Earnings Call Transcript - COCO Q2 2023

Operator, Operator

Hello and welcome to the Vita Coco Company's Second Quarter 2023 Earnings Conference Call. My name is Crystal Love. I'll be coordinating your call today. Following the prepared remarks, we will open the call to your questions with written instructions to be given at that time. Please stand by.

Clay Crumbliss, Co-founder

Thank you and welcome to the Vita Coco Company's second quarter 2023 earnings results conference call. Today's call is being recorded. With us are Mr. Mike Kirban, Executive Chairman; Martin Roper, Chief Executive Officer; and Corey Baker, Chief Financial Officer. By now, everyone should have access to the company's second-quarter earnings release issued earlier today. This information is available on the Investor Relations section of the Vita Coco Company's website at investors.thevitacococompany.com. Also, on the website is an accompanying presentation of our commercial and financial performance results. Certain comments made on this call include forward-looking statements, which are subject to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and beliefs concerning future events and are subject to several risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Please refer to today's press release and other filings with the SEC for a more detailed discussion of the risk factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. Also, during the call, we will use some non-GAAP financial measures as we describe business performance. The SEC filings, as well as the earnings press release and supplementary earnings presentation, provide reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures and are available on our website as well. And with that, it's my pleasure to turn the call over to Mike Kirban, our Co-founder and Executive Chairman. Mike.

Michael Kirban, Executive Chairman

Thanks, Clay, and good morning everyone. Thank you for joining us today to discuss our second quarter 2023 financial results and our current expectations for full-year 2023 performance and long-term growth. I want to start by thanking all of our colleagues across the globe for their continued commitment to the Vita Coco Company and their dedication to our mission of creating ethical, sustainable, better-for-you beverages that uplift our communities and do right by our planet. Before addressing our performance and expectations, I want to reiterate that we believe we have a strong strategic position enabled by our category leadership in coconut water in the better-for-you functional beverage category, which, in Americas tracked channels, is in excess of $30 billion. We're very happy with our performance in the first half of 2023 among our growth strategies, delivering coconut water growth through increased usage occasions remains the highest priority and I'm excited about the progress we're making with both our commercial initiatives and our marketing efforts. In the second quarter, we saw consolidated 21% net sales growth, bringing our year-to-date net sales growth to 18%. We remain very bullish on the coconut water category in the United States, where according to Circana, the coconut water category is posting one of the healthiest growth trends, outperforming major categories like energy, CSDs, sports drinks, and bottled water in dollar growth rates, while also being one of the few categories growing in volume and price. For the quarter, our Vita Coco coconut water brand is leading the coconut water category growth with US retail dollar sales up 18% and our market share improving to 51.9%, while the category is growing 15%. Our brand has never been stronger and our focus on consumer expansion via occasion-based initiatives is highlighted in our marketing efforts in the second quarter. I'll highlight four examples from the quarter that we're super excited about. Firstly, we launched The Coconut Grove, an immersive experience on Roblox, where consumers can farm and harvest virtual coconuts. Over 22 million people visited us in the metaverse, driving over 75 million impressions to date and introducing a new generation of consumers to our brand. Secondly, we collaborated with Bluestone Lane to launch a Coconut Water Cold Brew exclusively at their cafes across the US, blending their signature Cold Brew with the refreshing taste of Vita Coco original coconut water for a perfect summer drink that is already a top-three iced beverage in their locations. This is another initiative that demonstrates the versatility of coconut water and the appeal of our Vita Coco brand to food service partners. To demonstrate the opportunities in the away-from-home channel across all dayparts, we have partnered with on-premise locations in key summer destinations with a focus on alcoholic cocktails mixed with Vita Coco and are seeing great adoption in the bars with incredible social media amplification. We also launched a pop-up club on London Southbank where consumers have the opportunity to sample our custom cocktails all summer long. Finally, our collaboration with Bloom, a leader in the greens nutrition market, highlights the benefit of Vita Coco Coconut Water as a liquid base for powdered products, which is generating amazing organic social media content with 34 million impressions online. These initiatives build on our previously announced collaboration with Diageo. Vita Coco spiked with Captain Morgan is seeing significant marketing activity during the key summer selling season with an estimated 750 million media impressions in H1 alone and 1.1 billion PR impressions and counting from the start of our tropical takeover tour. Our PWR LIFT launched in Southern Texas continues to build momentum and supports our learnings on how to succeed in the enhanced isotonic category. We have focused investments and dedicated market development teams working with our DSD partner KDP as we endeavor to achieve success in this market. It is early, but we're excited by our learnings and the progress we're making. We've consistently talked about the goal of growing our branded business as our priority and our desire to reduce our reliance on our private label business, which is typically lower priced and lower margins. In recent negotiations with our largest private-label customer, the proposed terms required to maintain the business were contrary to our margin targets and long-term goals. We have therefore jointly made the decision to transition the supply relationship at this time. We greatly value our long-term partnership with this customer who remains a key retailer for our branded products. We are more enthusiastic than ever about the strength of our core business and are especially excited by our branded initiatives where we see opportunities for even faster growth. However, it is unlikely that these initiatives will fully offset the net revenue lost from this large private-label customer in the immediate term. As this decision was reached very recently, we're still developing the transition plans and building our 2024 commercial initiatives. But based on information, we believe that we can deliver mid-teens adjusted EBITDA growth in 2024 over the adjusted EBITDA communicated in our updated 2023 guidance with improved gross margins over 2023 levels and we can accelerate our trajectory towards our long-term EBITDA margin targets. While the timing and magnitude of the impact on net sales is hard to quantify, we estimate that we will see some impact starting in Q4 and that our 2024 net sales could decline as much as mid-single digits. This preliminary estimate captures our current assumption on the timing of this transition and the current assessment of the offsetting impact of successfully implementing our 2024 growth initiatives. We will update our view on the impact of this decision with our next earnings release. By then, we expect to have a better understanding of the transition timing and better visibility of the speed and size of our 2024 growth initiatives. As demonstrated by our track record, we're confident that our continued prioritization of margin accretive growth over margin dilutive growth can only strengthen our business going forward. Finally, I'd like to reiterate my excitement for our accomplishments this year and our momentum for the balance of the year and into 2024. We're stepping up investments in our brands and in the long-term health of the business by continued focus on branded growth. We believe that we are uniquely positioned as one of the few fast-growing profitable beverage companies of our size with the talent and commercial capabilities to maintain growth, to innovate new opportunities, and to act as an acquirer of complementary beverage brands that can benefit significantly from our relationships, capabilities, and financial resources. And now I will turn the call over to our Chief Executive Officer, Martin Roper.

