Guru Organic Energy Corp

TSX:GURU

Earnings Call Transcript 2023-Q1

[Operator]

Welcome to the GURU Organic Energy First Quarter 2023 Results Conference Call and webcast being recorded today, March 16, 2023, at 10:00 a.m. Eastern Time. [Operator Instructions]GURU's press release, MD&A and financial statements are available in the Investors section of its website and on SEDAR. During the call, the company may refer to certain non-GAAP measures. Reconciliations are available in its MD&A. Also note that all financial figures are expressed in Canadian dollars unless otherwise indicated.I would also like to remind you that today's presentation may contain forward-looking statements about GURU's current and future plans, expectations and intentions, results, level of activity, performance, goals or achievements or other future events or developments. As such, please take a moment to read the disclaimer on forward-looking statements on Slide 2 of the presentation.I would now like to turn the call over to Carl Goyette, GURU's Chief Executive Officer.

[Carl Goyette, executive]

Thank you, operator. [Foreign Language]. Good morning, everyone and welcome to our earnings call. Joining me this morning is our CFO, Ingy Sarraf. For those who are following the webcast, you will be able to turn the pages of the presentation on your own.Let's now turn to Slide 4. Q1 2023 marked the last quarter of our Canadian distribution model transition period and was mainly impacted by 2 non-recurring factors, the remaining balance of the pipeline sale recorded in Q1 of 2022 and the inventory reduction initiated at PepsiCo Hub in Q1 of 2023.In the current context, we continue to manage our business efficiently and in a prudent manner, protecting our gross margin and optimizing our marketing investments, which resulted in a lower net loss compared to Q1 of 2022. During the quarter, we put into motion our Winter of Good Energy campaign, especially tailored to winter sports, where our presence was felt at key centers and other winter sports centers across Canada to promote our good energy.Over the last year, with the help of PepsiCo, we continue to make our energy drinks more available to retailers and consumers in Canada in preparation for our 2023 product launch and national marketing campaigns. As a result, our better-for-you energy drinks are now distributed in more than 95% of convenience stores and 77% of grocery stores and drugstores across Canada.The national marketing campaign in support of the launch of our new 2023 innovation called GURU Theanine Fruit Punch will officially start at the end of the month. We are excited by this launch since this was the first time in the last 3 years that we didn't launch a new product in the fall in Quebec.The Theanine Fruit Punch launch comes on the heels of our last innovation, GURU Guayusa Tropical Punch, which has performed very well, becoming GURU'S #2 SKU in Canada and the category's #1 flavored energy drinks SKU in Quebec.Our upcoming campaign is based on the learnings of our 2022 activities and will target key urban areas where our brand positioning resonates best with consumers and where our marketing spend gained the most traction last year. The campaign will showcase the functional benefits of our new ingredients, Theanine, which is proven to improve focus and mental performance.With the current inflation, we are starting to see an impact on consumer behavior, where the consumers continuing to drink their energy drinks while buying in bulk or on promotion as a tactic to fight back inflation. For example, in Quebec grocery stores during the month of December, Red Bull gained market share by reducing their 4-pack price by more than $0.50 versus last year, while our price increase resulted in a 4-pack price point that was $1 higher than the previous year.We have not historically been aggressive on promotional pricing. However, we will ensure that our historical market share growth trend continues and we will adjust our promotional pricing tactics if required over the coming weeks.Turning to Slide 5. In the U.S., consumer scan data grew 20% in California natural food stores in the last 52 weeks compared to previous year, which reinforces our #1 energy drink position in the natural channel. Guayusa Tropical Punch also continues to deliver strong results, reaching the #2 best-selling SKU in California natural stores only 4 months after its launch.Lower Q1 revenues were mainly the result of delistings at less profitable locations and the turning of orders. The short-term noise aside, we are continuing to make inroads in California. Following our successful roadshow in 2022, we will start a new 12-week rotational program in over 40 Costco locations in Los Angeles in June. This win would allow us to showcase GURU Guayusa to a larger market of better-for-you consumers.Turning now to online sales. These also continued to show strong top line performance with improved profitability in Q1, driven by optimized investments. Over the past several months, we have achieved better return on investment and will continue to grow this segment's profitability. As mentioned before, this channel is complementary to our retail presence and distribution, which remains our core focus for growth.I will now turn the call to Ingy, who will provide you with more details on our financial results for the first quarter. Ingy, over to you.

