The Vita Coco Company - Earnings Call - Q3 2025

Executive Summary

• COCO delivered a clean beat and raise: Q3 revenue $182.3M (+37% YoY) and diluted EPS $0.40, both ahead of S&P Global consensus*, driven by +42% branded Vita Coco Coconut Water growth and Treats rollout, with consolidated gross margin of 37.7% (down ~110 bps YoY on tariffs/finished goods costs).
• Full-year 2025 guidance raised: net sales to $580–$595M (from $565–$580M), Adjusted EBITDA to $90–$95M (from $86–$92M); GM maintained ~36%, SG&A growth raised to high-single digits reflecting brand investment.
• Management highlighted tariff headwinds intensifying (blended rate ~23% on ~60% of global COGS exiting Q3) with mitigation levers (pricing, supply rerouting from Brazil, lower ocean freight) and potential waiver prospects; pricing decisions for 2026 contingent on Q1-26 tariff clarity.
• International momentum accelerated (U.K., Germany); U.S. distribution poised to improve with Walmart reset in mid-November; Treats attracting new consumers without evident cannibalization—incremental distribution expected in 2026.
• Stock reaction catalysts: material top-line and EPS beat, raised FY revenue/EBITDA, and narrative on tariff mitigation and Walmart shelf gains.

What Went Well and What Went Wrong

What Went Well

• Branded outperformance and category momentum: Net sales +37% to $182M; Vita Coco Coconut Water +42% YoY on strong category growth and execution; CE volume +31% for branded coconut water.
  • “Coconut water remains one of the fastest growing categories… 22% YTD in the U.S. and 32% in the U.K.” — Executive Chairman Mike Kirban.
• Guidance raised on strong demand and execution: FY25 net sales $580–$595M and Adjusted EBITDA $90–$95M; management confident in sustaining momentum into 2026.
  • “Our increased full year net sales guidance is based on this momentum… Even though… tariffs have increased… our strong topline growth and operational execution supports our raise of our full year adjusted EBITDA guidance.” — CEO Martin Roper.
• International acceleration: International segment net sales +48% in Q3, with strong U.K./Germany growth and share gains; margins supported by lower ocean freight into Europe.

What Went Wrong

• Gross margin pressure: Consolidated GM 37.7% vs 38.8% LY on higher finished goods costs and ~$6M tariff impact in Q3; SG&A +$10M YoY on marketing and people costs.
• Tariffs escalating: Blended U.S. import tariff rate ~23% exiting Q3 (before Brazil 50% mitigation), applied to ~60% of global COGS; FY25 COGS headwind $14–$16M, peaking in late Q4.
• Private label mixed: Americas PL -13% in Q3; overall PL up 6% on international strength; management expects PL to remain a slight drag into 2026 despite regained regions commentary.

Transcript

Operator (participant)

Hello, and welcome to The Vita Coco Company's third quarter 2025 earnings conference call. My name is Daniel. I'll be coordinating your call today. Following prepared remarks, we will open the call to your questions with instructions to be given at that time. I'll now hand the call over to John Mills with ICR.

John Mills (Company Representative)

Thank you, and welcome to The Vita Coco Company's third quarter 2025 earnings results conference call. Today's call is being recorded. With us are Mr. Mike Kirban, Executive Chairman, Martin Roper, Chief Executive Officer, and Corey Baker, Chief Financial Officer. By now, everyone should have access to the company's third quarter earnings release issued earlier today. This information is available in the Investor Relations section of The Vita Coco Company's website at investors.thevitacococompany.com. Also, on the website, there is an accompanying presentation of our commercial and financial performance results. Certain comments made on this call include forward-looking statements, which are subject to the Safe Harbors Provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements are based on management's current expectations and beliefs concerning future events and are subject to several risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Please refer to today's press release and other filings with the SEC for a more detailed discussion of the risk factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. Also, during the call, we will use some non-GAAP financial measures as we describe our business performance. Our SEC filings, as well as the earnings press release and supplementary earnings presentation, provide reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures and are available on our website as well. With that, it is my pleasure to now turn the call over to Mike Kirban, our Co-Founder and Executive Chairman.

Mike Kirban (Co-founder and Executive Chairman)

Thanks, John. Good morning, everyone. Thank you for joining us today to discuss our third quarter financial results and our expectations for the balance of 2025. I want to start by thanking all of our colleagues across the globe for our continued strong performance, particularly in a very fluid environment, and for their commitment to The Vita Coco Company and advancing our mission of creating ethical, sustainable, better-for-you beverages that uplift our communities and do right by our planet. Although I'm incredibly pleased with our third quarter performance, I'm even more excited by the underlying momentum in our category and our very high execution levels, which bodes well for our future. Coconut water remains one of the fastest growing categories in the beverage aisle, growing 22% year to date in the U.S. and 32% in the U.K. based on Circana data, and over 100% in Germany based on Nielsen data.

This, coupled with our significantly improved inventory position versus last year, has resulted in very strong retail growth for our brand. Year to date, according to our retail data, Vita Coco Coconut Water, excluding our coconut milk-based products like treats, is growing 21% in retail dollars in the U.S., 32% in the U.K., and over 200% in Germany. This has led to similarly strong global net sales, gross profit, net income, and Adjusted EBITDA performance for our third quarter. Year to date, our international business is accelerating, driven by strong performance in Europe. Our increased investment this year in the U.K., Germany, and other select European markets is paying off with healthy growth and brand share wins. The acceleration of the category that we saw in late 2024 has continued through 2025, which, combined with improved inventory and strong execution, is producing exceptional year-to-date results.

Looking forward, we expect to maintain strong growth trends as we invest in and develop the coconut water category in our priority markets, and our asset-light model and strong cash generation position us well to take advantage of the opportunities ahead. Big picture, I believe that the coconut water category is in the very early stages of gaining mainstream appeal on a global level. Coconut water looks to be transitioning from niche to mainstream, and we are at the forefront of that trend. If we can continue the household penetration and consumption gains that we are seeing, I'm confident that coconut water will one day be as large as some of the major beverage categories across the beverage aisle. Now, I'll turn the call over to our Chief Executive Officer, Martin Roper.