Martin Roper, Chief Executive Officer

Thanks, Mike, and good morning everyone. For the second quarter of 2023, we achieved net sales growth of 21% driven by strong Vita Coco Coconut Water growth of 23%. This performance was achieved against a very strong second quarter last year where the Vita Coco Coconut Water net sales grew 21%. In the Americas, our Vita Coco Coconut Water net sales grew 24% for the quarter, including 21% volume growth, reflecting the continued success of our commercial initiatives, such as the additional promotional activity mentioned in our Q1 earnings call coupled with a single-digit contribution from price increases. Our strong execution at retail and our consumer engagement efforts continue to produce strong results in retail with an 18% dollar growth rate of Vita Coco Coconut Water in Q2 2023 in the US Circana scan data at a 14% volume growth rate. The strong performances across all tracked channels are shown in our investor deck and with strengths in under-developed regions that we believe is indicative of future growth potential. As shown in our investor deck, the growth is built on a healthy balance of velocity, growth, pricing, and distribution gains. Internationally, we are seeing similar strengths of Vita Coco coconut water with 8% volume growth for the quarter. Strong performance at retail has driven retail dollar share of the total coconut water category to over 80% in the most recent four-week period for the first time ever according to Circana UK. Turning to margins, in the second quarter of 2023, our gross margin was 37%, which represents a significant improvement over the 25% reported in the second quarter last year and an improvement over the 31% in the first quarter. This increase was primarily driven by more favorable ocean freight costs and improvements in domestic transportation costs, plus the benefit of branded pricing taken in the fourth quarter and the middle of the second quarter of last year. During the quarter, strong volume performance and optimized inventory levels allowed us to operate our supply chain more effectively and efficiently than in prior quarters, which benefited our domestic logistics costs in addition to year-on-year rate improvements. After the significant decrease in spot ocean freight rates in the second half of last year, we saw continued declines in rates in the first quarter and then a more stable environment during the second quarter. At the end of the second quarter, spot rates for most lanes were close to historic pre-COVID levels. As we've discussed in previous quarters, we remain selective in entering into ocean transportation contracts, except where we need to guarantee capacity, and expect to return to our historic approach of contracting for some of our needs once the contract offers are more competitive with spot prices than they are today. The strong volume performance of the business in the first half allowed the benefits of the ocean freight improvement to flow through our P&L faster than expected, with an improvement in supply chain efficiencies also happening more quickly than anticipated. Turning to our outlook, we remain confident in the strength of our core business and excited by our branded initiatives and new and developing private-label relationships. We continue to believe that our supply chain is a competitive advantage and provides the unique combination of service, reliability, flexibility, and cost. We intend to continue to seek and support private-label supply arrangements that are mutually beneficial, but our priority remains our branded growth initiatives, which should make us stronger and more resilient with less dependent on private-label demand in the future. In line with our emphasis on prioritization of branded growth, we are updating our long-term financial algorithm to mid-teen branded growth, which we define as consolidated net sales minus private label net sales and adjusted EBITDA margins to high teens, which will benefit from a greater mix of brand sales, gross margin, and SG&A leverage improvements. We're really happy with our current performance. Our second quarter results and our increased full-year guidance that Corey will explain reflect the strength of our core business as the brand volume, net sales, gross margin, and adjusted EBITDA are all growing. With that, I will turn the call over to Corey, our Chief Financial Officer.

