MusclePharm Sheds 75% Of Portfolio, Flexes After Spending Stretched It Thin
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Executive Summary
MusclePharm whittled its product line from 450 to 120 SKUs and is shifting its distribution focus in the US from specialty retail to Amazon and Costco. The firm also cut operating costs, spending $10m less in 2017 than in 2016.
MusclePharm Corp. reset its business by shedding 75% of its product portfolio and shifting its distribution from specialty retailers to mass market stores and e-commerce platforms, interim Chief Financial Officer Kevin Harris said during a June 5 investor conference.
Since late 2015, the company has trimmed its product line from 450 to 120 stock-keeping units to jettison slow-selling items and focus on four core lines, it namesake brand's sport, essentials and natural category products and its Fitmiss brand for women, and trimmed its straffing from 140 to 50.
At the LM Micro Invitational in Los Angeles, Harris said MusclePharma also eliminated expensive celebrity endorsements generating “unacceptable” returns-on-investment, including deals with Tiger Woods and Arnold Schwarzenegger. (Also see "VSI, MP Q1 Results: Health And Wellness Industry News" - HBW Insight, 15 May, 2017.)
“We improved manufacturing and supply chain, optimized how we got product to the endpoint, we optimized who we get product from and cost of product and reduced headcount,” Harris said.
Sports Nutrition Pumping Growth
ceo ryan Drexler says musclepharm expects to be well positioned to capture growth of the sports nutrition category, forecast to increase at a compounded annual growth rate of 8% over the next five years.
MusclePharma presentation, June 5, 2018
MusclePharm, which recently also moved its headquarters from Denver to Burbank, Calif., also cut operating costs, spending $10m less in 2017 than in 2016.
The turnaround has been underway since CEO Ryan Drexler took the helm in 2015 after MuclePharm's former management led the firm into Securities & Exchange Commission problems. Although MusclePharm had a strong start following its 2008 launch as a brand, its expenses – due in part to a portfolio stretched too thin – spiraled out of control and the firm recorded a net loss of $3m in 2016 and almost $11m in 2017. (Also see "MusclePharm Chairman Flexes Financial Support, Board Influence" - Pink Sheet, 11 Dec, 2015.)
However, its streamlining started in 2015 is bearing fruit. MusclePharm narrowed its net loss in its most recent quarter to $3.1m. (Also see "Health, Beauty And Wellness News: POM Wonderful On 'Health Scare' Swim In Ad" - HBW Insight, 15 May, 2018.)
“We are here today because we are a healthy company within a growing market poised to achieve profitability and grow to new heights,” said Drexler during the conference. “I can say today we have rebounded from our restructuring. Our company has a strong brand equity with high quality products and we are poised to expand our footprint through new distribution, new products and a new campaign."
From Specialty To Mass Market
MusclePharm is moving away from specialty stores to conduct more sales where its target market is shopping – on Amazon.com and at Costco, said Drexler. Its first-quarter sales at Costco grew 7% and on Amazon 40% from the prior-year period. The firm recorded 190% year-on-year sell-through growth on Amazon in 2017, Drexler said.
In the January-March period, MusclePharm worked to “establish” its presence on Amazon by optimizing its placement in the e-commerce site's search function, both to increase loyalty and basket size with current users while also targeting new users, he said. MusclePharm’s sales are 60% domestic, and 37% of those sales are online, 36% in food, drug and mass merchandise retailers and 27% in specialty stores.
It recently expanded into Walmart Canada, Circle K, Wegmans, Giant Eagle and Gateway Newstands widened distribution in Canadian chain Shoppers Drug Mart. MusclePharm also plans to launch a more comprehensive marketing campaign for its brand and will seek to expand its brand globally by identifying new markets, usage occasions and emerging demand. Additionally, it will repackage its entire line with a rollout planned in 2019.