Q2 2025 The Simply Good Foods Co Earnings Call
Greetings and welcome to the Simply Good Food Company's fiscal year 2025 second-quarter conference call. This time, all participants are in less than only mode. A question and answer session will follow the formal presentation.
If anyone should acquire offered assistance, be sure to store zero from your telephone keypad.
As a reminder, this conference is being recorded [inaudible]
Speaker Change: At this time it is now my pleasure to introduce Josh Levine, Vice President of Vest Relations. Thank you Josh, you may now begin.
Speaker Change: Thank you, Operator. Good morning and welcome to the Simply Good Foods Company, fiscal year 2025's second quarter earnings call for the 13-week period ended March 1, 2025.
Speaker Change: Today, Geoff Tanner, President and CEO , and Shaun Mara, CFO will provide you with an overview of results which will then be followed by a Q&A session.
Speaker Change: The company issued its earnings release this morning at approximately 7 a.m. Eastern Time. The copy of the release and the company presentation are available on the investor's section of the company's website at www.thesimplygoodfoodscompany.com
Speaker Change: This call of being webcast and archive of today's remarks will also be available.
Speaker Change: During the course of today's call, management will make forward-looking statements that are subject to various risks and uncertainties that may cause actual results to differ materially. The company undertakes no obligation to update these statements based on subsequent events.
Speaker Change: A detailed listing of such risks and uncertainties can be found in today's press release and the company's SEC violence.
Speaker Change: Note that on today's call, we refer to certain non-GAAP financial measures that we believe will provide useful information for investors.
Speaker Change: Due to the company's asset-light, strong cashroom business model, we evaluate our performance on an adjusted basis as it relates to Yvita and diluted EPS.
Speaker Change: Please refer to today's press release for a reconciliation of the historical non-GAF financial measures to the most comparable measures prepared in accordance with GAF.
Speaker Change: The acquisition of only what you need ink, Kaumil, was completed on June 13, 2025.
Speaker Change: Therefore, the company's year ago performance for the 13 weeks ended February 24th, 2024, does not include results of the Owen business.
Speaker Change: The reference to organic or legacy Simply Good Foods refers to Simply Good Foods' business, excluding Owen.
Speaker Change: All retail takeaway data included in our discussion today unless otherwise noted is for the 13 weeks ended March 2nd, 2025, and reflected combination of mu-low plus plus C performance and company estimates for unmeasured channels as compared to the prior year.
Speaker Change: Finally, please note that today's earnings release includes a new table summarizing net sales by geography and brand for the current and prior year periods.
Speaker Change: I will now turn the call over to Geoff Tanner, President and CEO .
Geoff Tanner: Thank you, Josh. Good morning, everyone, and thank you for joining us.
Geoff Tanner: I'll begin by reviewing our performance during the quarter, then Shaun will discuss our financial results in more detail before we wrap it up with a discussion about fiscal year 2025 outlook and your question.
Geoff Tanner: Before I begin, I want to acknowledge the announcement we made back in January that our CSR, Shaun Mara, will be retiring this summer, following a long and successful career.
Geoff Tanner: Shaun has been with the company in multiple senior management roles for many years, including as CFR of Actance Nutritionals prior to the IPO, and as the leader of the highly successful integration of quest.
Speaker Change: More recently, in addition to leading our finance organization since late 2022, Shaun has been instrumental as a partner to me and as a strategic thinker and phenomenal financial executive.
Geoff Tanner: On behalf of everyone at Simply Good, I wish Shaun continued success in retirement.
Geoff Tanner: I'm also thrilled to welcome Chris Bealer to Simply Good Foods. Chris joined us last week as Senior Vice President of Finance and is expected to succeed Shaun upon his retirement in July .
Geoff Tanner: Chris brings almost 23 years of experience in consumer packets goods and consumer durables in North America and global markets and like Shaun has extensive financial strategic and operating experience.
Geoff Tanner: Chris is here with us today. However, given his day seven for him, he won't be available for questions.
Tending to our adults
Geoff Tanner: Our momentum continues, with double-digit growth for Question Owen, more than off-setting declines for Actkins.
Geoff Tanner: Specifically, first half retail sales for Question Owen, which collectively represent approximately 70% of our net sales today increase 12% and 57% respectively.
Geoff Tanner: Across the company we are executing well, adding new doors, winning with innovation, and driving brand awareness and household penetration.
Geoff Tanner: The defect to the quarter net sales increased 15% versus last year with 4% organic growth driven by quest performance.
Geoff Tanner: Assuming Owen was included in the year ago period, Repel take away for total Simply Good foods for 7% and adjusted EBITDA increased 18%.
Geoff Tanner: Shaun will provide you with more details on our Q2 results shortly.
Geoff Tanner: Our growth and long-term strategy are underpinned by solid category fundamentals.
Geoff Tanner: We remain excited by the trajectory of the nutritional snacking category, as well as the interest in engagement from our retail partners.
Geoff Tanner: Total nutritional snacking category grows was 12% and Q2, marking the 16th consecutive quarter with category growth of at least high single digits.
Geoff Tanner: Category growth reflects the continued mainstreaming of consumer demand for high protein, low sugar, low carb, food and beverage options.
Geoff Tanner: With a diversified portfolio of three uniquely positioned brands aligned with these consumer mega trends, we believe Simply Good is well-positioned to lead this generational shift in food
Let me now turn to Quest.
Geoff Tanner: Wish to live it another quarter of strong double-digit retail take away and net sales growth.
Geoff Tanner: Quest now represents 60% of the company's net sales, is one of the leading brands in the nutritional snacking category, and is, arguably, the pioneer of the mainstreaming of this category.
Geoff Tanner: As quest approaches $1 billion in net sales, we continue to see a long runway for growth led by three key drivers.
First, Leading with Innovation
Geoff Tanner: By leveraging our world-class R&D and supply chain teams, we will build upon current platforms and enter new adjacent categories right for disruption.
Geoff Tanner: Our salty snacks platform is a great example where we've grown to a $300 million plus business in just the last few years.
