BRC Inc.

Greetings. Welcome to the Black Rifle Coffee Company first quarter 2023 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Tanner Doss, Vice President of Investor Relations. You may begin.

Good afternoon, everyone. Thank you for joining Black Rifle Coffee Company's conference call to discuss our first quarter 2023 financial results, which we released today and can be found on our website at ir.blackriflecoffee.com. With me on the call today is Evan Hafer, founder and CEO, Tom Davin, co-CEO, Greg Iverson, our chief financial officer, and Toby Johnson, our chief operating officer. Before we get started, I'd like to remind you of the company's safe harbor language, which I'm sure you are all familiar with. On today's call, management may make forward-looking statements, including guidance and underlying assumptions. Forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. For further discussion of risks related to our business, please see our previous filings with the SEC. This call will also contain non-GAAP financial measures, such as adjusted EBITDA. Reconciliations of these non-GAAP measures to the most comparable GAAP measures are included in the earnings release, furnished to the SEC, and they're also available on our investor website. Now, I'd like to turn the call over to Evan Hafer, founder and CEO of Black Rifle Coffee Company.

Thanks, Tanner, and good afternoon, everyone. It's hard to believe that this is our sixth earnings call since we became a public company. As most of you know, it was only a decade ago that I was bagging coffee with my wife in our garage. At that time, I had a vision to create a business centered on supporting the veteran community with an authenticity that doesn't exist in other businesses. Over the past eight years, Black Rifle Coffee has evolved from my original vision of a premium direct-to-consumer subscription coffee business into an omnichannel CPG business. And today, I am pleased to report that we have met or exceeded our financial expectations in Q1, and we are well-positioned for the remainder of the year. While our business model has evolved, I'm most proud of the company's mission and purpose has remained steadfast. Our commitment to serving veterans, active duty military, first responders, and their families has stayed constant. Being a mission oriented and purpose driven company has always allowed Black Rifle Coffee to punch above our weight class with regards to attracting and retaining talent. I've always tried to surround myself with the best and the brightest team members that are going above and beyond to support Black Rifle's mission to create value for all of our stakeholders. Last quarter, I highlighted our new CHRO, Marty Manning, and our new CTO, Chris Clark, both of whom are talented executives with deep business experience who also served our country through active duty military service. Both Marty and Chris are passionate about Black Rifle's mission and have the skills and experience to help me continue to deliver sustainable growth. Today, I'm also excited to announce our new Chief Marketing Officer, Chris Monsaluski. Chris brings over 20 years of consumer marketing business in leadership experience, most recently serving as the chief growth officer of Mars 12 billion plus global pet care business. More importantly, prior to his business career Chris or five years in the United States Marine Corps deploying wants to support operation desert freedom. Outside of his own service, Chris has a deep personal connection to the military and law enforcement communities. His wife served in the Navy. His brother and sister-in-law are still in active duty in the Navy. Another brother is a police officer in Pittsburgh and his daughter serves as an active duty surface warfare officer in the Navy. Chris's business background working across multiple sales channels and his commitment to our mission will be instrumental in our marketing and branding efforts. as we optimize our marketing spend to become more of an omni-channel focused business. Chris's addition to the senior leadership team rounds out a very seasoned executive group that not only can deliver results to our shareholders, but also are driven by our mission to support the veteran active duty and first responder communities. As our leadership team continues to drive results, we continue to use our platform to give back to our loyal and growing community, which has been ingrained in our culture since day one. As I built this business out of my garage, although I didn't take a paycheck my first year, I was able to donate tens of thousands of dollars back to the veteran community through nonprofits. As we continue to scale, our commitment to our community has never been stronger and our impact has never been greater. A recent example of our commitment was the two U.S. Army Black Hawk helicopters that crashed on a training mission outside of Fort Campbell, Kentucky, close to Clarksville, a Tennessee outpost. Over the course of two days, our Clarksville outpost raised over $50,000 for the Screaming Eagles Aviation Association, which will go directly to the families of the nine soldiers who died that day. Here at Black Rifle, we know that no monetary donation can compensate for the loss their families endured. but we wanted to show our support for our brothers and sisters in arms and let everyone know that the community had their back. Another example is our recent donation to the Special Operations Warrior Foundation. which will help fund the preschool program for children of fallen special operations personnel and Medal of Honor recipients. These donations are used to ensure their education support from preschool through post-secondary education occurs at no cost to the families. This was funded by our commitment to give a portion of our proceeds of every bag of coffee and box of rounds that we sell through the FDM channel. In the short time that we've had this channel, we were able to raise over $500,000 for this donation. As you can imagine, I spent over 20 years in the Special Operations community, and I know just how impactful these donations can be to the families to relieve the stress of losing a husband, a father, a wife, and a mother. These are just a couple of the recent highlights that are at the core of our mission and continue to build our unique connection with our community. The larger our brand continues to grow, the larger our impact will be to those who serve. We are constantly working with our partners to donate a portion of our proceeds from the sale of our bagged coffee, rounds, and our RTD to ensure we continue supporting the veteran, active duty, and first responder communities. None of this could have been done without the support of the community. And I just wanted to thank everyone who has supported and continues to support through the purchase of our products and support of the brand. My goal has always been to build an enduring brand that will be around for generations. In order to build a sustainable brand, we need to be adaptable. As the world has changed over the past couple years, we knew that we had to adapt our business model to fit the changing economic landscape. As the economic backdrop changed over the last 18 months, We've adjusted our priorities as well from maximizing growth at all costs to profit in capital efficient growth. We know this might've seemed like a sudden shift in our overall plan, but we knew that the entry into FDM was the right area to focus in the short, medium, and long term. To date, this has paid off and we're excited to share more over the following months from this channel. With that, I want to turn the call over to Tom for additional color into the quarter.

