Oatly Group Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
April 30, 2024

There are 8 speakers on the call.

Operator

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr.

Operator

Brian Kearney, Vice President, Investor Relations for Oatly Group. Thank you, sir. You may begin.

Speaker 1

Good morning, and thanks for joining us today on Oatly's Q1 2024 Earnings Conference Call. On today's call are our Chief Executive Officer, Jean Christophe Platane our Chief Operating Officer, Daniel Ordonez and our Chief Financial Officer, Marie Jose Davide. Before we begin, please review the disclaimer on Slide 3. During this call, management may make forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our future results of operations and financial position, industry and business trends, business strategy, market growth and anticipated cost savings. These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could differ materially from actual events or those described in these forward looking statements.

Speaker 1

Please refer to the documents we have

Speaker 2

filed with the SEC for

Speaker 1

a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward looking statements made today. Also, please note on today's call, management will refer to certain non IFRS financial measures including EBITDA, adjusted EBITDA, constant currency revenue and free cash flow. While the company believes these non IFRS financial measures will provide useful information, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with IFRS. Please refer to today's release for reconciliation of the non IFRS financial measures to the most comparable measures prepared in accordance with IFRS. In addition, Oatly has posted a supplemental presentation on its website for reference.

Speaker 1

Finally, as discussed on our Q4 earnings call, as of the beginning of this year, we have modified our reporting segments to align with how management evaluates the business and allocates resources. We will be discussing the business using these new reporting segments today. We furnished a 6 ks earlier this month that has historical financial information for the segment. With that, I'd now like to turn the call over to Jean Christophe.

Speaker 3

Thank you, Brian, and good morning, everyone. Slide 5 has the key messages that I want you to take away from today's presentation. 1st, we are making good progress towards achieving profitable growth. Every employee throughout the organization, no matter their position, region or role, is squarely focused on strengthening the business and bringing us to structural, consistent, profitable growth. And our Q1 results reflect that progress.

Speaker 3

We had a solid Q1, and the year is off to a good start. As you saw in today's earnings release, we are clearly seeing the benefits from the bold actions we have taken over the past 2 years. These benefits are most clear in our gross margin expanding nearly 1,000 basis points year over year as well as our reduced SG and A, which was partially aided by certain fees and selling expenses that will hit a bit later than we planned. While we are encouraged by our Q1 results, we recognize that we are only 1 quarter through the year and that our 3 operating segments are in very different stages of their turnaround journeys, their maturity, their execution and the amount of traction they have achieved on their strategic actions. Therefore, we are reiterating our full year guidance across all metrics.

Speaker 3

And Slide 6 is our report card on how we are progressing on our journey towards profitable growth. As you can see, our volume growth is positive and accelerated in the Q1. The total company 3% volume growth was driven by solid growth in both our Europe and International segment and our North American segment, which was partially offset by the Greater China segment, which continues to reflect our intentional actions to refocus the business. Even as we were implementing our turnaround actions in 2023, we grew our total company volume by over 3%, which further solidifies our belief in the strength of our business. Gross margin continued to increase sequentially in the quarter and was nearly 10 full percentage points higher than last year Q1.

Speaker 3

As you can see in this chart, our 27% gross margin in the quarter is a significant improvement from the 11% margin we reported for the full year 2022. We still have plenty of work to do to get to our longer term target, but we are clearly making good progress. Similarly, we have made significant progress on our adjusted EBITDA. In 2022, we reported quarterly losses between $53,000,000 83,000,000 Today, we are reporting a 1st quarter loss of just 13,000,000 dollars Slide 7 is a reminder of the strategic pillars we are focused on in 2024. Those are bringing the Oakley magic to more people continuing our work on the calibration of resources across SG and A and the supply chain and focusing relentlessly on execution.

Speaker 3

And Slide 8 gives you a brief update on our progress on these three pillars. As I showed on the prior slide, we continue to grow our volume growth in the Q1. We intend to maintain this momentum by continuing to expand our reach. We are placing advertisement in high traffic areas such as European train stations, and we are creating great tasting experiences at various trade events and coffee festivals. We even created some buzz with a pop up venue at Milan Design Week.

Speaker 3

And as you may have seen, we are expanding our partnership with Minor League Baseball to bring the hockey magic to consumers across the United States. Next, we remain on track with our work on the calibration of resources. This includes the work related to our reduction of the company's SG and A fixed cost by €85,000,000 as well as the previously announced discontinuation and exit of the manufacturing facilities in the U. S. And the U.