Martin Roper (CEO)

Thanks, Mike, and good morning, everyone. I'm pleased to report Vita Coco's continued strong performance in the third quarter. Net sales in the quarter were up 37%, driven by growth of Vita Coco Coconut Water of 42%, benefiting from strong growth in the coconut water category and improvement in our available inventory and service levels. Our branded scan results in the U.S. were very strong, even with a slight drag in our scans created by the changes in the Walmart set late last year, which we estimated was a mid-single-digit drag to our total U.S. branded scans in the third quarter. We are benefiting from strong volume growth and the impact of the two price increases taken in the U.S.

this year, the first in mid-May to cover our normal inflationary cost of goods increase, and the second in mid-July to cover the dollar impact of the 10% baseline tariffs announced in April. The cumulative effect of these price increases on shelves in the U.S. is best viewed on a two-year basis, which is showing as approximately 7% in the last quarter, according to Circana. To date, we think the price elasticity impacts from these increases are within expectations, but we need more time to understand the impact of the July increase and to see competitor moves before thinking about any further price increases to cover the additional tariffs announced in August. Since November last year, we have been in the juice set at Walmart with significantly reduced assortment. We currently expect this juice set to be reset in mid-November.

We've been told that our current total points of distribution will grow significantly compared to the current sets and also above levels we had before the move to the juice aisle. We are optimistic, but we don't have complete visibility to understand the competitive dynamics of the new set and the actual shelf space allocated for our SKUs beyond the expected distribution gains. The private label business remains strategically important to us. With greater uncertainty on costs, particularly due to the announced tariffs and some intermittent service issues from some of our competitors as the category accelerates, there have been more inquiries than normal about our private label services. In addition to the new U.S. private label relationship announced last quarter, we now expect to regain in early 2026 some private label service regions with key retailers that we had previously lost.

We view this as a positive signal on our quality, service, and pricing, and it reinforces our belief in the competitive advantage of our supply chain. Other than increasing tariffs and slightly softer ocean freight, our cost of goods has been pretty stable since we last spoke to you. We believe ocean freight rates during the quarter were still elevated relative to historical levels, but we saw rates soften through the quarter and since quarter end. We are operating primarily on spot rates with some fixed price arrangements on certain lanes to secure capacity, which will allow any lower rates to benefit our P&L probably early next year, depending on the tightening of inventory flows. Currently, we'll cover our outlook for the balance of the year. For 2026, the most difficult element to predict is the applicable U.S. tariffs we'll be operating under.

During the quarter, there were signals that the administration is willing to offer exemptions for products related to natural resources not available at scale domestically to meet U.S. demand, which gives us more optimism that coconut water could potentially receive waivers. If we do not receive any waivers and tariffs are upheld, we will continue our mitigation efforts and ultimately, if significant tariffs remain and other offsets like ocean freight are not sufficient, we will evaluate the potential to take more pricing next year to further mitigate the impact of tariffs. We have a global diversified supply chain, which positions us well to deal with a dynamic U.S. tariff situation. The majority of our supply comes from the Philippines and Brazil, with the remainder principally coming from Thailand, Vietnam, Malaysia, and Sri Lanka. Our current weighted average tariff rate on coconut water shipping to the U.S.

from source country at the end of the quarter is estimated at a blended rate of approximately 23%, which is before any significant moves to mitigate the 50% tariffs on coconut water from Brazil. We are currently seeing tariffs into the U.S. applied to approximately 60% of our global cost of goods and believe that this is a good approximation for the cost of goods that U.S. tariffs are applied to. We are developing and executing plans to divert some of our Brazil production to Canada and Europe and to cover U.S. demand more completely from Asia, which could help further mitigate our average tariff rate. We have started preparations for this diversion but may choose for service and responsiveness reasons to source some production for the U.S. from Brazil on an ongoing basis. As the applicable tariff rates change in the future, we will adapt our plans.

To summarize, our category is very healthy, our brand is performing well, and our supply chain is supporting very strong growth. Together with potential future pricing, we believe that we'll be able to mitigate the potential tariff impact long-term and to remain very competitive in our markets. We are confident in our team's ability to execute and deliver our plans for the balance of 2025 and 2026, and our confidence in the category and Vita Coco brand trends remains very high. Long-term, we believe that we will benefit when ocean freight rates return to historical levels and that when all of our tariff mitigation efforts are in place, this should allow us to achieve or beat our long-term financial targets. With that, I will turn the call over to Corey Baker, our Chief Financial Officer.

Corey Baker (CFO)

Thanks, Martin, and good morning, everyone. I will now provide you with some additional details on the third quarter 2025 financial results and our outlook for the full year. Net sales were very strong for the third quarter, increasing $49 million or 37% year-over-year to $182 million. Vita Coco Coconut Water grew 42% and private label grew 6%. Our quarterly results benefited from the continued strong category growth, the restoration of a key club retailer promotion in the U.S., as well as a depressed third quarter reported last year when we were significantly inventory challenged. Please note that the key retailer promotion that ran in late Q3 and early Q4 this year has created unusually healthy scan trends in the U.S., and I would suggest that you look at a two-year growth rate for an appropriate reading on the underlying momentum.

On a segment basis within the Americas, Vita Coco Coconut Water increased net sales 41% to $132 million and private label decreased 13% to $14 million. Vita Coco Coconut Water saw a 30% volume increase and a price mix benefit of 8%. The branded price mix benefit was driven by the cumulative effect of our two price increases in 2025. Our other product category grew 182%, primarily reflecting the national launch of Vita Coco Treats. Our international segment continued to deliver exceptionally strong results in the third quarter, with net sales up 48% and Vita Coco Coconut Water growing 47%, driven by strong growth across our major markets. Private label sales increased 70% due to strong sales of private label coconut water within our current customer base. For the quarter, consolidated gross profit was $69 million, an increase of $17 million versus the prior year.

On a percentage basis, gross margins finished at 38% for the quarter. This was down approximately 110 basis points from the 39% reported in the third quarter of 2024. This decrease in gross margin resulted from higher year-on-year finished goods product costs and the baseline 10% import tariffs announced in April, plus a very minor impact from the August tariffs that collectively created a $6 million tariff impact in the quarter. This was partially offset by our combined pricing actions and lower year-on-year ocean freight expense, as well as the recovery of a reserve for private label packaging. Moving on to operating expenses, SG&A costs increased $10 million to $41 million within the quarter, driven primarily by higher people-related costs and increased marketing expenses.

