Despite strong order demand from its retail partners, ginger beer producer Reed’s saw sales and profit declines in Q3 due to “repetitive” production limitations and short shipments, according to the company’s latest earnings report.
In the quarter ended Sept. 30, net sales plummeted 42.8% year-over-year to $6.8 million. Gross profit fell to $1.2 million compared to $4 million in the prior year period, with a gross margin of 18% versus 34%. Net loss also worsened to $4,150.
According to CEO Norman Snyder, the production and shipment limitations impacted the company’s net sales by more than $4 million. The inventory challenges, although materially reduced during the previous quarter, reemerged in Q3 due to restricted working capital.
“We’ve struggled with our balance sheet and building inventory for an extended period. [But] we now have a deleveraged balance sheet and the funding that we need in a structure that allows us to properly utilize the capital in the way it was intended,” Snyder told stakeholders during an earnings call this morning.
Last month, Reed’s majority stockholder, D&D, purchased all secured notes held by funds managed by Whitebox Advisors, LLC. Additionally, the company today closed a one-year revolving credit facility with Whitebox for an aggregate principal amount of $10 million.
The capital offers “more favorable and flexible terms” that align with the needs of the business and will be used to pay off the balance of the company’s existing revolving line of credit and increase its finished goods inventory levels, said Snyder.
With this added support, Reed’s hopes to be fully stocked by the end of the year so it can start 2025 with a full assortment of inventory on both coasts.
Although Q3 came with a fair amount of hurdles for the company, it was not without its bright spots. In aggregate, Reed’s has amassed 5,000 new points of distribution, with key partnerships including Whole Foods Market (Virgil’s Root Beer and Vanilla Cream) and Albertsons (Virgil’s Root Beer). According to Snyder, the company has had “a very short leash” due to its inventory constraints but has delivered and been proactive in its communication with retail partners.
The company is also gaining momentum in ecommerce, with monthly sales exceeding $70,000 for the past two months. Snyder said the growth reflects Reed’s targeted digital strategies and increasing consumer demand for convenient online purchasing options.
Additionally, the company continues to push new innovations, making progress with its new line of functional beverages featuring organic ginger, adaptogens, and lower sugar and calorie content. The products are currently in the final phases of development and are slated to hit store shelves next year.
The decision to launch a new product while struggling to meet current demand with its existing portfolio is based on anticipated reaction, said executives.
“Over the past year, we have closely collaborated with our key retail partners, many of whom have shared plans to significantly expand shelf space for the functional and better-for-you segment,” Snyder said during the earnings call. “Our ginger-based product aligns perfectly with this growing category [and] we expect to secure multiple authorizations for 2025.”
As a result of the inventory challenges faced to date, Reed’s has withdrawn its previously issued FY 2024 outlook. Still, the company remains confident in its growth potential.
“We are encouraged by the decisive steps we’ve taken to improve our balance and liquidity position. Our majority stockholder’s acquisition of the outstanding note obligations, paired with funding from a trusted partner, is a strong vote of confidence in our business and its potential,” said Snyder.