JWEL reported Q2/23 adj. EBITDA of $31.1mm, up 27% y/y and in line with TD/ consensus estimates of $30.9mm/$31.4mm. Management trimmed the top-end of its revenue and EBITDA guidance, albeit modestly, to reflect 1) greater retail inventory management in Canada driven by higher cost of capital and 2) regulatory approval backlogs in a few international markets (ex-China). Guidance around its U.S. and China strategic growth initiatives was unchanged. Quarterly dividend was raised by 12% to $0.19.
We made only modest changes to our model. Our $50.00 target price is unchanged after rolling out valuation.
Impact: NEUTRAL
Q2/23 was solid but in line. We are not overly concerned about the modest paring of top-end guidance in Canada as it is all tied to retailer inventory management given higher cost of capital. The Canadian consumer is strong, highlighted by 8% POS sales growth (split evenly between price and volume, across categories), and retailers will eventually need to re-stock to meet demand. Said another way, Jamieson Brands Canada is healthy and growing.
Rather, we believe the focus should be on JWEL's two key strategic growth initiatives in the U.S. (youtheory) and China, where guidance was unchanged. In fact, management appears to be striking a more positive tone (and confidence around earnings visibility), particularly with respect to the U.S. business given one full year of consolidated operations. We are encouraged by the early results, specifically:
youtheory (Q2/23 revenue of $42.1mm, in line) driven by: 1) innovation (including the key, new, and improved, turmeric SKU); 2) eCommerce growth of 40-50% (up from >33% in Q1); 3) distribution gains; 4) consumption growth; and 5) synergy capture. Together, this drove high-single-digit organic revenue growth.
Jamieson China revenue up 63% (21% on a pro-forma basis), driven by strong demand in the key cross-border eCommerce channel and in Club and other new distribution channels as it begins to leverage its partnership with DCP Capital.
TD Investment Conclusion
We argue that even modest success in the U.S. and China alone would be very meaningful to earnings and, in turn, could push the shares well north of our $50.00 target price over time