Sign in

You're signed outSign in or to get full access.

TC

Tattooed Chef, Inc. (TTCFQ)·Q3 2022 Earnings Summary

Executive Summary

  • Q3 2022 missed on revenue and profitability: net revenue fell to $54.1M (-6.7% YoY) with gross margin at -7.2%, net loss widened to $38.5M ($-0.46 diluted EPS) and adjusted EBITDA loss was $25.5M .
  • Guidance cut materially: FY22 revenue lowered to $235–$245M (from $280–$285M) and gross margin to 0–3% (from 8–10%), driven by inflation, retailer resets, and higher contra-revenue (promotions/slotting) .
  • Management initiated ~$30M cost-reduction plan by YE2023 (marketing down ~$15M, automation ~$6M, cold storage ~$2M, trade spend ~$7M) and aims for positive EBITDA and operating cash flow by mid-2024 .
  • Operational pivots: first ~10% price increase on branded products in late September; Walmart reset expands shelf presence to 13 SKUs and ~2,000 stores (from ~300) in Q4; automation to double bowl line capacity .
  • Near-term stock narrative likely driven by the guidance cut, capital raise intentions, and execution on cost/automation while managing Tier-1 club headwinds and liquidity (cash $14.2M; ~$20M drawn on ABL) .

What Went Well and What Went Wrong

What Went Well

  • Expanded Walmart footprint: increasing frozen shelf SKUs from 5 to 13 and broadening distribution from ~300 to ~2,000 stores in Q4 2022 .
  • Automation and vertical integration progress: first automated bowl line installation to double capacity in the same footprint and reduce labor; cold storage insourcing supports margin improvement plans .
  • Brand engagement: management cites strong taste and loyalty metrics (86% top-box taste satisfaction, 57% brand loyalty) and continued product innovation into refrigerated and ambient categories .

What Went Wrong

  • Profitability deteriorated: gross margin fell to -7.2% (vs 8.6% YoY) with freight and labor rising to 34.1% of net revenue (from 24.9% YoY); net loss widened to $38.5M .
  • Revenue headwinds from Tier-1 club/retail account and higher trade spend: branded revenue -$10.3M YoY partly due to a ~$15M decline in Tier-1 club/retail and +$6.2M increase in contra-revenue including $1.2M higher slotting fees .
  • Guidance reset and liquidity tightening: FY22 revenue and margin cut; cash $14.2M with ~$20M drawn on the $40M ABL; intent to raise additional debt or equity capital near term .

Financial Results

MetricQ3 2021Q1 2022Q2 2022Q3 2022
Revenue ($USD Millions)$57.976 $72.064 $58.110 $54.115
Diluted EPS ($USD)$-0.10 $-0.22 $-0.32 $-0.46
Gross Margin %8.6% 11.3% 1.3% -7.2%
Net Income ($USD Millions)$-8.213 $-17.551 $-26.437 $-38.496
Adjusted EBITDA ($USD Millions)$-5.144 $-13.380 $-20.477 $-25.504

Operating details (Q3 2022):

  • COGS: $58.010M ; Gross loss: $-3.895M ; Operating expenses: $31.572M .
  • Freight and labor were 34.1% of net revenue (vs 24.9% in Q3’21) .
  • Non-GAAP: Adjusted EBITDA reconciliation provided; key add-backs include stock comp ($7.821M), FX forwards ($1.939M), unrealized FX ($0.900M) .

Segment/KPIs

ItemQ3 2021Q3 2022YoY Change
Branded Products YoY Change ($USD Millions)——-$10.3
Private Label & Other YoY Change ($USD Millions)——+$6.4
Trade/Contra-Revenue Increase ($USD Millions)——+$6.2 (incl. +$1.2 slotting fees)
Freight + Labor (% of Net Revenue)24.9% 34.1% +920 bps
Cash ($USD Millions)—$14.220—
Line of Credit Drawn ($USD Millions)—~$20.0—
Net Cash Used in Operating Activities ($USD Millions)—$17.2—
Capital Expenditures ($USD Millions)—$14.5—

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($USD Millions)FY 2022$280–$285M (Q2 reiteration) $235–$245M Lowered
Gross Margin %FY 20228–10% (lowered from 10–12% in Q1) 0–3% Lowered
Marketing Expense ($USD Millions)FY 2022$27–$32M $27–$32M Maintained
Capital Expenditures ($USD Millions)FY 2022~$20M ~$20M Maintained

Drivers of guidance cuts: inflationary costs (freight, labor, energy), Tier-1 club headwind, higher contra-revenue (including multi-vendor mailer reclassification to contra-revenue) .

