Q3 2021 Vita Coco Company Inc Earnings Call
Hello, and welcome to the third quarter 2021 like a Coker company earnings Conference call. My name is Charlie and I will be coordinating your call today. As a reminder, you did the timing of this earnings call, which is within 25 days after the company's IPO, we will not be taking questions on today's call I will now hand.
The call back to John Mills ICR.
Thank you and welcome to the Vita Coco Company third quarter 2021 earnings results Conference call.
Today's call is being recorded with US today are Mr. Mike Urban co Chief Executive Officer, and Chairman Martin Roper Co Chief Executive Officer, and Kevin <unk>, Chief Financial Officer subdivided Cocoa company right.
By now everyone should have access to the company's third quarter earnings press release issued today after market close.
This information is available in the Investor Relations section of the Vita Coco companies' website at investors thought the Vita Coco company Dot com.
Before we begin please note that all the financial information presented on today's call is unaudited.
Certain comments made on this call, including forward looking statements, which are subject to the safe Harbor provisions of the private Securities Litigation Reform Act of 1095.
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 detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward looking statements made today.
During the call we will use some non-GAAP financial measures as we describe business performance.
The SEC filings as well as the earnings press release, providing reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures are all available on our website.
Also due to the timing of the required quiet period related to our recent IPO, we will not be taking questions on today's call from him.
And now I will turn the call over to Mr. Mike Carbon Chairman and co Chief Executive Officer.
Thanks, John Hello, everyone. We are very excited to share our third quarter results on our first earnings call as a publicly traded company.
'twenty, one we began trading on NASDAQ under the ticker symbol cocoa Seo Seo, becoming a public company is a huge milestone, but the opportunity that provides us moving forward is what I'm. Most excited about on today's call I'll provide an overview of our business and reiterate the key reasons why we believe the vehicle company is uniquely positioned for <unk>.
Long term growth.
I'll, then turn the call over to our co CEO Martin Roper, who will briefly review our third quarter business performance as well as our multiple growth initiatives and supply chain position and then to our CFO, Kevin <unk>, who will discuss our third quarter financial results in more detail and provide full year 2021 guidance.
For a little background, we built a vertical company into what we believe is one of the leading healthy beverage companies today, we believe that by listening to this generation of consumers and working in partnership with them to build brands over time, we can build one of the most impactful beverage companies in the world today.
Today's and future generations demand more from the brands they support consumers want brands that deliver on health and functionality as well as support companies that care about purpose just as they care about profit.
Want better products from better companies and that's what we strive to deliver every day as.
As we think about the opportunities that lay ahead, we're focusing our attention on two key objectives first and foremost we will aim to continue driving growth of the coconut water category and strive to make coconut water household staple in the U S. China and Europe, just as it is in the tropical world while doing this we will aim to continue.
<unk> gaining share on a consistent basis in the category. Our second key objective will be to continue nurturing and developing new healthy beverage brands that can drive growth overtime and offer consumers the type of healthy alternatives to conventional brands that they're looking for.
Over the past 24 months led by the Vita Coco brand the growth of the coconut water category has continued to accelerate as we bring in new consumers and continue to take share within the category in the past 52 weeks alone. The Vita Coco brand has grown market share from 42% to 47% as measured by U S. IRR.
Hi, multi outlet ending October three 2021.
As disclosed in our S. One we believe that 66% of the growth that came into the category from is from new consumers to the category.
Our new initiatives, such as Vita Coco coconut milk Vita Coco hydration drink mix ruin, a clean energy ever and ever and powerless our protein infused fitness drink are all in the early stages of market launch we plan to continue to rollout. These brands in a focused manner that allows us to evaluate consumers' reaction and.
<unk> before deciding on how to accelerate distribution and availability in.
In addition to driving significant topline growth and profitability, we believe in democratizing health and wellness, while using business as a force for good to drive positive impact in our communities.
Earlier this year, we elected to become a public benefit Corporation embedding purpose into our corporate culture.
This enables us to balance the impact on our broader stakeholders as well as maximizing shareholder value in our decision making we.
We source the vast majority of our coconut water from developing tropical countries and we're working hard everyday to create ethical sustainable and better for you products that aim to not only uplift the communities that we operate in but also do right by our planet.
Recently hired a head of ESG and look forward to sharing more on these efforts in the future.
It's great to have an aggressive vision for growth, but it's as important to ensure you're building the right platform from which to execute your strategy at the Vita Coco Company. We believe we're succeeding in this area.
