8-K: Zevia Announces Mixed Q2 2024 Results: Sales Dip Despite Productivity Gains

Zevia's second quarter 2024 results show a decrease in net sales despite exceeding guidance, with a net loss of $7.0 million, but the company is seeing positive retail growth trends and expects $12 million in annualized savings from its productivity initiative.

Summary

• Zevia reported a net sales decrease of 4.3% to $40.4 million in the second quarter of 2024, compared to $42.2 million in the same period last year.
• This decrease was primarily due to delays in recovering SKU level distribution, a lag from previous customer fulfillment issues, and lost distribution in the club channel.
• Gross profit decreased by 14.0% year-over-year to $16.9 million, with a gross profit margin of 41.9%, down 4.7 percentage points from the previous year.
• The decline in gross profit margin was mainly due to inventory write-downs, unfavorable cost of goods sold, and increased promotional levels.
• The company experienced a net loss of $7.0 million, compared to a net loss of $5.0 million in the second quarter of 2023.
• Adjusted EBITDA loss was $4.4 million, compared to an adjusted EBITDA loss of $2.6 million in the same quarter of the previous year.
• However, Zevia's productivity initiative is now expected to deliver $12 million of annualized savings.
• The company is reaffirming its full-year 2024 net sales guidance of $158 million to $166 million, and expects third-quarter net sales to be between $37 million and $40 million.
• Zevia had $28.9 million in cash and cash equivalents and no outstanding debt as of June 30, 2024, with an unused credit line of $20 million.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative. While the company exceeded sales guidance and sees positive retail trends, the overall financial results show a decrease in sales, gross profit, and an increased net loss. The reaffirmation of full-year guidance and cost-saving initiatives provide some optimism, but the current financial performance is concerning.

Positives

• Net sales exceeded guidance for the second quarter of 2024.
• Retail scan data shows accelerating growth trends through the quarter and into July.
• Zevia shopper spending levels continue to increase.
• New regional distribution partners are driving same-store sales improvement and opening outlets in new channels.
• Marketing efforts are showing increased efficacy with retail sales from key focus metros significantly outperforming.
• The productivity initiative is expected to deliver $12 million in annualized savings.
• The company has $28.9 million in cash and cash equivalents and no outstanding debt, with an unused credit line of $20 million.

Negatives

• Net sales decreased by 4.3% compared to the second quarter of 2023.
• Gross profit decreased by 14.0% year-over-year.
• Gross profit margin decreased by 4.7 percentage points compared to the second quarter of 2023.
• The company experienced a net loss of $7.0 million for the quarter.
• Adjusted EBITDA loss was $4.4 million, an increase from the $2.6 million loss in the same quarter of the previous year.
• Loss per share was $0.10 per diluted share, compared to $0.08 in the second quarter of 2023.

Risks

• The company is facing challenges in recovering SKU level distribution at retailers.
• There is a lag effect from customer fulfillment issues experienced in 2023.
• The company has lost distribution in the club channel.
• Inventory write-downs related to club-specific excess inventory impacted gross profit margin.
• Unfavorable cost of goods sold from higher unit costs and increased promotional levels are affecting profitability.
• The company is exposed to risks related to supply chain disruptions, changes in consumer preferences, and competitive pressures.
• There are risks associated with inflation, reliance on contract manufacturers, and potential legal proceedings.

Future Outlook

The company is reaffirming its full-year 2024 net sales guidance of $158 million to $166 million and expects third-quarter net sales to be in the range of $37 million to $40 million. They remain bullish on long-term growth opportunities due to a healthy brand, strong consumer demand, and an evolving route-to-market strategy.

Management Comments

• We delivered net sales above our guidance in the second quarter, and scan sales reflect accelerating retail growth trends through the quarter and into July, said Amy Taylor, President and Chief Executive Officer.
• Demand is healthy, and Zevia shopper spending levels continue to increase.
• With a healthy brand, strong consumer demand, and an evolving route-to-market strategy, coupled with increased marketing and product innovation in the pipeline, we remain bullish on our long-term growth opportunities.

Industry Context

The report indicates that Zevia is experiencing growth in the competitive carbonated soft drinks market, with recent retail scan growth for Zevia soda outpacing the category in both dollars and units. This suggests that Zevia's zero-sugar, clean-label beverages are resonating with consumers, despite challenges in distribution and profitability.

Comparison to Industry Standards

• While Zevia's retail scan growth is positive, the company's overall sales decline and net loss contrast with the performance of larger, more established beverage companies like Coca-Cola and PepsiCo, which typically report consistent revenue growth and profitability.
• Zevia's gross profit margin of 41.9% is lower than the industry average for established beverage companies, which often have margins above 50%.
• The company's focus on zero-sugar and natural ingredients aligns with a growing consumer trend, but its smaller scale and distribution challenges put it at a disadvantage compared to larger competitors with established supply chains and distribution networks.
• Companies like Celsius Holdings, which also focus on healthier beverage options, have shown strong revenue growth and profitability, indicating that Zevia has room for improvement in its operational efficiency and cost management.

Stakeholder Impact

• Shareholders may be concerned about the decrease in net sales and the increased net loss.
• Employees may be affected by the restructuring expenses, which include severance costs.
• Customers may benefit from the company's focus on product innovation and marketing efforts.
• Suppliers may be impacted by changes in the company's supply chain and distribution strategy.
• Creditors may be reassured by the company's cash position and unused credit line.

Next Steps

• The company will host a conference call to discuss the earnings release.
• The company will continue to execute its productivity initiative to achieve $12 million in annualized savings.
• The company will focus on improving SKU level distribution and addressing customer fulfillment issues.
• The company will continue to invest in marketing and product innovation to drive long-term growth.

Key Dates

Keywords

Zevia, Net Sales, Gross Profit, Adjusted EBITDA, Productivity Initiative, Retail Growth, Distribution, Beverages, Zero Sugar, Financial Results