Q2 2023 The Vita Coco Company Inc Earnings Call
Hello.
I'll come to the bite of cocoa companies second quarter 20 twenty-three earnings Conference call. My name is Crystal Love I'll be <unk> I'll be coordinating your call today.
Knowing the prepared remarks, we will open the call to your questions with written instructions to be given at that time. Please stand back.
Thank you and welcome to the bite of Cocoa company second quarter of 2023 earnings Conference call today's call is being recorded with us.
Perfect Executive Chairman Martin Labor, Chief Executive Officer.
Baker Chief Financial Officer.
By now everyone should have access to the company second quarter earnings release issued earlier today.
Is available on the Investor Relations section of Nevada, cocoa companies website that investors dot divided cocoa company Dot com.
Also on the website isn't accompanying presentation of our commercial and financial performance results.
Comments made on this call. It will forward looking statements, which are subject to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Be forward looking statements are based on management current expectations and beliefs concerning future events and are subject to several risk and uncertainty that could cause the actual results to differ materially from those.
Can be 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 expressed or implied in when you forward looking statements made today.
During the call we will use some non-GAAP financial measures as we described business performance.
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 measures.
Available on our website as well.
It's my pleasure to turn the call over to my curtain co founder and executive Chairman Mike.
Thanks, Clay and good morning, everyone. Thank you for joining us today to discuss our second quarter of 2023 financial results and our current expectations for full year 2023 performance and longterm growth.
I want to start by taking all of our colleagues across the globe for their continued commitment to provide a cooker company and their dedication to our mission of creating ethical sustainable better for Ya beverages that uplift our communities and do right by our planet.
Before addressing our performance and expectations I want to reiterate that we believe we have a strong strategic position enabled by our category leadership and coconut water in the better for you functional beverage category, which in America's track channels is in excess of $30 billion.
We're very happy with our performance in the first half of 2023, among our growth strategies delivering coconut water growth through increased usage occasions remains the highest priority and I'm excited about the progress, we're making with both a commercial initiatives and our marketing efforts.
In the second quarter, we saw consolidated 21% net sales growth, bringing a year <unk> year to date net sales growth.
10 per cent.
We remained very bullish on the coconut water category in the United States, where according to <unk>, a coconut water category is posting one of the healthiest growth trends outperforming major categories like energy Csp's sports drinks and bottled water and dollar growth rates, while also being one of the few categories growing <unk>.
<unk> and price.
For the quarter are vital Coca Coca not water brand is leading the coconut water category growth with U S. Retail dollar sale up 18% in our market share improving to 51.9% while the category is growing 15%.
Brand has never been stronger and our focus on consumer expansion. The application based initiatives is highlighted in our marketing efforts in the second quarter.
Oh highlights for examples from the quarter that we're super excited about.
Firstly, we launched the coconut Grove and immersive experience on roadblocks, where consumers can farm and harvest virtual coconuts over 22 million people visit us in the Merdivorous driving over 75 million impressions to date and introducing a new generation of consumers to our brand secondly.
Secondly, we collaborated with bluestone link to launch a coconut watercolor group exclusively other cafes across the U S blending their signature cold brew with the refreshing taste of <unk> original coconut water for a perfect summer drink that is already a top three iced beverage in their locations.
This is this is another initiative that demonstrates the versatility of coconut water and the appeal of our side of cocoa brands to food service partners.
To demonstrate the opportunities and the away from home channel across all day parts. We have partnered with on premise locations and key summer destinations with a focus on alcoholic cocktails mixed with via cocoa and are seeing great adoption and the bars with incredible social media amplification. We also launched a pop up.
On London's South bank, where consumers have the opportunity to sample our custom cocktails all summer long.
Finally, our collaboration with Bloom, a leader in the Greens nutrition market highlights the benefit of died a cooker coconut water as a liquid base for powdered products, which is generating amazing organic social media content with 34 million impressions online.
These initiatives spilled on our previously announced collaboration with the Accio vital cocoa spiked with Captain Morgan It seems significant marketing activity during the key summers selling season with an estimated 750 million media impressions in H, one alone and 1.1 billion P are oppressed impressions and counting.
<unk> from the start of our tropical takeover tour.
Our power lift launch in southern Texas continues to build momentum and supports our learnings on how to succeed in the enhanced isotonic category, we have focused investments and dedicated market development teams working with our D. S. D partner K D. P. As we endeavor to achieve success in this market. It is early but we're excited.
