Investors have had good reason to be pessimistic about Beyond Meat's (BYND -1.79%) stock in recent months. The company reported surprisingly weak sales trends in each of its last two quarterly announcements, and these pressures suggest more than just a modest growth hangover compared to soaring demand for plant-based meat products in earlier phases of the pandemic.
Consumers seem less willing to try its meat substitute offerings at the grocery store, which might signal weaker demand at restaurant chains.
Beyond Meat in February predicted that demand will improve throughout 2022 as it ramps up its marketing and the pace of its product launches. That forecast will see its first big test when the company announces its Q1 earnings results in just a few days.
Let's take a closer look at what investors will be watching in the May 11 report.
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Retail sales
The big question heading into the announcement is whether consumers are still as excited about plant-based meat products as they were back in early 2021 when the pandemic was spurring big changes in shopping behavior. That enthusiasm was missing from Beyond Meat's previous report, which showed a jarring 20% drop in retail sales in the core U.S. market.
CEO Ethan Brown said at the time that the slump was likely "an aberration," brought on by a temporary lull in marketing and product releases, rather than a signal of fundamentally lower demand ahead. Beyond Meat accelerated its launches and its in-store tastings and promotions over the following weeks. We'll learn on Wednesday whether this strategy worked. Most investors are expecting sales to rise by about 4% after falling 1% in the previous quarter.
Price increases
Beyond Meat's demand challenges might be amplified by the fact that inflation is accelerating. Sure, larger industry giants like PepsiCo (NASDAQ: PEP) have reported success at raising prices through early 2022. However, Pepsi is enjoying historically strong demand for its packaged food brands, and so it hasn't struggled to increase prices in line with rising costs. Beyond Meat's sales trends aren't as strong, and its business isn't nearly as efficient as Pepsi's yet.
BYND Gross Profit Margin data by YCharts
That's why investors will be watching profitability metrics like gross profit margin and operating profit margin for signs of more stress. Gross profit margin appeared to be climbing toward 40% of sales but has collapsed to 25% of sales over the last several quarters. Management warned in late February that these trends might worsen over the next few quarters before they start improving again in the second half of 2022.
A new outlook
Heading into this report, Beyond Meat's 2022 forecast calls for sales to rise by between 21% and 33% this year, to as high as $620 million. That's a wide range that implies plenty of uncertainty about demand trends. The low end of that forecast would signal a tougher growth path ahead, too.
Wednesday's report should clarify that short-term outlook, now that Beyond Meat has seen how consumers responded to new product releases over the last several weeks. We'll find out if the recent demand slowdown was just a temporary speed bump or if instead it was the growth spike in 2020 and early 2021 that was the aberration.
