Jamieson Wellness Inc

TSX:JWEL

Earnings Call Transcript 2022-Q1

[Operator]

Good afternoon, everyone. Welcome to the Jamieson Wellness conference call to discuss the financial results for the first quarter of 2022. [Operator Instructions] Please be advised that the 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 Mike Pilato, President and Chief Executive Officer; and Chris Snowden, Chief Financial Officer and Corporate Secretary.

Before I turn the call over to Mr. Pilato, please note that a press release covering the company's first quarter 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 a more detailed discussion 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 it 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 in the company's press release issued earlier today. Also, please note that unless otherwise stated, all figures discussed today are in Canadian dollars and are occasionally rounded to the nearest million.

I will now turn the conference over to Mr. Pilato to get started. Please go ahead, sir.

[Michael Pilato, executive]

Thank you, Sarah, and good afternoon, everyone. Thanks for taking the time to join us today to discuss our first quarter financial results. I'll begin with some high-level comments about our business, a brief overview of our first quarter results, and then I'll turn it over to our CFO, Chris, to go through the financials and guidance in more detail.

We had another solid quarter led by revenue growth in Jamieson brands, reflecting strong demand across our portfolio as consumers continue to seek high-quality brands and innovative solutions to optimize their health and wellness needs. Our strategic growth initiatives remain firmly on track, and I'm very pleased with our ability to drive improved margins and profitability despite significant inflation and other global headwinds.

Let me share some additional highlights from our first quarter results. Total revenue increased by nearly 6% to $104 million, and adjusted EBITDA was up 13% to $21 million. Our domestic branded business remained a key driver, with revenue up over 9%, reflecting continued robust demand as evidenced by strong point of purchase activity. We also benefited from timing factors relative to seasonal promotions as well as last year's price increase.

China continued to set the pace for our international branded business, where revenues rose 12% on a constant currency basis and 14% on a reported basis. Strategic Partners revenue was down 8%, which was slightly better than planned as we cycled the significant increase last year while focusing on a more balanced approach to manufacturing volume more evenly throughout the year. We had another outstanding quarter from a gross margin standpoint, reflecting operational efficiencies and the strength of our growing global platform. First quarter consolidated gross margin increased 160 basis points on a normalized basis due to the impact of segment mix along with our focus on optimizing volume growth across our production assets.

Looking forward, we are maintaining our outlook for 2022, which reflects current and ongoing supply chain and inflation pressures as well as anticipated increases to raw material, freight and labor costs. Our commitment to our mission of becoming the world's most successful and trusted health and wellness company is stronger than ever. Over the past 100 years, we've built a legacy of high-quality innovative products, creating powerful brands that consumers love and trust.

We have established a leverageable platform to support significant future growth by expanding our market-leading position in the domestic Canadian market, building the strength of our brand in China, and driving growth in other new and existing international markets. We have also laid the groundwork to ensure we grow in a responsible and sustainable manner for people and the planet.

Despite our #1 rank domestically and steadily outperforming the industry, there are still significant headroom for continued share gains, particularly in several key trending categories like immunity, sleep, stress and energy that have been growing rapidly. As we look to continue our leadership into the next 100 years, we will continue to invest in our robust science-based innovation pipeline to ensure we are meeting consumers at every step of their health and wellness journey.

Our marketing approach is forward-leaning and deeply rooted in consumer insights, including 360-degree touch points across traditional, digital and social media. In China, our reputation for the highest quality products, coupled with a 100-year heritage brand continues to resonate strongly with consumers. The Chinese vitamin mineral supplement market is growing faster than the rest of the world, and our 3-pronged strategy ensures we are well positioned to continue capitalizing on this major expansion opportunity.

We continue to explore opportunities to expand our global presence by entering new markets and supporting the growth of our brands in countries and regions which we already have a presence. While our highly scalable platform presents these opportunities for growth, I'd be remiss not to stress the importance of our foundation. Our world-class team, exceptional production capabilities and global multichannel distribution continue to make all of this possible.

In closing, I'd like to reiterate our confidence in our direction and ability to deliver long-term value for shareholders. I'm thankful to our entire team for their hard work, their energy and their passion for helping to improve the world's health and wellness. Their collective efforts led to another outstanding quarter.

With that, I'm going to turn the call over to Chris to discuss the first quarter financial results in more detail. Chris?