Added by our learnings and the progress we're making.
We have consistently talked about the goal of growing our branded business is our priority and our desire to reduce our reliance on our private label business, which is typically lower price and lower margin.
In recent negotiations with our largest private label customer the proposed terms required to maintain the business, where contrary to our margin targets and long term goals.
We have therefore jointly made the decision to transition to supply relationship at this time, we greatly value our long term partnership with this customer who remains a key retailer for our branded products.
We're more enthusiastic than ever about the strength of our core business and are especially excited by our branded initiatives, where we see opportunities for even faster growth. However, it is unlikely that these initiatives will fully offset the net revenue lost from this large private labor customer in the immediate term.
This decision was reached very recently, we're still developing the transition plans and building our 2024 commercial initiatives, but based on information. We believe that we can deliver mid teens adjusted EBITDA growth in 2024 over the adjusted EBITDA communicated in our updated 2000 twenty-three guidance.
With improved gross margins over 2023 levels and we can accelerate our trajectory towards our long term EBITDA margin targets.
While the timing and magnitude of the impact on net sales is hard to quantify we estimate that we will see some impact starting in Q4 and that are 2024 net sales could decline as much as mid single digits. This preliminary estimate captures our current assumption on the timing of this transition and the current assessment of the offsetting impact of success.
<unk> implementing our 2024 growth initiatives.
We'll update our our view on the impact of this decision with our next earnings release.
I then we expect to have a better understanding of the transition timing and better visibility to the speed and size of our 2024 growth initiatives as.
As demonstrated by our track record, we're confident that our continued prioritization of margin accretive growth over margin diluted growth can only strengthen our business going forward.
Finally, I'd like to reiterate my excitement for our accomplishments this year and our momentum for the balance of the year and into 2024, we're stepping up investments in our brands and in the long term health of the business by continued focus on branded growth. We believe that we are uniquely positioned as one of the few fast growing.
Profitable beverage companies of our size with the talent and commercial capabilities to maintain growth to innovate new opportunities and to access and acquire of complimentary beverage brands that can benefit significantly from our relationships capabilities and financial resources and now I'll turn the call over to our Chief Executive Officer.
Martin Rover.
Thanks, Mike and good morning, everyone.
The second quarter of 2023 re chief net sales growth of 21% driven by screaming fight a coca Coca crops.
<unk> of 23% <unk>.
<unk> performance was achieved against a very strong second quarter loss Cheetah, what divided polka polka dot net sales grew 21%.
And the Americas quite a Coca Coca net sales grew 24% Dakota, including 21% volume growth, reflecting the continued success about commercial initiatives such as the additional promotional activity mentioned in a Q1 earnings cole coupled with a single digit contribution from price increases.
Australia execution retail and a consumer engagement efforts continue to produce strong results in retail with an 18% dollar growth rate a cooker coconut water in Q2, 2023, and the U S economy scan data at a 14% volume growth rate.
The strong performances across all cracked channels as shown in our investor deck and with strength and underdeveloped regions that we believe is indicative of future growth potential.
I shouted uninvested deck, the grocery spilt on a healthy balance of velocity gross pricing and distribution games.
Internationally, we are seeing similar strength, so quite a Coca Cola order with 8% volume growth Dakota <unk>.
Strong performance retail has driven retail dollar shed of the total coconut water category to over 80 per cent and the most recent four week period for the first time ever according to some kind of UK.
Turning to modules in the second quarter of 2023 gross margin was 37%, which represents a significant improvement over the 25% reported in second quarter last year and an improvement over the 31% in the first quarter.
This increases primarily driven by more favorable ocean freight costs and improvements in domestic transportation costs, plus the benefit of branded pricing taken in the fourth quarter and middle of the second quarter last year.
During the corner strong volume performance and optimize Dimitri levels allowed us to operate our supply chain more effectively and efficiently than in prior quarters, which benefited our domestic logistics costs. In addition to year on year Rach improvements.
After the significant decrease in sport Ocean freight rates in the second half of last year. We saw continued declines in right in the first quarter and then a more stable environment during the second quarter.
At the end of the second quarter spot rates for most lines were close to historic pre COVID-19 levels.
As we've discussed in previous quarters, we remained selective and entering into ocean transportation contracts, except where we need to guarantee capacity and expect to return to our historic approach of contracting for some of our needs once the contract offer some more competitive with spot prices than they are today.
