Royal Hawaiian Orchards LP swung to a $1.2 million loss in the third quarter as it continued to aggressively expand its new retail snack product line in Hawaii and the mainland.
The Hilo-based grower and processor of macadamia nuts said Tuesday its flavored nut products are now distributed in 3,000 retail stores and that it plans to broaden its reach into more stores the rest of this year and into 2014.
Royal Hawaiian, formerly known as ML Macadamia Orchards, has been shifting its business from nut-in-shell bulk sales to retail sales. The company said its expansion will require that it hold macadamias as kernel in inventory to support year-round retail sales. Partly as a result of that inventory holdback, revenue plunged 29.7 percent last quarter to $4.4 million from $6.3 million a year earlier.
The company, which had a $296,000 profit in the year-earlier period, also attributed last quarter’s loss to 41 percent fewer pounds produced in the Kau orchard this year due to weather conditions; higher costs for the retail product line; and a 27 percent increase in the average production cost per pound based on the company’s lower forecasted annual production estimate.
Royal Hawaiian warned that its inventory buildup and investment in retail shelf space will negatively affect near-term financial performance.
"The partnership believes that the benefits it will enjoy from its branded business will more than offset these short-term costs," Royal Hawaiian said.
Royal Hawaiian launched its line of retail snack products in the third quarter of last year in an attempt to generate higher profit margins from retail sales as opposed to selling all of its nuts raw in the wholesale trade.
Raw nut sales in the third quarter fell 38.3 percent to $3.4 million from $5.5 million. Contract farming revenue declined 24.9 percent to $570,000 from $759,000. And the retail product line generated $438,000 in sales compared with no sales in the year-earlier period.
Shares of the company dropped 11 cents, or 3.4 percent, to $3.14 Tuesday on the over-the-counter market. Royal Hawaiian reported its results before the market opened.
