Reed’s Inc. leadership is optimistic that a recent infusion of capital and moving deeper into RTD beverage alcohol will help offset anemic net revenue growth in Q1 2022, as revealed in its quarterly earnings report published on Tuesday.
Net revenue for the beverage maker increased to $12.2 million this past quarter compared to $12.1 million in 2021, while gross profit was down about 25% year-over-year to $2.9 million, reflecting the added cost of supply chain problems, inflation and input costs, all of which hampered the company from meeting 20% growth in order demand.
“We simply couldn’t satisfy the demand in a cost efficient manner,” Reed’s CEO Norman Snyder said in a prepared statement on the earnings call. “The sustained demand for our products is robust and with our supply chain constraints easing, we expect our results to materially improve each quarter from here on out.”
Distribution, however, has been a bright spot: Reed’s has added 12 new DSD distributors to its network during Q1, with the expectation of more to come by the end of the year. Leadership expressed confidence in the company’s current network and emphasized that it is working with top-tier distributors like Anheuser-Busch and MillerCoors to service big market areas. Snyder added that about $2 million of estimated revenue was sacrificed in the decision to not ship orders that were out of network.
Operating expenses were $7.1 million, about 13% less than Q1 2021, reflecting the company’s focus on transportation costs.
Despite the headwinds, Snyder is bullish on Reed’s potential to be a player in RTD beverage alcohol. The company anticipates it will be offering its products in approximately 5,000 outlets by the end of the year, with CFO Tom Spisak pointing out that Reed’s alcohol portfolio offers three times the revenue potential to the company’s non-alcoholic offerings.
The consumer reception for Reed’s Classic Ginger Mule, launched in June 2020, has encouraged the company to launch two new RTD products. The Stormy Mule, a take on the rum-based “Dark & Stormy,” will be launching soon and the completion of the first production run of Hard Ginger Ale will increase Reed’s exposure in the RTD alcohol market.
“To-date, we have authorizations from 20 retailers totaling over 2,000 stores and anticipate rolling out products to our first retailer during Q2, Snyder said on Monday. “We feel good about where we stand with the consumer and our competitiveness for wallet share, especially at a time when inflation is impacting the consumer.”
Prior to the end of the quarter, the ginger beverage maker completed a new round of financing. About $11.3 million was added to the company’s coffers through a private placement of convertible notes.
The hope is that the extra cash will cushion the company as it strategizes its growth into 2023. The share price was down to around $0.20 on Wednesday, about $0.72 less than a year ago.