What happened
Shares of vegetarian packaged-food company Tattooed Chef (TTCF 4900.00%) fell on Tuesday after reporting financial results for the second quarter of 2022. Revenue was below expectations, and expenses are up. For these reasons, Tattooed Chef stock was down 10% as of 11:30 a.m. ET.
So what
In Q2, Tattooed Chef's revenue was up 15.6% year over year to $58.1 million. This was a sharp drop from the $72 million the company generated just last quarter. And its revenue was far below analysts' estimates of roughly $64 million.
Tattooed Chef remains very much in growth mode despite the revenue slowdown. In Q2, it added 35,000 new distribution points (grocery stores, etc.). It's still working on new products, as evidenced by completing its first run of oat butter bars. And it made improvements to its manufacturing facilities.
With all this growth activity, Tattooed Chef's operating expenses were unsurprisingly up 48% from the prior-year period, surpassing $24 million. And inflation also caused its expenses to go up, resulting in a lower gross margin.
Now what
For 2022, Tattooed Chef still expects to generate up to $285 million. But it lowered its gross-margin forecast to 8% to 10% due to inflation. It has almost $28 million in cash. But with its lowered profit guidance and ongoing expenses, it will likely continue eroding that cash position in the second half of 2022.
For this reason, it was good to hear that Tattooed Chef's $25 million line of credit was expanded to $40 million. With only $1.5 million drawn as of the end of Q2, this should be ample liquidity to make it through the year.
If demand for Tattooed Chef's products keeps growing, the company should gain operating leverage and justify what it's spent in the past year to grow its business. However, I would want to see more dramatic improvement on the bottom line in the second half of 2022 before thinking about buying shares.
