Reed’s Highlights Reduced SKUs, Future Changes in Q3 Earnings Call

Reed’s Inc. reported a 11.7 percent decline in net sales for Q3 2017 in an earnings call today in which the company also announced other brands in its sprawling portfolio would be discontinued to focus on the Reed’s and Virgil’s labels.

In the three months ending on Sept. 30, net sales dropped to $10.9 million from $12.3 million in the same period last year. Net losses for the quarter were pegged at $5.6 million, compared to $219,000 in Q3 2016, and at around $7.4 million for the year.

The company put a positive spin on the statistics, as CEO Val Stalowir, who joined the company in July, attributed the decline in sales to the first price increase for the Reed’s core line in seven years, a move he described as “necessary,” as well as the discontinuation of numerous SKUs.

“After my first quarter here at Reed’s I see even more opportunity than I originally anticipated,” Stalowir said in a press release. “The team has responded well, and we continue to make progress to improve the company’s overall performance.”

The craft soda company has been in a transitional period over the past year, as Stalowir looks to steer it towards long-term growth after months of being weighed down by supply chain issues and underperforming products. Last October, former CEO and founder Chris Reed told BevNET that out-of-stock issues resulted in the company losing between 15 to 20 percent of its distribution, about a quarter of which had been recovered at the time.

Daniel Miles, CFO of Reed’s, noted that Stalowir, COO Stefan Freeman and Reed, now serving as the company’s Chief Innovation Officer, conducted a review of the business, including current performance and core strategies, and is now implementing changes based on their findings.

“The company is now in the process of executing very significant changes to the company strategy that includes a prioritization on the Reed’s core and Virgil brands, a discontinuing of SKUs and potentially repositioning the company operationally for further to further outsource the manufacturing of its products,” he said, according to a transcript of the call posted on SeekingAlpha.

Reed’s is already making good on its promise to sharpen its focus and slim down its brand portfolio. The company had previously produced and sold 111 separate SKUs, but will now focus exclusively on Reed’s and Virgil’s, which together represent 28 total SKUs.

Products on the chopping block include Culture Club Kombucha and China Cola. Stalowir stated that the company is “not putting any focus or efforts on those brands at this point.” He added that the company is selling out whatever inventories still remain and that no additional inventory for those brands will be produced.

The future of the company’s Los Angeles production facility is also in doubt. Issues at the West Coast plant contributed to the out-of-stock problems, from which the company is still recovering. Stalowir told BevNET in July that Reed’s would be looking to “execute a strategy of reducing our dependence on capital-heavy investments and try to go more asset-light.”

Responding to a question about operational plans for the plant, Stalowir noted that idle plant costs were one of the driving factors hurting gross margins and that a professional services company with experience in the beverage industry will be brought on to evaluate the best use of operational assets, including the facility.

“I think obviously the best use would be for continuation of production [in L.A.], potentially as a co-packing relationship for us,” he said, adding that future plans would be clearer following the third-party analysis.

Reed’s also announced the imminent closing of a new deal that will see the company move from brokered purchase glass supply to a direct glass supply contract with a leading manufacturer, a move Stalowir said the company believes will drive between four and six gross margin points of improvement. A newly negotiated contract for third-party logistics, Stalowir added, would also help boost margins.