Net income attributable to shareholders for the quarter was $24 million or $0.40 per diluted share, compared to $19 million or $0.32 per diluted share for the prior year. Net income benefited from higher gross profit and a lower year-on-year tax rate, partially offset by higher SG&A spending and a lower gain on derivatives than in the prior year. Our effective tax rate for the third quarter of 2025 was 22%, versus 25% last year, which is primarily driven by discrete tax benefits and a favorable geographic mix of pre-tax profits. Third quarter 2025 Adjusted EBITDA was $32 million, or 18% of net sales, compared to $23 million, or 17% of net sales in 2024. The increase in Adjusted EBITDA was primarily due to higher net sales and gross profit, partially offset by higher SG&A expenses.

Turning to our balance sheet and cash flow, as of September 30, 2025, our balance sheet remained very strong, with total cash on hand of $204 million and no debt under our revolving credit facility. We have generated $39 million of cash year to date, driven by our strong net income, partially offset by increases in working capital, primarily due to increased accounts receivable. Our updated guidance reflects our current best assumptions on marketplace trends and timing of our shipments, as well as the continuation of the U.S. tariff levels announced in August. Based on our current trends, we are raising our full-year net sales guidance to between $580 and $595 million. We expect full-year gross margins of approximately 36%, with higher finished good costs, including tariffs, relative to last year being partially offset by our increased pricing and slightly lower logistics costs. The impact of U.S.

tariffs announced in April and August has increased through the year. For the full year, we expect to see an increase in our cost of goods of between $14 and $16 million versus the prior year. We expect our average tariff rate on imported U.S. goods to peak at the previously mentioned rate of 23%, and this should start hitting our P&L late in the fourth quarter, depending on actual sales and inventory usage. Our sales expectation is based on a tougher Q4 net sales comparable to last year, when we benefited from distributor and retail inventory rebuild. We expect full-year SG&A expenses to increase high single digit versus 2024. This, combined with our expected higher net sales, is resulting in a higher Adjusted EBITDA guidance of $90 million-$95 million.

Our full-year SG&A increase is due to increased people investments, including increased incentive and soft compensation, and higher year-on-year sales and marketing expenses and other focused investments to support the delivery of our growth objectives as we aim to maintain a strong branded growth momentum into 2026. We look forward to providing additional updates and formal 2026 guidance on our next earnings call. I'd like to turn the call back to Martin for his closing remarks.

Martin Roper (CEO)

Thank you, Corey. To close, I'd like to reiterate our confidence in the long-term potential of The Vita Coco Company, our ability to build a better beverage platform, and the strength of our Vita Coco brand and the coconut water category. We are confident in our ability to navigate the current environment and are excited about our key initiatives to drive growth. We have a strong brand and a solid balance sheet and believe that we are well positioned to drive category and brand growth both domestically and internationally. Thank you for joining us today, and thank you for your interest in The Vita Coco Company. That concludes our third quarter 2025 prepared remarks, and we will now take your questions.

Operator (participant)

To ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. In the interest of time, we ask that you please limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster. Our first question comes from Bonnie Lee Herzog with Goldman Sachs Group Inc. Your line is open.

Bonnie Herzog (Analyst)

All right. Thank you. Good morning, everyone. I had a couple of questions on your guidance. First, you raised your top-line growth guidance, but it does imply a sharp decline of about 15% in Q4 at the midpoint. I understand you've got a tough comp in the prior year to lap. I wanted to better understand this expectation. Was there a pull forward of shipments from Q4 into Q3, for instance? Is there anything in particular expected in Q4 as it relates to private label? On EBITDA, your new guidance implies a big ramp in growth in Q4. Could you give us some more color on the drivers of that expected acceleration? Thanks.

Corey Baker (CFO)

Sure. Good morning, Bonnie. From a top-line perspective, as we've talked about, we've been focused on the full year, and the quarters, especially around Q3 and Q4, are quite hard to tell. We would ask you to take a look at the two-year stack, which in the underlying-based business is still very, very strong. Half to end quarter on quarter is showing double-digit growth on a two-year CAGR in the underlying business. We do have the current trends of the private label business, which, as we talked about in Q2, I believe Q2 was down in the mid-30s. We would expect that trend to continue. Martin referenced new private label business starting in 2026. At this point, we don't expect any impact from that, but we may get some. As you know, the timing of private label is quite challenging.

At the midpoint, we feel there's still a strong underlying growth trend embedded in there, offset with the private label. From an EBITDA perspective, we've embedded the tariffs at the 23% we currently see impounding to the country. Those will gradually increase through the quarter, peaking at that 23% roughly at the end of the quarter. It's the current level of pricing.

Bonnie Herzog (Analyst)

Okay. Thank you. Just want to verify, there's nothing that we should think about as it relates to inventory levels, you know, in terms of Q3 versus Q4? Nothing to call out there?

Corey Baker (CFO)

Yeah, it's quite hard for us. We don't have complete visibility to the inventory, which is why we stay focused on the full year. Q3 had the large retailer promotion, so the timing of that may have been a little heavier in Q3. As you know, we've talked about, we expect improved distribution at Walmart. How that shifts to distributors and exactly when that inventory will pull is hard to call as well. I would stay focused on the two-year second half trends, maybe, and you'll see very strong growth.

Martin Roper (CEO)

I would just add that I think we think distributor inventories at the end of the quarter were healthy and were sort of ready to support the Walmart set process. Obviously, how those adjust through the end of the year, as you know, can produce a little bit of noise at the end of the year. We currently think inventory levels are appropriate based on the activity we see in Q4.

Bonnie Herzog (Analyst)

Okay. Super helpful. If I may just squeeze in a quick question on private label, because it certainly has been a focus, and you touched on this, hoping for maybe just a little bit more color on what you touched on, the recent private label customer wins. How do we think about these wins, meaning offsetting some of the prior losses, if at all? As you think about your private label business, how do you believe it's advantaged maybe versus peers? How do we think about your approach to private label next year and beyond? Is this something you're going to aggressively pursue? Thanks.

