Q2 2023 Vital Farms Inc Earnings Call
Good day and thank you for standing by welcome to the vital farms conference call. At this time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session to ask a question during the session you'll need to press star one one on your telephone you will have been here an automated message advising your hand is raised to withdraw your question. Please press star one one again please.
By today's conference is being recorded I would now.
Now like the hand, the call over to your speaker for today.
Thank you good morning, and welcome to buy the farm second quarter of 2023 earnings conference call in a cast.
Today's call by Russell, <unk>, President and Chief Executive Officer.
<unk> Chief Financial Officer.
[noise] introduced Pete Pappas are cheap sales officer.
I know everyone should have access to the company second quarter of 2023 earnings press release issued this morning.
Available on the Investor Relations section of the vital farms website, okay investors dot <unk> dot com.
Through the course of this call management may make forward looking statements within the meaning of the federal Securities laws. These statements are based on management current expectation and beliefs and involve risks and uncertainty that could cause the actual results differ materially from those described in these forward looking statements.
Please refer to today's press release energy companies quarterly report on Form 10-Q for the fiscal quarter ended June 25th 2023.
D C today and other values.
For a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward looking statements made today.
Please note that on today's call tangible refer to adjusted EBITDA and adjusted EBITDA margin, which are non-GAAP financial measures. While the company believes deep non-GAAP financial measures provide useful information for investors. The presentation of this information is not intended to be considered in isolation or is it a substitute for the financial information presented in accordance with gap.
Please refer to our earnings release for a reconciliation of adjusted EBITDA and adjusted EBITDA margin to their respective most comparable measures prepared in accordance with gap and I would like to turn the call Girl Rustled you guys can take our president and Chief Executive Officer of Iowa farms.
Thanks, Matt Good morning, and thanks, everyone for your time today.
I'll start by sharing updates on how we delivered on all of our commitments to our stakeholders during the second quarter.
Pete will then provide some insight into how our brand continues to expand its footprint with our retail partners.
Finally, Taylor will provide more in depth information on our quarterly results and our annual guidance before we take your questions.
It was another strong quarter at vital bars.
We achieved $106.4 million in net revenue, which reflects a 28.4 per cent increase from the prior year period.
The growth was driven by price mix of about 21%.
<unk> growth of about 6%.
A retail footprint has expanded by almost 2500 stores since last year.
And our products are now available in approximately 24000 locations across the U S.
Our gross margin expanded by over 500 basis points, the 35.5% <unk>.
Posted another strong quarter of adjusted EBITDA requirements at over $11 million, achieving an adjusted EBITDA margin of 10.7%.
We delivered the strong results, even though during the second quarter or the 13 weeks ended June 25th 2023.
Ed category, So retail dollar growth of only one per cent compared to average growth of over 60% over each of the past three quarters.
As you might recall, we anticipated this dynamic at the beginning of the year.
In this environment vital farms grew our dollar share significantly by about 150 basis points relative to the same period last year. We are now about 7% of the total Ed category and tracked retail channel.
Our overall volume is being tracked retail channels grew at about 2%. During the same period ahead of the category, which declined again down over two per cent.
<unk> also gained about 15 basis points of volume sure maintaining positive momentum while many other premium brands have suffered declines in Munich growth during the same timeframe.
We believe outperformance offers proof that we have built a strong brand that resonates with consumers. Despite what may be happening across the category at any given time.
This is an impressive performance against the volatile industry backdrop, and I think it makes sense to review what has transpired in recent months across the egg industry and how we believe it may have.
The industry experienced a period of prolonged price inflation over the last year, primarily within conventional egg.
Much of this inflation was driven by a supply shock caused by avian influenza, which you have heard us discuss before.
Birds were impacted by the virus.
Size of the U S Lang block declined and fewer eggs were produced driving higher prices.
As you'll recall, we built these dynamics into our guidance for the 2023 fiscal year.
As we look at the industry today the U S link block has largely recovered and the supply of eggs has improved dramatically from earlier in the year.
An inventory has returned prices unconventional egg.
Below historic averages, which is similar to what occurred after the last avian influenza outbreak.
