Welcome to the GURU Organic Energy second quarter fiscal 2022 results conference call and webcast, being recorded today, June 14, 2022 at 10:00 A.M. Eastern Time. At this time, all participants are on a listen-only mode. Following management's presentation, there'll be a question and answer session with financial analysts. Instructions will be provided at that time for you to queue up for questions. If anyone has any difficulty hearing the conference, please press star followed by zero for operator assistance at any time. GURU's press release, MD&A, and financial statements are available in the investor section of its website and on SEDAR. During the call, the company may refer to certain non-GAAP measures. Reconciliations are available in its MD&A. Also note that all financial figures are expressed in Canadian dollars unless otherwise indicated.
I would also like to remind you that today's presentation may contain forward-looking statements about GURU's current and future plans, expectations, and intentions, results, level of activity, performance, goals or achievements, or other future events or developments. As such, please take a moment to read the disclaimer on the forward-looking statements on slide two of the presentation. I would now like to turn the call over to Carl Goyette, GURU's Chief Executive Officer.
Thank you, operator.
Bonjour à tous.
Good morning, everyone, and welcome to our earnings call. Joining me this morning is our CFO, Ingy Sarraf. In our second quarter, we delivered our best Q2 top line performance to date, driven by a strong increase in overall sales volume despite the impact of COVID-19 in the first half of Q2, which delayed some certain marketing activities and opportunities to Q3. We also maintained sector-leading gross margin of 54%, which reflects our careful supply chain management and prudent pricing practices. During the quarter, we launched our first national marketing campaign of the year, Made with Plants, a six week marketing campaign which included a comprehensive mix of out of home banners and digital content, in addition to in-store activation in major cities across the country.
This Made with Plants campaign also proved to be the ideal outlet to officially launch our latest innovation, GURU Guayusa Tropical Punch, across Canada. Following a successful launch in Quebec at the end of 2021, we were excited to bring Guayusa to a whole new and significantly larger market who was thirsty for new brews from GURU. Thanks to the continued support of PepsiCo Beverages Canada, Guayusa has reached over 50% weighted distribution in all accounts in a very short period of time. In Quebec, Guayusa is currently ranked the number one innovation SKU . While still anecdotal, some of our initial results have shown that we have grown from zero to 2.5% market share over the last year in a leading national convenience banner.
We also have access to a limited database of store-level market share information, where we see that GURU has reached over 2% market share in over 100 stores, and even reaching 4% in a large proportion of these. Furthermore, this last Friday, we received some very positive news from our latest marketing research, which confirms that our targeted marketing investments are working as we continue to gain market share, mainly from consumers converting from other brands and attracting new consumers to the category seeking a healthy alternative to chemical energy drinks. These initial market results show that our product and brand is well received and gives us confidence in our strategy aimed at adapting and replicating our Quebec success across Canada.
We know by experience it will take time and discipline to reach these levels of market share across all banners and channels, but we are on the right track. We are currently assessing our four-week campaign results with PepsiCo Beverages Canada, the first such program we worked together on. There has been a lot of good learning on both sides, and our goal is to keep setting the bar higher for future in-store sampling and activation, with the next campaign planned to start in the coming days. During this past quarter, we also launched our new 500 ml format in Quebec, which reached over 50% weighted distribution in the same time frame, confirming our distributors' reach and execution strength. On product pricing, our previously announced price increase became effective on May sixteenth in Canada.
It will ensure that we remain true to our price positioning in the market when it is implemented and offset rising input and transportation costs, which will contribute to our ability to maintain our strong margins. This price increase is approximately 6%-10% and is reflected on promotion and regular prices. Turning to the U.S., we generated strong demand at the consumer level during the quarter, as shown in our Q2 SPINS data, with a 61% increase in consumer purchases in California quarter-over-quarter and 31% increase in the U.S. overall. Moreover, net revenues increased sharply in Q2, driven by the availability of limited edition variety pack in 200 Sam's Club locations in the U.S. The program, which is the first of its kind for us, is set to run for the next couple of months.
While this may lead to other retail-rotational program opportunities, it also represents an opportunity to increase brand awareness in a new channel. Our online activities also continued to perform well, growing over 60% in revenue compared to last year. I will now turn the call over to Ingy, who will provide you with more details on our Q2 results. Ingy, over to you.
