A class action lawsuit was filed against Celsius Holdings, Inc. (CELH) by Levi & Korsinsky on November 22, 2024. The plaintiffs (shareholders) alleged that they bought CELH stock at artificially inflated prices between February 29, 2024 and September 4, 2024 (Class Period) and are now seeking compensation for their financial losses. Investors who bought Celsius Holdings stock during that period can click here to learn about joining the lawsuit.
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Celsius Holdings develops and markets energy beverages with different fruit flavors. The company offers a zero-sugar drink for fitness enthusiasts and a performance energy drink.
The company’s claims about its accelerated sales volume growth, especially linked to its largest customer PepsiCo (PEP), is at the heart of the current complaint.
Celsius Holdings’ Misleading Claims
According to the lawsuit, Celsius Holdings and two of its senior officers and/or directors (Individual Defendants) repeatedly made false and misleading public statements throughout the Class Period. Particularly, they are accused of omitting truthful information about the company’s sales rate to PepsiCo and ancillary issues from SEC filings and related material.
For instance, during the conference call discussing Q4 FY23 and the full-year Fiscal 2023 results, the CEO stated that the company had achieved a 98% ACV (all-commodity volume) in the U.S., gaining more visibility and market share in the segment. Furthermore, the CEO added that Celsius was fully integrated into PepsiCo’s distribution and annual planning cycle, aiding in enhanced customer reach. Also, Celsius continued to enhance its collaborations with its primary North American distribution partners and expanded its key accounts team.
Moreover, the CFO said in the same call that the high year-over-year sales volume jump was due to several parameters, including PepsiCo’s integration, broader availability, higher SKU (stock keeping unit) mix, and improved shelf placement. For context, in Fiscal 2022, CELH signed a partnership deal with PepsiCo to distribute its drinks and gain exposure to the beverage king’s massive retail network. Owing to this partnership, Celsius’ revenues doubled between 2022 and 2023, while its margins expanded by 43%.
Finally, in the Q1 FY24 earnings call, the CEO noted that the 11.5% category share growth as of April 11, 2024, was due to the impact of shelf space gains from ongoing retailer resets.
However, subsequent events (discussed below) reveal that Celsius Holdings had failed to reveal the true extent and nature of PepsiCo’s contract with the company. Celsius’ growth in 2023 was because of a large one-time purchase of Celsius drinks by PepsiCo, which was slowly offloading the inventory.
Plaintiffs’ Arguments
The plaintiffs maintain that the Defendants deceived investors by lying and withholding critical information about the company’s business practices and prospects during the Class Period. Importantly, the Defendants are accused of misleading investors about their contracts with PepsiCo. The beverage giant didn’t make repeat large orders, resulting in a decline in Celsius’ revenues.
The information became clear in a series of events that occurred between May 27, 2024 and November 6, 2024. On the latter date, Celsius released its Q3 FY24 results, with revenues down 31% year-over-year. Notably, Celsius North American revenues fell 33%, particularly as the contribution from PepsiCo declined.
The CFO mentioned that Celsius’ gross and operating margins fell due to slowing revenues and reduced orders from its largest retailer. Notably, PepsiCo undertook a strategic supply chain optimization program and inventory management decision, leading to reduced orders for Celsius.
To conclude, the defendants allegedly misled investors about the revenue prospects and growing market share of Celsius products due to significant dependence on one large customer, PepsiCo’s, orders. In the past year, CELH shares have lost 54.8%, causing massive damage to shareholder returns.