We are seeing short term promotional activity as retail partners and producers are getting back to a normal cadence.
We expected promotions to increase given the return of supply at this point of the calendar year and the deals you may see from some retailers on eggs are not a surprise to us.
We have purposely avoided promotions in the first half of 2023, given the industry dynamics.
Knowing these issues would eventually reverse.
We are prepared to resume some level of promotional activity in the back half of the year as business returns to normal.
With that said vital farmers will not be J P consumers to drive quick unsustainable volume gains with discount deal.
<unk> our premium brands we.
We will continue to methodically build our brand and work with our retail partners to grow the category.
While the current supply situation is likely behind us.
There are issues that will continue to impact the industry. We're still focus on the Apple development of our unique supply chain and our relationships with our partners and we believe we are well positioned to withstand changes in the operating environment and continue to propel our rapid growth.
Let me conclude by reiterating that we will remain focus on driving longterm positive outcomes for each of our stakeholders, including our stockholders.
Has been the goal of our business from the start.
And we have been intentional about the choices, we made over the past several years to drive towards this goal.
We believe the decisions we make every day.
Fully consider each of our stakeholders, which contribute to our enduring success and provides a competitive advantage.
Our 2023 operating plan has always built in flexibility to drive success, regardless of the external environment in the latter half of the year.
We have great confidence in the trajectory of our business and are raising our fiscal year 2023 outlets for net revenue and adjusted EBITDA Chela.
Kilo will provide further details around our financial outlook later in the call.
And now I'm happy to introduce our Chief sales Officer, Pappas, who will provide some context around the longterm focus of our sales strategy here at vital farms.
Thank you Russell and good morning, everyone.
Our branch is an extension of vital farms purpose and our customer choose us because they know we are committed to improving the lives of people animals and the planet.
And my experience one way to gauge the health of the brand is the ability to expand distribution on a sustained basis.
In other words get into more doors and have more Sears I'm, Michelle and existing doors.
With that in mind.
I want to talk a bit about what we're doing in this regard through longterm deliberate efforts we have <unk>.
Given substantial growth in our market presence.
A couple mentioned earlier, we continue to successfully expand our footprint.
New retail partners.
Got it almost 4500 stores over the last 12 months and as a result of our products are now available in approximately 24000 retail locations.
The United States.
I'm also extremely bullish about the opportunity to place additional items on shelves with our correct retail partners and the incremental net revenue it can drive for my arms.
We currently have an average of two and a half to use her store across the food channel, which is well below our largest branded competitor.
Currently offers approximately six.
Yes. Please.
Most of our so you have a higher velocities any category average.
Fact, we have course views that are high performers relative to legacy here.
Some of our retailers current events.
As we continue to demonstrate to a retail partners that adding incremental vital farmers to use to nurse department.
Better credit worry performance, where confidence that they will add more used to existing cell.
Coming years.
This strategy provides the opportunity to drive growth advil newer.
Legacy retail partners.
Nations like through Blue or restorative also add to our desks Thomas Jones.
Our success in building and maintaining strong relationships with our customers has been a cornerstone of our growth.
I'm proud to share that we've emerged category reader for many of our retailers.
To our commitment to quality.
<unk> and customer satisfaction.
We recognize that retailers are crucial partners and broke our journey and our mission and we have invested heavily in fostering originally beneficial collaborations.
So communication and tables to court, we've been able to understand and address is unique challenges faced by retailers, providing exceptional service and going above and beyond expectations.
This progress would not have been possible without the talent and tenacity of our dedicated crew across the organization and the trust, our retailers placement or brand and sales leaders.
We've worked hard to identify an onboard new retailers strategically positioning our products or maximum visibility and accessibility.
I'd also like to express my sincere gratitude to our valued retail partners and food service operators for their unwavering support.
Thank you for your continued trust and confidence in my arms and for your time today with that I'll pass it over to Gielow.
<unk> Hello, everyone and thank you for joining us today.
Review of our financial results with a second quarter and they've shown 21st of 2023.
Will that provide more details about our increased guidance for fiscal year 2023.
It's Russell mentioned earlier, we had another strong quarter wasn't that revenue of $106.4 million, an increase of 28.4% compared to the prior year period.
