Q1 2025 The Vita Coco Co Inc Earnings Call
Good day and welcome to the Vita Coco Company first quarter 2025 earnings call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone you will then hear an automated.
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Speaker Change: Be advised that today's conference is being recorded I would now like to hand, the conference over to your first speaker, Mr. John Mills managing partner at ICR. Please go ahead.
Speaker Change: Thank you and welcome to the Vita Coco Company first quarter 2025 earnings results Conference call. Today's call is being recorded with US are Mr. Mike Carbon executive Chairman, Martin Roper, Chief Executive Officer, and Corey Baker, Chief Financial Officer.
Speaker Change: By now everyone should have access to the company's first quarter earnings release issued earlier today.
Speaker Change: This information is available on the Investor Relations section of the vertical group companies' website at investors Dot divided cocoa company Dot com.
Speaker Change: Also on the website there is an accompanying presentation of our commercial and financial performance results.
Speaker Change: Any comments made on this call include forward looking statements, which are subject to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Speaker Change: 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 more detailed discussion of the risk factors that could cause actual results to <unk>.
Speaker Change: For materially from those expressed or implied in any forward looking statements made today.
Speaker Change: Also during the call we will use some non-GAAP financial measures as we describe our business performance, our 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 GAAP measures and are available on our website as well.
Speaker Change: That is my pleasure to turn the call over to Mike Urban our co founder and executive Chairman.
Mike Urban: Thanks, John and good morning, everyone and thank you for joining us today to discuss our first quarter financial results and our expectations for the balance of 2025.
Mike Urban: I want to start by thanking all of our colleagues across the globe for our continued strong performance and for their commitment to the vertical company and to our mission of creating ethical sustainable better for you beverages that uplift our communities and do right by our planet.
Mike Urban: As we start a new year I thought I would reiterate our priorities for delivering long term shareholder growth built on a foundation of bite of cocoa, our leading coconut water brand.
Mike Urban: And a strong diversified supply chain and has consistently supported our long term growth even in the face of the pandemic and transportation disruptions.
Mike Urban: Our growth strategy has been and continues to be consistently built on four core pillars.
Mike Urban: We plan to grow our Vita Coco brand by growing the coconut water category and gaining share in our core markets.
Mike Urban: Second we will innovate around our core Vita Coco coconut water offerings to increase vacations and appeal of our beverages beyond pure coconut water <unk>.
Mike Urban: Cocoa press coconut water Vita Coco coconut juice Vita Coco farmers organic Vita Coco coconut milk and Vita Coco trees are several recent successful examples of this strategy.
Mike Urban: Third we strive to grow internationally in markets, where we believe that we can build a winning vertical presence by investing in our brand and driving coconut water category growth.
Mike Urban: Our Best example of this is Germany, who doubled their volumes sold relative to the same quarter last year I believe that we have a long runway for growth by successfully executing these strategies.
Mike Urban: Finally, we will continue to explore innovation in adjacent categories to coconut water with a long term view to building additional branded platforms and also look at M&A opportunities, where we can add significant value and attractive returns for our shareholders.
Mike Urban: Against these priorities, we're seeing terrific returns on our efforts coconut water remains one of the fastest growing beverage categories in the beverage aisle growing 23% in the U S and 19% in U K in Q1 based on common data.
Mike Urban: This coupled with the acceleration of the emerging German market has resulted in very strong global net sales performance for our first quarter and similarly strong reported gross profit net income and adjusted EBITDA.
Mike Urban: In the first quarter of 2025, according to Chicago Vita Coco coconut water grew 20% in retail dollars in the U S and grew 21% in the UK.
Mike Urban: The strong momentum and a much stronger inventory position than we had last year leads me to be very optimistic about our branded coconut water growth in 2025.
Mike Urban: In addition to the very healthy Vita Coco coconut water retail growth, we've seen strong scan growth for private label coconut water, which resulted in growth in our private label coconut water net sales even with the initial impact of loss regions for private label coconut water that we talked about last quarter.
Mike Urban: I believe that our private label business remains a strategically important pillar of our business from a supply chain perspective, and it allows us to benefit more fully from our category growth initiatives.
Mike Urban: We continue to get asked to bid on business for private label coconut water and coconut oil and expect that we will win new business in this portion of the category.
Mike Urban: Although private label is a strategically important part of our business. It can be more vulnerable to fluctuations in our branded business I will reiterate what we've been saying for years, which is that as we continue to grow our business. We expect our branded sales to be the largest contributor to that growth long term.
Mike Urban: In 2025, our commercial initiatives include emphasis on Vita Coco multi packs via cocoa farmers organic and vertical could choose the expansion of our skus and convenient stores continued investment in our foodservice efforts and the launch of vehicle could treat on a national basis.
Mike Urban: We're excited about the initial reception for <unk> and for the future of innovative coconut milk based beverages, which creates an indulgent occasion that could offer us yet another path for long term growth.
Mike Urban: We continue to develop our foodservice capabilities as an underdeveloped channel for us in the U S.
Mike Urban: By working with foodservice broad line distributors, we're seeing some great wins across foodservice and hotels restaurants, and corporate accounts, we've secured partnerships for this spring with Joe's coffee, whose featuring a vita Coco orange and cream coconut locking and offering Vita Coco treats and Vita Coco pressed coconut water and they're grabbing <unk>.
Coolers and also with peaks coffee, whose featuring a coconut water cold brew and a coconut water Marsha both made with Vita Coco press coconut water.
