What are the expected margins and cost structure associated with selling through this retailer compared to current channels?

Margin & Cost Implications

AX & Co. will now be selling its AXIL® hearing‑protection and Reviv3® hair‑and‑skin lines through a large U.S. membership‑based retailer (think Costco, Sam’s Club or BJ Brands). Historically, the company has relied on a mix of specialty‑shop distributors, direct‑to‑consumer (DTC) e‑commerce, and smaller wholesale partners. Those channels typically allow AX to retain ≈ 55‑60 % gross margin because the “trade‑up” price is close to the list price and promotional spend is modest.

By moving a significant portion of volume into the membership retailer, the gross margin is expected to fall to the 40‑45 % range. Membership retailers command a 30‑35 % retailer margin on consumer‑goods SKUs and expect slot‑ting fees, marketing‑to‑sell‑‑out allowances (often 1‑2 % of net sales) and higher inbound‑logistics costs (full‑truckload freight, case‑pick handling). In addition, AX will likely incur marketing‑to‑retailer spend (e.g., cooperative advertising, in‑store sampling) that can add another 0.5‑1 % to cost of goods sold (COGS). The net‑to‑retail cost structure therefore shifts from a low‑cost, high‑margin DTC model (≈ 5‑7 % COGS) to a higher‑cost wholesale model (≈ 12‑15 % COGS) when selling through the membership chain.

Trading Take‑aways

The partnership should boost top‑line revenue—volume lifts of 20‑30 % are plausible given the retailer’s national footprint—but the margin compression will pressure near‑term earnings. Analysts should watch for a downward revision of gross‑margin guidance in the next 12‑month earnings releases and a rise in SG&A spend (logistics, slotting, and cooperative marketing). If the company can offset the lower margin with the expected volume uplift, the adjusted EBITDA margin could remain flat to modestly higher; otherwise, the stock may face short‑term downside pressure despite the strategic upside. In practice, a buy‑on‑dip if the price reacts to the headline revenue boost, with a stop‑loss around 8‑10 % to guard against earnings‑margin miss risk, would be a disciplined way to capture the upside while managing the downside.