Martin Roper (CEO)

Yeah, I think as we've said all along, Bonnie, we view the private label business as one that's complementary to our brand on a number of factors, both on the supply chain side and the retailer relationship side. We intend to continue to seek private label business or regain private label business and be competitive in it. As it relates to how we think about our competitive position, we believe that we are uniquely placed to provide large private label programs with diversified supply of private label across multiple countries, multiple factories. We also believe that some of our sourcing leads to a cost advantage, a service advantage, and a quality advantage. That doesn't always play out in how those bids are awarded. It hasn't all been wins, but we certainly believe that we are strategically well positioned to compete going forward.

As it relates to your question, we're obviously not providing any sort of 2026 guidance here. What I would say is that we recovered some of the regions that we lost, but not all of them. We still have some headwinds next year, which may or may not be offset by some of the wins on the new customer front. We lost regions early in the year, and we're regaining some of them. That shows that our supply position is competitive on a quality, service, and price perspective. It gives us hope that we can recover more, but obviously, there are no guarantees, nor has anything been announced. Those are more expectations and hopes over, let's say, a multiple-year period as opposed to a single-year period. I think next year, private label probably will still be a slight drag for us, obviously, the category on a lost business basis.

The category is very healthy. It's growing. The private label business that is retained is growing because the private label business is healthy too, similar to the category. Again, I would just say we're optimistic for a good 2026, but we're not in a position to provide guidance.

Bonnie Herzog (Analyst)

Okay. Super helpful. I'll pass it on. Thank you.

Operator (participant)

Thank you. Our next question comes from Chris Carey with Wells Fargo Securities. Your line is open.

Chris Carey (Analyst)

Hey, good morning, everyone.

Martin Roper (CEO)

Hey, Chris.

Chris Carey (Analyst)

The implied Q4 gross margin, a couple of questions there. The first is just the Brazil tariffs. Is it reasonable to assume that Q3 did not include much of those, and those will be heavily concentrated in Q4? I'd love some perspective on that because Q4 has some seasonality that it's lower than Q3, but there's also this new cost factor. I'd love maybe a bit more detail on how you see that impact. The second thing is, how are you thinking about some of the headlines around tariff? What are some of the key markers that you're looking for as it pertains to Brazil? The reason I ask is because, at what point do we start thinking that you may need to take some pricing going into the front half of next year? How long will you assess the tariff backdrop before making that decision?

Mike Kirban (Co-founder and Executive Chairman)

I think for starters, the headlines are interesting and definitely worth looking into. The numbers that we've given in terms of what tariffs look like for us as of the end of the quarter could change. This is what we're dealing with, the uncertainty around it. If you look at the headlines over the weekend, obviously, Trump and Brazil's President Lula had a good meeting and have committed to getting a trade deal done. Brazil has asked for relief on the 40% reciprocal tariff. It hasn't been denied, hasn't yet been approved. We are hopeful that we'll see some changes on a positive level as it relates to Brazil. Even as you look at some of the other trade deals that are getting done, if you even look at Cambodia and Malaysia, which happened this weekend, coconuts are listed as excluded from the tariffs in those trade deals.

Coconut water is not yet. This is something we're hopeful for and working on. I think it's pretty clear that the administration is looking to exclude unavailable natural resources. We've just got to make sure that coconut water is recognized. As these trade deals continue to get done with different countries in which we source from, we're hopeful that we'll see some improvement to the tariff numbers that we've talked about. As of now, that's where we stand.

Martin Roper (CEO)

Chris, going back to the start of your question, which was, you know, did the increased tariffs from early August hit Q2 P&L? Maybe Corey, you could take that.

Corey Baker (CFO)

Yeah, Chris, it was a small amount. If we think of the tariffs of April and August, the August tariffs had very little impact on Q3, a slight bit at the end, and that'll ramp up towards that 23% rate. We anticipate that would hit late in the quarter, November, December timeframe, and then be at that steady rate through next year, barring any of these changes we're hopeful for.

Martin Roper (CEO)

Chris, relative to your pricing question, we took pricing in July to mitigate the 10% baseline tariff from April on a dollar basis, right? I think we indicated in the call that that was showing up as like a 7% pricing on Circana on a two-year basis. Comparisons two years ago is how it's showing up. That would, I suppose, also include the May. That's the impact of both pricing. We're still monitoring the impact. There's certainly been a slight volume decline with the pricing, but in line with our expectations. We want to monitor it. We're also monitoring competitive actions and movements on private label pricing where we expect private label pricing to follow the tariffs rate because it's a cost-plus business model for our retailers. We're monitoring that to see what happens. We don't feel in a rush to mitigate further the tariffs.

While we wait for that, we're also working on the mitigation strategies, particularly as it relates to Brazil, which is the outlier in our tariff environment at 50%. Those mitigation activities revolve around taking Brazil production to other countries other than the U.S. It's not as simple as just a switch because you have to get packaging in place. You have to get approvals in place. We're working to be able to do that over the next few months and certainly complete that if the Brazil tariffs stay in place by the end of next year. We want to see how those mitigation efforts go. You said the tariffs are very fluid. It is obviously very fluid. We don't want to take price if we effectively have to give it back.

We're thinking we'll make pricing decisions in Q1 that might take effect Q2 based on our view on where tariffs are and mitigation actions are in Q1. We're reserving the right to take pricing or not take pricing based on what we see in the marketplace and what we think is right for the brand long-term.

Chris Carey (Analyst)

Perfect. Quick follow-up, or perhaps not, but international, just give us a sense of where we are in the international journey. I suppose you're going to say early, but it's really starting to come through. How are you thinking about the growth runway at international? You know, just remind us on your capacity to service that international market given your supply. Thanks so much.

Martin Roper (CEO)

Yeah, let's start with the capacity. As we sort of have talked about for the last 18 months, we started adding capacity because we saw the category accelerating both in the U.S. and in our core markets internationally. We've been adding capacity to support growth rates in the mid-teens or a little bit higher. That is progressing well. It's a lot of work. A big shout-out to the team involved. We're adding one to two or more factories a year. There's a lot of hard work going on in that. We don't see a capacity issue in supporting this over the next few years. As it relates to your international question, we view category development in our core markets internationally, which we would describe as the U.K. and Germany, as being underdeveloped versus the U.S.

