The Vita Coco Company reported net sales growth of 28% to $96 million in its Q1 2022 earning report this week, as its core coconut water line has largely withstood the widespread supply disruptions impacting the beverage industry.
Gross profit for the quarter was $19 million, about 20% of net sales, down from $24 million (about 32% of sales) in the prior year, primarily due to increased transportation costs. Net income attributable to shareholders was $2 million, about $0.04 per diluted share, compared to $2 million, or $0.03 per diluted share, in Q1 2021.
The core Vita Coco coconut water brand was up 38% year-over-year, while private label sales increased 18%, CEO Martin Roper told investors and analysts during an earnings call yesterday. Net sales in the Americas, which made up about 88% of total net sales in Q1, were up 33% to $85 million (versus $64 million last year) while international sales were flat.
According to Roper, Vita Coco gained an incremental 3,000 points of retailer distribution in the quarter and the company is currently on track to gain 25,000 total new locations by the end of the year.
“One of our key competitive advantages that underpins our strong top line performance is our supply chain,” Roper said. “It has continued to perform well with the unprecedented supply chain challenges the world is facing, particularly the unpredictability of ocean shipping containers and rates and challenges at ports with detention and demurrage. While we are short on certain SKUs in certain locations, we are happy with the overall flow of our product given the conditions. “
Although the company has managed to avoid inventory shortages, the impact of inflation and international shipping issues is being felt. Executive chairman Mike Kirban said that Vita Coco is preparing to increase prices this year to offset the rising expenses. Roper added that “unforeseen factors” such as pandemic lockdowns in China and the war in Ukraine have contributed to port congestion, leading to “unusually tight” pricing. Domestic transportation and warehousing costs were also higher in Q4 2021 and Q1 2022, Roper added, though the company “took steps to mitigate these cost increases” late in the first quarter of this year.
Roper also noted that Vita Coco’s production is primarily in the Philippines, Sri Lanka and Brazil, areas that have been spared from major manufacturing disruptions. However, shutdowns in China, Vita Coco’s third-largest market, have impacted ocean freight availability and contributed to flat international sales.
Despite these challenges, Roper said the average cost per case equivalent of purchased product is declining thanks to “favorable sourcing decisions and product mix.” As well, about two-thirds of Vita Coco’s container needs for the rest of the year have been secured at contract prices.
“Our financial output assumes the balance of our needs are priced at the current prices that we are being offered,” Roper said. “We have some flexibility to manage exactly what containers we need based on volume trends, inventory levels and sourcing decisions.”
Those hurdles haven’t significantly slowed expansion in the U.S., however. During the call, Kirban noted that the company is outpacing overall coconut water category growth, which was up 13% over the past year per IRI, he said. Recent innovations have played a key role in fueling that growth; Vita Coco’s Pressed line, which launched in 2019, now has an ACV of 69% and accounts for 17% of total branded volume sales. The line is also driving incremental sales, he added, as about 16% of Vita Coco consumers only purchase Pressed.
Looking ahead, Kirban said the company will continue to focus on core line innovation. Vita Coco canned juices, are launching in regional convenience chains this quarter, and coconut drink mix powders are now available at select national retailers. The company is also working to grow the distribution of its coconut milk product.
“We are one of the most recognized coconut beverage brands in the world and find ourselves in a unique position due to our asset light route to market as well as our supply chain, which ties profit to purpose, to benefit from the opportunity to source from a very large beverage marketplace,” Kirban said. “Over the years, we’ve found that our products actively sourced [sales] from the $11 billion juice category, while at the same time we offer a natural source of electrolytes allowing us to source from the $10 billion isotonic category.”
Citing consumer insights data from Numerator Vita Coco’s household penetration is currently 11% on a 52-week rolling basis, Kirban said, up about 170 basis points over the prior year – or about 2.4 million new households. As well, the Vita Coco brand accounts for 50% value share of the coconut water category in tracked channels, according to IRI, up from 43% a year ago.
“Our strong brand momentum combined with our commercial execution over the last 12 months has resulted in increased space and distribution for our brand this year,” he said. “Based on this brand health, a strong demand environment and our market leading position, we are now comfortable executing the first frontline price increase taken by our company in many years. And we believe that by the end of this year, the planned price increases should on an annualized basis for 2023 fully offset the current unusual cost levels.”
The company said it continues to expect net sales growth in the range of $440-445 million, about 16-20%, for 2022.
Prior to the report, analysts from Credit Suisse last week gave Vita Coco an outperform rating, noting that although the company’s “unique supply chain will create margin obstacles this year” the “fundamentals remain solid.” Goldman Sachs Equity Research analysts this morning reported that the Q1 results exceeded consensus expectations thanks to the strong volume growth offsetting “softer pricing.”
“While the company’s … pricing actions are unlikely to fully offset inflationary transportation costs and supply chain challenges, we don’t see this minimizing [Vita Coco’s] ability to continue to grow its business and drive momentum through increased household penetration and distribution gains,” the Goldman report stated.