Why the Yowie Group Ltd share price is rocketing today

Chocolatier Yowie Group Ltd (ASX: YOW) released another positive announcement to the market this morning, following on from a string of positive announcements in recent weeks. Yowie has previously announced it was the #3-selling chocolate in the whole of the US, its recent quarterly report, and a successful ramp-up of production at its new manufacturing location.

Today’s announcement revealed that Yowie had gained access to the Eby-Brown Smart Store Program, which is a category management program aimed at lifting sales in independent convenience stores in the USA.

As a result, Yowie has been added to Eby-Brown’s planogram, which will lead to progressive stocking of Yowie’s products over time as convenience store retailers reset their shelf layout. Yowie was recently identified as the #1 selling item in dollar sales per convenience store per week for the 13 weeks to 26 March 2016, and today’s announcement is a direct result of that performance.

The announcements have been enough to lift Yowie from its 52-week low of $0.57, to today’s prices of $0.91 per share – an increase of 43% in the past month alone.

Now What?

Yowie has previously stated that it is placed in only 3.7% of US convenience stores, and by my calculations, today’s announcement means that Yowie will eventually be placed in around 10% of US convenience stores. This is based on the USA’s National Association of Convenience Stores (NACS) 2016 estimate of 154,195 stores.

Convenience stores sell fewer Yowie units than big department stores like Walmart do, however, Yowie’s #1 performance in this market to date gives it an above average shot at growing placement in this market. A broader sales network and (hopefully) consumer recognition could be a positive once Yowie begins looking at content like books, movies, and merchandising.

All that glitters is not gold

A number of key risks remain around an investment in Yowie, and I would describe the company as high risk. Recent announcements have added another key risk, in the form of potential management distraction/focussing on too many things at once by licensing SpacePop characters until the end of 2018, while simultaneously building the Yowie brand. While these types of agreements lift Yowie’s utilisation of its manufacturing capacity and will boost cash flows, they risk damaging progress on the crucial Yowie brand in the long run.

Additionally, some recent announcements like the Nielsen data about Yowie’s sales performance may not have been strictly market sensitive, and management may be hyping the company’s share price by releasing several announcements in quick succession. Several recent updates could easily have been collapsed into one, for example.

Today’s announcement was a positive however, and I remain comfortable holding my shares of Yowie Group.

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Motley Fool contributor Sean O'Neill owns shares of Yowie Group Ltd.. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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