Will the launch of energy drinks help MusclePharm diversify away from the challenging protein markets that left the "Athletes Company" badly beaten up this quarter? In the third quarter of 2021, MusclePharm (OTCMKTS: MSLP) saw its net sales decline 25.6% YoY. While that declining sales trend is alarming, it's nothing compared to gross margins that declined 3090 basis points YoY to 0.2%. So, why did MusclePharm lose $3.5M operationally (mostly stemming from COGs) this quarter? About half of MusclePharm's quarterly revenue is tied to Costco (key customer risk) merchandising its whey protein SKUs globally. Despite the whey protein costs doubling in 2021, MusclePharm is in a precarious position because they know how much other competitors want those merchandising slots. MusclePharm can’t materially raise pricing or lay off the gas on promotional monies with the wholesale retailer. That is causing massive short-term profitability pressure that likely won't change throughout 2022. Alternatively, changing course with Costco strategy could create long-term business continuity risks if they decide to swap out MusclePharm for another competitor in the Health & Beauty Aids (HABA) merchandising section. This is all going on in the background when MusclePharm is launching into a new (and ultra-competitive) product category. It's important to remember that just because a brand has awareness within another active nutrition category at mainstream retailers like Costco, it doesn’t mean the market instantly gives you the authority to be a platform brand across multiple categories at large physical retailers. MusclePharm is going to need to become a "marketing machine" again. This makes the profitability discussion even more complex.

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