Jamieson Wellness Inc

TSX:JWEL

Earnings Call Transcript 2019-Q1

[Operator]

Good afternoon, ladies and gentlemen. Welcome to the Jamieson Wellness conference call to discuss financial results for the first quarter of 2019. [Operator Instructions] Please be advised that reproduction of this call in whole or in part is not permitted without written authorization from the company. As a reminder, today's call is being recorded. On the call today from management are Mark Hornick, President and Chief Executive Officer; and Chris Snowden, Chief Financial Officer and Corporate Secretary. Before I turn the call over to Mr. Hornick, please note that a press release covering the company's first quarter 2019 financial results was issued this afternoon, and a copy of that press release can be found in the Investor Relations section on the company's website. Please note that the prepared remarks, which will follow, contain forward-looking statements, and management may make additional forward-looking statements in response to your questions. These statements do not guarantee future performance, and therefore undue reliance should not be placed upon them. We refer you to all risk factors contained in Jamieson's press release issued this afternoon and in filings with the Canadian securities administrators for more detailed discussions of the factors that could cause actual results to differ materially from those projections and any forward-looking statements. The company undertakes no obligation to publicly correct or update the forward-looking statements made during the presentation to reflect future events or circumstances, except as may be required under applicable securities laws. Finally, we would like to remind listeners that the company may refer to certain non-IFRS financial measures during this teleconference. A reconciliation of these non-IFRS financial measures was included with the company's press release issued earlier today. Also please note that unless otherwise stated, all figures discussed during today's call are in Canadian dollars and are occasionally rounded to the nearest million. I'll now turn the call over to Mr. Hornick to get started. Please go ahead, sir.

[Mark Hornick, President, CEO & Director]

All right. Thank you, Derek. And good afternoon, everyone. I'm pleased to report that we had a strong start to 2019. We generated 9% first quarter revenue growth, 14% growth in adjusted EBITDA and 12% adjusted net income growth during the first quarter. We continue to see positive commercial trends across our segment, and we are reiterating our 2019 guidance. Let me begin with an overview of the first quarter and the business highlights. So starting with our branded business. We came in just where we expected to. Consumer sales remain strong through the first quarter, and our shipments were 1% lower than our 2019 Q1, which included the one-off volume load behind our prior year price increase. We expected this and this drove a 3% difference in quarterly volume on our domestic Jamieson Branded business. That said, consumer sales in Q1 2019 remained very strong, and now we've lapped this and we are now back to growth in the second quarter. During this time, our branded business internationally continued its strong momentum from 2018. International sales were up almost 30% again this quarter, reflecting broad-based growth, but particular strength in China and Eastern Europe. In China, we could not be more pleased with the trends across the market. Our multichannel strategy in China will drive significant growth as we add a retail component and a mass-distribution component as well as local e-commerce to our cross-border e-commerce business in 2019. Basically then touching all the significant distribution points in China. Our specialty brands volume continued its path to improvement. We had a smaller decreased than we expected in the quarter, only 3.9%. We're pleased with the pace of integration, innovation and commercial improvement and continue to expect to return to growth by the third quarter. We have made good progress with each of our initiatives as they are focused on enhancing our brands, improving our sales strategies, while driving operational excellence through our focus on the customer, consumer and a winning culture.In the Strategic Partners segment, we had a strong quarter, with revenue up 62% compared to the prior year. The growth was driven by timing, a new contract and a strong demand for our Partners brand. Recall that, in Q4, Chris noted that there were several programs with Strategic Partners that were set up for the first half of 2019, so we had anticipated some front-end loading growth this year and it came in very strong. In summary, we're seeing robust commercial trends across both our Branded and Strategic Partner segment, all of our 2019 initiatives are executing as planned. And we're confident in our ability to achieve our full year target. With that let me turn the call over to Chris to discuss the first quarter financial results in greater detail.