Mike Urban: These are just two examples of showcasing coconut waters versatility, creating opportunities for consumers to try coconut water in their beverages and building our brand as the category leader.
Mike Urban: Our international business is very healthy with strong performance in Europe led by the U K and Germany.
Mike Urban: This year, we're stepping up our investments in the U K, Germany and other European markets.
Mike Urban: Over time, we believe international will become a larger part of our growth story as these markets are significantly underdeveloped relative to the U S.
Mike Urban: I believe that the coconut water category is still developing but low household penetration in major markets relative to other juices that suggests that the category is still in its early days in fact in the U S. We think we can at least double the category in the coming years through increased household penetration and increased velocity per.
Mike Urban: I believe that coconut water is becoming a household staple across the globe and we're very excited and proud to be the leading brand in our primary markets and to help drive this growth.
Mike Urban: Longer term I expect our European operations to be as large as our American businesses today.
Mike Urban: In summary, the acceleration of the category that we saw in late 2024 has continued and even accelerated through the first quarter of 2025 and with our significantly stronger inventory position strong retail programming and innovation and additional production capacity I believe that we are well positioned to continue our.
Mike Urban: Both and I am excited for a strong 2025, and now I will turn the call over to our Chief Executive Officer Martin Roper.
Martin Roper: Thanks, Mike and good morning, everyone I am pleased to report a strong quarter to start the year.
Martin Roper: Net sales in the quarter were up 17% driven by growth of Vita Coco coconut water of 25%.
Martin Roper: Anything from an acceleration of growth in the coconut water category and improvement and available inventory.
Martin Roper: Also saw 84% growth in our other product category, representing positive impact from Vita Coco treats.
Martin Roper: Our scan results in the United States with very strong, although slightly behind category growth due to the drag in our scans created by the changes in the Walmart set that we talked about last quarter.
Martin Roper: This has also caused to the reported HCV distribution declines on key packages as shown on page eight of our investor deck.
Martin Roper: However trends have improved slightly as our teams are focused on improving in store presence of our brand and customers find a new location.
Martin Roper: We are still down high single to low double digits trading an estimated mid single digit drag on our total scan trends.
Martin Roper: Although we have fewer skus at Walmart can we previously had the velocity by remaining items has increased significantly we.
Martin Roper: We are confident we will improve our current Walmart trends and we believe we will see this customer return as a growth engine for our brand once we win a loss points of distribution.
Martin Roper: From a gross margin perspective, our margins were down relative to last year due to the higher ocean freight rates experienced in the second half of last year.
Martin Roper: While there have been some declines year to date and ocean freight rates. We believe rates are still elevated relative to historical levels and we continue to operate mainly on spot rates with some fixed price arrangements on certain lanes to secure capacity.
Martin Roper: With U S tariff outcomes uncertain, we expect some volatility in ocean freight rates in the coming months.
Martin Roper: We believe however that there is the potential for rates to decline significantly through the balance of the year.
If we see competitive fixed rate offers for long term contracts that makes sense to us we would be willing to enter into more expensive fixed rate agreements to cover more lanes.
Martin Roper: As we enter the summer we have significantly more vita Coco coconut water inventory than at this time last year. So we feel good about our potential to drive growth, particularly in the third quarter. When we lap major service issues from last year.
Martin Roper: We will be looking for opportunities in the second half to leverage our improved inventory position to drive consumer trial.
Martin Roper: We believe that the strong category growth is a positive indicator and supportive of our long term algorithm for branded growth.
Martin Roper: In anticipation of such growth, we have secured production capacity for 2025, and 2026, which should provide greater supply chain flexibility than we had in 2024.
Martin Roper: Recently, a series of potential tariffs and reciprocal tariffs were announced which could be applied to imports into the U S.
Martin Roper: Subsequently the cyclical terrorists were paused for 90 days, but a baseline tariff of 10% most imports took effect in early April.
Martin Roper: In 2025, we expect the cost basis on which imports into the U S will be subject to the current tariffs to represent approximately 60% of our global cost of goods sold.
Martin Roper: To address the current impact of tariffs, which we assume to be the 10% baseline tariff on all countries other than Mexico, and Canada. We are working on further cost of good savings initiatives.
Martin Roper: We are discussing with the suppliers the potential to share the tariff pressures and we are planning to take branded and private label pricing. This summer to offset the expected impact on an ongoing basis of the cost that we are unable to offset in other ways.
Martin Roper: We are confident that we can take price as we believe the category and our brand is very healthy.
Martin Roper: Assuming competitors will also take price to cover the increased cost associated with tariffs and therefore expect that any price elasticity effects will be manageable.
We believe that we are well positioned to navigate any potential with cyclical tariffs. We have one of the most diversified sourcing strategies in the industry sourcing primarily from the Philippines, and Brazil with some additional sourcing from Thailand Vietnam.
Martin Roper: In Malaysia.
Martin Roper: We have a global diversified supply chain, which should allow us to adjust sourcing more efficiently than competitors and reaction to tariffs.
Long term, we are confident we can adjust our supply chain to optimize our competitive advantage. We also believe that long term, we will benefit when ocean freight rates return to their historical levels.
Martin Roper: We are confident in the strength of our brand and our ability to manage the business in this uncertain environment.
Martin Roper: To summarize our category is very healthy.
Martin Roper: Our brand is performing and our supply chain is supporting growth and provides us with flexibility to mitigate the potential tariff impact long term.