Thank you, Carl, and good morning, everyone. Let's start with net revenue, which came in at a record Q2 of CAD 7.6 million compared to CAD 7.1 last year. This was driven by a 26% increase in volume overall as a result of higher velocity, new product launches, and increased points of sale in Canada, as well as the rotational program in the U.S.
Net revenue in Canada contracted despite volume growth in Q2 2022, reflecting our new distribution and sales model in Canada since the beginning of October. As a reminder, we have reduced our selling prices to our exclusive distributor last year to compensate them for the incremental services. US sales represented about 28% of net revenue and grew by 92% in US dollars compared to the same period last year. Q2 gross profit totaled CAD 4.1 million, compared to CAD 4.4 million a year ago. Gross margin was 54%, compared to 55% in Q1 2022 and 63% last year. The decrease in gross margin versus last year was anticipated due to the change in our distribution sales and merchandising model, effective as of the end of last year.
Gross margin was also slightly impacted by higher product costs, driven by inflationary pressures on inputs and transportation costs. SG&A was CAD 8.2 million, compared to CAD 5.5 million last year. Over 70% of the increase represents sales and marketing spends, notably the Made with Plants marketing campaign, Guayusa Tropical Punch Canada-wide launch, the 500 ml format listing in Quebec, and the four-pack listing across Canada. As mentioned in our Q1 remarks, in line with our methodical and prudent approach to our marketing spends, we chose to delay certain marketing activities planned for Q2- Q3 in the context of COVID-19 restrictions across Canada in place for the first half of our quarter. Adjusted EBITDA was CAD -3.7 million, compared to CAD -0.8 million a year ago, due to higher sales and marketing expenses.
Net loss for the second quarter totaled CAD 4 million or CAD 0.12 per diluted share, compared to a net loss of CAD 1.2 million or CAD 0.04 per diluted share a year ago. As at April 30, 2022, our financial position remains very strong, with cash and equivalents and short-term investments of CAD 52.8 million and unused credit facilities totaling about CAD 10 million, allowing us to comfortably pursue our growth objectives and the related investments required for our planned return to historical profitability. Carl, back to you for concluding remarks.
Thank you, Ingy. Following two years of pandemic, GURU is thrilled to see a return to in-person events in Canada since the late spring. We're now moving full steam ahead, looking at summer calendar filled with good energy and activating all key consumer touch points. Last month, we announced our comprehensive summer sponsorship and sampling program, which includes over 30 events from May to September across Canada. A program that fully supports our rapid pan-national distribution in retail. The summer is now kicked off, and we are excited to return to an environment where our liquid strategy can take on its full meaning. We are also excited to be an official sponsor of CTV's The Amazing Race Canada's most-watched summer series. This represents our first national sponsorship of this kind.
As announced yesterday, our coast-to-coast summer marketing campaign, Good Energy for the Everyday, is set to run from June through August and features a strong mix of out-of-home TV and digital elements, in addition to in-store promotional activities at select locations across Canada. We believe that this type of integrated marketing campaign is key to build brand awareness in new markets while also solidifying our brand positioning in Quebec. We are continuously learning from our previous campaigns and activities and elevating our strategy accordingly. This enables us to constantly fine-tune our ability to engage with key audiences so that we reach new health-conscious energy drink consumers seeking healthier energy drinks across Canada. In this optics, our comprehensive summer campaign, Good Energy for the Everyday, is our most significant to date and will provide us with a solid baseline for future marketing programs and insights to adapt our future plans.
Also, it's important for investors to understand that at GURU, we are prepared to play the long game, and we will continue to act methodically and prudently manage our financial position. We won't favor growth at all costs, but rather invest today to generate profitable and sustainable growth in the long term, like we did in our first 20 years. We have made tremendous progress on distribution in the last year in Canada. We will continue growing distribution while also increasingly shifting our focus to in-store execution, with the ultimate goal of converting awareness and distribution efforts into sales.
