Charlotte's Web (CWBHF) Q2 2024 earnings summary

Executive summary

• Q2 2024 revenue was $12.3M, down 23.2% year-over-year, but showed the first sequential growth since 2021, driven by new product launches and expanded Walmart distribution.

• Gross profit fell 71% to $2.6M (21% margin), impacted by a $3.8M non-cash inventory provision and lower sales.

• Direct-to-consumer and business-to-business revenues both declined double digits year-over-year, but improved sequentially from Q1.

• Significant cost reductions, including a 25% decrease in SG&A, were implemented, with further expense cuts post-Q2 to support breakeven at lower revenue.

• Ongoing regulatory and inflationary headwinds continue to impact sales, especially for premium brands.

Financial highlights

• Q2 2024 net revenue was $12.3M, down from $16M year-over-year, but up from $12.1M in Q1.

• Gross margin was 21% due to a $3.8M inventory provision; adjusted gross margin was 52.2% (vs. 56.5% last year).

• Q2 operating loss was $12.1M; net loss was $11M or $0.07 per share.

• Cash and cash equivalents at June 30, 2024, were $32.5M, with working capital of $38.5M.

• SG&A expenses reduced 25% year-over-year to $14.7M, with further reductions expected to lower 2024 expenses by over $20M from 2023.

Outlook and guidance

• Cost structure realigned to target cash flow breakeven at $65M in annual net revenue, down from $85M at the start of 2024.

• Management expects further SG&A reductions and lower cash burn in the second half of 2024.

• Sufficient capital is available to meet near-term objectives, with growth expected to return in 2025.

• Gross margin modeled in the low fifties for the remainder of 2024, with improvement anticipated as in-house gummy production ramps up.

• Regulatory changes may impact product formulations, packaging, and revenue.