8-K: Zevia Reports Improved Q3 2024 Results Despite Sales Dip, Expands Walmart Distribution

Zevia's Q3 2024 results show a significant improvement in net loss and adjusted EBITDA year-over-year, despite a decrease in net sales, and the company has expanded its distribution to over 4,300 Walmart stores.

Summary

• Zevia's net sales for the third quarter of 2024 decreased by 15.6% to $36.4 million compared to $43.1 million in the same period last year, primarily due to lost distribution in the club channel and one mass channel customer.
• Despite the sales decline, the company's gross profit margin improved to 49.1%, up from 45.4% year-over-year, driven by lower inventory write-downs and favorable unit costs.
• Zevia's net loss improved significantly to $2.8 million, compared to a net loss of $11.3 million in the third quarter of 2023.
• Adjusted EBITDA loss also improved to $1.5 million, compared to a loss of $9.1 million in the same quarter last year.
• The company has expanded its distribution to over 4,300 Walmart stores, up from 800 previously.
• Zevia expects to achieve $15 million in annual cost savings through its Productivity Initiative, with the majority of these savings being reinvested in growth initiatives.
• The company anticipates a return to net sales growth in the fourth quarter of 2024, largely due to the expanded Walmart distribution.
• Full year 2024 net sales are now expected to be in the range of $154 million to $156 million, with fourth quarter net sales projected between $38 million and $40 million.
• Adjusted EBITDA losses for the fourth quarter are expected to be between $1.8 million and $2.2 million.

Sentiment

Score: 7

Explanation: The sentiment is moderately positive due to significant improvements in profitability metrics and expanded distribution, despite a sales decline. The company's forward-looking statements are also optimistic.

Positives

• The company has significantly reduced its net loss and adjusted EBITDA loss year-over-year.
• Gross profit margins have improved due to lower inventory write-downs and favorable unit costs.
• Zevia has successfully expanded its distribution network with a major increase in Walmart stores.
• The Productivity Initiative is expected to generate substantial cost savings.
• The company anticipates a return to net sales growth in the next quarter.
• Selling and marketing expenses have decreased as a percentage of net sales.

Negatives

• Net sales decreased by 15.6% year-over-year, primarily due to lost distribution in the club channel and one mass channel customer.
• The company experienced reduced volumes of 12.2% due to lost distribution.
• Increased promotional activity at retailers also contributed to the sales decline.
• The company is still operating at a loss, although the losses are significantly reduced.

Risks

• The company's ability to maintain and grow its brand is crucial for future success.
• The company faces risks related to supply chain disruptions and maintaining service levels.
• Changes in consumer preferences and pricing factors could impact sales.
• The company is exposed to competitive and governmental factors outside of its control.
• The company is subject to potential liabilities and costs from litigation, claims, legal or regulatory proceedings.
• The company is reliant on contract manufacturers and service providers.

Future Outlook

Zevia expects to resume net sales growth in the fourth quarter of 2024, driven by expanded distribution at Walmart, and anticipates achieving $15 million in annual cost savings through its Productivity Initiative, with the majority of these savings being reinvested in growth initiatives.

Management Comments

• We are very pleased to have delivered vast improvements in net loss and adjusted EBITDA, despite coming in slightly below our net sales expectations, said Amy Taylor, President and Chief Executive Officer.
• Looking ahead, we expect to resume net sales growth in the fourth quarter, in large part due to expanded nationwide distribution at Walmart.

Industry Context

The announcement reflects Zevia's efforts to improve profitability and expand its market reach in the competitive beverage industry, particularly in the natural soda category. The expansion into Walmart stores is a significant move to increase brand awareness and trial.

Comparison to Industry Standards

• While Zevia's net sales declined, the improvement in gross profit margin and reduction in losses are positive indicators, especially when compared to other companies in the beverage sector that may be struggling with similar supply chain and cost pressures.
• The expansion into 4,300 Walmart stores is a significant distribution gain, potentially placing Zevia in a stronger position compared to smaller competitors with limited retail presence.
• The company's focus on cost savings through the Productivity Initiative is a common strategy in the industry to improve profitability, similar to actions taken by other beverage companies facing economic headwinds.
• The adjusted EBITDA loss of $1.5 million is a significant improvement compared to the $9.1 million loss in the same quarter last year, indicating progress in operational efficiency, which is a key metric for investors in the beverage industry.

Stakeholder Impact

• Shareholders will likely view the improved profitability metrics positively, despite the sales decline.
• Employees may be impacted by the Productivity Initiative, which includes cost-saving measures.
• Customers will benefit from increased availability of Zevia products through expanded distribution.
• Suppliers may experience changes in demand due to the company's strategic shifts.

Next Steps

• The company will focus on executing its brand marketing strategy.
• Zevia will continue to build sustainable distribution expansion.
• The company will deliver product innovation in the natural soda category.
• Zevia will host a conference call to discuss the earnings release.

Key Dates

Keywords

Zevia, beverages, net sales, EBITDA, gross profit, distribution, Walmart, cost savings, loss, financial results