Q1 2024 Earnings Summary
- Celsius has achieved an all-time high household penetration of 29.7%, and holds over a 15% market share in 12 major U.S. markets, with several additional markets nearing that level, indicating strong brand momentum and consumer acceptance.
- The company is significantly contributing to the growth of the energy drink category, driving approximately 47% of the category growth, primarily by attracting new consumers (42% of growth from new-to-category users) and increasing consumption among existing users, which suggests sustainable growth prospects.
- Anticipated benefits from spring shelf resets, including the best space gains in company history, particularly in the convenience channel, are expected to boost sales in the second half of the year, supporting continued revenue growth.
- Potential for further inventory destocking could negatively impact sales in future quarters. Management expressed uncertainty, stating, "But who knows what next week or the week after happens?" The company's largest distributor constitutes approximately 62% of North America business during Q1 2024, and inventory fluctuations with this distributor could impact revenue.
- Margins may decrease in upcoming quarters due to increased promotional activities and rising costs such as fuel and commodities. Management mentioned they "are moving into a much higher promotional time period with 100 Days of Summer" , and that they're "sticking with what we said at the end of February, which was kind of that high end of the 40s and not quite locking in into the 50s yet" regarding gross margins. This suggests expectations of lower margins compared to Q1.
- Sequential decline in Costco sales and flat foodservice sales might indicate weakness or slowing growth in certain channels. Management stated, "We did get a bit of a bump there in Q4 versus Q1. Q1 does also tend to be a little slower in the club channel." Flat foodservice sales were described as "foodservice remains strong. That can be a little lumpy at times."
-
Inventory Levels and Impact on Sales
Q: Can you discuss recent inventory levels with Pepsi and how they might affect future sales?
A: Partners like Pepsi are optimizing inventory levels, leading to some fluctuations. Celsius has optimized its own inventory by about $47 million over the last 15 months. While inventory levels have been reduced, the company feels confident in current levels and does not expect significant changes moving forward. Sales at the register remain strong, and products are flowing well through the supply chain. -
Margin Performance and Outlook
Q: Margins were substantially ahead of plan this quarter. Were there any one-time factors, and what is the outlook for margins?
A: Improved margins were partly due to favorable freight rates this quarter. The company continues to optimize costs but anticipates higher promotional activity during the "100 Days of Summer" campaign. Therefore, they're not ready to project margins at the current rate and are sticking with previous guidance of margins in the high 40% range, not yet locking into the 50% range. -
Incentive Program with Pepsi
Q: What are the implications of the amendments to the Pepsi agreement on margins?
A: The incentive program with Pepsi is designed to drive alignment and prioritize shared goals of becoming the #1 energy brand in the world. While there is a cost associated with the program, it is expected to ramp up over the first 6 to 8 months of the year and improve performance in the back half. The program aims to push the company to the next level, and both parties believe it is beneficial. -
Market Share Gains in Key Markets
Q: How has Celsius achieved close to 15% market share in certain markets, and what are the plans to replicate this success elsewhere?
A: Celsius has reached over 15% market share in 12 major metropolitan markets in the U.S.. Success is attributed to collaboration with Pepsi partners, expanding sales and marketing teams, and effective marketing strategies that activate consumers where they live, work, and play. The company plans to close the gap in the convenience channel and expects share numbers to continue increasing. -
Spring Shelf Resets and Placement Gains
Q: What are the significant gains from spring shelf resets in terms of SKUs, spacing, and shelf locations?
A: The company is excited about the resets, with the convenience channel being the biggest opportunity. They have moved products into the energy category in stores like Publix and gained placements in front checkout coolers. Full resets are expected to be completed by the end of June, aiming for greater placements in all accounts. The goal is to achieve double or triple facings in stores, secondary placements, and better visibility. -
Plans for Cooler Expansion
Q: What are the plans for expanding cooler placements this year?
A: Partnering with Pepsi, Celsius sees a huge opportunity to gain more distribution in cold placements. The key accounts team is working on branded Celsius coolers, aiming to place a substantial number, with almost 3,000 coolers placed in the first quarter. The company expects to continue this momentum throughout the year. -
Impact of Aluminum Costs on Margins
Q: How will rising aluminum costs affect the company's cost of goods sold and margins?
A: While aluminum prices have increased, Celsius has locked in much of its aluminum pricing, putting them in a good position. They tend to lock in aluminum prices around the fourth quarter of each year, which helps mitigate the impact of cost fluctuations. -
Sales Performance in Costco and Foodservice Channels
Q: There was a sequential decline in Costco and flat performance in foodservice. Can you explain this and what to expect going forward?
A: The club channel, including Costco, tends to be slower in the first quarter. The previous quarter benefited from a strong Thanksgiving week and Black Friday promotions. Foodservice remains strong but can be lumpy at times; being up around 12% is considered good. Gains are being seen in convenience and other larger-scale areas, leading to dollar growth even if percentage growth varies. -
Contribution to Energy Category Growth
Q: How is Celsius driving growth in the energy category, and what are the key metrics supporting this growth?
A: Celsius is driving about 47% of the category growth, with 42% of their growth coming from new-to-category consumers. The brand is expanding the category by attracting new consumers and increasing consumption among core users. Household penetration has reached an all-time high of 29.7%. -
Inventory Levels and Potential Destocking
Q: Should we expect any more destocking from Pepsi or changes in inventory levels that could impact sales?
A: The company cannot control partners' inventory decisions but feels that inventory levels are currently stable. Sales are strong at the register, and product flow seems balanced as of the end of March.