[Christopher Snowden, CFO & Corporate Secretary]

Thank you very much, Mark. And good afternoon. As Mark mentioned, we had a solid first quarter and are confident in the momentum we have built and our expectations for continued growth in 2019. Please note, on January 1, 2019, we adopted a new accounting principle, IFRS 16 leases. As a result, we applied a capital lease to measurement and recognition approach for all leases, excluding short-term and low-value leases. All numbers referenced below include the impact of the new standard. In the first quarter, revenue increased 8.7% to CAD 72.6 million, driven by growth in our International and Strategic Partner businesses, offset by a modest decline in Jamieson Domestic brand and Specialty Brands segments. In total, Jamieson Brands revenue decreased by 0.9% to CAD 56 million, consisting of 29.3% growth, internationally, offset by a 3% decline in Domestic Jamieson revenue and a 3.9% decline in our Specialty Brands. As I discussed last quarter, we expected a modest decline in our Domestic Jamieson Brand business, as we compare against the significant buy-in ahead of last year's price increase. We have made significant progress in our Specialty Brand. The decrease in Specialty Brand revenues was smaller than expected, reflecting our improvements in customer relationships and growth in our Iron Vegan brand as we continue to expand distribution into food drug, mass. Revenue on our Strategic Partners segment increased 62% to CAD 16.5 million. The increase was primarily driven by new contracts and the timing of shipments, including the pipeline fill for new programs planned for the first half of 2019. Total gross profit increased 6.2% to CAD 27.2 million, and gross margin decreased by 90 basis points to 37.5%. The decrease in gross margin percentage was due to proportionately higher Strategic Partner revenue with inherently lower margins. On a segmented basis, we generated 150 basis points improvement in margin with Jamieson Brands due to production efficiencies, favorable mix and timing of sales promotion, incentives for our customers. In the Strategic Partners segment, gross margin declined 400 basis points year-over-year, primarily due to customer and product mix. This decline was expected and has been taken into consideration when preparing our guidance for 2019. Selling, general, administrative and marketing expenses decreased 1.8% to CAD 16.5 million. Excluding business integration, international expansion, termination benefits and other nonrecurring costs, SG&A was up CAD 0.3 million year-over-year, reflecting our investment in resources to support our e-commerce and international growth, offset by the timing of marketing programs in the quarter. On a normalized basis, SG&A of CAD 15.3 million represents 20% -- 21% of revenue, compared to 23% in the prior quarter. Operating income increased to CAD 9.9 million, and operating margin increased by 110 basis points to 13.7% due to volume growth in Strategic Partners, improving branded margins and lower SG&A as a percent of revenue. Adjusted EBITDA increased 14.1% to CAD 14.5 million, and adjusted EBITDA margin also increased 100 basis points to 20%. The improvement in adjusted EBITDA margin was consistent with the items driving our operating margin just noted. In the first quarter, interest expense and financing cost was CAD 2.4 million compared to CAD 2.2 million in the prior year. The difference was primarily related to increases in benchmark interest rates during fiscal 2018 and include the impact of our adoption of IFRS 16, which includes the recognition of interest expense on our new capital lease liabilities. Our reported net income was CAD 5.4 million in the first quarter compared to CAD 4.6 million in the prior year. On an adjusted basis, net income increased 12.3% year-over-year to CAD 6.5 million or CAD 0.16 diluted per common share. All of the adjustments to net income are described in today's press release and include in the adjustments to net income reconciliation table at the end of the release. Turning to the balance sheet and cash flow. We used CAD 9.9 million of cash from operations during the first quarter compared to CAD 5.2 million of cash used in operations in the prior year. Cash invested in working capital of CAD 19 million was CAD 14.1 million higher than the prior quarter due to timing of tax payment, increased inventories to smooth our seasonal production demand and support of the company's new Strategic Partner programs and improved customer fill rate. Capital expenditures during the first quarter were CAD 2.0 million, and we paid a CAD 3.4 million dividend. We ended the quarter with CAD 3.3 million in cash and equivalents and total debt of CAD 171.9 million. The company had almost CAD 26 million in cash and amounts available through revolving operating lines plus an additional [ CAD 50 million ] term debt through an accordion feature included in our existing credit facility. Now let me turn to guidance. We are reiterating our 2019 outlook provided on February 27, 2019, and anticipate the following: that revenue in the range of CAD 336 million to CAD 348 million, representing total top line growth of 5% to 9%; adjusted EBITDA in the range of CAD 73 million to CAD 76 million or 8% to 12% growth over fiscal 2018; adjusted earnings per fully diluted common share of CAD 0.90 to CAD 0.95 or 6% to 12% growth over fiscal 2018. Additionally, I would like to note some additional assumptions to assist you in modeling and including our expectations for the second quarter. We anticipate Jamieson Brands segment growth of 5% to 9%, including 3% to 5% growth in the Domestic Brands for the full year and 5% to 10% growth in the second quarter, reflecting a reversal of the timing impact noted in first quarter's results. 20% to 30% -- 35% growth in our international brands, and our international growth will be weighted in the third and fourth quarter, as we deliver initial shipments for the domestic retail and mass customers in China. We expect international growth to be low double digit in the second quarter. Specialty Brands growth of 1% to 5%. For Specialty Brands, we expect growth to accelerate as the year progresses. We anticipate growth for Specialty Brands will be realized in the last 6 months of the year, as our innovation customer and consumer programs show increasingly identifiable results. We anticipate Strategic Partner growth of 5% to 8% in fiscal 2019. Our Strategic Partners have launched new programs during the first quarter, which concentrate our revenue growth in the first quarter of the period. Based on timing, we now expect Strategic Partner business to decline up to 5% in the second quarter and return to growth with up to 10% growth in the third quarter. We expect normalized SG&A increases of 11% to 15%, in support of our international market expansion and e-commerce initiatives and increased marketing to promote our Specialty Brands and the normalization of variable compensation and Specialty Brand commissions. Based on timing of our marketing initiatives, we expect normalized second quarter SG&A growth near the top end of this range. We will see increased depreciation expense, reflecting higher capital expenditures in 2018 and 2019, in support of our growth and efficiency objectives. The amount included in capitalization of operating leases includes IFRS 16 impacts. We're assuming net interest rate in the range of 4.5% to 5.5%, which would lead to interest expense of CAD 9 million to CAD 9.5 million based on our borrowings plus deferred financing fees. Additionally, our guidance reflects the assumption of CAD 1.33 per U.S. dollar exchange rate and a 28% effective tax rate. Our estimate for fully diluted shares is approximately 40 million. A complete discussion of our outlook and factors impacting our expectation for performance in 2019 is included in the outlook section of our MD&A. With that, I would now like to turn the call back to the operator for Q&A.

