Monster Beverage Corporation (MNST) Q4 2016 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the Monster Beverage Corporation's Fourth Quarter and Year End 2016 Financial Results Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions]. As a reminder, today's conference is being recorded. I would now like to turn the call over to Mr. Rodney Sacks, Chairman and CEO. Sir, you may begin.

Good afternoon, ladies and gentlemen. Thank you for attending this call. I'm Rodney Sacks. Hilton Schlosberg, our Vice Chairman and President, is with me; as is Tom Kelly, our Senior Vice President of Finance. Before we begin, I'd like to remind listeners that certain statements made during this call may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended, and Section 21E of the Securities Exchange Act of 1934 as amended, and which are based on currently available information regarding the expectations of management with respect to revenues, profitability, future business, future events, financial performance, and trends. Management cautions that these statements are based on our current knowledge and expectations and are subject to certain risks and uncertainties, many of which are outside the control of the Company that may cause actual results to differ materially from the forward-looking statements made during this call. Please refer to our filings with the Securities and Exchange Commission; including our most recent Annual Report on Form 10-K filed today including the sections contained therein entitled Risk Factors and forward-looking statements, for a discussion on specific risks and uncertainties that may affect our performance. The Company assumes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise. An explanation of the non-GAAP measure of gross sales and certain expenditures, which may be mentioned during the course of this call, is provided in the notes and designated with asterisks in the consolidated statements of income and other information attached to the earnings release dated March 1, 2017. A copy of this information is also available on our website at monsterbevcorp.com in the Financial Information section. On October 14, 2016, we announced a three-for-one stock split of the company's common stock to be effective in the form of a 200% stock dividend. The common stock dividend was issued on November 9, 2016, and the company's common stock began trading at the split adjusted price on November 10, 2016. Accordingly all per share amounts; common stock outstanding, and common stock repurchase, presented on this call have been adjusted retroactively where applicable to reflect the stock split. Sales in the beverage industry in the fourth quarter continued to be soft globally. In the fourth quarter, net sales was $753.8 million, up 16.8% from $645.4 million in the fourth quarter of 2015. The company achieved record gross sales of $848.8 million, up 14.2% from $743.2 million in the fourth quarter of 2015. The comparative net and gross sales of $645.4 million and $743.2 million respectively for the 2015 fourth quarter were impacted by advanced purchases made by the companies customers due to a pre-announced price increase, effective August 31, 2015, on certain of the company's Monster Energy brand energy drinks. The company estimates that both net and gross sales for the 2015 fourth quarter were reduced by approximately $11 million and $12 million respectively, as a result of such advanced purchases. Net and gross sales for the 2016 fourth quarter after adjusting the 2015 fourth quarter comparatives for advanced purchase increased by 14.8% and 12.4% respectively. Unfavorable currency exchange rates reduced net sales by approximately $3.3 million and gross sales by approximately $5.9 million in the 2016 fourth quarter. Gross profit as a percentage of net sales for the fourth quarter was 66.1% as compared to 62.5% for the comparable 2015 fourth quarter. The increase in gross profit as a percentage of net sales was primarily attributable to cost of goods savings as a result of the AFF transaction and product mix as well as reduced promotional allowances as a percentage of sales in the fourth quarter. We estimate the lower promotional allowances as a percentage of sales as compared to prior periods, together with the reduction of Java Monster sales had the effect of increasing gross profit percentage by approximately 2% in the fourth quarter. Distribution cost as a percentage of net sales were 3.2% compared to 2016 and 2015 fourth quarters. Selling expenses as a percentage of net sales were 12% compared to 12.9% in the same quarter a year ago, they increased in absolute dollars. The increase in absolute dollars was primarily due to increased sponsorship and endorsement costs and premiums. General and administrative costs as a percentage of net sales were 17.5% as compared to 11% in the same quarter last year. General and administrative costs excluding distributed termination expenses as a percentage of net sales increased to 11.4% in the fourth quarter of 2016 compared to 10.5% for the 2015 fourth quarter. Payroll expenses were up $12.3 million primarily to support the strategic brands that we acquired from Coca-Cola and stock-based compensation, which is a non-cash item, was $3.1 million higher. Distributor termination expenses