Q2 2025 BellRing Brands Inc Earnings Call
Hello everyone, and welcome to the Bellring Brands' second quarter fiscal year 2025 earnings 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 participate, you will need to press star 1-1 on your telephone. You will then hear a message advising your hand is raised.
To withdraw your question, simply press start 1 1 again. Please be advised that today's conference is being recorded. Now is my pleasure to turn the call over to Jennifer Meyer with investor relations for Bellring Brands, the floor is yours.
Jennifer Meyer: Good morning, and thank you for joining us today for Bellring Brands' second quarter fiscal 2025 earnings call. With me today, our Darcy Davenport, our president and CEO , Paul Rode, our CFO . Darcy and Paul will begin with prepared remarks, and afterwards we'll have a brief question and answer session.
Jennifer Meyer: The press release and supplemental slide presentation that supports these remarks are posted on our website and both the investor relations and the STC filing sections at Bellring.com In addition, the release and slides are available on the STC's website.
Jennifer Meyer: Before we continue, I would like to remind you that this call will contain four-looking statements, which are subject to risks and uncertainties that should be carefully considered by investors as actual results could differ materially from these statements.
Jennifer Meyer: These four-reliccing statements are current as of the date of this call and management undertakes no obligations to update these statements.
Jennifer Meyer: As a reminder, this call is being recorded and an audio replay will be available on our website And finally, this call will discuss certain non-GAAP measures for a reconciliation of these non-GAAP measures to the nearest gap measure to our press release issued yesterday and posted on our website. With that, I will turn the call over to Darcy
Darcy Davenport: Thanks, Jennifer, and thank you all for joining us this morning. Last evening we reported our second quarter results and posted a supplemental presentation to our website.
Darcy Davenport: I'm happy to share that we had a good first half, delivering a second quarter largely in line with our expectations.
Darcy Davenport: For the first time since 2021, we had a full quarter with premier protein demand drivers. This drove net sales of 19% with strong EBITDA margins of over 20%.
Darcy Davenport: Premier Shake Consumption Accelerated at 25% and re-reached new highs in household penetration, market share and shake TDPs.
Darcy Davenport: As you saw in yesterday's press release, we have firmed our fiscal 25 outlook for net sales growth of 13 to 17% over fiscal 24, and ABA Doug growth of 7 to 14%.
Darcy Davenport: While we have some puts and takes in the second half that Paul will review, I am pleased that our outlook and consumption remain resilient and strong.
Network Q2 category and brand highlights.
Darcy Davenport: Even though broad consumer sentiment is weakening, protein and specifically our category remain incredibly healthy. The convenient nutrition category grew 12% in Q2 with every day and sports nutrition driving most of this growth.
Darcy Davenport: From a form perspective, ready-to-drink growth was strong and continued to lead the category at 19 percent, driven by robust consumer demand and increased promotions.
Darcy Davenport: RTDs remain the second fastest growing category in the entire store, only behind eggs.
Darcy Davenport: Mainstream Every Day in Sports Nutrition, RTD Brands continue to bring new consumers into the category and are up over 30 percent.
Darcy Davenport: Ready to mix group 10 percent, a slight acceleration from the last two quarters behind distribution gains and increased consumer demand.
Darcy Davenport: Turning to our Brands. As I mentioned earlier, premier-shake consumption was at 25% this quarter. Growth was robust in all channels driven by increased promotions, distribution expansion, and strong velocities.
Darcy Davenport: Expansion and pack size and form, including bottles, drove the distribution gains, along with space gained for our new indulgence line.
Improved Retailer Instacts also contributed to our year-over-year growth.
Darcy Davenport: Our newest seasonal flavor, lemon bar, drove high consumer interest with cell through outpacing expectations.
Darcy Davenport: As we come off a heavy promotional quarter, consumption remains healthy with April up 16%. We expect distribution gains, improved in stocks, and display activity to continue to drive consumption. Resulting in Q-3 growth in line with mid-
with...
Q3 grove in the mid to high teams
Darcy Davenport: Moving to our brand metrics, premier protein reached all-time highs in household penetration and market share. Household penetration gained 1 percentage point nearly reaching 21%. Promotional activity, our media campaign, and new products contribute to this result.
Darcy Davenport: We saw growth and byrate and reap with repeat rate remaining steady, demonstrating our category leading consumer loyalty.
Darcy Davenport: From your protein with RTD market share of 27% maintained its position as the number one brand in the RTD segment as well as the number one brand in the
Darcy Davenport: All of this is especially encouraging because in a high-growth category with low household penetration, we see plenty of room to grow, to continue to grow our brand and expand the overall category.
Darcy Davenport: Given our brand metric gains, this quarter, driven by promotions and a new media campaign, we decided to expand our Q4 promotions.
Darcy Davenport: We know from experience, promotions, and more importantly, the displays that come with them are key to reaching new households and growing our business. With our capacity position better than ever, it allows us to lean into effective tactics to drive demand and grow the overall category.
Darcy Davenport: Premier Protein Powder continued its growth, with consumption up 22% in Q2 behind strong velocities and distribution gains. I'm delighted to share that the product recently gained full distribution in a club retailer.