Corey Baker, Chief Financial Officer

Thanks, Martin and good morning everyone. Let me provide you with some additional details on the second quarter financial results and the drivers of our improved outlook for the 2023 full year. Starting with revenue, we continue to see strong performance in the second quarter with net sales of $140 million, an increase of $24 million or 21% year-over-year. This was driven by Vita Coco Coconut Water growth of 23% and private label growth of 24%. Within the Americas segment, Vita Coco Coconut Water's strong retail performance resulted in $95 million of net sales, an increase of $19 million over the prior year period, while private-label increased $4 million to $24 million. The growth of Vita Coco Coconut Water continued to be volume-led with 21% volume growth and a 2% net price mix benefit. Vita Coco Coconut Water benefited from strong retail sales and incremental promotional activity. Private label experienced a strong quarter, driving 17% net sales growth on volume growth of 22%. Private label benefited from a combination of velocity gains in existing stores and increased store count at strategic retailers in the US and Canada, which more than offset the lost stores disclosed in Q3 of last year. Our International segment had a very strong second quarter as well. Reported net sales were up 24%, growth was led by the private label up 72%, where we gained new distribution with strategic retailers in Western Europe. Vita Coco Coconut Water also had a strong quarter growing net sales 14% led by strength in the UK. Total international volume growth was 18% with Vita Coco Coconut Water delivering 8% volume growth and private label volume growing 54%. For the second quarter, consolidated gross profit was $51 million, up $22 million versus the prior year quarter and gross margin was 37% up from 25% in the prior year. Gross margin exceeded our expectations as volume strength accelerated the flow of global transportation savings through our P&L and our supply chain operated very efficiently with lower inventory levels, which led to savings within our domestic logistics costs. Moving onto operating expenses, second quarter 2023 SG&A costs increased by $6 million to $30 million, which reflects investments in incremental resources to support the growth of the company, including increased people costs, investments in sales and marketing, and costs associated with the secondary stock offering in the quarter. As previously indicated, our full-year plan includes an expected increase in marketing and sales execution investments, some of which represent a catch-up from the low levels of last year. Year-to-date, we were not able to execute all planned marketing and organizational investments, resulting in benefits in SG&A spending versus our expectations. We plan to invest in a disciplined manner with incremental spending planned over the second half of the year. Net income attributable to shareholders for the second quarter of 2023 was $18 million or $0.31 per diluted share compared to $1 million or $0.02 per diluted share for the prior year. Net income for the quarter benefited from positive net sales and gross margin improvements discussed previously, partially offset by increased SG&A costs. In addition, the quarter benefited from a $4 million increase in the unrealized gain related to derivative instruments, which was offset by an increase in tax of $4 million reflecting an ETR of 19.2% on the quarter. Non-GAAP adjusted EBITDA in Q2 2023 was $24 million, up from $7 million in Q2 2022. The $17 million increase was primarily due to the significant cost of goods per case equivalent decreases and increased volume growth and pricing, partially offset by increased SG&A spending. Turning to our balance sheet and cash flow, as of June 30, 2023, our first-half strong operating performance led to an improvement in cash flow, resulting in total cash on hand of $48 million compared to $20 million on hand as of December 31, 2022. The increase in net cash was primarily driven by net income. Working capital year-to-date has used $2 million of cash as inventory decreased to $27 million and accounts payable increases of $15 million were offset by a $47 million increase in accounts receivable due to the timing of customer payments and the seasonality of the business. The inventory decrease was the result of sales volume growth coupled with the normalization of the global supply chain allowing us to more efficiently manage our days on hand and reduce overall inventory. We ended Q2 with inventory in the low end of our targeted range, we expect inventory to return to more normal levels in terms of days on hand as we progress through the balance of the year. Let me touch on a couple of small items before turning to our outlook. In May, we completed a successful secondary offering for Verlinvest Beverages SA, an investor in the company for over 15 years. We are delighted that Verlinvest remains a significant shareholder and is continuing their representation on our Board of Directors. We are also pleased on behalf of the company that this offering has diversified our investors and increased our publicly available flow. As a result of this offering and our strong stock performance, we will now be treated as a large accelerated filer starting with our Form 10-K for 2023 at the end of this year. This change we expected and are well prepared for. As we look to the balance of 2023, despite some uncertainty on private label transition, our branded business remains very healthy with strong consumer demand for our products, which is allowing us to raise our full-year net sales guidance to 10% to 12% based on mid-teen branded growth offset by private label weakness in Q4 from that transition previously discussed. Our expectation for gross margins for the balance of the year has also improved as our transportation costs remained stable, our supply chain operates efficiently and our branded products are expected to represent our largest share of our business. As a result, we expect gross margins in the second half to improve slightly over Q2 and be between 35% and 37% for the full year. Our revised non-GAAP adjusted EBITDA guidance is $56 million to $60 million. This reflects continued prudent investment in SG&A, which we expect to grow at a rate higher than our expected net sales growth on a full-year basis. I will now turn it over to Martin for his closing remarks.

