Alkaline Water Company Inc (WTER) 2020 Q4 法說會逐字稿

Greetings, and welcome to The Alkaline Water Company's Fourth Quarter and Full Year Fiscal 2020 Financial Results and Business Update Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded.

Now I would like to turn the call over to Sajid Daudi, Director of Investor Relations. Mr. Daudi, please go ahead.

Good afternoon, everyone, and thank you for joining us for The Alkaline Water Company's Fourth Quarter and Full Year Fiscal 2020 Earnings Conference Call. Shortly, you will hear from Ricky Wright, our President and CEO; and David Guarino, our Chief Financial Officer.

During the call, we will be making forward-looking statements within the meaning of the safe harbor provisions of the U.S. security laws, and we may make additional forward-looking statements during the question-and-answer session. Forward-looking statements involve risks and uncertainties, and undue reliance should not be placed on such statements. Certain material factors or assumptions are applied in making forward-looking statements, and actual results may differ materially from those expressed or implied in such statements.

For additional information about factors that may cause actual results to differ materially from expectations and about material factors or assumptions applied in making forward-looking statements, please consult the company's reports filed with the Securities and Exchange Commission on EDGAR and with the Canadian security regulators on SEDAR.

In addition, such forward-looking statements and any projections as to the company's future performance represents management's estimates as of today, July 23, 2020. The company does not undertake to update any forward-looking statements or projections, except as required by applicable laws, including the securities law of United States and Canada.

Actual results could differ materially from those contemplated by any forward-looking statements as a result of certain factors, including, but not limited to, general economic and business conditions, competitive factors, changes in business strategy or development plans, ability to attract or retain qualified professionals as well as change in legal and regulatory requirements.

The company issued a press release announcing its preliminary financial results, so participants on this call who may not have already done so, may wish to receive that in conjunction with today's call.

Final results reported in this call are preliminary. Final financial results and other disclosures will be reported in our annual report on Form 10-K for the year ended March 31, 2020, and may differ materially from the results and disclosures in this call due to, among other things, the completion of final review procedures, the occurrence of subsequent events and the discovery of additional information. We expect to file our Form 10-Q by August 14, 2020.

I will now turn the call over to our CEO, Ricky Wright, who will give an overview of the company's fourth quarter and full year fiscal 2020 financial results. Following Ricky's comments, David Guarino, our Chief Financial Officer, will provide an overview of the company's fourth quarter and full year operating results. Ricky will follow David to provide closing remarks. We will then open the call for Q&A.

And now I would like to turn the call over to Ricky.

Thank you, Sajid. Hello, everyone, and welcome to The Alkaline Water Company's Fiscal Fourth Quarter and Full Year 2020 Conference Call.

It has been an exciting quarter and exciting year for the company. During our fourth fiscal quarter, we delivered record revenue of $12.1 million, representing a year-over-year growth of 51%. And for the full year, we delivered record revenue of approximately $41.1 million.

Demand accelerated throughout the March quarter and into the new fiscal year with a strength across all our product categories. Our abilities to deliver with exceptional growth in a challenging environment is a testimony to our agile business model, our team and the strength of our partners.

The Alkaline Water Company, like most of the businesses in the country, has faced many opportunities as well as challenges over the last 12 months. Our performance during the initial part of the ongoing pandemic has been exceptional. Our business model passed the test with flying colors. And I'm very proud of the execution of our employees during this extraordinary time. While the supply chain constraints and fulfillment issues affected many of our competitors, we were able to deliver, Alkaline88 water to the country's largest retail establishments throughout the pandemic. The fact that we met the surging demand of such retailers as Walmart, Kroger, Albertsons, Safeway and many of the other major regional chains became the catalyst for the greatest sampling program in this company's history. More new households tasted our water over the last 3 months than at any time during the company's history. As a result, we have gained new customers and continue to see increased demand with many of our retailers.

The pandemic has caused major shifts in the retail consumers' buying habits. With stay-at-home orders in place across most of America, buyers and their behavior quickly shifted to the e-commerce channel, especially for the consumer staples. With the in-house expertise already in place from our e-commerce platform, A88CBD.com, we rapidly developed and put in place a direct-to-consumer site, Alkaline88.com. We believe our digital assets are well positioned to capitalize on this increasing trend for home delivery of water and hemp-based cannabinoid products.