[Christopher Snowden, executive]

Thank you, and good afternoon, everyone. As Mike discussed, consumer demand remained a primary driver in our first quarter results. In the first quarter, revenue increased to 5.5% to $103.7 million driven by continued growth in our Jamieson Brands segment, partially offset by expected lower revenues in our Strategic Partners business. Top line growth continued to be driven by Jamieson Brands, where revenue increased 9.6% to $83.2 million, including domestic growth of 8.9%, reflecting strong point of purchase sales velocity, the timing of inventory replenishment relative to normal cadence of seasonal promotional activity and pricing factors.

International revenue for Jamieson Brands increased to 12.4% on a constant currency basis and 13.5% on a reported basis and continued to be led by growth in China, partially offset by a challenging comparable as we cycled strong non-immunity shipments and a year earlier, having grown by 55% during that period. Strategic Partner revenue declined by 8.4% to $20.5 million, reflecting the timing of corporate shipments versus prior year growth of nearly 52%, which had been impacted by our desire to rebalance manufacturing demand into the first and second quarter and more evenly throughout the year.

As Mike mentioned, we are very pleased with our ability to further expand our gross margin in the face of inflationary challenges. On a normalized basis, gross profit margin increased by 160 basis points as margin improvements and positive mix factors in the Jamieson Brands segment were partially offset by expected lower margins in the Strategic Partners business. In the Jamieson Brands segment, normalized gross profit margin improved by 120 basis points to 42.8%, driven by operating efficiencies and leverage stemming from higher volumes, partially offset by elevated supply chain costs as well as the sustained safety measures related to the pandemic.

Gross profit margin in the Strategic Partners segment decreased by 130 basis points to 11.4%, reflecting our planned efforts to normalize quarterly production volumes as well as unfavorable customer mix during the quarter. Selling, general and administrative expenses were $21.6 million on a reported basis, an increase of $0.9 million versus last year. On a normalized basis, SG&A was $20.7 million, up 7.4% or $1.4 million versus a year ago, reflecting strategic growth for international expansion and the timing of marketing campaigns associated with our 100-year anniversary.

First quarter operating income increased by 44.3% to $15.2 million due to revenue growth, improved gross margins and lower fixed costs as a percentage of revenue. Operating margin improved by 390 basis points to 14.6%. On a normalized basis, first quarter operating income increased by 28.8%, while operating margins improved by 280 basis points to 15.5%. Reported EBITDA increased 32.1% to $18.4 million, while adjusted EBITDA increased 13% to $20.9 million, driven by higher volumes and contribution margins. Adjusted EBITDA margin increased by 130 basis points to 20.2% aided by margin improvements in our Jamieson Brands segment, along with its proportional mix impact.

Net earnings increased by 50.8% to $9.7 million due to higher revenue and improved margins. Adjusted net earnings, which excludes specified costs in foreign exchange, increased by 24.4% to $10.7 million. Our earnings per diluted common share was $0.23 and adjusted earnings per diluted common share was $0.26, an increase of 53% and 24% respectively. A reconciliation of adjusted EBITDA and adjusted net earnings is provided at the end of today's press release announcing the first quarter results.

Turning to the balance sheet and cash flow, we generated $17.1 million in cash from operations during the first quarter compared to cash used of $5.1 million in the year earlier period. Cash from operations before working capital considerations of $15.3 million was 28.3% higher due to increased earnings in the quarter. Cash invested in working capital decreased by $18.8 million, driven by the timing of receivable collection and a slight reduction in our continued acceleration of inventory purchases. Accelerated inventory purchases will scale back throughout 2022 as supply chain risk and lead times are expected to normalize throughout the year.

Capital expenditures during the first quarter were $3.5 million, mostly related to investments in manufacturing and packaging to continue to expand our capacity and we distributed approximately $6.1 million of dividends during the first quarter. We ended the quarter with $140.4 million in cash and available operating lines and net debt of $134.6 million. Based on our strong cash flow position and earnings growth, today we have announced a dividend of $0.15 per common share for upcoming quarterly distribution.

Now turning to guidance. We are maintaining our initial outlook for fiscal 2022 that we shared with you in the fourth quarter conference call, which includes the following. Net revenue in the range of $474 million and $491 million, representing top line growth of between 5% and 9% versus 2021. Adjusted EBITDA in the range of $108 million to $112 million or 8% to 12% growth over 2021, and adjusted earnings per fully diluted common share of between $1.42 and $1.48, representing approximately 8% to 12% growth compared to 2021.

