BranchOut Food (NASDAQ:BOF) reported record quarterly net revenue of $4.45 million, while management said investments tied to customer acquisition, expedited shipping and high-cost raw materials weighed on gross margin during the period.
Chief Financial Officer John Dalfonsi said the company’s strategy remains focused on developing innovative products for customers, securing recurring business and increasing utilization at its production facility, with a long-term gross-margin target of 40%.
Sam’s Club and Ingredient Business Drive Growth
CEO and Chairman Eric Healy said BranchOut’s initial Sam’s Club product rotation exceeded the retailer’s sales threshold and has been converted into an everyday recurring order. The product is expected to return to stores around September, according to Healy.
Healy said the recurring Sam’s Club business represents an estimated annual baseline of about $8 million based on initial sell-through. The company is currently in about half of the retailer’s locations and sees a potential opportunity to expand its store count following a category review expected in March.
BranchOut also expects a one-time Sam’s Club rotation for a Tropical Mix multipack to reach shelves in January. Healy described the order as roughly $2 million and said the company expects it could become an everyday item if sales performance meets expectations.
The company’s industrial ingredient business also contributed to revenue growth, though it reduced margins during the quarter. Healy said BranchOut fulfilled a large strawberry order for an ingredient customer outside the normal strawberry season, requiring the company to pay approximately twice as much for raw material.
Management said the initial transaction has led to a larger recurring relationship, with future strawberry production expected to be planned during the sourcing season. Healy said the ingredient business generated about $2 million in 2025 and could approach $7 million this year, with potential to exceed $10 million next year.
Margins Affected by Product Mix and Startup Costs
Dalfonsi said BranchOut recorded a 2% gross margin for the quarter. He attributed the result to product mix, low plant utilization and costs associated with fulfilling initial customer orders.
Costco represented 20% of quarterly revenue and generated a 43% gross margin, according to Dalfonsi. MicroDried accounted for 33% of revenue, with a 3% gross margin because of the higher cost of organic strawberries. Sam’s Club accounted for 31% of revenue and generated a 14% gross margin, reflecting air-shipping costs incurred to meet the customer’s requirements.
Management said it expects margins to improve as production increases and the company gains greater visibility into raw-material requirements. Dalfonsi said purchasing core fruits during peak seasons rather than on the spot market could significantly reduce ingredient costs. He identified strawberries, bananas, pineapples, apples and mangoes as the company’s core products for sourcing efforts.
Healy said the company has historically priced products based on the assumption that its plant would operate at a more meaningful utilization rate. With the facility now expected to run at higher output levels, management said it believes the business can begin to realize the 30% to 40% gross margins it has previously discussed.
Management also cited production-flow improvements and the potential to bring packaging operations in-house as additional margin opportunities. Healy said BranchOut may spend $150,000 to $200,000 in capital expenditures to internalize packaging, compared with an estimated $1.5 million in outsourced packaging expenses by the end of 2026.
Sales Pipeline Includes Costco, Target and Dried Cheese
Beyond Sam’s Club, BranchOut said it is expanding its relationship with Costco. The company expects an organic apple chip product to enter Costco in the coming months and said it has received another order for pineapple chips for the retailer’s Southeast region. Healy also said Costco placed an initial order for the company’s cheesecake product, which is expected to be available in the Texas region for the holiday season.
The company is also launching five branded stock-keeping units at Target, according to management.
BranchOut is introducing a dried cheese product line and expects a retailer with approximately 9,500 locations to test the products in the coming months. Healy said a successful test could lead to an everyday business worth between $4 million and $6 million annually. The company is also targeting the convenience-store channel for the dried cheese products.
Guidance and Working-Capital Focus
Management said it expects fourth-quarter revenue of approximately $6 million to $7 million, depending on the timing of shipments near year-end. Dalfonsi said the company expects to manufacture more than $20 million of product during the full year, though some deliveries and customer invoicing could shift into January, potentially resulting in annual reported revenue closer to $18 million.
Dalfonsi said BranchOut’s capital needs are primarily related to working capital as it purchases inventory to support growing orders. He said the company had approximately $8.1 million in current assets and $7.7 million in current liabilities, while cash, receivables and inventory should be considered together because cash is rapidly converted into inventory and then accounts receivable.
The CFO added that the company may seek additional capital, potentially through more debt from Kaufman Capital or through its existing shelf registration, but said any such financing would be intended to support working-capital needs associated with order growth.
About BranchOut Food (NASDAQ:BOF)
BranchOut Food Inc develops, markets, sells, and distributes plant-based dehydrated fruit and vegetable snacks, and powders in the United States. The company offers dehydrated fruit and vegetable-based snacks, including avocado chips, chewy banana bites, pineapple chips, brussels sprout crisps, and bell pepper crisps; avocado, banana, and blueberry powders; and industrial ingredients, such as bulk avocado powder, dried avocado pieces, and other fruit powders/pieces. It also provides chocolate covered fruit items and private label products for retailers.