Martin Roper: We are confident in our team's ability to execute and deliver on our plans and for the full year 2025, our confidence in the category and Vita Coco brand trends remains very high.
Martin Roper: With that I will turn the call over to Cory Baker, our Chief Financial Officer.
Thanks, Martin and good morning, everyone. I will now provide you with some additional details on the first quarter of 2025 financial results and our outlook for the full year.
Martin Roper: For the first quarter of 2025, net sales increased $19 million or 17% year over year to $131 million.
Martin Roper: Driven by Vita Coco coconut water net sales growth of 25% tariff.
Martin Roper: Actually offset by private label declines of 12%, where private label water growth of 10%.
Martin Roper: Set by our final quarter of private label coconut oil transition.
Martin Roper: On a segment basis within the Americas Vita Coco coconut water increased net sales by 24% to $86 million and private label decreased 13% to $21 million.
Martin Roper: Vita Coco coconut water, sorry, 23% volume increase and a slight net price mix benefit.
Martin Roper: Private label sales decreased 13% driven by a 2% decrease in volume and an 11% price mix reduction due to the impact of the transition out of private label coconut oil.
Martin Roper: For the first quarter of 2025, our international segment continued to deliver strong results, where net sales were up 17%.
Martin Roper: Coco coconut water growing 36% driven by strong growth across all our major markets.
Martin Roper: Private label sales decreased 8%.
Martin Roper: Strong sales of private label coconut water is offset by the transition out of private label coconut oil.
Martin Roper: For the quarter consolidated gross profit was $48 million, an increase of $1 million versus the prior year.
On a percentage basis gross margin finished at 37% for the quarter. This was down approximately 550 basis points from the 42% reported in Q1 2020 for the.
Martin Roper: The decrease in gross margins resulted from higher year on year Ocean freight rates and finished good product cost, partially offset by branded coconut water pricing and favorable product mix.
Martin Roper: Moving on to operating expenses 2025, SG&A costs increased slightly to $29 million driven by increased investments in people resources.
Martin Roper: On driving future growth and expanding our supply chain footprint, which was mostly offset by selling related expenses.
Martin Roper: Net income attributable to shareholders for the quarter was $19 million or 31 cents per diluted share compared to $14 million or 24 cents per diluted share for the prior year.
Martin Roper: Net income benefited from higher gross profit and a larger unrealized gain on derivatives.
Martin Roper: Partially offset by higher year on year taxes.
Martin Roper: Active tax rate for Q1, 2025 of 22, 5% versus 21% last year.
Martin Roper: It was primarily driven by the increase in pre tax profits in jurisdictions outside the U S with higher statutory tax rates.
Martin Roper: 2025, adjusted EBITDA was $23 million or 17% of net sales compared to $21 million or 19% of net sales in 2024. The increase in adjusted EBITDA was primarily due to the higher year on year gross profit.
Martin Roper: Turning to our balance sheet and cash flows as of March 31, 2025, our balance sheet remained very strong with total cash on hand of $154 million and no debt under our revolving credit facility.
Martin Roper: Our accounts receivable increased by $13 million first December 31, 2024 due to the increase in net sales.
Martin Roper: And we continue to invest in inventory as we prepare for the summer season, which is evident in our inventory increases of $5 million during the quarter.
Martin Roper: Let me turn to our share repurchases year to date through April 29 2025.
Martin Roper: <unk> 333701 shares for a total of $10 million subsequent to quarter end. The company's board approved an additional $25 million to repurchase program, increasing to $65 million the authorization for the company to repurchase the company's common stock.
Martin Roper: To date under the $65 million repurchase program, we have purchased approximately $23 million of shares.
Martin Roper: We exited Q1 with a very strong category healthy inventory levels exciting innovation and confidence in our team and our Vita Coco brand.
Martin Roper: Excited about our ability to continue to deliver strong performance. Therefore, we are reaffirming our full year guidance.
Martin Roper: We expect net sales between 555 and $570 million with expected gross margins for the full year at 35% to 37% delivering adjusted EBITDA of $86 million to $92 million.
Martin Roper: We are expecting Vita Coco coconut water sales to grow in the mid to high teens with incremental growth coming from Vita Coco treats.
Martin Roper: As we indicated last quarter, we expect some reduction in private label coconut water, resulting from the loss of certain regions, which we expect will become more visible in Q2 and will partially offset the expected brand performance.
Martin Roper: We expect gross margin to be relatively flat through the year, but the second half being stronger than Q2, two are due to our planned pricing increases and expected lower ocean freight rates in the second half with incremental pricing offsetting the expected on mitigating the impact of the 10% baseline terabytes.
Martin Roper: We expect SG&A to increase low to mid single digits as we increase our marketing spend investing team support our continued production capacity expansion and invest in our business is outside of the U S.
Martin Roper: This guidance assumes 10% baseline tariffs in the U S.
Martin Roper: Not include the impact of the potential reciprocal tariffs.
Martin Roper: It also reflects our current best assumptions on the marketplace trends competitive price actions and our expected price elasticity in this environment and an assumption that ocean freight rates softened in the second half.
Martin Roper: And with that I'd like to turn the call back to Martin for his closing remarks.
Speaker Change: Thank you Corey to close I'd like to reiterate our confidence in the long term potential of provider cocoa company, our ability to build a better beverage platform and the strength of our Vita Coco brand and the coconut water category we.