were $46.3 million in the fourth quarter as compared to $3.3 million in the 2015 fourth quarter. Regulatory matters and litigation concerning the advertising, marketing, commercial ingredients, used safety and sale of the company's products were $5.1 million in the 2016 fourth quarter as compared to $6 million in the 2015 fourth quarter. Our effective tax rate in the quarter decreased from 39.5% in the 2015 fourth quarter to 29.9% in the 2016 fourth quarter primarily due to an increase in the domestic production deduction as well as an increase in the stock compensation deduction as a result of the adoption of new accounting guidance effective January 1, 2016, under which excess tax benefits are recorded in net income. Net income was $172.9 million in the 2016 fourth quarter compared to net income of $138.7 million in the 2015 fourth quarter, an increase of 24.7%. The weighted average number of diluted shares outstanding decreased from 617.4 million for the fourth quarter of 2015 to 580.5 million for the fourth quarter of 2016, as a result of share buybacks, including the modified Dutch tender auction, which was completed in June 2016. Net income was impacted by the substantial increase in distributor termination expenses previously mentioned above. Diluted earnings per share for the 2016 fourth quarter increased to 32.6% to $0.30 from $0.22 in the fourth quarter of 2015. We estimate that distributor terminations expenses in the 2016 fourth quarter of $46.3 million negatively affected diluted earnings per share by approximately $0.05 per share after tax. Distributor termination expense for the 2015 fourth quarter had no effect on diluted earnings per share after tax. We refer you to the press release for the specific factors affecting profitability for the 2016 and 2015 fourth quarters respectively. Turning to the full-year results. The company achieved record gross sales of $3.5 billion for the full-year, up 12.2% from $3.1 billion in 2015. Net sales were up 12% from $2.7 billion to $3 billion. Gross and net sales for the year were adversely affected by unfavorable changes in foreign currency exchange rates, totaling $31 million and $22.3 million respectively for the year. Gross profit as a percentage of net sales increased to 63.7% for the year ended December 31, 2016, from 60% for the year ended December 31, 2015. Operating income was up 21.4% to $1.1 billion from $893.7 million in 2015. Our effective tax rate decreased to 34% in 2016 from 38.7% in 2015. Net income was $712.7 million, up 30.4% over net income of $546.7 million in 2015, and diluted earnings per share increased 25.6% to $1.19 from $0.95 in 2015. We refer you to the press release for the specific factors impacting profitability for the 2016 and 2015 financial years respectively. We have made good progress in the implementation of our strategic alignment with Coca-Cola Bottlers globally. Domestically we transitioned distribution of Monster Energy Drinks in Wisconsin to Coca-Cola Bottlers early in January 2017 and are making good progress in the United States in non-traditional channels including Foodservice accounts. In EMEA, in the fourth quarter of 2016, we commenced distribution of Monster with Coca-Cola Bottlers in Bahrain, Mauritius, Qatar, and United Arab Emirates. In EMEA, in the first quarter of 2017, we commenced distribution of Monster with Coca-Cola Bottlers in Nigeria and Oman with additional launches planned in the second quarter of 2017 for Jordan, Kazakhstan, Kuwait, and Pakistan. In LATAM, in the fourth quarter of 2016, we transitioned distribution of Monster with Coca-Cola Bottlers in Brazil, Costa Rica, Ghana, and Panama. In the first quarter of 2017, we launched distribution of Monster with Coca-Cola Bottlers in certain countries in the Caribbean and transitioned distribution to Coca-Cola Bottlers in certain other smaller markets in that geographic region. In China, in the fourth quarter of 2016, we commenced distribution of Monster with Coca-Cola Bottlers in selected markets that includes Shanghai, Hunan Province, Shenzhen, Guangzhou, Zhanjiang and Hainan in China. We also commenced distribution in the Maldives in the fourth quarter of 2016. We have received approval for our products in India and are planning to re-launch Monster in India later this year. As previously reported, we successfully completed our acquisition of the concentrated flavor business operated by American Fruits & Flavors on April 1, 2016. As a result of the AFF transaction, we achieved raw material cost savings of $22 million in the 2016 fourth quarter, which were broadly in line with expectations. According to the Nielsen reports for the 13-weeks through February 18, 2017, all outlets combined, namely convenience, grocery, drug, mass merchandisers, sales in dollars in the energy drink category, including energy shots, increased by 0.6 of a percent versus the same period a year ago. Sales of Monster grew 0.1% in the 13-week period, while sales of NOS increased 7.3%, and sales of Full Throttle decreased 6.3%. Sales of Red Bull increased 0.8 of a percent, sales of Rockstar decreased by 0.9 of a percent, sales of 5-Hour decreased 5.7% and sales of AMP decreased 24.6%. According to Nielsen for the four weeks ended February 18, 2017, sales in the convenience and gas channel, including