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Friday, January 17, 2014 12:36:47 PM
"MSLP Plans To Provide 2014 Guidance By The End Of January; We Reiterate Our Call For A 54% Revenue Increase And A Narrower Net Loss; Maintain BUY
-On the 3Q:13 results conference call in November, management indicated the company would give guidance for 2014
sometime in January.
-We think MSLP’s revenue will climb 54% in 2014 to $159 million on the strength of organic growth, new product
launches and the use of additional sales channels.
-We think that the expected revenue surge will help the company narrow its loss to $0.09 per share in 2014 from an
estimated $1.55 in 2013.
-We maintain our estimates and BUY rating.
We think MSLP will grow revenue by 54% in 2014. MSLP reiterated revenue guidance for 2013 of at least $100 million on the
company’s 3Q:13 conference call, for an implied a 50% growth rate. Our estimate is for $103 million. We think that growth will
accelerate to 54% in 2014, as 2013 had little contribution from three future growth drivers: 1) a full year of sales of The Arnold
Series, 2) a full year of sales to Costco (NYSE: COST, NC) and 3) a full year of sales of the FitMiss line of products. We
estimate The Arnold Series line of products, launched in the end of 3Q:13, generated sales of $5 million in 2013. We think the
line’s revenue contribution will climb six-fold to $30 million on the strength of Arnold Schwarzenegger’s brand image and global
distribution through mass market channels. The MusclePharm line’s Combat Powder, a whey protein, was first shipped to all 451
domestic COST stores in early 4Q:13 and we think generated $3 million in initial orders. We expect sales via this channel to
climb five-fold to $15 million in 2014. We expect that much of the growth at COST will come from the sale of additional SKUs
such as MSLP’s Amino1 recovery drink and a pre-workout powder. The FitMiss line was launched in 4Q:13 and will be sold in
Walgreens (NYSE: WAG, NC) stores in 1Q:14. Our 2013 estimate does not include any revenue from this line in 2013, while our
2014 forecast assumes sales will reach $5 million. We think the core MusclePharm line (not including sales to COST)
contributed $95 million of our $103 million sales estimate in 2013. We think this line will grow 21% (half of its 2013 growth rate)to $115 million in 2014 with the help of an aggressive marketing campaign. We model $159 million in sales for MSLP in 2014.
We think fixed cost leverage, not gross margin expansion, will narrow MSLP’s net loss in 2014. Our estimate calls for the
gross margin to narrow to 31.6% in 2014 from an estimated 32.0% in 2013 and for the company’s net loss to narrow to $0.09 per
share from $1.55, respectively. While we note our forecasted revenue increase of 54% for 2014, we think initial product
discounting and inefficient, low volume production of newly launched products (Arnold Series and FitMiss) will keep the gross
margin from expanding. MSLP made major additions to its management team in 2013, hiring a new COO and Chief Sales and
Marketing Officer and made the strategic decision to bring inventory storage and quality control in-house rather than having the company’s third party manufacturer ship directly to customers. Together, we think the fixed cost structure is sufficient to support the projected increase in sales.
We maintain our BUY rating."
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