Speaker 3

K. And we are continuing to evaluate our options regarding our Asian supply chain. Finally, the entire Otli team is doing a very good job at focusing on execution. Our supply chain continued their strong performance in the quarter, driving down costs and becoming more efficient, whilst keeping fill rates above 95% in every region. I also see increased fluid joint work across teams, across regions and operating segments.

Speaker 3

While we can't quantify a direct financial impact to this increased collaboration, we know there is a benefit there. As I said earlier, every employee is focused on strengthening the business and driving towards profitable growth, And this focus on execution is critical to our success, which is why before I turn the call over to Daniel, I want to thank our employees for their commitment, dedication and focus to driving business results while staying true to our company's mission. With that, Daniel, over to you.

Speaker 2

Thank you, JC, and very good morning, everyone. I will start on Slide 10 with Europe and International, which is our largest operating segment. Europe and International reported solid results in the quarter with constant currency revenue growth of approximately 8% and adjusted EBITDA that continued to increase sequentially to $15,000,000 which is approximately 13% of the net sales. Slide 11 gives you an update of how we are performing in retail, which is the largest part of this segment's revenue. On the left, you can see that we continue to observe a significant difference between the category growth in plant based drinks versus the oat milk category.

Speaker 2

And we are driving our growth well above the oatmeal category. In the quarter, Oatly outgrew the category by 200 basis points. On the right hand side of this slide, you can see this translating into strong market shares that continue to expand in most of our major markets. On Slide 12, we give an update on the food service side of this business. For some time now, we have mentioned our intention to seize the opportunity this channel presents to accelerate our growth.

Speaker 2

This focus has resulted in a strong 20% year on year revenue growth. You may have seen some of our recent communications on our new partnership like the VR Railways, Deutsche Bahn, Swiss Railways and Coffee Fellows. In many cases, leveraging the new tailored portfolio for the channel and for the occasion like the Jigger. We expect these partnerships as well as the many others we continue to pursue to drive more growth opportunities going forward. On Slide 13, you can see an update on our performance in new markets.

Speaker 2

Now that we have changed our reporting segments, our geographic expansion initiatives will be captured within Europe and International. As such, our remarks will include both the European markets, which we have historically discussed with you as well as the other international markets where we'll be increasing our focus like Australia, North and Southeast Asia, the Middle East and Latin America. Volume in these new markets grew a strong 29% year on year in this quarter. That is approximately 2,000,000 liters of incremental volume, which is roughly equivalent to how many liters we sell in Austria every quarter. These markets now represent approximately 12% of the segment's total volume, up from 9% in the last year's Q1.

Speaker 2

In short, our focus on bringing the Otili Magic in a disciplined fashion to more people in more geographies is working. On Slide 14, I would like to pivot the discussion from channels and geographies to portfolio with an update on our go blue strategy intended to expand the usage of our products by offering them more flexibility and a wider range of options that also help improve our margins. In this Q1, this strategy has generated a net 7% growth in volume year on year. Slide 15 shows the lineup of the iconic Barista Edition new items launching this year. They are meant to continue to drive new occasions, new price points and new channel opportunities, which are very significant to us.

Speaker 2

So far, these items had a very good selling markets. On Slide 16, you can see that our new products, including the new old goods, have hit the retail shelves across Europe and are already gaining distribution and driving trial, all of that in line with our plans. I turn now to North America on Slide 17. Here, you can see that revenue growth has accelerated in the Q1 to approximately 5%. This is on top of last year's very strong 36% growth in a comparable base.

Speaker 2

You can also see that adjusted EBITDA made good progress in the quarter and was just below breakeven at only $400,000 loss. This continued improvement was driven by strong gross margin expansion as we continue to see the benefit of the strategic actions taken in our supply chain over the past 18 months. This segment has clearly done a very good job of improving its cost structure, and it has done also a very good job at improving margins, mix and focusing on execution while bringing the only magic to more customers and to more consumers. Slide 18 gives you an update on the retail side of this business, which is a little more than half of this segment's net sales. On the left, you can see that similarly to Europe, there is a very clear and growing difference between the performance of the plant based drinks category and the oat milk category.