That's what's driven by price mix of about 21% and volume growth of 6%. The volume growth was driven by increases both new and existing retail customers.
Let me put the volume growth and a bit of context, and <unk>, 26% volume cross over the prior year period, which included a one time benefit due to a avian influenza.
Last quarter reset this was a high single digit benefit excluding this benefit our underlying volume growth in Q1 was in the high teens.
In queue to supply return to the market the customer order patterns became much more volatile three tell us managed through the return of enormous apply and order algorithms have to adjust for noisy baseline data.
Resolve even though supply was normalizing one could still experience empty retail X shelves throughout Q too.
We estimate W. Irregular order patterns reduced customer demand for us by mid single digit percentage.
Now that we have had more than a quarter of enormous apply I Wanna order.
Both separate turn to more expected levels.
Gross profit for the second quarter of 2023, $37.8 million or 35.5% of net revenue compared to $24.9 million or 31% of revenue for the second quarter of 2022.
Gross profit dollars benefited primarily from Ohio sales and the 540 basis point gross margin expansion was the result of increased pricing across the whole portfolio more than offsetting a few headwind, including higher input costs and higher packaging cost.
SG&A expenses for the second quarter, where $23.9 million 22.5 per cent of my revenue compared to $17.0 million or 25% of net revenue in the second quarter last year.
<unk> I think it was primarily driven by higher marketing expenses and some increased employee related costs as we grew head count to support our continued growth.
Excluding marketing expenses SG&A declines year over year as a percent of revenue.
Shipping and distribution expenses from the second quarter, where $549 million or 5.5% of net revenue.
The zip to $7.2 million or 8.7% of net revenue in the second quarter of 2022.
The decrease in shipping and distribution expensive, that's driven by a decline in line, alright, and Federer truckloads utilization.
Adjusted EBITDA for the second quarter was $11.3 million or 10.7% of net revenue compared to $3.7 million or 4.4% of net revenue for the second quarter of 2022.
That marks the second consecutive quarter of double digit adjusted EBITDA margin and what's the chiefs. Despite the previously mentioned the increase in plan marketing spend for the year.
And lastly, an update on our capital structure.
25th 2023, we had total cash or cash equivalents and marketable securities of $93.5 million, an increase of $10 million compared to the first quarter due to the strong business results with note that up stomach.
Before concluding the call I want to update you on our race fiscal year 2023 guidance.
We now expect net revenue of more than $465 million up from a prior expectation of more than $450 million.
Furthermore, we now expect adjusted EBITDA of more than $35 million up from our prior expectation of more than $30 million. We still continue to expect a gross margin and the second half of the year will be below what we have posted in the first half of the year, primarily due to the return of a more normal promotional cadence.
Half of 2023.
And SG&A, we continue to anticipate higher marketing spending in the second half of the year compared to the first half.
Lastly, we are now planning for fiscal year, 2023 capital expenditures and the branch of $16 million to $21 million below our prior forecast of $25 million to $30 million.
Before we open the line for questions I would like to reiterate a few points first we have successfully navigated several anticipated challenging dynamics across the category continue to grow our volume in the category that declines this quarter <unk>.
Second we are taking a different approach surprising that many of our competitors to protect the retailer and consumed my value equation of our brand.
We continue to expand our distribution of new and existing retail partners as can be seen in the growing dollar and volume sure <unk>.
Thank you for your time and interest in vital farms today before the confidence that you have placed in US with your investment was that we will now be happy to take your questions.
Thank you.
<unk> to ask a question you will need to press Star One line. Please stand by while we compile the Q&A roster.
The first call comes from the line of Pamela Kaufman of Morgan Stanley Pamela. Please go ahead.
Good morning.
Good morning pack.
It.
It's good to see a guidance range, giving up her Florida stuck in a corner I bet, you are increasing EBIT guidance apply for that 10 million and EBITDA in the second half birthday 25 million in the first half and a much slower and EBITDA margin alright, So <unk>, it's kind of service.
<unk> <unk> <unk>.
What's driving your outlook for it in moderation and profitability.
Your morning, having sexual repression.
