Muscle Pharm Corporation (MSLPQ)

[Odessa99]

Jwblue74, here are my complete thoughts on the topics below, which I posted earlier this morning:

"My biggest concern from the 10-Q filed yesterday has everything to do with the gross margin. Prior to the corrected manner of reporting company revenue, the gross margins were in the low 30 percent range. As a reminder, gross margin is the percent of each sales dollar that exceeds the 'cost of sales' (product direct cost). For the most recently completed quarter, with reported sales of $16,560,680 and cost of sales (COGS) of $12,895,162, the gross margin is only 22% ($3,665,518/$16,560,680). This margin percentage would be more than sufficient in some industries, where marketing/promotion costs are minimal in relation to the transaction amount (such as with real estate, or with new automobile sales). But I do not believe that gross margins, at this level, will allow this company to thrive (and by thrive, I'm referring to corporate profit, which is the only objective measure of the efficiency of a business enterprise). The good news is that I do see several viable alternatives to remedy this low gross margin situation:
-As they are now selling in excess of $1 million worth of product per week, they need to squeeze their current supplier(s) more. If their current supplier can not or will not negotiate downward the price they are paying for this ever-growing volume of product inventory, they need to find another supplier(s) and affect a smooth transition.
-Move manufacturing in-house: I know that there is a large upfront capital requirement for this option, but when it is costing you 78 cents in direct product costs for every one dollar in company revenue, the road to net profitability is a fairly difficult one. And if you can not demonstrate to investors that you can turn a bottom line profit on an exponentially increasing sales base, you run the risk of permanently losing the interest of the investing public. At this stage, equity dilution should not be necessary to fund the move to in-house manufacturing. John Bluher (COO) has extensive experience in corporate finance, and with this exponential increase in sales, he should be able to work with one of the many investment bankers in securing a debt offering at a reasonable corporate interest rate. With a reasonable interest rate, and a sufficiently long bond maturity period, this move to an in-house solution could be a profitable one. My preference would still be to aggressively renegotiate the supplier product cost in the solution above, but in order to do so that may have to be convincing that they are seriously considering bringing manufacturing in-house.
-Raise prices. When you raise prices, you always run the risk of upsetting the ultimate consumer. But when a product is in such high demand, with a loyal and growing following, at some point you need to charge an amount tied to the perceived value. When Sirius/XM recently raised their subscription pricing, some analysts believed there would be a customer backlash and a large migration away from the service. That did not occur because they have the superior product offering. People will pay for that which they value. The feedback for nearly the entire Muscle Pharm product line is very positive, and that sentiment should allow them to sell the product at a premium. I can understand why you don't necessarily want a premium price when you are struggling to build a following, but it would appear that the struggle stage is nearing an end, as sales are quickly approaching $100 million annually.
I still remain heavily invested in this company, and remain highly confident that they will ultimately succeed. But at times, strategy must be tweaked to drive profitability. I like, very much, the recently announced move toward improved corporate governance. But they must never forget that while it's important to remain committed in their goal, they must remain flexible in their approach. As always, simply my opinion."

Great post General!!! I also agree they need to raise there prices and reduce discounts in order to increase gross margins. They now have high demand for there products which are of high quality and safe for Athletes to use. If they raise prices I will still be purchasing there products and probably wouldn't even notice the price increase unless it was drastic which they don't have to do. Also, how about a better deal with the Manufacturing Company to reduce costs since they are producing a lot more product now. If the Manufacturing Company doesn't want to reduce its costs then maybe it is time for Muscle Pharm to consider Manufacturing there own products or shop around for another Manufacturing Company to produce its products at a better cost. The only problem I see is the Manufacturing Company now is supposedly a NSF operated facility. Your thoughts are greatly appreciated.

MSLP