In light of decreasing sales at Celsius, Can the Company's Stock Manage a Resurgence?
Following a peak share price of around $100 in January, Celsius (CELH -3.33%) is now trading at $30. This drop came after the company reported a substantial decrease in Q3 sales on November 6th. Despite this recent slide, Celsius has been a exceptional performer over the past five years. The query on numerous investors' minds is if the stock can recover its lost momentum.
Let's delve into the company's most recent figures to determine what's causing the problem and if a turnaround is possible in 2025.
Revenue Drop
Celsius reported a 31% decline in Q3 revenue compared to the previous year, reaching $265.7 million. Domestic revenue fell by 33% to $247.1 million, while international revenue increased by 37% to $18.6 million.
Club sales dropped by 4% to $60.5 million, despite a 15% boost in sales at Costco. The decrease in club sales can be attributed to the timing of promotions at BJs and Sam's Club. On the other hand, Amazon sales surged by 21% to $27.0 million.
The overall decline mainly stemmed from the company's largest distributor, with "inventory optimization" efforts resulting in a decrease in sales to this distributor by $123.9 million compared to the previous year. It's likely that PepsiCo is the distributor in question, as the company signed a substantial deal with Celsius in 2022. Celsius management mentioned that they are now observing a better correlation between sell-in and sell-through, but it is not yet fully realized.
Celsius's management did not seem to fully grasp the problem, stating that it could have a positive impact on Q4 or a negative impact on sales of up to $15 million.
The company reported a 7% increase in both unit volumes and retail sales during the quarter. It also noted that Celsius was the third biggest energy drink manufacturer in the US with a 12.1% share, and it contributed the most to the category's growth.
The substantial revenue decrease also impacted other financial metrics, resulting in a break-even result on the bottom line, down from a $0.30 per-share profit the previous year. Adjusted EBITDA plummeted by 96% from $103.6 million to $4.4 million. Gross margins dropped by 440 basis points to 46.0%.
Can the Stock Recover in 2025?
The energy drink sector has experienced challenges this year, mainly due to a decrease in convenience store traffic, which is a primary distribution point for these beverages. Additionally, the brand is facing increased competition in the sugar-free segment of the energy drink market from both established brands and new entrants.
Celsius aims to recover its growth momentum through the introduction of new products and flavors, as well as obtaining more shelf space in stores. The company recently launched new flavors, such as sparkling watermelon, lemonade, and cherry cola. It also purchased its co-packer, Big Beverages, to give it more control over its supply chain and allow for new innovations. The company believes this move will enable it to introduce limited-time offerings, similar to what has benefited Keurig Dr Pepper in the soda industry.
International expansion may be the company's biggest opportunity moving forward. Although it has seen strong growth from a small base, it is currently only available in a few countries and is still in the early stages of its expansion.
As a result of the decline in its share price, Celsius now trades at a forward P/E ratio slightly under 30. Whether this valuation is overpriced or undervalued depends on the type of growth the company can achieve moving forward now that its growth fueled by US distribution is largely completed.
Celsius still has potential for growth, especially in international markets, but it's unclear where revenue growth will level off in the short term. While the stock may not be as overpriced as it was earlier in the year, it's not a bargain either.
Given these uncertainties, investors should wait for more clarity from management regarding what sustainable growth might look like for the company before making any decisions. It may be a while before the company regains its previous highs, if ever.
Investors are questioning whether Celsius's stock can regain its lost momentum, given the 31% decline in Q3 revenue compared to the previous year. This financial downturn has resulted in a break-even result on the bottom line and a significant decrease in adjusted EBITDA.
For those considering investing in Celsius, it's worth noting that the company's P/E ratio is now slightly under 30, suggesting potential value regardless of the stock's current low price. However, given the uncertainties surrounding the company's growth prospects, particularly in the short term, it might be wise for investors to wait for more clarity from management before making any decisions.