We believe that our best chance to reach our long-term objectives will be through a step-by-step approach, a strategy that has worked very well for us in the past, and that has enabled us to become the number one energy drink brand among adults under 25 in Quebec, the next generation of energy drink consumers. This will enable us to reach our ambitious but attainable goal. This concludes our formal remarks. I will now turn the call over to the operator for the Q&A.
Ladies and gentlemen, if you have a question or a comment at this time, please press the star, then the one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Our first question comes from Martin Landry with Stifel.
Hi, good morning, Carl and Ingy.
Good morning.
Hi, Martin.
My first question is I wanted to get a bit more detail about your large scale activation that occurred in April with PepsiCo. I believe GURU was the focus of PepsiCo. Wondering if you can share any color on how that went. Any tangible example of what they've done and the actual results?
Yes, sure. It was, as you said, it was our first period of our first focus with our distribution partner, and it's been a great learning experience. There's some great results that we can share. Overall, I just wanna say they are extremely collaborative to work with, and anytime we are facing opportunities, we collaborate very well. On the front of distribution, it was this period was our strongest shipment period after the initial month, right? Obviously, when we were loading up their inventories, it was stronger than this, but it was the biggest shipment to date.
We also installed over 2,000 displays across the country, so this was significant. What else could I say? I think it allowed us. Like, I guess the biggest point there is also that we realized that some of the materials we were using was great. Some of the materials we were using needed improvement. We did a full review of what we did in the fourth period or April to adapt our upcoming period, which is starting now for the month of July. A lot of good learnings, a lot of great execution across Canada.
Some opportunities to do even better, like you would expect in a first period, but overall, a great first experience.
Okay, that's helpful. During the quarter, you also activated your national marketing campaign, you know, around the plant-based energy. Wondering if you've started to measure the impact that's had on your brand awareness outside of Quebec. If there's anything you can talk to us about how your brand awareness is increasing in the rest of Canada, that'd be great.
Sure. I will add that we were using the Made with Plants campaign to support the distribution push that we were doing for our new SKUs, mainly the Grapefruit, right? Guayusa Tropical Punch, which was being expanded. We reached 70% weighted distribution across Canada. Yes, Made with Plants was there to support this new innovation, but also the brand overall. As I said in my remarks, Martin, we just got the results of what we do after every campaign, which is what we call an ad tracker, where we track awareness, but we also track this whole funnel, right? What I can share is that awareness is continuing to move in the right direction. That's the number one.
The other thing that I can say is that we are still converting, bringing new consumers to the brand from two fronts, right? Most of the new consumers coming to the brand are coming from our switchers, basically switching from another brand. There's still a large proportion of consumers who are coming to GURU who are new to the category, which is fantastic news. The other thing that I can share is that consumers who have seen our ads, right, are very positive about our brand attribute.
It's moving in the right direction in the sense that not only is awareness moving, but we don't see any bottlenecks of conversion down the funnel where we see people see our ad, the people who become aware, they do consider our brand, they do try our brand, and then they become regular purchasers of the brand. Our brand funnel converts really well from top to bottom of funnel, which is what we expected and what we've seen in other markets. It's very reassuring to see that our marketing is working, and it's doing the right thing. Now, obviously, this takes time before. When this is happening, you're gaining consumers. It takes a while for this for us to see this in scan data.
As I said also in my remarks, we're also seeing some impact in the scan data. Is that helpful, Martin?
Yeah. Yeah, that is. Thank you, Carl. Then maybe my last question is on the remainder of the year. You know, you're talking about accelerating your marketing activities, which were put on pause for some part of Q2. There's also the reopening of the economy. PepsiCo is gonna have a focus month with you in July. So how do you look at, you know, the revenue growth profile in the back half of the year? I would expect that it's gonna be much stronger than the first half when you look at it on a year-over-year basis. Would you agree with that?