In addition, we continue to vigorously work on our traditional sale initiatives with extensive use of video conferencing, overnight delivery of samples and virtual trade shows. We are rapidly becoming a national lifestyle brand that both our retailers and consumers can count on. Our commitment to clean beverages, clean labels and sustainability remains huge values for our brand.

Our flagship brand, Alkaline88, continues to do well against our competition, including the big beverage brands. For the April 18, 2020, Nielsen report over the prior 13-year period, we ranked as the ninth largest value-added water brand in the country and the third fastest-growing in the top 10 value-added category in the country. Our growth during this period exceeded 30%, almost 2x the category average.

For the full fiscal 2020, we delivered record revenue, which exceeded the high end of our guidance range. This represents 8 consecutive years of record growth for the company and a 5-year compounded growth rate of 62%. For the April 18 Nielsen report over the past 52 weeks, Alkaline is one of the fastest-growing water brands and remains the #1 selling value-added bulk brand in the nation. Over the last 52 weeks, the dollar volume of our 1 gallon and our 3-liter sales would rank us as the sixth best-selling SKU in the value-added water category. Even more impressive is that the sales of our non-bulk single-serve would rank us as the 15th best-selling brand in value-added category, a testament to the growth of our single serve.

With an established brand that consumers can trust, we are reaccelerating our efforts towards the previously identified strategic growth initiatives that we pushed back due to the macro uncertainties. These include expansions into the hospitality channel, c-store expansion in the Northeast and traditional marketing programs, which include radio, billboards and TV. To support these initiatives, we recently completed 2 capital raises totaling $6 million. In addition, we anticipate the exercise of outstanding warrants, which will raise over $10 million as well. We have also undertaken several cost-cutting initiatives, which, once fully implemented, should result in significant savings during our fiscal 2022.

I am happy to report that we have significant progress towards the strategic growth and goals that we shared with you this time last year. As we have identified and are pursuing new growth catalysts for the coming fiscal year, our efforts to date have created strong momentum of our lifestyle brands, which we expect to translate to substantial growth and profitability for the company in the coming years.

First, let me discuss the progress we made towards our stated goals of our fiscal 2020.

Our #1 priority going into 2020 fiscal year was to continue to build our national footprint across all channels. I'm proud to say that we've made great strides towards that strategic objective. During the year, we added more than 15,000 stores for our flagship product, which is now available in over 70,000 retail locations nationwide. We added 2 major retailers to our growing list of customers, that being Family Dollar and Rite Aid. These addition gives us significant beachheads in the specialty retail space and added strength in the drugstore channel. Our sales group is vigorously pursuing other major retailers in these spaces.

In fiscal 2020, increase in our c-store presence was a major initiative. With over 150,000 convenience stores nationwide, we know it is important to have a significant presence. We have successfully penetrated over 10,000 c-stores during fiscal 2020. In January 2020, we hired Jim Venia, an experienced convenience store specialist, to continue to build on this success. Jim is tasked with building out a strong direct store distribution network to serve the convenience stores in 2 major markets, the Northeast and the Northwest. To this end, we recently added Jackson and Plaid Pantry to our growing list of c-store customers, giving us 366 new locations in the Northwest region.

Beginning April 2020, we are now part of an exclusive marketing program that extends our reach into approximately 11,000 member c-stores throughout the U.S. Convenience stores also are a natural market for our innovative new lifestyle products that include our A88 eco-friendly aluminum bottles, our A88 Infused flavors and our A88CBD topicals and ingestible lines. We are supporting these initiatives through point-of-sale displays and billboards. Through Jim's efforts and the rest of our sales team, we expect to reach approximately 25,000 c-stores nationwide by the end of fiscal 2021.

One of the core objectives of the company in developing our lifestyle brand is to expand into markets where we know the demand for quality products is growing at exponential rates and where we can achieve high-dollar margins. In the infused water category, flavored water is growing faster than any other type of water with greater dollar margins. We believe that only a few quality players exist in this category, and our brand and consumer loyalty will allow us to successfully take market share from other brands. To that end, we launched our A88 Infused flavored waters, which includes 6 great-tasting flavors available to the country on our new e-commerce website, Alkaline88.com.

