TAMPA, FLA. — Over the last six months, Better Choice Company, Inc., has appointed a new chief executive officer and finalized the appointment of its new chief financial officer, received a sizeable investment from super-premium pet food co-manufacturer Alphia, and announced layoffs that would impact 25% of its workforce. Clearly, the brand has been busy laying a foundation for profitability moving forward.

In the company’s second-quarter earnings report for the three-month period ended June 30, Better Choice detailed continued supply chain challenges and recent fulfillment delays, as well as sales successes for its Halo premium pet food brand.

Overall, the company reported $10.6 million in net sales in the second quarter, up 14% from the first quarter. Net loss totaled -$3.0 million in the second quarter, an improvement of 32% year-over-year. Operating loss was -$2.6 million, an improvement of 39% from year-ago, and operating profit margin was up 127 basis points year-over-year to -25%.

Earnings per share came in at a loss at -$0.10, an improvement of 33% year-over-year, and adjusted EBITDA was -$1.8 million, improved 14% from year-ago.

Direct-to-consumer sales for Better Choice accounted for 28% of total net sales over the quarter, which the company attributed to its “focused customer acquisition and revised promotional strategy” efforts. Roughly 70% of the company’s second quarter sales were fueled by Halo Holistic revenue in e-commerce and international markets.

“The second quarter was highlighted by our gross margin improvement and step change in operational discipline,” said Kent Cunningham, CEO of Better Choice, who was appointed to the leadership role in May. “The gross margin improvement of 640 basis points year-over-year [representing the first six months of 2023] was fueled by strategic pricing initiatives, and a 3% year-over-year improvement of average equivalized unit conversion and input costs in the first half of 2023.”

According to the company, e-commerce sales of Halo Holistic plant-based vegan and dry cat food products grew 21% and 28%, respectively, year-over-year. These products are also gaining dollar share online. The company did not provide details about its strategic pricing initiatives.

Second-quarter sales benefitted from point-of-sale growth and the company’s growing digital presence. Additionally, a renovation of the Halo brand, which took place in August 2022, has inspired an average consumer satisfaction product rating of 4.6 stars, Better Choice shared. The renovation included new formulations with functional benefits and higher levels of responsibly sourced proteins, as well as new packaging designs.

“Over the past 90 days, I have seen first-hand the passion of our people and the strength of our Halo brand,” Cunningham added. “The quality of our products is recognized by our consumers and customers, and the visible benefits of feeding our products are real. That said, we recognize the major areas of focus that our company must immediately address to improve our operations and financial controls, cost structure, and corporate culture to realize synergies across channels and geographies and lay the foundation for sustained profitable growth.”

Supply chain limitations for dry kibble softened year-over-year net sales comparisons for the second quarter and “impacted the business in the short-term,” Better Choice stated. The company also noted fulfillment delays from one of its co-manufacturers caused out-of-stocks across its Halo Elevate dog food brand and also slowed the launch of its Halo Elevate products for cats.

Thanks in part to a strategic partnership with Alphia inked in June, Better Choice is poised to avoid continued supply chain risks and expects to improve its gross margins. Alphia will co-manufacture Halo products for Better Choice as part of the two companies’ multi-year agreement. This transition, however, has caused delays for Better Choice’s foreign market registrations and, as a result, is hindering its short-term ability to launch into new markets.

“Keeping operational improvements at the forefront will continue to fuel our path to profitability and future growth trajectory,” Cunningham said. “Despite the significant and sustained out-of-stocks negatively impacting topline, our focus on operational and financial fundamentals will continue to improve EBITDA and operating margins for the remainder of 2023 and build momentum heading into 2024.”

Despite the supply chain challenges it encountered in the second quarter, Better Choice said it saw a 42% growth in sales from its largest international customer, and the company’s largest pet specialty customer also reported 55% revenue growth over the three-month period.

“In summary, while we experienced significant product supply headwinds in the quarter, we are positioning ourselves to build momentum in the remainder of 2023 as we transition production to Alphia, improve our capabilities firm-wide, and hold our teams accountable for results,” Cunningham said. “We believe our sustained improvement efforts across all levels of the organization will drive growth and accelerate our path to profitability — with the goal of increasing shareholder value over the long term. I look forward to recognizing that goal and unlocking Halo’s full potential.”

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