Zevia's Margins Rise as Cost Discipline Fuels a Strategic Rebound

Zevia, the zero-sugar soda company betting on the “better-for-you” beverage market, reported a mixed yet strategically telling first quarter of 2025. While net sales dipped 2% year-over-year to $38 million, the company's focus on cost efficiency and margin expansion delivered a sharp turnaround in profitability. For investors, the results underscore a critical question: Can Zevia's operational discipline and reinvestment in marketing and innovation offset the headwinds of a slowing sales trajectory? The answer, at least for now, appears to be yes—but with caveats.

The most striking figure is the gross margin expansion to 50.1%, up from 45.7% in Q1 2024. This improvement was fueled by the “Productivity Initiative,” which slashed freight and warehousing costs, reduced severance expenses, and leveraged lower input costs. These savings allowed Zevia to redirect capital toward brand-building campaigns like its “Get The Fake Outta Here” push, which racked up 2.4 billion earned impressions. The strategy highlights a calculated trade-off: accept short-term sales volatility to invest in long-term brand equity.

The balance sheet tells a story of controlled spending. Selling expenses fell 25% year-over-year to 24.1% of sales, while general and administrative costs dropped to 18.4% of sales—a direct result of the company's focus on operational leaness. Meanwhile, marketing expenses surged to $6.2 million (16.2% of sales), up from just 7% of sales in 2024. This shift reflects a deliberate pivot: Zevia is prioritizing brand awareness over near-term sales growth.

But the challenges are clear. Sales declined due to lost distribution in club and mass retail channels, a reminder that execution in brick-and-mortar remains precarious. The company's 2025 sales guidance ($158–$163 million) hasn't budged from prior estimates, suggesting management isn't overpromising in an uncertain environment.

Investors should note that Zevia's stock—while down 15% year-to-date—has historically traded on margin trends, not sales growth. The narrowing net loss ($6.4 million vs. $7.2 million in 2024) and adjusted EBITDA improvement (down to $3.3 million from $5.5 million) signal progress. Yet the 2025 outlook includes tariff-related cost pressures, which could test the sustainability of these gains.

The company's strategic bets—new flavors like Strawberry Lemon Burst, partnerships with Walmart and Sprouts, and a “sugar-like” taste profile overhaul—are all aimed at reigniting top-line momentum. But the “better-for-you” beverage category remains fiercely competitive, with rivals like Coca-Cola's Coke Zero and Pepsi's Pepsi Max nipping at Zevia's heels.

For investors, the calculus is this: Zevia is positioning itself as a cost-efficient, margin-focused player in a $20 billion market with strong secular tailwinds. The question is whether its brand investments will translate into lasting consumer loyalty—or if the sales slump is a symptom of a deeper challenge in standing out.

Investment Takeaway: Zevia's margin improvements and disciplined reinvestment justify a “hold” rating for now. The stock could outperform if the company can stabilize sales through distribution wins and product innovation. However, investors should remain wary of macroeconomic pressures and the category's crowded landscape. For long-term believers in the “better-for-you” beverage boom, Zevia's operational turnaround makes it a stock worth monitoring—but not yet a buy.