MusclePharm steps up ad spend in turnaround effort
In an earnings call with analysts, CEO Ryan Drexler said the company continues to make progress in working toward profitability. MusclePharm at one time had yearly revenues approaching $170 million under former CEO Brad Pyatt.
But those sales came at a cost. Pyatt had entered into a number of high profile endorsement and product development deals with the likes of Arnold Schwarzeneggar, Tiger Woods and the Manchester City soccer club. Unwinding those deals has been among Drexler’s goals in resuscitating the company after Pyatt left the company.
The last chapter in that story seems to have been told with a favorable $2.7 million judgement relating to a lawsuit over a severance package with a former executive, and the settlement of a breach of contract suit over the City football club endorsement deal.
Progress on revenue growth
But an echo of past crept in with rising costs associated with advertising. The ding on the old MusclePharm was that the company consistently overspent to secure new sales. The new MusclePharm is finding, too, that deficit spending is necessary to rebuild the company’s retail base.
"Q2 represents our third consecutive quarter of sequential revenue growth and improved operating results, demonstrating continued progress toward our goal of sustained growth and profitability. We continue to manage our operating costs and expenses diligently while investing in our trade partnerships and online marketing platforms," Drexler told analysts in a call that was posted in transcript form on the site seekingalpha.com.
Bigger ad spend to achieve higher revenue
Net revenue for the second quarter of 2018 was $27.2 million, up 3.5% from $26.2 million for the second quarter of 2017 and up 2% from $26.5 million in the first quarter of 2018.
The company attributed the increase from the prior-year quarter primarily due to an increase in domestic sales, coupled with a decrease in discounts and sales allowances. The company said it was shifting more toward partnership advertising and marketing efforts with our key trading partners.
To support those efforts, the company ramped up its promotional spending in the quarter to $5 million, compared with $2.2 million for the second quarter of 2017. The increase was related primarily to costs associated with in-store support and advertising initiatives with key partners such as iHerb. Amazon and Costco are also major sales platforms for the company.
MusclePharm recorded as we continue to invest in the relationships with our largest customers
MusclePharm's net loss in the second quarter of 2018 was $1.1 million or $0.07 per share compared with a net loss of $3.1 million or $0.23 per share for the second quarter of 2017.
In one exchange with an analyst, Drexler admitted that the company’s operating loss would be larger than advertised if the $2.7 million lawsuit settlement were left out of the equation. But he said he believes the company is on the right track, even if it has to raise certain expenses to get there.
“In summary, it is clear that our strategy is working. Revenue is growing, while we are working aggressively to decrease SSGA costs and are investing wisely in advertising to ultimately achieve profitability,” he said.