Our taste profile and packaging are considered some of the best in the country. We have over a 12,500 retail stores that have committed to carrying our flavored water by the end of the summer. Currently, in addition to our e-commerce platforms Amazon.com and Alkaline88.com, stores in California, Arizona, Texas and the rest of the East Coast served by ShopRite are carrying our flavored-infused waters. In addition, we are very close to announcing a partnership with the largest food redistributor in the U.S. They will carry our flavored-infused waters into the foodservice industry throughout the United States. Unfortunately, the challenging macro environment affected our retail plans for the beginning of fiscal 2021 and include delay resets into the summer months. We expect that the majority of the sales and margin contribution from our A88 Infused flavors will be in the second half of our fiscal year.

Driven by the consumer demand and retail mandates for eco-friendly choices, we launched our eco-friendly A88 aluminum bottles in mid-January 2020. This is another area we believe that the trend is our friend. Consumers are demanding sustainability packages, in some cases, places are banning plastic bottles. We are not new to this trend. And our per ounce basis, our bulk sizes use substantially less plastic than the single-serve waters and sodas. We also believe the aluminum bottle will be a significant driver in the hospitality industry expansion. Before the pandemic, we had interest in aluminum bottles by several parks, hospitals and universities, we are just beginning to see renewed interest and expect it to be one of our big growth drivers through the remainder of fiscal 2021.

Our aluminum bottles are doing well in the natural and organic channel. We were able to almost immediately sell over 300,000 aluminum bottles to regional customers in California and Texas and have already received significant reorders and have commitments for additional national and regional retailers to bring the product in over the next 12 months. Another growth category that I'm incredibly excited about is our growing line of A88CBD products. Late last quarter, we announced the availability of our topical line and more recently, our ingestible line on our e-commerce platform, A88CBD.com.

We have also launched into brick-and-mortar stores. Initial customers and industry views of our product and packaging are outstanding. One independent industry review indicated that our product was some of the very best they've ever used and considers us to be a premium brand. Our e-commerce team, led by Youtech, continues to drive creative digital strategies driving strong visitation and healthy return customer rates.

To further enhance the digital customer experience, we continue to add new content and features, which include influencers, educational blogs, subscription options and certificate of analysis on all the products for complete transparency to the market. These enhancements are driving strong monthly viewership across both e-commerce platforms with an approximately 20% return customer rate for the A88CBD line. We have recently launched radio commercials in the L.A. and Phoenix markets, and we continue to expand into other markets as our ROI dictates.

In conjunction with our e-commerce strategy, we are building a traditional strong brick-and-mortar retail foundation for the future. During this calendar year, we have added significant resources to the team, and we're now working across functionality to leverage our existing channel relationships.

We're also finding success in new channels like MSOs, e-commerce wholesalers and dispensaries. We recently announced several retail wins for our A88CBD line, which include Vitamin Plus stores in the Texas market and CBD dispensaries, Pure CBD in L.A. and Alchemist's Kitchen in New York. With a sales target list that is more than 72,000 retail locations, our pipeline is strong, and you can expect more announcements relatively soon.

As an already proven lifestyle brand that consumers can trust, our commitment to safety and quality remains our top priority. All our CBD products are made from U.S. grown, high-quality full- and broad-spectrum hemp. Our established national footprint, our growing network of brokers and distributors and an emerging exponential e-commerce platform positions us to effectively capitalize on this tremendous business opportunity. We are well positioned in 2 of the leading CBD product categories, and we remain committed to becoming one of the America's trusted go-to lifestyle brands. We expect our A88CBD product line to be a meaningful contributor during the second half of fiscal 2021.

We see significant momentum across all our product categories and are building substantial brand equity for our lifestyle brands. As such, we are expanding and serving markets, and we have identified significant opportunities in the hospitality industry. These include foodservice providers, hospitals, airports, U.S. park systems, colleges, golf courses, concert venues, et cetera. We believe that Alkaline88, A88 Infused in aluminum bottles will have tremendous success in the hospitality arena.