We currently have a leading flagship brand with number one market share grew.
Growing category consumer tailwind, new distribution opportunities and our primary offering each one of the most important aspects of health.
Hydration.
We've assembled a team that excels at brand building innovation and generating loyalty with the next generation of consumers.
Industry renounced renounced sales team and a proven senior leadership team that believes strongly in social responsibility and our asset light global supply chain is easily scalable.
In addition, thanks to many years of preparation we believe that we are well positioned to leverage our infrastructure and grow our core branded and private label businesses, while continuing to add to our portfolio through a combination of innovation and potentially M&A.
We believe that our commercial platform is positioned to generate future growth and improved performance. We're confident because we have authentic brands and a track record of innovation.
Under our flagship brand Vita Coco, we continue to add new flavors and formats that we believe can increase our market share as well as drive the expansion of the coconut water category.
We've also recently introduced new multi serve and multi pack formats for shelf expansion that we hope to build loyalty and increase consumption with our core consumers.
We're building strong retail relationships with omni channel access and flexible route market, which we believe is a competitive advantage for us we've.
We have a diversified sales channel mix, including food drug mass convenience club and E Commerce.
Our strategic and flexible distribution network in the U S enables us to meet available geographic and retail opportunities and include a strong national DSD network direct to warehouse and broadline distributor distributor relationships for specialty channels.
Over the last two years, we've made the appropriate investments in our business that we believe will drive long term profitable growth.
We've expanded our national account team increased category management improved our sales and operational planning processes and enhanced our product and brand innovation team in order to deliver on consumers' needs.
We're currently experiencing significant inflation to our ocean freight and domestic logistics cost for transporting coconut water. We believe that's the right strategy is to pursue share growth, while implementing prudent pricing actions to recover some of the costs. We believe the global transportation cost pressures will ultimately receive and that when they do well.
Emerge in a significantly stronger competitive and financial position with great consumer and retailer relationships.
As we embark on our journey as a public company I'd like to thank the most important asset of our company, which is our employees.
Their dedication desire and fortitude have been exceptional during the past few years and were instrumental to the success of our IPO.
I appreciate all they do for the Vita Coco company and in an effort to have them sharing the company's ongoing success. We made an equity grants to full tied to all full time employees at the time of the IPO. So that our employees have the opportunity to participate as shareholders in the company.
I would also like to thank our new and existing shareholders for their investment in trust, including our distributor partners that keurig, Dr Pepper, who through a subsidiary effective with the IPO became one of our shareholders. In addition to already being one of our distributors.
I would say to a new shareholders that we believe we are financially sound company that has many growth opportunities ahead, we're focused on accelerating the Vita Coco coconut water brand and category.
We believe we have and we have access to capacity, which will support long term growth a deep pipeline of coconut related innovation to increase our presence in retail channels.
And new brand innovations to enter and win share in other beverage categories by offering healthy alternatives to conventional artificial option that exists today.
We believe that coconut water is trading consumers up and that velocity trends should support increased shelf space from retailers in 2022.
Over 50% of coconut water growth appears to be coming from shoppers shifting away from other beverage categories, which together with strong category growth and high Vita Coco brand velocity means that we have a good story for our retail partners, which we hope will garner more shelf space for our brands and categories. While we were pleased with.
We've accomplished thus far we're not resting on our laurels and we are excited about the opportunities that lie ahead.
Now, it's my pleasure to introduce you to our co CEO Martin Roper Martin joined our company over two years ago. After stepping down from his position as Chief Executive Officer of the Boston Beer company in 2018.
That position for over 17 years, where he oversaw Boston beer's growth and diversification into the multi brand platform that it is today over the last two years Martin has worked with our management team and board to take our company to the next level. He has positioned us well to pursue our vision to become the leading independent pure play natural.
Beverage portfolio company.
Thank you Mike I will briefly review, our third quarter results as well as summarize what we're seeing in retail scan data and household penetration tracking.
I'll also discuss how our supply chain is performing with the numerous challenges facing global transportation and logistics and how we are reacting to those challenges.
And then since this is our first public conference call I will provide more color on the many initiatives we have for sustainable long term growth and why we believe our unique supply chain is a competitive advantage.
Yeah.
Turning to our third quarter results net sales increased 32% to $116 million.
In net sales was primarily driven by higher case equivalent volumes across both our Americas and international segments.
Specifically the strength of our Vita Coco coconut water product category in the Americas combined with increased net sales from private label due to better inventory availability and associated timing of revenue recognition were the driving forces for this growth.