Let me share some additional perspective on second quarter specifically. We anticipate overall branded revenue to increase by approximately 3% to 6% in the second quarter. This represents a 3% to 6% growth in our Jamieson Brands domestically based on the timing of promotional activity and shipments made earlier in the year, and approximately 5% growth internationally on a reported basis, reflecting the normalization of order fulfillment versus the prior year.

Strategic Partners revenue is expected to decline by up to 10% in the second quarter due to order timing and rebalancing factors impacting the second quarter in the prior year. We anticipate normalized SG&A expenses to increase by approximately 5% in the second quarter at the low end of our guided range for the full year. A complete discussion of our outlook and factors impacting our expected performance in 2022 is included in the outlook section of our MD&A that was filed today.

In closing, I would like to thank the entire Jamieson team for their efforts. A 100 years is off to a strong start, and I appreciate their hard work, and we look forward to 100 more successful years. With that, let me turn the call back to our operator, Sarah, for Q&A.

[Operator]

[Operator Instructions] And our first question will come from John Zamparo with CIBC.

[John Zamparo, analyst]

I wanted to start with a question we're asking basically every consumer company, and that's about consumer behavior. And you've referenced in the past the access to data that Jamieson has through your retail partners and also your e-commerce business. And I'm wondering what you can share about what consumers are doing, whether it's trading down or leveraging promotions more frequently or anything along those lines?

[Michael Pilato, executive]

Yes. Thanks, John, for the question. In our category and in our business, we haven't seen any major shift in Q1 to what we were seeing over the last couple of years. We saw continued growth. We saw consumers continue to be highly engaged in the category. We continue to see growth off of what we've been calling the new baseline of consumers, and we continue to see elevated usage in the category. We saw growth across pretty much all of the channels.

We did see a little bit of shifting, I would say, from e-commerce back into brick-and-mortar as regions and provinces and parts of the world have reopened. We continue to see growth in those channels, including e-commerce, just at a lower rate than what we've seen in the past with that volume shifting back to brick-and-mortar channels.

[John Zamparo, analyst]

Okay. That's helpful. And my follow-up is on the Chinese business. You called out as a source of strength for Q1. I'm curious what, if any, impact you've seen from lockdown situations in China? And given the strength in Q1, is China and maybe uncertainty related to it, is that a reason that gives you cause to be more aggressive on the full year guide?

[Michael Pilato, executive]

Well, Q1 results continue to sell through. Obviously, at the end of the first quarter, there was the lockdown in Shanghai and across many geographies. That included an interruption of e-commerce services, our understanding is that is virtually all back in place now. And we don't expect that to impact our overall guidance or velocity in that region in fiscal 2022.

[Operator]

Our next question will come from George Doumet with Scotiabank.

[George Doumet, analyst]

The brand revenue growth. Can you maybe comment how much of that was price versus volume? And, are we comfortable with the price we took last year or are we going to need to take more this year to offset some of these additional costs referred?

[Michael Pilato, executive]

Yes. Thanks, George, for the question. So we did see some good growth in our branded business and in our domestic business. A very small part of that in Q1 would have been lapping a price increase a year ago. We priced somewhere in the middle of the quarter of Q1 a year ago. So it was a little bit of lapping. Most of that growth that you saw was actually consumer engagement, consumer demand and POS sales through the different channels and accounts. So very little in pricing.

As we talked about last quarter, our strategy is always to price to recover longer term cost increases. We talked about last quarter how we are pricing again in 2022. We have passed on pricing across our strategic partners business and across our international business at the early part of 2022, and there is pricing planned in the back half of 2022 on our domestic business to offset rising costs and that's how we're holding our guidance where it is. That was built in the last quarter, and it's built in continually to maintain our guidance at this point.

[George Doumet, analyst]

Great. Appreciate that. And can you give us some color on how immunity-related products from a volume standpoint performed this quarter maybe versus last and maybe versus, I guess, your expectations?

[Michael Pilato, executive]

Immunity products have just continued to show resilience through all of these ups and downs and waves of the pandemic. We continue to see strong growth in our business in immunity when we look at vitamin C and vitamin D in Q1 and also continued growth at a category level. We outpaced that category level growth, but we did see growth in immunity.