Speaker 2

And now that we have our full playbook in place, there is a growing difference between oat milk in general and the Oatly brand. This is evidenced by our accelerating share gains that we show on the right hand side of this slide. As discussed during the last call, part of our growth plans in 2024 is driven by these new products, which we show on this slide. While steel is very early days, our new products are off to a good start, with several items already reaching velocities that are higher than competitive products that have been on show for much longer. So again, it is early days, but we see some positive signs.

Speaker 2

Turning now to Slide 20 on the foodservice side of this business. As we have mentioned in the past, we are aggressively pursuing new customers to expand and diversify our foodservice customer base and hence drive stronger growth and better margins. The foodservice revenue growth in North America was approximately flat in quarter 1. However, outside of our largest customer, revenue has grown at a very strong 35% in the quarter. Besides, I am very glad to report that we have come now to an agreement on new terms with our largest foodservice customer, and we plan to move forward on this mutually beneficial basis.

Speaker 2

This is expected to facilitate joint business planning and innovation, which will further build on our overall company profitable growth agenda. I will turn now to Greater China on Slide 21. On this slide, you can see the continued impact of the bold strategic actions we have taken to refocus the business on higher margin products and channels, while reducing costs. The segment has reported just a $3,000,000 adjusted EBITDA loss in the Q1. That is an impressive number when you also take into consideration the impact of the Chinese New Year holiday, where we don't ship product for several days.

Speaker 2

I am pleased with the progress we have made on the first stage of this segment's turnaround plan. However, there is still plenty of work to do to get this business where it needs to be. For that, we need to build a stronger top line with a redefined portfolio and channel perimeter, which is the 2nd stage of our turnaround plan. So Slide 22 gives you an update on where we are with this next stage. We are very excited to partner up with China's largest coffee chain.

Speaker 2

This started only last week as part of the Earth Day promotion. While it is for a limited time only for the moment, we believe it will provide additional category momentum and brand visibility to consumers. As we mentioned last quarter, sensitive to the economic context prevailing in China and the new consumer behavior, it was clear we needed to complement our portfolio with SKUs that could hit certain price points. We have therefore selectively launched these value products with several customers and they are performing well. This helps us to build a stronger service package for our customers, drive volume growth to sustain necessary levels of capacity absorption and hence solidify our margins.

Speaker 2

The consumer environment in Greater China remains challenging. However, we're identifying opportunities to rebuild our business in a disciplined manner with our North Star being profitable growth. While it is clear, we have not yet gained 2nd stage of this segment's turnaround plan. With that, I would now like to turn the call over to Marie Jose. MJ, over to you.

Speaker 4

Thank you, Daniel, and good morning, everyone. Slide 24 gives you an overview of the P and L for the quarter. We reported 1.8% year over year revenue growth and constant currency revenue growth of 1.2%. Gross margin for the quarter was 27.1%, which is a 9 70 basis point improvement versus the prior year quarter. This came in slightly ahead of our expectations as our supply chain team was able to reduce our cost structure more quickly than we planned.

Speaker 4

Adjusted EBITDA was a loss of €13,200,000 which was ahead of our expectations. In addition to the gross margin strength, we also benefited from the timing of certain SG and A expenses. We estimate this benefit to be approximately €3,000,000 These are items, for example, such as planning for various professional fees to hit in Q1 are now expected to hit a bit later. We also chose to attend certain trade shows that fall later in the year. Overall, we are pleased with our performance in the quarter.

Speaker 4

Slide 25 shows the bridging items of our quarterly revenue growth. You can see volume increased 3.1%. Price mix was 1.9% headwind for 1.2% constant currency revenue growth. Foreign exchange was a tailwind of 0.6%, percent resulting in 1.8% total revenue growth for the quarter. Slide 26 shows the revenue bridge by segment.

Speaker 4

Europe and International continued to report solid growth with a 7.7% constant currency revenue growth led by a 4.1% volume growth. North America's revenue growth of 4.6% was driven by a strong 11.4% volume growth, which was aided by distribution gains and continued sell in of new products. Pricemix was a headwind of 6.8%, consistent with the 4th quarter's level. Greater China's 26.8 percent constant currency decline was driven by the actions we have taken as part of the segment's strategic reset plan. Volume declined 15.8% and pricemix declined 11%, largely driven by unfavorable sales mix as we have eliminated SKUs that were higher priced but lower margin.