We believe that year to date private label net sales growth more accurately reflects the demand trend private label.
Year to date, our Vita Coco branded business is growing much faster than private label.
Our net sales growth in the third quarter of 2021 was accomplished even with continued inventory limitations on some skus in some region related to the strong demand and limited availability of ocean containers at acceptable prices and increased transit times.
While distributor and retailer inventories have improved we believe that they remain below optimal levels for some skus to satisfy the robust consumer demand at retail.
To address supply chain constraints, we are paying more for ocean containers and other logistics, which has helped maintain acceptable product flows and as a result, our inventories available to service retailer distributor demand have improved but not yet evenly distributed across all networks.
Based on U S. IRI retail data, we achieved strong growth across all channels during the third quarter compared to last year with total volume growth accelerating over the year to date trend.
IRI.
13 week data ending October 3rd showed 35% dollar growth provide a cocoa coconut world.
Highest rounded volume growth rate was in convenience and mass merchandisers, which is serviced by DSD network.
We estimate that our share of coconut water and U S. IRI measured channels was approximately 47% for the last 52 week period, ending October three 2021, an increase of approximately five percentage points over our prior year 52 week shift.
We also track household penetration to measure progress and improving brand image and appeal.
Coding to our U S numerator data through September 2021 household penetration grew to 10% for the trailing 12 month period, representing approximately a 15% increase in our consumer base.
The prior period.
And the success of our marketing and sales execution activities and attracting new households to our consumer base.
We see growing household penetration with urban millennial Gen Z households, which we believe indicates that our brand relevance continues to grow with these household that should be purchases for many years.
As we have previously stated in our S. One we believe our U S household penetration over indexes with Asian American Hispanic and Black households, So we should benefit from continued growth of these groups.
On a consolidated basis gross profit margin decreased 36 basis points to 33% for the third quarter versus prior year.
The gross margin decline was primarily due to the significant impact of inflation of global transportation costs, especially on the ocean freight side, which was sequentially worse than in the second quarter and we believe these impacts are likely to persist if not worse than in the next few quarters.
We like everyone else don't know exactly when this situation will begin to normalize.
In the third quarter, we were able to cover most of these inflationary costs with increased case equivalent volume and pricing to generate solid gross profit and income from operations growth.
Kevin will describe in more detail the cost of goods increases over prior year rates.
It will be more challenging in future quarters to cover these costs increase.
With reduced price promotions. So we are studying alternatives.
With the belief that these cost impacts are temporary in nature and that we should make decisions for the long term health of the business and attempt to continue our share gains.
Income from operations was up 73% to $18 million for the third quarter and adjusted EBIDTA was up 83% to $21 million, even as we had additional costs related to being a public company and the increased transportation cost that I just highlighted.
The difference in income from operations and adjusted EBITA is in part driven by a higher unrealized noncash foreign exchange loss on derivative instruments in the third quarter compared to the third quarter last year.
Kevin will discuss this in more detail shortly.
As our first earnings call as a public company, we wanted to reiterate our strategy to create long term shareholder value.
Our strategy is primarily to winning coconut water, gaining both branded and private label share. We plan to grow this category through excellence in quality supply chain retail execution in marketing and innovation in existing major market as well as the nurture and develop less mature markets with the goal of being the leading supplier in this.
Got it.
We believe our scale and flexible asset light supply chain provides us a competitive advantage in the category and this will only increase with continued growth and scale.
Around the strong coal, we additionally, intend to leverage our well established by the cocoa brands into coconut based adjacencies, such as milk, while building a portfolio of complementary beverage brands that fit with our capabilities, particularly our route to market in each country.
As Mike mentioned, we have built a very solid commercial platform from which to launch these initiatives.
We have the organization capability to support our current growth and pursue incremental growth opportunities we have in front of us.
From my experience as CEO of growing the Boston Beer company around our core brands, Sam Adams I know that it's very important to professionalize the organization, while maintaining the entrepreneurial culture.
To build the commercial capabilities to achieve growth and to develop our culture of innovation, which will allow us to test learn and develop new opportunities.
I believe that we have made progress against all three of these traits at the Vita Coco company over the last two years.
We believe that we have a very strong core business and as you can see from the results I. Just discussed we are growing faster than the category and flexing to react to the global supply chain challenges.
I'll fight of cocoa, Brian is performing extremely well and gaining share in our major market and our consumers over indexing growing demographics, which leads us to expect continued growth.
