Reed's (REED) Tops Q2 EPS by 1c, Revenues Beat

Reed's (NASDAQ: REED) reported Q2 EPS of ($0.03), $0.01 better than the analyst estimate of ($0.04). Revenue for the quarter came in at $10.9 million versus the consensus estimate of $9.8 million.

Highlights for the Second Quarter of 2020

• Net sales increased 14% to $10.9 million in the second quarter compared to $9.5 million in the prior year. The increase compared to the prior year reflects increased sales of both the Reed’s® and Virgil’s® brands, including impact from recent launches of new product innovation.
• Core brand gross sales increased 14% versus prior year period primarily driven by strong 19% volume growth of the Reed’s® brand;
• Gross profit increased 31% to $3.0 million compared to $2.3 million in the prior year period. Gross margin increased 350 basis points to 27.5%;
• Operating loss narrowed to $1.4 million compared to $4.1 million in the second quarter of 2019;
• Net loss improved to $1.8 million, or $0.03 per share, compared to $4.5 million, or $0.13 per share, in the prior year period; and
• Non-GAAP Modified EBITDA loss improved to $1.4 million in the second quarter of 2020 compared to a Modified EBITDA loss of $3.4 million in the prior year.

Management Commentary

“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. 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. We continue to see a positive response to our Reed’s® Real Ginger Ale™, Reed’s® Extra Zero Sugar, and Reed’s® Wellness Ginger Shots as well as an encouraging initial response to our new Ultimate Ready-to-Drink Mule With A Real Ginger Kick, which launched late in the quarter. COVID-19 has impacted the pace of new distribution for new products as retailers have delayed resets as they focus on keeping up with increased demand and we expect to be in a position to fulfill our new product distribution opportunities as the retail environment normalizes,” stated Norman E. Snyder, Chief Executive Officer of Reed’s, Inc. “Our efforts to build out our supply chain and co-packer network was a vital aspect of our success during the second quarter as the entire industry is facing increased demand for supplies with a reduced work force as a result of social distancing measures impacting capacity across the industry. Further, supply of cans and bottles, and some ingredients, has tightened given these industry dynamics impacting the pace of our gross margin expansion. However, we continued to thrive in the challenging environment. Additionally, we worked hard this quarter to moderate spending as we navigated these unchartered waters of the pandemic, improving our cash flow profile and improving financial flexibility. We remain confident with our brands and are so proud of the Reed’s team and our partners who are working diligently to make sure we can deliver on the significant opportunity ahead of us despite the challenges of operating during COVID-19.”

Full Year 2020 Guidance

The Company is maintaining its fiscal 2020 outlook. The Company continues to expect to generate core brand growth of approximately 10% and continues to anticipate a gross margin of 32% or greater for the full year 2020. The primary risk to gross margin guidance is the level of ingredient, packaging and production costs, which are difficult to forecast given the impact to industry-wide costs as a result of COVID-19. Fiscal 2020 guidance reflects year-to-date business trends, including the ongoing operating environment related to COVID-19. The COVID-19 pandemic and its related impacts create many incremental potential business risks, including potential impacts to the Company’s ability to access raw materials, production, transportation and/or other logistics needs, as well as potential inflation related to all aspects of supply chain and logistics, which cannot be reasonably estimated and are not factored into current fiscal 2020 guidance.

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