Turning Point Brands, Inc. (NYSE:TPB) Q3 2023 Earnings Call Transcript

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Eric Des Lauriers: All right. That’s helpful. Next question just on loose leaf. I understood it’s a smaller segment within Stoker’s. I think this was the first sort of return to year-over-year growth that we saw in a while. Is this something that we should kind of expect going forward? Do you feel that you’re at sort of sustainable path forward? I understand it’s a declining category. Are you seeing anything to suggest that this year-over-year growth isn’t just a kind of one-off this quarter or no real change to the overall kind of competitive dynamics within that?

Louie Reformina: I would say, we’ve seen some accelerated share gains in our loose leaf product, especially with our discount loose leaf offering out there that’s seeing growth. I wouldn’t underwrite growth in this market going forward. I would say, we’re still expecting kind of a — from a sales perspective, flattish to down. The good news with loose leaf over time is it has shrunk as a percentage of the overall Stoker’s business. So it was 2/3 of our segment when it will be IPO, now it’s less than 1/3. So it’s having less an impact of sales with MST being the bigger driver going forward. So obviously, we’re happy with the growth that we saw in the quarter, but that is not our expectation for loose leaf going forward.

Eric Des Lauriers: That makes sense. And then just last one from me. Could you perhaps expand a bit on the margin impact of the discontinued product line in Canada? I guess, obviously, there was some promotional activity over the past year or so. We’re now back up to that sort of 57% plus gross margin for Zig-Zag. Is this more of a sustainable path or, I guess, a sustainable level going forward? Or do you see a potential for some further margin gains now that this discontinued product line is phasing out?

Louie Reformina: Yes. I mean, from here, I would say that — the $1.8 million came with single-digit gross margin. So that has a decent impact to our gross margins from a year-over-year perspective. The other thing is that, as we mentioned, CLIPPER is in a lull period now, and you mentioned those carry lower gross margin. So CLIPPER was down from year-over-year perspective as you were comping against a period where we had that load last year. So our expectation is actually, with some of the newer products that we have and if CLIPPER takes off that, that should — that may reduce our gross margins over time. But again, our focus within the Zig-Zag segment is increasing our gross profit dollars and leveraging the fixed cost as we have in that segment to grow our operating income. So we’re not so focused on maintaining that gross margin levels, especially if we can get growth out of CLIPPER and some of our newer products that we’re entering into the market with.

Operator: There are no further questions at this time. Graham Purdy, I will turn the call back over to you.

Graham Purdy: Thanks, operator. I appreciate everybody joining us for the call today, and we look forward to talking to you about another quarter from now. Thank you so much.

Operator: And this concludes today’s conference call. You may now disconnect.

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