As I mentioned earlier, we are finalizing a new partnership with the largest food redistributor in the U.S. to our growing list of channel partners. This relationship will give us an entree into the hospitality industry, which we view as a significant opportunity for our growing lifestyle brands. There will be over 700,000 restaurants and foodservice establishments that will now have access to our products. The U.S. food industry is nearly equal to the size as the retail industry we currently serve with over $969 billion in sales in 2019. Once the economy opens, we expect the hospitality industry to drive significant growth during our current fiscal year.

One of the other major initiatives over the last 10 months has been market research on category awareness and brand loyalty. As such, we introduced new branding in the fourth quarter of fiscal 2020. The labels now tell the customers they're drinking the smoothest, cleanest ionized water on the planet. We have trademarked, Smooth Hydration, Clean Beverage and Ionized H2O, all of which are now beautifully displayed on our labels.

Based on the limitations on sampling and other traditional store level programs, we have reallocated budget and we are accelerating our first traditional marketing campaign. To accomplish this, we have recently engaged Davis Elen Advertising, a highly respected advertising agency located in Southern California. Over the course of our fiscal 2021, they will help us develop and manage a full implemented traditional marketing program. The campaign will begin in selected markets and expand nationally to include TV, radio, billboards, social media and online ads. To maximize this effort, we are pursuing appropriate celebrity brand ambassadors to support our lifestyle brands both as brick-and-mortar and e-commerce strategy. Any strategy we develop will also include an aggressive social media marketing strategy and will consist of extensive digital footprints through Google ads, social media ads, influencers, organic Google rankings, programmatic and display marketing, e-mail campaigns, et cetera.

Normally, we would be offering our guidance for the remainder of fiscal 2021. Unfortunately, none of our sales channel partners have provided guidance that would give us confidence in giving any numbers at this time. What I can tell you that is back in February of this year when we saw the beginning of the pandemic take hold in the U.S., our sales team immediately put together aggressive marketing plans for the summer of 2020. With that, companies traditionally only gained market share in downturns, and we have prepared programs with our retailers to allow us to do that if the company does not rebound fully over the summer. We hope to be able to offer guidance next month on our August fiscal 2021 Q1 conference call.

I'd now like to pass the call on to David Guarino, our Chief Financial Officer, who will take you through the fourth quarter and full year results. David?

Thanks, Ricky. Before I begin, I'd like to encourage listeners to review the press release, The Alkaline Water Company delivered record full year fiscal 2020 results, issued earlier this afternoon.

Our revenues from the sale of our products for the fiscal year ended March 31, 2020, was approximately $41.1 million, up from $32.2 million reported for the prior fiscal year ended March 31, 2019. This represents an increase of approximately 28%, generated primarily by the sales of our alkaline water. The increase also reflects the expanded distribution of our products to additional retailers throughout the country.

Gross profit for the fiscal year ended March 31, 2020, was approximately $16.8 million, an increase of $3.9 million compared to the prior year, with the current fiscal year gross margin percentage of 41% compared to 40% for the prior fiscal year.

Net loss for the year ended March 31, 2020, was approximately $14.8 million compared to $8.7 million for the year ended March 31, 2019. The increase in year-over-year loss was primarily due to an increase of noncash charges of $1.6 million in the current fiscal year and nonrecurring expenses in the current fiscal year of $4.5 million. Net loss per share of $0.34 was an increase of $0.07 per share from the prior year.

For the 3 months ended March 31, 2020, we reported a record revenue of approximately $12.1 million, an increase of $4.1 million versus same period in 2019. In addition, the $12.1 million revenue was $3.5 million higher than the previous quarter ended December 31, 2019.

Our gross profit from sales in the fourth quarter ended March 31, 2020, was approximately $4.8 million versus gross profit of $3 million in the quarter ended March 31, 2019. Net loss per share in the quarter ended March 31, 2020, was approximately $0.08 per share, flat year-over-year and $0.01 increase from the quarter ended December 31, 2019.

Our cash and cash equivalents for the fiscal year ended March 31, 2020, was approximately $4.6 million. In addition, since March 31, 2020, we raised over an additional $5 million, and we anticipate an additional $10 million in additional capital through the exercise of warrants by the end of our current fiscal year ended March 31, 2021.

