14 Comments

Compelling idea. Google search queries have started to rebound as well, from a slump that started in 2015. Presumably due to a new product?

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Thanks, Michael, appreciate the comments.

It's a great question, and I'm not entirely sure why. But you are right - kefir seems to be doing much better in searches since 2021. The category is certainly well positioned from a health and wellness perspective. Articles such as this one are common:

https://www.healthline.com/nutrition/9-health-benefits-of-kefir

Could be that it's become more on trend as of late? Certainly makes it more compelling if the company can keep growing top-line at a good clip on top of the margin normalization.

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I looked at the 2022 MD&A, and the explanation seems to be either 1) COVID boost 2) the acquisition of Glen Oaks Farms, though I'm not sure how that would have helped promote the Lifeway brand name

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I'm looking at the category, kefir, which has rebounded significantly since 2021.

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Oh wow, you're right. That makes the case very compelling.

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Aug 15, 2023Liked by Clark Square Capital

Love this new format - fun idea!

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Thanks, Daniel! Appreciate that!

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Aug 15, 2023Liked by Clark Square Capital

Thanks! Do you think 29%+ gross margin is sustainable? They've averaged around 23% since Q1/2020. To your point, lower raw materials costs are boosting the bottom line. Curious to hear your thoughts on this and whether you believe this business is over-earning (or under) at an annualized EBIT rate of $19 mln? Thanks

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Thanks for the comment! I think it's a great question. 22-23% GM is certainly under-earning. 29% looks high, but you have to consider that volumes are likely up ~20% from 2020. It's hard to untangle because the company does not disclose volume/price mix. OPEX has also been kept flat-ish despite the increase in sales. So I do think EBIT north of 10% is more in-line with normalized profitability.

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Aug 15, 2023Liked by Clark Square Capital

got it, super helpful. Thank you!

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You bet, thanks!

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These short pitches are a great idea. Thank you very much!

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Thanks, AP! Noted. People seem to like the format, so I will keep sharing short ideas as well.

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I generally find that food brand names lack the defensible moat that others businesses have. I am a BIG fan of kefir however have notice a steady increase in in-house brands (Trader Joe's, Whole Foods, etc.) that are priced cheaper than Lifeway good at a similar quality. I got burned with Beyond Meat and Tattooed Chef and am now trying to be more discerning with food investments. Really interesting pitch!

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