energy shots in dollars increased 0.1 of a percent over the same period last year. Sales of Monster decreased by 0.9 of a percent over the same period last year while NOS was up 6.2% and Full Throttle sales decreased 6.2%. Sales of Red Bull increased 5.7 of a percent, Rockstar was down 4.5%, 5-Hour was down 8.5%, and AMP was down 25.5%. We pointed out that the energy shots category has been declining for some time and if we exclude the energy shots category, Energy Plus Coffee and Protein Drinks where we have experienced production capacity shortages. For the four weeks ended February 18, 2017, sales in the convenience and gas channels in dollars in fact increased by 1.4% over the same period last year. And on this basis, sales of Monster increased by 1.6%. According to Nielsen, for the four weeks ended February 18, 2017, Monster's market share of the energy drink category in the convenience and gas channel including energy shots in dollars decreased by 0.4 of a point over the same period last year to 35%. NOS share increased 0.2 of a point to 4.3% and Full Throttle sales decreased 0.1 of a point to 1%. Red Bull share increased 0.2 of a point to 34.7%, Rockstar share was down 0.4 of a point to 8%, 5-Hour share was lower by 0.7 of a point to 7.6% and AMP decreased 0.5 of a point to 1.3%. According to Nielsen, for the four weeks ended February 18, 2017, sales of Energy Plus Coffee Drinks in dollars in the convenience and gas channel decreased 5.1% over the same period last year. Sales of Java Monster were 19.7% lower than the same period last year, while sales of Starbucks Double Shot Energy were 12.6% higher. We continue to experience production capacity shortages for Java Monster which I will address later in the call. According to Nielsen in the convenience and gas channel in Canada for the 12-weeks ended January 7, 2017, the energy drink category decreased 5% in dollars, due largely to lower pricing of private label brands. Monster sales increased 1% versus year ago. Our market share increased 1.8 share points to 30%, Red Bull sales decreased 2% and its market share increased 0.9 of a point to 38.2%, Rockstar sales decreased 6% and its market share decreased 0.2 of a point to 18.7%. According to Nielsen, all outlets combined in Mexico, the energy drink category grew 23.9% during the month of January 2017. Monster sales increased 22.3%. Our market share in value decreased 0.4 of a point to 26.8% against the comparable period last year. Sales of Burn decreased 22.7%. Burn's market share decreased two points to 3.4%. Red Bull sales decreased 8.9% and its market share decreased by 4.1 points to 11.4%. Vive 100's market share increased 9.6 points to 37.8%, while Boost's market share decreased 4.8 points to 13.6%. The transition to the KO bottler system in August 2016, while initially slow has since improved and we are now seeing wider availability of Monster in the traditional freight channel in Mexico. According to Nielsen, Monster's new medical distribution in the traditional freight channel grew from 10% in January 2016 to 24% in January 2017. The Nielsen statistics for Mexico cover single month which was a short period that may offer be materially influenced positively and/or negatively by sales in the offshore convenience chain which dominate the market. Sales in the offshore convenience chain turn to be materially influenced by promotions that may be undertaken in that chain by one or more energy drinks brands during a particular month. Consequently such activities could have a significant impact on the monthly Nielsen statistics for Mexico. According to Nielsen in a 13-week period ended December 2016, the actual 13-week periods varied by a few weeks between different markets. Monster's retail market share in value as compared to the same period last year grew from 13.5% to 15.4% in Great Britain, from 20.3% to 22.9% in France, from 13.4% to 15.2% in Germany, from 8.7% to 9.5% in Italy, from 8.9% to 12.4% in Ireland, from 7.1% to 10.9% in Norway, and from 8.8% to 12% in the Czech Republic. In the same period, Monster's market share grew from 10.9% to 11.1% in Sweden, from 8.7% to 10.5% in Belgium, and from 23.8% to 27.2% in Spain. Monster's retail market share in value for the 13-weeks ending December 2016 as compared to the same period last year decreased from 6.7% to 5% in the Netherlands. Monster's retail market share in value for the 13-weeks ending December 2016 grew from 15.8% to 16% in South Africa. According to IRI, Monster's market share in Greece increased in the 13-weeks ended December 2016 from 28.2% to 28.5%. I would like to point out that Nielsen and IRI numbers in EMEA should only be used as a guide because the channels raised by Nielsen and IRI in EMEA vary from country-to-country. According to Nielsen, Monster's retail market share in value in Chile increased to 26.9% in January 2017 as compared to 19.9% last year and also just two months since the KO bottler system, Monster's market share in value in Brazil grew to 5% in December 2016 as compared 3.7% in the same period last year. In South Korea Monster's retail market share in value increased from 13.3% to 23.7% in December 2016 compared to the same period last year. According to INTAGE Monster's market share in value in the convenience store channel in Japan grew