With that, I'd like to turn the call back over to Ricky.

Thanks, David. Management continues to believe that our business model and our sales-centric company will allow us to be a national lifestyle brand in the very near future.

I recently examined the last 6 monthly sales reports from Nielsen, spanning from February 22 through July 11, 2020. I was absolutely delighted to see that Alkaline88 was one of only 2 top brands in the value-added water category to record double-digit growth in each of those periods. Incredibly, we were showing double-digit growth despite the category contracting to a negative 8.2% for the 4-week period ending April 18, 2020. It's a testimony to the loyalty of consumers to Alkaline88 and what we've developed here as a company. Based on the feedback from both retailers and consumers, our new lifestyle brand and product extensions, including our eco-friendly Alkaline88 aluminum bottles, our A88 Infused flavors and our A88CBD topicals and ingestibles, will be equally well received.

With all the momentum we've created in our lifestyle brands and the new greenfield opportunities we discussed earlier, we are excited about our growth prospects for fiscal 2021. We expect to have another record year with significant contributions to our top and bottom line from our newest brand extensions. I would also like to thank our shareholders and Board for their continued support.

Thank you, and we'll now move to questions and answers.

(Operator Instructions)

Our first question comes from David Bain from ROTH.

So first, Ricky, you touched on the near-term (inaudible) this year. It sounds like the product was diverse and maybe going forward, it could be aluminum. Can you give some color as to the size of initial penetration? Is this lumpy in a good way where we can get some significant length or scale or we see it in a different way?

David, I couldn't barely get any of your question. I don't know if it's a problem with a cell phone or what, but you really broke up there.

Can we try (inaudible) in my background.

You're just breaking up.

Okay. I'm going to try one more time, if not, then I'll get back to queue. But I was asking about your large hospitality distributors. If you can give us a little color as to the size of initial penetration? Is this going to be sort of lumpy in a good way? Or is there a cadence we should think about as we enter into the segment with the distributor you mentioned?

Lumpy in a good way. I didn't understand that. Repeat that phrase, I'm sorry.

The initial order, will we be able to see that in the number on a quarterly basis? Or is it sort of -- is there a cadence as we enter this segment? Because it sounds like you're going to be entering into, I think you mentioned they'll have 700,000 points of distribution will have access to your products post-OVID.

Yes. So it's a good question, David. And we see that as steady growth. We do see some big initial orders across the board like we did initially. I mean the good news there is that we've already scheduled, I think, our third or fourth run of bottles because we've had the pull through that's been significant in the reorder side on the aluminum. And we also see the flavors in the same kind of way. And we see them both in the hospitality industry as what I would call wedge products to allow us to get in there and make a big difference on shelves, where really our competitors don't have that to offer. There's not a lot of flavored waters out there that have a good taste profile, and there's virtually nobody out there with aluminum. So I see this as kind of a steady growth. We will be making some announcements as we discussed in the prepared script relative to entry into the hospitality industry, we think, in a very big way.

Okay. Great. And then, Ricky, you also spoke to how you were able to deliver at the height of COVID to the large-box operators like Walmart and Kroger when others really didn't. In your view, will this translate into forward resets this year?

Yes. No, that's a great question again. And that's the beauty of that -- the data that we just ran and we looked at for the June 11 -- I mean July 11 data from Nielsen, I examined that 13-week period, and that probably is the most important piece of data points that we've had post-COVID to see what kind of effect COVID has had on this brand overall. And we were up over 4x the category. Again, more than double-digit growth. And it just feels that we're one of the few brands that are continuing to grow at double digits or more even post-COVID and we're outperforming the category by significant, significant amounts, which I attribute completely to the fact that we had the greatest taste testing sampling program we could have ever expected in this company's history, 30% to 40% more households.

Yes. Okay. And then just last one, if I could. And David, feel free to chime in. On gross margins, 40% quarter-over-quarter, flat. And I think if I'm not mistaken, a lot of over time was paid, a lot of logistical moves made to deliver the product during the height of COVID. And so the margins were a little bit better than we were anticipating after we saw the [preannounce]. Going forward, as you mix shift to hospitality, flavors, aluminum, CBD, what should we consider when modeling? And I understand the preference for larger gross margin dollars versus gross margins. But I'm just trying to get a sense as we kind of go forward through the new fiscal year.