Speaker Change: We are confident in our ability to navigate the current environment and are excited about our key initiatives to drive growth.
Speaker Change: We have strong brands and a solid balance sheet, and we are well positioned to drive category and Brian growth, both domestically and internationally.
Speaker Change: Thank you for joining us today and thank you for your interest in Nevada Telco company that concludes our first quarter 2025 prepared remarks, and we will now take your questions.
Speaker Change: Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question Press Star one again due to time restraints. We ask that you. Please limit yourself to one question and one follow up question. Please standby, while we compile the Q&A roster.
Speaker Change: Yeah.
Speaker Change: And that will come from the first question will come from the line of Bonnie Herzog with Goldman Sachs. Your line is open.
Speaker Change: Hi, Good morning. This is Ethan Huntley on for Bonnie Herzog. Thank you for taking our questions.
Speaker Change: I guess I just wanted to start on your guidance for the year you maintained your guidance ranges for the year, which I think it was probably expected given all the uncertainty but.
Speaker Change: Obviously your guidance now takes into account the applicable tariffs as well as your mitigation efforts I'm curious if you could just elaborate a little bit more on your mitigation efforts.
Speaker Change: Xactly is being done to offset these tariffs.
Speaker Change: Did you maybe front run some inventory ahead of the tariffs that are currently in place.
Speaker Change: Any broader color on the tariffs and your efforts to sort of offset that would be helpful. Thank you.
Speaker Change: Sure.
Speaker Change: We obviously entered the year with very healthy inventory.
Speaker Change: So I wouldn't say that was planned because obviously the tariffs were unknown.
Speaker Change: Healthy inventory position, so that certainly helps us as we go into the semi both from supporting business growth, but also from delaying I suppose in some ways the impacts of the tariffs for a few months.
Speaker Change: Mitigation efforts are involved.
Speaker Change: Obviously.
Speaker Change: U S cost of goods improvement trying to understand if we can get any support from suppliers or.
Speaker Change: The governments are in those countries to offset the tariffs. So all of that is in early stages.
Speaker Change: And beyond the cost of good assets.
Speaker Change: And some shifting of sourcing although in the short term shifting of sourcing leads to some improvement doesn't not drastic improvement, but obviously, if we look at all of those things and optimize supply.
Speaker Change: Supply chain planning for what we understand the current tariff environment to be in.
Speaker Change: Then beyond that our expectation is we will take pricing we've communicated the intent to take some pricing to cover the unmitigated costs of the current 10% baseline tariffs.
Speaker Change: And.
Speaker Change: Those discussions very early stages, obviously, there is a delay in when that pricing would get us through obviously a lot can happen in that period of time, but if the baseline characteristic we would expect to take pricing to offset on an ongoing basis the unmitigated.
Speaker Change: Tariff costs.
Speaker Change: And I think since we're talking about tariffs our guidance includes the assumption that the 10% baseline tariff stays in effect that was announced early April it does not.
Speaker Change: Hume any assumptions on the potential for a separate KOL tariffs.
Speaker Change: Because we source.
Speaker Change: Merrily from the Philippines, and Brazil, that's the majority of vessels being over 50%.
Speaker Change: And then from other countries.
Speaker Change: Typical tariff rates that were proposed obviously has a bigger impact on us than the 10%, but if you were to model it you'd come up with potential tariff impacts in the low twenties, obviously that's highly.
Speaker Change: Hypothetical.
Speaker Change: And we don't know what will happen. It also is applied to you.
Speaker Change: Cost of goods.
Speaker Change: At source and in the script you would've heard us refer to that number is 60% above global Cogs. So that would allow you to.
Speaker Change: Estimate the range of the current baseline tariff and then also what the reciprocal tariffs if they win.
Speaker Change: At what had been talked about would impact us so on the reciprocal side, obviously, we will face that when it happens highly hypothetical but it gives you a sense and obviously from a financial perspective, very strong balance sheet strong.
Speaker Change: Business strong category, we're in a very good position to weather whatever might happen plus also to deliver on our guidance, even with the 10% tariff baselines.
Speaker Change: Got it that's very helpful color and then maybe just as a follow up.
Speaker Change: You slightly raised your your SG&A growth guidance from low single, so I think low to mid single digit percent range. If you.
Speaker Change: Could just walk us through that decision.
Speaker Change: Certainly your Q1 results were very strong so does that just allow for maybe some extra investment this year.
Speaker Change: I guess, where are your marketing dollars going and maybe how do you measure the return on your investment and thank you very much.
Speaker Change: Okay.
Speaker Change: Good morning.
Speaker Change: Guidance is just a function of looking at our outlook for the year and where we expect our SG&A spending the range as it might be and obviously a lot of uncertainty.
Speaker Change: We thought it was a bit wider range.
Speaker Change: On the year with variability in the other inputs into the to the outlook.
Speaker Change: And then marketing return on investment is quite hard mathematically to get at.
Speaker Change: Look we do lots of different things, we look at the return we look at the impact any kpis and metrics, we see and we're constantly adjusting how we leverage our dollars against the different brands of different geographies and adjust as we go but we don't have specific on ROI.
Speaker Change: ROI metrics.
Speaker Change: Got it thank you very much.
Speaker Change: Thank you one moment our next question.
Speaker Change: And that will come from the line of Cornell Guard Jalala with Jefferies. Your line is open.
Jalala: Hey, guys good morning.