from 38.6% to 43.3% in December 2016. According to IRI in Australia Monster's market share in value grew from 3.1% to 6.3% in December. Going to IRI in New Zealand Monster's market share in value grew from 2.3% to 5.7% for the last four weeks ending December 4, 2016, versus the same period last year. Net sales for the Monster Energy Drinks segment in the fourth quarter of 2016 increased 17% from $585.1 million to $684.4 million from the comparable period last year. Gross sales for the Monster Energy Drinks segment for the fourth quarter of 2016 increased 14.3% from $677.7 million to $774.8 million for the comparable period last year. Net sales for Monster Energy Drinks segment in the fourth quarter were negatively impacted by approximately $3.2 million of foreign currency movements. The comparative gross and net sales for the Monster Energy Drinks segment of $677.7 million and $585.1 million respectively for the 2015 fourth quarter were impacted by advanced purchases made by the companies customers due to a pre-announced price increase effective August 31, 2015, on certain of the company's Monster Energy Brand energy drinks. The company estimates that both gross and net sales for the 2015 fourth quarter for the Monster Energy Drinks segment were reduced by approximately $12 million and $11 million respectively as a result of such advanced purchases. Gross and net sales for the Monster Energy Drinks segment for the 2016 fourth quarter after adjusting the 2015 fourth quarter comparisons for advanced purchases increased by 12.4% and 14.8% respectively. Net sales for the Strategic Brands segment were $64.5 million for the fourth quarter as compared to $60.4 million in the same quarter last year. Net sales for the company's Strategic Brands segment were negatively impacted by approximately 0.1 million of foreign currency movements in the quarter. Net sales of the other segment, which includes third-party sales made by AFF, were $4.7 million in the 2016 fourth quarter. There were no sales for the other segment in the comparable 2015 fourth quarter. We continue to experience production capacity shortages for our retooled products Java Monster and Muscle Monster. We are taking steps to address the issues including securing products from Europe, but anticipate that it will take a number of months before production availability allows us to restore normal supply patterns and fully meet consumer demand that exists for these products. We estimate that sales in the quarter was negatively impacted by approximately $22 million as a result of such production capacity shortages. Net sales to customers outside of the United States were $193.5 million in the 2016 fourth quarter compared to $145.3 million in the corresponding quarter in 2015. In local currencies, net sales to customers outside of the United States were approximately $3.3 million higher. Included in reported geographic sales are our sales to the company's military customers which are delivered in the United States and transshipped to the military and their customers overseas. In Europe, the Middle East, and Africa, net sales in the fourth quarter in local currencies increased 40% and 33% in dollars over the same period last year. Gross profit in this region as a percentage of net sales decreased from 53.4% in the same period last year to 52.8% during the quarter. For the full-year of 2016, net sales increased 36% in local currencies and 30% in dollars over 2015. Gross profit in this region as a percentage of net sales increased from 48.4% in 2015 to 51.1% in 2016. Monster continued to gain momentum and increased market share throughout Europe in the fourth quarter, in particular, in Great Britain, Germany, Spain, France, Czech Republic, Ireland, Poland, and Norway. Monster achieved increased sales guidance as well as increased market share. In Asia-Pacific, net sales in the fourth quarter increased 53.1% in dollars and 41.1% in local currencies over the same period last year. Gross profit in this region as a percentage of net sales decreased from 49.6% in the same period last year to 44.1% during the 2016 fourth quarter. In Japan, net sales in the quarter increased 45.1% or 25.1% in local currency, primarily due to the strengthening of the Japanese yen against the U.S. dollar as compared to the same quarter last year. We continue to experience strong performance in Japan. In South Korea, net sales increased 135.9% or 130.3% in local currency as compared to the same quarter last year. In Oceana, which includes Australia, New Zealand, Tahiti, French Polynesia, New Caledonia, and Guam, net sales increased 3.6%, modest 3.4% in local currencies as compared to the same quarter last year. As previously mentioned, we are moving ahead of plans for local production in India with a view to reentering the market in 2017. In Latin America, including Mexico and the Caribbean, gross sales in the fourth quarter increased 20.7% in dollars and 23.6% in local currencies. Net sales in the fourth quarter increased 19.7% and 21.8% in local currencies over the same period last year. Gross profit in this region as a percentage of net sales increased from 48.9% in the same period last year to 52.5% during the 2016 fourth quarter. Net sales increased in Brazil 115.3% in dollars or 117.2% in local currency largely