Well, there are 2 different things on that, David, and again, good questions. One is, obviously, we talked about being prepared. And for the summer months, you only gained market share in down markets and based on foot traffic, et cetera, and what's going on in the segment. It's -- obviously, the last 13 weeks have been a little bit down for the restaurant -- or the, excuse me, the grocery channel, which we're primarily in. But us, on the other hand, we're doing super on that. But we're going to have to give a little bit of margin away, and we anticipated that clear back in February.

On an overall basis, though, with the CBD and the flavored infused and the aluminum bottles, we'll pick up maybe 1 point this year, I think, before year-end, and maybe slightly more.

And our next question is from Luke Hannan from Canaccord.

First question I had was on your CBD products. And specifically, what you would have sold through A88CBD.com. I'm wondering if there's anything you can share, any metrics as far as basket sizes, maybe repeat orders from certain customers that would gauge what that early innings of that strategy has been so far?

I did have some stats run for me today on that. So again, thanks. Good question, Luke. We're obviously not offering guidance in terms of revenue. It's still not significant. But we're getting about 25,000 visitors per site to the site already per month. It's about a similar number in the Alkaline88 site as well. But interesting on the CBD side, we're having about a 25% retention, and we're seeing increases in not only the retention but also in the subscriptions. So we just got reviewed by a major review company independently, and we were picked one of the -- really, they call this one of the top couple of products in the world. And some of that has to do with what our competitors have all done, a lot of them have done white labels, and we actually created a product. We use a special C10 CBD. We've taken the time to use only the manufacturers that use all natural, so our butters and stuff. I mean our lotions and stuff have shea butter in it. Our taste profile, we use a masking agent. We make everything with 0 calories. So we've really taken the opportunity to grow this into a significant brand associated with Alkaline88 and our lifestyle.

Got it. That's helpful. Second question I had, and I guess you did sort of allude to it in the July 11th Nielsen data, your comment on that. But I'm curious just the cadence of sales through fiscal Q1 so far. I mean maybe just what the trends are like from April all the way through to June.

Again, another good question. Obviously, the COVID had some impact on the entire industry as people were putting stuff into their store houses, right, on the early COVID pandemic. We actually have seen a good growth. We get -- we sell 2 of the largest -- or actually the 2 largest retailers in the country in Kroger and Walmart. And we have seen significant growth post-COVID in both those accounts. And so that's kind of our barometers. Those that may have stockpiled some stuff in the warehouses, maybe we're not seeing the kind of volume that we had in the past, but all the barometers relative to what's pulling off the shelves and how much volume we're doing there indicate that we're going to have a super summer.

(Operator Instructions) Our next question is from Kevin Dede from Rodman & Renshaw.

Listen, I was wondering if you wouldn't mind going down your product line, giving us where you think you are in retail now and where you expect to be. I know you said 25,000 or 28,000 convenience stores. But I just want to make sure I understand which products you expect to be where. Do you think you can kind of look at your expectations and give us some indication of what you're hoping to see through the course of this year on a product line and distribution from a product line and distribution perspective?

Yes. Let me -- thanks. Kevin, good question again. The crystal ball is not so great with respect to hospitality because obviously, COVID has kind of messed that up for the entire country. So to say that we're going to see big volume in the hospitality restaurant sector next week is -- would not be the right thing to say. But absent the hospitality industry, I can give a little bit of color on that.

I've already come out publicly and said that I believe that we will be the #1 or 2 brick-and-mortar CBD company in the country. I see primarily the topicals. However, for those that missed it, the FDA did send over some draft, I believe, regulations to date or last night to the Office of Budget Management, and we expect that, that bodes very well for the industry. I think we will get some guidance maybe as early as later this summer in terms of the ingestible side. So if that occurs, I would anticipate kind of the same volume that we see in the flavored waters, which is, we've said were 12 point -- we've got commitments for 12,500 stores.

We might even see an acceleration because, as you know, and those that have listened to me before, we're all about taste profile in the consumer products goods side on the ingestibles. And our feedback from The Street has been the taste has been terrible for most of the CBD products and ours is great. So we may just absolutely explode in that once it becomes available, particularly on our CBD water.

