Jamieson Wellness Inc

TSX:JWEL

Earnings Call Transcript 2018-Q3

[Operator]

Good day, ladies and gentlemen. Welcome to the Jamieson Wellness conference call to discuss financial results for the third quarter of 2018. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will be given at that time. 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 third quarter 2018 financial results was issued this afternoon, and a copy of that press release can be found in the Investor Relations section of 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 today are in Canadian dollars and are occasionally rounded to the nearest million. I would now like to turn the call over to Mr. Hornick to get started. Please go ahead, sir.

[Mark Hornick, President, CEO & Director]

Well, thank you and good afternoon, everyone. I'd like to start today with an outline of our Q3 revenue, which grew 4% in the quarter. As we expected, Q3 was another very strong quarter for the Jamieson brand, generating double-digit growth both domestically and internationally. However, we did see softness in our health food business, which from now on we're going to refer to as specialty brands. As well, we had a significant timing shift of sales from Q3 to Q4 on our Strategic Partner business. Despite lower specialty brands revenue, the strength of our Jamieson brand has us on track to fully achieve our full year revenue target and we have narrowed our guidance ranges, as Chris will discuss in a moment. Let me go through this in a bit more detail. As I said before, third quarter revenue increased 4% in total behind a very strong Jamieson brand. In fact, Jamieson brand sales in Canada grew over 10% and our international growth in Jamieson brands was equally robust, increasing 15% over prior year. We're proud to say that the consumer uptake behind our flagship brand has never been stronger.This growth only promises to increase as we continue to expand distribution internationally. Of note, today we announced a new distribution partnership that allows us to enter India with a large and growing partner. We've signed a 5-year exclusive agreement with MedPlus, which is the second largest pharmacy chain in India. MedPlus has 1,500 pharmacies across the country and plans to expand its retail footprint to 5,000 locations over the coming years. Jamieson is the only international nutritional supplement brand in the pharmacy's portfolio.Moving on to Strategic Partners, sales were down 2% year-over-year, which is due to timing of production. As you know from previous conversations, production timing is often impacted by immediate availability and quality of raw materials, as well as our customers' need to manage their inventories. As a result, our quarter-to-quarter sales can be choppy, as you have seen in previous quarters, particularly in Q2.Q3 saw volume shift from the third quarter to the fourth quarter this year on Strategic Partners due to the timing of a specific ingredient's availability. Despite the quarterly movement, we remain on track with our full year Strategic Partner's growth target of approximately 20%, and the volume that we saw move from Q3 to Q4 has already been ordered and largely shipped. Specialty brands, which you have generally heard us refer to as the health food segment in the past, came in below our expectations and declined 12% during the quarter. As you will recall, we integrated our LVHS and Body Plus sales forces at the beginning of the year. This integration will provide long-term incremental sales coverage in the specialty brands channel, and that's going to drive sales growth. However, the early execution of the integration has not met our expectations and therefore our sales performance has suffered. Additionally, our planned innovation this year has been delayed and our major innovation is now set for late in the fourth quarter. We've got great brands, we've got strong customer relationships, and we've got a motivated and engaged team, but frankly the team has failed to execute. We believe the solution lies largely in leadership, and we've taken action rapidly. So first, as you know, we've announced last month that we've appointed Mike Pilato as President of Jamieson Specialty Brands. Mike's the former President of Clorox Canada, and he brings a wealth of experience not only in growing brands across consumer products but also in the health food landscape as well. We believe Mike's style and skills will enable him to get traction rapidly with his team and execute quickly to get our business back on track, and early feedback in this regard has been nothing but positive.Secondly, we'll be launching our largest specialty brand innovations of the year in Q4. On the Progressive brand, we're introducing Perfect Probiotics, which is a high-performance Progressive elite as well as a high Progressive -- high-performance elite multivitamin in order to see sales contribution beginning in September. We've also added technical and functional resources to enhance our innovation execution in specialty brands. And finally to round out the leadership side, we've added a new Field Sales Director in the form of Carolyn French. Carolyn's a very experienced sales director from the Jamieson side of the business with a very strong track record of generating results through her teams. We've got a strong portfolio of specialty brands, and under Mike's leadership we are very confident that we are going to expect an acceleration of sales momentum during 2019. So in summary, despite a short-term lag in execution on specialty brands, we fully anticipate that our overall business will achieve its 2018 growth targets based some outstanding momentum both domestically and internationally on our flagship Jamieson brand, as well as having a very solid Strategic Partner business. With that, let me turn the call over to Chris to discuss the third quarter financial results in greater detail.

