Earnings call transcript: Reed’s Inc. faces revenue decline in Q2 2025

Reed’s Inc. reported a challenging second quarter of 2025, with net sales declining to $9.5 million from $11.9 million the previous year. The company faced significant headwinds, including lost retailer placements and increased operating expenses, resulting in a net loss of $6 million or -$0.13 per share. The gross margin dropped sharply to 8% from 32% last year. Reed’s stock showed a modest increase of 4.55% despite the disappointing financial results, though it’s worth noting the stock has gained nearly 68% year-to-date according to InvestingPro data. The platform’s analysis indicates the stock may be currently overvalued.

Key Takeaways

• Net sales declined by 20% year-over-year.
• Gross margin decreased significantly due to inventory write-offs.
• The company launched a new functional soda line, expanding distribution.
• Reed’s is focusing on rebuilding retailer relationships and optimizing its product portfolio.

Company Performance

Reed’s Inc. experienced a tough quarter, with a 20% drop in net sales compared to the same period last year. The decline was primarily due to lost placements at key national retailers, a trend that has been challenging for the company. Despite these setbacks, Reed’s is actively working to expand its distribution and product offerings, notably through the launch of a new functional soda line.

Financial Highlights

• Revenue: $9.5 million, down from $11.9 million last year.
• Gross Profit: $800,000, significantly lower than $3.8 million a year ago.
• Gross Margin: 8%, down from 32%.
• Net Loss: $6 million or -$0.13 per share.
• Modified EBITDA: -$2.9 million.

Outlook & Guidance

Looking forward, Reed’s aims to restore key retailer placements and focus on sales growth in its core product lines. The company plans to improve margins and continue investing in the functional beverage space. Recovery in retailer relationships is expected to be gradual. With a market capitalization of $51 million, analysts maintain a $2.00 price target for the stock, suggesting potential upside. For deeper insights into Reed’s valuation and growth prospects, check out the comprehensive Pro Research Report available on InvestingPro, which includes detailed analysis of the company’s financial health and market position.

Executive Commentary

"We’re rebuilding key relationships, and while it takes time, we’re encouraged by the foundation we’ve established," said Cyril Wallace, CEO. He added, "We’re having positive conversations with retailers." CFO Doug McCurdy noted, "We put a little bit tighter rein on trade spend and managing that going forward."

Risks and Challenges

• Continued loss of retailer placements could further impact revenue.
• Elevated delivery costs may strain margins.
• Inventory management issues could lead to further write-offs.
• The challenging retail environment could hinder recovery efforts.
• High operating expenses remain a concern.

Q&A

During the Q&A session, analysts focused on the operational challenges from 2024 and the revenue decline due to lost placements. The company acknowledged these challenges and emphasized its commitment to rebuilding retailer relationships and managing trade spend effectively.

Full transcript - Reed’s Inc (REED) Q2 2025:

Dennis/Annes, Conference Call Operator, Reed’s: Good morning, and welcome to Reed’s Second Quarter twenty twenty five Earnings Conference Call for the Three and Six Months Ended 06/30/2025. My name is Dennis, and I’ll be your conference call operator for today. We will have prepared remarks from Sir Wallace, Reed’s Chief Executive Officer and Doug McCurdy, Reed’s Chief Financial Officer. Following their remarks, they will take your questions. Before we begin, please take note of the company cautionary statement.

Today’s call will include forward looking statements, including statements about Reed’s business plans. Forward looking statements inherently involve risks and uncertainties and only reflect management’s view as of today, 08/13/2025, and the company is under no obligation to update them. When discussing results, the presenters may refer to non GAAP measures, which exclude certain items for for reported results. Please refer to Reed’s second quarter twenty twenty five earnings release on Reed’s investor website at investor.reedsinc.com and its quarterly report on Form 10 Q for the period ended 06/30/2025, expected to be available on the website soon for definitions and reconciliations of non GAAP measures and additional information regarding results, including discussion of factors that could cause actual results to materially differ from forward looking statements. I will now turn the call over to Mr.

Wallace.

Cyril Wallace, Chief Executive Officer, Reed’s: Thank you, Annes, and good morning, everyone. We appreciate you joining us today to discuss our second quarter twenty twenty five results. We are in the early stages of strengthening our commercial execution and better positioning Reed’s for long term growth and profitability. Although we saw softer order volumes during the quarter, we are making meaningful progress in streamlining operations, refining our marketing approach and investing in channel development initiatives. We believe these efforts will help restore key placements and open new growth avenues in underpenetrated channels such as convenience and food service.