Martin Roper, Chief Executive Officer

Thank you, Corey. To close, I'd like to reiterate our confidence in the long-term potential of the Vita Coco Company, our ability to build a better beverage platform, and the strength of our Vita Coco brand. We have just completed the best quarter in our history and we have plans to both expand gross margins and grow adjusted EBITDA in 2024. We believe that exiting next year we will have an even stronger business with higher quality growth and a more favorable margin profile. Thank you for joining us today and thank you for your interest in the Vita Coco Company. That concludes our first quarter prepared remarks and we will now take your questions.

Operator, Operator

Thank you. We will now conduct the question and answer session. Our first question comes from Bonnie Herzog of Goldman Sachs. You may now ask your question.

Bonnie Herzog, Analyst

Thank you. Good morning, everyone. My first question is to better understand the decision to move away from a private label customer. You mentioned you will be less reliant on private label going forward, which I agree makes sense. Could you share what percentage of your private label business this customer accounts for? Also, if I understood correctly, you're anticipating a short-term impact mainly on your topline that will affect your results in 2024. However, you still expect to achieve your mid-teen EBITDA growth targets, though I assume your EBITDA base will be lower going forward. Could you elaborate on that for us again? Thank you.

Martin Roper, Chief Executive Officer

Thank you, Bonnie. I want to clarify that we won't disclose the exact percentage of our business that this customer represents for competitive reasons. However, it's important to note that they are one of our two largest customers, a significant player in the private label sector, while also having a major branded business. This information is quite recent, and we're still assessing it, so we may not have all the answers right now. We've provided some preliminary guidance for 2024 to assist with modeling, but please remember that it's an initial assessment. We are not offering specific guidance at this stage, as we are still gathering complete details on the transition, timing, and its pace. In terms of business dynamics, private label typically carries lower margins compared to branded products. Therefore, we expect our margins to enhance next year due to a reduced focus on branded business. With regards to growth, we anticipate a mid-single-digit decline in net sales since this customer represents a significant portion of our business. Nonetheless, we believe we can achieve EBITDA growth through our branded initiatives and improved gross margins. We wanted to share this insight, and I should also mention that we value private label business that aligns with our strategy. We are actively pursuing and winning private label opportunities, indicating our competitiveness in this area. For this specific customer, we would be willing to collaborate with them again in the future under terms that are mutually beneficial and compatible with our supply chain. This summarizes our current perspective.

