Business Overview
Reborn Coffee, Inc. (NASDAQ: REBN) is a premier specialty coffee retailer that has been at the forefront of redefining the coffee experience. Founded in 2015 by Jay Kim, the company has rapidly established itself as a leader in the emerging Fourth Wave coffee movement, captivating consumers with its innovative brewing techniques, uncompromising quality, and commitment to elevating the art of coffee.
Reborn Coffee’s journey began in 2015 when CEO Jay Kim, driven by a passion for exceptional coffee, launched the company with a vision to use the finest ingredients and pristine water to create an unparalleled coffee experience. The company was initially incorporated in the State of Florida in January 2018 and later migrated to Delaware in July 2022, maintaining its capitalization structure.
Headquartered in Brea, California, Reborn Coffee has steadily expanded its footprint, operating 12 retail locations across California, including stores in Brea, La Crescenta, Corona Del Mar, Laguna Woods, Manhattan Beach, Huntington Beach, Riverside, San Francisco, Irvine, Diamond Bar, and Anaheim. The company has also established an international presence with one store each in Daejeon, South Korea, and Kuala Lumpur, Malaysia.
Reborn Coffee’s success is rooted in its pioneering approach to the Fourth Wave of coffee, which focuses on highlighting the intricate relationships between water chemistry, health, and flavor profiles. The company has distinguished itself through innovative techniques, such as washing green coffee beans with magnetized water, challenging traditional preparation methods and elevating the coffee drinking experience.
The company’s commitment to quality has been recognized in the industry, with Reborn receiving first place in the traditional still category of the Americas Best Cold Brew competition by Coffee Fest in Portland in 2017 and repeating this accomplishment in 2018 at the Coffee Fest event in Los Angeles. These wins served as early validation of Reborn’s innovative coffee processing methods and dedication to excellence.
Reborn Coffee’s broad product offering includes a diverse array of beverages and coffee options, catering to a wide range of customer preferences. The company operates through its retail stores, wholesale distribution, and online channels, allowing it to capture a growing share of the large and expanding US retail coffee market, which was valued at $46.2 billion in 2021 and is expected to continue its upward trajectory.
Throughout its growth, Reborn Coffee has faced various challenges common to expanding businesses, including the need to raise operating capital, build out its retail footprint, and navigate the economic impacts of the COVID-19 pandemic. Despite these obstacles, the company has continued to invest in research and development to refine its coffee processing techniques while also expanding its wholesale and online sales channels to complement its retail operations.
Financial Performance
For the nine months ended September 30, 2024, Reborn Coffee reported total net revenues of $4.15 million, compared to $4.16 million in the same period of 2023, representing a slight decrease of 0.1%. This steady performance was achieved despite higher food costs, as the company’s company-operated store gross margins increased to 72% in the first nine months of 2024, up from 68% in the same period of 2023.
During the third quarter of 2024, Reborn Coffee’s wholesale and online sales grew 432% to $140,407, up from $26,401 in the third quarter of 2023, highlighting the company’s success in expanding its distribution channels and capturing growing consumer demand for its premium coffee products.
Reborn Coffee ended the third quarter of 2024 with 12 open locations, with one additional location in development. The company’s net loss for the nine months ended September 30, 2024, was $3.03 million, compared to a net loss of $3.01 million in the same period of 2023.
Looking at the company’s performance by segment, the Retail Stores segment accounted for approximately 92% of total net revenues. For the nine months ended September 30, 2024, retail store net revenues were $3.78 million, down 7.5% from the same period in 2023. This decrease was primarily driven by a reduction in foot traffic and sales at the company’s existing retail locations.
The Wholesale and Online segment, which accounted for approximately 8% of total net revenues, showed significant growth. For the nine-month period ended September 30, 2024, wholesale and online net revenues were $365,160, up 470.6% compared to the same period in 2023. This strong growth was attributed to increased adoption of the company’s Reborn Coffee Pour Over Packs by hotels and other wholesale customers.
In terms of geographic markets, Reborn Coffee generates revenue from two primary areas: North America and Asia. For the nine months ended September 30, 2024, North America revenue was $3.92 million, while Asia revenue was $231,830.