In Q2, we began to see downstream effects of last year’s supply chain disruptions, which impacted order volumes during the quarter. To mitigate further disruptions, we are investigating and sales personnel to rebuild key relationships and have taken steps to rebalance manufacturing to better align with updated demand forecasts. We believe these actions will better position us to recapture loss placements as retailers enter formal reset periods in the fall and spring. At the same time, internal execution is improving and we’re actively pursuing new distribution opportunities to diversify our channel mix and support long term growth. To support this initiative in July, we appointed Rachel Fox Greenwood as Vice President of On Premise Sales to lead our expansion into food service and convenience channels.

Rachel is a seasoned commercial executive with a proven track record of driving market expansion, forging strategic partnerships and building scalable programs across the beverage industry. She has held leadership roles at French Bloom, Catalina Wines, and Empire Merchants where she consistently delivered strong results in both on premise and retail environments. Her expertise will be instrumental as we broaden our reach, strengthen channel execution, and further elevate the Reed’s brand. Our growth strategy pairs channel expansion with ongoing product innovation. Our new Reed’s functional soda has been well received within the grocery and natural channel.

Velocity is steadily ramping and the most recent data has shown encouraging signs of acceleration. Consumer feedback also has led us to believe that our functional soda line will be successful in the months and years to come. Since launching in April, our team has amassed more than 9,000 points of distribution, including national distribution of Sprouts and placement at retailers such as Kroger, Don Carlisle, Hannaford, Duane Reade. In addition, Harris Teeter added all four of our functional SKUs chain wide, while National Co op Grocers or NCG incorporated the full lineup into its core assortment. Our formulations combine Reed’s signature bold flavors with functional wellness ingredients, including organic beer, prebiotic fiber, and adaptogenic mushrooms.

So far, we’ve seen encouraging traction on our root beer and berry bubbly skews. We’re currently working through our initial inventory as we prepare to roll out updated formulations later this year, incorporating feedback from both retailers and consumers. This measured approach reflects our focus on rebuilding sustained velocity in a competitive category. Our goal is to deliver a product that aligns with evolving better for you trends while staying true to Reed’s uncompromised committed to quality. We view the functional space as long term opportunity and we’ll continue to invest in the vertical as it grows.

Turning to our core product sales. During the quarter, our sales team continued to deliver solid commercial wins and build momentum across both new and existing retail partners. I’d like to highlight some of these wins. First, we reached a key milestone at Costco securing approval for our Reed’s Winter Ginger Ale Variety Pack. Based on current commitments, we anticipate product sales in the 2025 to reach the 7 figure range, a meaningful achievement for the brand.

At Safeway, we’ve built on the success of our Q1 secondary display program with expanded commitments for the second half of the year. Our sales team has secured over 25,000 cases of pre committed secondary displays scheduled to land in late Q3 and early Q4. This program spans both seasonal and everyday items and will be launched in more than 500 stores. We also completed a shipper program at Kroger placing over 500 displays across our legacy ginger beer and new functional SKUs. The program spanned five divisions and concluded in late Q2.

We’re encouraged by the results and we look forward to expanding our presence across the broader Kroger footprint. At Whole Foods Market, we’re preparing to execute our third consecutive year of national secondary displays. Set for September, the program will support our alcohol portfolio and reflects a strong long term partnership and consistent performance within the chain. Beyond these major retailers, we significantly grew our secondary distribution, securing meaningful displays at Sprouts, National Grocers, my Vitamin Cottage, and NCG, further reinforcing our presence in key natural and grocery channels. Finally, our direct to consumer channel advanced with the launch of our new website aimed at enhancing the user experience, deepening engagement with our customer base, and driving steady subscription based revenue growth.

While this sales channel represents a small portion of business today, we will continue to invest and it has become a larger contributor in the future. Now to dive into our second quarter operational highlights. During the quarter, we remained focused on executing the functional initiatives established earlier this year while adapting to evolving demand trends. Our priorities continue to center on improving execution, enhancing commercial capabilities, and driving efficiency across the organization. As a part of our efforts to align operations with current demand trends, we evaluated inventory and determined that 1,600,000 of write offs were necessary based on product portfolio optimization.

Although it’s impacted gross margin for the quarter, we believe it was an important step to improve inventory management and working capital efficiency and to ensure our manufacturing and supply chain resources are focused on high demand actively supported SKUs. On the logistics and supply chain front, we rebalanced inventory across regions to improve delivery efficiency and minimize out of stocks in key markets. While this led to elevated delivery and handling costs for the quarter, these investments are already enhancing service levels and better positioning us to support retail partners ahead of the fall reset period. We also continue to advance our transition from glass to cans across both Reed’s and Virgil’s portfolios. This initiative is driving greater savings through reduced freight costs and is receiving positive feedback from both retailers and consumers.