due to the transition of Monster's Coca-Cola bottlers, which took place on November 1, 2016. Net sales in Chile increased 148.6% in dollars and 137.7% in local currencies. Turning to the balance sheet, cash and cash equivalents amounted to $377.6 million compared to $2.18 billion at December 31, 2015. Short-term investments were $220.6 million compared to $744.6 million at December 31, 2015. Long-term investments decreased to $2.4 million from $15.3 million at December 31, 2015. Accounts receivable increased to $448.1 million at December 31, 2016, from $353 million at December 31, 2015. Days outstanding for accounts receivables were 48.2 days compared to 43.2 days at December 31, 2015. Inventories increased to $162 million from $156.1 million at December 31, 2015. Average days of inventory was 57 days at December 31, 2016, compared to 58 days at December 31, 2015. In September 2016, we launched Mutant, an exciting Super Soda in limited convenience store in certain U.S. markets with encouraging sales per point of distribution. For the 13-weeks ended January 21, 2017, for Nielsen total U.S. convenience, Mutant had the highest dollar share gain of any single served bottling soft drinks brand. For single served packages sold in convenience stores during the same dollars, Mutant outsold a number of well established single served brands such as 7 Up. We remain confident about the potential of this brand. We are planning to launch of our new Hydro line which is a non-carbonated largely treated energy drink, is packaged in a unique 16.9 ounce PET can, the size which is exclusive to us in the U.S. at this time. We are planning to launch Hydro for the retail trade towards the end of March or early April. Monster Energy Ultra Violet was launched exclusively with Sam's Club and will be expanded to all channels at the end of March 2017. We are also planning to launch Full Throttle Orange at the end of March. We have a robust innovation pipeline and further launches are planned for the remainder of 2017. We estimate January 2017 gross sales to be approximately 10.4% higher than in January 2016. On a foreign exchange adjusted basis, we estimate January 2017 gross sales to be approximately 11.6% higher than in January 2016. In this regard, we caution again that sales over a short period are often disproportionately impacted by various factors such as for example, selling days, days of the week in which holidays fall, timing of new product launches and the timing of price increases and promotions in retail stores, distributor incentives, as well as shifts in the timing of production, in some instances where our boxes are responsible for production and unilaterally determine their production schedules, which affects the dates of which we invoice such bottlers. We reiterate that sales over a short period such as a single month should not necessarily be imputed to or regarded as indicative of results for a full quarter or any future period. With regard to litigation between the Company and the San Francisco City Attorney, we advice that the action was settled in January 2017 on terms acceptable to company. The settlement does not include any penalty under California's Unfair Competition Law, any funding or admission of liability or wrongdoing or any change in the formula -- to the formulation of Monster Energy Drinks or to whom the drinks may be sold. In consideration of release of clients and dismissal of the action with prejudice, the company agreed to maintain the various current marketing and labeling practices for its energy drink products through December 31, 2018. On February 28, 2017, the company's Board of Directors authorized a new repurchase program for the repurchase of up to $500 million of the company's outstanding common stock. No availability remains under the previously authorized share repurchase programs. In conclusion I'd like to summarize some recent positive points. One, as previously reported our acquisition of AFF represents an important milestone for the company and gives us ownership of our proprietary formulas for our principal products. We recognize the reduction in operating costs of $22 million in the fourth quarter as a result of the acquisition. Two, North American and international gross margins remained healthy. Three, while the U.S. Nielsen market statistics showed that the energy category slowed in the U.S. towards the end of the fourth quarter equivalent getting of the first quarter -- equivalent market statistics from many countries around the world showed that the energy category is continuing to grow and that Monster is generally growing ahead of the category. Currency exchange rates continue to affect our results. The new additions to the Monster family continue to gain momentum, and add to the company's sales. We are excited about the prospect for our new product launches. We are pleased with our performance in our international markets and reiterate the growth potential for us in China, one of the largest energy drink markets globally. We have successfully transitioned additional international countries to Coca-Cola bottlers in the fourth quarter and will be transitioning a number of other markets to Coca-Cola bottlers in 2017. I would like to open the floor to questions about the quarter and the year. Thank you.

