Craft beverage brand Reed’s Inc. reported a 14% increase in net sales during the second quarter of this year, for which the company credited recent product innovation as well as 19% volume growth in the core Reed’s brand.
“We are pleased with our results in the second quarter driving 14% net sales growth, further building on momentum from the beginning of the year despite the inherent operating challenges we continue to face from the COVID-19 global pandemic,” said Norman Snyder, Reed’s CEO, in a statement. “We saw strong demand and growth of our core brand products increasing 14% in the second quarter as a result of increased demand of all SKUs as well as positive impact from new product launches.”
Net sales during the quarter rose to $10.9 million, compared to $9.5 million last year, while gross profit was up 31% during the period.
Gross sales for the Reed’s and Virgil’s brands increased 14% over the prior year, including 12% volume growth, driven by 19% case growth for the Reed’s brand and 4% case growth for Virgil’s. Gross margin increased 350 basis points to 27.5%, and gross profit increased 31% to $3 million.
Improving cash flow and boosting profitability is also a key focus for the brand, Snyder said. Reed’s Inc. used $5 million of cash in operating activities, down from $11.5 million in the prior year period, mainly a result of a lower net loss and reduced spending. As of June 30, the company had $6.7 million of available borrowing capacity on its revolving line of credit.
Programs implemented in 2019 were not revived this year, which pushed selling and marketing costs down by half ($1.6 million) during the quarter, representing 14.6% of net sales, compared to 33.7% the year prior.
General and administrative expenses were also down 23% from 2019 levels, primarily due to reduced non-cash stock-based compensation from the sale of the company’s Los Angeles production facility and reduction of temporary staff.
Reed’s is maintaining its existing fiscal outlook for 2020: the company expects to generate core brand growth of around 10% and anticipates a gross margin of 32% or above for the full year.
Snyder said the company is in the process of bringing a sixth co-packing partner online by the end of the year, though he noted that the existing network has “ample capacity and flexibility” to keep up with demand.
Since the start of the year, Reed’s has launched two new products: Real Ginger Ale, available in 12 oz. slim cans in Original and Zero Sugar Original varieties, and Ultimate Ready-to-Drink Mule With A Real Ginger Kick, its first alcoholic beverage. For the recent four weeks ended July 12, Reed’s was up 37.5% in dollar sales, and Virgil’s was up 25.2%. This is partially offset by lower non-measure channel sales which are running down over 20% this year directly related to the impact of COVID-19.
Before taking questions from callers, Snyder reiterated his “confidence in our business.”
“We are focused on controlling costs, improving growth margins, leveraging our valued brands and building momentum,” he said. “We have yet to see the true impact of our entry into the large ginger ale market and will build distribution of Real Ginger Ale over the coming months and quarters.”
Asked why the company decided to maintain its top-line guidance for the year despite better than expected sales numbers, Snyder replied that during the quarter measured sales were strong while non-measured channels — independent markets, delis, quick service restaurants and on-premise accounts — suffered.
Snyder added that the company will continue to work towards consistent net profitability by 2022 by improving margins and controlling spending, noting that the company is currently working on a new three-year strategic plan.
“I’m confident we’ll come up with a very, very sound plan, but fundamentally, we’re not going to stray from ‘sell, save and simplify’ top line growth margin enhancement and really managing our expenses,” he said, according to a transcript of the call. “And I think that’s going to get us there quicker than we thought earlier.”