Bonnie Herzog, Analyst

Okay, no that's helpful. I understand. But I think I guess the...

Martin Roper, Chief Executive Officer

I think your assumption would be right, but I just got corrected in the room.

Bonnie Herzog, Analyst

I guess I'm not sure, but that's what I would assume. So thanks for the color. And then I guess...

Martin Roper, Chief Executive Officer

I think your assumption would be right, but I just got corrected in the room.

Bonnie Herzog, Analyst

Okay, so alright, well that's helpful. And then I guess the positive here is, like you alluded to, is it really does allow you to improve your gross margins moving forward. There may be some choppiness here but thinking about that in the context of your long-term gross margin target of high 30%, love to hear maybe what you think is a realistic timeframe of when you might be able to reach those margins and maybe just this announcement today, does that accelerate the opportunity and thinking about any other cost efficiency initiatives you have in place to accelerate the timeline.

Martin Roper, Chief Executive Officer

Yeah, I think, so our gross margin for the quarter was 37%. So depending on definition that could already be perceived as high 30’s right? But let's assume that by definition it isn't right, we expect the product mix to move over the next 12 months to more branded, that will enhance the margin. We still have a little bit of cost to come through, I think we said in our prepared remarks that some of those costs had accelerated into Q2 right, benefits. So, I think we're pretty comfortable that gross margins in the high 30s is achievable and potentially it could go a little higher depending on exactly what happens with the product mix. Again, because this is relatively developing news, we haven't done sophisticated modeling and we don't really fully understand exactly the transition schedule, so how fast that could happen. So we just again try to provide an adjusted EBITDA guidance to help everybody on the modeling.

Bonnie Herzog, Analyst

Okay, that's helpful. And I have many other questions, but I'm going to pass it on. I'll get out of the queue.

Martin Roper, Chief Executive Officer

Sure, thank you.

Operator, Operator

Thank you. Please standby for our next question. Our next question comes from the line of Jim Salera of Stephens. Your line is now open.

Jim Salera, Analyst

Hi everyone, thank you for taking my question. Could you discuss the marketing side? With the increase in profitability, it seems like you have more resources available. You have multiple product launches and partnerships underway. Could you provide some insight into the priority of your marketing spend and which initiatives you plan to support?

Michael Kirban, Executive Chairman

Yeah, I would say the number one thing that we're investing against and focusing on is driving new usage occasions for our core Vita Coco Coconut Water. We have other initiatives, all are going well, all are getting investments, but this is the primary objective. We think the category can be a very large category. We think it could be a very mainstream category, and for us, it's about demonstrating to consumers all the different usage occasions and that's what we're investing the most heavily against.

Martin Roper, Chief Executive Officer

Yeah, and just building on that, what Mike said, we got a category that's growing volume and revenue, we're gaining share in it. So we see that as the best use of our sort of best prioritization of our investments.

Jim Salera, Analyst

Okay, great. And maybe if I could drill down specifically on PWR LIFT, anecdotally a lot of people that consumed it, loved the product. I know that kind of limited availability, and most of the people I talked to buy it on Amazon, but can you give us any steps, kind of what the ramp is there, especially because that sports drink category is so expansive and I think you had a really differentiated product offering there?

Michael Kirban, Executive Chairman

We are excited about it as well and have increased our investments in Amazon because we see it as a valuable opportunity for testing and understanding consumer feedback. We're also putting significant resources into our test launch in Texas with KDP and plan to further expand from there next year. Currently, our investment is substantial as we focus on learning from consumers, gathering feedback, and making adjustments, such as changes to packaging. When the time is right, we believe we can increase our investment and take a more national approach.

Jim Salera, Analyst

Should we think about that expansion as a kind of tangent geography from Texas? So you go, Texas and then one state over or is it more retailer X and then once we get into retailer Y and kind of springboards out into a much larger geography?

Martin Roper, Chief Executive Officer

I think it's likely to be more retailer specific and I say likely just, you know, these plans are still being developed in partnership with the retailer discussions and distributor discussions but I think it's more likely to be retailer focused, to continue to build the brand that retailers that have a drink that's looking for that post-workout recovery and also retailers that are willing to sort of give us permanent shelf space. So, I think it's more likely to be retailer initially and then as we prove the model, we think there's some really interesting green shoots there, then it will be a lot easier to go broader.

