After a tumultuous 12 months for its share price, today's quarterly report seems likely to light a fire under shares of US chocolatier Yowie Group Ltd (ASX: YOW).
Here's what you need to know:
- Sales were US$4.9 million in the first quarter, up 104% compared to the same quarter last year
- Production volumes also doubled to 3.3 million units, or ~13 million units annual run rate
- Yowie was a #1 selling item with market share of 0.7% of the market (excluding convenience stores) over the 52 weeks, according to Nielsen data
- Plans to expand internationally in Q3 or Q4 this year
- Expected to launch Yowie book series in Q3 this year
- $1.7 million operating cash loss due to increased spending on inventory as well as higher staff and admin costs
- Cash at bank of $30 million as at 30 September 2016
So What?
Yowie has changed the way it reports its quarterly cash flow data, as it now breaks its expenses down into more individual items. This is likely to increase the clarity of these company reports going forwards. As has been the trend in the last few quarters, the company has had to spend heavily on increasing its production of chocolate to meet anticipated demand as the number of active accounts (retail businesses that sell Yowies to consumers) increases.
This is a good problem to have (provided sales keep growing) but it does act to mask some of the value in the business. The recent increase in staff costs as well as the commissioning of the second chocolate wrapper, which will double production to 40 million units per annum, have also contributed to higher costs. Management expects to be able to deliver $500,000 worth of productivity savings over the next year or so, which could make a meaningful difference for a company as small as Yowie.
What's next?
Well funded and with a wealth of new executive expertise, Yowie is in a good position to keep growing sales while management works on brand-building. The entry into publishing is a new venture for the company however, and it remains to be seen what kind of returns Yowie can generate from its increased investment in media, webisodes, and so on.
I'm also cautious about the proposed expansions into Europe and/or Asia. Australia would have been the obvious next choice given that the Yowie brand retains at least some consumer awareness here, but I think that management has its eyes on the biggest prize possible. Which is fine, but I am wary that trying to conquer a second market while the US is still ramping up could both divide executive attention, and do some ugly things to the balance sheet and cash flow statement.
I do remain cautious about some of Yowie's new ventures, but the core chocolate business is performing very strongly, and the company is in a good position. I recently identified Yowie as my top pick for October, and today's report confirms my belief that shares are attractive at today's prices.