I would refer you to our investor presentation from June, where we provided an estimate of consumption per population by different countries. You'll see there that the U.K. is about a third of the U.S. Germany is like 10% of the U.S. It's pretty early. Obviously, the U.S. is still growing. We see it as early innings. I think big picture, longer term, the way we think about it in our five, 10, 15-year planning—I suppose I do 10-year planning, Mike does five-year planning—we want Europe to be as large as the U.S., right? Is it possible that that could happen? Absolutely. Populations are good. Demographics, income levels, health orientation are all good. We think coconut water is still in early innings in Europe.

Chris Carey (Analyst)

Thanks so much, guys.

Martin Roper (CEO)

Thanks. Thanks, Chris.

Operator (participant)

Thank you. Our next question comes from Robert Edward Ottenstein with Evercore ISI. Your line is open.

Robert Ottenstein (Analyst)

Great. Thank you very much, and congratulations on another terrific quarter.

Martin Roper (CEO)

Thanks, Robert.

Robert Ottenstein (Analyst)

I want to double or triple click down on international, which just seems, you know, super exciting. Just to help us get a little bit more granularity on the business, can you give us a sense, based on what you've learned today, how the international market, and in terms of Europe, is there a significant difference in terms of the consumer occasions and how they look at the category? How would you compare the competitive intensity in Europe versus the U.S. margin profile? In terms of this quarter, was there anything unusual that perhaps flattered the results? Thank you.

Martin Roper (CEO)

Yeah, sure. I'll try and get to all of these. Let's see. International is very exciting. International for us is sort of largely Europe. That's where the strength is. It's led by the U.K., which was launched about 11 or 12 years ago. I'm probably a little bit off on that, but effectively, 10 years behind the US in its launch trajectory. In the U.K., there is a healthy category, but our brand has over 80% share of it. It is largely cold in the stores, which is a difference to obviously the US where we're warm shelf. The competitive players really aren't that strong because with over 80% share, there's not really anyone talking about it. About five years ago, Innocent Juice had a coconut water brand that probably had 10%, 15%, 20% share, but that has largely been squeezed down to low single digits.

We have a very strong position, and we're focused on growing the category and obviously maintaining our share of the category. As the category growth continues, retailers get excited, and they could introduce new brands, etc. It's largely small stuff, and I don't think we see any impact from that. Would I expect the competitive environment to continue to be active? Yes, of course. The rest of Europe, for the most part, has been small for us up until about two years ago. We put a commercial leader into Germany to try and open up the private label business. In a lot of the rest of Europe, private label was actually a very big player in coconut water, whereas in the U.K., it isn't as big a player. In many of those countries, private label is the largest non-brand brand, but obviously, it's across multiple retailers, but it's very significant.

We led with developing retail relationships with private label, and that then allowed us, as coconut water growth started to take off, we were asked whether we'd bring the brand in, and we were able to do so. We're in very early innings in Germany. We have national authorizations. Germany retail is interesting in that a national authorization doesn't result in distribution. In many of the retailers, you have to then go get a regional approval and then actually go store or store collective to build that out. We're in pretty early innings there. As I look at the next two years, the blocking and tackling is actually delivering on the national distribution that we've been awarded by selling it at the regional and the local level. That's probably a multi-year task. Interestingly, as we launched Vita Coco into Germany, we saw the category growth accelerate.

I think that's partly because there aren't strong brands there that are investing and have good brand recognition. We've been able to gain a very significant piece of that growth. We've gone from effectively 0% branded share to a healthy brand share by grabbing that growth. That said, the private label business has also accelerated, so it's been good for the category. Obviously, we try and compete in that. We're trying to take some of the learnings from these markets that are different than each other, right? They're different both on where the category is and the retail environment and think very carefully about which markets to prioritize next, obviously with a weight on maybe the larger markets like France and Spain.

We're also testing different routes to market in more fragmented markets like the Benelux, which is currently growing very healthily for us through a partnership with a distributor there. We have different models that are working, and I think we're happy to be patient, and we're not trying to blast it out and overstretch ourselves. We're trying to build it from the ground up, and we feel pretty good about healthy international trends for the next few years based on that European business. You asked about margin. We mostly do not use distributors. We do have some reps. There are some distributors for small markets. There isn't a distribution layer. It's direct to retail. Pricing in the market is lower than in the U.S., pricing to consumer because of that. Margins are good. It benefits from lower ocean freight costs from Asia to Europe mostly.

That can support a lower price structure. The margins are perhaps maybe on a branded side a little less than they are in the U.S., but they're still very nice and appealing. I think I've touched on every one of your questions, but if I miss one, please reask.

Robert Ottenstein (Analyst)

Yeah, was there anything in this quarter on the international that flattered results in any way?

Martin Roper (CEO)

Just strong demand.

Robert Ottenstein (Analyst)

Yeah, good enough. Thank you very much.

Martin Roper (CEO)

Thanks, Robert.

Operator (participant)

Thank you. Our next question comes from Christian Junquera with BofA Securities. Your line is open.

Christian Junquera (Analyst)

Hey, guys. Thanks for the question. Just two questions. A quick clarification question. Just the tariff impact for 2025, did you guys say $14 million-$16 million? If so, that implies a blended tariff rate for this year about like 6%-7%. The expectation, what you guys are expecting is it jumps to 23% in 2026. Did we catch that correctly?

Corey Baker (CFO)

The 14 to 16, Christian, is correct. The percentage, the 23% is of the applicable finished goods amount, which we've quantified as approximately 60% of our global cost of goods. I'm not sure of the math you have on six.

Martin Roper (CEO)

You have to remember that the tariffs were imposed initially in the first week of April at a 10% rate. What hits our P&L is delayed by when those tariffs flow through our inventory. For example, a 10% tariff applied on April 7 to a container leaving Asia would not arrive in the U.S. until maybe early June, and then would not get sold out of our inventory probably until July. Our tariff impact in Q2 did not really merit talking about. We did not talk about it in Q2 as a dollar amount. We talked about a $6 million impact in Q3, which would largely reflect the 10% baseline tariff imposed in April because that would be the inventory flowing through our P&L in Q3.

As Corey indicated, the blended tariff rate based on our current sourcing at the end of the quarter is 23% of containers shipping at the end of the quarter from source. That rate, which is the rate that effectively was put in place in early August, flows into our P&L in mid-late Q4, but is the rate that is applicable for next year. That is the reason that the $14 million-$16 million looks small to you because effectively, it is on half a year, and at least half of that year is only at 10%. Sorry, at least half of that six months is only at 10%. Does that make sense?