[Operator]

[Operator Instructions] And we'll take our first question from Sabahat Khan with RBC Capital Markets. And caller, we're not able to hear you. Please check your mute button.

[Mark Hornick, President, CEO & Director]

Maybe we lost him, Derek. Maybe you can go to someone else and we'll come back to Saba.

[Operator]

Okay, absolutely. We'll move next to Peter Sklar with BMO Capital Markets.

[Peter Sklar, Analyst]

Chris, can you give us the impact of IFRS 16 on Q1 EBITDA?

[Christopher Snowden, CFO & Corporate Secretary]

It was -- we -- it's included in our guidance, so I don't know that specifically providing that number in this forum is the right thing to do.

[Peter Sklar, Analyst]

Okay. So -- but the guidance is based on IFRS 16, just to confirm?

[Christopher Snowden, CFO & Corporate Secretary]

That's correct. And our depreciation estimate and everything else.

[Peter Sklar, Analyst]

Okay. And in the writeup, you talk about -- when you talk about the Jamieson Domestic, you use the expression off-take. Are you talking about retail sales as opposed to your shipment sales when you say off-take?

[Mark Hornick, President, CEO & Director]

That's right. The other term we use is, POS sales but some people don't know what that means. So either one. We're talking about our retailer sales to the consumer, which for us is the bellwether for the strength of the brand.

[Peter Sklar, Analyst]

Okay. I knew what POS was, but I didn't know what off-take was, so there you go. The -- can you talk about why the expenses you're incurring for -- why there are certain expenses for international expansion, that you consider those to be an adjustment when you provide adjusted EBITDA?

