Soft top-line numbers overshadowed progress made in recovering from temporary distribution losses and a forthcoming move into DSD, according to Zevia’s Q1 2024 earnings report released after market close yesterday.
The better-for-you soda maker saw -10.4% decline in both YoY net sales ($38.8 million) and volume (3 million equivalized cases) decline in the quarter, with adjusted EBITDA loss of around $5.5 million. Gross profit fell -11.9% ($17.7 million)
Yet there are indications that the brand is stabilizing: gross profit margin was up 5 points from the prior quarter, thanks mainly to a “return to more competitive promotional levels.” The company is holding over $28 million in cash with zero debt. Velocities were also strong, growing 16.2% during the quarter despite a 26% cut in promotions.
In response, Zevia President and CEO Amy Taylor revealed the company is raising prices 4.5% on multipacks of the core soda line, while continuing to implement cost-cutting measures as part of a “multi-year, broad-based Productivity Initiative” that will deliver estimated annualized benefits of $8-12 million.
Net sales for Q2 are projected to be between $38 and $40 million, and between $158 million and $166 million for the full year 2024.
“First quarter results were in line with our expectations as we continued to encounter top-line headwinds stemming from the fulfillment challenges we faced in 2023,” said Taylor. “Demand is healthy as velocity is growing and accelerating each period. Scan data shows Zevia is now leading the soda category in growth in recent periods. Our business fundamentals are improving based upon strong gross margins and a successful implementation of a price increase in Q2.”
Move to DSD
Zevia’s move into DSD represents a major pivot in distribution strategy from ambient multipacks to singles sold cold. Along with improving margins and driving trial, the shift – which is kicking off now with in the Pacific Northwest with partners Columbia Distributing, Hayden Beverage Company and Bill’s Distributing (Alaska) – the transition is expected to accelerate its c-store penetration and bolster its presence in existing channels, plus decrease “velocity-driven out-of-stocks” and boost promotional impact.
Per a slide from the company’s presentation, DSD “solves velocity-driven out-of-stocks” in primary placements, increases volume impact of promotions.
“We are launching in a strong Zevia market in the Pacific Northwest this week with best-in-class partners. Coupled with broader productivity initiatives, as well as our scalable supply chain and strong balance sheet, we are well positioned to re-energize growth in the back half of the year, and drive towards profitability,” said Taylor.