FARMER BROTHERS CO Q2 FY2024 earnings call

• Transition from direct ship business to sole focus on direct store delivery with positive momentum on operational and financial fronts.
• Second quarter results showed improvements in gross margin and adjusted EBITDA; gross margin expanded 550 basis points and rose above 40% for the first time in over a year.
• Plans to continue rightsizing the business, reducing SKU counts, brand consolidation, and consolidating roasting operations to improve efficiency and margins.
• Project Symphony to improve customer experience with enhanced point-of-sale management tools and new customer relationship management system.
• Focus on customer retention and growth through better supply chain execution, brewing equipment/service, and adding innovative on-trend products.

Net sales for the second quarter of fiscal '24 were $89.5 million, an increase of $600,000 compared to $88.9 million in the prior year period. Gross margin expanded 550 basis points year over year to 40.4% from 34.9%. Adjusted EBITDA for the quarter was $2.3 million, an increase of $4.5 million compared to a net loss of $2.2 million in the same period a year ago. Capital expenditures for the quarter were $3.3 million, with fiscal '24 capital expense expected to be between $12 million and $15 million. Revenue contribution details weren't specified beyond the overall net sales figures.

• Anticipate additional gross margin upside as majority of older higher-cost inventory is sold, aiming for sustainable gross margin in excess of 40%.
• Goal to be free cash flow positive by early fiscal 2025.
• Enhance top-line sales by having the right product in the right place at the right time to better leverage cost structure.

• Potential challenges in fully realizing gross margin improvement targets.
• Risks associated with executing SKU rationalization and brand consolidation effectively.
• Uncertainties in customer retention and growth despite positive trends observed.

Q: Asked about revenue, volumes, customer retention, utilization of DSD assets, SKU rationalization timeline, and inventory working capital.

A: John Moore and Brad Bollner responded that customer churn rate is leveling off, sales infrastructure is helping, SKU rationalization is underway with 60% reduction in traditional and premium tiers, and inventory working capital potential exists but clouded by TreeHouse interactions currently