Second, Expanding Physical Availability About Products [inaudible]
Geoff Tanner: We continue to seek ways to grow our presence across the store and online.
Geoff Tanner: This includes continuing to expand distribution in our current aisle, introducing the quest brands in mainline snacking aisles, and increasing displays and merchandising everywhere, as well as penetrating new channels.
and third, increasing brand awareness.
Geoff Tanner: Quest Disruptive, it's basically cheating campaign last year was a tremendous success, driving both a short and long-term increase in their sales.
Geoff Tanner: Since we dropped the ads, Halton penetration is at over 100 basis points.
Geoff Tanner: However, at only 15% unated brand awareness for the brand today, we have lots of room for further
Geoff Tanner: Q2 retail take-away for the brand was up 13%. There were several key drivers of press growth in the quarter.
Geoff Tanner: First, we saw continued broad base growth from our salty snacks platform which was up 45% in the quarter and which now represents approximately 35% of total
Geoff Tanner: Growth was enabled by the doubling of manufacturing capacity last fall that supported strong customer service levels and very strong merchandising and display support.
Geoff Tanner: An exciting element of our growth on Quest Salty was a successful national test at a key club customer which was a nearly three-point benefit to our consumption growth in the quarter.
Geoff Tanner: We are an active dialogue about further opportunities with this customer where we're confident we can build our robust business in the quarters and years to come.
Geoff Tanner: Considering the size of the broader Salty Snacks category, low household penetration and awareness, leading loyalty rate strong velocities and high incrementality.
Geoff Tanner: We remain very confident there is a long runway for growth for our sultis next business.
Geoff Tanner: The second driver of Quest Bros. was a continued success of a bake shop platform, which is proven to be highly incremental to the brand and the category.
Geoff Tanner: We're excited about the future expansion we have coming on this platform in the fall.
Geoff Tanner: And third, as mentioned, the ongoing effect of our award winning is basically cheating advertising campaign.
Geoff Tanner: Turning to quest balance, we're particularly excited about the launch of our new overload bi-platform which you should have already begun to see show up on shelves and online.
Geoff Tanner: As a reminder, our delicious overload bars come in three highly indulgent flavors and a load of wet inclusions.
Geoff Tanner: Finally, as we announced last month, we recently launched a line of delicious, ready-to-drinked
Geoff Tanner: We have been encouraged by initial retail expenses for our three flavors of vanilla chocolate and strawberry and we're excited about the opportunity.
Geoff Tanner: To monitor our overload bars, you should expect ACV to build through the calendar year.
Geoff Tanner: To wrap it up on quest, we're pleased with our Q2 performance and we've increased our retail takeaway assumptions for the year, with growth now expected to be in the low double-digit range.
Geoff Tanner: We continue to be very excited about the momentum and continued runway for the brands.
Geoff Tanner: James Atkins, Consumption Decline 10% with combined January and February down low double digits.
Geoff Tanner: As we discussed on a Q1 conference call, accelerated declines were expected due to not repeating significant year-a-go volume driving displays and bonus pack programs as several key customers.
Geoff Tanner: Not repeating these events, accounted for almost all of the incremental declines, relatives and negative 4% takes away growth in Q1.
Geoff Tanner: Importantly, for total simply, we were able to successfully partner with retailers to shift display support into Quest and Owen, which both Sir expanded features and displays to begin the calendar year.
Geoff Tanner: Similarly, at a key club customer, where Atkins is losing significant distribution this year, we have partnered to replace law skews with wins for more productive quest in Owen's skews.
Geoff Tanner: You will see those contributions built over the next year and be a benefit to growth for the total company.
Geoff Tanner: At roughly 30% of our net sales today, we know that Atkins trends are a meaningful drag on growth.
Geoff Tanner: As discussed, our goal is to write size investment levels on the brand in support of building a sustainable, healthy business.
These decisions will create short to medium-term headwinds.
Geoff Tanner: Specifically, the declines we've observed since January will continue through Q3 and into Q4. Again, these declines are due to lapping significant low ROI merchandising from the year-a-go period and distribution losses at club.
Geoff Tanner: Again to reiterate, we are partnering to offset those space declines with increases for question
Geoff Tanner: As a result of our first half performance and modestly reduced retail take away expectations for the second half, we now expect full year PLS to decline in the low double digits range.
Geoff Tanner: While we expect a smaller footprint for applicants moving forward, our consumer research and customer conversations continue to reinforce a strong need for a brand to help consumers with their weight loss journey.
Geoff Tanner: An important step are those on GLP1 drugs, where our research clearly shows an opportunity to position acons as an ally to consumers using or come in off these drugs.
Geoff Tanner: We remain committed to supporting the brand with strong innovation, new packaging and new website and new advertising. This includes building upon our recently introduced Act Can Strong platform which is resonating with new and existing households.
Geoff Tanner: All in, we believe the actions we are taking will improve the trajectory of the brand over time in support of building a healthier, more profitable and sustainable long-term business.
Thank you for watching!
Speaker Change: Moving on, Owen had another strong quarter with retail take away up 52%.
Speaker Change: Ready to drink shakes grew 53% with distribution up 22% helped by expanding into new doors and by adding more skews per store.
Speaker Change: I wouldn't remain one of those rare gents that can grow distribution and velocity in parallel.
Speaker Change: Even as we laps significant distribution gains at club from a year ago, we continue to be very optimistic about the year, supported by ongoing velocity growth and some incremental distribution gains beginning this spring.
Speaker Change: Owen is one of the fastest growing brands of scale in the category. However, while we're very placed with trends on the business today, there are several reasons why we believe we are still in the early earnings of Owen's growth story.
Speaker Change: First, while Owen has emerged as the clear plant-based leader with RTDs turning 50% faster than on the Earth, competitive, and Milo channels.
Speaker Change: The brand's superior taste profile is increasingly attracting mainstream consumers which make up the lion's share of the high growth $8 billion category.
Second, the brand has loved single digit household penetration and awareness.
