Unit sales and volumes for Zevia were down during Q3, with more drops expected to come as the better-for-you beverage company seeks to solve its supply chain issues.
Here are the top-level numbers:
- Net sales: -2.6% YoY ($43.1 million)
- Unit volume: -8.2% YoY (3.3 million equivalized cases)
- Gross profit margin: +2.1 points YoY (45.4%)
- Net loss: $11.3 million, including $1.9 million of non-cash equity-based compensation expense
- Adjusted EBITDA loss: $9.1 million ($2.1 million in Q3 2022)
The company’s Q3 performance didn’t come as a total surprise: during the company’s last earnings release in August, CEO Amy Taylor acknowledged that supply chain disruptions would continue to impact the bottom line in the near future. Those “short-term supply chain logistics challenges” were blamed for depressing volumes in Q3, which more than offset price increases.
The brand refresh from earlier this year has also contributed to higher inventory losses, per a release, along with consolidating its network of warehouses from 27 to nine.
Elsewhere, higher freight and freight transfer costs, plus increased handling and storage costs from holding more inventory, were cited as the cause for a massive jump in selling and marketing expenses during Q3, soaring from $12.9 million (29.2% of net sales) in Q3 2022 to $20.5 million (47.5% of net sales) in Q3 this year.
The pain is expected to continue at least a little bit longer, as the company is predicting Q4 net sales in the range of $36 million to $39 million. Full year 2023 sales guidance is narrowing to the “high-end” of the range of between $165 million and $168 million.
On the positive side, Zevia is still in-demand, Taylor said; though household penetration fell from 6.2% to 5.5% YoY, velocities rose 16.2% during the quarter despite challenges with inventory and promotions falling by 26%. Over the past 12 months, households increased their total brand spend and spend-per-trip by 13% each.
Its partnership with Walmart is also deepening, with the retail chain doubling Zevia’s shelf space and converting from 6-packs to 8-packs; the sodas are up “triple-digits” in same-store sales, according to Taylor. From that line, Root Beer and Vanilla Cola are #1 and #2 in contributing to Zevia dollar growth across the quarter.
Taylor pointed towards improving gross margins as being “indicative of the health of the business” and that the brand’s return to “double-digit growth” will be fueled by a combination of innovation and distribution expansion.
Most importantly, she said, the logistics issues have been addressed with improved workflows and rebounding fill rates, while fulfillment has been stabilized by partnering with legacy warehouse providers to assist during the transition period.
“We are seeing progress in improved on-time and in-full deliveries, which will be evident in on-shelf distribution recovery and return to growth in Q4.”