SodaStream And Wal-Mart Add SKUs

In a recent article Capital Ladder Advisory Group recapped the latest quarterly results from SodaStream International LTD. (NASDAQ:SODA). We outlined how the apparent slowdown in syrup flavor unit growth was a headwind for shares of SODA upon the release of SodaStream's quarterly results. SodaStream reported that flavor syrup sales grew only 7% during the 3rd quarter against consistent long-term growth in the past of greater than 18% almost every quarter since 2011, with a high YOY anomaly report showing syrup sales grew over 76% in the 3rd quarter of 2012.

If investors consider that there were significant factors resulting in the Q3 2012 flavor syrup sales igniting a 76% increase YOY during that particular quarter, then naturally we have to consider that there were significant factors in the most recent quarter which showed a weaker than expected increase in flavor syrup sales. It works both ways and is greatly evidenced in our article here. We would also encourage investors to consider the verbiage used by SodaStream's CEO Daniel Birnbaum on the 3rd Quarter Conference Call which follows:

"So some of the syrup sales are pushed from Q3 to Q4, okay that portion. And then if you look at NPD the flavors still remained strong in Q3, it's up 57% over last year and that's in this case an important metric to look at. So for all these reasons and knowing our sales and marketing plans we do expect flavor unit sell in to accelerate in Q4 and we don't see an indication of a material issue here."

So when the CEO stated that the company does expect sales of flavor units to accelerate in Q4 was he just putting a positive spin on things, being more hopeful than informed about the current ordering cycle? It's an interesting question, but let's also consider something more based on knowledge of interactions between Wal-Mart and SodaStream's executive team which I've outlined as well:

"As it pertains to Wal-Mart's (NYSE:WMT) dedication to the SodaStream product line, Daniel Birnbaum recently visited the United States to meet and discuss product placement, replenishment and overall sales issues he has uncovered during the quarter with Wal-Mart's management team. Recent stock levels during the month of October (Q4 2013) have curtailed sales growth during the month due to a new plan-o-gram roll-out for the SodaStream product line. Wal-Mart has a strong desire to capitalize on an opportunity with SodaStream that they sorely missed out on with regards to the Keurig product line in the decade past. Not wishing to make the same mistake twice, the company engaged Mr. Birnbaum in dialogue concerning how they can achieve the No. 1 status going forward. We believe the results of this dialogue will be seen in the coming months."

In the last sentence I noted that Capital Ladder believes we should see the results of the dialogue between SodaStream and Wal-Mart in the coming months, but according to this recent plan-o-gram change at Wal-Mart the results forecasted above may be coming within a matter of days.

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The photograph above is of the new plan-o-gram set issued by Wal-Mart specifically for SodaStream. As outlined at the top of the plan-o-gram, the new product placement will be in the Home Hot Spot for the Holiday rush. Each shaded block of this plan-o-gram represents a SodaStream sku/product. The blank top blocks and bottom blocks indicate where the Red and Black Jet starter kits will be shelved. Without explaining each block in detail, I will get right to why this plan-o-gram validates Mr. Birnbaum's statement on flavor sales acceleration expectations in Q4. Within this plan-o-gram are a total of 10 new skus, 7 of which happen to be…that's right flavor syrup skus. Wal-Mart will be selling 3 new Ocean Spray flavor syrups and 4 new Happy Hour flavor syrups including Margarita, Pina Colada, Cosmopolitan Cocktail and Strawberry Daiquiri. We're not going to do the math for you, but I would look for 6 units deep, multiplied by 7 skus, multiplied by roughly 3,500 stores and I'm offering about 65% gross margins on syrups. Seems like Mr. Birnbaum had pretty good insight into the current quarter, no? With Wal-Mart taking the lead on the Happy Hour syrup flavors, Best Buy (NYSE:BBY) doesn't wish to be left in the dust as the electronics retailer will also be carrying Ocean Spray syrup flavors and a couple of the Happy Hour syrup flavors.

So we see that there is obviously a very substantial flavor pipeline here from Wal-Mart orders in Q4. The other three new skus are bottles of which one is the newly launched dishwasher safe 1L bottle. There was a highly popular show back in the late 80s called "In Living Color" featuring Damon Wayans and this pipeline from Wal-Mart makes me nostalgic for the show and Damon Wayans skit character who often said the phrase, "Mo money, mo money mo money"!

If we looked at the quarter more broadly we understand that SodaStream has continued to bring new retailers into the fold with the latest and largest of those being Kmart (NASDAQ:SHLD). Kmart is featuring the SodaStream product line on a heavily trafficked end-cap within the small appliance department of the store. In Singapore, SodaStream also began distribution at BHG department stores. The photo below is of a grocery retailer which just launched SodaStream products within the last two weeks. This retailer is located in Southern California and is offering 32 flavor syrups alongside CO2, bottles and three soda maker machines.

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In addition to new retail distribution, investors should juxtapose strength of sales for SodaStream products with product placement and Holiday support from retailers. Last year, SodaStream was featured for Black Friday specials at several retailers. At Target Corp. (NYSE:TGT), the retailer offered shoppers a buy 2 get 1 flavor syrup free and $20 gift card with soda maker kit purchase. At Costco (NASDAQ:COST), the retailer offered the Dynamo soda maker kit at a $20 discount. At Bed Bath and Beyond (NASDAQ:BBBY), the retailer offered a holiday sample pack with soda maker kit purchase. This year, Target is revisiting SodaStream as a Black Friday special by offering. Wal-Mart will be offering a deal as well on Thanksgiving. We would expect more retailers than we have the time to outline here to offer deals on SodaStream products through the holidays.

SodaStream will also be adding its own product support through continued television advertisements during the 4th quarter as it spreads its message to consumers. The commercials may feature newly launched products such as what we've recently found here and here.

Capital Ladder Advisory Group engages in the dissemination of channel sales data for institutional investors and hedge funds alike.

Disclosure: I am long SODA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.