Speaker Change: Third, despite such low awareness levels, our ones velocities and amylo channels today are already among the industry leaders in its core four-packed sub-segment with continued double-digit momentum at many retailers.
Speaker Change: And fourth, we average about seven spews per store today, well below most competitors, and as we prove with quest, our sales force is highly effective at driving distribution growth.
Speaker Change: With continuous velocity increases and our plan to add new doors, channels, flavours and pack sizes we remain confident we can double net sales of the core business in the next three to four years.
Speaker Change: The integration is progressing well and with synergy capture starting at the onset of fiscal 26, we are confident Owen will deliver on its suggested EBITDA margin targets.
Speaker Change: The summarized, Simply Good is uniquely positioned as the leader in the fast growing nutritional snacking category.
Speaker Change: Obviously it's a dynamic time with a lot of uncertainty and pressure on consumer sentiment.
Speaker Change: But with that said, by the majority of our products, I made and sold in the United States.
Speaker Change: We have a very agile supply chain using co-packets for all our products.
Speaker Change: and our category over indexes with high income consumers with relatively low levels of private label and promoted volume.
Speaker Change: But despite today's uncertain backdrop, we plan to be at the forefront of the generational shift as demands for high protein, low sugar, and low carbon-sudent beverage products continues to mainstream.
Speaker Change: We would do this by continuing to introduce innovative and delicious new products, expanding our physical availability across the store and through our brand-building initiatives.
Speaker Change: And with approximately 70% of our portfolio through Question Owen driving aggregate double digit growth, we are confident in our ability to deliver sustainable growth and create meaningful shareholder value. I'll now turn the call over to Shaun to provide you with details of our financial results.
Thank you, Geoff. Welcome, Chris. Good morning, everyone.
Shaun Mara: I will begin with an overview of our net sales. Total Simply Good Food's second quarter net sales of $359.7 million increased 15.2% versus last year.
Shaun Mara: driven by the year-one contribution from Owen of $33.8 million or 10.8% as well as 4.4% organic growth.
Shaun Mara: Question that sales 16.5% in the quarter, benefiting from strong retail take-away, and the expected timing benefit of Q1 shipments that slipped into Q2.
Shaun Mara: First half shipments and consumption growth were essentially in line for quest as expected.
Shaun Mara: Atkins and that sales declined 11.5% due to lower consumption versus prior year as well as the expected reduction in trade inventory this year as a result of a lost club distribution which compared to a trade build in Q2 of last year.
Shaun Mara: I went ahead another strong quarter with retail take-away again up strong double digits.
Shaun Mara: Gross Profit was $130.1 million and increased of $13.3 million or 11.4% from the year-to-go period driven by volume growth and the inclusion of all one.
Shaun Mara: From a margin perspective, gross margin was 36.2%, a 120 basis point decline with modestly favorable legacy input costs offset primarily by the inclusion of Owen in our results.
Shaun Mara: The non-tash inventory step-up purchase accounting adjustment, which is now completed with a headwind of $438,000 or 10 basis points to gross margin in the quarter.
Shaun Mara: Gap selling and marketing expenses at $35.1 million dollars, we're up modestly versus prior year driven by the inclusion of Owen to the portfolio of setting declines on the legacy business.
Shaun Mara: Gap, G and A expenses worth $36 million, an increase of $6.1 million versus last year.
Shaun Mara: excluding stock-based compensation, one-time Owen integration costs, and term loan transaction fees. Q2GNA increased $3 million to $28.6 million, they're primarily by the addition of Owen to the portfolio.
Geoff Tanner: Geoff Adibina with $68 million and an increase of $10.2 million or 17.6% from the year ago period.
Geoff Tanner: Net interest expense was 5.6 million dollars and increase of approximately 1 million dollars versus the last year. The year-over-year increase was primarily driven by a higher debt balance due to the O&A acquisition.
Geoff Tanner: Our Q2 effective tax rate was 25% compared to 23.7% in the year ago period.
Geoff Tanner: As a result, net income was $36.7 million reflecting 10.9% growth versus last year.
Geoff Tanner: On a first-hand basis, trends were similar to Q2 with gross profit and adjusted EBITDA growth at 12.3% and 15.2% respectively driven by net sales growth, they were welcome out of these and cost-discipline.
Geoff Tanner: I want to commend our teams for their excellent focus on delivering strong results so far this year.
Geoff Tanner: 2nd quarter reported EPS was 36 cents per diluted share versus 33 cents in Q2 last year.
Geoff Tanner: Adjust the diluted EPS was 46 cents compared to 40 cents in the year ago period. Note that we calculated adjust the diluted EPS as adjusted evita, less interest income, interest expense and income taxes.
Geoff Tanner: Please refer to the press release for an explanation and reconciliation of non-GAAP financial measures.
Geoff Tanner: Moving to the balance sheet in cashflow as of March 1st, 2025, the company had cash of $103.7 million and outstanding principal balance on its terminal loan of $300 million, bringing our net debt to the trailing 12 months adjusted even up to 0.7 times.
Geoff Tanner: During the quarter, the company repaid $50 million of its term loan debt and has voluntarily repaid $100 million since the beginning of the fiscal year.
Geoff Tanner: I would also highlight that during the quarter, we opportunistically reprised our term loan, lowering the effective margin on the debt by 60 basis points or nearly 2 million dollars on annualized pre-tax basis at the time of the refinancing.
Geoff Tanner: The fiscal year today cash flow from operations was approximately 63.3 million dollars compared to 94 million dollars last year. The decline was primarily due to higher uses of working capital, principally inventory.
Capital expenditures in the first half were $800,000
I will now discuss or update it outlook for the year
Geoff Tanner: As you saw in this morning's press release, due to solid retail take away and adjusted a bit of growth to start the year, we are reaffirming our fiscal year 2025 outlook.
Geoff Tanner: Therefore, in fiscal year 2025, total reported net sales are expected to increase 8.5% to 10.5% with organic net sales growth given primarily by volume.
Geoff Tanner: Embedded in that, we anticipate owning that sales to be in the $140 to $150 million range. A total company adjusted EBITDA is expected to increase 4% to 6% with gross margins expected to be down approximately 200 faces points versus last year.