On the -- going back to the flavors, we do see penetration at 12,500. I don't want to go too far out over -- on the skis on that because one of the things that did occur this year, which we did discuss is that because of COVID, we're no longer able to do sampling at the store level. So we've had to move to some more additional traditional financing. And we'll see how that goes in terms of what it also allows us to penetrate.

But one of the things that COVID did for us, both on the CBD side and on the water side is on the CBD side, a lot of the competitors literally dropped out because they were moms and pops and even some of the larger ones. I know one that had $100 million raised in it and because it was tied in strictly to malls, closed their doors. And we have been able to really get better opportunities in terms of the resets for this fall. And so that's why we say we'll see a lot of the impact to our P&L coming in the third and fourth quarter with respect to the CBD. That's our fiscal third and fourth quarter.

And then on the water side, we were one of the few brands in the country to deliver during COVID. And I didn't understand that importance, Kevin, with respect to the buyers, but we've already had a major chain do an early reset for us on the water and the aluminum, which they had planned to bring in maybe next year because we were able to provide when others couldn't. So we created a bunch of goodwill, not only with the consumers, but also with the category buyers. So not to be too long-winded on this, but we see significant growth in both areas. And then, of course, we were able to penetrate the specialty retailers this year with Family Dollar, and we see that as a big opportunity as well, something along the specialty retailers in terms of additional store growth this year.

So Ricky, just to kind of peel it back a little bit more, can you talk to the c-store specifically and sort of give us what you think happens there? I mean I apologize. I missed the number.

Great question. We really -- we said we would be in 25,000 by the end of this fiscal year. We hired a guy out of one of our competitors to come in and literally head that group for us. We did the E.A. Berg routine last year. We took it out of the corporate -- inside corporate headquarters, and that allowed us to get our foothold. It allowed us to develop candidly a great relationship with some of the big distributors throughout the country. But then it was time for us to take it to the next level. And anybody that's ever followed the story knows that we have -- we're in ShopRite, we're in Shaw's, we're in CVS, we're in Rite Aid, Family Dollar in the Northeast as well as some of the giants, et cetera. However, we don't have that omnipresence in the northeast, and that's really the reason he's come on board just to help us build that omnipresence in the Northeast. We are working diligently as the Northeast begins to open, to bring a DSD, direct store distributor, one of the majors on to help us penetrate that.

And so we see this as more, again, towards the end of the year, full penetration in these markets, and we were doing the same thing in the Northwest. And so we're really excited about it.

The team is -- one of the things that I didn't stress probably on the call was we didn't create -- we added strength to the water team. When we created the CBD side of our business, we didn't take -- except for one person, which was already in charge of product development for the company, we kept the water team intact. We've added a couple of people to the water team. And the CBD team really has 7 people, led by Lynda Zeman and Ryan Chessman and Rick Chessman to grow that group. So water is full focus. We've talked about hitting that $100 million in that category. That still is the focus for this company and then build the CBD accordingly.

Okay. So can we talk a little bit more about the marketing side of things? You've got a new national sales director, and you mentioned Davis Elen. So can you spend a little time just offering where you think that strategy falls out and how you expect to, I guess, communicate it to the general market?

The new Director of Sales is on the CBD side. Frank Chessman, our original -- our first hire and best hire you could ever have is still with the company. We hired a new guy on the CBD side to head that, that's the new directors of sales. So that part is just the guy that's helping me on the sales side from the CBD side.

In terms of the Davis Elen, there were 2 things that occurred in the last 12 months. The first one was obviously -- and if you haven't seen the beautiful new branding, where we talk about Smooth Hydration and Clean Beverage and Ionized, you'll notice we took the word water off of the predominant word within the alkaline water bottles now. It used to be the biggest word on there because 6 years ago, nobody even knew what it was. And we've now -- we're now defining it with the benefits of our drinking that water. The fact that it's a Clean Beverage, so it's smooth, and its taste and its mouth feel. And that was done intentionally last year. We finished it up but really first quarter ended last year. And now we're taking that, and we're going to message it to the marketplace because we can't do the sampling.