I think there are a few things I play one is.
<unk> <unk>.
For the second quarter that there were a few.
Dislocations and an order patterns.
What is a good reminder, for us that while the corner.
The underlying performance in the quarter was exactly as we expected.
<unk>.
This phone quarters quarter EM.
And how this plays out and so we just wanted to make sure that we're not getting ahead of whiskeys. If you want so this <unk>.
There is some conservatism in there the other part.
Guidance is.
We.
<unk>, we're planning to get into a bit more regular promotional cadence.
We're trying to sort of take up our marketing Spanish and the second half.
All those oversee way on on our marching outlook.
And what's that between conservatism add some kind of increases in spending.
We want to make sure that we got it got ahead of Huskies.
Okay and.
And then maybe can you just elaborate a bit more I know, what you're trying to customer order order patterns in the second quarter.
What you're seeing in the third quarter so far.
Hi, This is Pete.
One of the things that we saw and Q1 was a dramatic spike.
Orders as a result of a I.
As a result of that spike.
Saw was retailer algorithms, which typically drive a lot of the order patterns.
Kind of go a little bit.
I took a little bit of time for those to adjust to a moderate as supplied now have come back into balance.
So as those supplies.
The orders have come in to balance what we're seeing now is a much more <unk> Ah return to normal order patterns.
And as we start to promote we're starting to see an increase in those orders as well. So we're very bullish about the way that we have plans a year, particularly in the back half now that these algorithms have caught up with the supply of balance and I think we're really well pleased with the plans that we have in place.
Thank you I'll pass it on.
[noise] the next question.
675 for a SEC, we're trying to figure out the.
Technical issue going on here.
Hello.
Hey, there.
Alright.
Okay.
Great. Thanks for taking our questions and good morning, everyone.
Couple of questions, telling me can you just help us understand and dig into more in your prepared remarks your decision to pull back on promotion.
And how you're thinking about increasing.
<unk>, especially in light of what your competitors again.
Yeah, Hey, Cody it's Russell.
So the first thing is S. P was describing.
<unk> told when we when we gave our guidance in the beginning of the year.
Turn to normal supply throughout.
Industry.
Predictably led to some sort of a dislocation I would say.
The way that retailers and distributors ordered as they had to switch from a time of scarcity to a return to a time of plenty.
Short term impact of that.
Curt in Q.
You too and I believe we are largely passed it now.
They went from having built up some inventory to draw.
Get down but may be under ordering and then having some.
Stock outs in their warehouses and on shelves and then they kind of bounced around over ordering in under ordering for a bit.
Result of witches, we think it was that you know sort of I would guess single digit couple of hundred basis points of growth.
That would probably miss just bike frankly, not seeing the stock levels that we thought we could deliver on that and Q2.
Against that backdrop, you know, we also predicted and it's playing out that the return to fall supply would lead to an overshoot, especially amongst commodity producers at the very same time that retailers, we're probably looking for a way to recover their price per <unk>.
Options from a time when eggs were very highly priced in Q1.
Result of witches, we're seeing some really hot punctate at page ads for private label X across the country as low as 50 or 75 cents a dozen in a multi doesn't pack.
And the reality is I don't want to sort of.
Try to throw our very sort of.
One limited, but but more importantly, intentional promotional plans against the the splash page AD on a hot price for commodity X. So we're very happy to to wait until those kind of short term supply dislocations play out until the retailers regain their price perception until.
Producers sort of clean out their oversupply issues and then we can start to talk to consumers again and continue our strategy driving trial or promotions as opposed to driving.
Short term volume through promotions do you want to add anything to that.
Thanks for so yeah I think.
I would add is two things one is.
One of the principles that we follow as we want to be very very.
Protective of the brand.
Do not see a need to subsidize.
Through several promotions.
The bulk of our volumes kicks off really now and back to school as well as in the holiday period, So you'll see us begin promoting and those those time frames in partnership with our retailers. This has all been orchestrated.
Court.
Partners.
So they they understand that we're not in a position to wear.
Really need to be promoting at this point in time given performance.
The role that we play for these categories.
Is quite candidly Martin driving.