Geoff Tanner: To be clear, our gross margin guidance for the year, which has not changed, continues to incorporate higher inflationary pressures in the second half, as well as a preliminary estimate for the anticipated costs related to recently announced tariffs.
Geoff Tanner: As a reminder, the 53rd week in fiscal year 2024 is approximately 2 percentage point headwind to growth for net sales and adjusted EBITDA in fiscal year 2025.
Geoff Tanner: A low adjustity, but I would now assume that interest expense will be in the range of $21 to $23 million, inclusive of non-cash amortization expense related to deferred financing fees.
Geoff Tanner: This is an improvement from last quarter, reflecting the additional fifty million dollar reduction of our term loan balance and the opportunistic repricing of our term loan that closed in January .
Geoff Tanner: Our effective tax rate is now expected to be 24%, while we continue to assume capital expenditures will be 10 to 15 million dollars for the year.
Geoff Tanner: And by fiscal year end, we expect to repay essentially all of the $250 million we borrowed to finance the own acquisition less than a year ago, with net leverage expected to finish the fiscal year around 0.5 times.
Geoff Tanner: Finally, I would note that our outlook assumes current economic conditions and consumer purchasing behavior remain generally consistent over the balance of company's fiscal year.
Geoff Tanner: We're comprehensive summary of our updated assumptions, the slide 16 in our presentation.
Geoff Tanner: That concludes our prepared remarks. Thank you for the interest in our company. We are now available to take your questions.
[inaudible]
Geoff Tanner: Thank you. Well now we're conducting a question and answer session.
Speaker Change: If you'd like to answer a question, please press star one on your telephone keypad, and a confirmation to indicate your line is in the question queue. Let me press star two to remove yourself from the queue.
Speaker Change: So just once using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment, we'll slowly pull for questions.
I'm sorry. I'm sorry. I'm sorry. I'm sorry.
Speaker Change: Thank you, and our first questions are from the line of John Baumgartner with Mizzou Hope and Security. Please receive your questions.
Hi, good morning. Thanks for the question.
Great job. Maybe two from me, first off on Atkins.
Speaker Change: Jeff, you know, in letter the reduction in sales guidance for F-25, now downvote doubles versus the prior down high singles.
Speaker Change: Can you walk through what's driving that reduction? And I guess specifically I'm curious as to what you're learning about the Atkins consumer as you move through these adjustments. Is the consumer proving more promo dependent than maybe you perceive? Are you seeing a larger spillover drag on baseline volumes resulting from lower promo? Any insights would be appreciated?
Yeah.
Speaker Change: So a full POS, your guidance is now down, load up with digits, versus high single digits. I will want to point out that.
Speaker Change: First half consumption is in line with that forecast with Q1 flatly head, Q2 flatly behind.
Speaker Change: So as an example, John , one of the largest customers display space was down 70% through the new year, new year period.
Speaker Change: which I will say we did manage to offset with some gains for quite an OEM, but that was a significant decline.
and Display Space for Actions.
which is what we expected.
Speaker Change: The new news is that over the balance of the year we did lose a little more distribution than at a key club customer than we thought.
Speaker Change: And that's the extent of the change in our Biden's for the back half of the year. Again, we expect
So...
Speaker Change: and in conversations with those customers which you've had over the last.
Speaker Change: Three or four months. Where we see opportunities to switch out tales views under performing excuse on Atkins.
with faster turning question-all-enskews.
Speaker Change: We will do this. So that's the story on Airkins largely as we expected just with that additional reduction from a club customer.
Okay, nothing incrementally, I'm sorry.
Speaker Change: Let me ask at a couple of points here. So in addition to maintaining our shell space for the Portfolio, the shift from Akinspace to Quest is actually a creative to the company's overall contribution margin. So Quest contribution margin percentage is about 10 points higher than Akins.
Speaker Change: I bring this up as historically we've said contribution margins to the brands are basically similar.
Speaker Change: A couple things that have driven this over the last few years.
First of all is inflation
Speaker Change: Atflation on the majority of the Actance Portfolio has been significant with Coco and CLI in our bars and confections.
Speaker Change: While Quest has seen this inflation as well, the growth in quest in the last few years is rather driven by chips where we've seen a little inflation in the ingredients.
Speaker Change: And second, as we talked about over the last year, investment levels on-actance have remained high despite the sales declining and are above the investment levels for quest.
Speaker Change: As a result of that, the contribution margins of the two brands have diverged.
Shaun Mara: Just one last point, as we think going forward, once we get the synergy capture for Owen, its contribution margin should be in line with Atkins beginning next year, so just want to dimensionalize it a little bit And that's a great point, Shaun Smith.
on Question O'Reilly.
Speaker Change: Great, and then secondly, just sticking with quest and the relaunch of the shakes [inaudible]
Speaker Change: The brands participated in that segment for probably five years or so, but there's been pretty large variation in distribution and I think very little brand investment.
Geoff Tanner: What prompted you to pursue this relaunch in shakes now? How are you thinking about positioning in the category, giving the changes to the protein base, to the packaging? If we expect higher-income mentality as we're seeing with bake shop, maybe just Geoff, you know, what at a high level, what do you anticipate will be different relative to version 1.0?
It's a great point. What I want to say is 1.0
Speaker Change: which I think was launched around the time of the acquisition.
It was essentially just another 50 gram me to shake.
and...
Speaker Change: The ethos of what correct does is it slips the macros.
Speaker Change: on generally unhealthy categories. So replacing my cup, high sugar with high protein, low sugar.
Speaker Change: And so when Quest launched, we had met with a Me Too product, didn't do very well. We challenged ourselves, obviously we look at the size of the Shake's category, the growth of it. How would Quest enter this category? How would we do it in a Quest way?
and the concept is...
Speaker Change: Well, we can't flip the macros on a 30 gram regular shake but we can flip the macros on a milkshake and our research showed that the indulgence of a milkshake was one of a huge unmet demand for our consumer base.