[Christopher Snowden, CFO & Corporate Secretary]

Yes. So the material part of that is really just a strategy setting exercise in China. It's looking at all of the individual channels of potential growth and the cost executing those channels and it's going to effectively set our strategy to maximize our opportunity in China going forward. This is a onetime type of study. We talked about it in -- that study began in Q4. We talked about that continuing into the first quarter and that will be the last time you see that type of expense in -- as an addback. There are other onetime costs as we expand our international business with respect to sending out legal entities, contracting and things like that. They're non-operating in nature, but they will be significantly smaller going forward.

[Peter Sklar, Analyst]

Okay. And then lastly, can you just talk about your innovation rollouts, the major rollouts, and how you feel they're doing?

[Mark Hornick, President, CEO & Director]

Yes. So we rolled out on the Jamieson Branded side, 17 new products in Q1. That was in line with our expectation. So far, our distribution and listings are going totally according to plan. As you know, because we use wholesalers and distributors, it does take time between our shipments and the time that you see it in the market. Retailers are doing their shelf resets right now. Actually if you go into a lot of the drugstores here in Canada, you'll see that the shelving is being redone right now. So by the end of the month, we expect all of our innovation to be on shelf. But our innovation launches versus the expectations have gone totally according to plan.

[Operator]

We'll next go to Lennox Gibbs with TD Securities.

[Lennox Gibbs, Research Analyst]

So on Specialty Brands, you sort of generally flagged improving the brands, improving culture, et cetera. Can you provide more detail regarding some of the changes and initiatives being implemented by Mike Pilato in that business? And also provide a bit more -- if you could give us some hard evidence regarding improvements and why Specialty Brands is in fact turning -- maybe if you could speak to month-to-month trends?

[Mark Hornick, President, CEO & Director]

No. I don't think we can get all the way to what you're looking for, Lennox, in terms of disclosure on the month-to-month. But I'll give it a shot. We wouldn't say that we've seen improvement if we weren't serious about it. So I'll start with that. But we went from double-digit decline in Q3 and Q4 to now getting very close to breakeven versus a year ago in Q1. So that's a great bellwether. And then we have seen in recent months growth in some of the subchannels of Specialty Brands, and we've seen the whole business having growth in some months recently. I can't go into more specifics than that, but as far as tangibility goes, that's where that is. And we fully expect that the brand will be back to growth in the third quarter as we had forecasted, and we are very pleased with the trajectory. If you just look at what the cause of that is, there's 4 main areas of change that Mike and his team have put in. So the first one, of course, is reorganizing the sales and marketing group in order to take -- get the business back to growth. So that's been really well executed including bringing a lot of new people to the team, who have been performing extremely well. Training those people in the areas of Specialty Brands, which they were not selling previously and then backing that up with technology, in terms of reinforcing that training on a day-to-day basis. Because as you know, our go-to-market model in Specialty Brands is direct connection with the Health Food retailer who then interacts with the consumer. And so training is extremely important. We changed the incentive structure of the group, focusing it much more on growth versus what it was before. And then, last of course is a very impactful level of innovation. So 2 big innovations, first is our Perfect Probiotic's launch, which happened in December and it's been rolling through Q1 as well as our new multivitamin launch, which is happening at the same time. Both those initiatives have been very well received. We have an additional pipeline of qualified product in Specialty Brands up -- including more than 20 new products. We will execute those on a cadence that matches up the business readiness to launch and the completion of our integration with the innovation. But the innovation pipeline is already there and is developed as well. So when you put all of that together, and you look at the response that both the customers and our internal people have had to the new organization and to Mike's leadership, we see the business recovering in line and just a little bit ahead of where we thought it was. So we're very pleased with the whole thing, Lennox.

[Lennox Gibbs, Research Analyst]

Good stuff. And then secondly on China, can you provide some detail around the actual on the ground rollout? And what key milestones we should be expecting for the next 3 to 6 months? Where are we now and what should we expect over the next 3 to 6 months?

