Laird: Online Headwinds, Inflation Cut Q2 Net Sales -6%

Laird Superfood is downgrading its full-year guidance after announcing that net sales dropped 6% year-over-year to $8.7 million during Q2 2022, citing structural headwinds in online channels in addition to inflationary pressures.

During the second quarter of 2022, online sales, including Amazon, accounted for 60% of total net sales, an 11% decrease from the same period in 2021. The company attributed the decline to reduced working marketing spend and elimination of free shipping on orders under $40. Driven by continued expansion in grocery and growth in club business, net sales in the wholesale channel increased 4% year-over-year, contributing 39% of net sales.

The Sisters, Oregon-based brand, founded by big wave surfer Laird Hamilton in 2015, produces a portfolio of function-forward plant products, including creamers, coffees, drink mixes and, most recently, a line of snack bars featuring 10 grams of protein from a blend of pea, hemp and pumpkin seeds.

In a press release, Jason Vieth, who joined Laird Superfood as president and CEO in January, said the company is “encouraged by early progress on key initiatives to drive growth in Wholesale as well as optimizing our cost structure.”

Despite challenges with heightened inflationary pressures and lower net sales, Vieth highlighted Laird’s 33% improvement in operating cash flow. He noted that the company’s balance sheet “remained strong” with nearly $25 million of cash and no debt.

“We are operating in an unusually uncertain economic environment with the highest inflation rates in decades, particularly in food and fuel, which has created more pressure on margin mix and operating costs than we had anticipated in the beginning of the year,” Laird Superfood said in the release. “We expect these trends to continue in the second half of this year and are accordingly updating our guidance for the full year 2022.”

Gross profit was significantly down in Q2 to $1.6 million from $2.2 million the previous year, while gross margin was 18.2% of net sales compared to 23.8%. The company attributed the decline to a combination of elevated promotional discounts (free shipping on orders under $40), and inflation in raw materials, packaging and shipping costs.

Although operating expenses this quarter experienced a 23% decline to $6.5 million from $8.5 million from the previous year, Laird Superfoods is not immune to the impact of the ongoing supply chain crisis. In Q1 2022, the company reported operating expenses of $15.9 million compared to $7.2 million in 2021.

Laird took out approximately $1 million in the overhead structure it had in place and kicked off a number of R&D product development cost initiatives, Vieth said during the Canaccord Genuity Annual Growth Conference on Thursday. The company also reformulated some of its existing products, removing non-value ingredients that are not resonating with consumers. On the shipment side, it has reduced costs by reorganizing the process to include automation – increasing the number of packages sent to DTC and wholesalers.

Net loss was $4.9 million during the quarter, down from $6.3 million in the prior year period. Adjusted net loss was $6.3 million, the same as it was in the prior year period.

“Despite a challenging environment, we are executing our plan, and I am pleased by the early progress that this team is making to structure our business for restored sales growth and improved profitability,” Vieth said during the earnings call on Wednesday. “In future quarters, I expect to be able to discuss our continued build out of a true omni-channel business with a more balanced revenue mix.”

Looking ahead, the company outlined three key steps its plans to execute its strategic priorities: realigning new sales brokerage partners across all classes of the retail trade while increasing prices where appropriate and implementing a $40 threshold for free shipping in the D2C channel; rebuilding its marketing agency ecosystem and creative content across social media, Amazon and email; and streamlining operations through targeted process improvement and organizational efficiencies to match supply capability and anticipated demand. Born as a DTC brand, Laird Superfood’s greatest potential now lies in the wholesale channel, according to Vieth.

“The opportunity now to expand from D2C out into a real omnichannel business in the wholesale world, various retail channels, from Costco to club to mass grocery, is really untapped for us,” the CEO said during the Canaccord Genuity Annual Growth Conference.

Following the Q2 2022 earnings call, Laird has adjusted its guidance for the full year 2022, projecting net sales to come in the range of $36 million to $38 million. Gross margin for full year 2022 is currently estimated at 20%. Last quarter, Laird had project net sales of $41 million to $44 million for the full year 2022.

Vieth also highlighted the newest product reformulation/innovation: Laird plans to work with multiple copackers to transition its creamers from a required refrigerated product to an aseptic product that can be stored in a refrigerated space. The company’s key sellers across all channels include hydration products, creamers and coffee products. Although the company is built for powder and dry, refrigerated creamer currently makes up 90% of the category.

“A number of competitions have been able to do [this] so we’re in talks with multiple co-packers to do that, which can transform the P&L for us really quickly,” Vieth said.