Reed's Posts 20 Percent Sales Drop in Q2

Key Points

• Revenue (GAAP) of $9.5 million in Q2 2025 fell 7.7% below analyst estimates and declined 20.2% from the prior-year period.

• Earnings per share (GAAP) of $(0.13) in Q2 2025 missed expectations and reflected a deeper GAAP net loss than a year ago, despite share count changes.

• Gross margin (GAAP) declined sharply to 8.0%, mainly due to a $1.6 million inventory write-off and higher operating expenses.

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Reed's (OTC:REED), a company known for its natural, handcrafted ginger beer and specialty sodas, published its second quarter 2025 results on August 12, 2025. The most notable news: revenue (GAAP) dropped to $9.5 million, missing analyst expectations of $10.29 million (GAAP), while earnings per share (GAAP) came in at $(0.13), wider than the expected $(0.04) (GAAP). Compared to the prior year, the company delivered lower GAAP net sales, thinner margins, and higher losses—highlighting both ongoing operational challenges and the costs of restructuring. Management cited a major inventory write-off of $1.6 million and rising expenses. The quarter underscored the company’s struggle to turn around falling sales and build sustainable profitability.

Source: Analyst estimates for the quarter provided by FactSet.

Business Overview and Core Focus

Reed’s produces and markets premium natural beverages, including ginger beers, root beers, and fruit sodas under the Reed’s and Virgil’s brands. The company is positioned in the healthier segment of the carbonated soft drink market, targeting consumers who prefer craft, clean-label, and lower sugar options. Its distribution network places products in more than 32,000 outlets across the United States, with additional reach in select international markets.

In recent years, Reed’s has focused on aligning with consumer demands by innovating new product lines, such as functional sodas that include adaptogens (herbs believed to help the body resist stress) and prebiotics (ingredients that support healthy gut bacteria). The company also emphasizes financial restructuring and expanding its retail reach. Key factors for success continue to include effective inventory management, margin improvement, and the ability to grow sales within core portfolios while controlling costs.

Quarter in Review: Financials, Operations, and Product Activity

The company’s results (GAAP) for Q2 2025 showed a notable downward shift compared to both expectations and the prior year. This was driven by lower order volumes from recurring national customers, according to management commentary. The gap to analyst forecasts was $0.79 million (7.7%) GAAP. On the bottom line, the loss per share (GAAP), while improved versus last year’s $(0.77) due to a far larger share count, came in below forecast at $(0.13). Modified EBITDA (non-GAAP) slipped into a loss of $(2.9 million) from nearly breakeven a year ago, indicating weakening operational efficiency after adjustments.

Margin deterioration was a key theme, as gross margin (GAAP) declined to 8% from 32% in Q2 2024. Gross margin (GAAP) collapsed to 8.0% from 32.0% in Q2 2024. A major factor was a $1.6 million inventory write-off, which the company described as necessary to optimize its product portfolio and improve future inventory management. Excluding this charge, the adjusted margin was 25%—still well below last year’s figure. Delivery and handling costs surged both in total and per-case terms, reaching $2.83 per case and accounting for 17% of sales versus 12% in Q2 2024. This highlights ongoing cost pressure in logistics and fulfillment.

Selling, general, and administrative (SG&A) expenses increased by about $1.9 million (61%), reaching $5.0 million (GAAP). Management attributed the rise to contract proceedings and investments in new personnel and marketing as it tries to rebuild growth. Despite these investments, total net loss (GAAP) was $(6.0) million, compared to $(3.2) million in the prior-year period. The company’s available cash (GAAP) was $2.7 million, down from $10.4 million as of December 31, 2024, while debt remained largely unchanged at $9.7 million. Operating cash burn totaled $5.0 million, up sharply from $0.9 million in Q2 2024. Working capital was also impacted by higher inventory levels, up by $5.1 million over the period.

On the product side, Reed’s continued to focus on its established Reed’s and Virgil’s beverage lines, rolling out new functional sodas as part of its effort to respond to evolving consumer health trends. Functional sodas are drinks containing ingredients such as adaptogenic mushrooms and prebiotic fiber, marketed for potential wellness benefits. The second quarter saw product placement and resets in several key retailers, but these efforts have yet to reverse recent sales declines. No specific numerical details on segment or product line performance were provided in the filing, but management reconfirmed intent to expand distribution into convenience and food service channels.

The inventory write-off—a reduction in the stated value of inventory—was a charge representing 16.8% of sales. Management argued it was a step toward better efficiency and SKU rationalization, which means reducing low performing items and focusing resources on high-demand varieties. While this move is intended to set up for future cost control, it had a severe effect on reported gross margin in the period and illustrated the challenges still facing the business in demand forecasting and operational planning.

Looking Ahead: Guidance and Investor Watch Points

For the remainder of fiscal 2025, Reed’s management did not issue any quantitative outlook or financial forecasts. Instead, it emphasized qualitative priorities such as growing core brand sales, improving margins, and executing on distribution expansion. There were no new statements about expected revenue, earnings, or cash flow performance in upcoming quarters. Plans for international growth, including expansion into Asia, were mentioned as part of a longer-term focus.

Investors should monitor cash reserves, cost control, and the speed at which new products gain market traction. Elevated SG&A and logistics costs, combined with continued cash burn, raise liquidity risks in the near term. The effectiveness of management’s efforts to restore sustainable sales growth, maintain tighter operational discipline, and close the profitability gap will likely be the key factors shaping results over the next few quarters.

REED does not currently pay a dividend.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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