Jim Salera, Analyst

Okay, great. Thanks for the time, guys. I will pass on.

Martin Roper, Chief Executive Officer

Thank you.

Operator, Operator

Thank you. Please stand by. Our next question comes from the line of Christian Junquera of Bank of America. Your line is now open.

Christian Junquera, Analyst

Good morning, this is Christian filling in for Bryan. I appreciate you taking our question. I would like to discuss gross margins and specifically how much promotions impacted them this quarter. Do you plan to continue promoting at the same level in the third and fourth quarters? Additionally, I would like to address the cadence; you mentioned a sequential improvement for the third quarter, which is helpful. However, I’m curious about the fourth quarter. Historically, it appears that gross margins tend to decline sequentially in the fourth quarter compared to the third. Should we anticipate a similar trend this year? Thank you for addressing our question.

Corey Baker, Chief Financial Officer

Thanks, Christian. There was a few things in there, but I'll start with gross margin in the quarter as we called out in Q1, there was an incremental retailer promotion that straddled a bit Q1 and Q2, and that did suppress margins slightly, but for the most part, our promotional activity outside of that one unique event was consistent year-on-year with increased price points to deliver the pricing you see coming through. And then for balance of the year, we've provided in the guidance increased margins above Q2. The quarter-on-quarter cadence is a bit hard to call, especially with the transition, but we're comfortable that through the balance of the year you’ll see hard margins higher than the 37% we delivered in Q2.

Christian Junquera, Analyst

Thank you.

Operator, Operator

Thank you. Please stay tuned for our next question. Our next question comes from the line of Jon Andersen of William Blair. Your line is now open.

Jon Andersen, Analyst

Hi, good morning, everybody.

Michael Kirban, Executive Chairman

Good morning, John.

Jon Andersen, Analyst

I have two questions and then I'll let others speak. Regarding the private label news today, you've previously highlighted how important private label is for building relationships with retailers and gaining influence over category management and pricing. In light of today's news, how are you reassessing that situation? Does this change your strategy with this major retailer at all? My second question, setting aside the mix implications in terms of gross margin, do you expect to benefit more from the recent savings on ocean freight and domestic transport moving forward? Again, aside from mix considerations, will these savings contribute positively to increasing your gross margin rate? Thank you.

Martin Roper, Chief Executive Officer

Let me address a few of your questions, and I'll ask Mike to speak about our strong relationship with the retailer. Regarding private labels, historically, they have helped us scale our supply chain. We’ve experienced growth and are in a solid position, with our robust supply chain supporting continued growth on the branded side. We are actively pursuing private label relationships that align with our capabilities and see promising opportunities, especially in Europe and Germany. We’re optimistic and will keep pursuing these relationships, although outcomes can vary. We engage in these processes under conditions that suit our model. Winning business is encouraging, while losing is disappointing, which is just part of the industry. From a supply chain perspective, we’re in good shape, and our growth reassures us in leveraging our relationships. On the margin front, we benefited more in Q2 than expected from transportation costs returning to more normal historic levels, with ocean freight rates aligning with historical averages. We haven't yet locked in contracts because current contract rates exceed spot rates, so we are primarily utilizing the spot market unless we need to secure capacity for service reasons. In terms of other transportation costs, which encompass domestic transport, port fees, warehousing, logistics, etc., these have not fully returned to historical levels, but we have seen significant improvements in our efficiencies related to these costs. As our supply chain improved and inventory levels decreased, some costs improved in Q2, and we hope to maintain those benefits. However, it remains uncertain if certain costs will fully revert to historical levels, as diesel prices, truck drivers’ wages, port fees, and warehousing costs remain high. I believe costs will normalize eventually, but this may take longer than the rapid recovery we witnessed in ocean freight. There is potential for some improvement, but we have already captured much of the upside. Now, I’ll pass it on to Mike to comment on our relationship with the retailer, which he would likely describe as strong.

Michael Kirban, Executive Chairman

Yes, Martin mentioned that private label has historically helped us gain scale and quickly grow our supply chain while building relationships with key retailers. This specific retailer remains an important customer for us on the branded side. Our branded business with them has seen significant growth over the years, including this year, and we believe that this growth will accelerate even further. Additionally, we have a strong relationship with their private label team and will support them during their transition to ensure they succeed. The relationship is robust and will continue to be important for us.