Well, one thing we would agree with is that we're going full steam ahead in terms of marketing. It's the beginning of the summer. We're obviously very optimistic about the summer and very optimistic about the impact of our marketing campaigns on the actual consumption of GURU, right? As we said, it's more difficult than in the past to predict exactly our revenues because we don't control the distributors as well anymore, right? So there's always. It's a transition year, and until we've done a full round with PepsiCo, it's gonna be more difficult to say exactly what we're gonna say. But one thing that's for sure is that we're seeing our scan data accelerate. We're the fastest growing brand in Canada. Obviously, we think that the COV
Well, we always said that COVID-19 was negative for us. That's behind us, right? We're going full steam ahead with marketing now that we have distribution in place. We're improving execution. On all of this, I would certainly agree that we're optimistic about the summer and certainly optimistic that the scan data is gonna move. How much of the scan data is gonna translate into actual orders and impact our sales? At this point, I can't comment, but obviously very optimistic about the long-term perspective of what we're doing.
Okay. That's it for me. Thank you.
Thank you.
Our next question comes from Nauman Satti with Laurentian Bank.
Hey, good morning, Carl and Ingy. How are you?
Good morning.
Hi, Nauman.
Thank you.
Good. Thanks. My first question is more on the volume side. It's very solid volume growth overall, but just wondering if you can provide some additional color on the volume growth within Canada. I saw that in the MD&A, you've mentioned that there's growth in the volumes there, but just any color around that.
Mm-hmm.
Maybe if you can, bifurcate that between how much of that is coming from the Quebec market.
Yeah. Yeah, exactly. From a volume growth, like we mentioned, in the MD&A, to your point, we grew double-digit growth in Canada. Of course, this is great news for us. It means we're continuing, you know, on our growth cycle. Like Carl mentioned, what's even more reassuring is really, when we look at the scan data, which is really consumption by our consumers, and it shows that we're growing the fastest and we're on a very healthy trend, and we're growing even faster than our internal growth in shipments. As for, the breakdown maybe between the rest of Canada and Quebec, what I can reassure you is, that we're doing very well, and we're not seeing.
We're seeing growth on both fronts, whether from the new innovation, whether from the velocity in store. We're on our path, on the path. You know, it takes time, but it's on a very successful path, and we're very confident in the future. Carl, I'm not sure if you wanna add anything.
Well, maybe I would just add that May, from a scan perspective, scan data, which is always a great measure, was our best month to date as well.
Yeah.
Obviously, we reduced marketing spend in the Q2, well, for half of Q2. Then-
Yeah
We started doing the Made with Plants campaign, then had the PepsiCo first focus, and then we saw the results of this in the month afterwards in May. Yes, it's driving scan data, which ultimately drives shipments in Canada. The trends, all the indicators are very positive, like Ingy mentioned.
Okay. No, that's good to hear. Just a second question on the U.S. side. Actually, I felt the results on the U.S. side were pretty good. I remember you had mentioned in the last call where you had moved some of your staff from the Canadian market to the U.S. market. Is that this good result a component of that, or is there something else happening within that market? What's driving this growth on the U.S. side?
Yeah. There's a lot to say on the U.S., and it's all positive. There is certainly a big impact from the Sam's Club. Sam's Club was a big part of the growth in Q2. The rest of the business was also going really well.
Mm-hmm
Both from when we look at scan data, again, when we look at Guayusa, whether it's natural accounts where we are seeing very strong growth. When we're looking at our largest retailer, Whole Foods, performing extremely well. Some other banners like Sprouts as well, where we have SPINS data, doing well. Overall, California, like I said in my remarks, up 62% versus last year. Really across the board, whether it's in the natural channel or in the conventional grocery channel, we're seeing some very positive. Now, we did our first entry in the club channel where we also saw positive results of this. Now all I can say is there's a lot of positive, right? We said we would bring uncertain in September, so that's exciting stuff. We also have some great activities lined up for the summer with our partners. We will be doing our first national end cap with Whole Foods across the country, right? This is the first time we do this in every single Whole Foods, a massive display at the front of the store. That should help. We have some exciting stuff coming on the club channel as well. I'll leave it at this. Overall, everything is very positive from a U.S. perspective.
Fair enough. Is it right to think that we should take Q2 as like a base year on which you'll gradually grow on sequential basis for the rest of the year, or will there be some fluctuations on the US side? Just trying to get a sense of what-
Yes
What's going on there.
No, there will be fluctuations.
Okay.
