GURU’s energy drink sales increase following national ad campaigns

Canadian manufacturer GURU Organic Energy (TSX: GURU) has posted an increase in consumer purchases of more than 33% for the fourth quarter of 2022.

Scanned retail sales were boosted by the company’s “Good Energy for the Everyday” and “Back to Reality” national advertising campaigns over the fall season, reflecting an increase of 31% over the same period last year.

The company’s US performance held steady during the quarter, and it continued to hold the number one energy drink position in California’s natural store sector while working on plans to expand its distribution network in that state.

Industry research showed GURU experienced a 13% growth in California over the previous corresponding period, showing continued strength in the US market.

The online sales segment also demonstrated strong topline performance for the quarter as well as improved profitability driven by reduced investments in consumer acquisition.

Change in business model

A change in business model and investments into expansion activities during the year had an expected impact on GURU’s short-term financial performance.

Net revenue for the fourth quarter came in at $6.8 million, compared to $8.5 million in the same quarter last year, while gross profit totalled $3.5 million (compared to $4.3 million).

Gross margin (which comprises distribution, selling and merchandising fees) increased to 52.1% for the quarter, compared to 51% for the same period a year ago.

GURU attributed the improvement to pricing initiatives which offset higher product costs driven by inflationary pressures on input and transportation spend.

For the 2022 fiscal year, gross profit totalled $15.7 million, compared to $17.9 million for the previous corresponding period.

Gross margin for the fiscal year was 54%, compared to 59.2% in 2021 with the decrease due to a change in the company’s Canadian distribution, sales and merchandising model introduced at the end of 2021.

Expenses

Selling, general and administrative expenses (including operational, sales, marketing and administration costs) totalled $7.8 million for the quarter, compared to $10.3 million for same period last year.

Of this, $5.5 million went into sales and marketing efforts as GURU continued advertising campaigns such as its partnership with Quebec reality TV show “Occupation Double” which the company has sponsored since 2018.

Adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) amounted to a loss of $4 million, compared to a loss of $5.7 million last year, mainly due to higher gross margins and lower selling and marketing expenses.

Adjusted EBITDA for fiscal 2022 was a loss of $17.2 million, compared to a loss of $8.7 million in 2021.

At end October, GURU had cash, cash equivalents and short-term investments of $46.3 million and unused Canadian and US-dollar denominated credit facilities totalling $10 million.

Pleased with achievements

GURU chief executive officer Carl Goyette is pleased with the company’s achievements for the period.

“As expected and planned, the change in our business model had an impact on our financial performance in the short-term [but] we firmly believe they will pay off in the long run as we near the completion of our transition period this year,” he said.

“This fourth quarter bore the biggest impact of the transition, mainly due to non-recurring factors portfolio rationalisation to focus on our core energy drinks and the postponement of our next innovation to a more strategically-timed launch in the next fiscal year.”

The brand’s Canadian growth trajectory is expected to “take time and sustained effort”, Mr Goyette added.

“With a focus on targeted marketing and disciplined execution at the retail level, we expect this will translate into a return to net sales growth for fiscal 2023,” he said.

“With a world-class partner, an authentic brand and a strong balance sheet, we are in a solid position to pursue our growth strategy and self-fund our marketing efforts to become the leading better-for-you energy drink in Canada, while building our brand awareness in the US.”