Attempting to separate fact from fiction in a short seller report is a dangerous pastime, no doubt.
Indeed, last week’s NINGI Research report on Vita Coco does all but light the final match after dousing the coconut water company in flammable rhetoric, concluding after an incendiary 20 pages that “we don’t see why anyone should bet on this horse.” They may be yelling “fire,” but is there smoke yet?
Amidst the blame and recriminations, one red flag seems to wave the highest: the potential of a Costco-sized hole forming in Vita Coco’s balance sheet. The club retailer is preparing to conclude its private label contract with Vita Coco this year, per the report, slashing an estimated $90 million (~20% of overall net revenue) from the books.
Vita Coco seemed to tacitly confirm the move in its 10-K filing in February, noting a winding down of “one of our significant customers” for private label coconut water and coconut oil in 2023; coconut water was subsequently extended in 2024 at the customer’s request.
- “We are expecting the loss of further regions that we serviced for this customer during 2024,” it notes.
The report also cites documents filed with U.S. Customs and Border Protection that reveal Costco has been importing Kirkland Signature Coconut Water from a competing supplier (Advanced Business Strategies (ABS)) throughout 2024 – a period during which Costco shoppers frequently complained that Kirkland coconut water was out of stock. Vita Coco sales at Costco declined across all four quarters in 2024.
More than just money, losing Costco could short-circuit Vita Coco’s entire business structure, the report contents, as the COGS-plus fixed margin model gives Vita Coco the flexibility to absorb ever-escalating freight costs for its own branded products. Now those margins are likely to be defended by price hikes on branded items, which, combined with depressed consumer confidence and Costco’s pivot from customer to competitor, would spell uncertainty ahead.
Vita Coco acknowledged the challenges on Wednesday, noting that “significant inventory constraints… led to unacceptable private label service levels that were below our standards.”
- Though it “currently expects to lose some regions with certain private label retailers during 2025,” those projections have been incorporated into existing full-year forecasting, the company says.
There’s plenty more short seller vitriol in NINGI’s report; all that’s missing is the sound of gnashing teeth. It does resurface one fair criticism: a company that relies on a single product (coconut water) for 96% of its revenue will always be susceptible to dangerous swings in the market.
Vita Coco’s struggle to make good on its ambitions as a broad healthy beverage platform – either by M&A or internal product development – means it’s leaning on coconut trees more than ever. In this case, that might not be such a relaxing prospect.