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Thursday, May 13, 2010

CELH: The First Quarter Numbers

Celsius Holdings issued an early morning PR on Thursday announcing the results of operations for the first quarter of 2010. The PR was issued as a precursor to the 11AM scheduled conference call which will be hosted by Celsius CEO Steve Haley.

According to the PR, Celsius drew in $2.3 million in sales of the product for the first quarter of 2010, a 140.6% increase over the same quarter last year. However, I'm always a fan of quarter-over-quarter growth when looking at growing companies, and those numbers show an actual decrease; the quarter four 2009 number was $2.4 million.

It is true that Celsius is heavily promoting the product through coupons and free samples, which will most certainly cut into overall margins and sales numbers - and CEO Haley stated that the product did not make it to shelves of new sales locations as quickly as anticipated - but with the growth in distribution and the previous total year (2010) sales estimate of $25 million by the company, investors were looking for a number significantly higher than the $2.3 million reported on Thursday.

In response to the first quarter sales numbers, the company has pared the sales expectations to $18 - 22 million, still a number that would indicate significant growth ahead, but a definite pullback from the $25 million number.

So where does Celsius stand? Wednesday's announcement of a new marketing campaign that will highlight the benefits of Celsius is long overdue, as I mentioned on Wednesday, because I believe the consumer still considers the product to be just another energy drink; until that perception changes, Celsius may stutter in its steps towards the mainstream.

The new marketing campaign and the upcoming Ultimate Workout Challenge could make strides towards changing the 'energy drink' perception and separating Celsius from the pack as a unique product; and there is no doubt that it is a unique product when compared to the sugar-laden 'workout related' drinks that are already on the market.

I expect that the rest of the year will demonstrate significant growth, if it is true that the cans were late getting to the shelves in quarter one and if money for re-orders due last quarter will be counted in the current quarter, but the decrease in sales when compared to last quarter is a glaring number, regardless of how well they look when compared to quarter one of 2009.

Celsius is still a growing story, and it could very well be that the first quarter will be looked back upon as a speed bump in the road towards mainstream acceptance, but it's also a sign that the sailing is not yet smooth for Celsius.

The good news, according to the PR, is that the company has the cash on hand to initiate the new marketing campaign without needing to raise additional funds, but common sense says that if sales do not increase significantly over the next few months, then a cash-raising event again becomes a concern.

My patience and belief that the Celsius product is indeed unique and has the potential to gain a large percentage of market share has me hanging on for the long term, but there's no doubt some less-patient investors are teetering on their decision to hold or sell after the quarter one numbers.

Let's keep in mind that Celsius is still an emerging growth story, but let's also be conscious of the fact that with the advertising in place for well over a quarter now, and distribution on the boom, we're getting to the point where the product should not have to be given away for free in order to make its way into the hands of consumers.

Quarter one was a significant one for investors of Celsius, because a significant increase in sales could have confirmed the upswing of the product; as it stands now Q2 is pivotal, because another decreasing sales number could crush any upward momentum in the company and the stock.

You can't explain that away with free samples and slower-than-expected deliveries.

We're on the Nasdaq now.

That said, the sales numbers rebounded nicely after a somewhat similar disappointing quarter three of 2009, so it's hard not to take advantage of any dip in price following the quarter one 2010 results.

The product still has the potential to be a huge winner, in my opinion, and the story is not over.

Disclosure: Long CELH.

1 comment:

  1. First, love the site and information.

    Next, what continues to concern me about CELH is that I bought a bunch at a pre 20:1 reverse split price of .50 which, at the time, seemed a deal relative to its upside potential. Since then, I continued to buy the dips. But now, at pre-split prices, it's trading at .138 and the series of new lows are equating to a 1-yr long downward trend. Worse, I don't know when a dip is a dip or the start of the bottom falling out.

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