STATEN ISLAND, New York, U.S. — Coffee Holding Co., Inc. has announced its operating results for the three months ended January 31, 2020. Net sales totaled $19,285,501 for the three months ended January 31, 2020, a decrease of $4,348,310, or 18.0%, from $23,633,811 for the three months ended January 31, 2019. The decrease in net sales was due to lower sales of green coffee during the quarter as customers slowed purchases due to the volatility in the green coffee market.
Cost of sales for the three months ended January 31, 2020 was $16,170,747, or 83.8% of net sales, as compared to $19,064,767, or 80.7% of net sales, for the three months January 31, 2019. Cost of sales consists primarily of the cost of green coffee and packaging materials and realized and unrealized gains or losses on hedging activity. The decrease in cost of sales was due to the Company’s decreased sales partially offset by the unrealized losses on the Company’s options and futures hedges.
Gross profit of Coffee Holding for the three months ended January 31, 2020 amounted to $4,100,591 or 21.2% of net sales excluding the effect of $985,837 of unrealized losses the Company recorded in connection with its hedging of futures and option contracts.
Gross profit including the effect of the Company’s hedging activities amounted to $3,114,754 or 16.2% of net sales. Gross profit for the three months ended January 31, 2019 amounted to $5,112,193 or 21.6% of net sales excluding the effect of $543,149 of unrealized losses the Company recorded in connection with its hedging of futures and option contracts.
Gross profit including the effect of the Company’s hedging activities amounted to $4,569,044 or 19.3% of net sales. The decrease in gross profits is attributable to a 22% decline in the green coffee market in the month of January 2020, which had a negative effect on the Company’s previously established positions.
Total operating expenses of Coffee Holding decreased by $203,954 to $3,675,053 for the three months ended January 31, 2020 from $3,879,007 for the three months ended January 31, 2019. Selling and administrative expenses decreased by $170,858 and officers’ salaries decreased by $33,096. The Company’s efforts to control costs through the elimination of redundancy in its operations and the elimination of certain unnecessary variable costs were the primary reasons for this decrease. These efforts were partially offset by the stock compensation expense of $248,000 and the increase in the Company’s freight costs as it increased and expanded its product distribution.
The Company had a net loss of $599,848 or $0.11 per share basic and diluted, for the three months ended January 31, 2020 compared to net income of $314,715, or $0.06 per share basic and diluted for the three months ended January 31, 2019. The decrease in net income was due primarily to the reasons described above.
“Our first quarter results are not what we had anticipated but we do not believe the results truly reflect the performance of our company during the quarter,” stated Andrew Gordon, Chief Executive Officer of Coffee Holding Co.
“The $600,000 loss was caused by our unrealized trading losses on option contracts, as we established our yearly positions to protect our large private label contracts and agreements which we solidified in the previous quarter. The coffee market dropped $0.30 per pound in the month of January, an unprecedented move that had no fundamental causation, putting our positions underwater. However, once these positions are converted into finished product for sale to our customers, we believe these losses will result in profitable sales in future periods,” continued Mr. Gordon. “The other expense component affecting the net loss was the $248,000 stock option grant expense, which is a non-cash charge to the P & L.”
“Notwithstanding these two components, operations for the quarter would have been a profit of approximately $550,000, which is an improvement over first quarter fiscal 2019, as we also realized approximately $172,000 in cost savings, including overhead this quarter.
“Additionally, our sales decline can be attributed to two factors. First, sales to our former largest green coffee customer declined by $300,000 to zero during the same period last year. Secondly, a change in the relationship of Steep & Brew’s largest customer from a vendor relationship to a brokerage relationship accounted for a decline of $1.3 million in revenue. The effect of this change in relationship resulted in a change of the characterization of these transactions on our income statement from sales to a brokerage transaction, which ultimately had no net effect on our profits during the quarter,” stated Mr. Gordon.
“The other reason for the decline in sales during the quarter was the excessive volatility in the green coffee market which caused our green coffee customers to make smaller than normal purchases due to the constant daily price fluctuations. We believe once the volatility in the market subsides, our customers will once again resume their normal buying habits.”
“Other noteworthy events during the first quarter was the new distribution agreement with a large supermarket chain in the Northeast for three of our branded items. This chain has over 150 stores and has begun purchasing our Café Caribe items and two Harmony Bay 40 oz bag items. We also renewed our loan agreement with our lender, Sterling National Bank, for an additional two years at a more favorable borrowing base which we expect will save us approximately $35,000 annually.”
“Lastly, with the recent market volatility caused by the COVID-19 virus outbreak, I want to remind our shareholders that our balance sheet remains extremely strong and we believe our working capital combined with our $14.0 million borrowing base will see us through this event,” concluded Mr. Gordon.