[Mark Hornick, President, CEO & Director]

Okay. So just looking at the list of people on the call, and there's some people who we haven't spoken to before. So I'll just step back a little bit and just give you some background before I answer the question just for the benefit of everyone. So in China right now, if you are a foreign brand, which Jamieson is, we do not produce in China, you can only compete in one of 3 main channels of distribution in China, which is called cross-border e-commerce, which is a virtual duty-free door. We have about 60 products listed there, and we are actively selling in the Chinese market. In Q1, we had a very satisfactory quarter in terms of sellout and response to our brand marketing in China, giving us a very optimistic view of how the rollout then of our new licensed product are going to be received in both the regular domestic bricks-and-mortar channel as well as the local e-commerce platforms in China that we currently don't have access to until of course we have our licensed product. We have 6 licensed products now, we have several more, and we've added several more since we talked on the phone that are in front of China FDA right now to get approved. We expect by the end of the year to have 15 to 20 licensed products in our portfolio in total. We know, based on the last report from China FDA that out of all of the foreign brands competing in China, we have a leadership level of licenses, which is very encouraging. Post-Chinese New Year, then we have started our retailer roadshow in China, visiting major retailers in Tier 1 and Tier 2 cities, explaining our entire licensed portfolio strategy, getting their commitment for distribution as our licenses come to fruition. That's been going extremely well. There's a major natural products show in China next week. We will be the featured company there. We have an extremely large presence at the show. That is where the bulk of our bricks-and-mortar retailers will hear about our plan for the Jamieson Brand rollout into the new channels in China. And that's coupled with a new major retailer entering China in Q3 with whom we've already had our discussions on how to roll out those licensed products. And we're pleased to say that we will be a major part of their strategy. So 2019, basically is continuing to do what we're doing in e-commerce. Roll out and gain distribution on all of our licensed products and get those licenses as we go throughout 2019. And then, we'll have a better handle, Lennox, in 2020, what that looks like numerically because all these products will be new to the Chinese consumer, but our progress for us, we would view as very much on track and it's very exciting.

[Operator]

We'll next go to George Doumet with Scotiabank.

[George Doumet, Analyst]

Just wanted to talk a little bit about the Jamieson sales were down 3%. I know you guys called out people buying ahead of price increases. I'm just wondering if there's anything else that happened in there. And how much do the innovation as a percentage of revenues account for in the quarter?

[Mark Hornick, President, CEO & Director]

So, the -- I'm not sure if Chris is going to talk about the exact number in the quarter, but our innovation year-on-year was pretty similar 2019, 2018. So it wasn't a factor in the change in sales. We executed, George, what was in our record the largest price increase in our industry history in last year. And as such, in January and February last year, we had a significant level of wholesaler and distributor loading as well as some of that with the regular retailers as well who have their own warehouses. And so we were fully expecting that we need to lap that in terms of an index before we would see year-on-year growth. We actually saw that already coming in March, and I could tell you, April as such is progressing exactly as we thought. We are fully back to growth. We have lapped all of that, and our consumer off-take on the Jamieson Brand is very much where we want it to be. You'll see that in Q2, as Chris guided, you'll see a larger level of growth on the Jamieson Brands as the quarters equalize. But the momentum behind the brand from a consumer standpoint in Canada is very strong. So this is just a matter of retailers taking advantage of the fact that they were able to buy at lower prices in January and early February and us just cycling past that, but it's nothing more than that.

[George Doumet, Analyst]

Okay. That's helpful. And sticking with that segment, a pretty strong lift in the margins in the context of kind of those sales levels. Can you maybe -- I know you gave some disclosure around efficiencies and timing and mix, but can you maybe call those out in terms of order of magnitude and maybe give a little bit more color on those?

[Christopher Snowden, CFO & Corporate Secretary]

Yes. It's really about the capital improvements and the total volume put through the business. So it's about leveraging our assets across both channels, the branded and Strategic Partner channel. And it's the efficiency impact of our capital, expansion, investments in 2018 and prior as they are now commissioned and driving incremental efficiency as we increase volume in primarily our tablet and soft gel facility.

