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    Celsius Holdings Inc (CELH)

    Q4 2023 Earnings Summary

    Reported on Jan 14, 2025 (Before Market Open)
    Pre-Earnings Price$67.77Last close (Feb 28, 2024)
    Post-Earnings Price$63.91Open (Feb 29, 2024)
    Price Change
    $-3.86(-5.70%)

    What went well

    • Gross profit margins improved by 660 basis points year-over-year, reaching approximately 48% in 2023, demonstrating strong operational efficiencies and pricing power despite seasonal headwinds in Q4.
    • Expansion into non-traditional channels such as foodservice, colleges, vending, and micro-markets is showing significant momentum, contributing to revenue growth and offering significant future growth opportunities. Notably, foodservice sales increased from 10% to 12.5% of PepsiCo revenues.
    • Celsius is the number one energy drink on Amazon with a 20% market share, indicating strong online sales growth and dominance in the e-commerce channel, which continues to expand.

    What went wrong

    • The company's gross margin declined in Q4 2023 relative to Q3, even after adjusting for promotional allowances, and management did not provide a clear explanation for this decline. This raises concerns about margin stability and potential cost pressures going forward.
    • There is a discrepancy between sales implied by scanner data and actual reported sales, suggesting that the company may have undershipped somewhere in the channel. This could indicate inventory management issues or weakening demand not fully reflected in shipments.
    • Planned significant investments in sales, marketing, and international expansion may pressure margins and increase costs in 2024, potentially impacting profitability. The company acknowledged that international expansion lacks the same scale and leverage advantages as the U.S. business.

    Q&A Summary

    1. Gross Margin Outlook
      Q: Why did gross margins step back in Q4, and what's the outlook for 2024?
      A: Management is pleased with the full-year gross margin improvement of 660 basis points despite a slight step back in Q4 due to the launch of the new Celsius Essentials line and other innovations ( ). They see opportunities to improve margins going forward and believe the team did a good job for the year ( ).

    2. Market Share Trajectory
      Q: How is market share progressing, and what is the outlook?
      A: The company has surpassed a 10% share in convenience stores and holds nearly a 20% share on Amazon in the energy category ( ). They see significant opportunities in the convenience channel, where 56%–57% of energy drinks are sold, and anticipate growth with upcoming shelf resets ( ).

    3. Potential Price Increases
      Q: Will the company consider price increases to manage price gaps as competitors raise prices?
      A: While acknowledging opportunities to adjust pricing, management aims to remain a premium-priced product and is focused on driving share and revenue growth rather than immediate price increases. They did not commit to any future price changes at this time ( ).

    4. International Expansion Impact
      Q: How will international expansion affect margins and revenues?
      A: The company recently entered Canada and the U.K., expecting investments in brand awareness and infrastructure ( ). These costs are not anticipated to significantly impact overall margins in 2024, and they are taking a methodical approach to ensure sustainable growth ( ).

    5. Unmeasured Channels Growth
      Q: What is the growth outlook for unmeasured channels like foodservice?
      A: The foodservice channel grew from 10% to 12% of Pepsi revenues, showing continued momentum ( ). Opportunities in colleges, vending, and at-work micro markets are significant, and management expects ongoing growth in these areas ( , ).

    6. Sales and Marketing Expenses
      Q: Should we expect higher sales and marketing expenses in 2024?
      A: Sales and marketing expenses are expected to be in the historical range of 22%–24% of revenue, with Q1 and Q4 typically higher due to activations like the Super Bowl ( ). Spending will be based on growth opportunities, with a focus on return on investment ( ).

    7. Essentials Line Expansion
      Q: What are the plans for the new Celsius Essentials line and its distribution?
      A: The Essentials line has seen rapid ACV acceleration, and management is working to expand its distribution ( ). Early data shows it is incremental and not cannibalizing existing sales, but more data is needed post upcoming retail resets to fully assess its potential ( ).

    8. Cooler Placement Strategy
      Q: What is the strategy and impact of placing branded coolers in stores?
      A: With about 10,000 coolers placed, the company is investing in more to increase cold availability, crucial for impulse purchases ( ). Cooler placements at checkout aim to drive sales, resulting in a substantial uplift, though exact figures vary by location ( ).

    9. Incrementality of New SKUs
      Q: How are new SKUs like Vibes and core flavors performing, and what's the plan for SKU count?
      A: New SKUs are attracting additional consumers without cannibalizing existing sales ( ). Management plans to monitor and rationalize SKUs annually, balancing innovation with prudent SKU management to retain consumers and drive growth ( ).

    10. Amazon and Non-measured Channels
      Q: What drove the strong performance in Amazon and non-measured channels?
      A: Amazon sales remained strong in Q4, matching Q2 levels that benefited from Prime Day, indicating ongoing growth potential ( ). Management sees continued opportunity in Amazon as part of their omnichannel strategy ( ).

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