Sow Good Inc. (SOWG)·Q1 2025 Earnings Summary

Executive Summary

• Q1 2025 revenue was $2.48M, gross margin 45%, adjusted EBITDA $(0.79)M, and diluted EPS $(0.23); sequentially, revenue rose 79% vs Q4 2024, but declined sharply year-over-year due to intensified competitive pressure .
• Liquidity actions included exchanging near-term notes into 5-year maturities with conversion features (holder option at ~$0.62–$0.63), while quarter-end cash was $1.62M; management also shifted portions of senior salaries to stock to conserve cash .
• Retail momentum: launches and displays at Albertsons, everyday launches at Winn-Dixie, Ace, Orgill; reorders building with Five Below and hardware channels; door count ~1,900–2,000, with units-per-door trending higher in recent weeks .
• Outlook: management expects Q2 to be modestly better than Q1, with second-half acceleration driven by category expansion (freeze‑dried yogurt snacks, jerky) and new caramel products .

What Went Well and What Went Wrong

What Went Well

• Gross margin improved to 45% (vs 41% YoY and −88% in Q4), reflecting lower COGS as a percentage of sales and stabilization after prior inventory reserve headwinds .
• Retail expansion and reengagement: “successful everyday launches at Winn‑Dixie, Ace Hardware, and Orgill… Holiday launches at Albertsons,” with targeted promotions and reorders (e.g., Five Below added Caramel Crunch in June) .
• Cost discipline and automation: ~$400K overhead reduction in Q1 and two custom automated packaging machines reducing labor costs and breakage; targeting an additional ~$100K savings in Q2 .

What Went Wrong

• Revenue declined to $2.48M from $11.41M YoY amid competitive pressure from large CPG entrants and low‑quality imports affecting trial and shelf velocity .
• Inventory remained elevated at $21.14M; management is working down heat‑affected SKUs (sweet worms, Peach Perfect) and redeploying inventory via promotions and overseas channels .
• Cash burn: operating cash flow was $(2.00)M in Q1; cash fell to $1.62M, prompting note exchanges and salary stock conversions to bolster near‑term liquidity .

Financial Results

Segment breakdown: not disclosed .

KPIs

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “We’re encouraged by the progress we made in the first quarter of 2025… successful everyday launches at Winn‑Dixie, Ace Hardware, and Orgill, as well as Holiday launches at Albertsons.” — Claudia Goldfarb, CEO
• “We’re encouraged by the continued momentum in the first quarter of 2025 with a 79% increase in revenue from the fourth quarter of 2024.” — Claudia Goldfarb
• “Subsequent to quarter end, we entered into exchange agreements… new notes maturing 5 years… convertible… with such conversion prices ranging from $0.62 to $0.63.” — Brendon Fischer, executive
• “We reduced overhead by approximately $400,000… implemented two custom‑designed automated packaging machines… reducing labor costs and increasing speed and consistency.” — Claudia Goldfarb

Q&A Highlights

• Sell‑through velocity improved: weekly units per door rose from ~12–13 to 16; Circana data showing steady improvement; targeted promotions cleared excess retail inventory at Five Below and HEB .
• Retail doors: ~1,900–2,000 at quarter end; expanding across hardware and grocery channels .
• Inventory: heat‑affected SKUs largely contained to sweet worms and some Peach Perfect; 2‑year shelf life supports orderly workdown; exploring overseas channels to accelerate clearance .
• Competitive dynamics: small competitors exiting; big CPG entrants’ sell‑through underperforming expectations; quality and freeze‑dry expertise cited as differentiators .
• Liquidity: active cash management via salary stock conversion and note exchanges; priority on converting inventory to cash to improve balance sheet .

Estimates Context

• S&P Global consensus coverage for Q1 2025 appears limited; no consensus EPS or revenue retrieved for Q1 2025. Prior quarters show meaningful variance vs consensus (notably Q4 2024). Values with asterisks were retrieved from S&P Global.

Notes: Values retrieved from S&P Global.* Q1 2025 consensus estimates were unavailable.

Implications: Q4 2024 was a significant miss vs consensus on revenue and EBITDA, reflecting promotional activity, inventory reserves, and deleverage; Q1 2025 lacks consensus but shows sequential recovery amid ongoing competitive headwinds .

Key Takeaways for Investors

• Sequential stabilization: revenue +79% QoQ with gross margin recovery to 45% indicates operational progress, though absolute revenue remains depressed vs prior year .
• Liquidity watch: low cash and negative operating cash flow drove proactive note exchanges and compensation stock conversions; near‑term execution on inventory‑to‑cash conversion is critical .
• Retail catalysts: expanding footprint (Albertsons displays, hardware channel, Winn‑Dixie) and improving units‑per‑door support gradual recovery; new caramel products and upcoming yogurt melts/jerky add innovation optionality .
• Competitive narrative: management sees waning novelty of big CPG launches and points to quality/assortment differentiation; monitor sell‑through data and reorders to validate .
• Margin trajectory: positive gross margin trend vs Q4 deleverage; continued occupancy costs and volume sensitivity imply near‑term margin variability until scale returns .
• Q2 setup: company guides qualitatively to modest sequential improvement; trading focus on confirmation via reorders, hardware/grocery rollouts, and inventory cleanup progress .
• Risk management: elevated inventory and tight liquidity remain key risks; note conversions extend runway, but execution on working capital and disciplined OpEx will dictate durability .