[Ingy Sarraf, executive]

Thank you, Carl and good morning, everyone. Turning to Slide 7. For the last 12 months, consumers scan data in Canada saw a 24% year-over-year sales increase over the same period last year, reflecting continued demand at the consumer level. Because we are still overlapping our transition year, this growth in consumer sales has not yet translated into revenue growth.Net revenue for the first quarter was $5 million compared to $7 million for the same period in 2022, mainly due to the remaining balance of the initial PepsiCo pipeline sales in Q1 2022 and the reduction in inventory on hand by PepsiCo in Q1 2023, which together had a $1.5 million impact on net revenue. U.S. sales decreased to $0.8 million from $1.2 million in Q1 2022, mainly due to the delisting and the timing of orders.In Q1 2023, gross profit totaled $2.7 million compared to $3.8 million for Q1 2022. Gross margin remained strong at 53.7% in Q1 2023 versus 54.5% for the same quarter last year. SG&A was $5.7 million for Q1 2023 compared to $7.1 million for Q1 2022, selling and marketing expenses accounting for $2.9 million of the $5.7 million in SG&A in Q1 2023. That went towards targeted sales and marketing activity, including the Winter of Good Energy campaign.In Q1, adjusted EBITDA amounted to a loss of $2.6 million, a $0.4 million improvement from a loss of $3 million for the same period last year, mainly due to the lower selling and marketing expenses. Net loss for the first quarter was $2.6 million or $0.08 per basic and diluted share compared to a net loss of $3 million for the first quarter last year or $0.10 per basic and diluted share. The decrease in net loss reflects the decrease in costs associated with branch field and trade marketing activity.As at January 31, 2023, we had cash and cash equivalents and short-term investments of $42.5 million and unused credit facilities totaling about $10 million. Our prudent balance sheet management puts us in a strong financial position to continue self-funding our growth with the ability to deploy the right investments aimed at our eventual return to generating sustained profitability.Carl, back to you for concluding remarks.

[Carl Goyette, executive]

Thank you, Ingy. Turning to Slide 8. The next quarter will mark the beginning of a new chapter for GURU with the end of the transition period with PepsiCo and the launch of GURU Theanine Fruit Punch, Canada's first mental performance energy drink and the hiring of our new Chief Revenue Officer, Rajaa Grar. Rajaa brings with her an impressive track record in brand and digital marketing, most recently with C4 Energy, where she doubled the company's digital and total revenue over a 2-year period. Her expertise and extensive knowledge of the U.S. energy market makes her a strong asset in our drive to increase brand awareness, market share and revenue. She will no doubt play a key role in our growth strategy to drive our expansion in Canada and in the U.S. and we couldn't be more excited to have her on board.We are now in a much stronger position than we were last year when we undertook the same annual planning and marketing initiatives. Our energy drinks are now available in almost all convenience and gas stores and the vast majority of grocery drug mass retailers in Canada. The significant changes in our business models and the related transition process are now behind us and we have over a full year of working in partnership with PepsiCo under our belt.We have a strong and motivated team eager to share Good Energy and we have a strong balance sheet to invest in our growth for the years ahead. In short, the remainder of 2023 will serve as a launch pad for our long-term growth and we will remain strategic in the investments we make to increase GURU's brand awareness and capture market share. We are confident that we have all the right elements to succeed and meet our objectives of cleaning up the energy drink industry and for GURU to become the undisputed leader of organic better-for-you energy drinks in North America.This concludes our formal remarks. I will now turn the call over to the operator for the Q&A.

[Operator]

[Operator Instructions] Our first question comes from John Zamparo with CIBC.

[John Zamparo, analyst]

I wonder if you can give us a sense of the current inventory position at PepsiCo versus, say, last year or a year ago. I'm not sure how you measure whether it's in typical days or week sales, but any color would be helpful there. And I would like to get a sense of what the replenishment pattern will be moving forward and if you think it will be smoother than over the past year or so?

