Release Date: October 30, 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) reported strong growth in the coconut water category, with double-digit growth year-to-date through the end of September.
- The Vita Coco brand grew 8% in retail dollars in the US and 19% in the UK, indicating strong market performance.
- The company is seeing strong demand for its private label coconut water, which remains a strategically important aspect of its business.
- Vita Coco Juice is gaining share at retail with 39% growth year-to-date, and the introduction of the Vita Coco coconut 1L pack into a key convenience store chain has been successful.
- The international business remains healthy, with strong performance in Europe, particularly in the UK and Germany, where the category has grown over 50% over the last year.
Negative Points
- The Vita Coco Co Inc (COCO) faced significant inventory shortages during the quarter due to limited ocean container availability, impacting sales growth.
- Net sales were down 4% in the third quarter, with growth in Vita Coco coconut water offset by weakness in private label shipments.
- The company experienced a decrease in the growth rate for US retail scan sales of Vita Coco, reflecting inventory challenges and reduced promotional activity.
- Gross margins were down versus the first two quarters of the year due to higher ocean freight costs.
- The company had to reduce its promotional activity significantly, including not participating in a major branded club customer promotion, which impacted sales.
Q & A Highlights
Q: Can you expand on the drivers of your new guidance, which implies significant growth in Q4, and discuss container availability for next year?
A: Corey Baker, CFO: The growth is driven by inventory recovery and improved product availability at retail. We expect strong growth as we fill shelves and distributor warehouses. Ocean freight costs remain high, but volume growth will provide leverage to support EBITA guidance. The category remains healthy, and we hope to catch up with demand. Ocean freight rates are still above historical averages, posing a headwind if they remain sticky.
Q: How did supply constraints impact your private label and branded water businesses?
A: Corey Baker, CFO: Supply constraints affected both branded and private label businesses uniformly due to container shortages. Private label inventories were tight entering the quarter, exacerbating the issue. The reported results reflect our inventory position at the quarter's start.
Q: Can you provide more details on Q4 gross margins and expectations for next year?
A: Corey Baker, CFO: Ocean freight costs will impact Q4 gross margins, with a spike in July affecting Q4. Rates have been dropping since August, but remain high compared to historical averages. We expect Q4 to be the high point for ocean freight costs, with potential improvement next year. However, many variables remain in the market.
Q: How do you plan to maintain momentum in 2025 and beyond, especially in international markets?
A: Martin Roper, CEO: We aim to maintain and accelerate growth by expanding households, increasing velocity per household, and enhancing availability. We are pushing multipacks, testing new products like Vita Coco Treats, and expanding our canned juice product. Internationally, we see opportunities in Western Europe, with Germany showing strong growth.
Q: What are your plans for the Vita Coco Spiked brand and its potential in the ready-to-drink alcohol market?
A: Michael Kirban, Executive Chairman: While Vita Coco Spiked hasn't been a huge success, it helped promote coconut water and spirits mixing. We focus on using coconut water as a cocktail mixer, which has been successful and is growing. We continue to explore opportunities in this area.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
