During the natural and organic brand manufacturer’s fourth quarter US net sales fell 6% over the same period the prior year to $269.9 million, dragging down the region’s full year sales 2% to $1.09 billion compared to the prior year, according to the company.
While not ideal, these results are softened when the impact of acquisitions, divestures and a previously announced stock-keeping unit rationalization are factored into the numbers, revealing that organic sales growth was not down – merely flat in the US segment.
The continued softness in the US market pulled down stronger sales around the world, according to the company, which reported sales grew by more than 10% in the UK and 12% in the rest of the world.
“The decline in the [US] net sales was due in part to the strategic decision to no longer support certain lower margin SKUs in order to reduce complexity and increase gross margins over time, as the United States reporting segment continued to focus on its top 500 SKUs, which disproportionately impacted the other platforms,” the company reported in its earning statement.
It also attributes the decrease in net sales to declines in Better-For-You Snacking, Fresh Living and Better-for-You Pantry platforms.
A strategic plan to return to growth
Despite the declines, executives at the company remain optimistic about their plan to return the US business to growth in 2019.
“Although internal results for the fourth quarter were below our expectations, we are seeing positive momentum building and our outlook on core distribution from our most recent round of customer line reviews,” Gary Tickle, CEO of Hain Celestial-North America, told investors during the company’s fourth quarter earnings call Aug. 28.
“These transformation efforts take time to show tangible results, but these initiatives are translating into improvements in our measured channel numbers,” he said.
For example, he noted, a confirmed 49,000 net new points of distribution for seven of the company’s top brands across a broad range of retailers and channels “will begin to have positive impact in quarter two of fiscal 2019, based on the timing of retailer resets.”
He also noted the company has invested $10 million year-over-year in trade and shopper marketing programs, which affected net sales growth by 3.4%.
“This included incremental programs in the club channel across three customers for both our Sensible Portions and Terra snacks brands and our Alba Botanica personal care brand, driving growth in the unmeasured channel in quarter four and driving trial in household penetration,” he said, adding “We have continued to see momentum behind these brands building in FY ’19 quarter one.”
In addition, investments in shopper marketing programs in a major natural channel customer helped boost high single-digit growth in the past three months in the company’s Better-for-You Baby platform, Tickle said.
Hain also is taking action to correct for the loss of distribution of Sensible Portions in one large mass customer in March 2018, which directly resulted in a loss of $6.4 million in net sales, Tickle said.
“Since June 2018, we have been running a successful front-of-store pallet program in the same mass customer translating to approximately $1 million in net sales since the inception of the program through Aug. 9,” which places the company on track to roll off the dip by the end of March 2019, he said.
Finally, Tickle said Hain hopes to reverse a drop in the net sales of its Spectrum brand coconut oil, which fell 12% in the last 12 weeks.
He explained Hain is “restaging” the brand with a new patented bottle design and new infused oil innovation to reduce reliance on the coconut oil segment.
Looking forward to a new year
While Hain is making progress on its goal to return its US business to growth, it does expect the first quarter of 2019 to be a bit turbulent, before smoothing out in the back half of the year.
“It is worth noting that for the quarter one of fiscal ’19 we anticipate the impact of SKU rationalization will be approximately $10 million versus prior year, which equals approximately 4% headwind on our top line. As a result, we expect quarter one net sales will be down slightly and our profitability will be impacted as well,” Tickle said.
However, he added, “in fiscal 2019, we are optimistic about our ability to drive low to mid-single-digit growth year-over-year. We believe this will come from the confirmed expansion of distribution on seven of our key brands across six major retailers.”
At the same time, Tickle noted, Hain will continue to invest in e-commerce, which it believes will contribute double digit growth in fiscal 2019
Overall, he concluded, “as a result of our brand investments, planned distribution gains and price optimization, we expect to generate improved growth and profitability beginning in the second quarter of fiscal 2019, which we expect to accelerate through the balance of fiscal year as more Project Terra initiatives are completed. We remain optimistic about our opportunities for future growth and improvement.”