Baristas Coffee Company, Inc. (BCCI)

[BobSinCA]

Coffee may be high margin, but for BCCI?

What we do know:

- In the most recent quarter the company had an operating loss of $0.63 on every $1.00 of revenue.

Unfortunately, it is hard to assess BCCI's 'gross profit'; according to http://yourbusiness.azcentral.com/figure-gross-margin-restaurant-4194.html, it is calculated as (revenue-direct costs)/revenues, where direct costs are defined as variable costs of production: "Variable costs are costs that change with production level, such as food costs, hourly wages paid to cooks and servers, and gas used for your stoves."

BCCI takes the position that barista labor costs are not part of variable costs, perhaps on the basis that if a barista is not on duty, no products are sold (note restaurant manager costs are not included in the variable cost definition above). Apparently the auditors support this presentation. Not clear how utilities of the kiosks are shown.

So that leaves the physical cost of coffee as the only direct cost shown; but even then, we can't analyze quarterly costs in detail because inventory levels are only calculated annually (not unreasonable for a small company). However, with that constraint, we can observe that reported direct cost percentage has increased over the last three quarters, from 31% 37% to 39%, feels high but perhaps consistent with the reduced pricing power of BCCI versus Starbucks, Peet's, etc., as coffee costs have risen this year: http://www.nasdaq.com/markets/coffee.aspx?timeframe=1y