Hydration Pharmaceuticals: A Turnaround in Sight as US Ecommerce Sales Surge

Hydration Pharmaceuticals Company Limited (ASX:HPC) reported its full-year 2024 earnings, with a net loss attributable to members decreasing by 132.9% to $2.67 million. The company's strategic focus on high-margin SKUs and a streamlined operational approach in the US market has driven preliminary sales figures for US ecommerce in January 2025, showing double-digit growth compared to the prior year. This growth indicates that the company's turnaround strategy is gaining traction.

The company's divestiture of non-US assets to Prestige Consumer Healthcare Inc for approximately US$9.45 million resulted in a gain on disposal before tax of US$7.96 million. This transaction has improved the company's financial position and allowed it to focus on its US-based operations. The company aims to achieve cashflow breakeven and future profitability in the US market, with emerging benefits expected from its strategic focus on high-margin SKUs and a streamlined operational approach.



The company's financial performance in the US market has been driven by several key factors:

1. Improved Gross Margin: The company's gross margin increased to 50% in Q1 FY24, up 3 percentage points from the previous corresponding period (PCP) of 47%. When adjusted for once-off inventory writedowns, the gross margin increased to 56%. This improvement can be attributed to the shift towards high profitability SKUs.
2. Reduced Marketing Costs: The company has successfully reduced marketing costs as a percentage of net revenue, decreasing from 48% in Q1 FY23 to 37% in Q1 FY24. This reduction in marketing costs has helped to improve the company's overall profitability.
3. Cash Preservation: The company's focus on cash preservation has resulted in a significant reduction in net cash used in operating activities. In Q1 FY24, net cash used in operating activities decreased by 43% compared to the previous corresponding period (Q1 FY23) and by 27% compared to the previous quarter (Q4 FY23). This reduction in cash expenditure has helped to extend the company's cash reserves.
4. Growth in Ecommerce Sales: The company's ecommerce sales in the US market have shown positive growth. Although US ecommerce revenue decreased by 5% on PCP in Q1 FY24, subsequent to the quarter end, US ecommerce has shifted to profitable year-on-year growth. This growth in ecommerce sales can be attributed to the company's strategic focus on high-margin SKUs and streamlined operations.

In conclusion, Hydration Pharmaceuticals' strategic focus on high-margin SKUs and streamlined operations has driven double-digit growth in US ecommerce sales, with emerging benefits expected in the US market. The company's divestiture of non-US assets has improved its financial position and allowed it to focus on its US-based operations. As the company continues to execute its turnaround strategy, investors should monitor its progress and consider the potential for future growth in the US market.