Strong consumer demand helped coconut water maker The Vita Coco Company drive net sales up 13% year-over-year, according to the company’s Q2 2022 earnings report released this morning.
Though it also controls brands Runa, Ever&Ever and PWR LIFT, publicly traded beverage company Vita Coco is best known as the leading brand in the U.S. coconut water category, holding 51% value share as of the end of Q2, a 7% increase from last year. Net sales of Vita Coco’s coconut waters were up 21% during the quarter and have increased 19% over the first half of 2022, co-founder and executive chairman Mike Kirban said during a conference call this morning, outpacing the category (+12%).
Outside of the Americas, net sales declined 5%, which the company attributed to “a negative lack of opportunistic commodity sales last year,” combined with the negative impact on foreign exchange rates from the dollar strengthening relative to currencies in Europe. Sales in the Americas, which comprise 87% of the total business, were up 17% to $100 million.
Operating expenses increased to $24 million, up by $3 million from the same period in 2021. Consolidated gross margin sequentially improved from Q1 2022 by more than 500 basis points.
Though CEO Martin Roper noted that inventory challenges during Q2 slowed some of its progress, he confirmed the company is on target to reach its goal of adding 25,000 incremental points of distribution by the end of 2022, with 11,000 gained so far.
The frontline price increases that took effect in the second quarter appear to have helped; Roper said the company has not seen a material negative impact on volumes because of higher pricing, and Kirban confirmed that Vita Coco’s regional partners had been made aware of more hikes coming in Q4. As cited by an analyst during the Q&A portion of the call, increases in competing categories like sports drinks have widened the price gap to Vita Coco, which Roper said has “created room for us to move” with regard to its own hikes.
However, Roper acknowledged the potential for some negative effects on pricing as Vita Coco shifts its sales mix to meet increased demand for multipacks and multi-serve formats. He said this trend “should result in increased overall consumption as consumers have more coconut water available in their homes.”
Even as sales continue to rise, Roper said the company’s primary commercial focus for the remainder of the year is “navigating the challenging supply chain logistics environment,” specifically with regard to sourcing certain ingredients. The company expects some out of stocks from the third quarter,” but is also “confident” that consumer demand, inventory improvements and the forthcoming price increases in Q4 can keep driving topline growth.
High demand for ocean containers has also slowed fulfillment; the company said that more capacity had been made available, but at higher-than-market rates. Vita Coco will take advantage of the “best offers” to boost its inventory in key markets, with the aim of resolving out-of-stocks by the end of Q3. The company is currently contracted for approximately 30% of its 2023 container needs mainly due to a multi-year agreement that expires in 2024.
Speaking during the Q&A portion of the call, Kirban described Vita Coco’s recently announced collaboration with Diageo’s Captain Morgan’s rum brand on a ready-to-drink cocktail as an opportunity to “open up a new occasion” with health conscious consumers who enjoy alcohol.
“We believe that there’s a real consumption occasion here,” he said. “Beyond just our ready-to-drink cocktails with Diageo, we think there’s a real opportunity to open up an entirely new consumption occasion, which is [coconut water] as a mixer with spirits.”