Tom? Thanks, Evan, and good afternoon, everyone. I will start by highlighting details from each channel of our business, including an update on key profitability initiatives. Channel highlights. Starting first with our wholesale channel. Q1 of 2023 marked the first quarter in our company's history that the wholesale channel was the largest revenue driver for the quarter. Wholesale channel is still very early and its trajectory providing significant revenue growth opportunities for the foreseeable future. Our decision to shift focus to the food, drug, and mass or FDM channel was an important step on our path to profitability and a major contributor to BRCC becoming an omnichannel CPG business. As we mentioned on last quarter's call, in less than seven months from initial discussions, our coffee earned placement on shelves in over 4,400 Walmart stores. We have quickly grown to become the number one brand of bagged coffee in 12 ounce and smaller sizes. Further, Black Rifle Coffee achieved a 3.8% share of the overall Walmart coffee segment per Nielsen data. Note that this was without any marketing or promotion. I'm excited to share that earlier this week, we launched our first promotion with Walmart featuring end caps that show our Medal of Honor roast, where proceeds from all sales will be donated to the Medal of Honor Museum in Arlington, Texas, as yet another example of how Black Rifle Coffee is working to fulfill its mission to support the veteran community. As mentioned on our last earnings call, we plan to enter one or more new food, drug, and mass accounts towards the second half of this year, as resets occur in the June to October timeframe. We will share additional details regarding innovation and growth within the FDM channel during our Q2 call in August. Shifting now to ready to drink. We have been pleased with the continued excitement around our brand in the convenient and grocery channels. Q1 was the first time in our brand's history that we've had availability of our core SKUs, as well as limited time offering SKUs for the seasonal load-ins. While you'll see a small jump in our percentage ACV and ready-to-drink doors compared to Q4, the additional two core SKUs read in Q1 and the incremental doors from the load-in won't start appearing in the Nielsen data until mid to late May. Despite the lag in reporting, we continue to outpace the category by seven times in terms of both unit and dollar sales per Nielsen data on a year-to-date basis. Our RTV investment will allow Black Rifle Coffee to participate in summer promotion activity for the first time ever. Starting in late May, we will launch a mission-driven campaign during the, quote, 100 days of summer in partnership with a military charity called The Boot Campaign, targeting the bold goal of raising $1 million for veteran health initiatives. This promotion will allow Black Rifle to drive trial and continue taking market share, all while supporting veterans and active duty military members and their families. Overall, this summer is shaping up to be very exciting for our wholesale business. Turning now to our outpost business. As we announced last month with the departure of Heath Nielsen, I have assumed direct leadership of the outpost division. This year, there are three main objectives for the retail outpost business. Number one, continue to enhance the customer experience within our company and franchise locations to drive repeat visits and transaction growth. Number two, develop the leadership capabilities of the outpost teams in order to nurture a positive results-oriented culture at each retail outpost. Number three, refine our new prototype model to further elevate the BRCC experience while value engineering overall build-out costs. We continue to see significant long-term opportunity for this component of our overall growth strategy. For 2023, we continue to plan to open three company-owned outposts, one of which is already opened in Waco, Texas in March. Lastly, I want to highlight our direct-to-consumer channel. We operate the largest branded subscription coffee business in the United States with over 255,000 subscribers. We've continued to see a slight decline in subscribers quarter over quarter, which aligns with our expectations. As Evan mentioned, bringing Chris Montaluski aboard as Chief Marketing Officer provides us with additional firepower to define and execute marketing programs in order to drive growth across all channels of our business. including direct-to-consumer. We expect a further optimized marketing spend to meet our high internal return thresholds. While marketing spend is declining as a percentage of revenue, it is generating improved returns. As I highlighted on our Q4 call, we are committed to becoming profitable this year. This will be achieved primarily through three key initiatives that will be executed through the balance of the year. Initiative number one, continued expansion of our wholesale channel. Number two, price increases. Number three, cost leverage. I'm pleased to report that we are on plan with all three of these initiatives through Q1, with our cost leverage initiative being the most visible in the Q1 financials. You'll begin to see the benefits of the February price increases in Q2, as well as the increased percentage ACV and door growth throughout the wholesale channel. Of course, there is still plenty of work to be done but we're very satisfied with progress today. Due to this progress, we are reaffirming our 2023 annual guidance that we provided in March. Greg Iverson will give you more detail. Greg, over to you.

