Summertime sales of Monster Beverage Corp.'s latest energy drink fell short of the company's initial expectations, though executives said Aug. 7 that they are still comfortable with how the product is performing.
June and July sales of Reign Total Body Fuel, which targets more health-focused consumers, were lower than Monster's initial expectations following the drink's launch in March, Monster Chairman and CEO Rodney Sacks said during an Aug. 7 earnings call.
Monster shares initially dropped by double digits Aug. 7 after the company missed second-quarter earnings expectations. However, shares recovered in daytime trading Aug. 8, closing up 3% at $62.18.
Sacks did not provide sales figures during the call for Reign in June or July, though Monster in May projected sales of Reign in excess of $235 million from June through December. During the first quarter, Reign contributed about $25.5 million to Monster's $946 million in net sales.
Monster executives were bullish on the prospects for Reign and ran a buy one, get one free promotion to help establish the drink in the United States. During a Feb. 27 earnings call, Sacks said it was a strategic decision to position Reign on its own and not make it a line extension of Monster. Reign's website features images of sweat-drenched people working out and leaning against the ropes of a boxing ring with the drink.
Sacks said Reign sales have been reasonably consistent over the past weeks but that the buy one, get one free promotion did not have a marked influence Reign's sales. He said that timing and shelf-space availability have also affect sales. Reign also recently launched in Walmart and the company plans to expand distribution of the drink outside the U.S., Sacks said.
"We're comfortable with the performance. It's a new product. It's got out and it's obviously going to find its feet in different markets and in different channels," Sacks said.
Initial expectations for Reign may have been too optimistic, Bonnie Herzog, a senior analyst with Wells Fargo, said in an Aug. 7 report after Monster's earnings call.
Weaker-than-expected Reign sales suggest that repeat purchases may be lower than previously expected, despite the buy one, get one free promotion, Herzog said.
Additionally, competitive pressure from more-established energy drinks "may be greater than Monster originally forecasted," Herzog said.
Kevin Grundy, a Jefferies analyst, said in an Aug. 8 report that the recent launch of Reign in Walmart should bode well for Monster.
"While risk factors remain, global energy drink category trends remain healthy, [Monster] is generally growing ahead of the category in most countries," Grundy said in the report.