[George Doumet, Analyst]

Okay. And just one last one, if I may. Looks like our -- obviously the growth in EBITDA and our free cash flow gets us in a pretty good position on the balance sheet. I think probably it looks to be below kind of that 2x leverage exiting the year. So maybe talk to a little bit about M&A and some capital deployment back to shareholders in either the form of dividend or buybacks and what you guys are thinking there.

[Christopher Snowden, CFO & Corporate Secretary]

Yes. So we continue to screen and search for an acquisition that meets our expectation. And in particular, we're looking in a couple of different areas. We're looking for a brand with a similar position in a developed market. And then we are also looking for companies that would allow us to expand our functional expertise, particularly an example of that would be a probiotic manufacturer or a gummy manufacturer that would allow us to continue to bring all of the formats that we sell to our consumers in-house, with multiples where they are right now and our IRR hurdle of about 20%. We haven't found anything that meets all of those criteria. We continue to be active in assessing opportunities but for the foreseeable future, we're going to continue to focus on all the internal growth opportunities, our international business and continuing to turn around the Specialty Brands business in 2019. From a capital perspective, we're going to continue to provide a portion of our free cash flow to our investors through a dividend. We're going to look to effectively continue to pay down debt such that we have available capacity when and if that acquisition does come about. So no immediate plans for a buyback or a special dividend.

[Operator]

[Operator Instructions] We'll next go to Sabahat Khan with RBC Capital Markets.

[Sabahat Khan, Analyst]

This may have been asked -- I just had a little bit of difficulty on my end, but on the branded, you mentioned that the consumer pickup is there and the Q1 was affected by timing. Can you maybe provide some color on the cadence of when some of those branded shipments will occur? Or if you expect more of that to be kind of Q2 or H2 weighted?

[Mark Hornick, President, CEO & Director]

Are you talking about -- you're talking about the Jamieson brand as it was affected by the price increases in the year-on-year comparisons, Saba?

[Sabahat Khan, Analyst]

Yes. So I think, yes. You mentioned that in Q1 that Jamieson Brand side was down.

[Mark Hornick, President, CEO & Director]

Yes. So just to give you kind of the granular to make it easy to understand. So we announced our price increase late in 2017. We then provided a date of that, which was early in February and the magnitude of the price increase. We got a very significant amount of pre-buys on that because of the magnitude of the price increase. And so that happened in January and February 2018. So we were expecting, therefore, in our quarter in 2019 compared to that level of forward buying to be flat to slightly down, which -- that's what's happened. We've -- because the consumer off-take is strong on Jamieson, we already saw in March our return to growth, April was strong too. So we are giving you the guidance that our branded growth in Q2 on Jamieson will be more in the 5% to 10% range as opposed to 3% to 5% that we have guided for the average for the year. So you'll see that lap and come back and the consumer off-take then becomes a bellwether of the health of the business. And in that case we're doing quite well. So that's the dynamics of it.

[Sabahat Khan, Analyst]

All right. Great. And then just on the Strategic Partner side, I guess. As we look to the rest of the year, I know previously you mentioned that the margins were kind of the 2018 level is more of a go-forward level. How are you seeing, based on our current visibility, the margin profile for the rest of the business and maybe even beyond 2019 based on the mix of customers that are coming through?

[Christopher Snowden, CFO & Corporate Secretary]

Yes. So we still are expecting consistent margin year-on-year on Strategic Partners. We talked about the volume hitting the first quarter, really pulling that margin favorable to the average from a prior year perspective. As you get closer to a year-on-year comparative volume, that margin is going to be more consistent with the prior year. So I think you'll be able to use that to model out where that volume growth and what the impact will have on those margins for the rest of fiscal 2019.

[Operator]

We'll next go to Endri Leno with National Bank.

[Endri Leno, Associate]

Two for me. I'll start with China. And Mark, you mentioned in answering one of the previous questions that you expect 15 to 20 products approved by the end of the year, and I think we've talked about closer to 20 before. Is there any indication or should we read into that, that there is perhaps a slowdown in reviewing this by China FDA?