Speaker Change: Good morning.
Speaker Change: Good morning.
Speaker Change: Mike you opened up with.
Speaker Change: It's a series of different things about the long term, including some bold.
Speaker Change: <unk> on doubling the business positive international and such.
Speaker Change: Can you maybe talk about supply.
Speaker Change: To what degree of supply available to achieve some of those goals and at what sort of rate can you do that.
Speaker Change: Supply is that the question was yes.
Speaker Change: So I think implies about.
Speaker Change: Longer term I think we've.
Speaker Change: About this before.
Speaker Change: The main thing with suppliers there are plenty of coconuts. The coconuts are not the issue. The planning is the issue and the timing is the issue and so its adding lines, it's adding facilities in the coconut farming communities.
Speaker Change: So we've been doing that the last year or so at an accelerated pace.
Speaker Change: We've talked about also in the fact that it's not a business because of the supply chain, it's not a business that we could double overnight right. We can't double it in a year, we can't grow 60% a year without planning significantly in advance for that type of growth. So we talk about being believing that we could grow the Vita Coco brand.
Speaker Change: Mid teens.
In the long term that's the objective could we accelerate that.
Speaker Change: Some of the international markets growing faster potentially.
Speaker Change: And so we're building out the supply chain and planning the supply chain for that type of growth.
Speaker Change: And we feel quite confident that we can achieve that.
Speaker Change: Okay, Great and then.
Speaker Change: On the price increases.
Speaker Change: It's always a careful balance the category and your brands have so much topline momentum.
Speaker Change: I'm sure you want to be very careful not to derail that is it just given how fast you are growing what is the right balance between how much pricing to take from a consumer perspective as opposed to <unk>.
Speaker Change: Thinking about it from a.
Speaker Change: Passing on of incremental cost perspective.
Speaker Change: So we have a premium product as a premium category. It does have a relatively significant private label component, particularly in certain channels that sort of anchors the price points right and I think we said in the past that our pricing will tend to <unk>.
Speaker Change: Move where the Cogs because of that because of the price gap to private label and also when we see what we would see describe as temporary cogs increases our bias is to not take price because.
Speaker Change: If that was a temporary when the Cogs go back down the private label goes back down right.
Speaker Change: <unk> branded pricing is not something we're excited about so we tend to look at what is the underlying long term cost impact.
When we take price.
Speaker Change: The tariff situation is a highly uncertain environment, but I think our current read is the 10% is potentially here to stay and so that's how we're thinking about it.
Speaker Change: That makes sense. Thank you.
Speaker Change: Thank you one moment our next question.
Speaker Change: And that will come from the line of Eric <unk> with Morgan Stanley. Your line is open.
Speaker Change: Great color.
Speaker Change: Kind of cleanup questions here.
Speaker Change: First.
Speaker Change: The press release mentioned higher finished goods cost.
Speaker Change: I'm wondering what the drivers there were.
Speaker Change: Yes, certainly a mixed bag with commodities, but there are also lag so what drove the higher finished goods cost.
Speaker Change: And then in terms of the guidance understand that includes the 10% baseline tariff, but not there are separate from tariffs.
Speaker Change: Still a pretty wide 200 basis point range could you talk a bit about what the key variables here in terms of getting to the upper or lower end of the range is it mainly ocean freight or are there other.
Speaker Change: Drivers that we should think Doug and then lastly in terms of pricing.
Speaker Change: You talked about taking pricing in the second half if I remember correctly, you were talking about that last quarter as well before.
Speaker Change: Quite new with the tariff situation would be.
Speaker Change: Who are you planning greater or sooner pricing than you were back in February or sort of order of magnitude and timing.
Speaker Change: We fairly similar but now it's really that offset tariffs rather than.
Speaker Change: Incremental on your margin. Thank you.
Speaker Change: Sure, maybe I'll take them in reverse order Eric.
Speaker Change: We had planned a general.
Speaker Change: <unk> <unk> and <unk>.
Speaker Change: Americas.
Speaker Change: <unk> effect this quarter.
Speaker Change: Prior to sort of tariffs.
Speaker Change: Situations.
Speaker Change: <unk>.
Speaker Change: <unk>.
Speaker Change: Baseline tariffs stay in place our expectation is we would take incremental pricing on top of the base pricing that.
Speaker Change: It's taking effect in Q2 due to the cadence of when that pricing could take effect and the requirement to communicate it to everyone all of our partners.
Speaker Change: The adjustment for the 10% tariffs would take effect until early Q3.
Speaker Change: And so that's I think answer the pricing question on the guidance the range on on gross margin is still a little wide. There is a fair amount of uncertainty on where ocean freight will end up I think early in the year. We saw some softness in ocean freight I think we would have expected to see further softness with the <unk>.
Speaker Change: <unk> given the shutdown of China to U S traffic were not shutdown, but significant reduction we would have expected to see more softness we havent yet seen that in fact, the ocean freight rates have been a little volatile over the last four five weeks bouncing up and down.
Speaker Change: And so.
Speaker Change: The amount of uncertainty as to.
Speaker Change: When they stopped that downward trend again, given the overall supply demand picture, but our expectation is that still on a downward track. So it's sort of primarily driven by the timing of those types of things.
Speaker Change: Then against the finished goods cost.
Speaker Change: There's a number of drivers drivers, but the biggest impact is probably adding new factories and your capacity when you add new factories based tend to start up maybe less scale than the existing ones and maybe some investments in lines angle startup that we help the suppliers with.
