Vital Farms: The Recovery Is Starting, But I Need More Proof

Fernanda Galvez Jalil 1.2K Followers Follow Summary Vital Farms reported a challenging Q2 with revenue down 10% YoY, gross margin collapsing to 6.6%, and significant cash burn. Despite poor headline results, VITL beat revenue expectations, reaffirmed full-year guidance, and showed early signs of stabilization in price gaps and supply. Management expects gross margin to recover to ~30% by Q4, but structural changes mean a return to 35-40% margins is unlikely. I maintain a Hold rating, awaiting at least one or two quarters of improving volume, margins, and cash flow before considering an upgrade. Kathrin Ziegler/DigitalVision via Getty Images Investment Thesis Note: This is an update to my previous article . Vital Farms ( VITL ) reported a terrible Q2 with revenue declining, gross margin collapsing to 6.6% and significant cash burn. However, considering the difficult starting point after This article was written by Fernanda Galvez Jalil 1.2K Followers Follow My name is María Fernanda and I'm currently studying an MBA. My inspiration investors are Warren Buffett, Peter Lynch and Terry Smith, so I look for quality companies at a reasonable valuation. I believe that, in the long term, fundamentals are what drive the share price, so I look to predict what a business's earnings per share will do. Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.