Speaker Change: So we said, how would we flip those macros on a milkshake? And that led us to this concept which we then backed up by taking protein levels up to a category leading 45 grams, highest in the category, two grams of sugar, four grams of lids in the cup.
Speaker Change: We're also able to deliver that with ultra-filted milk, which we believe delivers a superior taste experience for the consumers.
Speaker Change: You know, I don't want to overburden this with high expectations, but it is a very, very different proposition that was launched. This is what was launched five years ago. Our research suggests that it is bullseye for the quest consumer.
Speaker Change: We've been very pleased with retailer acceptance so far, but that being said, it really is the first month of the launch of this platform.
[inaudible]
Thanks, Geoff. Thanks for on.
Thanks, Geoff.
Speaker Change: The next question is from the line of Megan Clapton with Morgan Stanley . Let's just use your questions.
Hi, good morning. Thanks so much for taking our question.
Speaker Change: Good morning. First question I just wanted to ask on the gross margin guide.
Speaker Change: First half, obviously I think much better than at least consensus, and I think you were expecting, you did maintain the full year. It does seem like a part of that is tariffs, but I guess if looking at your slides...
Speaker Change: I think you called out 100 basis points from input cost and tariffs, versus I think it was 150 prior and maybe a little bit more from Owen. So it just seems like there's some puts and takes. Maybe you could just help us unpack what's changing in the Gross Margin guide.
Speaker Change: And, you know, how much visibility you have on, on impact cost at this point, I think you said in April , you expect it to be covered for the year. Thank you.
Speaker Change: Yeah, I mean, honestly, a lot of unknowns at this point in time, especially on tariffs, but let me start with the Q2 results.
Speaker Change: I mean, our gross margin was better than we planned for two major reasons. One, we had a slower flow through a higher price cocoa and CLI that we anticipated, largely because of the fact that Atkins had a sales miss in the queue.
Speaker Change: said differently, the higher cost are there, they just haven't hit our P&L yet, are sitting in raw material inventory at our comands. And second, there was fearful brand mix from Mackens DeQuest helping the gross margin.
Speaker Change: I also point out that in the second quarter we benefited from a key ingredient in our chips that was down about 50% versus the first half of the last year. Now that was masking the unfavorable impact on inflation we've seen in way which basically doubled in the first half this year versus last year.
Speaker Change: We largely planned for that, but I mentioned that as we look to the second half, we anticipate the inflation our way continuing.
Speaker Change: We expect CLI and Cocoa inflation to increase significantly while the benefit we saw in the first half lapping these elevated commodity costs in our chips is going to go away as we procure that lower price in the second half of last year.
Speaker Change: The second dynamic here really is terrorist. Let me start with a caveat here like everybody else, we're still trying to figure this out and in front understand where we are.
Speaker Change: First and foremost, thankfully our manufacturing network is largely based in the US. We have a limited number of items produced in Canada that we believe should be covered under USMCA exemptions which at this point remain exempt from the 25% tariff imposed on import from Canada and Mexico.
Speaker Change: As it relates to raw materials and packaging, we estimate about 15 to 20% of our total colleagues will be affected by tariffs. That should be a headwind of about 5 to 10 million dollars in physical 25, really depending a little bit on flow through and product mix, so we largely have that covered in our guidance.
Speaker Change: That said, we have not been able to estimate the impact of any retaliatory tariffs and those are not built in. Conversely, some ingredients we're currently assuming are impacted by the tariff may be covered by USMCA exemption or other exemptions for ingredients.
Speaker Change: I.e. Derry, which would reduce the exposure. But by and large, we don't estimate, estimate this is a major impact for physical 25 results as we believe it's limited to raw materials and flow through that will only impact us in the last two or three months of the year.
Speaker Change: A lot of unknowns there, if tariff somehow go away or delayed further, our margins would improve, but it's likely we'll reinvest that back into the business probably in marketing.
Speaker Change: And the last point I'll make is your question. We're largely covered for commodities to the rest of the years, so there really isn't an exposure on that. The real big exposure is going to be in tariffs. I don't know if it helps or not, but...
Speaker Change: Over the past 12 months, we have stepped up our productivity initiatives.
Speaker Change: You know, if we call going back a year ago, Koko spiked considerably.
Speaker Change: In response to that, we realize we needed a stepped up productivity program, which I'm very, very pleased with how that is delivering with results that have certainly helped us in 25, but will flow through.
and into 26 to help mitigate some of these car shots.
[inaudible]
Speaker Change: That's really helpful. Obviously, very uncertain time periods, I appreciate all the color. Maybe a follow-up for Geoff on on Atkins to John's question earlier. Last quarter, I think you talked
Speaker Change: A little bit more time unpacking performance, maybe of your new innovation. I think last quarter you gave us some color around performance that your largest customer. Maybe you could just talk about how some of that performed.
Speaker Change: Through the New Year, and just get a sense of how you're feeling about this third calendar time frame as we head into the fall 25 recess.
Speaker Change: Yeah, I mean, as we head into the full 25 resets, we do expect, and we said this in the script, our kids to have a slightly smaller footprint.
Coming back to John's question, as we continue to...
Way there are opportunities to mix in faster turning [inaudible]
More profitable, personal, and scarce, that's…
Speaker Change: We expect that to have a slightly smaller footprint. That being said, we do believe and remain very committed to the long-term role and vitality of this business.
Speaker Change: Thank you for joining us. We'll be back in a few minutes.
Speaker Change: We, as you look at the demand for weight wellness solutions, it's higher than ever, 60% of people actively looking to lose or maintain weight.
Speaker Change: The cultural conversation on weight has changed and increased very much driven by these new GLP1 drugs.
Speaker Change: and our research shows the Actions is a trusted brand in this space.
Speaker Change: to help consumers on their weight loss journey. And particularly, we see GLP1 drugs and consumers on those drugs as representing a significant opportunity, whether it be helping them when they're on the drugs or helping them as an off-ramp.
Speaker Change: So while we expect this slightly smaller physical footprint moving forward, we're still committed to building this brand.