Speaker 4

Slide 27 shows you the drivers of our 9 70 basis point year over year gross margin expansion. The biggest item is a 7 50 basis point increase driven by absorption and supply chain improvement. For those of who have been following us for a while, you know that we have done a lot of work on improving our supply chain operations. The Yaya food transactions and consolidations of our North American co packer network was a big step for us in unlocking margins. We have also done a lot of mass newsworthy work to drive margins, such as improving our inventory management to reduce writing of aged inventory and working closer with our suppliers to reduce raw material costs as well as penalties and fees.

Speaker 4

Our net pricing and product mix improved margins by 150 basis points in the quarter. This was largely driven by the work we have done in Greater China to eliminate low margin products. Foreign exchange increased our gross margin by 90 basis points and we experienced a modest inflation headwind of 20 basis points. Overall, we are pleased with the progress on our gross margin so far. Slide 28 shows our adjusted EBITDA by segment.

Speaker 4

As you can see, each segment continued to report a significant improvement compared to the prior year. I'm pleased that for the Q2 in a row, the sum total of the adjusted EBITDA for the 3 regions was positive. It's clear that the strategic actions that we have been taking are driving concrete results. Quarter after quarter, we have been executing our plan, improving the business and driving the business toward profitable growth. Turning to our balance sheet and cash flow on slide 29.

Speaker 4

The 2 biggest takeaways are that our cash flow remains on track with our plans and our liquidity remains strong at €401,000,000 The chart on the right is our 1st quarter cash flow bridge. As you can see in the quarter, our total cash balance decreased by €40,000,000 There are few notable calls out in this chart. Working capital was €19,000,000 use of cash in the quarter. It was impacted by the timing of payables as well as the phasing of the inventory levels around plants upgrade where we worked down inventory at year end and build inventory in the Q1. We do not expect such a large headwind going forward.

Speaker 4

The other notable call out is around the cash flow related to the discontinuation of construction of our manufacturing facilities in the U. K. And U. S. That we have discussed on prior calls.

Speaker 4

Overall, we remain on track to have the impact of these exits result in no more than €20,000,000 of net cash out through the end of 2025. As we have mentioned before, this net cash outflow includes the benefit of selling some of the assets. As you can see, we received $14,000,000 from the selling of plant assets in the quarter. We also started to pay out some of the costs related to these exits. We expect these restructuring costs to increase over time to bring us in line with the overall budget.

Speaker 4

As you can see, the restructuring cost will flow through operating cash flow and therefore impact free cash flow while the benefits from selling assets will not. We encourage you to keep that in mind as you evaluate our cash flow going forward. As I said previously, improving our cash flow is a priority for me and our organization is very focused on it. Our finance teams have been doing a great job of helping us increase the organization's focus on cash. This great work has helped us improve our working capital metrics as well as increase the visibility and predictability of our cash flows.

Speaker 4

On slide 30, we are confirming our guidance across all metrics. We expect constant currency revenue growth in the range of 5% to 10%, and we expect currency to be a small headwind. We continue to expect the second half constant currency growth rate to be stronger than the first half, largely driven by volume growth acceleration in each region. For adjusted EBITDA, we continue to expect to report a loss of between €35,000,000 and €60,000,000 in 2024. With 1 solid quarter behind us and the continued expectations that adjusted EBITDA dollars will be stronger in the second half than in the first half, reaching the alpha variable end of this range is now less likely.

Speaker 4

However, we want to see additional traction on our strategic actions. Therefore, we are comfortable reaffirming the range. Finally, we continue to expect CapEx to be below €75,000,000 for 2024. This concludes our prepared remarks. Operator, we are now prepared to take questions.

Operator

Thank you. At this time, we'll be conducting a question and answer Our first question comes from the line of Michael Lavery with Piper Sandler. Please proceed with your question.

Speaker 5

Thank you. Good morning.

Speaker 3

Good morning, Michael.

Speaker 2

I was wondering if

Speaker 5

you could elaborate a little bit more on the updated relationship with your largest U. S. Foodservice customer? And kind of any more color you can add, but also I think you touched on an innovation component. Maybe just elaborate on that as well.

Speaker 2

Good morning, Michael. How are you doing? Daniel here. Yes, I guess on the innovation, just checking with you, Michael, you are referring to the same customer, right?

Speaker 1

Right, exactly, yes.

Speaker 2

Yes. Well, listen, we are pretty pleased with the how things have evolved, right? We are very enthused that to have reached an agreement on new terms. And that's because this supports our profitable growth North Star that we have been made public so many times. So now we can focus on our mission, which is with this very important customer of ours.