Again, in full transparency, this is not a business that grows in a straight line, right? There will be ups and downs and stuff. What we really need to be looking at is the fundamental, is this business really transforming? Is this the brand that's gonna transform this industry, right? Obviously there's gonna be some quarters where we have some big wins, and then some quarters are gonna be more difficult because we've seen this. We've been in this for 20 years at the moment. It's a difficult business to play. It doesn't grow in a straight line. What I'm telling you is fundamentally we're building a fantastic platform for future growth, both in Canada and in the US.
Yeah. On Q2, I think Q2 is a great quarter for the US, but you can't take for granted that the Sam's Club, we're very transparent. Sam's Club is a rotational program. We may get some other rotational program, but you can't build this into a baseline perspective when you start modeling this.
Okay. Okay, no, that's fair, and thanks for the color. That's it from my end. Thanks for taking my questions.
Thank you so much.
Thank you.
Our next question comes from Amr Ezzat with Echelon Wealth Partners.
Hi, Carl and Ingy. Thanks for taking my questions. I just have a quick couple. I just wanna piggyback on, the US. I'm wondering, I mean, obviously, very impressive growth. I'm wondering whether you're seeing any notable differences, between the US or maybe the California consumer, and the Canadian one in general, be it in terms of like, taste or product preferences, formats and so on.
No. No real difference.
Cool.
We look at every time we do consumer segmentation, whether it's Quebec, Canada or California, we see the exact same segment. The proportions between the segments varies a little bit, but nothing significant. We segment the industry in five segments. There are two segments that resonate extremely well for the GURU brand, and these are the two segments that we target. There's a third segment that kinds of adopts whatever is popular, which also is part of our mix. No, there isn't really a big difference. What we might be able to say, you know, over the last two years is that our consumer, which is the more educated, white collar, consumer, progressive consumer, has been more impacted by the COVID restrictions in Canada than they have in the US, right? Overall, the consumers have been more impacted by COVID.
If you think of young professional university students and all this, they have been more impacted by COVID restrictions than, let's say, blue collar. That's even more true in Canada than it has been in the US. From that perspective, there is a difference. From a consumer perspective, consumer preference, taste preferences and all this, we don't see differences. Hence why we're very optimistic about the potential for this brand in the long term, both in Canada and in the US.
Okay. That's great color. I might have missed that in your prepared remarks. I was disconnected. Can you give us a sense of how the price increases are being received so far, or it's too early days?
No.
Yeah.
It's not too early. Go ahead, Ingy. In fact, I've been talking enough.
No. Up till now, it's been very well accepted actually, and very well received. Like we had mentioned on the call, maybe if you missed that part, the price increase we took was on May 16, and it was approximately 6%-10%. It was very much very similar and very much in line with the category leader, making sure our price positioning stays intact, and that's it. Now we're closely monitoring the situation to make sure it continues that way, right? Because we never wanna be a barrier to entry. We wanna be fairly priced, and at the same time, you know, don't leave any opportunity on the table.
Fantastic. Is it fair for me to assume that 6%-10% price increase sort of protects you from any margin erosion due to inflation?
Yeah. What we're seeing right now is, according to, you know, the way we've managed our inventory so far, a very careful assessment on that front and the impact of the gross margin, it should counterbalance that. Yeah, so far, that's what we're seeing.
Fantastic. That's all I had for you. Thank you very much.
Thank you, Amr.
Thanks, Amr.
Our next question comes from John Zamparo with CIBC.
Thanks. Good morning.
Good morning, John.
Hey, John.
I wanted to start on the Quebec market. It's not a massive decline in share, but it's the first time we've seen market share decline in Quebec since you've gone public. Would appreciate any commentary you can add there, particularly at a time when you're investing in this market and you've got the PepsiCo deal.
Sure. It's a good question, but honestly, John, it's a simple mistake, rounding error. We removed the decimal.
Yeah, that's my typo.
Yeah.
I have to be honest, Carl.
It really is.
I'm just gonna butt in just because I feel bad. It's the same thing that we did with the gross margin, right? I'm showing you guys a 54% gross margin. In reality, it's 54.3. We just kind of wanted to simplify the view, but there was no decline, rest assured. Sorry, Carl, go ahead.