The strong volume performance of the business in the first half allowed the benefits of the ocean freight improvement to flow through our P&L faster than expected with an improvement in supply chain efficiencies also happening more quickly than anticipated.
Turning to our outlook, we remain confident in the strength of our core business Unexcited by our brand new initiatives and new and developing private label relationships. We continue to believe that our supply chain has a competitive advantage and provides the unique combination of service reliability flexibility and cost.
We intend to continue to seek some support private label supply arrangements that are mutually beneficial.
Priority remains operatic growth initiatives, which should make a stronger more resilient with less dependent on private label demand in the future.
In line with our emphasis on prioritization of branded growth, we're updating a longterm financial algorithm to mid teen Bradded growth, which we define it's consolidated net sales minus private label net sales.
And adjusted EBITDA margins to high teens, which will benefit from a greater mix of branch sales gross margin and SG&A leverage improvements.
We're really happy with our performance.
Second quarter results in our increased full year guidance to carry will explain reflects the strength of our core business has it brand volume net sales gross margin and adjusted EBITDA are all growing.
With that I will turn the corner over to <unk>, our Chief Financial Officer.
Thanks, Martin and good morning.
Let me provide you with some additional details on the second quarter financial results in the drivers are approved I'll look for the 2023 per year.
Turning with revenue they continue to see strong performance in the second quarter of a net sales of $140 million, an increase of $24 million or 21% year over year.
It was driven by <unk> 23 per cent and private label growth of 24%.
Within the American segment.
Cocoa coconuts water strong retail performance resulted in $95 million of net sales an increase of $19 million over the prior year period, while private label increase 4 million to $24 million.
Relative died of cocoa coconut water continues to be volume led with 21 per cent volume growth and 2% net price next benefit.
Right, a coca coconut water benefit from strong retail sales and incremental promotional activity <unk>.
Private label experienced a strong quarter driving 17% net sales growth on volume growth of 22%.
Private label benefited from a combination of velocity gains an existing stores.
And increased our account at strategic retailers in the U S and Canada much more than offset they lost or as disclosed in Q3 of last year.
Or international segment, how does a very strong second quarter as well.
<unk> net sales were up 24%.
<unk> was led by private label up 72% or became new distribution with strategic retailers in Western Europe .
<unk> coconut water also had a strong quarter growing that sales, 14% led by strength in the UK total.
Total international volume, where else is 18% a divider Coca coconut water delivered 8% volume growth and private label volume growing 54%.
For the second quarter consolidated gross profit was $51 million up $22 million versus the prior year quarter and gross margin was 37% up.
From 25% in prior years.
Gross margin exceeded our expectations as volume strength accelerated the flow of global transportation savings to our piano and our supply chain operated very efficiently with lower inventory levels, which led to savings within our domestic logistics costs.
Moving on to operating expenses second quarter, 2000, twenty-three SG&A cost increase by 6 million to $30 million.
Which reflects investments and incremental resources support the growth of the company, including increased people cost investments in sales and marketing in Corsica associated with the secondary stock offering in the quarter.
As previously indicated our full year plan includes an expected increase in marketing and sales execution investments some of which represent the ketchup from the low levels of last year.
Here today, we were not able to execute.
Marketing and organizational investments, resulting in benefits and SG&A spending various our expectations.
Plan to invest in a disciplined manner, but incremental spending planned over the second half of the year.
Net income attributable to shareholders in the second quarter of 2023 was $18 million or 31 cents per day.
The chair compared to $1 million or two cents per diluted share for the prior year.
Net income for the quarter benefited from positive net sales and gross margin improvements discussed previously partially offset by increased SG&A comps.
In addition, the quarter benefited from a $4 million increase in the unrealized gain related to derivative instruments, which was offset by an increase in packs of $4 million, reflecting an ETR of 19.2% on the quarter.
non-GAAP adjusted EBITDA in Q2, 2023 was $24 million up from $7 million. In Q2, 2022 17 million dollar increase was primarily due to the significant cost of goods per case equivalent decreases and increased volume growth and pricing partially.
Set by increased SG&A spending.
Turning to our balance sheet and cash flow.
As of June 30th 2023, our first have strong operating performance led to an improvement in cash flow.
Developing a total cash on hand of $48 million.
Compared to $20 million on hand as of December 31st 2022.
The increase in net cash was primarily driven by net income.
