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MusclePharm (MSLPD.OB) is a dietary supplement manufacturer with products geared toward those with active lifestyles, including bodybuilders, and those looking to lose weight and maintain general fitness levels. MusclePharm has quickly become a revenue generating machine. The question for investors is whether or not the company will be able to translate its revenue growth into stock growth.

Year

Total Revenue

Share Value

2008

80k

-

2009

$1m

-

2010

$4m

$552.50 (9/1/10)

2011

$17m

$13.94 (9/1/11)

2012

$51m

$5.44 (9/1/12)

U.S. Supplement Industry Growth

According to the National Institutes of Health (NIH), 54% of all American adults took dietary supplements in 2006. In 2011 that figure jumped to 70%. Nearly half of all supplement users in the U.S. reported using more than one supplement daily, and nearly 10% took five or more supplements a day. Nutritional supplement sales also grew during the recession. According to research firm Packaged Facts, supplement sales grew by 31.7% and realized a compound annual growth rate/CAGR of 7.1% between 2008 and 2012. Sales are projected to reach $1.5 billion in 2012. Packaged Facts estimates that sales of nutritional supplements will reach $15.5 billion by 2017.

Dietary Supplement Sales - Online

GNC's (NYSE:GNC) acquisition of LuckyVitamin.com back in 2011 underscores the amount of growth seen in online sales of supplements. Online sales growth has remained in the double digits throughout 2012. The Nutrition Business Journal ((NBJ) estimates that U.S. consumer sales of dietary supplements through the internet were $1.3 billion in 2010 and will surpass $3 billion by 2017.

41% of MusclePharm's sales in 2011 came from BodyBuilding.com, the largest online retailer of sports nutrition products in the U.S. MusclePharm is now the number two best-selling brand on BodyBuilding.com. The company has two products in their top five best sellers, and eight products in the top fifty selling products. MusclePharm also sells domestically through several distributors and over 100 internet sites.

Dietary Supplement Sales - Retail

According to SymphonyIRI, sales of dietary supplements through mass-market retail channels shot up 5.4% for the 52 weeks ending June 10th, 2012. Supercenters and mass merchandisers accounted for just under 33% of sales, followed by 26% for specialty stores, 21% for drug stores, 12% for traditional supermarkets, and 10% for all others, including warehouse club stores and online sales.

MusclePharm's products are carried in approximately 450 Vitamin Shoppe (NYSE:VSI) stores, 5,000 GNC stores, and 400 Vitamin World retail stores. MusclePharm also sells its products in Dick's Sporting Goods (NYSE:DKS) stores. The company has a regional sales network that caters to wholesale distributors, which allows the company to sell its products in up to 15,000 other retail stores.

Financials

According to MusclePharm's most recent 10-Q, sales jumped $14.1 million to $18.6 million in the third quarter of 2012, compared to $4.4 million in the third quarter of 2011. International sales grew $3.5 million to $4.1 million in the third quarter of 2012, compared to $0.7 million in the third quarter of 2011.

MusclePharm reported a net loss of $6.1 million for the third quarter due to the company's plan to raise additional capital and retire warrants and existing debt which resulted in increased expenses during the third quarter. Most of MusclePharm's outstanding warrants were converted into common stock during the third quarter of 2012. Because of this, the company does not expect big charges in quarterly interest expenses, changes in fair value of derivate securities, or losses on settlement of accounts payable and debt. The company expects net expenses to be significantly lower in 2013. MusclePharm put $0.3 million toward operating activities in the third quarter of 2012, compared to $4.1 million in the third quarter of 2011.

Competitors

MusclePharm has four primary competitors: Iovate Health Sciences (NYSE:IHS), Bio-Engineered Supplements and Nutrition (BSN), Optimum Nutrition, owned by Glanbia Nutritionals (OTC:GLAPF), and Herbalife (NYSE:HLF). Optimum is an international maker of nutritional ingredients.

IHS is a nutritional supplement company that manufactures popular bodybuilding and fat burning supplements like Mass-Tech, Leukic Hardcore, Meso-Tech Complete, Hydroxy-Cut, Cell-Tech, and Six Star Nutrition. BSN's products include Syntha Six Protein and No-Explode, two popular bodybuilding supplements.

Herbalife also sells weight management, nutritional supplement, energy, sports and fitness, and personal care products worldwide. Herbalife was recently rattled by accusations that its business strategy was a pyramid scheme. Hedge fund manager William Ackman made the accusations and noted that he has taken a short position on the stock. Herbalife recently reported third quarter net sales of $1.0 billion, a 14 percent increase, driven by a 17 percent increase in volume compared to the same period in 2011. The company reported net income of $117.8 million, compared to the third quarter 2011 net income of $108 million, marking an increase of 9%.

Conclusion

MusclePharm is capitalizing on the growth of its retail and online sales channels. The company is also strengthening its brand through its relationships with professional athletes in the NFL, MLB and UFC. MusclePharm has over 20 products on the market currently. The company is ditching its manufacturer and will save 10 to 15% by handling more of its own inventory and shipping in 2013. That will go straight to the company's bottom line and improve its margins. MusclePharm has a lot of opportunities for expansion going forward in international markets such as Brazil, Australia, India and the Middle East.

Source: Can MusclePharm's Impressive Revenues Lift Stock?