Yahoo Finance The Simply Good Foods Co (SMPL) Q2 2024 Earnings Call Transcript Highlights: A Blend of Growth ...
Net Sales: $312.2 million, up 5.3%.
Gross Margin: 37.4%, increased by 280 basis points.
Adjusted EBITDA: $57.8 million, up 13.6%.
Net Income: $33.1 million, up from $25.6 million.
Quest Retail Takeaway: Up 13.1% in measured channels.
Atkins Retail Takeaway: Down 11% in IRI MULO plus C-store universe.
E-commerce Growth: Quest e-commerce POS up about 14%, Atkins e-commerce POS up 13%.
Full Year Fiscal 2024 Outlook: Net sales expected to increase around the midpoint of 4-6%, adjusted EBITDA anticipated to increase 6-8%.
Year-to-Date Net Sales: $620.9 million, up about 4%.
Year-to-Date Gross Margin: 37.4%, up 160 basis points.
Year-to-Date Adjusted EBITDA: $119.8 million, up 7.3%.
Year-to-Date Net Income: $68.7 million, up from $61.5 million.
Reported EPS: $0.33 per share diluted, up from $0.25.
Adjusted Diluted EPS: $0.4, up from $0.32.
Cash Position: $135.9 million.
Cash Flow from Operations: $94 million, up 76%.
Capital Expenditures: $300,000 for Q2, $1.1 million year-to-date.
Debt Repayment: $35 million repaid on term loan debt.
Release Date: April 04, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Net sales increased 5.3%, driven by volume and due to the timing of shipments last quarter outpaced retail takeaway of about 3%.
Quest's retail takeaway was on track with the plan, driven by strong salty snacks growth.
E-commerce POS growth for both Quest and Atkins continued to be solid.
Q2 gross margin of 37.4% represented a 280 basis point increase versus the year-ago period, primarily due to lower ingredient and packaging costs.
Adjusted EBITDA increased 13.6% to $57.8 million, enabled by higher gross profit which allowed for investments in the business.
Negative Points
Retail takeaway in measured channels was less than the company's expectation.
Atkins performance was off versus estimates, impacted by a difficult comparison with the previous year's 'new year new you' season.
The company updated its full year fiscal 2024 outlook, expecting net sales to increase around the midpoint of the long-term algorithm of 4% to 6%, down from the previously expected high end.
Adjusted EBITDA is now anticipated to increase 6% to 8%, revised from previous expectations due to softer Q2 Atkins consumption trends.
Atkins Q2 retail takeaway in the IRI MULO plus C-store universe and the combined measured and unmeasured channels was off 11% and 8%, respectively.
Q & A Highlights
Q: Was the performance of the overall active nutrition category in line with your expectations, and are you seeing any signs of a pickup in growth in the categories as we move past March? A: (Geoff Tanner - President, Chief Executive Officer, Director) The category continues to show strong growth, though it has slowed compared to the past couple of years. It's back to around six or seven percent, which is where it was pre-COVID. The category remains a standout versus many other center-of-store categories, reflecting underlying drivers of health and wellness trends, snacking, and convenience. It's performing as expected, and retailers are also recognizing this, working on initiatives to further accelerate category growth.
Q: The lowered revenue guidance includes a 7% reduction in POS for Atkins for the year. Does that outlook consider improving dollar consumption from here? A: (Geoff Tanner - President, Chief Executive Officer, Director) The company was disappointed with Atkins' performance in January and February, which was impacted by competitive merchandising. However, they remain confident in the long-term vitality of the business. Trends have improved as they exited the New Year season, and they expect the business to return to a mid-digit decline with easier comps in the second half of the year.
Q: What metrics do you use to make sure innovation is successful and sustainable in the marketplace, and how do you track that over time? A: (Geoff Tanner - President, Chief Executive Officer, Director) The innovation on Quest has been successful, and retailers continue to reward the brand with more space. For Atkins, the focus is on replacing underperforming items with better ones. The company looks at ACV build, turns per week, and repeat purchase to evaluate the success of new innovations.
Q: Can you talk about any adjustments that you're making to your strategy this year, given the performance and competitive dynamics you saw during the second quarter? A: (Geoff Tanner - President, Chief Executive Officer, Director) The company is not changing its strategy but remains confident in the revitalization plan for Atkins and the quality of new products coming to market. They expect a more normalized level of competitive in-store merchandising and programming going forward.
Q: How are you thinking about your revenue progression over the back half of the year, and what gives you confidence that you can deliver on the updated revenue guidance? A: (Geoff Tanner - President, Chief Executive Officer, Director) The company is moving into easier comps on Atkins and has a strong advertising plan in place. Quest's momentum is encouraging, and they've just launched new advertising. They expect low double-digit POS growth and continued household penetration and buy rate gains driven by innovation, distribution, and the new marketing campaign.
Q: How much capacity do you guys think you will have when the 30 gram RTD shake product comes to market, and how will the channel rollout be? A: (Geoff Tanner - President, Chief Executive Officer, Director) The company is excited about the launch, which is designed for consumers on weight loss drugs. They have enough capacity to support both the new product and the continuing business, and the launch will be national with strong retail support.
Q: What's your confidence level as the year progresses that the higher-income consumer will continue to be resilient relative to the overall economic uncertainty? A: (Geoff Tanner - President, Chief Executive Officer, Director) The category continues to perform well, partly because it over-indexes with higher-income consumers, which provides some insulation. The lack of private label and heavy promotional activity in the category reflects underlying consumer demand.
Q: Can you expand a bit on competition more broadly in the active nutrition category? A: (Geoff Tanner - President, Chief Executive Officer, Director) The heightened level of competitive activity discussed earlier relates to out-of-stock challenges on shakes from the previous year. Now that supply is back, the category is expected to return to normal levels of competitive activity.
Q: What's the right percentage of sales for ad spend, particularly in the context of so many new innovations this year? A: (Geoff Tanner - President, Chief Executive Officer, Director) The company historically targets spending 9% to 10% on marketing, which is high for the food and beverage category and within their category. They aim to have advertising that supports both the core business and innovation without having to choose between them.
Q: What is the contribution of the 53rd week, and how should we think about it for next year? A: (Shaun Mara - Chief Financial Officer) The 53rd week contributes a little more than one point of growth. It's not just a simple division due to the timing of fall resets and replenishment cycles. The company will have better clarity on this in Q3.
Q: How are you prioritizing the use of excess free cash flow going forward in the business? A: (Shaun Mara - Chief Financial Officer) The company evaluates the best return of cash for shareholders, considering debt paydown, share repurchases, and potential M&A opportunities. They will continue to evaluate this for the second half of the year and do what is best for shareholder return.
This article first appeared on GuruFocus.