Speaker Change: On a pricing basis, so what tends to happen.
Speaker Change: With our new factory.
Speaker Change: Pricing in place initially and then as the factory reaches maturity or cost of goods and rules and so it's those sorts of impacts there is the impact of ocean freight this year versus last year.
Speaker Change: The rates that were built into our inventory as we started the year and that we were paying early this year were significantly higher than the comparable rates for the same quarter last year.
And so that's another reason why this year, we're going to carry we believe full year ocean freight costs that are still higher than last year's ocean freight costs that flowed through our P&L. So that's another aspect of it.
Speaker Change: Great and then just wanted to follow up Corey you made some comments in terms of.
Speaker Change: General cadence.
Speaker Change: With the price.
Speaker Change: Benno.
Speaker Change: Benefiting the second half.
Speaker Change: Hopefully lower ocean freight.
Speaker Change: Could you talk specifically to the gross margin cadence should that follow a similar pattern.
Speaker Change: Gross margin pressure in the second quarter and then some.
Speaker Change: Or at least in the second half.
Speaker Change: Yes.
Speaker Change: And I think I said in the script, Eric it's relatively flat it's a hard.
Speaker Change: A point of gross margin on the quarter for us is not a too big of a number. So we do expect the pricing to be more impactful in the second half.
Speaker Change: You also have the tariffs coming mostly in the second half and then ocean freight is a few moving pieces. So we don't see a huge difference.
Speaker Change: Quarter to quarter and the outlook.
Speaker Change: We try to stay away from quarters, because it's quite hard to get it in a tight range depending on the timing of our shipments.
Not a huge difference we would think through the balance of the year.
Speaker Change: Got it thanks, so much I'll pass it along guys.
Speaker Change: Thank you one moment our next question.
Speaker Change: And that will come from the line of Jim <unk> with Stephens. Your line is open.
Jim: Hey, guys. Good morning, Thanks for taking my question, Hey, Jim Hey, Josh again.
Speaker Change: I wanted to get a little bit on the.
Speaker Change: The sales growth.
Speaker Change: Bye.
Speaker Change: Unit type and on slide eight the biggest driver of sales growth was multi packs, which I think is interesting given some.
Speaker Change: Some of the shifts on shelf and the ACB step back that that actually was a big leader.
Speaker Change: So.
Speaker Change: I wanted to get a sense do you know.
Speaker Change: Customers were kind of pulling forward demand.
Trying to make sure that they have always stops avnet with Vita Coco in case, there would be any disruptions with tariffs or ocean freight just from a consumer perspective or is that really just pure kind of.
Speaker Change: Just in customers buying more products absent any of the headline noise going on right now.
Speaker Change: So I don't think we have particularly good data on short term consumer.
Speaker Change: Cabinet stocking.
Speaker Change: What I would say is that our growth over the last two years has had a similar pattern.
Speaker Change: And I think two years ago, we launched a series of <unk> into different channels and that has fueled our growth and category growth and risk. We believe it has.
Speaker Change: One of the largest brands and therefore, we can support multi packs. So we sort of have an advantage in that perspective.
Speaker Change: And that just appears to be continuing giving.
Speaker Change: Our customers the opportunity to buy a pack that's easy to shop, it's easy to put it in the card it's easy to take Omar it's easy to be delivered right.
Speaker Change: Appears to potentially be increasing velocity at home with that said the multi packs are also a little bit of that.
Speaker Change: Discount when we launched them the discount was much bigger than it is today on a unit basis.
Speaker Change: And so that discount silex is slightly.
Speaker Change: Again, as I said nearly as big as it was when we launched we've actually closed it nicely and not seen any.
Speaker Change: Decrease in the velocity or acceleration of the packs.
Speaker Change: But there is a possibility that what youre seeing is maybe some consumer smart shopping on value.
Speaker Change: The <unk> also in the new data, which now includes some significant club customers have.
Speaker Change: Got a big presence in the data set up the account plus data set so with all those cap caveat I think.
Speaker Change: Feel very good that the base business is growing right. The core base business. It is growing with multi pack business is growing innovation is growing and all of this even with the ACB loss that shows up on the packs from the Walmart Pizza right. So we feel very very good about category and the brand health and neuropathy.
Speaker Change: Optimistic.
And Jim I would add.
Speaker Change: <unk> filed a measured sales, it's been very steadily and strong week on week virus reaction towards the end based on tariffs.
Speaker Change: Got it that's helpful. And then if we think about the demand generation side, particularly over the summer.
Speaker Change: It sounds like the <unk>.
Speaker Change: Net pricing wouldn't really come into Pat impact until re queue.
Speaker Change: Would we see kind of.
Speaker Change: Promo.
Mike Urban: <unk> is a key lever on demand generation over the summer or is it going to be marketing is going to be focusing on that Mike you mentioned some of the foodservice relationships you guys have rolling out just how youre thinking about demand generation and the key levers there and what that should look like over the summer.
Speaker Change: Yeah. So just starting on the pricing as I sort of alluded in my answer to Eric.
Mike Urban: There was a planned pricing, which is taking place affect Q2.
Mike Urban: And then we are current we have communicated intent and we're currently in discussions on.
Mike Urban: Probably early Q3 pricing against the 10% tariffs baseline if that's what we need to do.
Mike Urban: So that's the pricing environment I think the most important thing I think for US as we look at the summer as we're entering the summer with much more inventory.