No, but now with, like, the market share is 14.2, right? That's stable, so there's nothing to worry about. The reality is that now that you're touching on market share, you know, we don't often talk about market share because it's complex, and it fluctuates from month to month, and we don't wanna be spending all our calls talking about this. The reality, John, is we've been growing this brand in Quebec from 3% just a few years ago to 14%, right, over, you know, over the last, let's say, seven years. We're even reaching 22, 23% in some banners, right? The overall growth trend for GURU is very strong, right? What we've seen, right, is that we've seen during the COVID waves, right? That's why we've been transparent about this.
On the various COVID waves, we saw some more flatness in our market share, right? That's why we dug into our consumers to say, "Why are we on a very strong growing trend, but whenever there's a COVID wave and more restrictions, we see that our market share, you know, becomes a little bit flatter or even decline by a few little percentage points, and then our basis points and then comes back, right?" Our strongest period over the last few years had been when the COVID restrictions were removed. For example, last October, November for us was very strong. Now, last May, I just mentioned, is also very strong.
Right now, we really noticed that COVID did have an impact, and that's why we're now optimistic that finally restrictions are gone, the sun is out, we have distribution, we have great execution with our partner. We're going into our largest marketing campaigns ever in the summer and in the fall. Obviously we think that market share is gonna go up, right? That's the first part on market share I wanted to cover with you because it's important, and we don't often talk about this, right? Keep in mind also that dollar share is impacted by pricing, right? If, for example, a large competitor implemented their pricing before we implemented our pricing, market share is measured in dollars, right? There could be.
They may not be, let's say the large competitor may not gain volume, but because they took pricing, they might grow share, right? When our price increase starts to be reflected, this will be corrected. Finally, we are also growing in some channels that are not measured, right? Which is important. We've been growing very fast and very aggressive online, as you know, right? This is not measured by market share. We know that if we were measuring this, we would be significantly higher from a market share perspective. Online, whether it's online, whether it's food service, and there are some channels where we're gaining strength that are not measured. Overall, again, the long term, I guess the key point is long-term GURU is growing market share.
It's the number one, it's the fastest growing brand in Canada. It's the number one energy drink brand in Quebec amongst the 18-25, right? There's growth built-in in there, where, especially if those young adults are starting to go out and spend more time outside and they need more energy. Overall, long term, very positive.
Okay. That's all helpful. Thank you for that. I just wanted to clarify on the comment about May being particularly strong. Is that referring solely to point of sale, or is that also referring to volumes shipped into your retail partners?
That's scan data. When you look at scan data across Canada, was our best period to date. Obviously, over the long term, this all balances out, right? At some point, ultimately, if consumers are drinking GURU, we will end up shipping more product. As you know, in a transition year, there has been so many new doors, shifts from inventories at wholesalers to our exclusive distributor. There's been some pipeline sales, there's some movement. There's a lot of moving parts when we look simply at our shipments. That's why in this call, we thought we'd give you a view on scan data.
Okay. Understood. Just a couple more. On the distribution points, we typically get an announcement of an increase in doors.
Mm-hmm.
There was not one this quarter. Is that intentional? Is the focus kinda shifted to increasing?
Mm-hmm.
Awareness of the brand? Should we expect
Yeah.
a pause in the growth of distribution points for the next few quarters?
No, it is. It is intentional. What we feel is a better measure, especially for Canada, is weighted distribution, right? The reality is our distribution is fairly, it's pretty much complete in Quebec, with 94% weighted distribution in grocery drug mass and 99% in convenience and gas. Really Quebec from a distribution point of view, in the measured channels is complete. Now there's some other opportunities outside of convenience and grocery drug mass. In the rest of Canada, we've also given the numbers where we say we're above 90% in convenience, right? There is still opportunities in grocery drug mass, but there hasn't been any significant change over the last quarter.
There has been some doors that we announced last quarter that have been implemented, but there is not a lot of new news from a new door point of view. We think that this is a better measure when we look at average weighted distribution. That said, if we gain a new retailer at some point, we will mention this, but there wasn't anything significant worth mentioning in this quarter. Same with the U.S.
All right. That's helpful. Last one for me. The Sam's Club relationship you have, you mentioned it's rotational. Can you say what the duration of that program is? When it ends, do you just switch products, or do you lose that shelf space entirely?
