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SG

Sow Good Inc. (SOWG)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 was a transitional reset with material non‑cash inventory charges driving extreme gross margin compression; revenue fell to $1.55M and net loss widened to $(10.9)M, while management advanced cost actions (> $5M annualized rent savings) and secured insider capital commitments, positioning for 2026 profitability .
  • Reported gross margin was (576%) due to ~$8.5M in non‑cash inventory reserves/write‑downs tied to discontinued SKUs; adjusted EBITDA was $(10.9)M .
  • Strategic wins include a private‑label Caramel Crunch partnership with a 600‑store national retailer (shipments in Q2 2026) and planned launches of two new SKUs in March 2026; international partners are expanding marketing support for 2026 .
  • Liquidity actions: $1M insider commitments (expected near term) and prior note exchanges; Q3 cash was $0.387M per 8‑K (note CFO’s call remark of “$387.3 million” appears to be a misstatement) .
  • Near‑term stock reaction catalysts: extreme gross margin headline from non‑cash charges, facility exits/gain on lease termination ($1.8M), and signals of private label/international growth vs. ongoing category and pricing pressures .

What Went Well and What Went Wrong

What Went Well

  • “We completed lease amendments on our Mockingbird and Rock Quarry facilities, resulting in more than $5 million in annualized rent savings while maintaining full production capacity through automation” .
  • First private‑label partnership signed with a 600‑store national retailer for Caramel Crunch; shipments begin in Q2 2026, aligning with clean‑label demand and vertical integration advantages .
  • International partners “substantially expanding influencer marketing and retailer marketing partnerships for 2026” to support the brand .

What Went Wrong

  • Q3 revenue decreased to $1.6M from $3.6M YoY, reflecting lower ASPs from closeouts of discontinued SKUs .
  • Gross margin collapsed to (576%) due to ~$5.3M non‑cash finished goods/material reserves and ~$3.2M overhead write‑downs tied to SKUs the company will no longer produce/sell .
  • Net loss widened to $(10.9)M; adjusted EBITDA deteriorated to $(10.9)M amid inventory charges, with cash ending at $0.387M, highlighting near‑term liquidity constraints pending capital commitments .

Financial Results

Quarterly comparison (oldest → newest)

MetricQ4 2024Q1 2025Q2 2025Q3 2025
Revenue ($USD)$1,383,985*$2,476,922 $1,856,312 $1,553,138
Diluted EPS ($USD)$(0.40)*$(0.23) $(0.36) $(0.90)
Gross Margin (%)(87.97%) 45% (7%) (576%)
EBITDA ($USD)$(3,870,014)*$(2,162,739) $(3,807,642) $(10,573,929)
Adjusted EBITDA ($USD)n/a$(790,718) $(2,694,394) $(10,895,446)
Total Operating Expenses ($USD)$5,497,990*$3,517,911 $3,944,196 $3,670,250

* Values retrieved from S&P Global.

Q3 year‑over‑year snapshot

MetricQ3 2024Q3 2025
Revenue ($USD)$3,554,157 $1,553,138
Gross Margin (%)16% (576%)
Net Income ($USD)$(3,379,909) $(10,935,484)
Diluted EPS ($USD)$(0.33) $(0.90)
Adjusted EBITDA ($USD)$(1,853,603) $(10,895,446)

Estimates vs. Actuals (Q3 2025)

MetricQ3 2025 ActualQ3 2025 Consensus (S&P Global)# of Estimates
Revenue ($USD)$1,553,138 n/a*n/a*
Primary EPS ($USD)$(0.90) n/a*n/a*

* S&P Global consensus unavailable.

KPIs and items impacting results (Q3 2025)

KPIQ3 2025
Non‑cash inventory reserves (finished goods/materials)$5.3M
Overhead write‑down on discontinued SKUs$3.2M
Gain on termination of leases$1.8M
Adjusted EBITDA$(10.9)M
Operating expenses$3.7M
Cash & cash equivalents$0.387M
Annualized rent savings (facility lease changes)>$5M
Payroll savings~$40K/month
Footprint reductionsMockingbird vacated (>50k sq ft), Rock Quarry to vacate by Jan (>320k sq ft)
Doors (reference from Q1)~1,900–2,000

