Despite making headway on reducing expenses, Reed’s, Inc. reported net sales fell to $10 million in Q2, compared to $13.7 million in the same period last year, during its quarterly earnings call last week.
According to a press release, Reed’s attributed at least part of its lower net sales to “tightened credit terms from select suppliers” that hindered its ability to acquire raw materials, which it said offset net sales by around $1.6 million.
Gross profit was $2.5 million, down from $3.3 million in Q2 2022.
“We experienced another quarter of strong order volume across our retail network; however, we were unable to fulfill the demand due to lower inventory levels and an inflated rate of short order shipments,” Reed’s CEO Norman Snyder said in a statement. “Although these factors offset net sales by approximately $1.6 million in the quarter, we began to improve inventory levels in July following our strategic financing and expect normalized shipping volumes moving forward.”
Despite income declines, Reed’s made significant improvements in its efforts to cut spending, reducing delivery and handling costs by 56% and dropping its operating loss to $1.7 million for the quarter, compared to a $4.5 million loss in Q2 last year.
Since the end of the quarter, Snyder said the company has already been improving its position, noting that gross margin increased to 32% in July as inventory levels normalized. As well, the company is ahead of schedule in its effort to cut $6 million in operating expenses, already preserving $5 million.
While it has now lowered its net sales guidance for the year to $48-$52 million, Snyder said Reed’s is “well equipped to deliver on our goals in the back half of 2023.”
Several Reed’s products have seen significant growth in MULO and convenience in the 52-weeks ending July 9 Snyder noted on an earnings call, including its ginger ale (+29%), ginger beer cans (+43%) and Zero Extra ginger beer cans (+63%).
Meanwhile, the Virgil’s craft soda brand experienced higher rates of short order shipments in Q2, Snyder added.
The company made several new distribution gains during the quarter, including additional placements across a majority of Whole Foods stores, and over 280 doors in the Midwest including Roundy’s and Meijer locations. At Publix, Snyder said the brand has completed its migration from DSD to a direct model, which is expected to improve gross margins and service levels and reduce transportation costs.
During the quarter, Reed’s also announced a new manufacturing partnership with U.K. beverage manufacturer Somerset Cider Solutions to produce Virgil’s sodas for the U.K. market, Snyder added. The company intends to further expand the line in the E.U. and Asia market next year.
“To briefly summarize our progress and outlook, we experienced some delays in building inventory due to tighter credit terms, line time availability and the timing of our fund raise,” Snyder concluded on the call. “However, we are now back on track and our results halfway through the third quarter have been very encouraging. Demand is strong, and we had our highest week of orders in the history of the company a couple of weeks ago.”