Speaker 2

This means more presence, more innovation. So expect joint business planning to work together in new occasions, new moments of consumptions and new products. And that in the end would mean more oatly and less cow's milk, which is back to our mission, right? So again, the way you should look at these moving forward when it comes to planning and the outlook is think still on a modest headwind, less than we expected so far, but with a very stable and even neutral impact in the overall business as we move forward. So the situation has improved.

Speaker 2

It looks better, and it's certainly moving in the right direction. But since you asked about the largest customer of ours, Michael and foodservice, this is the most exciting part of us. We talked about this diversifying the portfolio of customers and managing growth and mix. And what's most exciting nowadays is that we can report a very strong growth of 30% above 30% in this important channel of us, which is driving experience and so forth. So this proves that our ability to expand aggressively and the potential of the brand and the potential of the oatmeal category.

Speaker 2

So it's looking good, Michael. Thank you for

Speaker 6

the question.

Speaker 5

Yes, sure. And great color. Thanks. The follow-up I have is just on the guidance. I recognize as you just pointed out, there's a lot of the year left.

Speaker 5

But could you just maybe give a sense of the scenarios that would steer you to the higher or lower end and just some of what we should keep an eye on in terms of how that plays out?

Speaker 3

Thank you so much, Michael. JC here. I'll take this one. First, it's important to know that the reason why we feel comfortable with reaffirming our guidance for the year is because we made the progress we expected to make in the Q1. So if you look at it from a top line standpoint, we made the progress we expected on gaining distribution in both new and existing markets.

Speaker 3

We made progress on selling in our new products to customers, and we made progress driving trial with consumers. When it comes to the bottom line, we also made the progress we expected driven by, of course, our top line actions, but also the progress we made on reducing our structural costs, both in the supply chain and in SG and A. Actually, we performed a bit better than we expected on the cost side. So that's the very first important reason. 2nd, decades of business experience tells us that 1 quarter does not make the year.

Speaker 3

We are satisfied with our Q1, but we recognize we have 3 quarters in front of us to deliver to make the year. And finally, what I would like you to consider as well, as you heard me explain in our previous earnings call, is that our 3 segments are in 3 very diverse situations when it comes to maturity, execution and performance. Our most advanced segments, if you take Europe and International and North America, already have most of the last building blocks in place. So now therefore, it's a matter of their execution to deliver the impact we expect. On the other hand, our third one Greater China is just completing the first phase of their reset.

Speaker 3

So our guidance needed to reflect this diversity within our segments portfolio.

Speaker 5

Okay, great. Thank you so much.

Operator

Thank you. Our next question comes from the line of Ken Goldman with JPMorgan. Please proceed with your question.

Speaker 7

Hi, good morning. It's encouraging to see your share gains in the U. S. And Europe, also encouraging to see progress within oat milk as a category in these regions. I just wanted to dig a little deeper into what you're seeing in plant based milk in general that's leading it to be, I guess, somewhat flattish in Europe as you reported it and down low single digits in the U.

Speaker 7

S. Are there any concerns you have about the category? And what do you believe needs to happen for the category? And I'm talking just broad plant based milk to expand again at a fairly rapid pace in these regions? Thank you.

Speaker 2

Thank you, Ken. Good morning. Daniel, we'll take that you'll take your question. Listen, no, we're pleased with what we see, right? But this is the way in which we would like you to think about it, which is let us not take scanned data at face value to judge how the category is developing.

Speaker 2

Scan data is not fully representative of the total category growth. 2 very important facts that underpin that, Ken. Number 1, there is a growing defurcation between plant based drinks, the oat milk category and the oatly brands, and you picked up on that. Oat milk continues to outgrow plant based in general, and Oatly outgrows both categories consistently. And we continue to see the gains the share gains in both regions.

Speaker 2

So that is something that is growing it's a growing trend. And second of all, for the non measured channels in foodservice, as we have been working consistently for quarters now, you will remember, both Europe growing about 20% and the U. S. Growing about 35% outside our largest customer are the proof that the category is in good growth. So as you say, we are and as you saw, we are very selective in the way we drive growth in the foodservice channel, balancing growth and margin.

Speaker 2

So what we're doing at the moment instead of figuring out what to do according to scan data, we're head down controlling the controllables. Just like we said we would quarters ago, gaining distribution, driving strong velocities, introducing great new products for new occasions and investing more and consistently behind the brand. So besides driving disproportionate foodservice growth and launching in new markets, right, in a very disciplined and asset light manner. So the way we see this is that what we're doing is working, and there's more to come.