Store level sampling was really one of our big marketing pushes over the last 6 years. And because we can't anymore, we've got to get more creative and part of that being more creative is hiring a company like Davis Elen, it's, I think, $300 million overall. But the thing that they have that I love and having spent some time with me, you know that I'm an analytical guy. And they have been driving through analytics really for the last 28 years. And so they're very number analytic ROI-centric. And that's really one of the reasons we chose them, besides they're super talented on the creative side.

So we will be shifting some marketing dollars away that we were going to use in the store-level marketing sampling. It's about $180 a store. You do a chain like Publix that's on $180,000 a day, do a couple of days, that's $400,000. So we'll be shifting some of those dollars to traditional marketing, billboards, some radio spots, which we've already started on Sirius and the PGA. And we'll developing an overall strategy based on ROI. We'll probably start in a couple of different markets where we've got heavy concentration.

Are you pretty confident with their digital strategy and their digital execution? Given the emphasis on the CBD side and using your own website, you're going to have to rely more on digital. And again, right, to your point, it's more difficult to in-store samples.

Yes, it's virtually impossible now. Yes, Kevin, the interesting part on that is that we hired Youtech who's 55 -- that's all they do is they specialize in this. And that was the reason we were able to -- once we realized there was a shift in buying habits, and for the first time ever, people were buying water e-commerce, bringing it into the home from -- for delivery, we were able to literally, in 35 days, headed by Wilbur -- Youtech Wilbur You, the Founder, and Lynda create an opportunity to actually have an e-commerce site for our water. And he is an e-commerce expert. In fact, I didn't get to read all the information you gave me today. But we're on the first page of muscle salve, CBD essential oils, essential CBD, essential CBD extract, on and on and on. And he's done that in a very short time frame. And he's another guy that is super analytical. So we actually measure ROI on every campaign we try. And the thing I love about this relationship is that, again, he is a guy that actually doesn't try to want to throw $1 million to get $1 million worth of sales. We've taken this very, very slowly. And each program, we either say, yes, it's working, we add more dollars, or no, it's not working and we just kill it. And we haven't been throwing a tub of money at it. We've been doing it very judiciously.

All right. I've got a bunch more questions, but I'll leave this as the last one. Now I -- from firsthand experience, I'm familiar with your supply chain on the water side. But you've done this incredible job launching an incredibly diverse array of products during one of the most difficult retail periods in the country's history, I'd imagine. And I'm wondering if you can just sort of talk to your source and fulfillment operations, given the surge in demand, marketing, expansion, stores, et cetera.

Yes. It's interesting. We always built a variable cost model. You know that I would rather rent it than buy it, right, because it just -- I have that -- get a bunch of really experienced people around you that have been entrepreneurs, and you've got a good shot at any business. Always ride the jockey and the team, not the product line. And we have done that same thing. We have worked with and partnered with, on the supply chain side, guys that are super loyal to us. Most of it is the U.S. side now. In fact, we could produce everything that we produce 100% U.S. made, which I don't know how many companies are prepared to say that in my space, either on the CBD or on the water space, but that's just a true statement. And we can do that here in the U.S. where others can't. And so that's really because our supply chains are so much shorter than most others, that's really been one of our big competitive advantages. And we have driven pricing because we get most favored nations status.

The only place we have any wrinkles at all is that some of our suppliers are out of the East Coast and the East Coast isn't fully open yet. That's mainly on some of the flavors, but that's why we haven't launched one of the flavors yet because candidly, I've got samples in the office that taste great, but we haven't been able to bring it to fruition yet because they can't produce it in a quality that is commercially available yet.

All right. I don't see or hear any further questions. All right. I just want to thank everybody.

As CEO of this company, I definitively believe that we are still one of the most undervalued companies on The Street. Some of our competitors get as high as an 11. I think we're just slightly over a 2 now. I truly believe that we will eventually get a multiple that's worthy of the effort and the things that we have built here, which is literally a lifestyle brand that we believe has legs. Everybody knows that this company is being built to create a great brand, and we take it very seriously every day. And everything we do, we do with the idea that we believe it will be incremental to the underlying value of the company.

So thanks, everybody. I guess we'll talk again in 20-some days. Appreciate everyone's time. Be safe.

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