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Analyst: Why the summer could help LaCroix stock's rediscover its fizz

Nick Robertson
Senior Producer

Once the darling of the booming sparkling beverage industry, National Beverage (FIZZ) — the maker of LaCroix — has fizzled as consumers seem to be abandoning the brand.

LaCroix — which once drove 50% of the growth in the sparkling water category according to Guggenheim — began its tumble last year after a lawsuit claimed that LaCroix drinks are not made with “All Natural” ingredients as its marketing claims. The suit charges that LaCroix actually contain synthetic substances, something National Beverage has denied.

Mounting competition from the Goliaths of the industry have only compounded National Beverage’s problems. Coca-Cola (KO), PepsiCo (PEP), and Nestlé (NSRGY) are all aggressively pushing their own sparkling water brands, and successfully gaining market share.

So could the start of summer help LaCroix regain its popularity?

While data indicates a sales decline in May, “that’s actually [comparing to] one of the warmest Mays we’ve had in 55 years in the U.S.” last year, UBS analyst Sean King told Yahoo Finance’s YFi PM.

Warm weather, unsurprisingly, is a crucial variable in driving sales of cold beverages like sparkling water.

“If you look deeper into the data, you can actually see the points of distribution that the brand has are actually increasing faster than the category,” King added.

That could suggest improving retailer acceptance of LaCroix as summer arrives.

From bad to ‘disastrous’

Between 2008 and 2018, Americans’ consumption of sparkling water products nearly tripled as more people turned to healthier beverages.

In its prime, LaCroix proved adept at appealing to millennials — using social media platforms like Instagram to fuel a surge in popularity. It was a particularly notable feat given that the brand has actually been around since the 1980s.

But a bad 2019 got even worse for National Beverage after a recent note from Guggenheim. It cited industry data showing sales of LaCroix “effectively in free fall” — adding that the brand has gone from “bad, to worse, to disastrous.”

For his part, King believes some of the gloom surrounding the stock is overblown. He recently upgraded National Beverage’s stock to neutral from sell.

That said, the analyst does not see a bullish case for future. “Competition is the big threat, and that’s the reason why you’re not going to see a real bounce-back,” he added.

King is also cutting his price target on National Beverage’s stock to $48, down from $50.

National Beverage’s stock, traded on the Nasdaq, ended Monday’s trading down nearly 2% at $47.44.