[Christopher Snowden, CFO & Corporate Secretary]

Thank you, Mark, and good afternoon, everyone. Let me provide some incremental detail on the financial results.Revenue increased 3.7% to CAD 83.1 million, driven by growth in our Jamieson branded segment, slightly offset by the timing of revenues and a decline in our Strategic Partner segment. By segment, Jamieson brands' revenue increased 5.4% to CAD 65.2 million, consisting of 10.2% growth of the domestic Jamieson brand and 14.6% growth in international shipments. These gains are partially offset by a 12.3% decline in our specialty brands. As Mark noted, we have addressed the performance of specialty brands, and we now have factored in a year-over-year reduction into our full year outlook that is largely being offset by stronger Jamieson branded sales growth in Canada and internationally.Revenue in our Strategic Partners' segment decreased 2.1% to CAD 17.9 million. As has been evident year-to-date, our Strategic Partner production and shipment cycle is dependent on availability of raw material and our customers' sales and marketing plans and inventory management cycles. Thus the timing of Strategic Partner revenue fluctuates quarter-to-quarter. During the third quarter, the decrease was primarily due to the delayed receipt of customers' supply of fish oil and vitamin A ingredients, which incidentally has never happened to this magnitude before. And as a result, we will shift approximately CAD 5 million in revenue for Strategic Partners from the third quarter to the fourth quarter of 2018. Total gross profit increased 4.4% to CAD 27.6 million and gross margin increased 20 basis points to 33.2%. The slight increase in gross margin percent was primarily attributable to revenue growth and margin expansion in the Jamieson brand segment, operating efficiencies, and the timing of promotional activities, largely offset by unfavorable sales mix and reduced plant deficiencies in the Strategic Partner segment due to timing of production with volume shifting to the fourth quarter. By segment, gross margin increased 220 basis points in Jamieson brands, partially due to operating efficiencies and the timing of promotional activities, which were partially offset by overhead investments in supply chain and operations to drive future incremental efficiencies. It should be noted that last year's branded gross margin included the impact of fair value inventory adjustments related to our acquisition of Body Plus in early 2017. In Strategic Partners' segment, gross margin declined 800 basis points year-over-year, primarily due to the product mix just discussed as well as the timing of expected plant deficiencies driven by the volume shift to the fourth quarter. Selling, general, and administrative expenses increased 9.3% to CAD 13.9 million. The increase reflects the inclusion of CAD 1.1 million of nonrecurring costs related to the health food integration, international market expansion, and other nonrecurring costs. Normalizing for this impact, SG&A as a percentage of revenue decreased to 15.3% from 15.9% in the prior year with the timing of marketing costs being offset by lower variable compensation. Operating income increased 12.5% and operating margin increased 120 basis points to 15.3%. Normalizing for the impact of nonrecurring costs that I had just noted, the operating margin would have been 16.7%. Adjusted EBITDA increased 10.7% to CAD 17.9 million and adjusted EBITDA margin increased 140 basis points to 21.5%. The improvement in adjusted EBITDA margin was driven by the Jamieson brands segment, where adjusted EBITDA margin increased 260 basis points to 25.5% from increased volume and operating efficiencies. This was partially offset by the 400 basis point decline in adjusted EBITDA margins for the Strategic Partner business based on the timing of produced volumes and unfavorable product mix compared to prior year's third quarter.Interest expense and financing costs were CAD 2.2 million compared to CAD 2.4 million in the prior year. The difference was primarily driven to -- due to higher borrowing levels in the third quarter of 2018 offset by slightly lower interest rates in the current quarter. Our reported net income was CAD 7.2 million in the third quarter compared