Thanks, Tom, and good afternoon, everyone. Today, I will discuss our 2023 first quarter financial results and reaffirm our 2023 full-year outlook. Turning first to our financial results for the first quarter, total revenue increased 27% to $83.5 million in compared to 65.8 million in Q1 of last year. The meaningful increase in revenue was driven by our wholesale channel, which continued its impressive growth from the first quarter of 2022, increasing by 82%. Now I will give some additional details on our three sales channels. Beginning with wholesale, revenue increased 82% to 40 million in Q1, compared to 21.9 million during Q1 of last year. The increase was primarily driven by our entry into food, drug, and mass as we began selling our bagged coffee and rounds in over 4,400 Walmart stores. We also saw a material increase in our ready-to-drink percent ACV, which measures distribution across both convenience, gas, and FDM. RTD percent ACV more than doubled to 38.5% versus 15.5% a year ago. This increase was driven by adding 16,000 incremental doors as well as introducing innovation for the first time in Q1 of 2023. Next, our direct to consumer revenue decreased by 4% to $36.8 million in Q1 of 2023 compared to $38.3 million in Q1 of last year. This decline was mainly the direct result of decreased digital advertising spend as we continue to prioritize our high growth and high returning wholesale channel. Next, Revenue from outposts increased 21% to $6.7 million in Q1 compared to $5.5 million last year. The main driver was an increase in our company-owned store count, which increased to 16 outposts as of Q1 2023 compared to 9 in Q1 2022. As Tom mentioned, we opened one store in Waco, Texas during Q1, bringing our total number of outposts to 27 with 16 company-owned and 11 franchise stores. Turning to profitability, our Q1 gross margin was 33%, decreasing approximately 230 basis points from 35.3% in Q1 of last year. The decrease was driven by increases in the cost of coffee and RTD raw materials, which increased as a result of adding capacity in new co-manufacturing locations. The increase in raw materials and increased capacity also led to higher transportation and inventory carrying costs. Additionally, we incurred $1.8 million in expenses related to the startup of new RTD innovation products and co-manufacturers, impacting gross margins by 215 basis points. We have taken action across multiple fronts to combat the inflation we have been experiencing. In addition, as Tom mentioned, we took additional pricing actions in February across our RTD portfolio as well as our DTC channel. Because these pricing actions took place around the middle of Q1, the full impact of these actions will flow through our P&L throughout the remainder of 2023. We also have a number of logistics-related efficiencies slated to take place in the back half of the year. As a result, we continue to expect our margins to improve sequentially throughout the year. Turning to our operating expenses as a percentage of sales, our operating expenses during Q1 decreased by 575 basis points to 53.6%, as compared to last year as we have begun to drive significant operating leverage across our expense base. I will walk through the drivers of these decreases beginning with marketing and advertising. For the first quarter of 2023, marketing expenses decreased 12.4% to $7.1 million from $8.2 million in the first quarter of 2022. As a percentage of sales, marketing decreased by 380 basis points to 8.6% compared to the same quarter last year. The decrease in expense was driven by our strategic reductions in lower returning advertising platforms. In addition, our focus on our wholesale channel is driving the leverage and efficiency with our marketing and advertising spend that we have been anticipating. Next, our salaries, wages, and benefits increased 23.8% to 19.8 million from 16 million in the first quarter of 2022. Importantly, as a percentage of revenue, it decreased by 60 basis points to 23.7%, compared to 24.3% in Q1 of last year, as we again are beginning to see leverage in our operating expenses. The increase in dollars was due to a year-over-year increase in employee headcount to support our significant revenue growth, as well as $700,000 in severance related to reductions in headcount across the company in Q1. Moving on, our G&A expenses increased 19.3% to $17.8 million compared to $14.9 million in the first quarter of 2022. As a percentage of revenue, G&A decreased by 135 basis points to 21.3% of revenue compared to 22.6% last year. This increase in dollars was driven by incremental IT infrastructure spending as well as professional services to support the expansion of new and existing sales channels and product lines. As with our marketing and our salaries and wages, we achieved significant leverage in our G&A expense in the quarter. In addition to the gap measures I've discussed, adjusted EBITDA is an important profitability measure that we use internally to manage our business. For the first quarter of 2023, adjusted EBITDA was a loss of $5.1 million versus a loss of $6.3 million a year ago. This progress toward profitability was driven by our revenue growth and operating expense leverage partially offset by lower gross margins. Now I'll briefly walk through our balance sheet for the first quarter of 2023. We ended Q1 with $26 million of cash on the balance sheet compared to $38.9 million as of December 31st. We also had $56.2 million of debt compared to $49.2 million as of December 31st. You will recall that last quarter we discussed an intentional inventory build, which is mostly in RTD. We built inventory over the past two quarters to support the expansion of our RTD product, including the C-Store load-in cycle and new product innovation. Also, as Tom mentioned, we are currently launching our 100 days of summer RTD promo. While the promo will have some negative impact on our Q2 gross margin, We expect it to further drive customer trial and allow us to continue taking market share. At our current RTD inventory levels, we believe we're well positioned to address demand and now have the flexibility we need to adjust our production schedules as needed the remainder of the year based on sell-through and door growth. As we convert our RTD inventory into cash over the coming quarters, we expect to see our operating cash flow improve significantly. Finally, as Tom mentioned, We remain committed to generating positive adjusted EBITDA in 2023, and we are reaffirming our prior financial outlook from our Q4 call. As a reminder, that full year outlook is revenue of 400 to 440 million, gross margin targets of 36 to 37.5%, and positive adjusted EBITDA of 5 to 20 million. With that, I will turn the call over to the operator for questions. All right.

