Reed’s, Inc. (REED) announced its first quarter financial results for the period ending March 31, 2008. During the first quarter, Reed’s focused its sales efforts onto mainstream grocery store accounts.
The company recognized the need to reduce expenses in this period of economic uncertainty and rising fuel costs, and implemented a cost reduction strategy that should reduce operating expenses by approximately $300,000 each month starting in April 2008, with an annualized savings equaling $4 million. The company also increased prices on select items to help offset rising commodity prices and to keep their prices in-line with other natural sodas in the market.
Chris Reed, Founder and CEO, commented, “We delivered revenue growth in excess of 18%, in a challenging consumer environment, led by the strength of our core Reed’s and Virgil’s product lines and our continued expansion into mainstream grocery stores. We attribute our top-line success to the newly implemented sales strategy in which we have re-focused our sales efforts on strengthening our presence in the estimated 10,500 supermarkets nationwide. In addition, our sales force in making progress in leveraging our success in natural foods grocery stores to establish new relationships with mainstream grocery accounts.”
Reed’s reported first quarter net sales of $3,564,100 versus $3,012,690 for 2007. The 18.3 percent increase was driven by the increases in the Reed’s Ginger Brews and the Virgil’s line of products. The introduction of the Virgil’s diet soda line, along with an increase in sales of the Virgil’s 5 liter party keg, Virgil’s Root Beer, Virgil’s Cream Soda and Black Cherry Cream Soda, were the main reasons for the growth in the Virgil’s sales. Additional sales were also due to the agreements with new mainstream distributors and increased sales from existing distributors.
Gross profit decreased to $519,813 in 2008 compared to $539,622 in 2007. The reduction in gross margin can be attributed to the increased production costs at its main co-pack production facility and increased delivery costs. Co-pack production costs are the company’s largest expense, and to reduce these costs Reed’s is in the process of evaluating alternative facilities.
Reed’s currently has over $4 million of unencumbered inventory and receivable assets. The company anticipates having sufficient current assets to meet its needs to the end of 2008 without raising additional equity. When the overall market improves, the company may consider an equity raise to accelerate its plans to expand. Based on its level of receivables and inventory, the company estimates that it can obtain a $3 million line of credit if necessary.
Mr. Reed also stated, “In addition to driving top-line growth, during the first quarter we identified gross margin expansion opportunities by increasing prices on certain items so they are more in-line with competitors in the natural soda category and implemented a cost reduction strategy that more properly aligns our sales force with our growth opportunities. We expect to recognize the positive effects of these actions beginning in the second quarter, and sustaining throughout 2008, with gross margins improving above current levels, and a reduction in 2008 annual operating expense by approximately $3 million which includes $2 million from sales force reduction savings.”
During the second quarter of 2008, Reed’s will continue to focus on increasing sales to its existing supermarket accounts and sign an estimated 3500 additional accounts. The company will also approach additional regional mainstream distributors to deliver the beverage lines. The second quarter should reflect the company’s efforts to reduce its general, administrative and sales costs.
Reed’s expects second quarter sales to increase by about 20 percent compared to the same period in 2007. Along with the cost reduction plans that are already in place and the increased number of distributors, the company should see improved numbers for the next quarter.
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