Jon Andersen, Analyst

Thank you.

Operator, Operator

Thank you. Please standby for our next question. Our next question comes from the line of Michael Lavery of Piper Sandler. Your line is now open.

Michael Lavery, Analyst

Thank you. Good morning.

Michael Kirban, Executive Chairman

Good morning, Michael.

Michael Lavery, Analyst

I wanted to follow up on the juice launch, particularly in C-store, which I see on slide 10 shows an ACV of about 19%. How does this compare to your expectations for its growth, and what potential do you see moving forward? Could it realistically double or triple, or is it more in line with what you anticipated? How should we approach its future development?

Michael Kirban, Executive Chairman

That will be double or triple of that.

Martin Roper, Chief Executive Officer

Yeah, we're joking because we set challenging targets for our sales force that tries to go out and deliver. So, look, I think, 19% is a good accomplishment, but it doesn't meet our expectations. I think in the same slide, we put in where the Tetra 500 ML is in that class of trade, which is at 54 and I think that...

Michael Kirban, Executive Chairman

Cans should get there over time.

Martin Roper, Chief Executive Officer

So, cans should get there over time, and Mike will tell you that we're not going fast enough or not, Mike and the team is working really hard at it and then, then we'll arm-wrestle about it and have a good laugh. The convenience class of trade for a company like ours, going through a DSD network, it's a slow build, there's lots of core points, it's lots of incremental distribution to get and then you need to make sure it gets serviced right and particularly with a new item like this, we're also supporting it with trial on tastings, features to get adoption because it is a new product, at least obviously for our brand and then within this class of trade it's also opening some doors. So, I think we're pretty encouraged, I think we're seeing, if you look at weekly data, the velocity is improving. It's still probably lower than we would like, but it's improving week by week. So we're encouraged. So I think that gives us optimism that as part of a multi-year plan, we can try and close that gap to the 500 ML tetra distribution.

Michael Lavery, Analyst

Okay, that's helpful. And maybe just checking in on spiked as well. I know it's quite new, if I understand it correctly, technically, that's Diageo's product. So, you have some limitations and how much control you have obviously, but you're working together with them, can you just give a sense of how that's unfolding and kind of what momentum you're seeing there?

Martin Roper, Chief Executive Officer

Yes, as you mentioned, it is Diageo's product, and we don't have a lot of data, but I can say that the marketing support we are receiving from them is substantial and beneficial in raising awareness about cocktails mixed with coconut water. I believe I mentioned approximately 750 million media impressions and 1 billion PR impressions, which has been very helpful. Regarding volume and sales, we don't have extensive data on that, but I believe it is performing well. Anecdotally, I have noticed it in the market, and others are seeing it as well. It appears to be gaining traction, and the media coverage for our brand has been significant, which aligns with our objectives for that specific occasion.

Michael Lavery, Analyst

Okay, thanks so much.

Operator, Operator

Thank you. Please standby for our next question. Our next question comes from the line of Chris Carey of Wells Fargo Securities. Your line is now open.

Chris Carey, Analyst

Hi, everyone. I have a quick question regarding the private label aspect. It seems to be well covered at this point, but I'm wondering if it will be a multi-year challenge as you continue to expand your branded offerings. As you examine the margin structure of private label more closely going forward, I'm curious about adjusting the long-term sales focus to prioritize branded products. Is this retailer dynamic a temporary situation? I understand you mentioned there are still interesting private label opportunities, but I wonder if this will be a long-term challenge as you grow your branded lines. I would appreciate any thoughts on the long-term nature of private label compared to branded products. Thank you.

Michael Kirban, Executive Chairman

No, we don't believe it is a multiyear decline. We're actually very optimistic about private label. Recently, we've secured some significant private label contracts. When private label aligns with our margin structure, it performs well. While it doesn't represent a large percentage of our overall business, we want our branded products to continue to grow faster than private label, and they are. However, when private label fits within our margin structure, it performs effectively, and we are actively pursuing private label opportunities both in the US and internationally, as reflected in our international results.

Chris Carey, Analyst

Okay, thanks so much.

Operator, Operator

Thank you. Please standby for our next question. Our next question comes from the line of Eric Des Lauriers of Craig-Hallum Capital Group. Your line is now open.