[Carl Goyette, executive]

Of course, yes, over the course of the last year, we obviously established more reporting, more -- better ways of working with PepsiCo. So we now have visibility of inventory at PepsiCo hubs, which stands, if we want to speak in weeks around 6 weeks. And our estimates, we didn't have full visibility last year, but we estimate that it was around 9 to 10 weeks last year.So there was a reduction that happened in December like we mentioned in our remarks. So they did reduce their inventory. But we have -- based on the ways of working and the discussions we have with them, this is now the level of inventory which is normal for them. So we don't expect big changes on that side. It could always fluctuate, obviously, but because we don't control that, but we don't expect any big fluctuations.Now in the second part of your question, which is relating to shipments versus inventory, obviously, we expect shipments to exceed scan data in some periods. For example, we have an upcoming launch that's coming and that is our first focus in the month of April.So we expect PepsiCo to ship more product than there would be scanned. And we want actually retailers to increase their inventory prior to the summer. So we've been looking forward to these months, right? This is the spring, the summer is coming up. So yes, we expect that we will be shipping more over the coming weeks than in the past weeks, for example.

[John Zamparo, analyst]

Okay. That's very helpful. One housekeeping question. You shared the 52-week scan data growth in Canada of 24%. I wonder if you have a figure just for the latest quarter?

[Carl Goyette, executive]

Yes, the latest quarter was lower. I don't remember top of mind. It was lower, as you saw, decrease. I think we were around -- in the 30% range for the last year and now the latest numbers decreased that to around 25%, 24%. The main reason for this as we spoke about this in our last call, we now have better visibility, but we had 2 months where we were more flattish around growth around 2% or 3% in December and January, 5% in January.I don't have the exact number, but almost flat, which was the first time in several years. In fact, I think since COVID that we -- since the beginning of COVID that we were flat. And obviously, we took a deep dive to better understand this and this is why we mentioned -- we mentioned this on the last call and we're mentioning it again in our remarks today, there was more pricing activity from our competitors in December and in January.And it seems like based on what we're looking, the bulk of the movement was done in multipacks. Consumers are more sensitive to price based on what we're seeing. And they tend to buy in bulk or in 4-packs and multipacks. For example, buying in 4-packs today is pretty much the only way you can get your energy drinks at what I would call the old price or the pre-inflation price. So for example, the traditional price for a 250 ml energy drink was 2 for $4, right? So $2 per can.Now you can't get 2 or $4 for 250 ml anymore in convenience stores unless you buy a 4-pack at $8, right? So if you're buying a 4-pack at $8, then you're still getting your energy drinks at the old price. So consumers are getting smarter. They're buying a little bit more so they can avoid inflation. And Red Bull benefited significantly from those price promotions in December continued into January. And Monster has been also aggressive in January around that.And that's why we're saying we're looking at that, we better understand. And if we need to be more aggressive on price, we will, just to make sure that we continue our momentum on scan and market share growth.

[John Zamparo, analyst]

Okay. That's very interesting. And is that mostly your comments, is that mostly specific to grocery rather than C-stores?

[Carl Goyette, executive]

Multipack is in grocery, but it did happen. There was a big push in -- especially in December in convenience for 4-packs, around Christmas 4-packs big occasions, all the family gatherings, the parties. So this is -- we spoke about that again in our last call, but it was mainly -- it's really in both channels, although the contribution of 4-packs is higher in grocery stores, obviously, because there's more of a take-home place there. Yes. And again, most of what I'm talking about here is it happened across the country, but there was more impact in our home market where we have a bigger market share in Quebec.

[John Zamparo, analyst]

Understood.

[Carl Goyette, executive]

Less of an impact obviously in the rest of Canada.

[John Zamparo, analyst]

Right. Okay. Just one more and then I'll pass it on. On sales and marketing, that's been pretty volatile over the past year. I wonder what you see as a sustainable level for sales and marketing spending over the next year or 2? And is there any direction you can give on seasonality of that spend?

