Greenberg: Red Flags Flying Over Boulder Brands
Editor's Note: This article was originally published at 11:44 a.m. EDT on Real Money on Sept. 25. Sign up for a free trial of Real Money.NEW YORK ( Real Money) -- Talk about cashing in on fads. Just look at the stock of Boulder Brands (BDBD - Get Report), the former Smart Balance, which is the closest to a pure play on the gluten-free gravy train.
- Receivables have grown substantially faster than sales for eight quarters. Last quarter they surged 70% and the quarter before 62%, or nearly double the sales growth. When receivables grow faster than sales, the concern is that customers are being given incentives somehow to take more products than they can sell.
- Organic sales into grocery stores of all Boulder products, including butter-like spreads, are greater than sales out of the stores. Last quarter, for example, Boulder's organic sales grew by 12%, an uptick from the prior quarter. Yet Nielsen reported sales (or purchases by consumers) at the grocery level increased in the mid-to-low single digits in each of the four-week periods within the quarter (and they have been trending lower). Most of the slide appears to be with the company's butter-like spreads, which have been in decline. Regardless, such discrepancies between sales into and out of the channel can be disconcerting. They can suggest a channel that is stuffed with more goods than can be sold.
- Perhaps more puzzling and troubling, even as Boulder is rapidly expanding its gluten-free lines through broader distribution into conventional grocery stores and new products, its reported sales growth for both Udi's and Glutino has tumbled in the past two quarters. And not by a small amount, with Glutino slowing to 36% in the second quarter and 34% in the first quarter, down from 62% and 57% in the prior two quarters. The story is similar at Udi's and slowing trends are occurring at the grocery level as well, according to Nielsen.
- As sales are slowing, inventory at Boulder is ballooning, growing last quarter at a rate more than triple revenue growth. The company attributes the high inventory to several factors, including "efforts to stay ahead of the continued growth and distribution gains in our gluten-free businesses." But too much inventory can be a problem if it doesn't sell through. Not only can it lead to price-cutting and lower margins, but lower future sales if disappointed grocers don't reorder at the same rate.