Christian Junquera (Analyst)

Yeah, that's very, very helpful. Thank you for the clarification. If we just can go into, you've talked about it, the levers to offset the higher tariff rate for next year, right? You guys have the higher pricing that you took this year that's going to carry over. I mean, potentially, lower ocean freight. Looking at the chart, it looks like rates keep going down. Do you have any expectations for ocean freight next year? I don't know if I'm missing anything else, any other levers at your disposal. Thank you.

Martin Roper (CEO)

I mean, that's the biggest benefit. That is the biggest benefit for the offset is ocean freight. We're talking to suppliers and trying to work out things that we can do. This isn't a particularly large margin business for them. Obviously, we're asking whether their governments can help as well, right? We're trying to optimize our sourcing to, you know, take advantage of the different tariff rates. That means trying to avoid Brazil if we can, right? The base pricing we took in July that was, again, incremental to our May pricing was designed to cover the dollar impact of the 10% baseline. Obviously, we're evaluating the impact of that. If we think we'd have to take more pricing, and it's prudent given the competitive environment and our brand trends and everything else and all our mitigation efforts, then we will consider it.

We're a little reluctant to rush into pricing if indeed some of these tariffs may be waived under the trade agreements that Mike was talking about. We obviously have the Supreme Court case coming up next week, which may or may not also declare that the tariffs don't apply. We're a little reluctant to rush into pricing until we get a better feel for all these impacts.

Christian Junquera (Analyst)

Perfect. Thank you.

Operator (participant)

Thank you. Our next question comes from Jon Anderson with William Blair. Your line is open.

Jon Anderson (Analyst)

Hey, good morning, everybody.

Martin Roper (CEO)

Hey, Jon.

Corey Baker (CFO)

Jon.

Jon Anderson (Analyst)

A couple of questions. We've talked a lot on the call about headwinds from ocean freight, not ocean freight tariffs, I'm sorry. I did want to ask a little bit more about ocean freight because, you know, the rates look like they've been cut in half year-over-year. That started happening earlier this year, the decline year-over-year, and down 50% starting in the mid-year. I think you're operating off of, as you pointed out, a lot of spot situations right now. I don't know the exact kind of composition of your cost of goods, but the freight piece seems like a big piece of the cost of goods. If that's come down to that degree, it seems like that would be, you know, much more impactful than the tariff piece here.

We would be looking at a pretty good, you know, margin outlook, a gross margin outlook for 2026. How do you kind of think about that?

Martin Roper (CEO)

One way to think about that is we've indicated that the tariffs apply to 60% of our global cost structure. If you apply 23% to that, you get out at like 13% of our revenue is tariffs. That's a huge number, right? The last time ocean freight spiked, which was 2022, really spiked, we talked about a total transportation impact of $65 million, which included domestic transportation. We said two-thirds of it was ocean. The ocean freight, you can extrapolate an ocean freight number from that $65 million, and you can get back into, you know, that was when rates were at $10,000, $12,000, $14,000, right?

Ocean freight is an important part of our cost structure, but I would caution you not to overestimate it and to use those data points that we provided. I'm going to say, Corey, did we provide a percentage of transportation costs in one of our investor presentations?

Corey Baker (CFO)

Yeah, a few times through the years we have in the range of a third, but it varies up and down.

Martin Roper (CEO)

Quantify that based on ocean freight.

Corey Baker (CFO)

Yeah, we haven't quantified that. Tariffs obviously change that equation a bit.

Martin Roper (CEO)

Yeah. So is it fair, like you said earlier, that ocean freight is an important opportunity for mitigation? Obviously, you know, we're not actually doing anything. We're benefiting from market changes. It's a benefit from market change that can be an offset. The tariff impact, if it were to stay, is pretty significant. You mentioned what's gone on with ocean freight. If you look back a year on the indexes, the indexes were in the lowest $3,000s, and they're currently sort of, I'm looking at the global index, it's currently in the low $2,000s. It's down 33%. It went up last year, and it had a couple of peaks that, you know, cost us, right? Yes, current ocean rates are lower than they've been for at least a year, but the change is perhaps not as big as the 50% as you were talking about.

It's not down 50% versus a year ago.

Jon Anderson (Analyst)

I think I have in my notes that ocean freight in aggregate in COGS is 30%-35%. Is that with the balance being finished goods? Is that a reasonable way to think about it?

Corey Baker (CFO)

Transcript. I believe that number is transportation.

Martin Roper (CEO)

It's transportation.

Corey Baker (CFO)

It's warehousing, drayage, ocean freight, internal transportation, distribution, etc. Ocean freight is a subset of that.

Jon Anderson (Analyst)

A component of that third of COGS or so. The other question I had was just on sale on the guidance. I guess the guidance implies Q4 sales of around $105 million, which, looking at what you did in Q3, $182 million, it's like a 42% or 43% sequential decline in sales from Q3 to Q4. We haven't seen anywhere near that kind of a seasonality or change in the past. I know there's a little bit of seasonality, but again, a 45% decline is big. I just want to make sure I understand what's causing that. Thanks.

Corey Baker (CFO)

Jon, Mike, I don't see those levels of declines year on year, but maybe we're sequentially.

Mike Kirban (Co-founder and Executive Chairman)

No, sequentially.

Corey Baker (CFO)

Yeah, sequentially.

Mike Kirban (Co-founder and Executive Chairman)

Q3 was very big. We benefited from the major promotion that we skipped last year, right?

Corey Baker (CFO)

Growth from the out-of-stock.

Martin Roper (CEO)

Obviously, there's lots of moving pieces here, but on branded, maybe you look at the decline in 2023, which would have been a comparable year on a promotional side. We have the private label decline that we've referred to you to look at in Q2 rather than the Q3 number. It's tough modeling Q4 for us. We're providing the best view that we can. We have some uncertainty on exactly how the private label falls through the end of the year and into next year. That's one of the reasons for maintaining the ranges.

Jon Anderson (Analyst)

Yeah, makes sense. Okay, thanks, guys.

Corey Baker (CFO)

That's what I thought. That feels like maybe the bottom or below the guidance range. Is that right? We could follow up.

Jon Anderson (Analyst)

Yep. Okay.

Operator (participant)

Thank you. Our next question comes from Michael Scott Lavery with Piper Sandler & Co. Your line is open.