Working capital year to date has used $2 million, a cat is inventory decreases $27 million.
And accounts payable increases of $15 million or offset by a $47 million increase in accounts receivable due to timing of customer payments on the seasonality up for business.
The inventory decrease was the result of sales volume growth, coupled with a normalization of the global supply chain, allowing us to more efficiently manage our data.
And reduce overall inventory.
We ended Q2, but inventory and the lowest.
Rains, we expect inventory to return to more normal levels in terms of data on him we progressed to the balance of the year.
Let me touch on a couple of small items before returning tomorrow.
And may be completed a successful secondary offering for relative asked averages essay and invested in the company for over 15 years. We are delighted that amazes significant shareholder and is continuing their representation on our board of directors and we are also pleased on behalf of the company that this offering is diversified our investors.
And increased publicly available slow.
As a result of this offering and a strong stock performance.
We will now be treated as a large accelerated filers starting with our Form 10-K 2023 at the end of this year.
This is a change we expected and are well prepared for.
As we look to the balance of 2023, despite some uncertainty on private label transition branded business remains very healthy strong consumer demand for our products, which is allowing us to raise our full year net sales guidance to 10% to 12% based on mid teen branded growth offset private private label week.
Nursing queue for from the transition previously discussed.
Our expectation for gross margin for the balance of the year has also improved as our transportation costs remain stable.
Supply chain operates efficiently and our branded products are expected to represent our largest share of our business.
As a result, we expect gross margins in the second half to improved slightly over Q2 and be between 35 and 37% for the full year.
A revised non-GAAP adjusted EBITDA guidance is 56% to $60 million. This reflects continued prudent investment and SG&A, which we expect to grow at a rate higher than I expected net sales growth.
Full year basis.
I will now turn it over to my insurance closing remarks.
Thank you.
To close I'd like to reiterate our confidence in the longterm potential divided Coca company, our ability to build a better beverage platform.
Frank about by the cocoa brand.
We have just completed the best quarter in our history, and we have plans to both expand gross margins and grow adjusted EBITDA in 2024.
We believe the exiting next year, we will have an even stronger business with higher quality growth in a more favorable margin profile.
Thank you for joining us today and thank you for your interest in Nevada, Coca Company that concludes our first quarter prepared remarks, and we will now take your questions.
Thank you we will know conduct a question and answer session to ask a question. Please press star one one on your telephone and wait for your name to be announced once again to ask a question. Please press star one one on your telephone and wait for your name to be announced.
Two withdrawal.
Please press star one one again.
Please stand by while we compile thank you and a roster.
Okay.
Our first question comes from the line at Bonnie Herzog at Goldman Sachs. You May know ask your question.
Alright. Thank you good morning, everyone.
I'm sorry.
Good morning, I guess my first question I, just wanted to better understand the decision to transition away from a private labor.
Customer you mentioned, you're going to be less dependent on private label moving forward, which I think makes sense, but could you give us a sense of what percentage of your private label business. This customer represents and then if I heard you correctly, you're expecting you know a short term impact primarily on your top line.
That's gonna impact I guess, 2020th four results, but you do expect to deliver upside tier <unk> EBITDA growth targets, albeit I assume you're EBIDTA bases is going to be lower living for it. So just maybe walk through that for US again. Please thank you.
Yes, yes, thanks, Bonnie capital of things, we're not gonna.
Break out what percentage of our business. This customer is so I just wanna be upfront with that but you know for competitive reasons and et cetera et cetera. What we are acknowledging it is that they're one of.
Two largest customers there are very significant private label customer, but they also have a very significant brand of business.
I think I'm Gonna say is this is very recent use and we're still processing. It. So we don't have all the answers today, but we did try to give some guidance for everybody for <unk>.
Idling purposes as to what we think an outcome in 24 could be and again, that's an initial assessment provided guidance, but we wanted people to have an idea of what we thought and complete.
Information on the transition and timing speed speed of et cetera is still developing so we're in the middle of dealing with that having settled that one private label businesses typically lower margin than branded business. So we expect our margins to improve next year because mixed up <unk>.
<unk> will be significantly lower on the private side.
And from a you know a growth perspective on net sales, we provided a mystical digits down because it is a significant piece.
Piece of business.
But we do believe we can grow EBITDA.
Through a combination of both our branded growth initiatives improve.
Improving gross margins and so we wanted to provide visibility to that so.
It's F C. And then let me also add we do like private label business that fits a model.
