Farmer Bros. Q4 2025: Contradictions Emerge in Operational Efficiency, Customer Retention, and Sales Strategy

The above is the analysis of the conflicting points in this earnings call

Date of Call: None provided

Financials Results

• Revenue: Q4 net sales $85.1M vs $84.4M prior year; FY25 net sales $342.3M vs $341.1M FY24
• EPS: Not disclosed (Q4 net loss $4.7M vs $4.6M prior year; FY25 net loss $14.5M vs $3.9M prior year)
• Gross Margin: Q4: 44.9%, up 610 bps YOY; FY25: 43.5%, up 420 bps vs prior year
• Operating Margin: Not disclosed

Guidance:

• No additional price increases planned in the near term.
• Gross margins expected to decline into the high-30% range over coming quarters as elevated green coffee costs flow through.
• FY26 to face pressure on top line and gross margin amid higher COGS and tariff uncertainty (including Brazil tariffs).
• Focus in FY26 on arresting volume declines, improving customer retention, and driving new customer acquisition via DSD network.
• Emphasis on enterprise accounts, white label growth, and leveraging Portland roasting capacity.

Business Commentary:

* Operational and Financial Improvements: - Farmer Bros. Co. reported gross margins above 43% and a more than $14 million year-over-year improvement in adjusted EBITDA for fiscal 2025. - These improvements were driven by significant operational efficiency gains, SKU rationalization, and brand positioning initiatives.

• Market Challenges and Consumer Purchasing Patterns:
• According to recent Commerce Department data, U.S. restaurants and bars saw one of the weakest six-month sales growth periods in the past decade during the first half of 2025.

• This downturn in overall foot traffic, coupled with a 65%+ rise in green coffee prices, presents a challenging market environment for the company.

• Leadership and Strategic Focus:

• Appointments of Brian Miller in Sales and Travis Young in Field Operations have separated responsibilities, allowing for heightened focus on respective areas and improving execution.

• This strategic focus is aimed at driving customer retention, reducing customer churn, and expanding the company's customer base.

• Technological Upgrades and CRM Implementation:

• Farmer Bros. Co. completed an upgrade of all hardware for route sales representatives and Revive team members, enhancing supply chain optimization and flexibility efforts.
• The launch of a new CRM tool in early fiscal 2025 has provided better customer analytics, enabling targeted product recommendations and improved supply and demand forecasting.

Sentiment Analysis:

• Management highlighted strong FY25 execution (Q4 gross margin 44.9%, FY25 43.5%; adjusted EBITDA up >$14M YOY; improved free cash flow), but warned: “we expect pressure on gross margins throughout fiscal 2026… expect gross margins to drop into the high 30% range” and “we expect pressure on our top line and gross margin in fiscal 2026.”

Q&A:

• Question from Eric Des Lauriers (Craig-Hallum Capital Group): Where are the biggest remaining opportunities for operational efficiency and margin improvement after completing the brand pyramid?
  Response: Pivoting from pricing to execution—new leaders in Field Ops and Sales will focus on reducing volume and customer count declines, leveraging DSD and white-glove service to drive retention and growth.

• Question from Eric Des Lauriers (Craig-Hallum Capital Group): How are order fulfillment and churn trending—are issues now mostly macro rather than internal?
  Response: Out-of-stocks have been largely solved via planning/procurement and SKU rationalization; improved fulfillment plus DSD white-glove service should reduce churn; remaining headwinds are more macro.

• Question from Gerard Sweeney (ROTH Capital): Can you drive penetration, reduce churn, and stabilize volumes in this tough environment?
  Response: Yes—de-emphasizing pricing actions that pressured retention, activating DSD for penetration and new customer acquisition, and targeting enterprise accounts where Farmer Bros.’ national scale is differentiated.

• Question from Gerard Sweeney (ROTH Capital): How much traction do you have with large restaurant groups—still early?
  Response: Already active across large and small accounts nationwide in multiple channels; there’s meaningful room to expand share.

• Question from Gerard Sweeney (ROTH Capital): Does splitting responsibilities let Sales focus more on large groups, and what about expanding allied products?
  Response: Yes—Sales is reoriented with KPIs/incentives for pure hunting; allied goods are already significant and will be cross-sold more aggressively using the good-better-best portfolio and DSD footprint.