[Operator Instructions]. Thank you. And our first question comes from Bill Chappell with SunTrust. Your line is now open.

Just a little more color around the fourth quarter on both tenants. You said, lower promotional allowances and then also on the top-line. On the promotional allowances, is that something that that was more year-over-year comparison or is that something that we should expect in general going forward in 2017? And then on the top-line was there, you may be could you break out was there much benefit from kind of the Mutant sell-in, from the China sell-in or was that negligible to kind of the top-line growth?

I think most of the answers comparatively based on a quarter by -- comparable quarter for last year.

Okay. You said it was a benefit to gross profit that's why I was wondering.

I think we made the point, Bill, when we spoke about gross profit that the additional promotional allowances in the quarter and other items had the impact of increasing gross profit margin by approximately 2%. So in that I think what we try to suggest that these promotional allowances, the reduction in promotional allowances may not necessarily endure over the quarters in 2017.

Thank you. And our next question comes from the line of Mark Astrachan with Stifel. Your line is now open.

Hey guys, just one housekeeping. I think you still need to answer Bill's other question on I think Mutant sell-in. Also my question is just on general sell-in and sell through trends, so you touched on this at the Investor Meeting in January about untracked channels contributing more than you'd seen historically, obviously that disconnect had widened pretty substantially here. So may be if you could sort of touch on what you think is contributing to that and I'm talking specifically about the U.S. may be sort of methodology gathering what you're doing in universities, foodservice, vending et cetera, just sort of much specificity there if you could give would be helpful? Please.