We continue to bid on private label business.
And when so we're still pretty comfortable that we're very competitive in that arena.
And we would continue to do so.
His date with this particular customer we would be happy to service them again in the future.
Under a mutually agreeable time to fit a model in our supply chain.
And so we remain open to that.
And so that's how we are thinking about it right. So.
Okay, No that's <unk> I understand but I think I I guess I think I may I may have misstated, we expect the business mixed to be lower private label, So if I Miss <unk>.
I'm not sure that that's what I would assume so thanks for the <unk> and then I guess I think there is a doctor will be right, but yeah I just got cricket in the room [laughter] Oh, It seems fine okay. So alright, well that's helpful. And then I guess you know the positive here. It's like you you alluded to is you know it really does allow you to improve your gross margins moving for it there may be.
Some choppiness here, but you know thinking about that in the context of your you know your longterm gross margin target of high 30%.
Love to hear maybe what you think is a realistic timeframe of when you might be able to reach those margins and you know maybe just this announcement today <unk> alright, you know that that opportunity and thinking about any other cost efficient efficiency initiatives you have in place check celebrate the timeline.
Yeah, I think so gross margin for the quarter was 37% so.
Bending on definition next could already be perceived as high thirties rates.
But let's assume that by definition it isn't right. We expect the the product mix to move over the next 12 months to mope ranted that will enhance the margin we still have a little bit of cost to come through I think we started not prepared remarks that some.
Some of those cost et cetera rated into Q2 <unk> benefits, so, but we still have some of.
Of that so I think we're pretty comfortable but gross margins in the high Thirty's is achievable and potentially it could go a little higher depending on exactly what happens with the product mix again, because this is relatively developing news we haven't done sophisticated modeling and we don't really fully.
Understand exactly the transition schedule, so how fast that could happen. So we just again tried to provide a ah an adjusted EBITDA guidance to help everybody in the modeling.
Mmk, that's helpful and I have many other questions then I'm gonna pass it on I'll get get out of the care I can't find it.
Yeah sure. Thank you.
Thank you please stand by for our next question.
Our next question comes from the line at <unk> F. Stevens. Your line is now open.
Hi, Thanks for taking my question.
A little bit on the on the marketing side.
Have this nice step up and profitability should free up some resources for you you kind of got a lot of balls in the air with different product launches in different partnerships.
Maybe just give us an idea of maybe rank order the priority of marketing spending, which one of these initiatives you want to support and how that looks.
Yeah, I would say the number one thing that we're investing against and focusing on his driving new usage occasions for our core vital cocoa coconut water. We have other initiatives ongoing well all are getting investments, but this is the primary objective we think the category. It can be a very large category.
We think it can be a very mainstream category and for us it's about demonstrating to consumers all the different usage occasions, and that's what we're investing the most heavily against.
Just building on that what might said, we've got a category that's growing volume and revenue we're gaining Sharon. It. So we see that is the best use of sort of.
<unk> best prioritization of our investments.
Okay, great and maybe if I could drill down specifically on power lift.
Totally not a lot of people to.
Consumers and loved the product I know that kind of limited availability of most of the people I've talked to you buy it on Amazon, but do you give us any kind of what the ramp is there, especially because that sports drink category is so expansive and I think you have a really differentiated product offerings.
Yeah, we love it too and we're actually we just upped investments on Amazon specifically, because we think it's a good place to really get trial and understand consumer feedback and all of these type of things. So that's an area where investing we're also investing quite heavily in Texas.
Through our test launch there with K D P.
And then will continue to expand it from there into next year.
But the investment for where is that we believe is quite significant today, because we're really trying to get learnings.
Talking to consumers make getting feedback executing against that feedback such as packaging changes and things like that and then when it's ready we believe we could invest heavy more heavily against it and expanded on a more national level.
Should we think about that expansion as.
Standard Geography's from Texas. So you go Texas, and then one state over or is it more.
Mccain retailer X and then once we get it into retail R Y at sign of spring boards out into a much larger geography.
I think it's likely to be more retailers specific and I say likely just to these plans are still being developed in partnership with retailers discussions and distributed discussions, but I think it's more likely to be retailer focus to continue to build the brand that retailers that have a you know a drink that's looking for that.
Workout recovery and also retailers that are willing to sort of give us.
Permanent shelf space. So I think it's more likely to be retailer initially and then as we prove the model that we think there's some really interesting green shoots. There then it will be a lot easier to go broader.