Stabilizing this brand.
Speaker Change: The new product that we launched are a critical component of that.
If you recall last fall, we launched 17 new items.
Speaker Change: Generally performing very well and it key accounts roughly turning two times at the rate, the items that they replaced.
Speaker Change: Atkins Strong, which is the 30 grams protein shake platform, is performing very well with the new packaging coming out.
Speaker Change: We've got new advertising coming out, and we're certainly working with retailers as they try to figure out how to take a leadership position in weight wellness, particularly with GLP1 consumers.
Speaker Change: Yeah, on the one hand, in partnership with retailers, expects a smaller footprint on the other hands. Please, with the revitalisation efforts and we're very committed to stabilising this business going forward.
Okay, great. Thank you so much.
Speaker Change: The next questions are from the line of Brian Holland with D.A. Davidson. Please receive your questions.
Brian Holland: Yeah, thanks. Good morning. I wanted to start with Owen just trying to get a sense. The revenue number came in a bit light of what I was forecasting your full year guide. You took it up.
Brian Holland: I'm applying second half would accelerate from what we saw in the first half so just curious obviously the consumption data has been has decelerated lapping the big distribution games but as you pointed out you're still growing velocity on top of that so it's just a specific catalyst driving your confidence. [inaudible]
Brian Holland: in an acceleration in the revenue number and the second half of year for OWN.
Brian Holland: Yeah, now so we did expect and plan for a diesel on Owen as we were lapping some new doors as well as a program we didn't repeat at large customer but as you think about Owen moving
Brian Holland: We remain extremely excited about this acquisition. Still in the early innings.
and several reasons for that.
We see continued distribution upside on the business
Brian Holland: The brand ACV today is only 60%, we only have seven skews on average.
Brian Holland: We see outside relative to our peers as we look banded by banner.
with God and Exciting Innovation Platform.
Brian Holland: And we know that new distribution is coming in April and we expect those gains to continue based on the conversations we're having with retail. So this significant distribution upside, the velocities continue to impress me.
Brian Holland: The highest velocity to the plant-based shake segment, number two within four packs and the Milo channels, even compared to our dairy-based competitors, and we're increasingly sorting volume from mainstream consumers.
We've got a powder business [inaudible]
Brian Holland: That's small, 25 million dollars, but growing triple digit with distribution runway and the brand has low awareness, low single digit. So to deliver on the targets we set
Brian Holland: We need mid 20% growth and we believe this is very very doable and that's without even thinking about any other basis whether it be expanding into bars.
Brian Holland: So the Q2 results were fully in line with our forecast. We're excited about the distribution we have in the bank in spring and the conversations we're having in the fall. But more broadly, we think this brand has a lot of runway and that we're in the early.
Speaker Change: Okay, perfect. And I know I'm sure you want to address kind of looking 18 months out in this current backdrop. It's something that I'm sure you'd love to dive into it, but I'll take
Speaker Change: 70% of your portfolio is growing, you know, high teams right now, as we go into next year.
Speaker Change: My Mass, which is a great, you dangerous, would suggest 70% of your sales grow double digits or 10% and accons to climb 5. That's already puts you at the high end of your algorithm.
Speaker Change: So I'm just wondering if that's consistent with kind of how you're thinking about the setup into fiscal 26.
Speaker Change: And the reason we're looking ahead is obviously a lot of what's happening with Acids is proactive, but there's also some proactive stuff innovation distribution, etc. on these other brands.
Speaker Change: and we start to put the mask together. It seems compelling, so just curious if that's consistent with how you're looking at it or thinking about it internally or if there's any caveats there that I'm just obviously missing as we look ahead.
Speaker Change: Shockingly, we don't want to talk about 26, so we're only halfway through 25, we just began planning for 26, we're very early in the process and obviously with Chris joining, he clearly wants to put a stamp on things for next year.
Speaker Change: At this point in the cycle, I would say our goal is to come up with a plan to grow on Algo, so 4-6% top and bottom line.
Geoff Tanner: On the positive side, as you said, we remain confident on Quest and Owen, we expect a benefit of a full-year productivity as Geoff talked about from synergies with the Owen integration, both in the tens of millions of dollars, and then obviously as I mentioned before, Quest growing faster than that ends has actually a positive margin mix.
Geoff Tanner: Our category and our company are very well positioned against this broader mainstreaming of consumer demand for high-protein, low-card low-shigger products.
Geoff Tanner: As we said in the scripts, the category has had 16 quarters of consecutive high single load to double digit growth. As you mentioned, 70% of our net sales are growing double digits.
Geoff Tanner: Now in the bottom line, there are some headwinds, and with that B. Taras or Cocoa, as I mentioned earlier, we put a much more comprehensive productivity program in place and we have a lot of work to do in the future.
Geoff Tanner: So, in that match, you know, it is early, but with Shaun, you know, we'd like to think we could deliver a plan that was on Algo, but as you noted, you know, there are uncertain times.
Appreciate all the color. Thanks, best of luck
Speaker Change: Our next questions are from the line of management with Stephen. Please receive your questions.
Matt Smith: Hi, good morning, I can take my question.
Speaker Change: Sean, just following up on your comments regarding the contribution of margin differences between the Brains.
Speaker Change: The ten point gap between adkins and quests, should we think of that as improving as the brand goes through this reset? Or, I guess, is there an opportunity to narrow that gap over time, or would you expect quests?
Speaker Change: Margin to outpace any improvement in the addkins given the scale of that business.
Speaker Change: Yeah, I think we'd like to improve the margins on Atkins. Jeff said we are investing in the Atkins brand so I think overall we don't expect that to drastically improve in the next I'd say 18 months or so and we do have some pressures there as I mentioned more on the Atkins side with inflation than we do on the quest side so I think over time we'd like to get that a little bit closer but in the near term I don't see that changing drastically from where we are today. [inaudible]
Thank you for that and...
Speaker Change: As a follow-up, Jeff, you've talked about the low awareness and household penetration of awareness and opportunity going forward.
