Shares in chocolatier Yowie Group Ltd (ASX: YOW) plunged around 9% today after it warned that sales of its children's confectionary products over financial year 2017 won't be as strong forecast.
For the full year net sales are now forecast to grow 85% to 90% rather than around 100% (or doubling) as originally forecast. The group blamed the projected slowdown on delays to the timing of shipments and product launches that are now having to be pushed back.
The group has a key distribution agreement with U.S. retail giant Walmart and sales growth has appeared generally decent, although the most recent quarter's operating loss follows a pattern of operating cash outflows.
Fortunately it has an extremely strong balance sheet with $29 million in cash on hand as at the end of 2016, versus a quarterly cash outflow of just $458,000. Given the shares are at 56 cents on a market cap of around $130 million it has nearly a quarter of its market value represented by its cash balance.
Evidently this stock could be cheap if it is able to gain sales traction in its core U.S. market, although the risk is that it is leveraged to its key relationship with a single supplier in Walmart. As it is relatively early days in its attempt to impress U.S. consumers it's future is somewhat unknown, although if it is successful the shares will almost certainly reward investors at today's valuations.
Despite the potential, I'm watching Yowie's progress from the sidelines as I would prefer to buy profitable companies that already pay juicy dividends.
