away that maybe we should just have more confidence in the upper side of that range?

Steve Kadenacy: I think there's puts and takes as you go through the year. We were always contemplating a potential price increase. We didn't give specifics on what was within that range. But yes, the put is the pricing on the revenue side, and you could have some elasticity in that number, but we're taking all of that into account without getting into specifics.

Operator: The next question is coming from Daniel Biolsi of Hedgeye.

Daniel Biolsi: For the gross margins how much of the 510 basis points of trade and price investment was due to the energy drink slotting fees? And what was related, if any, to the packaged coffee?

Steve Kadenacy: Trade and slotting would be almost entirely the energy side of the business.

Daniel Biolsi: That's related to the slotting fee for the energy drinks launch. Correct. And then what is the lag on importing the coffee beans to being sold? Was that the 90 days you were talking about?

Steve Kadenacy: No. The 90 days was where our competitors seem to be hedged out. We're hedged out almost entirely for the full year. Based on our discussions with folks within the community of forward purchase contracts, the indication is that in aggregate, our competitors are hedged out about 90 days. In other words, in 3 months from now, they either have to put in new contracts within that time or they'll be buying at spot rates.

Daniel Biolsi: How long does it take for the tariffs before they start running through your cost of goods sold.

Steve Kadenacy: Third quarter is our expectation. You could see a little bit of it in the second, but we expect that to primarily be into the third quarter.

Operator: At this time, I'd like to turn the floor back over to management for any additional or closing comments.

Chris Mondzelewski: Yes. Thanks, everyone, for the great questions. I will just summarize very quickly. Tough operating environment right now. We feel great about where our business stands. As we've talked about, for our coffee business, which is the heart and soul of what we do at Black Rifle, we are growing share aggressively across all 3 large segments we operate in, ground coffee, pods and RTD coffee. We feel great about our expansion into energy. We're going to talk a lot about that next quarter as we have more metrics coming out of the season, but feel like we're off to a great start.

And then finally, we have a lot of focus on the cost side of our business, which is something that Steve, myself, the rest of our management team have really been focused on from day 1. So this isn't new for us. And really, given that infrastructure and thinking that we've had in the business since day 1, we feel very well positioned to be able to take on these additional challenges cost-wise that have come our way. So excited about the results and look forward to talking to you next quarter.

Operator: Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.

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