Today's consumer is looking for natural beverage alternatives from brands with purpose and we have the perfect offering to meet this need.
To maintain our core business momentum in 2022, we are adding multi packs, adding account offering targeted at convenience channel expanding our farmers organic offering after a successful test at whole foods and are requesting more shelf space from retailers to support healthy category trends and upper end philosophy.
It is too early to a pub retailers' decisions on shelf set changes for 2022 in the Americas or in Europe, but we are confident that we have a strong selling story that should produce good results.
We're also working hard to convert foodservice channels, where opportunities are being created by the change in ownership from veeco.
We believe this could be a good source of future growth.
In addition, we're also talking to large retailers with significant private label coconut water businesses that would fit our supply chain capabilities and provide further scale and efficiencies towards sourcing, which would benefit our total business. We intend to compete in private label Rfps, where it makes sense while of course, making sure we continue to service our existing customers.
In some U S regions, such as the Midwest and countries in Europe, such as Spain, and France, where our Vita Coco coconut water presence does not match the adjacent market performance and where we believe there is opportunity we are working hard to educate retailers on the potential secured distribution and then converting consumers through <unk>.
<unk> promotions and marketing as we were able to based on market conditions.
We don't see a similar but larger opportunity in China.
Turning to introduce and you can package that we believe will be more appealing in that market as well as develop product innovation. So we can better meet unique tastes of the Chinese consumer.
If we identify successful strategies, we may choose to invest heavily in China to deliver on the opportunity.
Educating the consumer is also a very important part of our growth plan, we plan to expand our communications around coconut water occasions, such as using by the cocoa butter smoothie after a workout.
Me up and a cocktail offer recovering the morning after a night out this.
This opportunity exists in Europe, and China, as well as the non North American market.
We believe that our non traditional high touch approach to connecting with consumers is working.
<unk> with disruptive packaging, an engaging retail display programs that excites them convert shoppers shop with.
We deleveraged online channels to meet consumers, where they are with solutions they need.
Our authentic partnership Influencer and social media campaigns to tell our brand story and build deep connections with our consumers.
We intend to continue to invest in these efforts we believe that through all these activities. If executed successfully we have a pathway to significantly grow our core branded coconut water business, while growing our lower gross margin private label business at a slower rate.
Beyond our core coconut water business, we have identified five segments of interest for long term innovation and door acquisition opportunity.
They are natural energy enhanced water everyday nutrition, and hydration performance beverages and dairy alternatives.
We have built our innovation of new brand commercialization capabilities to support launching multiple tests and limited regions, what channel testing and learning the market and then iterating our offerings to unlock the opportunity we see.
We currently have three fledgling offerings in markets, we're watching closely.
Vita Coco coconut milk is like shelf stable dairy alternative to perform well in a couple of regions of clubs. This year and we are seeking placement and food for 2022.
We believe the shelf stable dairy alternative options are potentially ripe for disruption and it's a logical category for the Baidu cocoa brands competing.
We'll update you next year on our progress.
We are expanding Luna, a quaver to lease space natural energy drink to 16 ounce can and are focused on convenience store execution in key test geography.
We have secured some tests with distribution on our street sales and field marketing teams are excited to see what we can learn.
Finally, we launched power list of protein infused fitness drink online and expect to secure distribution in that test region. So we're able to understand what works and how to scale. This brand at retail.
We are currently exploring partnerships with the fitness community to connect with our target trend because and look forward to finalizing these plans and sharing with them with you on future calls.
Similar to Aruna, we have definitely made a key individuals in our organization to nurture and drive these new brand opportunity.
All of these initiatives fall off.
The reporting segments I'll start.
<unk>, our aluminum bottle water just seen a nice bounce back with offices conferences in campuses reopening I was one of those Vita Coco hydration mix, a coconut water powder beverage mix that it's being tested online.
While none of these initiatives are material to our financial performance yet I'm excited because these learning opportunities are in segments, we are targeting unbelief match our capabilities.
Before I turn the call over to Kevin I would like to spend a moment on our supply chain.
We believe we have the most efficient and unique asset like global supply chains for coconut water that provides a competitive advantage and would be very hard to replicate.
Our model was built on securing access to coconut water that was a waste stream of industrial coconut processes.
We learned how to support its packaging to the quality of the coconut water remained consistent across our multiple facilities on supplier.
Meets the taste and quality demands of our consumers.
We have long term relationships with these processes and believe we have not yet fully tapped pool that coconut water capacity.