Eric Des Lauriers, Analyst

Great, thank you for taking my questions and congrats on the very impressive quarter here. So, you've previously stated that you'd remain flexible on price increases going forward. And as you're looking into the back half of this year and into 2024, I'm just wondering if you could kind of walk us through some of those puts and takes here and as you're looking at the results at the retail level and then of course, with this news of the transition of private label, on one hand, the brand is continuing to benefit from this improved affordability relative to adjacent categories. On the other hand, you obviously have room to continue increasing, so just kind of wondering if you see a strategic opportunity to sort of continue sourcing market share by taking less share than peers, or is this kind of like, hey, we've realized this strong benefit over the last, call it six to 12 months and now you're kind of more than happy to take price in line with other categories. Just wondering how you're thinking about it. Thanks.

Martin Roper, Chief Executive Officer

Yes, we are quite pleased with the response to our pricing changes implemented last year in both the second and fourth quarters. We will keep an eye on this and may find some opportunities for adjusting pricing, particularly with mixed packs and singles, but currently, there are no formal pricing plans in place. We will observe other categories where pricing activity appears to be slowing down, partly due to strong retailer resistance. Our pricing has remained stable and primarily addresses inflationary costs, so we do not anticipate significant push-back. However, we might see reductions in private label pricing as their costs improve. We will continue to monitor the situation and the pricing gaps. We don't observe a lot of interaction between our brand and private labels, which gives us confidence, but we will keep an eye on gaps and act on any opportunities that arise.

Eric Des Lauriers, Analyst

Okay, great. That makes sense. And then just my last question, just wondering how you're thinking about working capital into the second half, if there's anything to call out from a modeling perspective, and I think you mentioned that you're looking to get inventories back to a more historical level, but just kind of given the significant private label transition. I'm just wondering if there's anything else that you guys are foreseeing that's worth calling out here. Thank you.

Corey Baker, Chief Financial Officer

Yes. I call. I think you touched on one, we do expect inventory to return to more normal levels as we balance customer service with a low level in Q2. Also accounts receivable, which has a little bit with the payables is a bit high right now that's timing of specific customer payments and then finally on the private label transition, it's too early to tell the timing around year-end and the cut-offs, but we do expect maybe a more normal view to our working capital except for that as we end the year.

Eric Des Lauriers, Analyst

Great, thank you. Congrats again.

Michael Kirban, Executive Chairman

Thanks, Eric.

Operator, Operator

Thank you. Please standby for our last question. Our last question comes from the line of Robert Ottenstein of Evercore ISI. Your line is now open.

Robert Ottenstein, Analyst

Great, thank you. Thank you very much. A couple of cleanup questions I guess, love to get your views through the eyes of your business on the state of the consumer, the competitive environment and what levers you believe you have to adjust to actual current or potential changes in either of those factors? Thank you.

Michael Kirban, Executive Chairman

I believe that volume growth is currently the highest among nearly all beverage categories. The consumer appears to be in good shape, and we are enthusiastic about that. Coconut water is outpacing the growth of water, energy drinks, sparkling beverages, and almost everything else, with Vita Coco at the forefront of this trend. This positive consumer sentiment persists even after we have implemented some price increases over the past year. Overall, we are confident and do not see signs of a slowdown; the momentum seems to be strong.

Martin Roper, Chief Executive Officer

Yes, in our category, we haven't observed any significant changes yet. As we've mentioned in previous quarters, we're offering our consumers value options with multipacks for those who are willing to buy in larger quantities. The slides in the investor deck illustrate that this strategy is resulting in growth for multipacks. Up to now, we haven't noticed any downturn, and we've also indicated historically that we believe coconut water fits into our consumers' lifestyles and remains affordable. Therefore, we anticipate some resilience, but so far, there haven't been any indications of this. Additionally, we haven't experienced a cycle like this before, so we'll have to wait and see how it unfolds.

Robert Ottenstein, Analyst

Terrific, and congratulations on the continued great results. Thank you.

Michael Kirban, Executive Chairman

Thanks, Robert.

Martin Roper, Chief Executive Officer

Thanks, everybody. Thanks for joining us and for your continued coverage and interest in our company, and we look forward to talking to you again after Q3. Everyone have a great day.

Michael Kirban, Executive Chairman

Thank you.

Corey Baker, Chief Financial Officer

Thank you.

Operator, Operator

This now concludes today's conference call. Thank you for participating. You may now disconnect.