No. Well, typically you lose that shelf space entirely. This is something we've seen with other club retailers in the past in Canada, where it has nothing to do with success or failure, right? Obviously, the more success you have, the more chances of having another rotational program. The reality is the club channels operate this way. They bring a new brand for a certain season because they think this is an opportunity for their consumer. They're very clear up front that, you know, this is a rotational program. They're gonna get sales from us, but don't expect this to be a permanent thing. Obviously, the better we do, the more chances we have, right? The beauty with this is that this is not only a sales channel.
We see from research that this is the right consumer, the natural consumer and the progressive consumer tend to shop, they tend to shop more in the club channel. So it's also a great way for us to generate trial, build awareness for our brand. Those consumers who buy us right now in Sam's Club can always find us in other retailers, for example, like Whole Foods, where we see a lot of interaction for consumers between Whole Foods and clubs, for example.
Okay. Understood. That's all for me. Thank you very much.
Thank you.
Great. Thanks.
Our next question comes from Sean McGowan with Roth Capital Partners.
Good morning, Sean.
Thank you.
Hi.
Good morning.
Hi, Sean.
Hi, Ingy. I have a couple of questions. I wanna start with the marketing spend commentary. Sounds like, you know, you spent less in the quarter perhaps than you had initially intended because of COVID restrictions. Are we shifting that same dollar spend to later in the year, or you're just going to resume the spending but not necessarily spend what you would've spent in the second quarter in later quarters?
Well, I'll take that one. Yeah, like we said, right, we're launching our largest campaign ever actually this summer, and we're unleashing all this great energy. Yeah, we will be, of course, spending, investing these funds in the coming quarters. Q3 exceptionally for sure will be much larger because this is where everybody is deconfined and especially in Canada, it's a big change, like we said, to our consumers. We're going ahead and going full steam ahead.
Okay. You would-
Does that help?
You would have expected that anyway. I guess what I'm asking is, are you now going to spend more, you know, kind of money that you didn't spend in the second quarter will now be spent in the third?
Yes, we will be going. Yeah, it's a much bigger campaign.
Yeah.
Yeah, we will.
Yeah.
It's bigger than originally planned, of course. Yes.
Okay.
Yeah, this is an all-out summer campaign.
Yeah.
We wanna be very clear with you that this is now that we have this foundation from the distribution point of view and an execution foundation with our distribution partner, we want to give this a big shot over the summer, right? We have an outstanding marketing campaign firing on all cylinders across all touch points, and we certainly did not want to limit that for the summer. Obviously, the commitment we're making is that in the fall, we will be analyzing all of this to understand what is working best and what do we dial up and what do we dial down, and also take the learnings we have from Quebec.
Next quarter will be an exceptional quarter from a sales and marketing point of view, and you can probably expect that to reduce down and go back to more of our methodical approach in the future.
Okay. Thank you. Related to that marketing shift in spending, it's kind of a chicken and egg question. Do you think that shift had an impact on revenue, or was it more like, well, you know, we don't want to spend the money now if you still have COVID restrictions? Do you think that shift actually had a negative impact on revenue in the second quarter?
Yes. I think the biggest impact was with COVID, but reducing spend obviously reduces sales. Which proportion, then it's very difficult because we will never know if we would have invested this money, how much return we would have gotten on it.
Mm.
We just didn't think it was smart to be investing the money when our consumers are in stay-at-home orders and stuff like that, right? It was almost like preaching in the desert. Might as well invest that money in the summer, which we feel is much smarter to do, in the context.
On the impact of COVID, do you have some sense of how much, you know, that would have affected revenue in the second quarter? You know, how much do you think was, you know, kind of lost because your consumer was not, you know, not going to work or staying at home?
Yeah. We don't have this top of mind. Reality is we look, we can see, we obviously have visibility on scan data, and we're seeing.
Yeah
when COVID restrictions happen, we see. We could probably calculate that, but we would have to come back to you. We never looked at it this way, to be honest, Sean.
Okay.
Got it.
Thank you. The gross margin in the second quarter, you know, pretty good, given the revenue. Do you think that this is the level of gross margin that we should expect for the balance of the year in terms of percentage of sales?
