Zevia PBC's Q1 Miss Masks Progress in Margins and Strategy

Zevia PBC, a plant-based beverage company, reported its first-quarter 2025 earnings with a net sales decline of 2% to $38 million—a $4.03 million shortfall from analyst expectations—and a GAAP EPS of -$0.08, missing by $0.02. While the top-line miss raised immediate concerns, the results also highlighted underlying strengths: gross margins hit a record 50.1%, adjusted EBITDA improved by $2.2 million year-over-year, and strategic initiatives such as distribution expansions and product launches suggest a path to future growth.

A Revenue Dip Amid Strategic Shifts

Zevia’s sales decline stemmed from increased promotional activity at retailers, lost distribution in club and mass merchandise channels, and the loss of one major customer. These headwinds were partially offset by strong performance in Walmart, where expanded distribution in the “Modern Soda” section and a top-selling variety pack drove growth. The company now has 4,300 Walmart stores carrying its products, alongside vertical brand blocks at Albertsons nationwide.

Despite the sales miss, management emphasized progress in brand awareness and customer engagement. Household penetration dipped to 5.0% from 5.4%, but dollar sales per household rose to $37.60 (from $35.81), and purchase frequency increased to 3.6 trips annually—up from 3.5. These metrics suggest Zevia is retaining and deepening relationships with existing customers, even as it faces challenges in attracting new ones.

Margin Gains Signal Operational Discipline

The star of the quarter was Zevia’s gross margin expansion to 50.1%, a 440-basis-point improvement from 45.7% in Q1 2024. This was driven by lower product costs, better inventory management, and savings from $13 million in annualized cost cuts implemented in 2024, plus an additional $2 million in 2025. CFO Girish Satya noted that margins in the “upper forties” are now sustainable, even as tariffs on aluminum—used in packaging—add 200 basis points of pressure.

The net loss narrowed to $6.4 million from $7.2 million in Q1 2024, while adjusted EBITDA improved to a $3.3 million loss. These figures reflect Zevia’s focus on cost discipline, including a 25.8% reduction in selling expenses (to $9.1 million) and a shift of redirected savings into marketing. The “Get The Fake Outta Here” campaign generated 2.4 billion earned impressions, fueling record social media engagement and positioning Zevia as a challenger brand in the crowded zero-sugar soda segment.

Strategic Bets and Risks Ahead

Zevia is doubling down on product innovation and distribution. New flavors like Strawberry Lemon Burst (its highest-rated SKU by purchase intent) and Orange Creamsicle (exclusive to Sprouts) aim to attract health-conscious consumers. Meanwhile, partnerships with retailers like Walgreens and Sprouts are expanding its footprint.

However, challenges remain. The loss of club-channel distribution (e.g., Costco) and rising aluminum tariffs threaten margins. Management plans to mitigate cost pressures through “price-pack architecture adjustments”—such as resizing bottles or tiered pricing—to maintain affordability without sacrificing profitability.

Investors responded positively to the margin improvements, sending shares up 10.8% after hours to $2.25. Analysts remain cautiously optimistic, with price targets ranging from $2.75 to $6.00.

Conclusion: A Company in Transition

Zevia’s Q1 results paint a mixed picture. While revenue struggles reflect macroeconomic and competitive headwinds, its margin gains and strategic investments in marketing and distribution offer hope for a turnaround. The company’s focus on affordability—its products are cheaper than 69% of North American non-alcoholic beverages—and its environmental mission (preventing 42 million plastic bottles from landfills in Q1 alone) align with growing consumer demand for sustainable, health-focused products.

The coming quarters will test whether Zevia can reverse its sales decline through Walmart’s expanded distribution, new product launches, and cost controls. If it can sustain gross margins in the mid-50% range while regaining lost retail partnerships, it may yet capitalize on its niche in the $40 billion U.S. soda market. For now, investors should monitor sales trends in Q2 and Zevia’s ability to offset aluminum tariffs—a critical test of its operational agility.

In the beverage industry’s zero-sugar arms race, Zevia has shown it can defend margins and innovate—but its path to top-line growth remains unproven.