to CAD 1.1 million in the prior year. On an adjusted basis, net income increased 13.6% year-over-year to CAD 8.9 million, or CAD 0.22 of diluted EPS. All of the adjustments to net income are described in today's press release and included in the adjusted net income reconciliation table at the end of the press release. Turning to the balance sheet and cash flow. We generated CAD 2.2 million of cash from operations during the quarter compared to CAD 10.5 million of cash used in operations in the prior year. The improvement reflects the reduction of cash used in working capital, as public offering costs were paid in the prior year's third quarter, and higher cash generated in operating activities before working capital reflecting the higher earnings in the current period. Capital expenditures during the third quarter were CAD 1.4 million and we paid CAD 3.4 million in dividends. We ended the quarter with CAD 2.8 million in cash and equivalents and total debt of CAD 170.9 million, and had almost CAD 34 million in cash and amounts available through our revolving operating lines. Now let me turn to guidance. As Mark mentioned, we continue to anticipate achieving our full year 2018 guidance, and today we are narrowing our ranges for revenue and adjusted EBITDA and adjusted earnings per share. We now expect 2018 net revenue in the range of CAD 332 million to CAD 337 million compared to CAD 330 million to CAD 340 million previously announced. In addition to our segment revenue, I will provide some incremental detail on the components of our branded revenue. For branded revenue segment overall, we are anticipating approximately 6.5% to 8.5% growth over pro forma 2017 Jamieson brands' revenue. Recall that our 2017 pro forma includes 12 months of contribution from Body Plus. This growth is expected to be driven by the following; strong consumer sales through our domestic food, drug, and mass customers. We are running ahead of our baseline projections for the Jamieson brand in Canada and, as such, we are anticipating 7.5% to 9% growth for the domestic Jamieson brand revenue in 2018. We anticipate 29% to 34% international revenue growth, with growth through existing markets such as China and the addition of new geographies this year, including our initial shipment to India based on today's announcement. We also anticipate a 5% to 7% revenue decline in specialty brands, which reflects the negative impact on sales growth we have seen this year as a result of our delayed innovation, sales force integration, and general execution within the operation.Finally, we anticipate 20% growth in our Strategic Partners' revenue when compared to pro forma 2017 revenue, which included Sonoma for a full 12 months. The growth reflects expanded product lines with existing customers and strong consumer demand for our customers' brands. Adjusted EBITDA is expected to be in the range of CAD 67 million to CAD 68 million, which has narrowed from the prior range of CAD 67 million to CAD 69 million. The new range reflects investments in SG&A to drive the company's international and e-commerce efforts, as well as the margin impact of lower high margin specialty brand revenues. Adjusted earnings per fully diluted share are expected to be in the range of CAD 0.85 to CAD 0.86 compared to the prior range of CAD 0.83 to CAD 0.87. In addition to the revenue and margin assumptions I already noted, the guidance reflects slightly lower benchmark interest rates and lower stock-based compensation. Additionally, our guidance continues to reflect the assumption of CAD 1.30 per U.S. dollar exchange rate and an effective tax rate of approximately 28%. Our estimate for fully diluted shares is approximately 39.9 million. With that, I would like to turn the call back to the operator for Q&A.

[Operator]

[Operator instructions.] Our first question comes from the line of Peter Sklar from BMO Capital Markets.

[Jennifer L. Panes, Associate]

It's Jennifer filling for Peter. My first question is on the lower specialty brand volume. I know you went into it a bit, but I was wondering if you could just give a little bit more color of sort of what exactly went wrong with the sales force integration. What needs to change? What does Mike Pilato need to do to turn it around?