We're just dealing with Mutant. Mutant we went through this a few times. We repositioned Mutant in selected channels at full pricing. We've not been aggressive in our promotion. If you look at the average pricing in Nielsen, Mutant is at average pricing in all the different periods depending which period you look at it's still above 196. If you compare that, that's quite a substantial premium to the other soft drinks and its main competitive soft drink that we're looking at competing, with which is Mountain Dew. And so we have strategically not promoted Mutant during the winter period. We are taking steps to deal with expanded distribution. We will obviously increase our promotional and other activities around the brand as we continue to go into spring and summer. So when we look at the numbers and we look at the sales per point, we think the sales per point are pretty good in relation to a lot of the other well established brands in the area. If you look at the last four weeks that has dropped off a little bit again because of the -- we believe the lack of promotional spend and behind the brand that that was intentional in this period of time. It is a soda and we are looking to as I expand distribution, expand the channels and also become substantially more active in the promotion that's driving us starts going into spring now. So we are still positive about the brand and its prospects and sell to particularly where we have seen at the substantial price premium, we've seen substantial sales per point that are higher than a lot of very well established brands that are being around for a long time.

I think there is one other point that we need to focus on and that is that the permanent shift will be done and the placements will be done in March. So we launched Mutant off-cycle, which means that in many cases the product is on space where the bottlers could find space for the product. And in March, the sets, the new sets will become available in the convenience and gas channel where the product is sold.

There are another, couple of other key channels where we have secured listings and we will be. Those are things will start coming through in April and May. So we do have ongoing plans to basically ramp up for put effort and focus behind the brand.

I think it's also anticipated that the -- this is not a full blowing launch; it is also called a bubble up launch. There is only launch in convenience retail in chains in convenience retail that was rolled out to Mom and Pop to a limited degree and that's where we're at this time. As Rodney said, there will be further listing that have been secured that will take place starting in April.

Then just talking about the Mark's question, there is a bigger divergence but that is the fact of matter is that the non-major channel are continuing to expand for us. We are dealing in the non-major area. We also have some concerns about the accuracy and the represented nature of the convenience data which does seem to us to be a little more inaccurate in relation to as compared for example to grocery where we think there is a closer correlation and a better read. And that's just a fact of life. But we are where we are on our sales and we continue to see increases, although clearly there is some softening in the convenience channel.

And also don't forget that the Java's shortages that we experienced, they also affect.

Yes, affect the whole channel and whole category.

Thank you. And our next question comes from the line of Amit Sharma with BMO Capital Markets. Your line is now open.

Hi, just a quick navigation going back to the question there is no case to sort of like the inventory build-up in the channels because of divergent Euro [ph] sales?

Sorry. Just say that again?

So we shouldn't view there is inventory build-up in the channel as suggested by the divergent Euro sales and slowdown in channel, you're not seeing inventory build-up there?

No, not that we've seen. And I think that the bottlers would be -- will be building up inventory of Monster in their system either.

Got it. And then as we think about Hydro launching later this year, would you expect Hydro also to be a bubble up launch or would you expect that to be a little bigger launch more in line with your traditional products?

I think it would be -- it will be more in line with our traditional launches. But again we generally do launch through a bubble up process, somewhat more or less extensive but that's generally how we've always launched our products, it's regarding to selective chains and into launch but it will be a more extensive launch than we had for Mutant. Mutant was very exceptional launch and it was very limited by design and by strategy and being off cycle Hydro will be a more broader based launch going out. But clearly initial focus will be on the convenience and gas and independent channels, et cetera.

Thank you. And our next question comes from the line of Kevin Grundy with Jefferies. Your line is now open.

Thanks. Good evening guys. First one, housekeeping question just point of clarification on the January gross sales update, if I'm not mistaken, there is an extra selling day in the month of January and then I think that there is one less in the first quarter. So Hilton perhaps if you could just clarify that that would be helpful. And then the broader question on Brazil, which looks like it's starting to bounce back now with the distributor change behind you. How high can that share go, how quickly can you guys ramp in that market. Can you give us any sort of parameters for which you think you can grow market share it's like the 27% that you have in Chile is that, is that reasonable and over what period of time. Thanks.

I think there is an extra selling day in January.

Extra selling day in January, that is correct.

Yes. And I'm not sure about the quarter but in my review one less in the quarter. We know there is one less in February but we haven't done the exercise. So I think just mathematically that is right.

Yes, exactly. We're -- just to be clear, I mean, we run our business quarter-by-quarter and while selling days obviously are important because sales have generated on each day. We've never looked at our business and never tried to explain our business based on one or less selling day and I just want to be clear on that.