Mike Urban: And.
Mike Urban: That's going to allow us to execute a normal promotional cadence through the summer and into the fall the.
Mike Urban: The biggest impact on that will probably be Q3 from a scan perspective, because Q3 was the quarter last year. When we had the biggest inventory issues, but we're expecting a pretty normal price promotional cadence potentially off hire frontline.
Mike Urban: We have plans for the summer.
Speaker Change: Okay, Great I'll hop back in.
Thank you.
Mike Urban: Thanks, Jim.
Mike Urban: Thank you one moment our next question.
Speaker Change: And that will come from the line of Eric <unk> with Craig Hallum. Your line is open.
Eric: Great. Thanks for taking my questions and congrats on another strong quarter here.
Speaker Change: Thanks first of all for me.
Speaker Change: Bit of a follow up on that last question. So Martin in your prepared remarks, you commented for expectations for these price increases to be.
Speaker Change: Tolerated by consumers could you just expand on what Youre seeing in the market from a price elasticity perspective.
Speaker Change: So we haven't taken any.
Speaker Change: <unk> in the last 12 months so.
Speaker Change: Any experience we have is quite hold and obviously in a completely different environment that we're operating in.
Speaker Change: So I think.
Speaker Change: What we look at it and I come back again to an earlier comment right. The category pricing is somewhat anchored around where private label.
Speaker Change: Private label will have.
Speaker Change: Similar or bigger Cogs increase system, we have given.
Speaker Change: <unk> from <unk>.
Speaker Change: Hopefully significantly bigger if reciprocal tariffs come in.
Speaker Change: And.
So we'll watch that and see.
Speaker Change: That I think it's the whole category is taking price I think the price elasticity question at least within the category is significantly less this is still a very affordable beverage premium functional beverage and so we.
Speaker Change: Have confidence that the consumers will be okay and against historical.
Speaker Change: Sort of get price gaps other beverages the categories. So much more affordable today than it was pre COVID-19 because the category has not taken that much price in that time period.
Speaker Change: Obviously, we will see and we will react accordingly, and it's very hard to predict but that's how we're thinking about it.
Speaker Change: That's helpful. It makes a lot of sense.
Speaker Change: And then just a follow up question on the international market.
Speaker Change: Expand on the comments to step up investments.
Speaker Change: In international markets should we think of this as more kind of marketing is this more sort of boots on the ground supply chain investments and then maybe just from a higher level kind of touch on the current competitive environment and your ability to.
Speaker Change: Accelerate any category or market share growth there. Thank you.
Speaker Change: Yes, I would say both boots on the ground and marketing.
Speaker Change: Some of the markets that we're going into.
Speaker Change: That our newer markets.
Speaker Change: You need to put people in the street you need to put people in stores to open up buying groups of large retailers in all of these type of things and it's almost a manual process. So it includes adding people to be able to do that and includes adding marketing teams and it includes.
Speaker Change: Spending more on marketing that we might have historically.
Speaker Change: Great. Thanks for taking my questions.
Speaker Change: Okay. Thank you. Thank you.
Speaker Change: Wonder if you would like to ask a question. Please press star 111 moment, our next question.
Speaker Change: And that will come from the line of Michael Lavery with Piper Sandler Your line is open.
Michael Lavery: Thank you good morning.
Speaker Change: Hey, Mike Hey, Michael.
Speaker Change: Just going back to some of the planning and.
Speaker Change: You talked about.
Speaker Change: Growing capacity, maybe just with.
Speaker Change: Tariffs in mind, if the reciprocal tariffs kick in and you have variations across.
Speaker Change: Places of origin, how flexible that are nimble can you be how much time would it take maybe to rearrange some of where you source from.
Speaker Change: Sure.
Speaker Change: Great question.
Speaker Change: I think we said have stated that we believe that we are.
Speaker Change: <unk> well positioned relative to the potential risk.
Given our.
Speaker Change: Expertise in sourcing from Brazil, and Philippines, which in those reciprocal tariffs were the lowest tariff rates of the coconut water supply in countries by a significant margin right and that leads you to.
Speaker Change: So model.
Speaker Change: An effective tariff rate in the low twenties as I stated to Bonnie's question. If those tariffs were to go into effect against the current supply chain.
Speaker Change: We are actively adding factories.
Speaker Change: Another new contract in Philippines is coming on board.
Speaker Change: And exploring ways to basically take advantage of the fact that we are diversified, particularly outside of Vietnam, and Thailand, where our competitors are mainly focused on sourcing and again those were the countries that had the highest proposed.
Speaker Change: Tariff rates.
Speaker Change: To start up extra capacity.
Speaker Change: In an existing factory is typically around 12 months to add a tetra line as sort of a lead time to start up a new factory or our new relationship might be 12 months to 18 months unless they're already producing a fair amount of coconut water and we can just step in and maybe take someone else's capacity, but thats a little quicker.
Speaker Change: I think we're a very attractive customer too.
Speaker Change: Suppliers, because we have.
Speaker Change: And interested buying just coconut water for brand and we take the volume that we commit to so we're not we're not we don't switch with these are very long term relationships built by Mike and the team.
Speaker Change: Decades, and so we're very very good partner with one of our partners, who are helping them start up a new factory and have agreed to take take that couple that water and there are similar conversations like that going on but.
Speaker Change: To adapt to.
Speaker Change: Lets say potential tariffs that might come in it is a 12 to 24 months exercise and it would not happen quickly.