[Carl Goyette, executive]

Yes. I'll start and I want Ingy to add to this. But for us, it's -- 2023 is still an investment year. We still believe that there is a lot of room for growth for this brand. So we will continue investing in sales and marketing to grow this brand. But in terms of direction, maybe Ingy can jump in on how you see the rest of the year.

[Ingy Sarraf, executive]

Yes. So I think it goes with our marketing campaigns and with the seasonality also of the energy drink. So we will be investing much more in, I would say, in the coming months, right, spring and summer, like Carl said, to get us ready for the new launch and for the big summer campaigns that we have going and then it levels off a bit in Q4. So of course, like you saw even last year, Q1 is always the lowest and then it goes back up in the future quarters.

[Carl Goyette, executive]

Yes. And Q1 was especially lower, John, this year because we didn't -- we did not launch an innovation in Q1. I mean last year, we were launching Guayusa in Q1. There was extensive marketing support because it made sense. Now we saved a little bit of that money to make sure we can support aggressively the launch of our new innovation in the next few weeks. So less marketing investment obviously impacted sales, but we're very optimistic about Theanine in the upcoming weeks.

[Operator]

Our next question will come from Martin Landry with GMP.

[Martin Landry, analyst]

My first question is on your new product, the Theanine Fruit Punch. Carl, I was wondering if you can discuss your new planograms for this spring. So is that product helping you gain market share? Or is this product replacing some of your existing SKUs and you're maintaining your shelf space? So just trying to get a little bit of an understanding on what we should expect in terms of your planograms for the spring and moving forward?

[Carl Goyette, executive]

Yes. Well, the goal is always to gain space, right? The reality is it's sometimes difficult. But we've been growing market share. So when we grow market share, usually retailers apply a rule that's called fair share of space. When you gain market share, you get incremental phasings. But it really does vary from retailer to retailer. It's hard to give you a precise answer on this thing, but the guideline is really obviously incremental space, incremental activities in stores for sure. It will vary.In Quebec, I'm very confident that this will result in a gain of space except in banners where, for example, if we already have -- let's say, we have 30% of the space and 20% of market share in that banner, then it might be more difficult for us. But if we have 10% of the space and we have 16% market share in that banner, then it gives us every reason to convince retailers to give us incremental space, right?In the rest of Canada, we usually have more space than our market share, right? So in that case, it might be a bit more difficult. It makes it more difficult. So in a lot of instances, for example, Theanine will replace our lower selling SKU, which is Matcha. So I think in the broad spectrum, that's the -- that's what I can give you.

[Martin Landry, analyst]

Yes. That's helpful. And then like how many doors are we going to be able to find Theanine this spring and summer? Is it going to be mostly in all of your retailers or -- and then can you break down Canada versus U.S.? Just to get a sense of the rollout?

[Carl Goyette, executive]

It's launching in Canada for now. It's not launching in the U.S., but it will be everywhere in Canada, right? Everywhere GURU is sold, the goal is -- if GURU is sold, Theanine Fruit Punch sold as well, right? And Guayusa was such a success. We have PepsiCo's full commitment on this. PepsiCo is extremely strong at launching innovations very fast. So expect us to see this -- expect to be -- GURU Theanine Fruit Punch to be everywhere.

[Martin Landry, analyst]

Okay. And then just try to get a sense of how's last fall -- last summer, last fall, you've had out-of-stock items. Just trying to get a sense of how is that going right now? Are you -- do you still have some out-of-stocks at retail or not at all?

[Carl Goyette, executive]

No, no out-of-stocks at retail right now unless on a few. There could be hit and miss, right? But there is no out-of-stock that -- in the beverage industry out-of-stock are can limited out-of-stock, I would say, are normal. What we saw last summer was -- really wasn't normal, right? This was way beyond what we expect. And that's why this is a hot topic in preparation for the summer is why we're talking about increasing inventory levels at retail, working -- establishing ways of working with PepsiCo to make sure that we win the summer having some incentives for retailers to buy a little bit more in the summer to make sure that they have enough and that they go through more of a replenishment mode in the summer instead of struggling to get their main orders, right? So there's a lot of -- it's a hot topic for us, working very collaboratively with PepsiCo to get ready for the summer.