Speaker Change: How do you build the awareness and household penetration at this point? Is it more a story of gaining distribution and space on shelf to communicate with the consumer or should we expect you to increase the investment level behind Owen to drive that awareness and household penetration?
Speaker Change: Thank you, officer. It's a great question, Matt. I'd say in the near term, it will be focused on distribution, and if you think back, that was the Quest Playbook, and the ROI on marketing is...
Speaker Change: Very much a function of the bright-to-view distribution. So, we will initially focus on building out that distribution as said earlier, we are on the average seven skiers on shelf. So, I would invite for the next couple of years.
Speaker Change: The focus for us will be distribution and innovation, obviously the brand does some terrific marketing today. It's at lower levels, it's more digital, influencer driven, we'll keep that going.
If you think about Quest,
really only.
Speaker Change: A year ago, maybe 18 months did we start turning on?
Speaker Change: Nation, National Advertising, which was obviously, you know, had a big positive for the brand, but you don't really want to do that until you've built a sizable distribution footprint.
Thanks Geoff, I'll leave it there
Speaker Change: Thank you. The next question is in the line of Bob Moskow with TD Count. Please
Speaker Change: Hey, good morning. This is Jacobon for Rob Moskow. I just have one question. Curious? Good morning. Curious on to get more details on the bar category, specifically as it relates to quest?
Speaker Change: Our tracking data shows decent trends for the overall category, but Quest continues to underperform. I'm just curious if you can talk about what you're doing in addition to the overload bar to try to get back to that low single digit growth target that you have for Quest
Speaker Change: Yeah, I'm not sure, honestly, I'm not sure I would characterize quite like the underperforming. Certainly, we can do a lot better than we have been, but
Speaker Change: We are very excited about the innovation that we're bringing to market. This is a category that is highly responsive to new news and innovation. And dotting.
Speaker Change: Only about 12 months ago, we significantly stepped up our innovation efforts on quest bars.
Speaker Change: The Overload Platform, which we're very excited about, it's early. Consumer Reviews, though, have been very, very, very positive.
Distribution, acceptances have been very positive, but it's early.
Speaker Change: Innovation like that is what will move the bar business within quest.
and that's incumbent upon us, therefore.
Speaker Change: to never let up on bringing continuous exciting innovation to market. And as I look into the pipeline, I'm very pleased and excited with what we have coming market. And I'll say if you look, one of the leading parts in the by category is the Sea Store Channel.
Speaker Change: It's a place where there's a lot of trial and where you look more recently on Quest Trends we're very pleased with what we're seeing.
Thanks for watching!
Great, thank you, I'll leave it there [inaudible]
Thanks for watching!
[inaudible]
Speaker Change: The next question is from the line of John Andersen with William Blair. Please excuse your questions.
John Anderson: Good morning, everybody. Thanks for the question. Good morning. First question is on Quest, second is on
Speaker Change: for the brand, at least the point of sale. Wondering there.
Speaker Change: What the story is with respect to your prior expectations and new expectations if you can talk a little bit about that. Also on quest, part of that question.
Speaker Change: Have you found over time as you expand the brand into other categories, salty snacks, bake shop
Speaker Change: that there's kind of a synergistic benefit to the brand as a whole, i.e. the more penetration you make in salty snacks or a big shop. It has a halo effect on the bars. I want to kind of understand that dynamic. And then on Atkins, because there's so many moving parts.
Speaker Change: What should we be looking for over the next 12 to 18 months?
from Atkins.
and signals of kind of your success.
Take away the kind of level out. Thank you.
Speaker Change: Yeah, great questions. Let me start with what is leading us to take up an expedition on quest.
Dolce is the biggest driver here.
Speaker Change: You know, it's currently 35% of the business, 300 million retail sales growing.
Well, in excess of 30.
Speaker Change: If you recall what happened was as we went into Q4 last year, even we were caught a little bit by surprise with the growth on the business and we were supply constraints.
Speaker Change: We started up a second site. Accelerated that we're now back in full supply and we're seeing at the fault that started to see the real fault potential of this business.
and if you take a step back.
The addressable market where we're slipping the mad crow is massive.
Speaker Change: and we are finding that there's a large number of consumers.
Speaker Change: who are putting quests into the rotation from buying more main lines next.
Speaker Change: with increased merchandising and displays, retailers getting behind it in a big way. We had a very successful test.
Speaker Change: with a large club customer, and we're in very exciting conversations about how to roll that out more broadly.
Speaker Change: So as you think about what is inflecting quite more positively than we originally thought, it's really salty and you know if you've fought sport a year from now.
Stolty and Baths will be roughly the same size
Speaker Change: And at the point was nodding because it embridges to your second question, what's the impact a platform like Fulti back on the business and what we're finding is that...
Speaker Change: Through these platforms, light, light salty and light baits, which is also being, you know, it's earlier, but it's been very successful. We're bringing in new consumers to a full franchise.
Speaker Change: And so a lot of consumers coming into bars are coming in via chips. A lot of consumers coming into chips are coming in via baits, as they understand the brand.
Speaker Change: It is generating increased household penetration more holistically. And while point out that there are very few brands in my career that I've seen who can do this.
Speaker Change: Quest almost stands alone in its ability to pull this off, which is why we're very bullish on the continued runway of Quest, despite the fact it's doing over a billion dollars in retail sales.
Before I answer your actions questions, is that…
Geoff, that's terrific, that is yeah.
helpful.
Speaker Change: And then to your question on Atkins, great question. What you have to do is when you look at the Atkins Train.
Speaker Change: As we said, we expect a smaller physical footprint as we mix in more productive and profitable question
that will have an impact on…
Atkins Consumption [inaudible]
That what we'll be looking at is underlying based velocity.
of the business.
Speaker Change: and obviously we'll have to adjust for the impact of losing some shelf space which we expect. But that's the metric of this business, a base driven business.
Speaker Change: So when you exit some of the merchandise and we lost, and you have to adjust a little bit for this before we've lost some tail spears, the underlying health of the base business and working to stabilize that is the key metric.