It's one of the things that has been just amazing to see through the pandemic is early on immunity took off. And all the way through the pandemic, it's continued to remain quite resilient in its growth. Hit a little bit of a blip a year ago as we are comping the 2020 panic-buying period of about 8 weeks, but it was a very short-term decline off of a very big comp. And when we got past those 8 weeks, it continued to grow, and it continued to grow into Q1 of this year.

[George Doumet, analyst]

Great. That's helpful. And that's encouraging. I've got one more. Compared to when we last spoke in March, just wondering if sourcing raw materials from Asia, has that been the same? Has that been easier or has that been harder?

[Christopher Snowden, executive]

So as we've mentioned before, we contract the vast majority of our raw material purchases in the fourth quarter and the beginning of the year. So we are operating under the same cost environment for raw materials. The one area where we are receiving pressure, which continues to be included in our guidance is really around transportation costs, which is not part of that contract that we fixed from a supplier perspective. So we would see pressure on freight in and freight out, you know, and all of that has been built in and continues to be built into our guidance to date.

[Operator]

Our next question comes from Derek Lessard with TD Securities.

[Derek Lessard, analyst]

I have a question, maybe touch a bit on the guidance and more specifically on international revenue growth. It was up 12%, 13% in Q1 and you're guiding to 5% in Q2. So maybe just help me for bridge the gap with the 20% you're expecting full year and what looks like it's going to be a really strong second half for you then?

[Christopher Snowden, executive]

Yes. It really relates to how 2021 deliveries reflected the availability of stock and the fact that at the beginning of 2021, we shipped a lot of products outside of when the consumer would otherwise take the product. So the shipment cycle and the consumption cycle became mismatched and what you're seeing in 2022 is that cycle line up again with deliveries in Q1 and Q2 focusing through that 680 promotional cycle.

And then these deliveries in Q3 and Q4 are really lifting for Singles' Day and consumption through the holidays and Chinese New Year early in 2023.

[Derek Lessard, analyst]

Okay. That's helpful. And one final one for me is just wondering if you can maybe add some color to the -- to, I mean, obviously, a very strong margin performance and maybe an expectation against the inflationary backdrop. I know it's a little bit of a different business, but we did see Herbalife yesterday say they got blindsided by inflation and the pandemic. Just wondering what's different with your outlook?

[Christopher Snowden, executive]

So just going back to kind of the beginning, we lock in all of our prices in Q3 and Q4. That sets us up well to understand when costs will hit us. Entering 2022, we had very high inventory levels of raw materials. All of those raw materials have now been converted to finished goods and are essentially allowing us to delay pricing in the domestic market, while meeting the impact of those cost increases throughout fiscal 2022.

That allows all of the operational improvements and the scaling back of the pandemic to improve operational efficiency, and that is what is driving increases from a gross profit and margin activity. In addition to that, we did have some favorable mix from a category participation perspective in the first quarter. Ultimately, that is allowing us to guide to that 100 basis points margin improvement for fiscal 2022.

[Michael Pilato, executive]

Yes. One more thing I would just add to that, Derek, is in the last few years we have invested in our procurement team. So we have invested both in number of resources and also the talent that we have on that procurement team. And we are watching costs every minute of every day and forecasting talking to our suppliers, seeing what's going on out there, engaging in more robust negotiations than ever. And I think you're seeing that both in our results and our guidance here today and in the last few quarters.

[Operator]

And our next question will come from Endri Leno with National Bank.

[Endri Leno, analyst]

The first one, you guys mentioned that you had seen strength across the channels. I was wondering if you can talk a bit about product categories. Did any one of them stand out versus the other? I mean, apart from the units that you talked, but yes anything that stood out?

[Michael Pilato, executive]

Sorry, Endri, you cut up a little bit. Were you asking from a channel perspective or a category perspective?

[Endri Leno, analyst]

Category perspective.

[Michael Pilato, executive]

Okay. Category perspective. So we saw, again, continued strength across the board. We see continued growth in strength. I talked about it a minute ago on George's question. We see continued strength around immunity. We see continued strength around energy, stress and sleep. And as we talked about before, the category of beauty or beauty from within continues to show strength. So the trends we've talked about over the last, call it, 4 to 5, 6 quarters through the pandemic continue to remain strong. The same categories are trending. And we've been innovating behind those categories as they continue to trend.

[Endri Leno, analyst]

That leads to my other question, Mike, that you mentioned those categories has potential for expanding share. I mean the first part of the question is, have they been growing faster? I mean, have they been growing faster than your sales and what product innovation are you planning for those if you can share?