[Mark Hornick, President, CEO & Director]

No, no. I just -- continuing to give a range just -- it's still an iterative process with China FDA and this is the first time that they've been through it. So it's very difficult of course to pin down an exact number. So I'm not implying at all that the range is different.

[Endri Leno, Associate]

Okay. And you haven't seen any sort of -- or delays or any pressures from the Chinese authorities in general such as the some of the green and canola producers have had to.

[Mark Hornick, President, CEO & Director]

No. There's nothing on our radar that suggests anything out of the ordinary with the licensing process. It is -- in the end, it's a bureaucratic process. It's -- and it's the first time through it and it's complicated. I mean they're taking the responsibility to recommend products to their consumers that are inherently have complexity to them and they are doing this for the first time. So it's normal to anticipate that. It's longer than we would ever want, but everything's working according to plan. So I think we're good, and we just need to be patient.

[Endri Leno, Associate]

Okay. Great. And you said that you're going to launch in Q3 overall in China along with a large retailer? Or do you expect to start shipping or being shelved there earlier than that?

[Mark Hornick, President, CEO & Director]

We will go as quick as the retailer wants based on the products that are -- that we have licensed, that are available. Some retailers will want to take what we have and then add to it as we go. Some will want to wait till there is a bigger critical mass. So some might want 10 or 12 in the assortment before they change their shelving assortment in stores. So we're dealing with that retailer-to-retailer. We are right in the middle of that now. So our people on the ground in China as well as people from here are now doing that retail sell-in right now as we speak. And that'll -- that's taking place throughout the month of May. And then from there, we'll understand a little bit better what the cadence is going to be, but we are fully on it and it's rolling out now.

[Endri Leno, Associate]

And one more if I may on the international. And you mentioned in the last previous call that the shipment -- the second shipment to India was going to happen in -- around the end of Q1 or around Q2. I mean is that still on? Or has it happened already?

[Mark Hornick, President, CEO & Director]

Yes. That happened, that happened. So we're continuing to do what we thought we were going to do in India. We already -- they've already started advertising us to some extent. They are already seeing some, what they would consider for their chain to be fairly significant sellout of our products, despite the fact that there -- it's a foreign brand and it's priced accordingly. And they're quite happy with the sales of initial shipments that we did. So everything's on track in India, and we look forward to more success there.

[Endri Leno, Associate]

Great. And on the e-commerce side, have you seen any improvements? So how is the launch in the Jamieson website going? And if you have any updates on the amazon.com like U.S. e-commerce, the launch that you've mentioned previously?

[Mark Hornick, President, CEO & Director]

So if you go on our -- on jamiesonvitamins.com right now, you can see that the entire site is e-commerce enabled. It's a place where a consumer can get any of our products. And so -- not all retailers carry every single SKU, while on that website, you can get everything that we produce. So we consider that to be pretty important for consumers. It's never -- it's not going to be our position to compete with our retail partners. It's more to offer our products in the moment when the consumer is curious about it. If they want to order while they are doing their research, it's a way to increase the overall penetration of the category quicker. Because consumers anticipate nowadays that if they go on a website they can buy the product, and we don't want to disappoint them. The other great thing about this is then it allows us to learn a lot more about our consumer as we're interacting with them directly. And that could help us and our traditional retail partners, as we gain that knowledge and pass it on without [indiscernible] consumer needs and capture the needs of the consumer. So all that part is enabled. The other thing that you'll notice on there, Endri, is that we have our subscription service also on our website as well. So if you'd like take the vitamin routine that you have and order it, deliver it to your home, customized by day, so whatever your vitamins are on a daily basis, portioned out and packaged for you in a daily basis, so that it makes it very easy for you to either take your vitamins at home or travel with them. That's also available to you as well. So you'll see that. As far as Amazon goes, they continue to increase their sales of vitamins in Canada based on all the information that we would have. And again, it's quite positive, we see when we look at the total category, it would appear that that's growing category because it's meeting the consumer's needs of speed of delivery in time. And so, we see it as a very positive thing, and of course, our brand is available on Amazon as it is with all of our retail partners. And you can shop there as well if that's what you choose to do. So from our standpoint, all of the objectives that we have initially with getting e-commerce set up are now being achieved, and now we look to figure between us and our traditional retail partners, how we're going to use that to help grow the category in the future.

