Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- The Vita Coco Co Inc (COCO, Financial) achieved net sales growth of 3% in the second quarter of 2024, driven by both branded and private label Coconut Water growth.
- The company reported strong gross margins of 41% in the quarter, an improvement of approximately 400 basis points over the previous year.
- Vita Coco brand grew 11% in the US and 19% in the UK year-to-date, with accelerated growth in the second quarter.
- The Vita Coco Juice product line continued to perform well, growing 27% year-to-date in convenience stores.
- The company has a strong cash position with $150 million on hand and no debt, allowing for potential M&A opportunities and share buybacks.
Negative Points
- The company's net sales performance was hampered by supply chain challenges, including significant reductions in container availability and extended transit times.
- Ocean freight market volatility, particularly in the second quarter, led to increased costs and impacted the company's ability to meet demand.
- Inventory levels are very tight and well below normal, constraining shipments and potentially affecting retail availability.
- The company expects a more significant impact on gross margins in the third and fourth quarters due to increased ocean freight rates.
- The guidance for the full year reflects uncertainty in transportation costs, with an estimated $15 million increase in transportation costs expected in the second half of the year.
Q & A Highlights
Q: Can you explain the reasoning behind maintaining your guidance despite a slight deceleration in the second half?
A: Michael Kirban, Executive Chairman, explained that the category is performing well, and the brand is strong. The main issue is the speed of inventory entering the US, not demand. Martin Roper, CEO, added that both container availability and transit times have been challenging, affecting both the US and Europe.
Q: Could you provide more details on the gross margin expansion and the impact of rising rates?
A: Corey Baker, CFO, stated that shipping costs had no material impact in Q2 due to container delays. The spike in rates will affect Q3 and Q4. Michael Kirban added that they view current shipping issues as temporary and have not entered long-term contracts at elevated rates.
Q: How are you managing the balance between supply delays and demand growth?
A: Michael Kirban emphasized that they are securing every container possible, even at elevated prices, to fuel category and brand growth. Production has not been shut down, and inventory is ready to ship once container availability improves.
Q: Can you update us on your multipack strategy and its impact on growth?
A: Michael Kirban noted that distribution of multipacks is still expanding, with a long-term view of adding more SKUs. Multipacks have contributed to growth, although there might be some cannibalization of single units.
Q: How are you approaching pricing given the current ocean freight situation?
A: Michael Kirban explained that they have not seen the need for significant price increases due to economies of scale. They have some pricing power and will monitor the situation, but do not plan to raise prices unless ocean freight costs remain elevated long-term.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