And at this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. And one moment, please, while we poll for questions. And our first question comes from the line of Sharon Zakfia with William Blair. Please proceed with your question.

Hi, good afternoon. I was curious on the new chief marketing officer if you could maybe give us what you think the top three priorities for him would be. And if there's any particular demographic that you feel like you're not reaching as well as you should. that perhaps his expertise could help kind of bring to the table. And then I have a follow-up.

Hey, Sharon, it's Tom Davin. Thanks for the question, and I'm going to turn that one over to Edmund Hafer.

Yeah, I think that from mapping out his priorities, the big thing that we've been discussing is aligning the omni-channel business around our marketing initiatives and objectives. So as we start to look at the opportunities within the sales channel, it's really important about optimizing our marketing dollars and being able to reach the customer base more effectively. So when I look at it, it's mission, goals, objectives, and then really capturing the right type of team so that we're developing new talent and recruiting another layer of talent to capture those opportunities.

Thanks for that. And I think there was some mention of some incremental pressure on gross margin in the second quarter. I just wanted to clarify the kind of order of magnitude of what you're thinking, and if that creates a more back-end, sorry, I'm having problems talking. Maybe you can tell I have a cold here, back-end-weighted K to gross margin than perhaps the street had been thinking.

Yes, Sharon, it's Greg. I can address that. The one new factor that we brought up in our commentary related to gross margin, is the promotion we're running for Ready to Drink. So that will have some impact on Q2, but it's not a primary driver. So as you saw, our Q1 gross margins were in line with the expectations improvement sequentially versus Q4. And we continue to expect sequential step-ups in gross margins starting in Q2 and beyond. And that's factoring in this additional promo.