Okay, great. Thanks for your time guys know personally.
Thank you. Thank you.
Thank you please stand for that.
Our next question comes from the law.
Line of Christians in Canada, a bank of America. Your line is now open.
Good morning, you have Christian on for Brian . Thanks for taking your question. It would be helpful. We could spend some time on gross margins how much of a drag were promotions to gross margins. This quarter and do you guys continue do you guys plan on promoting at the same level and the third quarter and fourthquarter and it would also be helpful. If we can <unk>.
Some time on Kaden said, you guys guided for sequential improvement for the third quarter, which is really helpful. But.
But my question is it more in the fourth quarter, if I if I look at the business is performance over the years. It looks like gross margins always declined sequentially in the fourth quarter first quarter should we expect that to transpire. This year and thank you for taking my question.
Thanks Christian there was a few things in there, but I'll start with gross margin in the quarter as we call that in Q1, there was an incremental retailer promotion that straddle the bed Q1, and Q2 and that did suppress margin slightly but for the most part of promotional activity outside of that one unique of that was consistent.
Year on year with increased price points to deliver the pricing you see coming through.
And then for balance a year, we've provided in the guidance increased margins above Q to the quarter on quarter cadence is a bit hard to call, especially with the transition, but we're comfortable that to balance a year, you'll see hard margins higher than the 37, we delivered in Q2.
Thank you.
Thank you please stand by for our next question.
Our next question comes from the line.
John Anderson of William Blair. Your line is now open.
Good morning, everybody.
John .
Two two questions and then I'll I'll I'll step back and listen on the private label news today I know in the past you've talked about the importance of private label or the rationale for being in private label.
In the sense that it was important.
Developing a relationship with with a retailer and and gave you. Some additional influence with respect to kind of a category in price tearing. So how are you know in light of today's news. How are you thinking about that does this kind of changed the dynamic at all with this large retailer.
And then the second question is kind of putting the the mix implications aside.
From a gross margin standpoint, do you have more benefit to go moving forward based on incremental ocean freight and domestic transport savings.
Yeah, I'm pretty Myxocyte just done the the frightened domestic transport Saturday or is there more benefit that come their driving the gross margin rate higher. Thank you.
Yeah, Let me answer a couple of your questions and then maybe I'll just refer.
To Michael talk about the relationship with the <unk>, which I I believe in a very strong.
First of all private label I think historically has helped us build scale not supply chain.
We were much bigger than that.
Had multiple years of double digit growth. So our supply chain is very robust and and where the branded sightseeing that gross continue so and I think pretty pretty good shape, we continue to bid.
<unk> private label relationships that federal capabilities, and <unk> again, some green shoots that particularly in Europe , where they're opening up doors for the brand of business and particularly in Germany.
So we like it and we will continue to like it obviously it needs to work for both parties.
And that isn't always certain that that's gonna be the outcome of those processes, but obviously, we engage in those processes under terms that we think we can you know federal model and as we win business. We're obviously happy about it and let me just business world unhappy about it but that is somewhat the nature of the business. So I think from a supply chain.
Prospective wearing pretty good good shape, and we all growth sort of reassures us that we can utilize the relationships we have and continue continue to grow.
On the margin question the.
You know more benefit in queue to the mask, perhaps we had anticipated from the transportation cost sort of recovery to more normal historic levels.
Ocean freight spot rates are now closed to historical levels. So I think we've seen the most of that we haven't yet as we said on the call.
Prepared remarks started entering into contracts to shut off that M. Because contract rates are still above spot rates and we're basically playing the spot market, except where we need to secure capacity for seven service reasons and the other transportation bucket, which you know for US includes domestic transportation quotes fees warehouses.
<unk> inbound and outbound logistics.
Those costs have not fully returned to historical levels and but we did see a pretty significant improvement in our efficiencies related to those costs like household the trucks were.
How small detention demurrage, cuss word cetera, et cetera, as the supply chain.
Flowed and as our inventory levels came down some of those costs sort of improved in in Q2 and hope would be that we can make maintain those gains.
On some of those costs, it's unclear if they do return to historical levels. So diesel is still high truck drivers wages is still high fees went up where housing costs went up ultimately I think this stuff will return to normal, but it may take a little longer than the sort of very significant acceleration and returned to historical.
