27% Holders Of Lifeway Foods, Edward And Ludmila Smolyansky, Criticize Q1 2025 Results And Board Governance, Citing Weak Operating Performance Masked by One-Time Gain, Declining Margins, Rising Costs, Insider Stock Sales, And Mismanagement Of Danone Offer; Calls For Board Overhaul And Independent Review Of Strategic Alternatives

Author: Benzinga Newsdesk | June 02, 2025 03:04pm

Edward and Ludmila Smolyansky, beneficial owners of approximately 27% of Lifeway Foods (NASDAQ:LWAY), today issued a statement expressing serious concerns about the company's Q1 2025 performance and what they describe as the Board's ongoing pattern of poor governance and misaligned priorities.

Although Lifeway reported a 44% year-over-year increase in GAAP earnings per share, Mr. Smolyansky emphasized that this was entirely due to a one-time $3.4 million gain from an investment sale, not from any improvement in the company's underlying kefir business. He and Mrs. Smolyansky cited several troubling operational trends, including:

• Income from operations declined nearly 55% year-over-year.
  
  
  
   
• Operating margin fell to approximately 3.4%, down from 7.9% in Q1 2024.
  
  
  
   
• Net sales increased only 3.3% year-over-year and declined 1.8% sequentially from Q4 2024.
  
  
  
   
• Revenue from the 2021 acquisition of Glen Oaks, a Laguna Beach, California-based drinkable yogurt company lacking any tangible assets, has declined approximately 50% to date. Notably, only two Directors – Edward and Ludmila Smolyansky – voted against this acquisition.
  
  
  
   
• Selling expenses rose sharply – up 27% year-over-year and 35% from Q4, without a corresponding increase in sales.
  
  
  
   
• Gross margin contracted by 180 basis points to 24.0%; SG&A expenses climbed to 20.2% of sales.
  
  
  
   
• Insider stock sales by Director Pol Sikar and CEO Julie Smolyansky following the May 15, 2025 earnings release raised additional concerns about management's confidence in the company's outlook.

Ludmila and Edward Smolyansky also criticized the Board's governance and oversight, highlighted by its handling of the Danone offer, the subsequent attempt to nullify the Company's 1999 Stockholder Agreement with Danone, and the award of $8.5 million in cash and shares granted to CEO/Chair Julie Smolyansky by the Board shortly thereafter. The Smolyanskys also shared their views that:

• The combined CEO/Chair role, while occupied by Ms. Smolyansky, has been a significant governance failure resulting in lack of independent oversight;
  
  
  
   
• The handling of Danone's offer and subsequent attempt to sever ties may have market implications that the Board has failed to consider;
  
  
  
   
• The questionable compensation awards granted to CEO/Chair Julie Smolyansky at the end of 2024 were in flagrant opposition to shareholder sentiment conveyed at last year's annual meeting; and
  
  
  
   
• Only a reconstituted Board with an independent committee tasked with assessing strategic alternatives and potentially re-engaging with Danone, in the manner deserving of a 25-year investor and partner, can produce a more favorable outcome for shareholders.

Posted In: LWAY