That to a lot of the deep discounting that they do given our velocity and the margin structure that we provide them.
That's super helpful. Two more quick ones from me if I may just.
Trial seems like it's down a little bit naturally as more supplies coming on that makes sense can you just helped by inform everyone on the call today, how you repeat purchase rates have gone through this through all this noise of supply coming back on line.
Yeah.
Yeah, I was just gonna say that I'm not seeing a big change in repeats purchase behavior as we've seen consistently before.
Coming out of Covid.
The reality is that we get a pretty consistent trial to repeat to loyalty tunnel and frankly, it's still up.
It's still a big part of our marketing.
Marketing keeps focus to continue to improve this conversion rates, but.
Haven't seen a big change up or down.
Great. That's Super helpful. Last one for me you guys recently announced an animal spay I believe in September .
Can you just share to the extent that you can any thoughts on what we can expect some high level topics that may be addressed and I will make up there.
We hope you come into your path P. Cody.
<unk>, you're going to join us.
All right now.
After September sounds good with college football in full swing so.
Hello, and Matt are gonna make it worth your while.
That sounds good.
I don't know, if you'll be able to swing college football but.
It's been a few years.
For US then is it.
It was a good opportunity to spend more time with.
Financial coming out to you to talk about whatever longer term sky longer term plans are.
How do we will accomplish dos palace gives us confidence so we can accomplish those plans.
And it will be an opportunity for the financial community to.
Company a bit better.
Yes.
Charity to sit down.
And.
She might in depth conversations as well.
That sounds good. Thank you for taking our questions best of luck.
Thanks Cody.
Please stand by for your next question.
The next question comes from the line.
<unk>. Please go ahead.
Thank you.
What's your updated that EBITDA guidance. It implies that your EBITDA margins shrank from about 11 per cent in the first half to four per cent in the back half.
Reasons.
So there can be some conservatism built into that but is that 4% EBITDA margin implied in the back half the run right into next year.
New new margin profile support growth.
<unk>, just unusually weighted towards the back half of the year and next year should kind of look more like the average for the year and not have this <unk>.
Have dynamic of high margin low margin.
Mm mm.
Okay. So our question I've I would not say that our exit right.
Four it's gonna be the run rate for next year.
What are you seeing this year if that.
March.
[noise] around quite a bit from quarter to quarter.
When we when we spend marketing dollars.
Depending on how we rolled up promotions that song.
Because it's really nothing changed about an hour.
Some guidance, which is low double digits, that's what we're aiming for over here for commerce sites first off this year.
Second half will look at a little bit lower than that.
It doesn't take anything away from wherever you want to go over at S. We are growing.
And I'm getting a bit more efficient with our spending.
That is how we will go to the double digit.
Moslem unconscious.
On a consistent basis.
Great. My second question is on on the inventory you've been building inventory for the last year to support the volume growth in probably the stock authenticate any potential impact on from AI.
Expect inventory levels the decline.
Is this the the right level of inventory to support the business going forward.
So where our inventory levels are today.
For the year is coming unexpectedly.
We're talking about the.
Dislocation on autopilot Q too so.
Inventories might be a bit higher than.
What if plan for it.
But it gives us the opportunity.
Inventory down throughout the balance of here.
24, with the help of your inventory position.
With that we feel comfortable about the position that we have right now.
Yeah.
Other thing I would call out is that as you've observed there is some seasonality to this category into our own.
Sales and so because we haven't figured out a way to convince the chickens to lay more eggs in the winter when sales are higher than in the summer when they're lower we actually build up some inventory every summer and then dropped back down every winter and there is a baseline of that in our annual planning.
That makes sense.
One moment for your next call.
The next question comes from the line of Adam Samuelson from Goldman Sachs. Adam. Please go ahead.
Good morning, everyone. Thank you for that can help with today out of <unk>.
<unk>.
I was wondering if you could provide some additional color on Delaware capital expenditure guidance.
What are they kind of opportunities that you are putting on hold or potentially walking away from.
This could mean a potential differ I'll need today 23, four capital program.
Thanks for the question would be.
Updated council.
It's really a reflection of some investments that we're pushing into 24 uhm.
