Beyond Meat (BYND -0.14%) makes and sells meat alternatives made from plants designed to imitate chicken, beef, and pork. As you can imagine, there's a cost to doing this. And for Beyond Meat, the cost is too great.

In 2022, Beyond Meat lost money. But a lot of companies lose money, especially when growing their businesses. However, in Beyond Meat's case, it had more direct costs in making its products than what it sold them for. And the magnitude of this problem might be the worst I've ever seen.

Beyond Meat's (lack of) gross profit

To make its products, Beyond Meat spends money on ingredients -- things like pea protein, faba beans, and coconut oil. But there are less obvious direct costs such as packaging, in-bound shipping, storage fees, and more. All of this is included in the company's cost of revenue. And subtracting cost of revenue from net revenue gives you the gross profit.

Expressed as a percentage of revenue, gross profit gives you the gross profit margin. And in Beyond Meat's case, it used to be stellar. In its first quarter as a public company (the second quarter of 2019), the company's gross margin was 33.8%, increasing from just 15% in the prior-year period.

At the time, then-CFO Mark Nelson said the improvements to Beyond Meat's gross margin were "due primarily to an increase in the amount of products sold resulting in operating leverage and production efficiency improvements." With rapid growth and gross margin improvements, it felt like this was a company on a market-beating path.

However, things have deteriorated rapidly for Beyond Meat. In 2022, the company generated net revenue of $419 million, exceeding its $298 million in sales in 2019. But Beyond Meat had a gross loss in 2022 of $23.7 million, which is a negative gross margin of 5.7%. As you can see below, gross margin was deeply negative in the third quarter of 2022 and still hadn't recovered into positive territory by the end of the year.

BYND Gross Profit Margin (Quarterly) Chart

BYND Gross Profit Margin (Quarterly) data by YCharts

I can't recall ever seeing a food products company at Beyond Meat's scale register a gross loss. And it's obviously not an achievement to shoot for.

What's going on with Beyond Meat?

As a shareholder, I've been watching the drop in gross margin for Beyond Meat. But I willingly gave it a long leash because the explanations sounded reasonably short-term. For example, during the COVID-19 pandemic, many of the company's food-service partners were closed. This forced the company to repackage its products for retail, which was a big increase to its cost basis.

Then in the third quarter of 2022, Beyond Meat's cost of goods sold jumped from $4.19 per pound in the prior-year period to $5.60 per pound -- an increase of $1.41. But $0.47 of this was from the launch of Beyond Meat Jerky alone, which seemed like a temporary expense to get this promising new product line going.

Perhaps my leash was too long because Beyond Meat's gross profit challenges are far more extensive than just quarterly one-offs. The company is facing higher shipping costs and higher labor costs. Moreover, consumer demand seems to be waning, causing it to not use manufacturing facilities to capacity and resulting in underutilization fees. 

Finally, Beyond Meat is lowering its prices in retail channels because its stated goal is to eventually underprice its animal-protein counterparts. But lower revenue per pound is contributing to its lower gross profit as well.

Can Beyond Meat turn it around?

In 2023, Beyond Meat's management is guiding for its gross margin to rebound. For the year, it's expected to be in the "low double-digit range." That would be well below what its margin was when the company went public in 2019. But it would be a huge improvement from 2022. And it's worth noting that it would still be dramatically higher than legacy competitors like Tyson Foods and Pilgrims Pride, as the chart below shows.

TSN Gross Profit Margin (Quarterly) Chart

TSN Gross Profit Margin (Quarterly) data by YCharts

However, Beyond Meat believes its revenue could fall in 2023 compared to 2022. Moreover, it still has high operating costs that will result in ongoing losses, using up cash. It's hard to get excited about an investment in a no-growth, profitless business even if its gross margin improves.

Additionally, I'm not entirely sure how attainable Beyond Meat's targeted improvements to its gross margin are. Management offered little detail on how it's going to make such a marked improvement. Therefore, I'm taking it with a grain of salt.

It's hard to make the case to buy Beyond Meat stock today. If its margins do indeed rebound in 2023 and surpass those of its peers, that would be a good thing. But I'd wait to invest until it actually does it and until there's reasonable optimism that it can get back to top-line growth.