[Michael Pilato, executive]

Yes. I mean, we are the clear market leader in Canada across the board when it comes to the entire category. But there are subcategories in there where we -- either our share leadership position is not as strong in others or where we actually are not the share leader; we're the #2 player. So we continue to innovate in these categories that are trending and growing to grow our share in them.

You'll see innovation from us in 2022 across immunity with some more vitamin D innovations. You'll see a lot of innovation around fun and delicious. So for example, in vitamin D, we have a new extra strength queue. We have a new extra strength gummy and really continuing to grow in that immunity space.

We continue to see some products around elderberry, cold and flu immunity with that ingredient again in some gummy format. And also sleep with some new melatonin coming out from an innovation perspective. Under a progressive brand, we have a new flavor of collagen. So a lot of our innovations are lined up around those trends that I talked about a moment ago. And those are opportunities for us to continue to outpace the market in those subcategories and pick up share as we continue to grow across the country.

[Endri Leno, analyst]

No, that's great. And one last for me. You called out China's particular strength internationally. Can you talk a bit about the other countries? I mean did you see strength in any other one? Or were they more or less as expected?

[Michael Pilato, executive]

Other markets. Yes, we saw -- I'll take it, Endri. We saw strength across a variety of countries for sure. China definitely was leading the growth for us in Q1, continues to be a very strong strategic focus for us. I would say we saw a little bit of softening in Eastern Europe. Obviously, there's a war going on in Eastern Europe. It impacts -- we don't do business in the Ukraine or Russia, but it does impact the surrounding country. So we're keeping a close eye on our business in Eastern Europe and making sure that we're supporting them in every way we can.

But we did see strong growth across a few different places. One to note is the Caribbean; we continue to see strong growth in that market. A couple of countries in Asia and most notably China.

[Christopher Snowden, executive]

And yes, the Middle East.

[Michael Pilato, executive]

And the Middle East, yes.

[Christopher Snowden, executive]

It's really a bit comping last year because last year's growth was more than 50%. So that's where Q1 becomes a tough quarter to call.

[Operator]

Our next question will come from Ty Collin with Eight Capital.

[Ty Collin, analyst]

I know you're constantly testing out the elasticity of customer demand when you're looking at putting through pricing. So I'm wondering, have you seen any more resistance from customers over the past couple of months given the rising cost of living that would give them pause about the pricing you're planning to put through the summer?

[Michael Pilato, executive]

So we have not seen any indication of any change in velocity around any of the price increases we put through to date, Ty, and we don't anticipate any in the next round. Our pricing elasticity models are pretty robust. We are selective in where and how we price based on these elasticity models; so we have confidence in them.

Traditionally and historically, you don't see a big change in velocity or in consumption on our products in a downturn or inflationary period. It is quite resilient and we are a pretty small part of the basket. In most consumers' mind, we would not be considered a discretionary category. And also in most consumers' lives, they are looking for high-quality vitamins, minerals and supplement and it's why we're such a leader and they're not looking to trade down on mass.

So what I can tell you is we haven't seen it historically, but we are monitoring it regular and keeping a very close eye on it and seeing where this market goes in the environment -- the economic environment that it's in today.

The other thing I would add to that is -- well, just on the side is, while we're taking pricing, so are our competitors. So it's not just us pricing in a market in this inflationary period. Our competitors are also taking pricing and the price gaps that you would have seen pre-pandemic are remaining relatively stable.

[Ty Collin, analyst]

Okay. That's great color. And then just switching gears. Could you provide us with an update on the M&A landscape today, whether you're seeing any movement on valuations or competition since you last spoke and maybe whether you're getting any closer to doing a deal in the U.S.?

[Christopher Snowden, executive]

Well, we continue to assess opportunities. Certainly, I think multiples have come down as the public markets have come down. So do expectations of both PE and privately owned organizations. As you know, we're very fiscally disciplined, and we will only transact in a way that allows us to achieve the IRR that we set out from a target perspective. So when we have news, we will certainly share it. But yes, multiples are certainly becoming more affordable given the current environment.

[Operator]

[Operator Instructions] We'll now take a question from Sabahat Khan with RBC Capital Markets.

[Sabahat Khan, analyst]

Just I guess a follow-up. We had a discussion at the last quarterly call around working capital for this year. It looks like that you've started off sort of slightly positive. What is your updated expectations on working capital for '22 given sort of where the backdrop is on inflation and some of the other things you talked about earlier?

