NATIONAL BEVERAGE CORP MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)

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OVERVIEW

National Beverage Company refreshes America in innovative ways with a distinctive portfolio of sparkling waters, juices, energy drinks (Power+ brands) and, to a lesser extent, soft drinks. We believe that our creative product designs, innovative packaging and imaginative flavors, along with our corporate culture and philosophy, make National Beverage unique in the beverage industry.

Our strategy is aimed at profitable growth of our products by (i) developing healthier beverages in response to changing global consumer buying habits and by adapting our beverage portfolio to the preferences of a diverse mix of “crossover consumers – a growing group desiring a healthier alternative to artificially sweetened and high calorie drinks; (ii) emphasizing the development and variety of unique flavors across our brands that appeal to multiple demographic groups; (iii) maintain points of difference through innovative marketing, packaging and consumer engagement; and (iv) respond more quickly and creatively to changing consumer trends than larger competitors who are burdened with complexity and legacy production and distribution costs.



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The majority of our brands are aimed at active and health-conscious consumers, including sparkling waters, energy drinks and juices. Our Power+ brand portfolio includes LaCroix® sparkling water products, LaCroix Cúrate® and LaCroix NiCola®; Clear Fruit® still water with fruit flavor; Rip It® energy drinks and shots; and Everfresh®, Everfresh Premier Varietals™ and Mr. Pure® 100% juice and juice products. Additionally, we produce and distribute soft drinks such as Shasta® and Faygo®, iconic brands whose consumer loyalty spans more than 130 years.

Currently, our main market focus is United States and Canada. Some of our products are also distributed on a limited basis in other countries and options to expand distribution to other regions are being explored. To serve a diverse customer base that includes many national retailers, as well as thousands of smaller “up and down the street” accounts, we use a hybrid distribution system consisting of warehouse and direct store delivery. The Warehouse Delivery System allows our retail partners to further maximize their assets by utilizing their ability to pick up products from our warehouses, further reducing their/our product costs.

Our results of operations are affected by many factors, including fluctuations in the cost of raw materials, timing of holidays and seasons, changes in consumer shopping habits and weather conditions. Beverage sales are seasonal with higher sales volume achieved during the summer months when outdoor activities are more prevalent.


RESULTS OF OPERATIONS


Three months completed July 30, 2022 (first quarter of fiscal 2023) compared to Quarter Ended July 31, 2021 (first quarter of fiscal 2022)

Net sales for the first quarter of fiscal 2023 increased by 2.1% to reach $318.1 million
of $311.7 million for the first quarter of fiscal 2022. The increase in sales is mainly due to a 10.2% increase in the average selling price per case partially offset by a 7.4% decrease in case volume. Lower volumes include a 9.7% decline in Power+ brands, primarily due to lower volumes in the sparkling water category and reduced consumer promotional activities.

Gross profit for the first quarter of fiscal 2023 decreased to $99.4 million
of $124.8 million for the first quarter of fiscal 2022. The decrease in gross margin is attributable to a 26.3% increase in cost of sales per case, partially offset by an increase in average selling prices per case. The increase in cost of sales per case is explained by the increase in packaging, mainly aluminum, ingredients and labor costs. Gross margin was 31.2% for the first quarter of Fiscal 2023 and 40.0% for the first quarter of Fiscal 2022.

Fiscal 2023 first quarter selling, general and administrative expenses decreased $1.5 million at $52.9 million of $54.4 million for the first quarter of fiscal 2022. The decrease is mainly due to a decrease in marketing expenses partially offset by an increase in shipping expenses. As a percentage of net sales, selling, general and administrative expenses decreased to 16.6% for the first quarter of Fiscal 2023 from 17.5% for the first quarter of Fiscal 2022.



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Other expenses – net include interest income from $24,000 for the first quarter of fiscal year 2023 and $48,000 for the first quarter of fiscal 2022. The decrease in interest income is due to changes in average invested balances.

The Company‘s effective tax rate, based on estimated annual tax rates, was 23.6% for the first quarter of fiscal 2023 and 23.5% for the first quarter of fiscal 2022 The difference between the effective rate and the federal statutory rate of 21% was primarily due to the effects of state income tax.

LIQUIDITY AND FINANCIAL SITUATION

Cash and capital resources

Our primary source of funding is cash generated from operations. To July 30, 2022we maintained $150 million unsecured revolving credit facilities, under which no borrowings were outstanding and $2.5 million was reserved for stand-by letters of credit. We estimate that existing capital resources will be sufficient to meet our cash and capital requirements for the next twelve months.

Cash flow

The Company’s cash position has increased $8.0 million during the first quarter of fiscal 2023. The Company reimbursed $30 million of outstanding debt during the quarter.

Net cash from operating activities for the first quarter of fiscal 2023 was $40.6 million compared to $56.7 million for the first quarter of fiscal 2022. Net cash provided by operating activities for the first quarter of fiscal 2023 was mainly provided by the net earnings of $35.5 milliondepreciation and amortization of $5.5 million and amortization of the right to use the assets of $3.2 millionpartially offset by changes in working capital and other accounts.

Net cash used in investing activities for the first quarter of fiscal 2023 reflects capital expenditures of $2.6 millioncompared to capital expenditures of $4.8 million for the first quarter of fiscal 2022. Certain production capacity and efficiency improvement projects are underway and expect capital expenditures in fiscal 2023 to be comparable to fiscal 2022 levels.

Financial situation

To July 30, 2022our working capital has decreased to $121.8 million of $129.2 million at April 30, 2022. The current ratio was 1.9 to 1 on both sides. July 30, 2022
and April 30, 2022. Trade receivables increased $6.7 million and exceptional day sales improved to 28.7 from 30.0. Inventories have fallen $13.0 million and inventory turnover remained at 9.9 times.

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