Jamieson Wellness: a stock offering the best of both worlds – defense and growth

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During the extreme market volatility experienced in recent weeks, this consumer staples stock has provided investors with a degree of downside protection. Last week, when the S&P/TSX Composite Index plunged 9 per cent, the share price of Jamieson Wellness Inc. declined 4 per cent. On Thursday, while the index dropped 1.3 per cent, this stock held its ground, rising 2.4 per cent.

In addition to its defensive characteristics, the stock has other attractive attributes. The company is an industry leader. In Canada, Jamieson is the leading brand in the VMS (vitamins, minerals and nutrition supplements) market. Jamieson Wellness has reported steady revenue growth and rising profitability. Revenue increased to $345-million in 2019 from $248-million in 2016, while the adjusted EBITDA margin expanded to 22 per cent from 19 per cent during this period. (EBITDA stands for earnings before interest, taxes, depreciation and amortization.)

The stock has delivered solid gains to its investors with its share price rising approximately 79 per cent since its initial public offering in mid-2017. Furthermore, management is committed to returning capital to its shareholders, targeting dividend increases that are in line with the company’s annual earnings growth. In addition, the stock’s visibility is increasing with the market capitalization recently crossing above the $1-billion mark and the company was added to the S&P/TSX Composite in December.

The Globe and Mail spoke with the president and chief executive Mark Hornick, who addressed COVID-19 and discussed management’s strategic objectives.

What actions has management taken in response to the coronavirus?

We trained all of our employees in January on coronavirus and precautions for a safe workplace. As well, we made some significant restrictions on business travel in order to protect them and imposed a quarantine program whereby if you were coming back from vacation from a high risk country, you would work from home for two weeks before returning back to work.

What is the potential impact on your company from a supply chain perspective?

In January, when it became clear that there was a high risk that the corononavirus would become a global pandemic, we focused on three key issues. One, to make sure that our employees are safe. Second, we addressed our ability to supply the market with our products. In our case, there’s a third dynamic – when you get global health concerns arising, consumers tend to pay a lot more attention to preventative measures around their health. Supply side, we forecast out our anticipated demand and secured enough inventory to be able to have a good line of sight on increased production requirements into [the third-quarter]. The inbound requirements of raw materials support our business objectives for 2020 as we see the situation right now.

On the recent earnings call, you highlighted three pillars of growth. To expand your brand, your customer base and your footprint. Where have you identified opportunities to expand your brand?

Our innovation pipeline spans all the categories of product that we currently compete in, plus potentially other adjacent categories of health and wellness that are closely related to vitamins. We typically launch in the combined portfolio about 40 to 50 new products a year.

Less than 30 per cent of Canadians take a multivitamin, the same for vitamin D; probiotics is around 20 per cent and Omega is also below 25 per cent. Yet, when you look at the nutritional composition of what consumers in Canada are eating, research would say that around 60 per cent of people do not get enough nutrients from food alone. Over time, as consumers build their knowledge of our categories, the usage of them increases. So there’s a lot of upside in organically growing the penetration of the different categories of vitamins which we market to consumers in Canada.

You are in drugstores, retailers, dollar stores, online on Amazon and in sport stores. Are there sales channels that you have not yet penetrated?

We don’t have a large presence in gas and convenience yet, which is definitely an opportunity. We think we have a long runway to grow e-commerce, and there are a lot of our retail partners who have formats where they haven’t been selling vitamins in the past. For example, if you go to a Metro grocery store in Quebec, a lot of those stores don’t yet sell vitamins. That provides new opportunities to build distribution.

Your products are in more than 40 countries. Where are you focusing your near-term international expansion efforts?

A couple of things about China make it extremely interesting to us. Chinese consumers in general are very favourable toward the brand. We have 1.5 million Chinese Canadians living here who may have some experience with our brand and can serve somewhat as ambassadors to Chinese in mainland China. Jamieson actually has meaning in Mandarin – it means “healthy beauty.” In 2017, China opened up approximately 95 per cent of the retail market that was closed to foreign brands. We embarked on a campaign to gain licences by working closely with China FDA. As of today, we have more than 20 licensed products in China, which is significantly more than any other foreign brand that we compete with. Those dynamics [make] China by far our No. 1 incremental expansion opportunity.

As for the U.S., we looked at it in the past as something that had a much higher investment [requirement] and much higher risk given that our brand wasn’t known there. However, the rapid growth of e-commerce changed our perspective on that. Weeks ago, we launched products in the United States on Amazon with the view to assess our potential for success in the very large market.

With your expansion initiatives, do you have adequate manufacturing capacity? You have three manufacturing plants in Canada, two in Windsor, Ont., and one in Toronto. What is the capacity utilization?

We are running at approximately 70 per cent of capacity right now with some initiatives in place to allow us to increase capacity. We want to be able to put in enough capacity whereby on a stand-alone basis we can achieve our 2020 to 2023 growth objectives and have a very sizable amount of additional potential capacity we can tap into in order to make sure that if the upside in China or the U.S. materialized quicker than anticipated, we can capture that opportunity within our current asset base.

You have other brands that you have acquired over the years such as LVHS (Lorna Vanderhaeghe), Precision, Iron Vegan, Progressive, why don’t you consolidate them under one brand – Jamieson?

We feel that there is an incremental growth opportunity in exposing users of the Jamieson brand to brands like Lorna, Iron Vegan, Precision and Progressive.

For markets where these brands are not known, from an international perspective, our strategy would be different. For example, when we want to launch Iron Vegan into the United States, we would do that with Iron Vegan as a sub-brand of Jamieson. So Iron Vegan by Jamieson, and all of our incremental brand building initiatives for new geographies will be based on the Jamieson brand.

How do you ensure the purity of the raw materials used in your products?

Each product undergoes 360 or more different quality checks and steps before the product is released for sale. It can take us eight to 16 weeks to make a vitamin to the standard that consumers expect from Jamieson.

Each batch is tested or is there random testing?

It depends on the nature of the product, the level of experience we have with the product with the suppliers of the raw ingredients, the amount of testing that the supplier goes through before they send us the product and then if it’s a herbal product, for example, or probiotic product then we DNA test it at source to verify its content and ensure that the purity of it.

Lastly, is acquisition growth a priority for 2020 or do you have enough on your plate?

The way we look at it now, we have a very exciting lineup of organic growth opportunities on our plate for 2020, so acquisitions will likely be more of our agenda from 2021. This year we are really focused on continuing to grow in Canada, maximize our opportunity in China, and kick off a good start to understanding what our possibilities are in the U.S.

This interview has been edited and condensed. An extended version is available on tgam.ca/inside-the-market.