Levels that we saw on ocean freight so I think there's a little bit of upside there, but we certainly have seen most of the upside so far and then I'll just turn.
Maybe to Mike just who can comment on on the reach out a relationship which I I certainly would describe as strong yeah. I think you know Martin mentioned I mean, you know private label historically was a way for us to gain scale and quickly grow our supply chain and also build relationships with these key retailers this retailer specific.
Specifically it remains a important customer for us on the branded side are branded business has been growing with them significantly over the years and including this year and we actually believe that that that branded growth will even accelerate.
At the same time with their private label team, it's a great relationship and we're gonna help them transition in N. C. You know help them do as best as they can in that transition. So the relationship is strong and it's important customer remain sir.
Thank you.
Thank you please stand by for our next question.
Our next question comes from the line of Michael like Labrie at Piper Sandler Your line is now open.
Thank you good morning.
Good morning, Michael.
I just wanted to check in on the cans, the juice launch, which I know it was <unk>.
Primarily focused and see store it looks like on I suppose a slide 10 that ACB is around 19 per cent now.
Do you have a sense of.
How that compares.
Compares to to the trajectory you've might've expected and also just where you know what kind of what had room is there is that something that.
Double or triple that or is it.
Kind of you know in the range might expect and where where do we just how.
How should we think about where it goes from here.
There'll be double or triple that [laughter].
Looking because we set challenging targets for our sales force that tries to go out and deliver so look you know.
I I think 19 is a good accomplishment, but it doesn't meet our expectations I think in the same slide we put in by the Tetra 500 M. L. As in that in that closet trade, which is 64 and I think that.
Should get there on time should get there at the time and Mike will tell you that we're not going fast enough and I tell Mike that the team is working really hard at it then and then both of them were arm wrestle about it and have a good laugh right.
So.
Convenience across a trade for a company that God's going through it is C network. It's a slow build there's lots of cool points with lots of incremental distributions to get and then you meet you make sure I get service right and particularly with a new item like this we're also supporting it with trial tastings features to get you know adoption.
Because it is you know a new product at least obviously for our brand and then within this closet trade. It's also you know opening some doors. So I think we're pretty encouraged I think we're seeing if you look at weekly data or.
The philosophy is improving it's still probably lower than we'd like but it's improving week by week. So so we're encouraged so I think that gives us abdomen.
Optimism that as part of a multiyear plan, we can try and close that gap to the 500 ml cetera distribution.
Okay. That's that's helpful and maybe just checking it on spike as well I know it's quite new.
If I understand it correctly technically that's the ico's products or you have some limitations and how much control you have obviously, but you're working together with them can you just give a sense of how that's unfolding and kind of what momentum you're seeing there.
Yeah, I think like you said it is <unk> and we don't get a ton of data, but what I will tell you is the marketing cover that we're getting from them is so significant and we think it's been quite beneficial in driving the awareness around this specific usage.
Education of couples mixed with coconut using coconut water to mixer, and we think it's actually adding a lotta benefit I think I talked about in the script something like 750 million media impressions a billion PR impressions. So it's been really helpful. In terms of volume and sales, we don't get a ton of data.
On it I think it's doing well and seeing you know anecdote it on anecdotally I'm seeing it out there others are seeing it out there it seems to be moving but the amount of media coverage has been tremendous I think for our brand and I think it's it's been quite helpful for that occasion, specifically was supposed to be objective.
Okay. Thanks, so much.
Thank you please stand by for our next question.
Our next question comes from the line of Chris Carey is Wells Fargo Securities. Your line is now open.
Hi, everyone. Just just one quick question for me I guess, you know on the on the private label piece, it's been sort of well covered at this point, but yeah. It's.
Is this gonna be like a multiyear headwind you know as you continue to scale, you're you're branded offerings.
You know.
Look at the destruction of private label more.
Closely going forward, you know just thinking about resetting the longterm sales algorithm to focus only on branded.
And I just wonder you know it is.
This retailer dynamic awhile off work and I know you said that you know if there continue to be interesting credit label opportunities but.
I just I just wonder if this is a.
Multiyear work down as you as you grow Brando, so just any thoughts on the longterm nature of <unk>.
No. We don't believe it is a multi year work down we're actually really excited about private labor some of our private label business with one some significant private private label business as of recently when private label works in within our margin structure. It works. It works well no obviously not as an old.