Okay, I'm gonna try for one more question if my voice holds out. Tom, my cell was kind of cutting in and out. Did you reiterate plans for 100,000 RTD doors this year?

I'm not sure we explicitly reiterated that, but we have before, so that is very much a good number, Sharon.

And we shared that in our last earnings call. That's consistent. Perfect. Thank you.

Easy. Thanks, Sharon.

And our next question comes from the line of George Kelly with Ross MKM. Please proceed with your question. And George Kelly, your line is now live. Please make sure you're not on mute.

Josh, can you guys hear me?

We got you, George.

Okay. Sorry about that. Curious if you can update us on the Walmart market share and if that's continued to grow subsequent to the quarter.

Yeah, I'm happy to take that. So we've held our market share at 3.8%, which is what we shared in our last earnings call. So we've maintained pace with the growth of the category. We feel really pleased with how the Walmart business has continued to develop and the core trends that we're building. What we have, which is consistent with what's in our plans, are some additional things that you'll see. If you go into a Walmart right now, you'll see our first end cap in Walmarts that we've had since we launched. We're really proud of this. One, we think it's going to help us drive trial and awareness for our product. which is the number one thing we can do. We have great repeat rates on our products in Walmart, and that will just help continue to drive people into the aisle. But the other thing that we've done on that end cap is we have a Medal of Honor 22-count round pack. All of the profits from that pack will go to the Medal of Honor Foundation. So as people are discovering our brand and trying it for the first time, they're also learning about our mission and what we stand for as a company.

Okay, great. That's helpful. And then second question for me, still on the FDM business, trying to think about next year and beyond. And I understand that you've really been focused this year on Walmart. I think you said in your prepared remarks that there's a second big partner coming in the back half, correct me if I'm wrong. But just thinking about next year, is there a moment when you can turn on a whole bunch of additional partners and you'll feel more comfortable in sort of turning on a big door number? Or will it be sort of steady as she goes and it'll be incremental at least for the next few years?

Yeah, we remain confident in what we've shared, which is that we will be adding one or more new partners in FDM in 2023. We're also building out relationships that will enable us to scale that business. To your point, from a capacity standpoint, the right packs for the channel, and we remain confident in that expansion plan. As you may know, the reset windows for the FDM channel stretch kind of in the July through October timeframe, so that will be one of the things that is more back half loaded in the 2023 plan, and it aligns with our plans that we laid out last quarter.

Okay, thank you.

Our next question comes from the line of Sarang Vora with Telsey Advisory Group. Please proceed with your question.

Great quarter and great to see the guidance maintained. You know, my question is on Walmart. I mean, you have a great market share. It's growing. You're launching the first promotion, end cap promotion. Can you share, like, how else can you deepen the relationship? Is there a thought of more SKUs, price changes? And, you know, just touching on that on the marketing side, I know you are focused on driving awareness across the customer at Walmart. So just curious to know on the marketing side, how is the marketing transitioning from, you know, more DTC focused to Walmart? Like how do you get that attention of that Walmart customer? So just curious to know some of these details. Thank you.

I'll talk a little bit about Walmart and how we're looking at that business as far as expansion. So Walmart's resets take place in July. Our job as a partner to Walmart is to continue performing for their shopper. For Black Rifle, innovation is in our DNA, so we will continue to bring new product offerings to all of our retail partners for their consideration. So we are continuing to develop and innovate, and we'll bring that forward to our partners From a marketing standpoint, as I mentioned, the most important thing is driving trial, driving people into Walmart to try our products. We are already working with our new CMO to help us do that. And we will see increased marketing efforts that drive awareness for our presence on the shelf at Walmart. And as I mentioned, just being on an end cap is a great way of driving that trial and awareness as well. 30 million people a day walking into a Walmart When they see that end cap, it'll help drive them to our brand and into the aisle.

That's great. And, you know, one question for Greg. Inventory is pretty high, and I understand it's RTD right now, which will kind of slow down as you go through this promotion and second quarter. Just a thought on how does inventory look by the end of this year? Do you have any thought on that?

Yeah, absolutely. And you're right. It's exactly as we described on the call, that we've been proactively building inventory, RTD inventory, that is, in the fourth quarter and then again in Q1. That's for the innovation SKUs as well as the seasonal load-in for C-stores. So our production schedule in the back half of the year really, really moderates. And then also the expectation is that the volumes or sales really ramp up. So, yes, we expect our inventory levels to come down significantly, not necessarily in the second quarter, but in the third and the fourth quarter, so that we end the year with the inventory levels really in line with what we intend to maintain as part of normalized safety stock.

