Release Date: April 30, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• The Vita Coco Co Inc (NASDAQ:COCO) reported a 17% increase in net sales for Q1 2025, driven by a 25% growth in Vita Coco coconut water sales.
• The company has a strong inventory position, which is expected to support growth, particularly in the third quarter.
• International markets, particularly Germany and the UK, showed strong performance, with plans to increase investments in these regions.
• The company is exploring innovation in adjacent categories and has launched new products like Vita Coco Treats, which have been well-received.
• The Vita Coco Co Inc (NASDAQ:COCO) has a diversified supply chain, which provides flexibility to mitigate potential tariff impacts.

Negative Points

• Gross margins decreased by approximately 550 basis points due to higher ocean freight rates and finished goods costs.
• The company faces uncertainty with potential reciprocal tariffs, which could impact costs significantly.
• There was a decline in private label sales by 12%, partially due to the transition out of private label coconut oil.
• The company experienced a loss of SKUs and points of distribution at Walmart, impacting scan trends.
• Higher SG&A costs are expected due to increased investments in marketing and supply chain expansion.

Q & A Highlights

• Warning! GuruFocus has detected 6 Warning Signs with CWH.

Q: Can you elaborate on your mitigation efforts to offset the tariffs, and did you front-run some inventory ahead of the tariffs? A: We entered the year with healthy inventory, which helps delay the impact of tariffs. Our mitigation efforts include continuous cost improvements, seeking support from suppliers and governments, and shifting sourcing. We plan to take pricing to cover unmitigated costs of the 10% baseline tariffs, assuming they remain. Our guidance includes the 10% baseline tariff but not potential reciprocal tariffs, which could have a significant impact if implemented.

Q: You slightly raised your SGNA growth guidance. Can you explain this decision and how you measure the return on your marketing investments? A: The guidance reflects our outlook for the year and expected SGNA spending. We assess marketing ROI through various metrics and adjust spending across brands and geographies as needed, though we don't have specific ROI metrics.

Q: Can you discuss your supply availability to achieve long-term growth goals, and at what rate can you do that? A: There are plenty of coconuts; the challenge is planning and timing. We've been adding lines and facilities in coconut farming communities. We aim for mid-teens growth for the Vita Coco brand long-term, with potential acceleration in international markets. We're building and planning our supply chain for this growth.

Q: How do you balance pricing increases with maintaining category momentum, especially given your growth? A: Our pricing tends to move with COGS due to the price gap with private labels. We avoid taking price for temporary COGS increases to prevent yo-yoing branded pricing. We assess long-term cost impacts before taking price, and the current 10% tariff seems likely to stay, influencing our pricing decisions.

Q: What drove the higher finished goods costs, and what are the key variables for your guidance range? A: Higher finished goods costs are mainly due to adding new factories and capacity, which initially operate at less scale. Ocean freight rates are also higher than last year. The guidance range reflects uncertainty in ocean freight rates and other factors. We planned a general price increase before the tariffs, and if the baseline tariffs remain, we'll take additional pricing in early Q3.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.