[Christopher Snowden, executive]

Yes. We expect to still spend kind of low double-digit working capital for total fiscal 2022. We will continue to maintain high inventory levels well. The risk -- supply chain risk exists and we don't expect that to subside until later in 2023.

[Sabahat Khan, analyst]

Okay. And then just some of the commentary earlier around China. Is that sort of the way you're going at this point and after kind of fears of a push in there? Is that still -- or are you still introducing new categories? Do you feel like the product offering or the mix of products you have in the market is that, and that's about just more velocity and things like that? Where would you say sort of the portfolio mix or your offering in China is where you -- relative to where you want it to be?

[Christopher Snowden, executive]

So when we talked at the end of fiscal 2021, we talked about key priorities in China is, one, take advantage of the velocity of cross-border e-commerce in China. That includes growing faster than market based on promotional awareness and incremental marketing from a Jamieson perspective. But it also includes taking innovation that Mike talked about for the Canadian market and bringing that to China through the cross-border e-commerce market.

It includes growing in club as one of our major club customers doubled their footprint at the end of fiscal 2021, which will certainly provide a lift of that business in 2022 as well as continuing to expand in the retail space with our market-leading registrations and our available SKUs in market. So all of those are parts of the pie. We're just managing, obviously, the environment as COVID is now taking [indiscernible] China and managing through those issues.

[Michael Pilato, executive]

Yes. And just a little bit of context on it globally, Sabahat. There's not a market in the world where we will say, "Hey, we're done. We have the portfolio we want." In this category, it is a category made up of many subcategories, many SKUs. Innovation is important. The consumer needs are always changing. There's going to be a lot of opportunity coming out of our portfolio here in Canada and the lots of markets we play in, and we'll never sit still on that.

Being an innovation powerhouse like we talk about doesn't just mean here in Canada. It means in all the markets we're in, and we continue to expand and meet consumer needs in the markets where we're growing.

[Sabahat Khan, analyst]

Okay. That helps. And then, I guess, just a more of the housekeeping question. I think in the adjustment, Sabahat, small amount for COVID-related costs. It seems like it might be, I think, maybe overtime expensive. Can you just talk about what drove that and does that eventually phase out over the course of 2022? Those are the overtime adjustments as restrictions come off.

[Christopher Snowden, executive]

Yes. So that was right when Omicron hit at the beginning of January. We had some incremental pay as it related to keeping the absenteeism at bay and velocity and efficiencies running in our plant. That has subsequently ended. And obviously, if the environment continues to improve, you will see no more COVID costs in our P&L.

[Sabahat Khan, analyst]

Okay. And then just one last one, if I could sneak it in. It sounds like or it seems like there's, I guess, a supply chain implementation -- system implementation that was, I think, referenced in the adjustment. Is this sort of like a multi -- can you maybe give us some time frame on that? Is it just going to be -- is this kind of, I guess, the system implementation or the kind of which cycle are we at? And what should we expect for the next couple of years in terms of these adjustments?

[Christopher Snowden, executive]

So we are going to have a few years of broad system improvements. In fiscal 2022, we're focusing specifically on the supply chain aspect of our system. That will be virtually done by the end of fiscal 2022. And it's just the nature of that system that require those costs to be expensed versus capitalized. As we guided capital expenditures and system improvements through our fiscal year-end, we naturally included those costs in capital. But after we're doing the analysis, it's unfortunate that those costs are going to have to go through the P&L. So we will add them back as we do not pertain specifically to this year's results.

[Sabahat Khan, analyst]

Okay. Would that be the delta between sort of your CapEx of $15 million to $20 million versus, I guess, $15 million now?

[Christopher Snowden, executive]

That's correct.

[Operator]

Our next question will come from Justin Keywood with Stifel GMP.

[Justin Keywood, analyst]

I had a question on the consumer demographic mix recently and if there's been any change. As I understood, there was many new younger consumers that were trying Jamieson for the first time earlier in the pandemic, and possibly setting up for greater lifetime value and if that dynamic is still occurring.

[Michael Pilato, executive]

Yes. Thanks, Justin. I mean, we continue to see strong growth off of this new elevated baseline that we built over COVID, continue to see accelerated adoption of the category into consumers' lives.

