South L.A. beverage company Reed’s Inc.’s annual report left its investors with a bitter taste.
Reed’s reported a net loss of $1.5 million for its fiscal year ended Dec. 31, compared with a net loss of $524,000 for the previous year. Working capital at the end of the year was nearly $1 million below where it was the year before, which also concerned investors. Revenue increased 28 percent, but significant spending on a new line kept the company in the red.
“We spent some money last year,” said Chris Reed, the company’s namesake founder and chief executive. “I think Wall Street would prefer to see a profit and they’re responding to that. We went backwards in their minds.”
Shares of Reed’s fell 29 percent March 26 to close at $5.65, making it one of the biggest losers on the LABJ Stock Index for the week. (See page 30.)
Reed’s is best known for its branded drinks such as Virgil’s Sodas, which make up 80 percent of its business. Sales of kombucha, a fermented tea drink popular among the organic food crowd, are only about 10 percent. However, Reed acknowledged that his company has devoted a disproportionate amount of resources toward growing its kombucha business.
“We launched the Reed’s kombucha line and we’ve been very committed to its success, spending pretty aggressively to grow it,” he said.
Reed’s has also been affected by executive departures, having lost both its chief financial and chief operating officers earlier this year. The company recently hired an interim chief financial officer and Reed hopes he will eventually fill the position on a permanent basis.
Reed mentioned in a Jan. 20 Business Journal article that large beverage companies, such as Corona drink manufacturer Monster Beverage Corp., had expressed interest in a buyout. He said that he continues to regularly field inquiries from big players in the industry as well as M&A bankers, but he’s not looking to sell.
Despite Wall Street dumping on his business last week, Reed remains optimistic that investors will come around to the company’s strategy in the long run.
“This is the most exciting year in the history of the business,” he said. “Whatever the stock’s doing now, it will eventually get religion.”
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