Welding percentage of our business, we want brand into continued to outpace the growth of private label, which is doing but when private label works within our largest structure. It works well and we continue to wind private label business and go after private label business. Both in the U S and as you see in the in the international results also internationally.
Okay. Thanks, so much.
Thank you please stand by for our next question.
Our next question comes from the line at Eric Taylor ears of Craig Harman Capital <unk>. Your line is now okay.
Great. Thank you for taking my questions and congrats on a very impressive quarter here.
Okay, Arizona.
So you've previously stated that you would remain flexible on price increases going forward nicer looking in the back half of this year and into 2024 I'm. Just wondering if you could kind of walk us through some of those puts and takes here as you are looking at the result of the retail level and then of course with this.
News of the transition of private label.
On one hand.
The brand is continuing to benefit from this improved affordability relative to adjacent categories on the other hand, you obviously have room to continue increasing so just kind of wondering if you see a strategic opportunity to sort of continue sourcing market share by taking less sure than peers or is this kind of like Hey, you know we realize this this wrong.
Benefit over the last call at six to 12 months and now you're kind of more than happy to take price in line with other categories. Just wondering how you're thinking about it. Thanks.
Yeah, I think we're pretty happy with how everything has reacted to our pricing that we took last year, both Q2 and Q4.
And we continue to monitor it and there may be some opportunities certainly <unk>.
Pricing between mix backs in singles and stuff to optimize but we currently don't have any sort of formal plans for pricing.
Certainly will monitor what is going on in other categories, where I think we're seeing pricing activity slow with some significant retail pushback, because our pricing hasn't changed that much and really just covers are inflationary costs.
Expecting retailer pushback I think what we might see is some private label pricing decreases just does that cost improve so we're going to monitor what will monitor monitor the gaps we don't see a lot of interaction between our brand and private label, where they exist and.
So we're pretty comfortable with that but we're just monitor the gaps in and stay on top of it and if we see opportunities would take them.
Okay, Great that makes sense and then just my last question just.
Just wondering how you were thinking about working capital into the second half if there's anything the call out from a modeling perspective, I think you mentioned that you're looking to get inventories back to a more historical level, but just kind of given the significant private label transition I'm. Just wondering if there's anything else that you guys are forcing westcon out here. Thank you.
Yes, I <unk> I think you touched on one we do expect inventory to return to more normal levels as we as we balance customer service with with a low level in queue to also accounts receivable, which NASA little bit with the payables is a bit high right now that's timing of spin.
Specific customer payments and then finally on the private label transition, it's too early to tell the timing around here and in the cut off but we do expect maybe a more normal you are working capital except for that as we at the end of the year.
Great. Thank you congrats again.
Thanks, Thanks, Eric.
Thank you please stand by for our last question.
Our last question comes from the line of Robert <unk> at Evercore I F. Your line is now open.
Great. Thank you. Thank you very much a couple of clean up questions I guess.
Love to get your your views.
You know through through the eyes of your business on the the state of the consumer.
The competitive environment and what levers you believe you have to you know adjust to actual current or potential changes.
In in either of those factors. Thank you.
I think you know based on the fact that volume growth is I think the highest amongst pretty much any other beverage category right now the consumer seems quite healthy and so we're excited about that.
Coconut water and is is drunk faster than water energy sparkling pretty much anything right now and radical because leading that so I think you know.
Consumer seems quite healthy and and that's even with some price that we've taken over the past year. So you feel good.
No it doesn't seem to be doesn't seem to be slowing down 16.
Category, we're obviously not seeing anything yet I think as we talked about.
Quotas with giving a consumer with the multipacks sort of Ah Ah Ah Ah value option, if they're willing to upsize and and I think you can see from the slicing. The best deck, we continue to see that strategy paying dividends in terms of growth of Multipacks. So.
Today, we haven't seen anything and I think we've also said historically that we think that coconut water as part of People's our consumers lifestyles and and as suddenly affordable. So I think we see we expect to have some installation, but obviously, we haven't seen anything yet and nor have we been through a cycle like this whatever this cycle, it's going to be your.
So we'll see.
Terrific.
<unk> continued great results. Thank you.
Thanks <unk>.
Thank you I will now turn the call back over to Mister Martin Roper for closing remarks.
Thanks, everybody. Thanks for joining us and for your continued coverage and interest in our company and we look forward to talking to you again after Q3, everyone have a great day.
Thank you. Thank you.
Mmm.
This now concludes today's conference call. Thank you for participating you may now disconnect.
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