Liquidity
As of September 30, 2024, Reborn Coffee’s financial position reflected its ongoing growth initiatives and operational challenges. The company reported a cash balance of $105,860, indicating a relatively tight liquidity position. The debt-to-equity ratio stood at 0.55, suggesting a moderate level of leverage in the company’s capital structure.
The company’s current ratio of 0.41 and quick ratio of 0.34 indicate potential short-term liquidity challenges, as these ratios are below the generally accepted benchmarks for healthy liquidity. These figures suggest that Reborn Coffee may need to closely manage its working capital and potentially seek additional financing to support its ongoing operations and expansion plans.
Strategic Initiatives and Expansion
Reborn Coffee has been actively pursuing strategic initiatives to drive its growth and solidify its position as a leader in the specialty coffee industry. In November 2024, the company announced the successful acquisition of a 58% stake in Bbang Ssaem Bakery, a leading bakery chain with 31 locations across South Korea. This acquisition aligns with Reborn Coffee’s strategy to expand its offerings and establish a strong presence in the bakery sector, leveraging Bbang Ssaem’s expertise and Reborn Coffee’s specialty coffee capabilities.
Furthermore, in November 2024, Reborn Coffee’s majority-owned South Korean subsidiary, Bbang Ssaem Bakery F&B, announced a landmark distribution agreement with a major Korean coffee chain. This partnership will bring Reborn’s preservative-free, signature baked goods to approximately 8,000 stores across South Korea, significantly enhancing the company’s revenue and solidifying its position in the country’s dynamic coffee and bakery market.
Reborn Coffee has also made progress in expanding its international footprint, with the opening of its first retail location in South Korea and one in Malaysia as of September 30, 2024. The company’s strategic focus on international growth aligns with the growing global demand for premium specialty coffee and its commitment to delivering Reborn’s unique coffee experience to new markets.
Risks and Challenges
While Reborn Coffee has demonstrated remarkable resilience and innovation, the company faces several risks and challenges that investors should consider. The highly competitive nature of the specialty coffee industry, coupled with the company’s relatively small size compared to industry giants, presents ongoing challenges in terms of market share and brand recognition.
Additionally, Reborn Coffee’s reliance on a limited number of large customers for its wholesale and online sales, as well as its exposure to fluctuations in commodity prices, particularly coffee beans, could impact its financial performance. The company’s ability to successfully integrate and capitalize on its recent acquisitions, such as Bbang Ssaem Bakery, will also be crucial to its long-term success.
The company’s financial results for the most recent quarter (Q3 2024) showed some concerning trends, with revenue decreasing by 16.9% year-over-year to $1.26 million and net income declining by 3.9% to a loss of $719,750. These figures underscore the challenges Reborn Coffee faces in achieving consistent growth and profitability in a competitive market.
Outlook and Conclusion
Reborn Coffee’s unwavering commitment to innovation, quality, and elevating the coffee experience has positioned the company as a trailblazer in the specialty coffee industry. Its focus on the emerging Fourth Wave movement, strategic partnerships, and global expansion initiatives suggest a promising future, as the company continues to redefine industry standards and capitalize on the growing demand for premium coffee offerings.
Despite the challenges faced by the company, including recent declines in retail store revenue and overall profitability, Reborn Coffee’s strong brand identity, talented management team, and dedication to delivering an exceptional customer experience suggest that it is well-positioned to navigate the dynamic specialty coffee landscape. The company’s significant growth in its wholesale and online segments, particularly with its innovative Reborn Coffee Pour Over Packs, demonstrates its ability to adapt to changing market conditions and consumer preferences.
As Reborn Coffee continues to execute its growth strategy, both domestically and internationally, investors should closely monitor the company’s ability to improve its liquidity position, achieve economies of scale, and successfully integrate its new acquisitions. The company’s expansion into the Asian market, particularly through its stake in Bbang Ssaem Bakery and the new distribution agreement in South Korea, presents significant opportunities for revenue growth and market penetration.
In conclusion, while Reborn Coffee faces notable challenges in terms of profitability and market competition, its innovative approach to coffee production, strategic expansion initiatives, and growing presence in both retail and wholesale channels position the company for potential long-term success in the dynamic and evolving specialty coffee industry.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.