Reed's (NYSE: REED) reported Q3 EPS of ($0.10), versus $0.00 reported last year. Revenue for the quarter came in at $10.8 million versus the consensus estimate of $10.25 million.

• Net Sales declined 1% to $10.8 million from $10.9 million in the prior year, reflecting private label sales shift to fourth quarter and comparison to strong shipment load in ahead of last year’s price increase. Core brand gross sales increased 3% driven by Virgil’s and favorable pricing across both core brands;
• Gross profit increased 30% to $2.7 million from $2.1 million in the prior year period. Gross margin increased 590 basis points to 25% from 19% in the prior year period. Excluding discrete items related to accruals and inventory revaluation, the gross margin would have been 29%. This quarter’s gross margin also included an approximate 160 basis point impact related to the Company’s increased investment in slotting to support the launch of Virgil’s Zero Sugar;
• Operating loss narrowed to $2.1 million from $3.0 million in the prior quarter. Third quarter operating loss included $0.5 million of discrete accruals and charges to costs of goods sold and incremental investments in sales and marketing to support new product launches and future sales growth;
• Net loss was $2.7 million or $0.10 per share compared to $5.6 million or $0.37 per share in the prior year period.

Management Commentary

“We are pleased with our progress on our transformation initiatives to improve our business and financial model. We generated continued core brand gross sales growth reflecting our enhanced focus on our core brands and transformation efforts over the last year,” stated Val Stalowir CEO of Reed’s, Inc. “We are very pleased with the retailer and consumer response to the Virgil’s brand refresh and launch of Zero Sugar and velocities on the Zero line are approaching levels of our more established SKU’s. We have laid the groundwork for the new branding of Reed’s and have begun sell-in of the new Zero Sugar offerings and can packages. We have accelerated the Virgil’s brand to double digit growth and we look forward to a similar impact on our flagship Reed’s brand when our new high impact packaging and new products hit the shelves in 2019. We have seen a material increase in our gross margins since the beginning of our transformation and margins are now at a level that can support continued investment in our brands. We are optimistic margins will further improve over time, and we have identified additional gross margin enhancements, including capturing scale efficiencies related to the recent introduction of cans and exiting the LA production facility by year end. As we near the completion of repositioning our company to an “asset-light” sales and marketing focused organization, we have begun to accelerate our sales and brand building efforts.”

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