When searching for a good risk-reward stock, investors should always give extra consideration to a company that has, in addition to a good product, a solid management team. Anyone can come up with a good business idea, but only solid management will bring it to market.
Celsius Holdings (CSUH.ob) fits that profile.
Celsius is a growing company that offers a novel, first-of-it's-kind product (also called Celsius) and is led by a solid management team. CEO Steve Haley has always made himself easily accessible to both investors and consumers and his commitment to the company and it's shareholders is a large part of the reason why investors hung in there when the stock dropped to under five cents late last year.
For those that may be new to the company, Celsius produces and markets the world's first calorie burning beverage. 'Celsius', comes in five 'sparkling' flavors (Cola, Orange, Wild Berry, Lemon/Line and Ginger Ale) and two non carbonated Green Tea flavors (Raspberry Acai and Peach Mango) in addition to the recently-launched powdered packets that, when mixed with water, provide the same calorie burning benefits as the drink.
CEO Steve Haley and the Celsius team, which now includes former Chairman of Rexall Sundown and vitamin industry mogul Carl DeSantis, have slowly grown the distribution and marketing of the product while managing to keep overhead costs at a minimum.
The company is on pace to record a million dollar quarter and with advertising and distribution picking up along with revenues, I thought it was time to check in with Mr. Haley and see if he could offer some insight into a couple of questions that I, as an investor, had on my mind.
My questions relate to the television and radio ads running in areas of high distribution as well as to some new product and distribution updates. My questions are posted below and Mr. Haley's responses are posted in bold, followed by my own comments labeled VFC's Take:
1. Are the television ads currently running? If yes, in which markets and how long can we expect the ads to run?
Currently, we are running the ads in some markets in the Northeast. I would characterize it still in the experimentation phase. As methodically as possible, we are working to determine the impact of Television vs radio vs other forms of promotion. We primarily only do mass media types of marketing where we have good distribution. In areas where we may only be in one retail chain, we resort to more guerrilla type marketing such as events and in store samplings. Since we have some great retailers carrying Celsius in the northeast that is the best place for the TV right now. We will try a different commercial and format in Florida in the near future. We are trying different formats and lengths of television ads and working to measure the impact. We want a productive and replicable process in place as we expand across the country.
VFC's Take: Recent press releases (PRs) by the company have confirmed the building of an expansive distribution network in the northeast. The next two quarters should give us good insight into just how well these ads are working. The growth demonstrated in Quarter One, the first full quarter of radio ads, is an early indication that the ads are providing the desired effect.
2. Has the company increased advertising in any other medium (print ads/magazines, etc)?
As stated above, we are using various methods of promotion. We have some print media but most of it is on a regional basis. We are doing all we can to keep overhead low so we can invest all we can into building the brand and learning the most efficient way to do that.
VFC's Take: Emphasize "keeping overhead low." Mr. Haley knows what he is working with and understands the importance of patience. This slow and methodical building of the company has made investors antsy at times, but the strategy is beginning to pay off. As they say, 'Rome wasn't built in a day' and it takes patience to grow a company, even if the product offered is great. Carl DeSantis has enabled the company to refinance existing debt at more favorable terms.
3. Are the radio ads continuing?
We are doing radio in several markets currently. Again, in markets with good distribution.
VFC's Take: Again, if Q1 is any indication, I'm looking forward to another full quarter of radio ads.
4. Can you comment on the 7-11 distribution? I haven't seen a press release regarding 7-11 distribution, but I noticed that your Red Chip had it [7-11] on the map down south and up north.
In keeping with our policy of not formally announcing retailers until we are on or very close to being on the shelves, I don’t want to comment too much. We are getting a significant amount of free publicity with the various television networks doing special news segments on Celsius. The 7-Eleven relationship was mentioned while one of the news crews was here in the office and then the news anchor mentioned it on one of the newscasts. I then happened to click on that specific segment when I clicked on the map during my presentation at RedChip. We are in some 7-Eleven stores and will be formally announcing more about the relationship with 7-Eleven next month.
VFC's Take: The free publicity via the news reports can do wonders to boost sales. Unconfirmed reports from Celsius fans in Philadelphia informed me that the product was sold out in various locations around the city after the news segment played.
There's obviously no doubt that Celsius is in 7-11 stores in some markets, so we can sit back and wait for the press release. If marketed correctly, 7-11 could be a big-seller, especially for the soon-to-be-released 'energy shots.' I say "marketed correctly" because I visited some Valero shops in Texas that sold Celsius, but the product was located in the far top corner of the display case and didn't sell. Consumer awareness was not then what it is now, so I have high hopes for 7-11.
5. Can we expect the powdered packets in stores or is that solely a web based product?
We have received orders for the packets from a couple of retail chains and they are just being shipped. Many times, the larger the chain, the longer their planning horizon. We have presented the packets to many and some are verbally committing for their next cycle of planning. If you remember, it took a good six months for the teas to start hitting the shelves in some of our larger chains. It looks like the packets will beat this in several of the retailers but for some it will still be a few months out.
VFC's Take: Good news and patience. 'Nuff said.
6. Any update on the Celsius 'Energy Shot'?
We did not want to release our calorie burning energy shots until we completed a study. This has not been done yet. We are watching the shot market closely during the interim. We have several directions that we can take our MetaPlus formula and will put the most focus on the markets that will have the greatest impact in building the Celsius brand and calorie burning category.
VFC's take: The tests are great for the credibility of the claims. In foreign markets, the tests may actually be required for marketing and distribution.
Some may notice that I did not ask Mr. Haley a question regarding the vote to increase the number of authorized shares to a billion. In my opinion, the number of authorized shares is irrelevant- for now. For one, authorized and actual shares are two different things and for two, if this products takes off, investors who are in now are going to be handsomely rewarded regardless of how many shares are authorized.
I'm also highly confident that Mr. Haley is not out to screw the shareholder here, it's just a necessary action for a growing company.
In closing, Celsius is a growing brand in popular markets (weight-loss products and the food and drink industry) at a time when Americans are beginning to spend money again. That bodes well for future business.
Celsius is marketed towards it's ability to burn 100 calories per serving, but keep in mind that people will also drink it because, with no sugar and no carbs, it is a healthy alternative to sugar-laden energy and recreational drinks. There's a lot more going for this product than just the weight loss claims.
The stock price rose from three to twenty cents in a hurry and, especially if next quarter shows significant growth, there is room for the stock to move higher.
The wild card is a celebrity endorsement. If a high-profile celeb is spotted with Celsius and that picture ends up in US Weekly or OK!, then look out. If 10 million people can tune in to watch 'Jon and Kate Plus 8', then there's no doubt fans will flock to the stores to drink their favorite stars' weight loss product.
Disclosure: VFC is long CSUH.ob