Vita Coco’s Earnings Call: Growth Amid Challenges

Vita Coco Company, Inc. ((COCO)) has held its Q1 earnings call. Read on for the main highlights of the call.

During the latest earnings call, Vita Coco Company, Inc. expressed a cautiously optimistic sentiment. Despite facing challenges such as increased costs due to tariffs and distribution issues with Walmart, the company is buoyed by strong growth in sales, particularly in international markets and new product lines. The improved inventory position and strategic initiatives provide a hopeful outlook for the remainder of the year.

Strong Sales Growth in Key Markets

Vita Coco reported a 17% increase in net sales for the quarter, driven by a remarkable 25% growth in Vita Coco Coconut Water. This surge is attributed to the acceleration of growth in the coconut water category and an improvement in available inventory, highlighting the brand’s robust market presence.

International Market Expansion

The international segment saw a 17% rise in net sales, with Vita Coco Coconut Water experiencing a 36% growth. This expansion is particularly notable in the U.K. and Germany, where the company has achieved strong growth across major markets, underscoring its successful global strategy.

Improved Inventory Position

Entering the summer, Vita Coco boasts a significantly stronger inventory position, which allows for a normal promotional cadence and supports growth, especially anticipated in the third quarter. This strategic move is expected to bolster the company’s market performance.

Continued Innovation and Product Expansion

Innovation remains a key focus, with new products like Vita Coco Treats contributing to an 84% growth in the other product category. The expansion of SKUs in convenience stores and partnerships with food service providers like Joe’s Coffee and Pete’s Coffee further highlight the company’s commitment to product diversification.

Impact of Tariffs on Cost

The introduction of a 10% baseline tariff on imports into the U.S. has affected approximately 60% of the global cost of goods sold. This, coupled with potential reciprocal tariffs, poses a significant challenge to the company’s cost structure.

Challenges with Walmart Distribution

Vita Coco faces distribution challenges with Walmart, where changes in the set have led to a high single to low double-digit decline in sales. This has created an estimated mid-single digit drag on total scan trends, impacting overall sales performance.

Higher Finished Goods Costs

The company experienced a decrease in gross margins due to higher year-on-year ocean freight rates and finished goods product costs. Gross margins were down approximately 550 basis points from the previous year, reflecting the pressure on profitability.

Forward-Looking Guidance

Looking ahead, Vita Coco has reaffirmed its full-year guidance, expecting net sales between $555 million and $570 million, with gross margins projected at 35% to 37% and adjusted EBITDA ranging from $86 million to $92 million. The company plans to focus on expanding international markets, emphasizing innovation, and leveraging a strong inventory position to sustain growth amidst tariff uncertainties.

In conclusion, Vita Coco Company, Inc. navigates a complex landscape with a mix of challenges and opportunities. While tariffs and distribution issues present hurdles, strong sales growth and strategic initiatives offer a promising outlook. The company’s commitment to innovation and market expansion positions it well for future success.