We believe that our size growth independents and consistent demand make us an attractive partner in these relationships and can help us secure attractive economics and ability to expand.
Our geographically diversified model creates leverage to effectively manage total delivery cost and affords greater ability to shift volume between supply isn't countries in reaction to demand or supply chain challenges.
Our supply chain has operated recently smoothly since COVID-19 with the primary exception being increased transit times due to port delays and starting earlier this year greatly increased cost of ocean freight with additional inflation and other logistics cost.
Spot rates are currently one over five times, what we had seen pre COVID-19 and a blended cost of existing contracts and spot has driven significant cost of goods inflation, Kevin will quantify.
Looking forward. We are seeing currently seeing offers of contract rates that are higher than our contracts. This year. So we anticipate that these inflationary pressures will continue through next year.
We see an opportunity to gain share during these challenges and are attempting to cover these costs with increased case equivalent volume transferring cost increases to private label customers and taking advantage of full revenue management levers at our disposal, including price increases, where we see opportunities and lower promotional activities and with potential for further.
Rice mix improvement actions in 2022.
If we feel necessary and appropriate for our long term business health.
To date, we have not taken significant frontline increases on a branded product, which mostly flows through distributors as we believe that if the cost pressure to receive such frontline increases would be hard to reverse to return our economics across states.
We will continue to work to offset these costs, which we believe do not reflect long term stable rate with the aim of emerging with higher market share, our strongest competitive and brand position and our goal of returning our margins closer to historical levels once the global transportation and logistics situation improves.
Given there is no guarantee that all our efforts will cover the increases we are seeing in the short term, we're not comfortable providing guidance for adjusted EBITDA at this time.
Now I'll turn the call over to Kevin who will discuss our financial results and full year outlook in more detail.
Thanks, Martin and Hello, everyone.
Martin already gave a good overview of the quarter, but now I'll provide you with some additional details on both our third quarter and first nine months results.
From there I will discuss our fiscal year 2021 full year outlook.
Starting with our third quarter results net sales were $116 million, an increase of $28 million or 2% compared to net sales of 87.
Third quarter of 2020.
The increase was driven by higher demand for Brendan and private label products across both our geographic segments.
With a very quick hookup into water product category, the largest contributor of the increase.
The Americas segment accounted for 87% upon itself in the third quarter and increased 35% to 101 million compared to the same period last year.
The increase was driven by a combination of increased consumer demand for our products.
Well, it's lower branded promotional activity in the second quarter of 2021, which had a disproportionate impact on the third quarter.
Verdict, Coco coconut water increased 21 million or 41% to $72 million for the third quarter of 2021.
Prior to the same period last year.
The increase was primarily driven by a combination of higher consumer demand.
Execution and pricing actions to reduce price promotion with net sales being the strongest within the company's DSD channel.
Private label increased $6 million or 28% to $26 million for the third quarter, mostly driven by better inventory availability versus prior year and associated timing of revenue recognition.
I will describe in further detail in our Form 10-Q in accordance with ASC 606 guidance, our accounting practices. The price we only recognize the net sales for the production of finished goods again open purchase orders, which may occur prior to any shipments.
The timing of receipt of purchase order and he's currently unpredictable and could affect our reported private label growth quarter over quarter.
International net sales increased 15% to 15 million in the third quarter of 2021 versus the same period last year. The increase was primarily driven by increased net sales in the company's European region, which makes up approximately 70% of our international segment net sales and included a favorable <unk>.
Tax related to foreign currency translation.
In the third quarter Vita Coco coconut water grew 26% to $10 million, while private label grew 33% to $4 million.
We delivered strong top line growth driven by the continued underlying strength of our vertical brands and continue to face ongoing supply chain pressures, which for us resulting in increased ocean shipping rates across all layers and higher domestic logistic cost.
Despite these factors and due to pricing action in the Americas, largely materializing in the third quarter of 2021.
We were able to keep our consolidated gross profit margin relatively flat at 33, 6% in the third quarter of 2021 compared to 33, 3% during the same period last year.
Gross profit for the third quarter was up 31% to 39 million driven by case equivalent volume growth and price mix improvement.
We expect global transportation costs to remain elevated for the foreseeable future.
I'll give you some sense of the magnitude of the cost increases we've seen what our Cogs per CD rate increased 8% in the first nine months of the year versus prior year period, we saw an increase of 10% in the third quarter alone versus the prior year period.
This translated to significant incremental costs on a dollar basis hitting both our gross profit and EBITDA lines.