[Mark Hornick, President, CEO & Director]

Okay. So the original premise around the business plan for the specialty brands had four main growth areas, all heavily impacted by the effectiveness of the sales force integration. The first was the rollout of the Jamieson brand into specific health food customers on their request. The Jamieson brand, because of its momentum, is seen by a lot of health food customers as a way to draw more traffic into their stores. So we passed the distribution of the Jamieson brand into health food from the baseline Jamieson sales team into the specialty brands' team, so that's number one. Number two was the rollout of the marketing plans for, one, the Lorna brand and, two, the Body Plus brand, so that's Progressive, Precision, and Iron Vegan, and all of the business plans and customer plans associated with reaching the growth targets for 2018. And lastly was executing then our new innovations in the channel. All of that required a very well executed sales force effort from the sales forces from each of the parts of the company that are coming together, learning the others' portfolio so they could effectively sell-in the product that was new to them, as well as then executing on new routes in a new field sales organization, where territories and customers were redistributed with the premise that that would help us maximize the sales coverage that we were looking for with the integration. What happened is that, through several aspects of the integration, we either didn't complete training, we didn't get the confidence instilled in the salespeople yet to be able to cross-sell. And as such, they kept selling what they were comfortable selling versus what needed to be sold. Our innovation was delayed. Therefore, that part of the revenue stream has been pushed starting into Q4 when it was anticipated much earlier. And as a result, a lot of the traction and momentum that we were expecting from the integration has been delayed through execution. Does that help, Jennifer?

[Jennifer L. Panes, Associate]

Yes, that's very helpful.

[Mark Hornick, President, CEO & Director]

And so just to round out on that and just to give you the -- so basically from our standpoint, when we talk to customers and we talk to the salespeople in general, everybody is very positive on the concept of the integration and what we're trying to do. It just hasn't gotten the traction that it needs to. Largely that's based on a combination of execution and communication, and that's what we're really looking for Mike and Carolyn to take charge of, complete what needs to get done and get this thing back on track.

[Jennifer L. Panes, Associate]

Okay, got it. So my next question is on the international growth. You said you had strong international growth in the quarter. I was just wondering if we can get a little more color on where that's coming from, and then maybe just give a little more information on where -- sort of why you entered India and where you see that partnership going.

[Christopher Snowden, CFO & Corporate Secretary]

Growth in the quarter, like I said, it's from -- primarily Asia, the Middle East, and Eastern Europe were the largest geographies represented in the quarter. It was quite broadly experienced, so good traction in all areas. Not a lot of new geography revenue in the quarter leading to that 15% growth number, but as you can see from a full year perspective, full year is 29% to 34%. So there will be some new geography revenue generated in Q4, and we expect that to continue next year.

[Mark Hornick, President, CEO & Director]

What I would add is that we are getting some pretty significant consumer traction in China. So we just completed business reviews with Tmall, which is the business -- the consumer arm of Alibaba and obviously a very significant e-commerce platform within China. And they told us that the Jamieson brand has now entered into Tmall's top 100 brands in terms of sales and website taps. And it's their 100 brands of anything whether -- of any kind of good whatsoever in China. We are now in the top 100 Tmall brands based on the growth that we've been experiencing on their site, which is tremendous. They also told us that in the recent category of vitamin promotions that they did in the summer, where they made a huge event on health and wellness featuring vitamins, that the Jamieson brand was the highest performing international brand of all, indexing 110 versus year-ago. And that's now given us preferential position within Tmall, and they're going to give our brand incremental support and advance the spacing of our home page and our landing site ahead of where it is now, which would give us traction. These are just anecdotes, but it's helpful and encouraging just to see how well we're doing there. On the second part of your question with regards to India, so as background India's vitamin market is about the same size as the Canadian vitamin market in terms of sales, obviously per capita much smaller given the economic situation in India. But for us, India has always been a target for development based on the fact that the market in itself is underdeveloped for competition, and we have a very sizeable Indian-Canadian population here that is very familiar, of course, with the Jamieson brand. The issue in India is, because the population is so large and the supply chain is not very developed, you end up with thousands of distribution points. So it's a very difficult geography to execute on. That -- hence our strategy with MedPlus, which enables us, through an exclusivity agreement, to enter India and get assistance at point of sale from a very quick and widespread growing retailer who has a vested interested in growing our brand through the exclusive agreement that we have. So that should catalyze growth in India quicker than we would be able to do by ourselves and give us a presence right out of the gate starting in 2019 that we feel very positive about in the years to come, especially given the massive population of India and the connection back in Canada to a significant Indian population. It's something we feel really good about and we're glad we've been able to execute in that way.