Michael Lavery (Research Analyst)

Thank you. Good morning.

Martin Roper (CEO)

Good morning, Michael.

Michael Lavery (Research Analyst)

I just wanted to touch on capital allocation. You mentioned now your cash balance over $200 million. I know in almost the same breath, you point out the share buyback authorization, though it's a small piece of that, even if, of course, you could always reauthorize more. What's the expectations for use of cash? I know you've always had M&A on your kind of to-do list, but it hasn't been a big factor ostensibly because there hasn't been something interesting or at the right price. How do we think about what the cash is meant to go for?

Martin Roper (CEO)

I think our priorities haven't really changed. The first one is growth of the core business. I would say that, with the growth we're seeing and our planning for next year, we'll probably be building inventory as we finish this year into next year. Obviously, we're a pretty inventory-intensive business given so much of it sits on the water. I would just draw your attention to that while also recognizing that $200 million is a very healthy cash balance for a company of our size. Our next set of priorities is innovation and supporting our innovation efforts. The third priority is M&A for something that will deliver value to our shareholders. I think we've talked about M&A a lot in the three, four years we've been public and obviously haven't done anything. We're prudent and we're not looking to do M&A for M&A's sake.

That's certainly not part of our mission statement. As we look at what's going on in all those three areas, growth, innovation, and M&A, if we believe we have excess cash, then our intentions would be to apply it to share buyback at stock prices that we think are fair for our long-term shareholders. That's how we think about it. I don't think anything has really changed. Certainly, as the cash builds, it becomes more of a conversation, but I don't expect us to change our approach to it.

Michael Lavery (Research Analyst)

Okay, thanks. Just on treats, a follow-up there. It seems like it would be a pretty nicely incremental part of the portfolio. Is that a fair characterization? Even if so, do you find it can be sort of a gateway to the coconut water part of the portfolio too? Are you seeing any interplay there that it might be attracting new users who then also switch to the coconut water side of the business?

Mike Kirban (Co-founder and Executive Chairman)

Yeah, I mean, we're seeing a lot of consumers coming into the brand through Vita Coco Treats, which is really nice to see. Exactly what you mentioned, they're coming into the family. Kind of like what we've seen over the years with our pineapple flavor and our extra coconut flavor, those are kind of the entries for the category. The hope is that they stay within the brand. You see a lot of people then move to the original pure coconut water, the blue one. Vita Coco Treats, it's early, but we aren't seeing cannibalization, and we are seeing a lot of new consumers coming into the brand through Vita Coco Treats. That is the idea. Hopefully, they stay with coconut water and drink it for different occasions in different flavors and formats.

Martin Roper (CEO)

A couple of comments on how treats get reported. On a shipment basis, it's reported in other. The coconut water reporting on a shipment basis does not include treats, right? It's indicative, again, of the health of the category. On a Nielsen-Ciccana basis, treats get reported sort of not necessarily in coconut water, but it might get reported in sort of milk-based products because it's a coconut milk-based product. I would just caution you to work out if it is being reported or not. In our Ciccana data, it's not in the coconut water definition that we buy. It was order of magnitude, and I'm looking for Corey, would have added an incremental 4% to our Ciccana growth rates. Indeed, we reported our investor deck because our investor deck reports coconut water growth rates that don't include treats.

Michael Lavery (Research Analyst)

That's right. Got it. Yep. Thank you.

Operator (participant)

Thank you. Our next question comes from Eric Serotta with Morgan Stanley. Your line is open.

Eric Serotta (Analyst)

Great. Thank you. First question would be in terms of pricing. I know you said that you're waiting on further pricing to see what the competitive environment looks like. What are you seeing in terms of, you know, have competitors moved on pricing in, you know, as we sit here today at the end of October? You guys moved early August. I know that some competitors were on a different kind of pricing cadence over the past few years. What are you seeing in terms of pricing from your competitors today? I know you can't speculate about the future there. Just to follow up briefly on treats, what does the repeat purchase look like on that? It looks like it was nicely incremental to this year. Do you see it building next year, or is that in some ways going to be a tougher comparison with the launch this year?

Thanks.

Corey Baker (CFO)

Let me take the pricing, Eric. Good morning. Martin can talk to the treats performance. I would say from pricing, and we tend to use Circana as our measure of what we're seeing in the market, we're seeing a few different things. Some competitors took pricing early and quite a bit and have maintained at that level and not moved incrementally in response to tariffs. Others have moved one or two times, and we're seeing some moves in some private label more recently, up on a second tariff move. Others have not moved at all. There seem to be differing strategies across the market. Obviously, we lead the market by a wide margin, and we've moved. We'll continue to monitor closely on additional moves.

Martin Roper (CEO)

Yeah, I think we're also monitoring the tariff, what tariffs actually could end up being. I think there's still so many moving parts between Brazil and trade deals getting done. I think there's a lot of questions to be answered.

Corey Baker (CFO)

That's quite a hot fit.

Martin Roper (CEO)

Yeah. Because of the timing of the August tariffs, I'm not sure we've seen anyone moving relative to that. Obviously, we would expect people to have to move, particularly on the private label side. That's a good reason to sort of wait. With regards to treats, I think, as Mike said, it's providing a different gateway for consumers to come into the brand. That's good. I would say we're seeing acceptable repeat rates, if not positive repeat rates, and our challenge is to drive more trials, so more visibility of the brand. That probably requires a little bit more investment, etc. That's what we're planning for next year. I think you asked about next year. Obviously, it's very difficult to sort of project next year. We do think that we will get some treats distribution gains.

While we did very well on treats this year, we didn't, for instance, get it into Walmart. I think our expectation is that we would get it into Walmart in the resets and some other places as well on sets next year. I think we still have another year of growth for treats just based on the launch before getting.

Corey Baker (CFO)

Distribution growth.

Martin Roper (CEO)

Yeah, distribution growth before, you know, and then obviously we are trying to drive adoption on top of that. It certainly should be a positive next year.

Eric Serotta (Analyst)

Great, thanks so much.

Operator (participant)

Thank you. Our next question comes from James Ronald Salera with Stephens Inc. Your line is open.

