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spk01: 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.
spk02: 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.
spk04: As we look ahead, we remain committed
spk01: Ladies and gentlemen, please remain online. We seem to have lost the main speaker. He will be rejoining us shortly. Please remain online. Thank you. Ladies and gentlemen, apologies for the delay. Please remain online. You will be joining us shortly. Thank you.
spk04: Ladies and gentlemen, thank you for your patience. We've been rejoined by the speaker. Thank you. Yes, hello there. Sorry, we got cut off. I'll pick up where we left off. You may go ahead, sir. Thank you. Thank you. We are back. I'll pick up where we left off.
spk02: As we look ahead, we remain committed to driving growth across our portfolio of brands through strategic distribution expansion, operational excellence, disruptive marketing, and consumer-centric product innovation. Our diverse portfolio of consumer brands spanning personal care, beauty, food, and beverage positions us well to capture opportunities across various consumer segments and retail channels. With our talented and dedicated team, our robust strategy, and relentless focus on execution and innovation. We are confident in our ability to deliver long-term value for our shareholders while actively inspiring and shaping consumer behaviors. I'm now going to turn it over to our interim CFO, Kevin Zuccardi. Thank you, Ross.
spk00: Reported net revenue for the second quarter of 24 was $15.6 million, and this was compared to $17.5 million for the second quarter of 23. The decrease in net revenue for the second quarter was driven by a decrease in sales for whip shots due to a large Q4 of 23 and Q1 of 24 inventory purchases, partially offset by an increase in sales for Skylar and Winona popcorn spray. Gross profit for the second quarter of 24 was $5.7 million compared to $6.9 million for the second quarter of 23. The decline is a result in product mix of lower gross margin products, This was primarily offset by the soylent segment, which benefited from price increases and lower cost of goods. Gross margin for the second quarter of 24 was 37% compared to 39% for the second quarter of 23. Our reported unadjusted net loss for the second quarter of 24 was $11.6 million as compared to net loss of $6 million in the second quarter of 23. Increase in reported unadjusted debt loss is due to a lapping prior year retail load in from WIP shops, which caused a decline in gross profit. Marketing general administrative expenses for the second quarter of 24 was 4.5 million or 29% of reported net revenue as compared to 4.7 million or 27% of reported net revenue for the second quarter of 23. Compensation expenses for the second quarter of 24 was $2.4 million compared to $2 million in the second quarter of 23. And professional fees for the second quarter were $1.1 million compared to $1.4 million for the same period last year. For the second quarter of 24, our adjusted EBITDA was a loss of $1.2 million compared to a gain of $1.1 million for the same period last year. The decline was primarily due to a decline in sales for web shots compared to prior periods. Now I'll go into more detail on the second quarter performance of each of our segments, beginning with Starco Brands. Starco Brands, as a reminder, includes Art of Sport, Whip Shots, and Winona Popcorn Spray. The Starco Brands segment reported net revenue for the second quarter of 24 was $2.1 million compared to $4.2 million for the second quarter of 23. The segment gross profit was $1.1 million for the second quarter of 24 compared to $3.3 million for the second quarter of 23. The decline in gross profit dollars and percent in this segment was driven by the mixed impact of lower revenue from higher margin whipshots offset by the increase in revenue from Winona. Whipshots revenue declined as a result of a softer second quarter due to distributor and state pipeline fills in Q4 of 23 and Q1 of 24. Winona revenue increased due to distribution ads at Walmart, increased velocity on shelf, and onboarding new mass retailers. Reported net revenue for the Skylar segment was $1.9 million for the second quarter of 24 compared to $2.1 million for the second quarter of 23. The decrease was driven primarily by a temporary skew reduction at Sephora in the second quarter of 24. resulting from a short-term reallocation of floor space, which is expected to be reversed and enhanced in the third quarter, as well as our D2C channel declining as we focus on development in retail.com and Amazon channels. The segment gross profit was $1.3 million for the second quarter of 24 compared to $1.1 million for the second quarter of 23, as we have reduced cost of goods and had favorable mixed impact in the growth of the Amazon channel. Reported net revenue for the Soylent segment was $11.6 million for the second quarter of 24 compared to $11.2 million for the second quarter of 23. The increase was primarily driven by our expansion, retail expansion into Kroger, added distribution into Walmart, as well as reduced discounts across all channels. The segment gross profit was $3.3 million for the second quarter of 24 compared to $2.4 million for the second quarter of 23. The increase in margin was due to price increases that went into effect in the second half of fiscal year 23, lower cost of materials in the second quarter, and cost efficiencies realized through the successful integration of Soylent into the company's shared service model. Now, moving to our balance sheet. As of June 30th of 24, we had approximately $2 million in cash and $13.2 million of inventory on our balance sheet. This is compared to $1.8 million of cash and $10.7 million of inventory as of December 31st to 23. Now I'll turn the call back to Ross to discuss fiscal year 24 outlook and closing remarks.
spk04: Thank you, Kevin.
