Pplant-based food company tattooed cook (NASDAQ: TTCF) had a bumpy 2021, its first year as a public company. Sales were lower than management had originally expected at the start of 2021, while cost inflation such as freight and higher sales of private label products reduced gross profit margins.
The stock market has become more volatile over the past year and investors are less likely to give unproven companies the benefit of the doubt. It’s time for Tattooed Chef to ring the bell and answer these three burning questions for 2022.
Will revenues exceed forecasts this year?
Tattooed Chef started out as a food packer, making food products for other brands. However, Sarah, the daughter of CEO Sam Galletti, a tattooed chef, joined the company in 2017 and created her own brand of plant-based frozen food products, such as burritos, pizzas and burgers. This is how the Tattooed Chef brand became the focal point of the company. The company is based in California but includes several facilities, including in Italy where the company grows most of its ingredients.
As a relative newcomer to plant-based food, investors naturally want to understand how well Tattooed Chef’s products are doing with consumers. Management points out that distribution has grown rapidly. In 2020, the company had 4,000 outlets across just four retailers. A year later, Tattooed Chef had 14,000 outlets across 160 retailers. This is a massive increase, literally multiplying the company’s footprint in the market.
Given that Tattooed Chef made 73% of its sales through three national retailers in 2021, there should be plenty of room for these new distribution partners to flourish.
So why is the company so conservative for 2022? Management expects revenue of $280 million to $285 million, a 34% year-over-year growth at the upper end of the forecast. That’s a solid increase, but the company grew revenue by nearly 44% year-over-year in 2021, so I wouldn’t blame anyone for expecting more growth given the additional cast added .
Perhaps management is setting a low bar to cross after falling short of its early guidance in 2021. Investors will get some answers in the coming quarters, but I would have liked to see revenue growth holding up better. Management said its five manufacturing plants can support $600 million in revenue capacity, so it doesn’t appear to be holding back growth.
Will profit margins stabilize?
Tattooed Chef wasn’t the only one facing margin pressure in 2021; gross margin was 10.4% of revenue in 2021, a notable decline from 14.6% in 2020. Management pointed to skyrocketing freight and shipping container costs as one of the main reasons for the decline in gross profit margins.
Additionally, the company recently made two acquisitions, buying New Mexico Food Distributors and Belmont Confections — and low-margin private label products made there have also hurt margins. The gross margin forecast for 2022 was 10% to 12%, which seems reasonable because no one knows how long inflation will persist.
Factories are more profitable when operating at full capacity than when they are not, so investors will want to look for profit margins to improve as new facilities come online and sales efforts hit them. will give orders to fill. Again, it’s probably too early to judge the company on its declining margins, but it’s something investors should watch.
Tattooed Chef will he raise funds?
Perhaps the most burning question is whether the company will need to raise funds soon. The company only went public in December 2020, so raising money so soon wouldn’t be ideal – especially when the share price has been battered, making any potential stock offering all the more dilutive. for shareholders.
Management noted in its quarterly report that it has $185 million in cash and cash equivalents, enough to fund the company’s needs for “at least” the next 12 months. It certainly seems right. You can see below how the company’s free cash flow burn has been around $68 million over the past year.
This cash burn could increase in 2022 based on management’s plans for additional capital expenditures, including $20 million for factory automation and an additional $27-32 million in marketing spend. Is the business growing revenue fast enough to keep pace with these expenses? Investors will find out over the next few quarters. Otherwise, the company’s cash balance could drop a bit in 2022 and put a cash boost on the table for year-end or beyond.
Takeaway for investors
Tattooed Chef is a young growing company. This usually comes with some growing pains, and it looks like management is addressing some of those challenges right now. The ultimate cure for investors is business execution, and Tattooed Chef has the potential for a strong 2022.
The stock has a lot of long-term potential; it operates in a plant-based food industry that management predicts will be worth more than $160 billion by the end of the decade. Whether or not Tattooed Chef can grab some of that remains to be seen.
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Justin Pope has no position in any of the stocks mentioned. The Motley Fool owns and endorses Tattooed Chef, Inc. The Motley Fool has a Disclosure Policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.