Starco Brands, Inc.

Good afternoon, everyone, and thank you for participating on today's second quarter 2024 corporate update call for Starco Brands. Today's call is being recorded. Joining us today is Starco Brands CEO, Ross Sklar, and Starco Brands Interim CFO, Kevin Zuccotti. You should have access to the company's second quarter earnings press release issued after the market closed today. This information is available on the investor relations section of Stocker Brands website at investors.stockerbrands.com. Certain comments on this call include forward-looking statements which are subject to safe harbor provisions of the Private Securities Litigation Reform Act of 1985. These forward-looking statements are based on management's current expectations and beliefs concerning future events and are subject to a number of assumptions, risks and uncertainties that could cause actual results to differ materially from those described in these forward looking statements. Please refer to today's press release and other filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any of the forward-looking statements made today. During the call, we will use some non-GAAP financial measures as we describe business performance. The SEC filing, as well as the earnings press release, which provide reconciliations of non-GAAP financial measures to most directly comparable GAAP measures, are all available on our website. Following our prepared remarks, we will take questions from research analysts. Now I will turn the call over to CEO of StockBrands, Mr. Ross Sklar. Please go ahead, sir.

Thank you. Good afternoon, everybody, and welcome to today's call. The first half of this year has been a period of strategic positioning and organization as well as growth for our company. We focused on integrating our acquisitions and finding efficiencies across the board. while also building on our shared service platform to find efficiency throughout the organization. We also made very targeted investments in our businesses, and we've significantly optimized our marketing spend so it's appropriate for sustained and continued growth. Simultaneously, we've significantly expanded our distribution footprint across every one of our divisions, also extending national distribution for every single one of our brands. and broadened our product portfolio through line extensions and entry into some adjacent categories. These leverages, excuse me, these initiatives leveraged our core strengths, which are in cross-category R&D and IP creation, manufacturing for the businesses we own, innovative marketing, and diversified retail and e-commerce expertise. As we look forward to our peak season, several of our brands, we believe we're very well positioned now for top-line growth in the back half of this year. More importantly, for substantial and sustained growth in 2025 and 2026. I'd like to highlight some of the notable achievements across the portfolio, starting with our Starco brand segment. We have continued to expand Whipshot's retail presence, and the brand is now available in 46 states, plus the District of Columbia. In Q2, we expanded distribution in new markets such as Alabama, North Carolina, and Pennsylvania. This rapid growth has brought Whipshot to nearly nationwide availability in just over two years since its launch. Since its debut in February of 2022, Whipshots experienced extremely strong distributors, state, and consumer interest. That propelled the business to sell over 5 million cans in that timeframe. It also led retailers to place substantial orders to meet the anticipated demand. However, as is often the case with new product launches, we've seen some fluctuations in the demand patterns and are still learning the business and its seasonality. During the first half of this year, we observed lighter overall sales for Whipshots. This is primarily because retailers, states, and distributors made large purchases in the fourth quarter of last year and are working through that inventory. Given our limited historical data and reorder patterns, as well as learning seasonality for this brand, it's taken some time to find the optimal inventory balance. That said, we're making significant progress on our distribution expansion efforts. Today, really, our focus has been on sort of mid-tier distribution, primarily through regional liquor stores and chain store sales throughout the United States. This fall, as previously announced, we'll be taking a major step forward by introducing Whipshots more to the national retailer base. We have an upcoming rollout with Kroger in the fall. This represents our entry into large scale retail and we view it as first of many expansions to come. We have secured 1,257 points of distribution in Kroger with the potential for the brand to be in 77% of the stores in authorized states. Additionally, Whipshot has landed Costco and it's kicking off the relationship in Louisiana. leading to a longer-term program in Q4 and in 2025. This is a really exciting expansion for Whipshots. Lastly, Whipshots has landed a store-wide deal with Dave & Buster's. In its 162 locations across 44 states, this really is a very large on-premise deal for the business. Whipshots is going to be featured on their menu as a topper on specific cocktails or as a shot itself. We remain confident in Whipshot's potential and are very excited about its imminent national retail debut and future expansion plans. We believe this strategic growth, combined with the learnings from our initial launch phase, positions us very well for sustainable long-term growth in this category and many brand partnerships on the horizon. Our other brand within Starco's segment, Winona Popcorn Spray, remains a very important part of this portfolio. This brand is quietly on track to double its revenue this year compared to last. A performance that's particularly impressive given our minimal marketing investment. Winona continues to demonstrate strong consumer loyalty with robust repeat purchases across both online and in-store channels. Notably, the brand exhibits consistent sales velocity across diverse geographic regions. This is a rare characteristic in consumer products. This uniform performance across market underscores Winona's broad appeal and the strength of its value proposition with retailers. Winona has double the category rate in velocity and efficiency and 10% market share with only 30% ACV. In line with our strategy to drive brand growth through innovation and product extensions, we are excited to be releasing a new flavor, the Titting Store Shell Garlic Butter. Under the Winona brand, it will begin shipping to retailers really right now. Moreover, I'm pleased to share we have a long flavor innovation pipeline for Winona scheduled for 2025 and beyond. Along with brand extension into additional retail categories, a strategic move aimed at increasing our shelf space and consumer touch points within the store. Winona's unique proposition and positioning with its exceptional sensory experience and very attractive price point have enabled us to further expand its retail distribution. Winona is now distributed at Walmart, StoreWide, HEB, Meijer, AWG, Big Lots, and Hy-Vee. and our 2024 and 2025 growth plan for Winona remains on track as