To make sure that we have.
Provide resources.
The spending.
Part of it.
That I've done the last four months since I've joined about where do we put our money.
Focus on.
So there's not one single thing that.
Really drives this reduction of guidance if several things so the coming together of timing is part of it.
Spending that we're pushing into next year for example to make sure that.
The best possible position to execute that correctly.
That's super helpful and if I may ask I put a lot on.
<unk> on the potential.
That you had mentioned previously.
Well, Hey, gambler this Russell.
Consistent with the way we've talked about that.
<unk> calls.
The.
Those rise in part with cost of capital.
And so one thing that would certainly.
Help us move a little faster would be to see cost of capital come back down just as it would for I think anybody considering the investments.
More speculative or start up kind of a new category expansion opportunity. So you know for US we continue to work in earnest and and the good news is that.
When we announce something it will have benefited from even more rigor then we might have otherwise brought to it zero cost of capital environment.
That's super helpful. Thank you for the caller on I'm gonna send that letter.
<unk>.
One moment for your next question.
The next question comes from the line of Matt Smith S. T. Mat. Please go ahead.
Hi, good morning.
Good morning that you.
I'm Gonna ask a little bit about the retailer environment, we've heard retailers prioritizing.
The desire to see more attractive price point, and and maybe that fits in with the more aggressive promotional stance. We've seen in the conventional aid category, but I wanted to get your perspective on.
If you're still seeing distribution gains for the premium products are you hearing any pushback on your price point.
Or a retailer seeing the benefits from the higher velocities that you bring to the egg shelf and therefore, the premium product benefits do overall category.
Thanks, Matt Yeah.
Kind of answered your own question, yes, you're exactly right.
Taylor is do see the value that we bring.
To the category and the fact that we are premium priced we do deliver.
A healthy margin to them and we're a good counterbalance to the discounting.
Promotions that they're they're executing currently we still have a lot of runaway from a distribution standpoint both.
New points of distribution meeting new stores.
As well as increasing the number of items that we have in those existing stores.
Art.
Our largest branded competitor has more than two times the number of items on the shelf than we do in.
In a conventional grocery store and when you compare that to the number of excuse that we have in our natural segment, which is over almost six.
Items, you can see the opportunities that exist in the largest channel of.
Grocery shopping in the states. So we think that there's just a tremendous amount of upside.
Partners are starting to recognize that upside and a lot of the work that we're doing with them.
So I'm I'm extremely bullish in the second half I think really position just quite well.
Thank you for that and maybe as a follow up.
We've seen some retailer activity, bringing in private label options that have.
Some of the more premium attributes to them, whether it's various claimed other than conventional.
Are you seeing shelf gains for those types of products as well and and if so where where are those shelf games coming from is that the conventional products shelf start getting a little smaller to accommodate that.
Yeah, I think you know.
Imitation is the greatest form of flattery and so.
We're we're flattered that others seek to to replicate.
What we're doing.
Grant.
A very very powerful brand and it stands for something more than just the price.
And unfortunately retailers and shoppers recognize that so yes, we are starting to see if retailers dabble, a little bit in that space, but.
As you can see it's not <unk>.
And our performance, it's not encroaching in the space opportunity that we have on the shelf.
So I anticipate they'll continue to experiment or dabble, but.
Really almost since the time, we we entered.
Great.
Oh, Thank you for that perspective feed them I'll leave it there and pass it on.
One moment for the next question.
The next question comes from the law.
Mine is Robert Dickerson Jeffries Robert Please go ahead.
Great. Thanks, so much.
Hey, guys Uhm.
Just a.
I guess a few questions first question just in terms of like the higher at in Provo spend.
You know when you think about I guess per cent of sales is that <unk>.
You kind of view that is may be taking you up a little bit back half perhaps.
Through 24, just given all the pricing taken or.
This kind of an area, where you can maybe incrementally wait it to the back half, but maybe for the four year it's not.
Materially different just trying to get a sense of magnitude is kind of depth of promotional need.
Yeah, Hey, Rob It's Russell Uhm, let me talk about the the marketing spent first because that's the one that probably swings the most.
