It's been nearly a month since the International Home and Housewares Show, where consumer goods companies show off their latest and greatest products, with hopes of retail buyers making big purchases. SodaStream (SODA) has been a mainstay at the event for 6 years now and was once again one of the highlight exhibits at the Show. As the 1st Quarter comes to an end and retailers are blowing through Easter and Passover products, SodaStream investors settle-in for the moment as the company won't be releasing earnings until May. However, SODA investors would be prudent by minding Green Mountain Coffee Roasters (GMCR) earnings which will be released just ahead of SodaStream's earnings release. If I've said it once I've said it 13 times, "If GMCR beats and the stock heads higher, shares of SODA will head higher, but if GMCR's stock falters and for whatever reason, on that particular day so will shares of SODA.
In our attempt to continue to deliver relevant information on the SodaStream International business, Capital Ladder Advisory Group will take this opportunity to update investors on the state of the business. SodaStream continues to see rapid adoption of its product line and its newest soda maker the "Source" machine. Since its debut in Q4 2012 the soda maker has found its way into thousands of retailers around the world. In the 1st Quarter of 2013 in the U.S., Target (TGT), Wal-Mart (WMT), Best Buy (BBY) and a host of other retailers decided to up the ante and price point on soda maker offerings by adding the Source machine. The Source machine is truly a leap forward for the product line and consumers are taking notice. Sales of the Source machine are already outstripping the launch of the Fizz machine in 2011. The Source machine has a snap & lock patent, so no more screwing the bottle into place and it whistles instead of gurgles when releasing CO2 into the bottle. The Source is available at most retailers in either plastic or metal, but if you really want a stand-out Source machine, just buy the bamboo wood-grain Source machine directly from sodastream.com.
SodaStream is growing globally as more and more countries are now selling soda machines by SodaStream. The Source and Revolution soda makers began selling in Poland during Q1 2013. Poland is a region for which SodaStream has plans to double its existing retail footprint and brand. In Romania the company also expanded its footprint with a new deal in place via Altex, a large electronics retailer in the region. Russia also recently began selling the Source and Revolution machines at regional Media Market stores.
With investors' eyes on expansion into new markets such as India and Mexico, SodaStream is performing well in existing markets as evidenced by its expanding retail presence and product line. South America continues to see strong consumer demand for SodaStream products as well. In countries like Ecuador, Peru, Venezuela and Argentina, consumers can now order SodaStream products on-line.
Everything we have been hearing coming out of the U.K has been pretty negative lately, as economic indicators for the U.K. show continued contraction in economic activity. A report from the Office for National Statistics showed the U.K. economy shrank 0.3% in the fourth quarter of 2012, unrevised from the previous estimate.
I mention this country in particular because one would naturally think that because SodaStream products are so widely distributed in the U.K. that SodaStream would be adversely affected by the continued economic conditions in the region, but not necessarily. In fact, the Source machine sales grew by 85% alone in the last few weeks thanks to Lorraine Pascale and Jamie Oliver. Queen of the kitchen and TV cooking Loraine Pascale has sparked a monumental sales increase in the retro kitchen gadget the SodaStream. Home improvement guru Linda Barker also revealed her love of SodaStream earlier this month, tweeting a picture of a black Source machine sitting alongside a silver tea set in her stylish kitchen. She captioned the picture: Couldn't resist it! Get me with my trendy new black SodaStream in my trendy black stale kitchen. Bring on the fizz!" Last, but certainly not least on the TV circuit in the U.K., Jamie Oliver has taken the kitchen gadget to whole new levels showing viewers of the Jonathon Ross show how to make champagne using white wine and a soda stream. Here is a quote from the TV show: "Here is a genuine tip. Champagne is really very expensive. But this is what you can do; for a fraction of that price. You can get a decent bottle of wine, for say £7, and, this is no word of a lie, if you put it in the SodaStream, an ok bottle of wine will bubble up to be much better than an ok bottle of champagne. When you know how to use the machine, it is brilliant!" Free endorsements from reputable figure heads in the limelight are almost always a good thing and SodaStream seems to be benefitting greatly from the most recent celebrity endorsements in the United Kingdom. However, it is important to note that carbonating any liquid other than water in the SodaStream soda maker is not recommended and does void the user's warranty.
Something recently caught our attention at Capital Ladder Advisory Group regarding SodaStream syrup flavors being launched in the United Kingdom. SodaStream launched 8 new syrup flavors in the U.K. and two of those flavors are Dr. Pete and Diet Dr. Pete. This kind of flavor launch, so specific, has us thinking about the implications for these two flavors and the future of flavors to come.
As far as the Americas are concerned, recent developments in the housing market certainly can't be hurting sales here. Ideally, this is the time where we would normally offer investors a recent channel check, but unfortunately as we are nearing earnings season, we will be reserving channel check dissemination for our quarterly preview. Sales remain positive for SodaStream here in the United States and our current modeled data indicates strong revenue growth in all of North America. North America will likely help to provide another top and bottom line beat once the company reports earnings in May. Last year's major Q1 sales boost in the Americas came from the launch of SodaStream in Brazil and Target Corp. rolling out SodaStream products to over 1,000 doors. With SodaStream growing its retail doors by more than 50% in North America since Q2 2012, it's simple to see why the company should see strong YOY sales.
As SodaStream expands its retail distribution in North America, the company continues to grow its assortment of flavor syrups. Several new flavors will come to a retailer nearest you in the coming weeks. Such flavors include Diet Cherry Cola, Diet Cola with Lime and Diet Grape. Of course, we can't forget the highly anticipated V8 Fusion and V8 Splash flavors which will also be in stores ahead of the Mother's Day Holiday season here in the United States. These flavor syrup launches are important for those who track YOY product launches as these new offerings will serve to match the launch of SodaStream's Kraft (KRFT) flavor syrups launched the same time last year, which will be joined this year by a new Kraft flavor syrup, Country Time Pink Lemonade.
For those of you who still believe or hope this product category being offered by SodaStream, Cuisinart and Hamilton Beach is a fad, here's a recent product launch at Bed Bath and Beyond which adds to the product category. The pump offers the consumer an easy, spill-free way to deliver syrup into carbonated water. The product is manufactured by Nifty Home Products Corp. Basically, what this product solidifies is that other manufacturing companies see the at-home carbonation product category as relevant and long lasting.
On a more somber note, we do have some disappointing news to report regarding the Esio machine which is sold at some 2,700 Wal-Mart locations in the United States. Recently, the Esio machine was placed on clearance at Wal-Mart and marked down to $99.99 for the machine, 50 percent off the original price. The coordinating flavor pouches used in the Esio machine were also reduced in price by 50 percent. Based on this development, Capital Ladder Advisory Group believes the product will not be re-ordered by Wal-Mart and will be eliminated from inventory in due time.
Back on January 27, 2012 a Motley Fool author touted the possibilities of a successful product launch for the Esio machine at Wal-Mart. Esio was supposed to rival both SodaStream and Green Mountain Coffee Roaster's Keurig products. It doesn't look like the possibilities will ever be realized. At the time, SODA and GMCR both fell sharply upon the distribution news of the Esio product and I guess investors are inclined to thank the market for the cheaper shares offered that day.
So the question on investors' mind currently is: "Will Cuisinart suffer the same fate as the Esio machine?" Based on current sales and inventory it seems probable, but we will have to continue to monitor sales as the year progresses.
We anticipate a strong Q1 2013 report from SODA based on channel checks and inventory turn at retailers selling SODA products for 12 months. Additionally, we anticipate a change in guidance at some point during FY13 although it is too early to estimate when that could happen.