Looking ahead, our focus is on driving sales growth within our core Reed Virgil’s and portfolios, improving margins and positioning Reed for sustained growth and profitability. Rebuilding key relationships takes time, but we’re encouraged by the foundation we’ve established and believe we’re on the right path to drive sustained improvement in long term growth. Before wrapping up with closing remarks, our CFO, Doug, will cover financial highlights for the quarter in more detail. Doug, over to you.

Doug McCurdy, Chief Financial Officer, Reed’s: Thank you, Cyril. All Variant’s commentary is on a year over year basis unless otherwise noted. Net sales for the 2025 were 9,500,000 compared to $11,900,000 in the year ago quarter. The decrease was primarily driven by lower volumes with recurring national customers. Gross profit for the 2025 was $800,000 compared to $3,800,000 in the year ago period.

Gross margin was 8% compared to 32% in the year ago quarter. The decrease in gross margin was primarily driven by $1,600,000 of inventory write offs related to changes in product portfolio optimization made by new management. Excluding these inventory write offs, gross profit for the 2025 was $2,400,000 or 25% of net sales. Delivery and handling costs were $1,600,000 during the 2025, compared to $1,400,000 in the 2024. Delivery and handling costs were 17% of net sales or $2.83 per case, compared to 12% of net sales or $2.18 per case during the same period last year.

Selling, general and administrative expenses were $5,000,000 during the 2025 compared to $3,100,000 in the year ago quarter. The increase in SG and A was primarily driven by contract proceeding costs and our investments in personnel, marketing and related services to support growth initiatives. Altogether, operating expenses were $6,600,000 compared to $4,500,000 in the year ago period. Net loss during the 2025 was $6,000,000 or negative $0.13 per share, compared to $3,200,000 or negative $0.77 per share in the 2024. Modified EBITDA was negative $2,900,000 in the 2025, compared to $45,000 in the 2024.

For the 2025, we used approximately $5,000,000 of cash from operating activities compared to cash used of $900,000 for the same period in 2024. As of 06/30/2025, we had $2,700,000 of cash and $9,700,000 of total debt, net of deferred financing fees. This compares to $10,400,000 of cash and $9,600,000 of total debt, net of deferred financing fees at 12/31/2024. I will now turn the call back to Cyril for closing remarks.

Cyril Wallace, Chief Executive Officer, Reed’s: Thanks, Doug. While Q2 results were challenged, they highlight the important work underway to rebuild our foundation for sustainable long term growth and profitability. I’m encouraged by the alignment across our organization and believe we are well positioned to execute on our goals ahead. I look forward to sharing our continued progress later this year. With that, Anna is out.

We’re ready to open up the line for questions. Thank you.

Dennis/Annes, Conference Call Operator, Reed’s: Thank you, mister Wallace. Ladies and gentlemen, we now begin the question and answer session. Should you have a question, please press star followed by one on your touch tone phone. You’ll hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by 2.

One moment please for your first question. Your first question comes from Sean McGowan with ROTH Capital Partners. Please go ahead.

Sean McGowan, Analyst, ROTH Capital Partners: Hi, Sheryl. Hi, Doug. I wanna start with questions about revenue. I feel like this is the first time in many quarters where the story isn’t hey, we could have done better if we had money and if we had inventory. You had the money, you had the inventory, and yet not only are sales down, but you’re actually calling out losses of placement and declining orders at National REIT.

So what changed? Guess was it not really the money in the inventory? What has changed on the revenue side?

Cyril Wallace, Chief Executive Officer, Reed’s: Yes. Hey, Sean. I think, first of all, I appreciate the question. It’s a great question. I think what you’re seeing, with retailers, right, we had some challenges, call it, in 2024.

And I think this is just building, right, where we had operational challenges and we lost placements and sets in stores. And I think you’re seeing the continuation of that being put in a penalty box, so to speak, in which we’ve lost distribution and facing across some key retailers in which that is what you’re seeing. And so I think the steady the decline you saw in Q2 represents that impact from our operational challenges that maybe started back in 2024. Now the team is working to close you know, those voids and, you know, we’ve had some promising conversations with some retailers. But the the one of the things that I will highlight is that, you know, it’s very difficult.

Right? I think we all know, like, when you lose placements, you don’t just go back in just because we improved on our operational efficiencies overnight. That takes time, right, to rebuild. And also, there’s a window and period in which retailers will allow you to go back in to earn your way back to this space that generally happen in the spring and the fall. So I would say that we’re pushing toward trying to reclose those boys, but it’s certainly an area that in the short term has impacted our revenue.

