Coffee Holding Co., Inc. announced its operating results for the three and nine months ended July 31, 2018.
Net Sales. Net sales totaled $23,439,903 for the three months ended July 31, 2018, an increase of $5,460,835, or 30.4%, from $17,979,068 for the three months ended July 31, 2017. Net sales totaled $67,717,019 for the nine months ended July 31, 2018, an increase of $12,318,481, or 22.2%, from $55,398,538 for the nine months ended July 31, 2017. The increase in the Company’s net sales reflects its continued increased sales of branded and private label coffee and wholesale green beans to both new and existing customers.
Cost of Sales. Cost of sales for the three months ended July 31, 2018 was $19,648,710, or 83.8% of net sales, as compared to $14,903,594, or 82.9% of net sales, for the three months July 31, 2017. Cost of sales for the nine months ended July 31, 2018 was $56,263,183, or 83.1% of net sales, as compared to $46,469,896, or 83.9% of net sales, for the nine months ended July 31, 2017. The increase in cost of sales was due to the Company’s increased sales and sales generated by the Steep & Brew acquisition which results were not included in the three and nine months ended July 31, 2017.
Gross Profit. Gross profit for the three months ended July 31, 2018 was $3,791,193, an increase of $715,719 from $3,075,474 for the three months ended July 31, 2017. Gross profit as a percentage of net sales decreased to 16.2% for the three months ended July 31, 2018 from 17.1% for the three months ended July 31, 2017. The decrease in gross profits resulted from the increase in freight and shipping costs, the Company’s integration of Steep & Brew and changes in the coffee prices, which resulted in the Company’s recognition of approximately $1,170,000 of unrealized hedging losses during the quarter ended July 31, 2018. Gross profit for the nine months ended July 31 2018 was $11,453,836, an increase of $2,525,194 from $8,928,642 for the nine months ended July 31, 2017. Gross profit as a percentage of net sales increased to 16.9% for the nine months ended July 31, 2018 from 16.1% for the nine months ended July 31, 2017. The increase in gross profits resulted from increased and improved margins on the Company’s wholesale and roasted business, partially offset by the change in the coffee market and the increase in freight and shipping costs.
Operating Expenses. Total operating expenses increased by $626,875 to $3,522,518 for the three months ended July 31, 2018 from $2,895,643 for the three months ended July 31, 2017. Total operating expenses increased by $1,372,428 to $9,416,580 for the nine months ended July 31, 2018 from $8,044,152 for the nine months ended July 31, 2017. The Steep & Brew new expenditures was the result of the Company’s continued reinvestment in its growth and expansion strategy.
Net Income. The Company had net income of $15,690 or $0.00 per share basic and diluted, for the three months ended July 31, 2018 compared to net income of $32,800, or $0.01 per share basic and diluted for the three months ended July 31, 2017. The Company had net income of $957,926 or $0.17 per share basic and diluted, for the nine months ended July 31, 2018 compared to net income of $410,319, or $0.07 per share basic and diluted for the nine months ended July 31, 2017. The changes in net income were due primarily to the reasons described above.
“We are pleased to report a fifth consecutive quarter of revenue growth. Our net sales totaled approximately $23.4 million for the three month period ended July 31, 2018 versus approximately $18.0 million for the same period in the prior year. This 30.4% net sales increase includes approximately $2.8 million in sales from Steep & Brew, which was acquired by Generations Coffee Company, the entity formed as a result of our joint venture with Caruso’s Coffee, Inc. Without Steep & Brew, our growth for our organic sales was still 14.6% in the period. Our revenues would have been higher if not for the fact that the coffee market slipped to five-year lows during the reporting period. The collapse of 21% in the price of coffee had a materially depressing effect on both our revenues and profitability. The collapse in coffee prices during this period can be attributed to a number of external factors; tariff concerns, a collapse in emerging market currencies, most notably the Brazilian real and an all-time record short position built up during the period by the non-commercial funds. In fact, the short fund position amassed by the non-commercial funds is as large as the total record Brazil Arabica crop for this year. These distortions in the price of the commodity contributed to an end quarter unrealized loss on our open futures position of $528,000, or approximately $0.10 per share versus a realized gain in the prior period of $600,000, or approximately $0.11 per share. We believe that this unrealized loss is not representative of our performance during this period as the contracts which are marked to market for GAAP purposes at the end of quarter represent strong long term value for our coffee contracts. We will be using these contracts to conduct our future business and convert to finished product or sell to our wholesale green coffee customers for the balance of 2018 and the first half of 2019.