Yeah. I think that it's gonna be in the same range, like, you know, it's gonna be in the lower to mid fifties, you know, like we have today. I think it could fluctuate, right? Because inflation is still full steam ahead. Of course, our inventory strategy is helping us very much, and we're looking at this constantly, but it could fluctuate by 1 or 2 basis points.
Okay. I wanna circle back to an earlier question on the volume in Canada. Your answer on Canada was double digits, but you know, double digits covers everything from 10% to 99%, right? Some sense-
You caught that, Sean. Yeah. Yeah. I would say that volume growth from a shipment standpoint was around 15%, and from a scan was much higher than that.
Okay. We're talking about Canada.
Sean.
Yeah.
Yeah. Yes.
Yeah.
Okay.
Totally Canada. Yeah.
Thank you. You know, we're still kinda getting used to the new world on this distribution impact on revenue. Would you expect-
Yeah
that we will see year-over-year increase in revenues in Canada in the third quarter?
Yeah. This is. I'm expecting for sure year-over-year increase, you know, like volume growth. From a revenue standpoint, we're still getting used to it. Like you said, it's very much a transition year. We're adjusting to that. There's the price increase that's coming into effect. As of May 16, right, we said it came into effect. It's really not that easy to predict because of the pipeline fill this year but also last year, right, when we had started the expansion in western Canada. I can't say at the time.
Okay. Now, it also depends on the effectiveness. You know, the beauty with our marketing investments is that we know they work, right? We also know that it doesn't work instantly. It's not like you put a marketing dollar.
Yeah.
You get a marketing dollar back. So obviously, the more effective our marketing is and the quicker the marketing investments have an impact, then obviously, the more we're gonna see this. But there are a lot of things that we're doing for the first time. For example, we're really excited about The Amazing Race, and we think we have a fantastic partnership there. We just don't know how quickly this is gonna translate into sales. Like, we know this is gonna have an impact on awareness and consideration because of the program we have. How quickly will this translate into actual scan data? Very hard to predict at this point. But we know that this is, again, this is the right thing to do for the brand. It's the right thing to do for the long term.
How much of an impact these marketing investments will have in Q3 versus the following quarters is hard to predict. On top of the fact that there are so many moving parts in a transition year like this, when you're moving from a distribution model in a new market to another distribution model in a new market with new retailers, I think you can appreciate how difficult it is for us to forecast versus in the past.
Yes. Okay. Thank you for that. Two kind of related questions on your comments on the clubs. I hear you loud and clear that the clubs are notorious for, you know, for being in and out and maybe coming back and not. It's pretty unpredictable. My two questions are. One, do you have plans with some of the other club retailers that might, you know, kind of smooth out that, as a channel? Second, any sign or indication that sales through the clubs are having an adverse impact on sales in other channels? You know, cannibalization.
On the second part, no. No indication that it's having any impact on other channels. That's easy. On other clubs, I am, and the team is very keen on clubs, right? Certainly, we will be putting a lot of efforts on this because it's not only for us a great sales channel, but we also really strongly believe that this is a great brand building channel because of the consumer profile in the club channel. When you look at the largest organic food retailers and you look at the profile of consumers in club, it's exactly aligned to our consumers, right?
Now, finding the right price point with the right marketing activation, with the right rotation in club, and you know how, you know, it's not necessarily an easy channel, but it's certainly an outstanding opportunity, and we will be attacking it.
Right. Well, I'm sure you noticed that Celsius went from 0 at Costco to almost 20% of their sales in Costco, so it can have a pretty big impact.
Yeah.
Mm-hmm.
There's, there is many brand examples like this, right? There are many brands, especially in the organic, plant-based, better-for-you, that have had outstanding success in the club channel. Now, when that will happen, we can't commit.
Okay. Thank you very much.
Thank you.
Thank you.
I'm not showing any further questions at this time. I'd like to turn the call back over to Carl for any closing remarks.
Well, I wanna thank everyone for joining the call, and I wish everybody a summer full of good energy. That's it for us. Thank you so much.
Ladies and gentlemen, this concludes today's presentation. You may now disconnect and have a wonderful day.