James Salera (Equity Research Analyst)

Hey, guys. Good morning. Thanks for squeezing us in. I just wanted to ask. First, I wanted to ask on just the kind of composition of the growth this year. You know, if I look at the slide deck, it looks like multipacks have been kind of the biggest incremental driver, which I would kind of read as a proxy for increased purchase with existing households. Please correct me if you think that that's a wrong read there. With the inclusion in modern hydration upcoming, do you view that as an opportunity to really introduce the brand to new households if it's more visible on shelf, or is that a way to maybe pick up some lapsed opportunity with people that were buying it, but then, you know, it gets shuffled around in the store and they kind of lose track of it and don't follow up with it?

Martin Roper (CEO)

We view the multipack strategy as a way of increasing value to our customer while also increasing velocity and potentially putting more product in their pantries, right, which potentially increases their own consumption. I think that's what we're seeing. Some of the multipack strength is also a little bit driven by multipacks are much more predominant in club-type environments. If club is strong as a channel, which it obviously is in the current economic environment, you are seeing some growth from multipacks from that point to side. As it relates to how is that all, you know, filling into total growth, we still see our growth as a nice balance of new households and increasing velocity by household. Our, you know, rough approximation is half of the growth is coming from new households, and half is coming from increased consumption by household. That's what we think is currently going on.

Obviously, numbers in this area are, you know, available, but messy.

James Salera (Equity Research Analyst)

Great. I appreciate all the color around COGS and kind of the moving pieces next year. You guys still have some stuff you want to look at before you give 2026 guidance. If I just take the 4Q exit rate on tariffs coupled with kind of running forward the ocean freight rate through into 2026 and blend that together, it would imply that FY 2026 gross margins are kind of flat to down modestly. Is that a fair way to characterize it just as we're thinking about it? I can appreciate, obviously, there's plenty of moving pieces on tariffs, but assuming no changes there, the gross margins would be kind of down modestly next year?

Corey Baker (CFO)

That sounds like 2026 guidance, Jim.

Martin Roper (CEO)

It was a good try.

Corey Baker (CFO)

Jim.

Martin Roper (CEO)

I would just say we think we're covered by very, very smart analysts with very smart support teams.

Corey Baker (CFO)

Okay.

Operator (participant)

Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Our next question comes from Eric Des Lauriers. You're with Craig-Hallum Capital Group LLC. Your line is open.

Eric Des Lauriers (Senior Research Analyst)

Great. Thank you for taking my questions, and congrats on a really impressive quarter.

Corey Baker (CFO)

Thanks, sir.

Eric Des Lauriers (Senior Research Analyst)

My question is on tariffs. You've outlined several levers you can pull to offset the impact of tariffs, but I'm wondering what levers you have to pull or what's in your power to do in terms of lobbying for coconut water to be excluded from tariffs like other coconut products are. Do you have any levers to pull here? Is there anything from a lobbying or even import classification perspective that you're able to do?

Corey Baker (CFO)

Yeah, it's what we're working on. I've been spending time in D.C. and doing exactly that, working from both the angle of the production-producing countries in their negotiations and discussions and also on the U.S. administration side. We're making every effort that we can.

Eric Des Lauriers (Senior Research Analyst)

That's great. Just a question on the marketing spend outlook. Overall, should we expect a general increase in marketing spend as a percentage of sales going forward given balance sheet strength, investments in treats, consumer education efforts? Should we expect a general increase as a percentage of sales, or do we have enough kind of robust top-line growth that this current level of marketing spend as a percentage of sales is a good guide going forward?

Corey Baker (CFO)

As we think about the long term, and there's variability year to year, but broadly, we would expect sales and marketing expenses to track net sales or branded net sales over the long term.

Eric Des Lauriers (Senior Research Analyst)

All righty. That's helpful. Thanks for taking my questions. Congrats again.

Martin Roper (CEO)

Thanks, Eric.

Operator (participant)

Thank you. Our next question comes from Gerald Pascarelli with Needham & Company. Your line is open.

Gerald Pascarelli (Equity Research Analyst)

Great. Thanks very much. I just had a, going back to tariffs, if they remain in place as is, would. Can

you just speak about how long the process is, should you choose to reroute shipments from Brazil to international markets? Based on your current sourcing, is it possible to reroute all shipments from Brazil to international markets, or is that just not practical based on your supply chain? Any color that would be helpful.

Corey Baker (CFO)

Yeah. To reroute, we need to develop packaging that fits the factory and the new market it's going to be servicing. We also need to get any validations for that factory in that country or with that retailer that are required. Those processes might take three months, could take nine. It's a moving target. We've started working on those things back in August, September. The urgency on working on them, it's urgent. We're also sensitive that once we stop buying that material, if Brazil tariffs go away, then we've got this packaging in the wrong location for a non-optimized supply chain because Brazil is optimized to supply the U.S. To answer your question, we're working on it. We're pulling triggers that we think are appropriate given the uncertainty around the 50% tariffs from Brazil.

If the 50% were to stay in place, our hope would be to have our weighted average tariff rate down from 23% to close to 20% by the end of the year. We may still choose to source some items from Brazil for certain markets and/or customers, and/or for strategic reasons because it's got a much shorter lead time in servicing the East Coast of the U.S. We may not fully exit Brazil as it relates to U.S. demand, but that's where we would think we could get to by the end of the year, end of next year.

Gerald Pascarelli (Equity Research Analyst)

That's very helpful. Thank you. Just going back to the prior question, in your trade discussions, are you hearing anything that maybe makes you more optimistic on the potential for a lower negotiated rate from the 50%, specifically based on the significant inflation that the U.S. is seeing from Brazil coffee? Is that playing a factor? Do you think that will play a factor as we look out over the near term here?

Martin Roper (CEO)

Yeah. I think it's also things that we're hearing in meetings, but we're also hearing publicly discussed from both sides. They're looking to make progress in the very near term. We're hopeful that something happens in the near term, specifically as it relates most specifically as it relates to this 40% reciprocal tariff hopefully being relieved. We will see how that plays out.

Gerald Pascarelli (Equity Research Analyst)

Got it. Thank you very much.

Martin Roper (CEO)

Thanks.

Operator (participant)

Thank you. This concludes the question-and-answer session. I would now like to turn it back to Martin Roper for closing remarks.

Martin Roper (CEO)

Thank you, everyone, for joining the call today. We very much appreciate your interest in The Vita Coco Company, and we look forward to talking to you again in 2026. Cheers.

Operator (participant)

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.