The Alkaline Water Company, maker of the Alkaline88 bottled water brand, announced record revenue of $60.6 million in its full fiscal year 2022 earnings report last week, up 32% year-over-year for the 52-weeks ending March 31. However, the growth was accompanied by substantial net losses of $39.4 million, prompting the company to highlight plans to reduce costs and ensure profitability in the future.
“We expect our topline to be driven by the momentum we’re carrying forward as one of the fastest-growing top-ten brands in one of the fastest growing beverage categories,” President and CEO Frank Lazaran said in a statement. “We believe that we will continue to see continued organic growth within our existing retail clients and distribution expansion to new clients throughout the country. Our confidence is bolstered by the fact that early results from the first quarter of fiscal year 2023 indicate another record quarter to report in August 2022.”
Gross profit for the fiscal year was $15.2 million and the costs of goods sold totaled $45.4 million. There was a net loss per share of $0.40, compared to net loss per share of $0.24 last year.
Since March 31, Alkaline Water has raised capital by exercising multiple sets of warrants from long term investors and recently increased its revolving credit facility limit from $7 million to $10 million, the company announced. In a statement, CFO David Guarino noted that “The Company’s ability to operate as a going concern is dependent on obtaining adequate capital to fund operating losses until the Company becomes profitable.”
“The Company has initiated a cost-reduction strategy to proactively reduce our monthly burn rate,” Guarino added. “While we are not prepared to give exact numbers or a timeline yet, we anticipate our burn rate to trend downward and, eventually, settle between 25 and 50% less than it is right now.”
Guarino attributed the large losses primarily to rising prices of raw materials, freight costs and an increase in total operating cost of $22 million.
Lazaran announced fiscal year 2023 revenue guidance of $70 million, noting that the company believes it can improve profitability by about $4.5-$5 million in annual expense reductions and through “cost structure optimization, margin enhancement, and a much greater disciplined capital management approach.”
The full year report was the first to be led by Lazaran, a 40-year veteran of food and beverage retail and the former president and CEO of Marsh Supermarkets, Inc., who assumed the executive role at Alkaline Water in June after the resignation of former president and CEO Ricky Wright. During an earnings call on Friday, Alkaline Water’s director of investor relations Jeff Wright touted Lazaran’s track record of “delivering operational excellence with balanced growth to companies facing unique challenges and complex situations.”
On the call, Lazaran elaborated on the new strategy, which includes adding new co-packing partners – for a total of nine – in order to decrease freight costs and increase production capacity, upgrading production capabilities and efficiency within co-packers and raw materials providers, and eliminating redundancies in third-party services.
The company has begun “an extensive review of the entire organization” to find further opportunities to cut burn and drive growth, he added, and has already instituted changes that will save about $2 million over the next year. To ensure internal accountability, Lazaran also announced a new project management office reporting directly to him which will track the progress of each initiative and measure its financial benefit to the company.
Alkaline Water also plans to add around 10,000 new stores to its existing 15,000 door footprint in the new fiscal year, Lazaran said. Most recently, Alkaline88 entered 400 Stop & Shops in the Northeast, 200 Meijer Express stores in the Midwest, over 600 Circle K locations within the Grand Canyon division, and 80 Navy Exchange Service Command stores. The brand also expanded its SKU count in 8,000 existing CVS accounts and 600 Sam’s Club stores this summer. The expansion is bolstered by two new DSD partners – Columbia Distributing in the Pacific Northwest and Bill’s Distributing in Alaska.
“Our rollout of strategic DSD partners in important regions around the country is improving our in-store brand presence, market penetration and top-line growth,” Lazaran said. “We’ve since announced another partnership with Heidelberg, who covers 26,000 clients in Ohio and Northern Kentucky. We continue to pursue additional DSD partnerships in regions where it makes sense from a sales and profitability standpoint.”
Looking ahead, Lazaran also aims to put more effort behind the company’s FreshCap infusion products, including the upcoming Alkaline88+ Sport line which will feature Fruit Punch, Limon Citrus, Jolly Watermelon and Very Berry flavors. Alkaline Water also plans to lean more into its relationship with Shaquille O’Neal, an investor in the brand, who will play a significant marketing role in promoting the Sport products.
“The sport category has had incredibly strong growth over the past three weeks, with no signs of slowing down,” said executive director of sales and operations Frank Chessman on the call. “Our flagship brand has performance and a brand halo in sports already and our spokesperson Shaq will be talking about this product and this launch. It’s just a perfect fit when you have an NBA Hall of Fame athlete bringing credibility to a product like that [and] incidentally, he loves it.”