That's great. Thank you, guys. Good luck.

Thanks, Ryan.

Our next question comes from the line of Joe Altabella with Raymond James. Please proceed with your question.

Thanks. Hey, guys. Good afternoon. I apologize if I missed it, but why were wholesale doors down sequentially?

I can talk about that. So if you look at our wholesale doors, we did have a slight dip from Q4 to Q1, and that was driven by one of our specialty retail partners who brought in bagged coffee as a holiday seasonal offering for gifting, which did roll off in Q1. Despite that small change in doors, our dollar growth across FDM coffee and specialty continues to track with our predictions. And we do remain very confident in our plans for 2023 and beyond. The other thing I would call out is doors are a bit of an imperfect measure for that growth because each door has variability and velocity that it generates for our business. So the most recent doors that we've added in the FDM channel really have the highest impact to our business because of the significant shopper foot traffic that goes into those doors. Additionally, the shopping trip within those doors is a grocery shopping trip, which has coffee on the list for purchase during that visit. So our velocities and our sales coming out of those doors are gonna be incrementally higher.

Okay, now that's helpful. And I apologize, I have another door question. RTD doors, I think we're up 1,800 or so sequentially. I know you had a test with a retailer that had 18,000 doors that was coming back. Maybe help us understand the timing of when those 18,000 doors come back into the system.

Yeah, so for RTD, the gains that we saw in ACV, if you look from the beginning of the year, they're up about 3%. And that mirrors the door gains, which from the beginning of the year, around 2700, the biggest drivers of those door gains are C-Store customers, namely 7-Eleven, Circle K, Racetrack, and GPM. That large retailer that we mentioned is still going to flow through our door count, but it is not captured in the door count right now. It will be reflected in the May 20th release of Nielsen data. The other thing I'll call out about ACVs specifically is our new SKUs that we've launched, the Vanilla Bomb and Salted Caramel, which are approximately 10% of our sales currently as we're building their distribution. They are also not reflected in that ACV number. They will be in the 520 release as well.

Okay. And maybe one last one, if I could. for 2023, does that assume that you get another FDM account this year?

Yeah, the guidance would be consistent with what we shared and outlined. One incremental partner at a minimum. So we're sustaining and reiterating that guidance, and it's very much aligned with the plans we shared in the last earnings call.

Okay, so it does assume at least one incremental FDM customer.

And our next question comes from the line of Bill Chappell with Truist Securities. Please proceed with your question.

Thanks. Good afternoon. Just following up, I mean, your commentary about great repeat rates at Walmart and very pleased, can you kind of give us a little bit of an idea of how that breaks down geographically or from rural Walmarts versus more urban Walmarts? I guess I don't view or I don't think The Walmart customer is not just kind of one customer. And I know your base has been more geographically to the south, southwest. So I'm just trying to understand how the brands are forming as you get kind of more out of that core region.

We are resonating with the American shopper. America shops at Walmart, and that's who we're resonating with. It is not in certain states. It's fairly universal across various geographies. Um, and so we don't see that. We actually don't see that in our base business on DTC either. Our, our number one, um, market is, is the greater New York, um, area. Number two is the greater Dallas area. Number three is Los Angeles. So, um, what's nice about where Walmarts are located is it's a very complimentary business to our DTC business. Um, a lot of our DTC consumers and customers are located in more urban locations. And most retailers, including Walmart, are not in dense urban areas. So it is a nice complement to our business. And that's generally what we're seeing. We definitely are pleased with the national rollout of our Walmart business. And that is informing how we will roll out at other grocery customers. And again, this is consistent with the plans that we had laid out for 2023 and beyond.

Got it. So you're getting similar market share across all 4,400 Walmarts.

I think there's different formats and different velocities based on traffic, different coffee sets based on the size of the store. So there is variability. It isn't uniform, but it definitely mirrors what we would expect. some variability store to store and we'll continue to optimize the assortment and the SKU count by store in order to make sure we're pleasing as many shoppers as possible that come into Walmarts.

Can you just quantify what the repeat rate is right now or is it just still too early to quantify?