Earnings Call Themes & Trends

TopicQ1 2022 (Prior-2)Q2 2022 (Prior-1)Q3 2022 (Current)Trend
Supply chain & freight inflationFreight $10M; margin cadence to improve with cold storage and automation Freight on finished goods ~$6.7M; gross margin cut to 8–10% Freight+labor at 34.1% of revenue; gross margin -7.2% Intensifying cost pressure, mitigations in progress
PricingNo increases yet; planning later in 2022 Low double-digit price increase planned for Q4 First ~10% branded price increase at end of September Implemented
Retail expansion & WalmartBroadening distribution; 16k+ stores National distribution wins; strong category momentum Walmart reset to core SKUs; expansion to 13 SKUs and ~2,000 stores Positive distribution mix shift
Tier-1 club headwindCostco seasonal strength, Q1 elevated Club promotions timing headwind Sam’s Club: fewer items/promos; ~$15M YoY decline Ongoing headwind, diversifying away
Automation/vertical integrationRobotics initiative; cold storage in-house Automation and robotics underway First automated bowl line; targeted ~$6M savings in 2023 Execution phase
Marketing spend & brand awarenessAggressive TV/social; awareness to 17% Heavy media buys; fastest distribution gains Plan to cut marketing ~$15M in 2023; shift to trade/influencer Refocus to ROI/near-shelf
Liquidity & financingBalance sheet sufficient 12+ months; ABL expansion contemplated ABL expanded to $40M, unused post-Q2 ~$20M drawn by Q3; intends to raise debt/equity Tightening liquidity; financing options

Management Commentary

  • “By year-end 2023, we believe that we can capture approximately $30 million of cost savings… and achieve positive EBITDA and cash flow by or around mid-year 2024.” — CEO Sam Galletti .
  • “The first line that we are automating is one of the bowl lines that will double the capacity in the same footprint, utilizing less labor.” — Operations update .
  • “Our first price increase of 10% on Tattooed Chef branded products took place at the end of September.” — CFO .
  • “We believe that these steps… will put us on a path towards sustainable growth and profitability.” — CEO .
  • “Taste delicious is the most important attribute… 86% of Tattooed Chef users rate the brand's taste and satisfaction in the top 2 boxes.” — CCO .

Q&A Highlights

  • Tier-1 headwind and durability: Management expects partial impact to persist into Q4, with improvements from Q1’23 and diversification away from reliance on any single customer .
  • Sales growth strategy with reduced marketing: Focus on optimizing existing portfolio and distribution gaps at core retailers (Target, Walmart, Kroger), shifting to trade/influencer and near-shelf programs .
  • Capital raise preferences: Open to debt or equity; will weigh dilution vs expected returns; multiple financing tracks being evaluated .
  • Liquidity plan: Strong ABL partner, inventory drawdown opportunities, potential equipment sales; targeted working capital actions .
  • Margin trajectory: Aim for positive gross margins in early/mid-2023, with details to be provided in FY guidance; near-term focus on execution of automation and pricing .

Estimates Context

  • Wall Street consensus via S&P Global for Q3 2022 revenue and EPS was unavailable for TTCFQ due to missing coverage/mapping; as a result, a direct comparison to Street estimates could not be provided [Attempted via S&P Global; unavailable].

Key Takeaways for Investors

  • Material FY22 guidance cut (revenue to $235–$245M; GM to 0–3%) underscores near-term margin pressure from inflation and retailer dynamics; expect narrative to hinge on execution of cost actions and pricing .
  • Cost-down plan (~$30M by YE2023) is specific and actionable (marketing -$15M, automation +$6M, cold storage +$2M, trade spend -$7M); monitor quarterly delivery vs plan .
  • Distribution reset at Walmart and focus on core frozen entree SKUs should improve velocities and mix; expansion to ~2,000 stores and 13 SKUs is a tangible catalyst .
  • Liquidity is tighter (cash $14.2M; ~$20M ABL drawn); management intends to raise capital; path to mid-2024 positive EBITDA/OCF requires consistent execution and likely external financing .
  • Q3 profitability degradation (gross margin -7.2%, adjusted EBITDA -$25.5M) reflected freight/labor at 34.1% of revenue and higher contra-revenue; pricing and promotional pullback expected to help in 2023 .
  • Diversification away from club and optimization at mass/grocery (Target/Kroger) should reduce sensitivity to any single account; track category resets and incremental SKU gains .
  • Watch for 2023 guidance clarity on margin inflection and capex cadence; automation timelines (Phase 2 by end of May 2023) are key to labor and yield gains .