[Martin Landry, analyst]

Okay. And then maybe just last question on the competitive dynamics. You're talking about some of your competitors being more aggressive on price. But you've also historically talked about your customer base being more white collar and maybe being a little bit more affluent than some of your competitors. So would you say that your customer base is less price sensitive than some of your competitors? Or how do you see the need to react on pricing? And how do you analyze or what would you -- what would make you pull the trigger to maybe be a bit more promotional?

[Carl Goyette, executive]

Yes. Well, historically, we have historically, consumers have been very loyal, right, but they're also smart, right? And they're also smart. And our price strategy has always been parity with market leader, right? We never want our consumers to pay more for better-for-you energy drinks. We think this should be an easy transition on price. We think it should be an easy transition on taste. And that's been a big part of our success.Now consumers are smart and in some instances, for example, if Red Bull is significantly cheaper than GURU, unfortunately, some consumers might decide to go back to an artificial energy drink, right? If the price gap is big enough. We obviously want to keep them in an organic plant-based energy drink and that's why we're going to be aggressive.We've been more of a follower on price. As you know, we've never been the ones who have initiated the promotion because this is not how we build this brand. This is a brand that's built on the quality of its ingredients and the brand, not pricing, but we're not going to let our competitors just eat our market share. If we need to react, we will.

[Operator]

Our next question comes from Amr Ezzat with Echelon Wealth Partners.

[Amr Ezzat, analyst]

Just on the last point you're making about market share. Do you have like updated market share data that you could share with us?

[Carl Goyette, executive]

Yes, we could. We could. We could give you the numbers. So if you want, we can have a follow-up meeting. We get -- like we've never shied away from market share. The reality is because of month-to-month fluctuations, we do believe that the 52-week market share is a better indication of how our brand is going because the other way, if you look at month-to-month and reactive promotions, it's not -- I don't think it's the right indication to look at month-to-month market share in a small province. But in a follow-up call, we can share those numbers. No problem.

[Amr Ezzat, analyst]

Understood. Then I know your Q1 is seasonally weaker and there's obviously the noise with the pipeline fill last year as well as the inventory that you guys spoke to. But you guys gave an adjusted number to account for the distribution partner noise. And there, you guys mentioned that shipments were actually down 2% year-on-year on an adjusted basis. Then I'm just thinking to last year's quarter. I know that was impacted by Omicron I believe. So I expect that the adjusted year-on-year print to be positive as opposed to negative. Any color you could provide me there to help reconcile what's happening?

[Carl Goyette, executive]

Yes, 100%. We also expected growth, right? But then this is what we're trying to communicate. There is some pricing dynamics that did impact us in Canada. The fact that we did not have a launch this quarter did have an impact versus last year. And in the U.S., there was an impact of some delisting in nonproductive banners where the cost to play was too high and we did not invest because we didn't feel it made sense and we exited those banners.So I think this is -- it really is a combination of many things, right? Obviously, the bigger ones being the pipeline sale of last year and the inventory reduction. But then as a secondary piece, there's obviously the fact that we did not launch an innovation this year and we had a full on -- extremely well-performing Guayusa last year in Q1, right? And we did have some additional banners, not very high-volume banners in the U.S., but enough to make a difference of a few hundred thousand dollars in the U.S.

[Amr Ezzat, analyst]

Okay. And were you more impacted by the competitive dynamics or the lack of launch like the Guayusa launch like last year? I'm just trying to get a sense of magnitude.

[Carl Goyette, executive]

Well, yes, no, I haven't -- honestly I haven't quantified what it would have -- like the market share loss that we saw in December and January. February is better. So it's back to more growth, but I could probably try and quantify. It's hard for me to say which one was the bigger ones. All I can say the pipeline and inventory reductions, obviously, were the bigger ones. But if I had to compare impact of pricing versus Guayusa, I don't know top of mind, I'm sorry, but it's probably in the same range.

[Amr Ezzat, analyst]

Okay. On the 12-week rotational program in the U.S., I just want to make sure I didn't miss that. You guys said it was Costco?