[Operator]

Our next question comes from the line of Sabahat Khan from RBC Capital Markets.

[Sabahat Khan, Analyst]

Just on the specialty -- kind of the brands, as we look over the next kind of 12 to 24 months, how do you see that evolving? Do you think it'll take some time for the new management team to come in and make changes, or do you think that based on your -- just commentary that you just shared, you think it could be relatively quicker?

[Mark Hornick, President, CEO & Director]

So I think -- Sabahat, I think it's going to come in two phases. So phase one is just to get back on track with what we have already rolled out and tighten up the execution. So what we anticipate seeing between now and the end of Q1 to show that that's really back on track is we should see incremental sales wins in key customers in the first 90 days. We should see an increased level of sell-in on our two big new initiatives versus what we've seen historically just based on incremental engagement from sales and then the change in leadership. We should also see a marked difference in the accountability and the initiative that the sales force is taking in owning their targets, and then taking advantage of the incremental training that we're providing for them in Q4 to get the confidence and get up to speed on cross-selling. And we'll see that in-market. The management team here is obviously invested in helping to turn this around, so we will be doing tours and ride-alongs with our salespeople to coach them and to give them the benefit of our experience on specialty brands. And what we hope to see, especially on the Jamieson brand side, and we hope -- what we hope to see is a marked difference from what we have been seeing just with their comfort level in cross-selling. And all of that cross-selling should result in incremental distribution and incremental sales effectiveness.And then we also anticipate then in stage two that Mike and his team are going to take a very solid look at what we can do to catalyze the growth of the brands. They are going to relook at the strategic plans for each brand. We anticipate new thinking coming on those brands, and we anticipate incremental additions to the marketing plan towards the back half of 2019 that we can then integrate and take the development of those brands then to the next level. So that is what we're looking for from Mike, and that's what he's aligned to and is promoting himself.

[Sabahat Khan, Analyst]

All right, thanks. And then just on the Jamieson brand segment, I guess your legacy Jamieson brand has been offsetting some of that weakness to some extent. Is that some sort of a short-term benefit you're seeing, or has there been generally more demand for either broader industry products or just your product than what you would have initially expected?

[Mark Hornick, President, CEO & Director]

No, the brand has had significant momentum really since we rolled out the Jamieson Essentials campaign starting in the first quarter of 2017. That's really had good traction with both consumers and retailers. And as a result, we've been building -- so double-digit sell-out from retail starting in 2017. And that's carried on and that shows no sign of abating, which is great. So it's that level of education where consumers who are looking for advice on what to take are getting some pretty solid advice from a brand that they trust. And as a result, we've seen sales pick up behind that. We've piggybacked then onto that concept and leveraged it much broader than just television media. And as a result, we're seeing the brand in, I mean, a position where it's never been healthier. I think we have more than 12 consecutive periods where we're building market share in a row, which is very exciting for us. And we see that momentum continuing into Q4, which is great.

[Operator]

Our next question comes from the line of Lennox Gibbs with TD Securities.