And.
Yeah, I think what we've observed over the years is that.
Q for is the peak for this category Q force does that strong.
Quarter for our sales and in queue for us, where we want to do more promoting and so you know.
A stronger level of of marketing spend in the back half of the year, specifically to take advantage of that area.
<unk> type of sales activity. So that's not a you know that that may be a little less about trying to recover from high prices and a little more simply about the seasonality of how we want to promote when we want to promote.
I think broadly and certainly I would encourage people to speak up two or maybe even kilo.
In terms of promotional spend I don't see us entering a period of different levels of promotional spend that leaf historically done I think that we've had that historically appropriately dialed in I think this is simply a resumption of a more normal pattern as the market returns to a little bit of a more normal dynamic.
Okay Super and then.
Just just in terms of where <unk>.
The commodity markets a bit a little fickle, what kind of generally.
Still looks like you have some kind of Corfu cough sitter been deflationary, so just kind of wondering.
You know there might be some pass through dynamic of the contract, but doesn't sound like you're talking about kind of pass through dynamics on the end product.
Net of the promotional spread.
Yeah, the thing I'd call up there.
Rob is that you know it's funny, yeah, we've seen that short term decline and corn and maybe even soy, but if you compare it to three or four years ago.
You know in some cases 50 per cent plus I don't have the latest data, but it's it's substantially higher than it was just a few years ago.
So that combined with everything from you know hourly labor for our Alley crew headaches infestation, which is much higher than it was just a few years ago certainly as we've described we've taken a farmer pay up above what the kind of contractual mechanisms would do <unk> to.
Help accommodate increases in costs that are outside of fees. You know, we don't see a lot of those things reversing and so you know our sense is that this is probably the new normal in terms of our pricing and and the hope is that uhm, we've taken it up pricing to to sort of accommodate.
Those inflationary pressures that we've seen.
Alright, Super and then I guess just lastly.
In terms of the volumes you know understand there was some choppiness and the order side.
Fox normalizing et cetera.
Kind of that mid single digit kind of worn off dealt in demand I guess that would have been there for one more normalized.
Yeah then.
Thinking back half.
Given it a strong volumes.
Shipments last year I mean, it it kind of seems like you're still sorta talking to maybe like low double digit volume potential <unk> you know I've just taken the 6% volume and Mmm Q2, and putting putting <unk> on top of that in your concert necessarily more challenging. So I don't know if you provide that level of detail.
Just trying to get a sense of that volume health trajectory.
Alright.
But as I think about the second half.
Help us to get some additional product on the shelf that should help with volume.
We talked about but we have we gained about 2500 new.
That is not a volume that becomes all through.
And.
Then.
This year for the first time since we've gone public wherever 53rd week in December .
It's the it's the week between Christmas and new year, So for us it's a bit of.
I'm charted territory of what the <unk>.
In terms of how much volume upset at that will drive.
The benefit of having an extra week this year so.
So all those pieces come together.
The volume growth, if we look at for the balance of the year.
And these pieces are part of the reason why I prefer a comfortable taking of guns.
Alright, and then maybe just the last one last quick one kind of housekeeping.
Clearly shipping distribution rates come down a little bit across the board for everyone.
You too.
More attractive for you that has been historically is that kind of a general you know normalised run rate is your sex or at least the back half of the year or is is there anything that could change.
Yeah, if I had a crystal ball it would probably be doing a different job.
For now we're assuming that for you will continue to have you over your benefits, so I better distribution rights and they're really two two pieces of work for us.
So that's certainly benefits us the other part is that our shipping that's getting more efficient scale were able to put more pilots on trucks.
Do you pay for the truck ride you don't pay per pallet and with that the cost per pellets is coming up.
And so with the growth that we are delivering Ah drive some some modular benefits for us through more efficient distribution.
But our own internal Rob our own internal expectations assume some uptick in Q3, two four just with seasonal volumes and there's the potential for hurricane season to a theme a sop up a bunch of capacity as well.
A fair enough.
Super Thank you guys.
One moment for your next question.
The next question comes on the line.
Please add Lake Street capital markets.
Please go ahead.