[Carl Goyette, executive]

Yes. We have mentioned in the past that we have a very successful rotational program with Costco on the LA division with Guayusa. Consumers love this product everywhere it goes. And it's sold very well. But Guayusa -- all our products were available in that roadshow. But Guayusa was the star of the show, right? So together with the buyers at Costco, we decided to go ahead with a 12-pack of Guayusa Tropical Punch there.

[Amr Ezzat, analyst]

Okay. And any expectations you dare to share with us on this call on would it be like the same magnitude as like Sam's Club last year [indiscernible]?

[Carl Goyette, executive]

No, there was [indiscernible] -- there was some learning that you saw we maybe were a little bit too optimistic last year in Sam's Club. Remember last quarter, we did have a promotional deduction because we went too hard, too heavy on loading the stores, right? So we're being a little bit more conservative on the quantity per store, right? And it's 40 stores and 40 Costco locations. They are the very best Costco locations in the LA division, in fact, right? So -- but Sam's Club was more, right, Sam's Club was 200 locations. So it's probably 1/3 or half, I think it's 1/3 of the quantities of Sam's Club.

[Amr Ezzat, analyst]

Then maybe one last one for me. On Rajaa joining as CRO, can you speak to the background behind this move? Then you spoke to a pretty impressive background and we heard a lot of -- I think it was like doubling sales in 2 years that you said. Can you speak to her role within the executive team?

[Carl Goyette, executive]

Yes. Well, first, Rajaa has been a business contact for several months. And obviously, I love the human behind, right? So from a culture fit that works perfectly. She is full of good energy. She's passionate. She speaks French, which is a great asset for the team. So from a cultural fit, it's great.What she does bring to the team is very strong experience in digital and social influencers, which was a gap for us as much as we -- this is an area that's extremely important in the industry, but we wanted to have a true expert who's done this in several industries, including Amazon, including skincare, beverage. So really a mix of great experience. And her role is really a Chief Revenue Officer. Obviously, in the short term, the main focus is marketing and building this brand, but working with the whole team on marketing strategy and sales strategy and how we win and how we grow this brand across North America. So yes, very excited about her arrival. It's only been a few days, few weeks, but it's great.

[Operator]

Our next question will come from Sean McGowan with ROTH Capital Partners.

[Sean McGowan, analyst]

I have a couple of questions too. Could you give me a little bit of color on -- a little bit more color on the Pepsi reduction? Is that -- the inventory reduction, is that something where they just kind of wanted to get a feel for what the right number is? Or was there some other shift kind of in their thinking either around the brand or at the corporate level about inventories?

[Carl Goyette, executive]

No, it's just applying a principle that they have, right? So they do have different principles on different brands and different velocities. And based on these principles, GURU's inventory, not knowing exactly at launch, it was a little bit higher than -- from what we understand was higher than what their normal guidelines would be. And then towards the end of their fiscal year, they had to reset this to make sure that going into the New Year, it would be at the right -- at the level that -- where they apply the guidelines. It's just as easy as that. There's nothing more to read into than just having the right level of inventory, which is around 6 weeks.

[Sean McGowan, analyst]

Right. So that sounds like it looks like, well, they weren't really sure what the right level was at the beginning and now they have a better idea because they have more experience. So that's the level.

[Carl Goyette, executive]

Yes. Exactly. It takes a while before you understand seasonality and variations and your new listings. And now once you've completed the filling the pipeline, then you kind of know, okay, they're not going to be getting large initial pipeline orders from big retailers because you're pretty much everywhere at this point, and so easier to forecast on the second year versus in the first year.

[Sean McGowan, analyst]

Makes sense. And then shifting for a second to the U.S. banners where you say that these banners were less profitable. So where was that impact of that lower level of profitability show up? Is that primarily a gross margin thing like and is that a contributor to -- I mean the gross margin was actually better than I thought it would be. So is the gross margin benefited then by that delisting or is it showing up in other expense lines?