When COVID really hit 2 years ago, we saw an influx of new consumers and what we talked about was a younger demographic was coming into our brand for the first time. Throughout the COVID period and into Q1 of this year, the growth on top of growth quarter after quarter, we continue to see these new consumers at a very high percentage on mass day in our brand state in the category and continue to expand their usage. That would include all the age demographics that entered, and we're quite confident that they're with us for the long term.

[Operator]

And we'll now hear from Peter Sklar with BMO Capital Markets.

[Peter Sklar, analyst]

Mike, in your commentary, I think you talked about a category called beauty within. Did I hear you correctly and what is that?

[Michael Pilato, executive]

Yes. We've talked about it over the course of the pandemic as it's really started to trend. It's beauty or beauty from within. It's really products that deal with hair, nail, nails and skin like collagen, for example, would be a great example of that biotin.

Products that really work from the inside to impact things that are external like your hair, nails and skin. We've seen growth on that throughout. We saw growth pre-pandemic. We saw it accelerate through the pandemic. And when I was asked the question, what we saw it grow in Q1, that was one of the categories that continue to grow.

[Peter Sklar, analyst]

Okay. Next, I just wanted to go back on this discussion of potential trade down, which you're indicating you haven't seen any yet. But just kind of thinking out loud here, let's say just inflation goes crazy and we go into a recession because the central banks are tightening and consumer is really under a lot of pressure because of higher interest rates and runaway inflation.

And do you ever worry about that because I think of Jamieson, I think you agree it's a premium brand. And have you ever thought about that you -- like you need a different discount brand to take that part of the market and to potentially to defend in case there is some trade down that comes up in the future?

[Michael Pilato, executive]

Yes. So we definitely think about it. I mean we definitely keep an eye on what's going on in the marketplace and think about what would we need to do if something were to come true that is not within our hypothesis or within our history. We do believe, though, when we look at historical data or we look at what's been going on over the last year that we do not have a high risk of trade down. And really, there's a few reasons why we're not a discretionary category. It's not a category that consumers typically shop on price.

They typically look at value more from a quality perspective. And it's one of the reasons why in our category, control label or private label is not really highly indexed. It's a lower share of a category than you see in more discretionary categories or in other categories across the store. Consumers typically look at quality as value and we're known as quality.

The second thing I would say is that consumers make choices on what they're going to change in their consumption behavior in a time like this. Our category is quite far down the list in terms of what they're willing to make changes on or trade down on because they believe that with price, and which is true, with price comes a lower quality and they really want quality. So that's at play.

We don't look at launching a discount brand. Our brand stands for quality, it stands for a premium mainstream price for the mainstream consumer. We do always have the tool to increase promotions. We have the tool to increase our investment in the brand to change the way we invest in the brand to drive growth if we have to. But at this time, we don't see the need to do that.

We don't see a material risk in front of us. But as I said earlier, we monitor it regularly. We're watching it closely. And consumers always do with our brand as being an omnichannel brand being everywhere. They also have the opportunity to change channels. they can change to a channel where maybe they get a better value per dose. They can change to a channel where maybe they can get a product for a lesser dollar amount with less doses on it, if they're more concerned about cash flow.

So we might see some channel shifting as we go. But as we've talked about before, we're relatively margin agnostic from a channel-to-channel perspective, and we feel pretty good about the guidance that we've given.

[Peter Sklar, analyst]

Okay. I understand that. And then just lastly, Chris, I believe all your labor is organized. And I'm just wondering like when your major agreements to come up for negotiation.

[Christopher Snowden, executive]

There's 2 facilities in Windsor that operate under a collective bargaining agreement. They come due in 2023. So with...

[Peter Sklar, analyst]

Okay. And what about the one you -- what was that…

[Christopher Snowden, executive]

Sorry, '20 -- beginning of 2020.

[Peter Sklar, analyst]

Beginning of 2024.

[Christopher Snowden, executive]

Beginning of '23.

[Peter Sklar, analyst]

Okay. And don't you have a facility in Scarborough? Has that closed?

[Christopher Snowden, executive]

No, yes, the Scarborough facility is not -- it's not a unionized facility.

[Operator]

And we have no further questions singled at this time. So I'd like to turn the conference over to Mr. Pilato for any additional or closing remarks.

[Michael Pilato, executive]

Perfect. Thank you, Sarah, and thank you to everyone for joining tonight. We appreciate your attendance. We appreciate your ongoing support, and have a great evening. We'll talk to you all soon. Bye-bye.

[Operator]

And that does conclude today's conference. Once again, thanks, everyone, for joining us. You may now disconnect.