[Lennox Gibbs, Research Analyst]

Again on specialty brands, so you sound quite confident that that underperformance is just an execution issue. But can you comment perhaps on some of the external dynamics, maybe competitive dynamics that might be relevant?

[Mark Hornick, President, CEO & Director]

So we believe now that, actually from both a customer and a competitive standpoint, it's a great time to be a market leading player in the specialty brands area. Customers are really looking for cooperation with brands and with suppliers in order to navigate their way through a changing environment where they're seeing a lot of their sales potentially migrating into e-commerce. And they're looking for partnership and they're looking for cooperation, and they've been reaching out to us towards that end. And we believe the combination of that momentum as well as having some very solid brands in place, with now some very solid innovation in order to help catalyze them, puts us in a really good position from an environment standpoint. As the population ages and as consumers become more educated on vitamins, they look for differentiated solutions and they look for things that are special. And specialty brands tend to cost more, but they have a more specific formulation that a specialty brands retailer can explain to a consumer in a way that's extremely compelling. As a result, you see consumers trade up. And with rising disposable income particularly amongst the aging population, we think that the market dynamics are really solid from a specialty brand situation. So for us now to be able to come in and turn our execution around and then take it to the next level with what Mike and his team are going to be able to contribute after having some time on the business, we are confident in what we're talking about and we feel very solid about it, Lennox.

[Lennox Gibbs, Research Analyst]

Okay. And then secondly, can you give us a sense as to what kind of normalized growth we should expect out of that business once you get it turned around?

[Mark Hornick, President, CEO & Director]

Yes, Chris, you've got a model on that.

[Christopher Snowden, CFO & Corporate Secretary]

We're not in a position right now to disclose what our guidance for growth in that segment will be for next year. But it will be more consistent with our total brand expectation versus what it is this year.

[Lennox Gibbs, Research Analyst]

Good. And then just finally with respect to the Chinese rollout, can you provide us with a progress update with respect to Shanghai Health Way? What has been accomplished and what remains to be done leading up to mid-2019? Perhaps if you could speak to sub distributorships and online relationships, that kind of thing.

[Mark Hornick, President, CEO & Director]

I can outline that with the -- okay. So as you know, one of the keys to really -- to growing in the area is getting our licenses in place so we can expand distribution into the mainstream retail channels in China. So we've got two more Blue Hats in front of China FDA right now. There are six more that will be submitted before the end of 2018. That should give us a very good critical mass of products to launch after Chinese New Year, which is in February. Shanghai Health Way is currently already pre-aligning retailers on the upcoming launches that we are going to have and is already in discussions around distribution, so we'll be able to execute that well. And we expect then that cadre of products to begin shipping after Chinese New Year into retail distribution. We will ship product into China before that as it becomes available. We have then between the beginning of 2019 and the end of the year approximately 16 more Blue Hats that we will submit. And we will submit them as stability testing is complete and as we meet China FDA's requirements on the formulations. And so by the end of the year, that should give us up to maximum of 20 products that would be approved, and we will then launch those into the market as we get the go-ahead and get our Blue Hat licenses secured. An additional positive dynamic in the industry is the launch of Costco in China. I'm sure you're all aware, based on Costco's public disclosure, that they are launching in China in 2019. We have a very positive relationship with Costco globally. We have -- we do business with Costco in several countries around the world, and we fully are looking forward to collaborating with them on a launch in China as far as vitamins go. And we anticipate that to be positive and are potentially looking forward to some great traction with Costco as they launch in China as well. So apart from that, we're in the midst right now of finalizing our marketing plans for our cross-border e-commerce channels. That's all going fairly well. We've had an update from our representation in China this week. Those plans will be cemented by the end of November. We're already agreed on Q1. That's going to be rolled out. And based on some of the anecdotal strength that you've heard of, for example on Tmall, we're anticipating some great cooperation. Yesterday we signed a Strategic Partnership with JD.com, which is one of the top four cross-border e-commerce platforms in China as well. And so everything is coming together as we have anticipated. And we just -- obviously with the variability that happens from time to time in China, we just have to make sure that we stay focused. But overall, Lennox, we are very much on track.