[Carl Goyette, executive]

It's not -- I mean, honestly, the -- yes, it's not gross margins. Ingy, feel free to add to this. It's not gross margin. It's the cost to play in some of those banners. So I'll give you an example where you have a banner where you're selling -- you're selling for a regional grocery banner outside of California. And you are selling for, let's say, $200,000 a year, right?And then the cost to play there, if you want, like you need to participate in flyers, right? And you need to pay, I don't know, $60,000 for a flyer, which is the normal price to pay, but it doesn't make sense, right? So we declined to participate in some of those activities. It could be display activities, it could be flyers, it could be marketing, other marketing investments that you need to make.And obviously, as a brand, if you're more methodical in your spend because we've been very focused on growing Canada, then -- if you're not making that investment and another brand is willing to make that investment, then you might end up being delisted, right? And this is something that we were comfortable because it was -- we've always said that we would be very methodical about how we grow in the U.S. and our focus would be California with the right banners and the right consumers.So when banners were outside of those principles, then obviously we can't spend our precious dollars everywhere and we need to focus them on Canada and California and online. And we've been disciplined at doing this. I don't know, Ingy, if you want to add anything to this or...

[Ingy Sarraf, executive]

No. I think this is exactly it for this.

[Sean McGowan, analyst]

Okay. So it wasn't a question of promotional pricing that would have hit the gross margin, was more selling?

[Carl Goyette, executive]

Yes. That's more the cost.

[Ingy Sarraf, executive]

And usually it's also -- yes. And then it becomes a package deal, right? No, I'm just saying sometimes it's also a package deal, right? Cost of displaying and doing business and then the additional promotions and percentage of spend, I would say it's overall as well.

[Carl Goyette, executive]

Or sometimes deductions that really don't make sense.

[Ingy Sarraf, executive]

Yes.

[Carl Goyette, executive]

If you look at your business and the deductions for this and deductions for this and you look at the bottom line at the end as I'd say it just doesn't make sense. If you're growing at all costs and you're burning cash and you say, well, then you might want to do this, but we've -- historically, we've never been like this, this is against our culture and we refuse to do this. And sometimes, it is also in the delisting and we're actually fine with that.

[Sean McGowan, analyst]

So thank you for playing our game. Last question for me now is on the balance sheet, Ingy, accounts receivable relative to sales seemed a little higher than normal. What's going on? Is that strictly timing? Or is there something else going on?

[Ingy Sarraf, executive]

Yes. Honestly, it's strictly timing. Nothing else, nothing for you to worry about. It's often the payment frequency, which often it's really PepsiCo, right, that's a larger portion of this, or it's really about the timing, 3-year timing thing, nothing else.

[Carl Goyette, executive]

Sean, on the U.S., I want to add on the U.S. because you obviously, you're looking at this, but I want to share some data like Whole Foods is up 25% in the last 52 weeks. Sprouts is up 55%. MULO in L.A. is up 72%, [indiscernible] is up 25%. So in the banners where we focus in California, we're seeing momentum, right? So unfortunately, you're not seeing the benefit of that because it's being offset by the delisting and some timing of orders, but there is -- where the right consumer is in the right banners, we're really seeing some good success and Guayusa is driving a portion of that success. We expect to get more listings on Guayusa because it's so successful. So the opportunity is really, really there in the right banners with the right consumers.

[Sean McGowan, analyst]

And you don't expect that the program with Costco is going to have a negative impact on some of those numbers in the natural channel?

[Carl Goyette, executive]

No. We actually expect that Costco is going to help us reach new consumers, right? So it's going to be in Costco for a rotational program and we think consumers are going to discover this product. And we know there's a lot of shoppers who do shop at Costco, but also shop -- they're the organic, better-for-you consumers, right? So they shop also at Whole Food, they shop at Sprouts. So for us, it's a great way to make our brands available to more consumers in Southern California.

[Ingy Sarraf, executive]

Yes. And it's only also...

[Carl Goyette, executive]

Just like you, Sean. I know you're a big fan of Guayusa, so.

[Sean McGowan, analyst]

Every day, every day. I shop at Costco. So I'll be looking for it. I don't know if you pull that at Orange County, but I'll be looking for it.

[Carl Goyette, executive]

Yes, yes. It will be there.

[Operator]

And this concludes our question-and-answer session. I'd like to turn the conference back over to Carl Goyette for any closing remarks.

[Carl Goyette, executive]

I just want to thank everyone for attending and have a great week. Thank you.

[Operator]

The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect your lines.