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The Real Good Food Company, Inc. (NASDAQ:RGF): Navigating the Challenges of a Rapidly Evolving Frozen Food Market
Published on September 24, 2024 | Ticker: RGF

The Real Good Food Company, Inc. (NASDAQ:RGF) is a frozen food company that has carved out a unique niche in the health and wellness segment of the frozen food aisle. With a focus on developing high-protein, low-sugar, and gluten-free products, the company has positioned itself as a disruptive force in an industry traditionally dominated by less nutritious offerings.

Business Overview

The Real Good Food Company, Inc. was founded in 2016 with the mission of providing consumers with delicious, better-for-you frozen meals and snacks. The company's product portfolio includes a range of breakfast sandwiches, entrées, and other items, all of which are designed to cater to the growing demand for healthier frozen food options.

The company's products are primarily sold through natural and conventional grocery, drug, club, and mass merchandise stores across the United States. In addition to its retail presence, The Real Good Food Company also sells its products through its e-commerce channel, which includes direct-to-consumer sales as well as sales through its retail customers' online platforms.

Financials

For the fiscal year ended December 31, 2023, The Real Good Food Company reported annual net income of -$10,984,000, annual revenue of $141,588,000, annual operating cash flow of -$57,282,000, and annual free cash flow of -$61,007,000. These figures reflect the challenges the company has faced in navigating the rapidly evolving frozen food market, as well as the significant investments it has made in expanding its production capacity and brand awareness.

In the latest quarter, the company reported net sales of $55,565,000, a 48.0% increase compared to the same period in the prior year. This growth was driven by a combination of increased distribution points and higher unit sales in existing distribution points. However, the company's profitability remains a concern, with a net loss of $13,121,000 in the quarter.

Quarterly Performance

During the third quarter of 2023, The Real Good Food Company reported net sales of $55,565,000, a significant increase of 48.0% compared to the same period in the prior year. This growth was primarily driven by an increase in new distribution points and, to a lesser extent, an increase in units sold in existing distribution points.

Cost of sales increased by 22.9% to $43,977,000 during the quarter, due to the increase in sales volume. However, the company was able to offset some of these costs through improvements in manufacturing efficiency at its Bolingbrook plant and decreases in certain raw material costs, with the exception of a spike in chicken prices.

Gross profit for the quarter increased by $9.8 million to $11,588,000, reflecting the company's efforts to optimize its operations and manage costs. However, the company's profitability remains a concern, with a net loss of $13,121,000 in the quarter.

Selling and distribution expenses increased by 73.8% to $8,022,000 during the quarter, primarily due to inefficiencies related to the company's recent logistics consolidation initiative.

Marketing expenses increased by 39.1% to $2,308,000 during the quarter, as the company continued to invest in advertising and promotional activities to support its sales growth and brand awareness.

Administrative expenses increased by 64.8% to $10,122,000 during the quarter, driven primarily by increased research and development costs to support new product development, as well as higher equity compensation expenses.

Liquidity

As of September 30, 2023, The Real Good Food Company had $2,013,000 in cash and restricted cash, as well as $79,390,000 in outstanding borrowings under its revolving line of credit. The company's working capital surplus stood at $32,373,000, providing it with the financial flexibility to fund its ongoing operations and capital expenditures.

In October 2023, the company completed a registered public offering, which resulted in the issuance of 7,803,572 shares of Class A common stock and net proceeds of $15,400,000. This additional capital, combined with the company's existing cash resources and borrowing capacity, is expected to support its growth initiatives and help address its near-term liquidity needs.

Risks and Challenges

The Real Good Food Company operates in a highly competitive frozen food market, where it faces challenges from both established players and emerging competitors. The company's success is heavily dependent on its ability to continue developing innovative, high-quality products that resonate with health-conscious consumers. Additionally, the company is exposed to risks related to supply chain disruptions, commodity price fluctuations, and changing consumer preferences.

Outlook

The Real Good Food Company has not provided specific financial guidance for the upcoming fiscal year.

Conclusion

The Real Good Food Company is navigating a rapidly evolving frozen food market, where the demand for healthier, better-for-you options continues to grow. While the company has made significant strides in expanding its distribution and product portfolio, it faces ongoing challenges in maintaining profitability and managing its operational costs.

The company's recent public offering and focus on improving efficiency provide a glimmer of hope, but the path ahead remains uncertain. Investors will need to closely monitor the company's ability to execute on its strategic initiatives and capitalize on the growing health and wellness trend in the frozen food category.

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