spk02: We continue to scale our brands. And at this stage in our company's life cycle, we want to be cautious yet very deliberate about investing and focusing our free cash on the business in order to build valuable enterprise and shareholder value versus conserving growth capital for short-term earnings aesthetics. In conclusion, our commitment remains steadfast in capitalizing on emerging opportunities, driving innovation, and delivering exceptional products and experience that resonate with our consumers. We continue to see significant potential for accelerated growth through deepening our presence with existing retail partners, expanding into new channels, extending our product lines, and strategically venturing into adjacent categories with select brands. I'm incredibly proud of our team's resilience and adaptability in this dynamic market environment. Thank you for your time today and your interest in Starco Brands. And with that, I would like to open it up to any questions.
spk01: Thank you, sir. Ladies and gentlemen, we will now be conducting the question and answer session. If you would like to ask a question, please press star then 1 on your telephone keypad to join the question queue. You may press star 2 to leave the question queue. For participants making use of speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from Eric Beder of Small Cap Consumer Research. Please go ahead.
spk04: Good afternoon. Hey, Eric, how are you? I'm good.
spk03: We'll talk a little bit about the inventory flows. I know you have so many exciting new rollouts for Q3 and Q4. How earlier do you need to have the inventory in place for support of those rollouts, and how should we be thinking about that looking at the Q2 inventory at the back end?
spk02: Yeah, there's definite lead times and time frames to be cognizant of with just normal sustained turnover. But as we look to really ramp up new distribution across a couple different divisions, the key is understanding the metrics between sustained turnover volume versus roll-in. And so it's a pretty calculated, you know, one-two punch. So you can see, you know, what we've had to do is really be strategic. And if you can see in the report, actually keeping kind of cash quite static in that sort of equation is a pretty difficult thing to do. So you're managing your cash. You're working with your manufacturing partners. You're building the inventory. And then you're cognizant of when kind of the rollout, you know, the rollouts happen and then sort of the turn on invoicing and days to collect to, you know, sort of bring that back in line. So you'll see a poppet inventory. The real trick is maintaining... those cash levels. So the communication and orchestration with your manufacturing partners and giving them the visibility as to what the growth looks like is vital.
spk03: Got it. That makes sense. Whipshots, I know last quarter you talked about how you thought you'd have the channel kind of cleaned up by the end of the year. Is that still the case? I'm going to get a quick update on how Cardi B still fits into this and how it's going to roll forward with that?
spk02: First off, Cardi is very active. You will see a really high profile and very interesting brand partnership coming up that we can't get into too many details today. The M.O. of that brand is consistent brand partnerships and marketing, but I think we've kind of outdid ourselves on this one coming up. So, you know, it's pedal to the metal on kind of really creative marketing, really interesting brand partnerships and sort of furthering, you know, how Whipshots gets woven into, I would say, larger kind of spirit playgrounds or brands, if you will. So that's kind of, you know, on that marketing front. On the... kind of enthusiasm coming out of 2023 fourth quarter, you know, we just had immense buys. And what was interesting is there was pretty significant pull through. So there was a re-up on purchasers in, on purchase orders in January, which is, you know, considered to be dry January. And, you know, we all kind of know the spirit sector in general, kind of where that's, where that's been in 2024 and, But those are some pretty large volumes, I think, nationally that we had to work through from a seasonality standpoint. We have seen those inventory levels come down, not to the speed that we would have liked. But again, you know, we're sort of learning, you know, this is our third year and we're kind of learning more and more the true, you know, pulse points of when the product really outperforms itself. And clearly it's, you know, kind of in those, seasonal months as we get into, you know, kind of past the fall and into the back half of the year. So, you know, we've already seen some, you know, pretty decent purchase orders return. So we're expecting, you know, not the volumes of last year, which I think were probably outsized for the market as the market was kind of learning, but definitely we're seeing purchase orders increase and are expecting some pretty positive news for the back half.
spk03: Okay. And last question on Sephora You mentioned Sephora, Kohl's, you're online with that. When do you think you'll be able to get into stores? And now given some of the things you've done there, I know you've talked before about expanding beyond Sephora and anthropology. Does that, I'm assuming that's still part of the plan here. Give us a little bit more update on where this goes.
spk02: Yeah, I think we're waiting to hear. I think that word should be coming out on Nicole's retail expansion off of .com closer to the fourth quarter. Sephora continues to do well. SKUs are looking to be expanded there. We're also looking for stores to be expanded there. But I think one key element that should be taken out of this release is this new partnership with Costco. Being, you know, on Costco online, you know, it's not that well-known just how strong Costco is in their e-commerce business. It's an absolute behemoth. And, you know, they made a very significant commitment to us, you know, as we noted, literally one of the largest purchase orders in Skyler's history for their dot-com business. And so, you know, The plan of attack there is to monitor its sell-through online, which is going to lead into a store program if we hit certain hurdle rates. So the Kohl's initiative is exciting. The Costco initiative is exponentially more exciting than the Kohl's. So we're – We're cautious around it and looking forward to getting some of the turn results over the next two quarters.
spk04: Okay. Good luck in the backhand. Thanks, Carmen.
spk01: Thank you. Ladies and gentlemen, just a reminder, if you'd like to ask a question, please press start in one on your telephone keypad to join the question queue. It appears we have no further questions. I will now hand over back to Ross Clark for closing remarks.
spk04: Thanks again for listening, and we'll see you next quarter.
spk01: Thank you, sir. Ladies and gentlemen, that concludes today's event. Thank you for attending, and you may now disconnect your lines.
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