Speaker Change: Hypothetically, we said we needed to move everything to the Philippines that might be take even moment right and then so so it's that sort of lead times, but we're better positioned than anyone else to do that but just to add to reallocate supply to other places for example, we support the European business, we support the Canadian business to.
Speaker Change: To reallocate supply from high to high U S tariff.
Speaker Change: Countries to some of those.
Speaker Change: Markets and then reallocate the lower tariff countries to U S is more a matter of ordering tetra paper and setting up the supply chain to do it and that's more on the magnitude of.
Speaker Change: Four to six months.
So thats part that would be part of the mitigation efforts should reciprocal tariffs come into play and should they be differentiated by country and managing that whole process, but.
Speaker Change: Yes, that's right, we obviously wouldn't take any action until we knew the tariffs what semi permanent.
Speaker Change: Theres, a fair amount of disruption in that but so right now we're adding capacity for growth.
Speaker Change: That we have firm side too.
Speaker Change: And then preparing the teams to be very nimble and agile.
Speaker Change: And just wanted to apologize if youre hearing a lot of background noise. There is a construction project going on on the street below us So I apologize.
Speaker Change: Okay.
Speaker Change: No background noise, we can hear so good but I think thats great color on sourcing.
Speaker Change: Just on Walmart you gave some helpful color on what Youre seeing there.
Speaker Change: Given I think the resets they had were in November and now.
Speaker Change: Come on into mid year again.
Speaker Change: Any sense of would it be.
Speaker Change: Reasonable to assume at this point.
Speaker Change: So there wouldn't be any changes until the November resets again or do you have a sense of anything that could come sooner and.
Speaker Change: Okay.
Speaker Change: No.
Speaker Change: Its final you probably don't want to give too much about how those discussions might look but.
Speaker Change: Is sort of restoring some of the lost skus nearly a given or.
Speaker Change: Whats your expectations on how that might look.
Speaker Change: Let's say that as we come into the summer we have a big effort against display building activity off shelf programming. These type of things that are supported by Walmart.
Speaker Change: We are doing.
Speaker Change: You've seen the declines improved.
Speaker Change: Significantly as compared to Q4 of last year when the when the change happened.
Speaker Change: And so that is a positive we hope to continue to see declines.
Speaker Change: Lesson improves as as the rest of this year moves on and we have a good level of confidence just through conversations with.
Speaker Change: With Walmart that we will restore.
Speaker Change: <unk>.
Speaker Change: A large part of our distribution both in terms of Skus and points of distribution.
Speaker Change: That will benefit us being also in as we've talked about a much higher foot traffic Isle than where we were before so we're excited about actually where we stand with Walmart and we really believe that Walmart becomes a growth engine for us moving forward.
Speaker Change: Okay. Thanks, so much.
Speaker Change: Okay. Thank you.
Speaker Change: One moment our next question.
Speaker Change: That will come from the line of Robert <unk> with Evercore ISI. Your line is open.
Speaker Change: Yes, Hi, this is Gregory on for Robert I thought a quick question, maybe following up on what you mentioned before but putting aside the Walmart situation given that your inventory position is now a better demand looks awesome.
Speaker Change: How are you guys thinking about shelf space for the remainder of the year.
Speaker Change: With respect to the category and then your products and then kind of within your portfolio like where do you see the key wins I guess on shelf space or are there certain products that are taking more or kind of how are you guys thinking about that thank you.
Speaker Change: So.
Speaker Change: We obviously entered the summit was much better inventory than last year. So just based on that we expect our shelves to look much better in Q3 than they looked in Q3 last year as it relates to points of distribution I think we said last quarter that even with the Walmart losses, we expect to gain net points of distribution.
<unk> for the full year.
Speaker Change: Driven by.
Speaker Change: Sure.
Speaker Change: A number of things happening like we indicated one leader Vita Coco was successfully.
Speaker Change: Stores, so it's rolling out to more stores based on the learnings from last year.
Speaker Change: <unk> has been very well received in terms of retailer shelf.
Speaker Change: Sort of approvals, so thats going to drive.
Speaker Change: Nice win multi packs and foremost organic continue to gain sort of points of distribution of they've been out for a while so the.
Speaker Change: Distribution gains are a little less than they were in the first two years, but it's all very healthy. So generally we expect our shelf to improve this year, even with the negative impact of the lost SKU usable.
Speaker Change: And do you do you see that shelf space I guess coming from like other competitors within this space or is it coming from like Jay said categories.
Speaker Change: So a little bit of both but its mostly from adjacent categories.
Speaker Change: As you know.
Speaker Change: We are the clear.
Speaker Change: Clear largest share both in share, but also in share of space.
Speaker Change: So taking taking further from other categories is mostly what we see is as the coconut water category has talked about it the fastest growing category. The beverage aisle. It's obvious that we continue to gain gain expansion in the island.
Speaker Change: Thanks.
Speaker Change: Yes.
Speaker Change: Thank you I'm showing no further questions in the queue at this time I would now like to turn the call over to Mr. Martin Roper for any closing remarks.
Speaker Change: Thank you everybody. Thanks for the questions I'd like to reiterate that we're currently operating at a very healthy category. A brand trends are also very healthy and our inventory position sets us up well to have a great summer.
Speaker Change: And look forward to talking to you next quarter.
Speaker Change: This concludes today's program. Thank you all for participating you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: [music].