US segment disappoints
The performance of Hain Celestial’s (HAIN) US segment in fiscal 2Q18 was marred by inventory realignment as well as a lackluster performance of its Spectrum, Rudi’s Organic Bakery, and Sensible Portions brands. This trend offset the growth seen in its Celestial Seasonings, MaraNatha, Earth’s Best Brand, Terra, and Garden brands.
Also, an unfavorable price and product mix marred sales by 60 bps (basis points) and 30 bps, respectively while lower volume caused a 200 bps negative impact on total US sales.
HAIN’s US segment’s sales were down 3% YoY (year-over-year) to $270.3 million in fiscal 2Q18. Excluding the impact from SKU (stock keeping unit) optimization, acquisitions, divestitures, and certain other items, US segment sales were down 4.5%.
The US segment is the largest contributor to Hain Celestial’s overall sales. In fiscal 2Q18, the US segment comprised ~35.0% of the company’s overall sales. Its adjusted operating income fell 24.0%, marred by escalating freight and commodity costs, increased marketing investments, and unfavorable mix.
Robust e-commerce channel
The US segment’s e-commerce channel remains robust. At the company’s fiscal 2Q18 earnings conference, Hain Celestial’s CEO, Irwin Simon, stated that e-commerce sales from the US are hovering around $80.0 million.
Citing findings from the Food Marketing Institute and Nielsen, Simon stated that online grocery spending could reach nearly $100.0 billion in the next five to seven years as ~70.0% of the buyers turn to ordering groceries online. Organic food is in high demand online, driven by Millennials.
HAIN’s peers are also investing in driving digital sales. During its fiscal 4Q17 earnings conference call, McCormick & Company’s (MKC) CEO, Lawrence Kurzius. stressed that the company would develop its digital sales channel to boost overall sales.
Kurzius further added that in fiscal 2017, e-commerce sales were up 67% worldwide. The company launched its e-commerce portal in China recently.
US segment’s growth strategy
Hain Celestial (HAIN) is paying attention to its top 500 SKUs in its top 11 brands, which generated 93.0% of its total segment sales. The company is investing heavily in brand marketing in the US.
The company has rationalized 700 SKUs and expects to phase these out by fiscal 1Q19. In fiscal 2018, US segment sales are expected to be up in the low to mid-single digits.