Speaker 7

Thank you for that. And then quickly, just as we think about modeling the second quarter, you did give some helpful color in terms of the shape of the year, first half and back half. Are there any other specific things as we just think up and down the P and L that might be useful as we plug in some numbers? Obviously, last year you had a fairly high SG and A number, I think the highest of the year. Just wanted to get a sense for your seasonality of that spend maybe as you guys think about it?

Speaker 7

And then any color we should think about as we model the regions in 2Q in terms of the top line? Thanks.

Speaker 4

Hi, Ken. This is Marie Jose. Let me take this question. So if you recall, right, last quarter, we told you that we will have a second half that is going to be higher than the first half. If you look at our performance in the Q1, I mean gross profit came slightly higher than expected, largely driven by supply chain improvement.

Speaker 4

In North America, the structural savings are from continuous improvement actions, And these are going to come as we go through the year as well. So that's one thing, right? So we know that we expected the savings to come as well. So they came earlier than expected, and we continue to see them coming. If you look forward, the year over year margin expansion from mix will become smaller as we lap the China reset in addition to the benefit from the supply chain improvement as we anniversary the supply chain consolidation in the U.

Speaker 4

S. So you definitely understand by now that there is a specific element that they are going to show you in second half that is a little bit different than the first half. Now when we look at our SG and A, going through the P and L, right, which is exactly the question that you asked. When we go through our SG and A and when we go through the P and L and we look at the SG and A, we called in the prepared remarks that we had a quarter we had a journey in the quarter that became favorable to our expectations. This is driven by certain fees like trade shows and professional fees that hit Q1 now expected to hit Q2.

Speaker 4

It's about €4,000,000 of which 2 of it is in North America. So if you add all of that, you will get a good picture, I think, between first half and second half.

Operator

Thank you. Our next question comes from the line of Max Gunport with BNP Paribas. Please proceed with your question.

Speaker 6

Thanks for the question. I was hoping you could give us a bit more color on the state of the strategic reset in China. Seems like you're making some good progress on that front. But then I'm also curious, given China's business exposure to foodservice, how you're thinking about the macroeconomic environment there and the health of the consumer? Thanks very much.

Speaker 2

Hi, Max. It's Daniel here. I will take your question. You saw in the prepared remarks and the consistency with at least 2 previous quarters, we are completing now the first phase of the reset plan, which is going in line with our expectations. And now we are entering the 2nd phase.

Speaker 2

What is the 2nd phase is obviously maximizing growth within the defined perimeter of that defined perimeter for us is foodservice, a reduced core portfolio, the key cities and the ugly brands. That is the redefined perimeter. So now we head down seasonal demand and certain price points, which are needed to the new context. A bit more detail for you to understand the status of the business and the reset plan. The decline you observe in quarter 1, importantly, which is significant, is almost entirely related to the dilutive portfolio we have rationalized in the 2nd part of 2023, and that boosted our sales in the 1st part of 2023.

Speaker 2

This effect, Max, will fade as of quarter 3 this year. So in general terms, the way you should look at this reportable segment is that calibration between assets, structure and business size will continue, will not stop. And the teams have an ongoing mandate to continue to bring this reportable segment into structural profitable growth moving forward. It's undeniable that the context continue to be challenging. And now the team, as we move from Stage 1 to Stage 2 head down finding more consumption and more demand for the O.

Speaker 2

G. Brand within the defined perimeter, but all in a conservative and measured approach. So thank you, Max. I hope that was okay for your question.

Speaker 6

Very helpful. Thanks very much.

Operator

Thank you. Our next question comes from the line of John Baumgartner with Mizuho Securities. Please proceed with your question.

Speaker 5

Good morning.

Speaker 6

Thanks for the question. Maybe first off, in your international markets, the volume from new markets is ramping and those new markets also include some of the higher per capita consumption regions globally. Can you speak to the progress or planned evolution to migrate those new markets from the initial foodservice entry into a larger presence at retail? I mean, is that occurring now? Is it more of a 2025 event?

Speaker 6

How do you think about the channel evolution in these new markets?

Speaker 2

Yes. I'll take that question, John. Good morning. It's we're very excited by the progress made in new markets. I know your question has 2 angles, which is new domain.