Alright, Thanks for taking my question. Thank congratulations on a great quarter two quick ones from me.
First on the various dynamic that you've been talking about with with Choppiness volume an inventory expectations over the next couple of quarters can you talk about how all these dynamics are informing your outlook for bringing a new farmer suppliers here you know throughout this year and into next year Dot.
Provide additional supply and 24 are are you swelling that down or is that continuing you know as expected.
Yeah that's.
So you know we.
We sort.
Start working on those plans about two years in advance and that lends itself to that longterm to recycle mentality that we use when we passed and everything we do we have to make a final call about a year in advance of the demand. So that the purposely vague answer is where we're planning.
Now for the supply we need a year from now and we're adding we add pharmacy, how throughout the year and throughout the life of our.
Our company, but the reality is to tell you how much reading is to say you know what we think our grilled is going to be next year, and we're not quite ready to do that.
Okay Fair enough. Thank you and then one other one peed on you're you're prepared comments you you discuss.
Your skew volatility was you know in excess of your peers, but for most of your product, which certainly tracked I'm wondering if you could elaborate a bit on the categories that excuse that are.
Below are some of your counterparts and kind of how bad is informing you your strategy here for future product expansion.
But I'm not quite sure I understand the question I'm sorry.
Well.
Are you prepared remarks, you said that there was some excuse that were that most of your excuse were outperforming on a philosophy basis relative to counter parts of the shop.
Which implies that some are underperforming and so I'm curious if you can elaborate a bit on the dynamic that that are leading to certain skews, having velocity below and what you would probably be expecting.
If a product category that would be great.
Hey, Ben still doesn't make any sense, that's okay [laughter] no no no yeah no.
Are are heavy hitters are are high volume excuse which are gonna show up in just about any retailers top five if not top one.
It's it's things like our core doesn't black carton conventional pasteurized eggs are organic brown carton doesn't pasteurized.
<unk> right. The eggs and then we've got 18 count versions of both of those I think those are probably our top for most popular skews.
We also have like any other you know C. P. G company a longer tail of items that move more slowly than those things for example, some retailers for strategic reasons.
That's to sell them, what we call off side effects jumbo eggs or medium eggs for example, or perhaps in some retailers they'd like to see a smaller pack size for example apartment dwellers in Manhattan, sometimes for for a six account because a single household may not eat 12 eggs in a week uhm those items performed.
The need of that retailer.
Not be in our top four they may not be the items, we take to any retailer across the country, but for specific retailers in specific geographies. They're wonderful. That's all we met by that we've got some clear winters that no matter, where we go these tough for items should be in your set we've got a long tail up more specialty items blue eggs regenerated.
Six count medium jumbo step, along and some but perhaps not all stores.
Got it got it that's that's helpful. Thanks, Russell Thanks for taking my questions, Congratulations get unruly and order and I'll get back in line.
Thank you Ben.
One moment Sir.
Last question.
The last question comes from Robert Mostow M. T D. Helen Rabbit. Please go ahead.
Hi, everybody and congratulations to you out thanks.
Welcome. So I guess my question is about the stock price. It's it's been a disappointing year and and I know you know there's a lot of.
You know, there's a lot of side contingencies to to to to cope with.
But you know you got $47 million of cash on the balance sheet, now and and I think Taylor you've said that you did a review and you found that you know some of these projects probably should be delayed I imagine some of those are category expansion projects, which are inherently risky.
There were any thought between you and management and the board about using some of that cash to buy back stock in this environment or is it just not possible.
Given the the capital structure.
I think the.
Between management myself support I think we would all agree that are in stock was undervalued right now.
I would also say.
At the current moment, there plenty of growth opportunity of February won't take a after where I would rather put my cash right now.
Never say never things can change.
But.
Need a capacity expansion there has to come over the next however, many months.
I wanted to make sure that we keep our powder dry so that we can act button, but we have an opportunity.
And.
That's kind of the mindset I would say sure if I've ex-wife Noah right now we're not on the on the priority list.
Okay I appreciate the certainty alright. Thank you.
Good to hear from you.
Thank you I would now like to turn it back over to <unk> for closing remarks.
Great day.
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