A new complaint was filed against Celsius Holdings, Inc. (CELH) by shareholder (plaintiff) Shelby Township Police & Fire Retirement System on November 22, 2024, in the U.S. District Court for the Southern District of Florida. The defendants in the complaint are the company, director and CEO John Fieldly, and CFO Jarrod Langhans.
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The plaintiff alleges that they purchased CELH stock at artificially inflated prices between February 29, 2024 and September 4, 2024 (the “Class Period”). The plaintiff is now seeking compensation for the financial losses borne during this period. To learn more about the lawsuit, click here.
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 filed complaint alleges that during the Class Period, the defendants misled CELH investors in violation of Sections 10(b) and 20(a) of the Securities Exchange Act.
Plaintiff’s Allegations
According to the complaint, Celsius Holdings intentionally misrepresented information presented in its financial statements submitted to the U.S. SEC (Securities and Exchange Commission). The plaintiff alleges that the defendants failed to exercise proper oversight and control over the preparation and submission of public financial statements.
In particular, the plaintiff alleges that Celsius Holdings failed to represent the true nature, extent, and expectations from its partnership with its largest customer, PepsiCo (PEP). Importantly, in 2022, CELH signed a partnership with PepsiCo for the distribution of its drinks and to get exposure to the beverage giant’s massive retail network. Owing to this partnership, Celsius’ revenues doubled between 2022 and 2023, while its margins expanded by 43%.
According to the complaint, PepsiCo made a bulk purchase of Celsius drinks and hoarded the products in stock, boosting the latter’s sales artificially in 2023. Celsius failed to inform investors that this was a one-time bulk purchase and should not be expected in the future.
On February 29, 2024, Celsius reported Q4 and full-year Fiscal 2024 results. In the press release, Celsius boasted its huge revenue jump, citing a larger availability of products, increased SKU (stock keeping unit) mix, and greater visibility in the market. The company even claimed itself to be a $1 billion brand and projected Fiscal 2024 figures in line with the Q4 results and margin profile, instead of specifying the one-time purchase event.
Following the solid results, CELH stock hit an all-time high. The complaint even alleges that Celsius’ corporate insiders sold their stock holdings at this time, leveraging the high share price and netting nearly $1.5 billion in proceeds.
Unfortunately, in the following quarters, Celsius’ sales plummeted due to the lack of new sales, although its drinks gained a higher market share since PepsiCo started offloading its stockpile slowly over time.
Celsius Holdings’ Misrepresentations
In contrast to the claims made by CELH and the defendants, Celsius’ sales started declining, and the stock price started falling. On May 7, 2024, during the Q1 FY24 earnings call, Celsius again boasted of having an over 47% market share of the energy drink category. However, the company said that sales came in below expectations owing to lower inventory movements from its largest customer, PepsiCo, which was beyond its control.
Furthermore, on August 6, 2024, Celsius reported slower sales in Q2 FY24 owing to inventory reduction by PepsiCo. Then on September 4, 2024, Celsius Chief of Staff presented at a conference, where he stated that orders were again lower than expected due to PepsiCo’s inventory management decision. He added that PepsiCo’s order was lower by $100 to $120 million compared to last year and that PepsiCo was still undertaking further inventory reduction. Following the news, disgruntled investors dumped the stock causing the share price to crash by 11.6%.
To conclude, the defendants allegedly misled investors about the revenue prospects and growing market share of its products by being highly dependent on one large customer’s order. Year-to-date, CELH shares have lost 43.9%, causing massive damage to shareholder returns.