Speaker 2

The reason why we're very enthused is because every CP in which we land the OP brand proves the magic of the brand and how prepared these markets are to welcome us with open arms, whether it's a barista in specialty coffee or it's a customer buyer, we repeatedly get the finally, you guys are here. So whether it's to gain you saw the numbers in some of the key cities. We're already above 50% or 60% uptake in coffee specialty. And the way in which we reach number one velocities is quite extraordinary how we reach number one velocities in retail in some of these key cities is very, very fast, which means that the potency of the brand is already there, whether it's Paris, Barcelona or Brussels. This is how you should look, however, at our expansion.

Speaker 2

We expand in a very disciplined manner. So we are efficiently leveraging 2 things. In one hand, the installed capacity and on the other, we the overheads the way we manage overheads. So the overhead synergies we have in some of these neighboring markets. So we're not expanding everywhere at the same time.

Speaker 2

And again, we are mission led, right? So Oakley, we don't regard Oakley as an exclusive club. So we believe that the reason why we are seeding future growth is because we cannot be real about our mission just being present in only a few markets. To your question about channels, we have mentioned, JC and I, in past earnings calls that we have a playbook with Oakley. In fact, internally, we call it the algorithm.

Speaker 2

And we respect that beautifully, which means we conquer the hearts and the minds of coffee specialty first, then we expand experience in foodservice but in a selected manner, balancing margin and growth, while we make ourselves available in retail. That model is not changing. I would say we take it religiously in house, and we have no change and we have no plans to change that by market.

Speaker 6

And Daniel in North America, do you have any early data yet on the sell through in some of your newer accounts for fall and winter resets, Walmart, Costco, and whether there's any additional distribution plans having been announced or you expect going forward?

Speaker 2

Yes. Thank you. This is how you should look at this is how we are looking at the U. S. We have been growing TDPs.

Speaker 2

I'm sure you follow scan data more than us at the very high numbers, close to 50%. Now if you look at the numbers, it's a bit lower than that year on year. In both units and dollars, we have been consistently growing in scan data above in double digits since the start of the year. So we're pretty pleased with that. The way in which we're looking at that is that it will take time to take that trial into repeat, into loyalty and therefore higher velocities and higher sales, right?

Speaker 2

I'm sorry, I don't want to come across as teaching you mathematics, John. But this is what we see and we start seeing some early data in penetration that suggests that could be the case, right? So it's a very exciting progress. You will remember where we were a year ago explaining other things to you. It's a very exciting prospect as what we can expect moving forward.

Speaker 2

And we trust the strength of the brand to do that. Now actual numbers in the short term, the core ultimate portfolio is in growth. And to that, we add the incremental growth from the innovations in existing and new doors. So and we are the only brand growing shares in both oat milk and total nondairy. So we're pretty pleased and we believe that things are going well.

Speaker 2

So it's a lot of work to do, but we're pretty pleased with the progress and the outlook.

Speaker 6

And then I guess last question. In terms of your expansion plans, Q1 CapEx was basically a maintenance level and you continue to leave the door open, I guess, for growth CapEx for the new Asia capacity. But given the excess capacity you have in that region, the curtailed growth plans for China, at what point do you think you'll have a decision whether that investment actually goes ahead? I guess, what's keeping you from discounting it at this point and maybe giving greater free cash visibility to the Street?

Speaker 3

Thank you so much, John. Jean Christophe here. I'll take your question. So I think let me start by addressing Asia-three and Southern Island factory. As we previously communicated, we continue to evaluate III facility.

Speaker 3

And honestly, Greater China and Total Asian region are very important to us, and we continue to see a lot of opportunities there. So we want to make sure that we make the right decision for this business and its structure. And honestly, we are going to take as much time as needed to make the right decision on this factory and on this regional supply network. So let me reiterate, our guidance for CapEx is confirmed below $75,000,000 for the year. As you have heard us saying previously, this CapEx guidance reflects the 2024 portion of an end to end project in Southern Ireland, and we stick to the plan and we give ourselves the time to make the right decision for the future of this business as we have done over the past 2 years.

Operator

Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Carney for any final comments.

Speaker 1

Great. Thank you. If anybody wants to schedule a follow-up call, feel free to shoot me an email and we'll set something up. Aside from that, everybody have a great day. Thanks.

Operator

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

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Earnings Conference Call
Oatly Group Q1 2024
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