follows. Walmart is rolling up a new garlic flavor, as mentioned, nationwide, in 2,500 stores Q3, and will be increasing to all 4,200 stores in the first quarter of 25. Stater Brothers is bringing on the product storewide in 169 stores, both items in Q3. Meijer rolled out the second SKU store-wide in 260 stores. This will be happening in Q4. A very large chain in Canada called Sobe will be taking the product nationwide, both SKUs, 1,400 stores in Q4. Hy-Vee chain-wide in 280 stores, both SKUs in the second half of 2024. Albertsons nationwide with both SKUs across 1,700 stores in the first quarter of 2025. AWG in 500 locations with the potential to growing to over 4,000 stores within their portfolio. And we've added placement of garlic there as well. The other notable expansion is Target. This will be going nationwide in about 1,000 stores in the second quarter of 2025. Really unprecedented growth for Winona. Moving on to the last brand of our Starco segment, Art of Sport, AOS. We continue to see significant potential for expansion with this brand into adjacent categories through innovative product offerings, technology advancement, and strategic brand partnerships. Following the first quarter successful relaunch of AOS on Amazon, which focused on the brand's best-selling personal care SKUs and scents, we've seen encouraging results since then. Building on this momentum, we launched two new products in adjacent categories on Amazon in the second quarter, AOS Sunscreen and AOS Protein Powder. In the second quarter, AOS experienced quarter-over-quarter growth of 32% on Amazon. But previously announced, as previously announced, we remain on track to expand distribution of our protein powder at Kroger's 132 Fred Meyer stores in October, with full distribution in all divisions expected in 2025, equating to over 1,700 stores. We are excited to announce an expansion of the brand beyond its current personal care offerings. We're extending AOS into the over-the-counter pharmaceutical space with our initial focus on pain management, This strategic move leverages the strong brand equity we've built and are continuing to build in the personal care sector to enter into the growing lucrative OTC pharma market. Our first entries in this category will be a cooling muscle spray and a cool and heat muscle spray, launching this quarter. This expansion not only opens us up to new revenue streams, but also positions ALS as a more comprehensive health and wellness brand and is in line with our goal to own the locker room. We're confident that AOS's brand ethos will translate well into this new category and look forward to updating you on the progress of this initiative in the coming quarters. Turning to our Skylar Beauty segment, we continue to build on last year's success in achieving profitability, through our optimized marketing strategies, streamlined operations, and enhanced retail partnerships. Skyler's flagship, Eau de Parfum, has maintained its strong performance at Sephora, demonstrating consistent consumer demand and turn. Following this success, the brand's hair and body mist line has been met with equally enthusiastic consumer reception. The impressive performance of both product lines led to a significant expansion opportunity. Sephora decided to increase Skyler's presence by introducing the brand to their rapidly growing Sephora at Kohl's Channel. With the brand's successful launch of this channel's e-commerce platform in the second quarter, the brand now has the potential to be on shelf in the over 850 retail locations through Kohl's. Furthermore, we've successfully implemented our distribution agreement with Anthropologie, encompassing both their online and physical stores beginning in the third quarter. And lastly, in the third quarter, the brand has landed Costco.com and received one of the largest purchase orders in the division's history. This was quite a feat for Skylar. In addition to our retail expansion, we're also focusing on product innovations, continue to drive growth. We have several exciting products in our pipeline designed to extend Skylar into adjacent categories. These upcoming launches will allow Skylar to meet a wider range of consumer needs while maintaining the core values and quality that have made the brand so successful with consumers. We have also hired CLG PR as the brand's first ever PR firm. Since bringing them on board in July, the firm has already secured several premium media and top-tier celebrity and influencer partnerships. We couldn't be happier with this new arrangement. Now turning to Soylent, the 15-year-old brand we acquired last year for its exceptional quality and devoted e-commerce following, not to mention best tasting in class. In Q2, Soylent rounded out its protein portfolio with the launch of Soylent Complete Protein Powder, making the brand a serious player in the protein supplement market. And in May, Soylent achieved a significant milestone by achieving the highest repurchase rate of any brand in the adult nutrition category, according to data from Unify Plus Panel. With a remarkable almost 63% of consumers repurchasing Soylent products two or more times, the brand outperforms competitors like Boost, Owen, Orgain, and the longtime category leader, Ensure. Soylent will be rolling out its complete meal, ready-to-drink, and seasonal SKUs to Walmart, Meijer, Publix, and Kroger in the third quarter. Consumers will be able to buy seasonal flavors like Pumpkin Spice in over 2,000 brick-and-mortar retail locations nationwide this fall. Soiler is also currently rolling out with AWG and in 500 stores, with 100 new stores being added each month through the fourth quarter and into 2025. Large expansion. And lastly, Soiler continues to be a top-selling meal replacement shake on Amazon. with 23.6% of total meal replacement market share. Because of this ranking, the brand's return on ad spend in this channel remains extremely high at 4.5x. The high margin sales generated by efficient marketing spend and investment on Amazon make this channel a priority focus for the second half of the year. Leveraging our deep retail experience, we have identified a compelling opportunity to amplify Soylent's presence in the brick and mortar space, complementing its already strong digital footprint. Over the last year, we've conducted extensive consumer research and market testing, yielding a fascinating insight. Soylent resonates with two distinct demographic profiles across its e-commerce and retail channels. This insight has been instrumental in shaping our go-forward retail strategy for the brand. As a result, we are initiating a comprehensive brand overhaul in the third quarter, which will include rebranding the product in retail under a new name called Complete. This approach allows us to tailor our messaging and positioning to each channel's unique demographics. While we've been expanding Soylent's footprint, we've also sharpened our focus on operational efficiency to ensure sustainable growth. We've optimized our marketing spend, particularly by refining our digital marketing investments. As we move into the second half of the year, our primary objectives for Soylent are twofold, driving profitability and pushing our retail strategy.

As we look ahead, we remain committed