On Brazil, Brazil a very unique market. The country at the moment is struggling obviously talk of it being almost in the depression and so there are challenges. We also have a group of 10 bottlers; it's a little bit different to Chile. Chile there were two main bottlers they really, we started to have some pretty -- we really had some pretty good momentum for the brand. It was well established, it doesn't have a deep distribution but where it was, it was already selling into the high-teens and doing pretty nicely. So when the two Coke bottlers in Chile took it over, they really didn't price the brand and obviously we're able to sort of more structured market, we're able to expand the market, rather up probably more quickly and more I think efficiently than is the case in Brazil. And so the results have been very good. And we've been very encouraged by the results. In the case of the Brazilian market, it is a much more non-traditional market you have literally well over a million of these little traditional stores all over the place and they are audit get you, audit of service and grow invariably, there is a very, very large and interpret wholesale system that helps get to these stores and it's just you're just not comparing apples-and-apples. So we've got to manage a group of 10 odd bottlers in a very different environment, countries and also that is going through tough financial conditions at the moment. But that being said, we think that will take some time, but as it has in many of the current markets where you do deal with these very big bottlers or basically groups of bottlers it takes time for them to get coordinated and get their system going. But when it does start going, it does really work, it does improve and so we're very encouraged by what we've seen. We are at a point now where we are selling at a rate which is higher than we've ever sold even when we were with our previous distributor at the peak before we announced the KO transaction and they tended to lose interest in the brand and stop putting the effort behind this because they were also a good distributor. And so we're encouraged by where we're going but it will take time to build up. The good news is that it's a big energy market. We do quite nicely with Burn there and really these by far the largest player is Red Bull. That is really our main competitor and we are at sort of a similar price point, which for us means that we would -- gives us a lot of opportunity to grow into that market against the Red Bull share which is at a premium price and is not at the low-end. They do have low end brands but at least we know there is a lot of good business to be gone off at this but it's going to take time to develop.

Thank you. And our next question comes from the line of Laurent Grandet with Credit Suisse. Your line is now open.

Hi Rod, hi Hilton. A quick follow-up on Mutant and you mentioned earlier this year the share that you would be launching in Mutant in Wal-Mart in Q2 this year. Could you please give us a bit more color my understanding was it, it would be about 1,000 stores from April, with its first shipment in March. Should we think now differently or --?

I'm not sure, not sure where you got that from.

Okay. Well that's I mean a question I ask at some point and to some retailers and so are you; are you confirming or not confirming?

Not confirming anything.

Okay. So I've got a chance then for a second question. Regarding the on-premise, I mean you mentioned, I mean you're making lots of progress there. Two quarters ago, you mentioned, I mean you are testing in McDonalds and Dunkin Donuts my understanding here is that you would be launching in Dunkin Donuts. So could you abate us on those two tests and either any other big customers we should think off from that you are making progress?

Well McDonalds the test is continuing, they don't make mutinous decision, so that test is continuing. And with Dunkin Donuts, we are distributed in a number of their outlets, so that's not. I mean we alluded earlier to the fact that we were launching Mutant in a number of -- number of chains later this year and you can read into that, but certainly one of them is a major retailer.

I think it's premature at this time to give more detail on that launch. We'll start going through, as we said in spring and then I think that would be in a much better position to give you much more color on Mutant's and the activities that we have then behind it when we report our first quarter results in the first week of May.

Thank you. And this concludes today's question-and-answer session. I would now like to turn the call back to Mr. Rodney Sacks for any closing remarks.

On the half of Monster, I'd like to thank everyone for their continued interest in the Company. We continue to believe in the Company and our growth strategy, and remain committed to continuing to develop and differentiate our brands and to expand the Company, both at home and abroad, and in particular, to expand distribution of our products through the Coca-Cola bottler system internationally. We are also particularly excited by the new opportunities that we have going forward, with a portfolio of energy drink products throughout the world, comprised of our Monster Energy brand, together with the strategic brands, as well as Mutant. Thank you very much for your attendance.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.