AIRPORT CITY, Israel-Rising expenses and reduced margins cut deeply into SodaStream’s second-quarter net income, which dropped 55.8 percent to $11 million.
Total operating expenses rose 10.9 percent in dollars and 300 basis points as a percentage of sales, to 46.1 percent. Part of this increase came from higher selling expenses as a result of SodaStream’s recently acquired Italian and Japanese distribution, offset by reduced advertising and promotion costs and share-based compensation expenses. Gross margin was down 308 basis points to 51.3 percent, primarily because of unfavorable changes in foreign currency rates, increased penetration of lower-margin soda makers and inventory writeoffs, partially offset by a higher share of carbon dioxide refills.
The rise in costs offset a 3.7 percent gain in sales in the quarter (which ended on June 30), to $259.3 million. Daniel Birnbaum, SodaStream’s CEO, noted that sales volumes in the United States were pressured as the company struggled to drive demand and as retailers worked through excess inventory left over from the holiday season. Total business in other areas posted “solid increases” in the quarter, Birnbaum said, as SodaStream’s product and marketing strategies led to increased household penetration.
“We are lowering our U.S. soda-maker sales projections for the back half of the year while we reposition our brand behind health and wellness, and refine our product line and marketing message to better promote this important consumer benefit,” Birnbaum said. “We are confident this strategy will have a positive long-term impact on our U.S. performance. Our revised plan for 2014 also includes operating expense reductions aimed at protecting profitability until growth trends improve.”