Sean McGowan, Analyst, ROTH Capital Partners: Okay, Cheryl, I understand a lot of what the commentary in the past predates your tenure. But I don’t remember any of these calls somebody saying we lost placements. In fact, it was the opposite. It was despite not having the inventory and despite the sales decline and being late or whatever, we kept the placements. So this is the first I think I’m hearing that lost placements, which is just so what visibility do you have on when we could actually expect a sales recovery?

Cyril Wallace, Chief Executive Officer, Reed’s: Yeah. I mean, like I said, I think these are ongoing conversations that we’re having with retailers. And there’s a period in which you can regain these placements in sets. They happen in the spring and the fall. And so our teams are working hard in order to reclaim those placements and also get new placements as well too with our new functional line.

So it’s ongoing, Sean. I couldn’t give you a time period in terms of which it’ll take place, but we’re seeing and having some positive conversations with retailers.

Sean McGowan, Analyst, ROTH Capital Partners: Okay. Thank you. Looking at gross margin, even if you exclude the write off, the margin was below a year ago and below I think what you’d like to see it at. So what else is going on the gross margin line?

Cyril Wallace, Chief Executive Officer, Reed’s: Hey, Doug, you want to tackle that one?

Doug McCurdy, Chief Financial Officer, Reed’s: Absolutely. Sean, good morning. I think the key driver for gross margin being down obviously was the inventory write off. And as you point out Sean, excluding the inventory write off, we’re probably, I don’t know, eight or 10 points below where we would like to be in the mid-30s. The primary driver of being down was trade spends being higher than expected, higher than budgeted, and we’re managing that as we came out of second quarter.

We put a little bit tighter rein on trade spend and managing that going forward. So I would anticipate that you’ll see us move forward now that we’ve done some of the housekeeping with inventory and we’re focused on trade spend and certainly cost of goods sold and the production side as well. But I would imagine that you’ll see us get back to the 30s here soon.

Sean McGowan, Analyst, ROTH Capital Partners: Okay, thanks. That’s helpful. And then my last question is, maybe you could give more color on how delivery costs could be up so much when revenue is down. What’s the spending going on there?

Cyril Wallace, Chief Executive Officer, Reed’s: Yeah, think it ties directly to some of the work that the team is doing to ensure that we’re on time and full across you know, all of our customers. And the operations team has done a phenomenal job in making sure that we’re, you know, working directly with our sales team to pair our, you know, manufacturing manufacturing costs with actual forecast and demand. I think some of the challenges that you saw in Q2 is just with moving inventory from one part of the country to the other to ensure that we remain in on time and full. And so, as we continue to optimize our forecast on for East Coast and West Coast, I think those costs will continue to come down, right? Just making sure that we’re being very time full in where we’re placing manufacturing based on where the forecast is so that you don’t see that increase in enhanced shipping costs from one end of the country to the other.

Okay.

Sean McGowan, Analyst, ROTH Capital Partners: So we should expect that this is not indicative of the percent of revenue that we would see on that line going forward?

Cyril Wallace, Chief Executive Officer, Reed’s: That’s correct, Sean.

Sean McGowan, Analyst, ROTH Capital Partners: Okay. I guess another way to look at it is in the past, I think the company kind of declined to make some shipments rather than make shipments that might be less profitable. And now in order to keep in stock, you’re making decisions that might be suboptimal at the moment, but are better for satisfying customers. Is that the right way to look at it?

Cyril Wallace, Chief Executive Officer, Reed’s: That’s right. And I think mindset along with just ensuring that, you know, your your manufacturing product based on where the demand is so that you can minimize your shipping cost. But, yes, there is a full court press to ensure that we’re, you know, ensuring that we remain on time and and full with our customers.

Sean McGowan, Analyst, ROTH Capital Partners: Okay. Alright. Thank you very much.

Dennis/Annes, Conference Call Operator, Reed’s: Thank you, Sean. Ladies and gentlemen, as a reminder, if you have any questions, please press 1. There are no further questions at this time. I will turn it back to Mr. Wallace for some closing remarks.

Cyril Wallace, Chief Executive Officer, Reed’s: Okay. Thank you, operator. Thank you for joining this morning’s earnings call. On behalf of the entire team, I want to extend our sincere appreciation to our employees, customers, and shareholders for their continued support. We value your partnership and wish you all a great day.

Thank you.

Dennis/Annes, Conference Call Operator, Reed’s: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.

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