[Endri Leno, Associate]

Yes. Great. And amazon.com in the U.S., is that still in the works, I'm assuming, for 2019?

[Mark Hornick, President, CEO & Director]

It is. So we've been -- I can't tell you a ton about it other than -- I'm getting everyone shake their head at me here. I'm not allowed to tell you a ton about it other than that the things that are going to plan. It looks like it's a very good opportunity to test the Jamieson brand, and we're going to do that in the second half of 2019.

[Endri Leno, Associate]

All great. Just a couple of quick accounting ones if I may. I know I'm taking up a lot of time here, but first of all for Chris, on the inventory building you had a CAD 14 million inventory build. Is that to smooth out seasonality? How do you see that develop in 2019? Is it going to be a permanent level? Or should it decrease over the course of the year?

[Christopher Snowden, CFO & Corporate Secretary]

The investment in the first quarter will decline over the year, but we do expect a permanent increase in the level of our inventory as exchange rates increase and as we have a broader complexity of business serving broader international markets and more Strategic Partner businesses or programs. So it's about half-and-half.

[Endri Leno, Associate]

Okay. Great. And one more, somebody else asked this question before, for IFRS 16 impact on EBITDA and without asking for a specific number, I think we'd indicated before a range of, say, CAD 1.5 million to CAD 3 million for -- of the overall year. Would it be fair to assume a proportional impact on the first quarter?

[Christopher Snowden, CFO & Corporate Secretary]

I think you can find that number in the actual financial statements that will be booked online this evening. I think we guided the range between CAD 1 million and CAD 2 million impact in fiscal '19.

[Operator]

[Operator Instructions] We'll next go to Andrew Lawlor with Canaccord Genuity.

[Andrew Lawlor, Associate]

I think most of mine have been answered, but just on the India shipments. I'm wondering just how many stores are you in currently with the second order? I know you're in about 500 with the first. And then could you also provide a timeline on how you see that progressing?

[Mark Hornick, President, CEO & Director]

So the -- so stepping back, the investment in India is meant to make sure that we have trained pharmacists who understand our products, selling directly to their consumers and explaining to them the benefits of a very multi-SKU Jamieson brand. The initial offering that we had with the first shipment was pretty narrow. And so what the second shipment is, is more a broader range of product to the top 600 stores that we feel we'll have the best initial impact in and use those 600 in order to gain all the learnings around what's the best practices to educate the Indian consumer. And then from there between us and MedPlus, we'll roll that out well, but probably slowly. The amount of consumers in India that can afford foreign brands is still small as a percentage of the population and we want to make sure that this gets executed really well. So we're moving at a pace that ensures really good execution, and we're not going to rush it. This is an investment that we're going to look at 25 years from now in a country that big and be very glad we did it. We've got a lot of experience with a similar approach in other countries. Just as a random example, 3 weeks ago, we were in Eastern Europe and we're the market leader in Slovakia, and we entered that market 25 years ago. And now if you go in a store in Bratislava, you see Jamieson is the preeminent vitamins brand. And that's because we took our time with the pharmacists. We made sure they really understood the product. They understood its advantages versus other products in the marketplace. And then we grew well but we grew in pace with being able to educate the pharmacist and didn't overwhelm them with too much too fast. And so we're taking the same approach and we believe that long-term that's the right way to establish the brand.

[Operator]

And gentlemen, we have no further questions in the queue at this time. I'd like to turn the conference back over to Mr. Hornick for any additional or closing remarks.

[Mark Hornick, President, CEO & Director]

All right. Thanks, Derek. Well, just once again, thank you, everyone, for your support of the company. Had a fantastic 2018. We're off to a strong start in 2019. We're very confident that we're going to be able to achieve our full year objectives for 2019 and continue to grow what is Canada's -- one of Canada's greatest brands. So thank you very much, and we look forward to talking to you at the end of next quarter.

[Operator]

Thank you. And once again, that does conclude today's call. We do thank you for your participation. You may now disconnect.