It's a bit early to quantify. What I would say is we are monitoring this very closely. We've invested in Luminate data, which is proprietary data from Walmart. And what we see that's really encouraging is our loyalty, our repeat rates. They're on par with the biggest brands in the category, which is fantastic. And that's what really directs us to say driving trial is the key. Because when people come to our brand, They love our mission. They love what we stand for. And they also, we hear over and over again that the quality of our products and the taste, the premium nature of our coffee is what brings them back again and again.

Got it. Last one for me, just, you know, any thought on kind of apparel sales or accessory sales? Is that being kind of de-emphasized per se right now?

No, I'll take that one. It's still very important to us as a lifestyle brand. It's maintaining the percentages in the retail outposts that we had talked about before. We mentioned that bagged coffee and merchandise makes up just under half of retail sales in our outposts, and that's held consistent. We're obviously adding new t-shirt and mug designs, driving innovation and consumer excitement there. And of course, when you go to our website, We feature the coffee, but there's all sorts of great product and merchandise offered there. So again, very important to the branding element of the business as part of the omnichannel model. And we'll continue to innovate with all the exciting creative people we have around Black Rifle Coffee. Got it. Thanks for the color. You bet.

And our next question comes from the line of Steve Powers with Deutsche Bank. Please proceed with your question.

Yes. Hey, thanks and good afternoon. Maybe picking up on comments on assortment, I guess as you ramp up over the balance of the year, to what extent are you expecting to do that with the existing portfolio, the existing set of SKUs versus seeing a need or opportunity to expand the SKU set further either different sizes and package types or different flavor varieties. And I'm thinking mainly about the wholesale FDM as well as the RTP part of the portfolio.

Yeah, so I'll take that one. This is Toby. I'd say it's a combination. So the great thing is we have a lot of data from our introduction into the FDM channel so that we can really curate the SKUs that we would bring into a new set on a new shelf with a new partner. So looking at how many SKUs drive a large percentage of our sales. Obviously, the shelf presence in a big box store like Walmart may be different from a more local grocery location. But we can really optimize and drive a great representation of the sales that we've seen based on the data that we've gotten, which is fairly robust. As I mentioned earlier, we're always going to be looking at opportunities to innovate and to bring that. It's in our DNA. We're going to bring that to our partners and work very collaboratively on what are the adjacent spaces and coffee that we can go. So we continue to work on that, and we'll share more as we solidify some of those plans. From an RTD standpoint, I have to mention that our Berry Mocha LTO is is going into market right now. It's shipping. It's a beautiful can. There's a lot of excitement about it. It tastes fantastic. We will continue to look at the RTD space for innovation. We do have a couple of other LTOs coming later this year, a Cowboys LTO in Texas and Oklahoma, and then our Pumpkin Spice in the fall. So we continue to bring news. You couple that with our 100 Days of Summer promotion that we're really excited about. We think it's a fantastic opportunity to drive trial and steal share. We are positioned very well with the growth we already have in the business to just continue driving this into our consumers' hands. And the partnership we have with the Boot Campaign, which is a 14-year-old, highly accredited nonprofit, They're focused on improving veterans' lives by creating individual treatment programs for veterans and military families. When we promote for the first time, this is the first summer promotion we've had, we will be surrounding that with, again, something that just reinforces the mission of our company. So as people learn about us, they try us, they discover how delicious our products are, they also can learn about our mission and support veterans by buying our products everywhere they find us.

Okay, great. And Toby, while I've got you talking, maybe just on, it sounds like from the commentary earlier that, you know, product availability, you know, both current inventory levels and sort of visibility for supplies is pretty good right now. But I guess I just wanted to, A, validate that, and then, B, maybe just ask if there are any points in the supply chain that are a bit tighter than others, any points of concern places you're watching that may be risk factors as you go forward. Thank you.

Yeah, I mean, we operate in a very dynamic global supply chain, so there's always things that we're going to continue to monitor, especially with where we source coffee from around the world. But we spent a lot of our time in 2022 taking the bottlenecks out of our capacity for all the products that we produce. So we feel very confident in our plans that we will be able to support those, not only in 2023, but beyond, based on the partnerships we've built across supplier community for all the products we make, from bags of coffee and K-Cups, rounds, to our RTD products. So that is not a constraint on our business at this time.

Okay, great. Thank you.

And we have reached the end of the question and answer session, and I'll now turn the call over to Tom Davin for closing remarks.

Thank you, everyone, for joining the Q1 2023 conference call today, and thank you also for the support of our mission at Black Rifle Coffee. Have a great afternoon.

And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.