What’s Wrong With MusclePharm Corp (OTCMKTS:MSLP)?

MusclePharm Corp (OTCMKTS:MSLP) failed to impress the investors with its latest earnings report, and poses increased risks going forward. It appears that only management change is an option that can save the company’s shareholders from ongoing pain. The company is facing problems with its sell through pace.

The indications

Last month, MusclePharm reported that the company was very aggressive on its FY2014 guidance when it saw a number of customers optimizing their inventory in the second half of the year. The company is now witnessing the patterns returning to normal in 1Q2015. The brands are doing well as the company strengthens its association with retailers. The company introduced various new products that continue to make noise among customers and gain distribution. The sell through was beaten by the sell-in as new sales channels were started and new products were launched. The 4Q2014 revenue declined 12.9% from 4Q2013.

The mismanagement

The bigger problem as compared to the direct sell-through impact is the problem of mismanagement. The management was not being well informed of the sell-through issue in time. By October the management realized the existing problems. It was at that time MusclePharm’s Chief Marketing and Sales Officer resigned.

The costs

The other problem associated with the dismal performance of MusclePharm is the costs problem. The management failed to sustain costs under control. It was evident when the company posted 3Q2014 earnings.  Considering the expected impact from all the sell-through issues, the mismanagement of costs got further attention in 4Q2014. Allowing the costs to increase might have enlarged the company’s risk factors.  MusclePharm reported it had $10 million less in revenues compared to 3Q2014 and had around 50% of the gross profit. The operating loss came at $16.4 million in 4Q2014. It is a significant loss that can even pose danger to the company’s survival.

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