Guidance Changes

MetricPeriodPrevious GuidanceCurrent Guidance/MessageChange
Return to profitabilityFY 2026n/aManagement expects return to profitability in 2026 New
Margin trajectoryMid‑2026n/aGradual margin improvement beginning mid‑2026 New
Private label – Caramel Crunch shipmentsQ2 2026n/a600‑store national retailer; shipments start Q2 2026 New
New SKUs (branded display)March 2026n/aLaunch 2 new SKUs; display with 10 top SKUs New
Working capital – insider commitmentsNear‑termn/a$1M insider commitments; formalization expected within ~1 week (as of call) New
Founder‑led funding aligned to digital asset strategyNov 2025 close expectedn/a$2M commitments (with $1M from founders) New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Cost structure optimizationQ1: ~$400K overhead cuts; automation; postpone certain equipment deployments . Q2: occupancy cost pressure; stabilization .Lease amendments and facility exits yield >$5M annual rent savings; payroll efficiencies (~$40K/month) .Strengthening cost discipline
Competitive landscapeQ1: Large CPG entrants pressured demand; quality/assortment differentiation . Q2: Softer demand from competition .Legacy SKUs slowing; demand shifting to innovative/clean‑label products .Pivot to innovation/clean label
Private label/adjacent categoriesQ1: Pursuing private label; yogurt melts; chews . Q2: Private label exploration continues .Signed 600‑store private label; evaluating yogurt melts expansion .Accelerating
International expansionQ1: Middle East launch; strong interest . Q2: UAE results exceeding expectations .Partners expanding 2026 marketing .Building
Liquidity/fundingQ1: Note exchanges; partial salaries in stock . Q2: Cash $1.0M .$1M insider commitments; $2M founder‑led commitments toward digital asset strategy .Ongoing actions
Facility footprintQ1: Deferring FreeStor and candy machines . Q2: Elevated occupancy costs .Mockingbird vacated; Rock Quarry to vacate by Jan .Footprint optimized
Clean‑label innovationQ1: Caramel Crunch clean‑label; vertical integration . Q2: Cotton candy taffy; innovation pipeline .Caramel Crunch vertical integration; clean‑label emphasis .Continued focus
Digital asset/treasury strategy—Advancing digital asset and partnership strategies to strengthen balance sheet ; $2M commitments .Emerging initiative

Management Commentary

  • “We completed lease amendments on our Mockingbird and Rock Quarry facilities, resulting in more than $5 million in annualized rent savings while maintaining full production capacity through automation and improved workflow design.” — Claudia Goldfarb, CEO .
  • “Revenue…was $1.6 million… Gross margin was negative 576%… attributable to approximately $8.5 million in non‑cash charges to inventory associated with discontinued SKUs.” — Donna Guy, CFO .
  • “We secured our first private‑label partnership with a 600‑store national retailer for our new Caramel Crunch SKU… Caramel Crunch is our first fully vertically integrated product… clean‑label confectionery.” — Claudia Goldfarb .
  • “We are advancing… digital asset and partnership strategies, designed to strengthen our balance sheet, diversify our funding base, and enhance long‑term shareholder value.” — Claudia Goldfarb .

Q&A Highlights

  • Insider funding: $1M commitment by founders; structure TBD, expected to formalize within ~a week .
  • Cash burn and expense run‑rate: Management noted monthly expense “about a $450–$550 range,” declining after Rock Quarry exit by January .
  • Break‑even visibility: Dependent on yields/throughput for Caramel Crunch; more clarity expected March/April .
  • Margin outlook: Caramel Crunch margins to improve in the latter half of 2026 as manufacturing is fine‑tuned and raw material savings realized .
  • Sales effort effectiveness: Expanded sales team driving private label opportunities (including yogurt melts) and non‑traditional retail expansion (Ace, Orgill) .

Estimates Context

  • S&P Global consensus estimates for Q3 2025 EPS and revenue were unavailable; comparison to Wall Street estimates cannot be made at this time.* Actuals: revenue $1.553M and diluted EPS $(0.90) .
  • Implication: In absence of formal consensus, buyside models should incorporate the non‑cash inventory charge impact on margins, facility savings timing, and expected 2026 product launches and private label revenue cadence .

* S&P Global consensus unavailable.

Key Takeaways for Investors

  • Q3 reset: headline margin collapse is largely non‑cash and SKU‑rationalization driven; underlying opex and footprint are improving with >$5M annual rent savings and payroll reductions .
  • Liquidity watch: cash at $0.387M with near‑term insider commitments; monitor timing/structure of $1M founder capital and $2M broader commitments, plus lease exits and working capital needs for 2026 launches .
  • Strategic mix shift: demand moving to clean‑label, vertically integrated SKUs; private label Caramel Crunch (600‑store) and branded launches in 2026 should diversify revenue and potentially improve margins over time .
  • Facility consolidation and automation: exits and lease amendments reduce fixed costs while sustaining capacity, providing operating leverage if volumes rebuild in 2026 .
  • Narrative shift: introduction of a digital asset/treasury strategy—evaluate governance, risk controls, and capital efficiency impacts before underwriting any valuation benefit .
  • 2026 setup: management guides to margin improvement mid‑2026 and return to profitability in 2026; path depends on execution of private label throughput, retailer uptake, and disciplined opex .
  • Near‑term trading lens: expect volatility around liquidity headlines and any financing formalization; upside catalysts include additional private label agreements, international sell‑through updates, and evidence of margin normalization post inventory clean‑up .