For the fourth quarter of 2021, we anticipate the impact of these cost increases to further squeeze our profit margins.
Okay now moving onto operating expenses.
Selling general and administrative expenses in the third quarter of 2021 increased 2 million to 21 million, primarily driven by costs associated with preparing us for becoming a public company.
Income from operations for the third quarter was up 73% to $18 million, primarily driven by higher case equivalent volume and lower level of promotional activity.
Actually offset by higher Cogs.
In an increasing SG&A expenses associated with the IPO preparation.
Finally, net income attributable to shareholders was 13 million for the third quarter or <unk> 24 cents per diluted share.
Third quarter included unrealized noncash FX loss on derivative instruments of 2 million compared to an unrealized non cash gains of zero point $2 million in the third quarter of 2020.
I would like to highlight here that we did not designate our derivative instruments at fair value or cash flow hedged for hedge accounting purposes, and therefore recognized in our P&L unrealized noncash gains or losses in the quarter, depending on the currency fluctuation.
Since we cannot accurately predict these fluctuation, but will not provide ethics related guidance, but advised that any material currency fluctuation positively or negatively affect our reported EPS in the quarter.
Adjusted EBITDA in the third quarter grew 86% to 21 million, primarily driven by strong itself and gross profit generation.
Now I'll provide a quick highlight on our results for the first nine months of 2021.
Net sales were up $52 million or 22% to $293 million from 241 of the other than in the same period last year.
For the first nine months of 2021, our Americas segment increased 22% to $251 million, what our international segment increased 15% to <unk> 2 million.
Verdict Coco coconut water with the largest contributor of our growth up 33% across both geographic segment, while the private label grew 6% across both segments.
Gross profit for the first nine months of 2021 increased by 90 million to 92 million and gross profit margin was 31% compared to 34% in the prior year period.
Now turning to our balance sheet and cash flow.
Our balance sheet reflects a private company before we went public and received the net proceeds from the offering at the end of October.
As of September 32021, we had total cash and total debt of 36, and 38 million, respectively, compared to 72% and $25 million respectively. As of December 31, 2020.
The decrease in net cash was driven by a $15 million shareholder buyback, which we executed in the first quarter of 2021 and higher working capital need mostly due to higher inventory related to increased demand and longer Ocean transit time.
Net cash used in operating activities was $16 million for the nine months ended September 32021 compares to a source of cash of $32 million during the prior year period.
The favorable change in our operating assets and liabilities was primarily driven by working capital uses as we build inventory to meet increased demand and also expands longer transit time.
Inventories as of September 32021 work $40 7 million compared to $32 million at the end of 2020.
Net cash used in financing activities was $20 million for the nine months ended comparing to $21 million during the prior year period.
Now moving onto our full year guidance for fiscal year 2021.
Did you do high volatility and uncertainty that continues to exist in our current operating environment.
Including persistent increases in ocean freight and all the logistical we do not believe it is prudent to provide a specific adjusted EBITDA outlook at this time.
We're currently managing through these issues and are deploying a number of strategies to mitigate the impact kind of a business as best as we can but we have not seen any sign of a peak yet and cannot predict when rates and service will return to pre COVID-19 level, you said al.
In addition, we will continue to operate our business to capitalize on the demand environment and protect the flow of goods as best as weekend and gaining share where we can.
With the understanding that these may come at an increased cost of goods, while the supply chain environment remain pressured.
For the fiscal year 2021.
We expect full year net sales growth to be between 19, and 21% versus prior year, we anticipate gross margins to be slightly lower than our year to date average of 31%.
Provided we have greater clarity and stability to business conditions, we intend to provide our initial 2022 guidance. When we report full year 2021 results.
I thought of next year's planning, we're preparing our supply chain to support our 10 year to date case equivalent volume growth continuing through 2022.
We anticipate building inventory over the winter when demand is lower and preparation for next year's peak selling season.
We're also reviewing potential pricing in all of their revenue management actions to compensate for expected increased cost of goods over 2021 level I supply chain challenges.
And with that I'd like to turn the call back to Mike for his closing remarks.
We're very pleased with our third quarter results and how we are positioned for the long term growth opportunities ahead of us.
The total global addressable market presents a significant opportunity for our company and we believe that natural and plant based beverages are only going to increase in demand.
We want to ensure that we're providing the proper nutritional beverages to our consumers where and when they want to purchase them to improve their health and vitality of their daily lives. We appreciate your desire to learn more about the Arctic local company and we look forward to speaking with you in the future. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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