[Operator]

Our next question comes from the line of Endri Leno from NBC.

[Endri Leno, Associate]

Most of my question have been answered, but I was just wondering in China, what kind of CapEx expectations are you planning as these products are launched and you're getting the Blue Hats? And do you -- and additionally to that, I mean, do you expect any major marketing campaigns as you launch these products?

[Christopher Snowden, CFO & Corporate Secretary]

So from an investment perspective, there -- it's a low investment geography for us. We need to invest in the cost of registering products. That would be material to our cash flow. And there's no significant capital required in China. Where you will see significant investment is in our expansion capacity in our Canadian facilities as we increase the rate of expansion earlier versus our previous expectations for launch. So you'll see our CapEx level higher at the end of 2018 and higher again in 2019 as we ensure that we've got the capacity to deliver both on our opportunities in China and our growth aspirations both in Canada and internationally.

[Mark Hornick, President, CEO & Director]

And you -- and to the second part of your question around marketing, you will see a ramp-up of marketing of the Jamieson brand in China as we continue to gain distribution through not only incremental cross-border e-commerce traction but also from the Blue Hat program that we launched. That's done in conjunction with Shanghai Health Way, who not only fund a big chunk of that but also help us execute that locally. We'll be putting more resources both on the ground from a general management, quality, and marketing standpoint in China over 2019 in order to help us manage that even sharper than we are doing now. But yes, as the brand grows, we will invest behind it. And you will see that mostly in the area of digital commerce where the consumer is buying the product versus television media that we're doing here, but you will definitely see the investment ramp up as the volume comes with it.

[Endri Leno, Associate]

Great. Thank you. And my other question is more for product -- Jamieson branded growth in Canada. You alluded a little bit before to the Essentials plus Protein having been strong in this quarter as well. I was wondering, is it possible to quantify in terms of numbers like what you're seeing quarter-over-quarter? And additionally, I mean, you had also Cold Fighter that you launched last year. I mean, have you seen any uptake in the second half of the year?

[Mark Hornick, President, CEO & Director]

Yes, from a disclosure standpoint, I guess -- I think the best that we can do is to tell you that it's fully meeting our expectations. And in the case of Jamieson Essential plus Protein, we are -- based on what we have seen so far in terms of consumer traction, we are line extending that brand into 2019, and you will now see plant-based offerings in addition to whey-based offerings in the protein. So if you're a vegan protein user, you'll now be able to get the Jamieson product in a vegan format, which is exciting for the -- as that is an extremely fast-growing sub-segment of the sports nutrition and protein category.

[Operator]

[Operator instructions.] Our next question comes from the line of Derek Dley from Canaccord.

[Derek Dley, MD & Consumer Products Analyst]

Just following up on that last question, is it possible -- I know in the past you guys have quantified or given us a clue as to what new product sales represented as part of your growth. So given 5.4% growth in the branded segment, how much of that was from new product introductions this quarter?

[Christopher Snowden, CFO & Corporate Secretary]

We actually -- because we realigned a disclosure from a brand perspective between the specialty brands, the Jamieson brand and the international, when we split that between those segments, their innovation in the quarter wasn't significant from a specific quarter perspective. What's really driving growth is the overall market penetration of the Jamieson brand. So when we go back to our overall guidance, we're guiding to the range of 2% to 3% innovation growth in totality from a Jamieson brands perspective on an annual basis.

[Derek Dley, MD & Consumer Products Analyst]

Okay. And you met that in the quarter, or you were -- you're on track for that for the year, but maybe in the quarter?

[Christopher Snowden, CFO & Corporate Secretary]

Yes, it's a -- like when you look at innovation '18 compared to '17, '17 had much more innovation in the back half than we do in '18. So the vast majority of innovation sales would have occurred in the year-to-date in the first six months of the year. So there was some innovation in the quarter, but it wouldn't have registered in that cadence in that period.