Yeah, that makes sense. Thanks so much.
Thanks, Shaun.
Speaker Change: Thank you. Our next question from the line of Steve Powers would go to bank. Please excuse your questions.
Speaker Change: Good morning and thanks everybody. Congrats again, Shaun and welcome Chris. I got a couple of
Steve Cowers: Yeah, got a couple of follow-up questions. The first one is probably for you, Shaun, on Terrace.
Steve Cowers: And I guess as we think about what you're talking about in terms of ingredient sourcing and the
Steve Cowers: and your co-manufacturing footprint. Should we think of those as effectively fixed as you look forward due to contract provisions or ingredient scarcity? Or do you see it potential to alternatively source some ingredients or shift production domestically just in the event that tariff conditions persist or extend? Yeah.
Geoff Tanner: Now, we're looking at a number of potential mitigants as we look into fiscal 26 and beyond. I think we're working through those. Yes, there are some limitations on how fast you can get there based on contracts that we have, but we've been working on this for a little while, so we have some, as Jeff said, we have some productivity initiatives that are out there that are going to help offset this in process. Thank you very much.
Speaker Change: Okay, very good. Thank you. And then, Geoff, you highlighted a couple of times this morning that the successful club test is quarter for quest.
Speaker Change: and the prospects for, you know, a continued or expanded relationship there. I guess, I'm just one that if I could get you to clarify, I just agree to which your remainder of your outlook concludes.
Speaker Change: continued sales to that customer, and then whether some of the discussions you referenced could lead to upside in the near term or whether that's more of a fiscal 26 and beyond consideration.
Speaker Change: So the remainder of 25 does not include
Speaker Change: Another rotation at the customer. We've got some business in their business side, but the real volume that we expect to come is going to be at 26.
Speaker Change: That's what I assume, but thank you very much. Which we expect to build out over time, you know, region by region, expanding on the test that we did this year.
Yeah, yeah, makes sense. Okay, thank you very much
Speaker Change: The next question comes from the line of James Salera with Stephen's. Please receive it with your questions.
Geoff, John , Morning, thanks for the morning.
Um...
Speaker Change: I want to ask maybe a kind of a total company level, if we net out the questiono in the gains with the Atkins losses, where does that shake out of kind of a total skew level at club or are we about the same as there's still a little loss there or is there actually some
Sorry, you're specifically asking about club.
Yeah, that's correct. Yeah.
Probably slightly positive in terms of total space.
Losses, we're gonna see on Atkins.
Speaker Change: We'll be offset by games on Quest and Owen. The timing may not line up exactly.
Speaker Change: because of the different reset timings for the different categories have there, so minimally and offset the other time in that positive.
Great. Great.
and then...
Speaker Change: Geoff, you had mentioned, you know, in I think a year's time.
Deltian in bars should be roughly the same at quest
Speaker Change: You just talked about the positioning in the store on the salty request, and you've seen more retailers either actively placing it with kind of traditional salty or if not placing it there open to that, maybe getting some kind of end-cap or display around the traditional snacking aisle versus the other section of the store, the rest of your product said.
Speaker Change: I appreciate the question because what you're poking at is what I think is one of the biggest
Or Quest.
and even more broadly.
Speaker Change: which has increased physical availability of our product. So if you think about where Quest Chip started,
Speaker Change: It started in the nutritional snacking aisle, which on the one hand we love that aisle where category leaders, it's a home base.
Speaker Change: But, it has a lower household penetration of foot traffic. The one of the things I've challenged our organization with.
Speaker Change: is as this category is mainstreaming, as consumer demand for high protein, low cobbler sugar products.
is mainstreaming. [inaudible]
Speaker Change: Increasing the physical availability of our products is a huge long-term growth factor for us and particularly products that are more impulse-driven like chips.
Speaker Change: that we have a significant initiative in the organization to do that. So what does that look like? While we have a test in place at a large mass customer, we were in the mainline aisle.
And we would just expand a number of doors there.
We have put in place a new retail execution team.
focused on driving displays out of our aisle.
Speaker Change: Gaining Distribution in additional channels like the club customer we just talked about represents an upside.
and we'll probably start looking even further afield.
We're impulse, we see a lot of impulse snacking.
So I would say that, um,
Speaker Change: You know, while we're very excited about the size of the chip's business.
Speaker Change: And as I mentioned, it'll be roughly the same as Bob in a year. What I would suggest is, as a result of this increased physical availability, the runway on this business.
Is Significant [inaudible]
and that we are in the early ending.
of our Salty Expansion.
Thanks for watching!
I appreciate the detail. Oh, how's that going to do?
Thanks, Geoff.
Speaker Change: Thank you. Our final question is from the line of Cindy Lynn with Bernstein. Who's your question?
Speaker Change: Hi, good morning. This is Cindy Dylian for Alexia Howard at Bernstein.
I just wanted to-
Speaker Change: Hey, good morning. I just wanted to jump back to the own distribution comment earlier. Can you talk a little bit more about the velocities of the product? I'm just trying to get a sense of how much growth is driven from new stores versus recurring customer purchases, especially since you cited low customer awareness as big growth opportunities? [inaudible]
Speaker Change: Yeah, now it's roughly 50-50, so half the growth coming from new doors, new screws, and half of it coming from velocity increases.
Speaker Change: which is unusual to see growth both in distribution and velocity. What you'll normally see with nose brands is your increased distribution and velocity rates will decline, but that's not happening here.
[inaudible]
Yeah, exactly, impressive. Thanks so much.
Speaker Change: Thank you. There are no further questions at this time. I'd like to turn the floor back to Shaun Mara for closing remarks.
Speaker Change: Yeah, just my last call, I just wanted to thank the Simply Team for all the support over the years to me, a big shout out to my team in FPNA, Accounting, IT and IR, for the great support and help they've given over the years. I'm really proud of what Bill here at Simply, I wish the team continued success in the future.
Thanks, Shaun.
Speaker Change: Thank you. This does conclude today's teleconference. Thank you for your participation. You may now disconnect your lines of this time.