The Simply Good Foods Company ((SMPL)) has held its Q2 earnings call. Read on for the main highlights of the call.
The Simply Good Foods Company’s recent earnings call revealed a mixed sentiment, characterized by robust growth from the Quest and OWYN brands, contrasted by challenges faced by Atkins and potential cost pressures. The company’s strategic initiatives have driven significant sales increases, yet concerns about declining sales in certain segments and the impact of tariffs and gross margin declines were evident.
Quest and OWYN Double-Digit Growth
Quest and OWYN, which together account for 70% of The Simply Good Foods Company’s net sales, have shown impressive growth rates of 12% and 57% respectively in the first half of the fiscal year. This substantial growth has been a key driver of the company’s overall performance, showcasing the strength and appeal of these brands in the market.
Quest Salty Snacks Expansion
Quest’s Salty Snacks platform has experienced a remarkable 45% growth in the quarter, now making up 35% of total Quest retail sales. This expansion was bolstered by a successful national test at a key club customer, highlighting the potential for further market penetration and consumer acceptance.
OWYN Retail Takeaway Growth
OWYN’s retail takeaway has surged by 52%, fueled by a 53% increase in ready-to-drink shakes and a 22% rise in distribution. This growth underscores the brand’s expanding footprint and the increasing consumer demand for its products.
Debt Repayment and Repricing
The Simply Good Foods Company has made significant strides in financial management by repaying $100 million of its term loan since the fiscal year’s start and repricing the loan, resulting in nearly $2 million in annual savings. This move reflects the company’s commitment to strengthening its financial position.
Atkins Consumption Decline
Despite the overall positive performance, Atkins has faced a 10% decline in consumption, attributed to reduced display space and distribution losses at a key club customer. This decline poses a challenge that the company needs to address to stabilize this segment.
Gross Margin Decline
The company’s gross margin has declined by 120 basis points to 36.2%, impacted by the inclusion of OWYN and inflationary pressures. This decline is a concern that the company must manage to maintain profitability.
Tariff Impact on Costs
New tariffs are expected to affect 15% to 20% of the company’s total cost of goods sold (COGS), posing a potential cost headwind of $5 million to $10 million in fiscal 2025. This anticipated impact requires strategic planning to mitigate its effects on the company’s financials.
Forward-Looking Guidance
Looking ahead, The Simply Good Foods Company has provided optimistic guidance for fiscal year 2025. The company anticipates net sales growth between 8.5% to 10.5% and adjusted EBITDA growth of 4% to 6%. With a strong focus on innovation, distribution expansion, and brand awareness, particularly for Quest, the company aims to navigate challenges such as tariffs and inflation while leveraging productivity initiatives to support sustained growth.
In summary, The Simply Good Foods Company’s earnings call presented a narrative of strong growth driven by Quest and OWYN, alongside challenges with Atkins and cost pressures. The company’s forward-looking guidance reflects confidence in continued sales and EBITDA growth, supported by strategic initiatives and financial management. Investors and market watchers will be keen to see how the company addresses its challenges while capitalizing on its growth opportunities.