[Derek Dley, MD & Consumer Products Analyst]

Okay. No, that makes sense. And then just with Cold Fighter, can you just remind us? Last year I believe Cold Fighter had a bigger impact in Q3 than Q4. Is that correct?

[Christopher Snowden, CFO & Corporate Secretary]

That's correct.

[Derek Dley, MD & Consumer Products Analyst]

Okay.

[Mark Hornick, President, CEO & Director]

Yes, that's the pipeline shift in Q3.

[Derek Dley, MD & Consumer Products Analyst]

Yes. Yes.

[Mark Hornick, President, CEO & Director]

That's what I -- yes, that's what I was talking about, just the nature of innovation in '17 was much more backend weighted, where this year it was much more -- it was the Protein plus Essentials -- or Essentials plus Protein. And that was Q1, Q2 heavy.

[Derek Dley, MD & Consumer Products Analyst]

Okay.

[Christopher Snowden, CFO & Corporate Secretary]

And that's typical going forward, so you'll see that in the first quarter and second quarter of 2019 as we move forward.

[Derek Dley, MD & Consumer Products Analyst]

Okay. On the Jamieson brand sales up very strong, 10% in the quarter, can you give a -- that looks to me like you guys are gaining market share with the Jamieson brand. Can you give us an update on where your market share stands today?

[Mark Hornick, President, CEO & Director]

We're just looking at each other as to whether we want to start disclosure on that in absolute terms or not. I can tell you that since the IPO where we gave a benchmark of our market share, we are up fairly significantly from that. But we're not -- I think from a policy standpoint, we're not going to go forward on a regular reporting of market share.We can't -- because of the way that our contract works with purchasing the market share, we can't disclose the market share of our competitors. We can only talk about ourselves. So from our standpoint, we've decided that we will give indications of market share as a reassurance for progress, but we're not going to report particularly on exact numbers on markets share.

[Derek Dley, MD & Consumer Products Analyst]

Okay. But directionally, that's helpful. Just on the new partnership with MedPlus, when we think about the margin structure within those sales, I mean, is that something that I should be thinking about more as similar to the branded business, similar to the Strategic Partners' business, or somewhere in between? How should we look at that?

[Christopher Snowden, CFO & Corporate Secretary]

Yes. So our -- and I'll generalize. Our international branded margins are consistent with our branded margin as an entire segment, whereas if you look at the specialty brands they would be higher than the average margin within the brand segment. So it is not accretive nor dilutive to that margin as we grow sales in our international business.

[Operator]

Our next question is a follow-up question from Endri Leno from NBC.

[Endri Leno, Associate]

You mentioned Costco going in China and you having a great relationship with Costco. Are you allowed to go through Costco, I mean, given the relationship that you have there with your current distribution partner? And like how would you reconcile between the two if you were to distribute as well through Costco there?

[Mark Hornick, President, CEO & Director]

That's a good question. But yes, we -- and I'm saying that just from the standpoint that obviously -- that you're taking a look at this in-depth, which is a cool, Endri. We have a provision in our distribution agreement to handle Costco directly. The reason why is that's Costco's request, and it's required in order to do business with them. So that is part of our Shanghai Health Way distribution agreement, and that's already been preconceived. So there's no issue on that.

[Operator]

Ladies and gentlemen, we have reached the end of the question and answer session, and I would like to turn the call back to Mr. Hornick for closing remarks.

[Mark Hornick, President, CEO & Director]

Okay. So once again, thank you very much for joining us to discuss our third quarter results. As you can see, you remain very confident in our positioning in the Canadian and the global vitamin industry and our 95-year history focused on improving the world's health and wellness. This focus continues to drive our business and build value of our shareholders and for our consumers. And for that, we thank you very much for your confidence and look forward to discussing results in the future. Thanks a lot.

[Operator]

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.