Darcy Davenport: and currently has the highest velocity across all way protein powders in this key
Darcy Davenport: We remain encouraged by the growth potential of Premier Protein Brand in this format.
Darcy Davenport: With household penetration of only 2%, we continue to believe premier powder had a long runway for future growth.
Darcy Davenport: Our new premier protein marketing campaign ran nationally during the second quarter, reaching TV streaming and social media audiences.
Darcy Davenport: We are pleased with the first ways results with all key measures exceeding benchmarks.
Darcy Davenport: We expect the second wave, which starts later in Q3 to feature a new logo and package design. As a reminder, the new package builds on our strong performing current design and brings a modern look that improves discoverability at shelves.
Darcy Davenport: Our median interim is focused on our new indulgent line. Recall we launched this new line late in Q1 with four decadent chic flavors and one powder flavor.
Darcy Davenport: These items are richer and creamier targeting an incremental consumption occasion, while still delivering on the nutritional that our consumers expect from their premier brand.
Darcy Davenport: The items continue to build distributioner off to a promising start. Intelligence has demonstrated impressive incrementality, bringing in a considerable number of consumers new to the brand and category.
More innovation is planned later this year. [inaudible]
Darcy Davenport: Turning to Dimitaz, the brand-posted positive domestic consumption growth is quarter up 3% lifted by brand investments and new products.
Darcy Davenport: Dynamitized, improved its market share in the powder's category to the number four position and continues to hold the number two share position within sports nutrition powders. [inaudible]
Darcy Davenport: While the domestic business made progress this quarter, the global brand continues to be driven by momentum outside the U.S. with Dimitri's International Business at Double Digits.
Darcy Davenport: Our Dematized Athlete-Focused Marketing Campaign is generating high consumer engagement. The campaign has improved our brand metrics and shown great success in bringing in consumers new to the brand. We will continue to add top-tier athletes to our Dematized roster in the coming years.
Darcy Davenport: Recall we launched two new dimatized products this quarter. Our TD shakes as well as a pre-workout called energize.
Darcy Davenport: We are encouraged by the positive signs we are seeing in the diamondized business as we expand our portfolio and we remain bullish on the sports nutrition category opportunity.
Darcy Davenport: In closing, our Q2 results position as well for another above algorithm here. Strong macro tailwinds around protein are driving robust long-term growth in our category with ready-to-drink and powder segments in the early stages of growth.
Darcy Davenport: Premier Protein is already the number one convenient nutrition brand and we are just starting to drive demand.
Darcy Davenport: Our innovation pipeline for both brands is rich, enabling us to bring excitement to consumers.
Darcy Davenport: and our Retailer partners for years to come. Our confidence in the long-term outlook for Bellring remains high. Thank you for your interest in our company. We look forward to sharing our progress next quarter. I will now turn the call over to the police.
Thanks Darcy, and good morning everyone.
Paul Rode: As Darcy highlighted, we had another good quarter. Net sales were $588 million and adjusted
Paul Rode: Net sales grew 19% over prior year and adjusted even increased 14%
Speaker Change: and Justin even a margins were in line with their expectations at 20.2% [inaudible]
Speaker Change: Starting with brand performance, premier of protein net sales grew 22% behind strong volume growth for RTD shakes and powders
Speaker Change: Distribution gains and promotions drove the sales growth, along with a positive benefit from higher net pricing.
Speaker Change: Diamondized Net Sales increased 3% this quarter on 20% higher volume.
Speaker Change: Double Digit Sales Growth for International was partly upset by domestic headwinds.
Speaker Change: Just a gross profit which excludes Mark to market adjustments on commodity hedges was 203 million and grew 22% from prior year.
Speaker Change: Just a gross profit margin of 34.5% increased 80 basis points.
Speaker Change: Our pricing actions have offset an input cost inflation to date. However, the rate of inflation will increase in the second half of 25. Pressuring Mars is what compared to prior year.
Speaker Change: SGNA expenses were 91 million, an increase of 140 basis points as percentage of net sales.
Speaker Change: Higher advertising of promotion spend and warehousing costs largely throw the increase
Speaker Change: Advertising a promotion was 4.7% of net sales, up meaningfully from 3.1% last year's second quarter.
Speaker Change: The AP step-up was driven by the new premier protein national advertising campaign that ran throughout the entire second quarter and support for the indulgence RTV Shakes launch.
Speaker Change: Before reviewing our outlook, I would like to make a few comments on cash flow and liquidity.
Speaker Change: We generated 48 million cash flow from operations in the second quarter and 51 million in the first half.
Speaker Change: We continue to expect our cash flow in fiscal 25 to be in line with fiscal 24.
Speaker Change: As of March 31, net debt was $932 million and net leverage was 1.9 times [inaudible]
Speaker Change: With our strong casual generation and EBITDA growth, we anticipate net leverage will remain below two times throughout physical 25.
Speaker Change: With respect to our share repurchases in this quarter, we bought 2.4 million shares at an average price of $71.68 per share or $172 million in total.
Speaker Change: As of March 31, our remaining Sherry Purchase Authorization was 280 million
Speaker Change: Turning to our outlook, we affirmed our fiscal 25 guidance for net sales to be 2.26 to 2.34 billion in adjusted EBITDA, a foreign 70 to 500 million.
Speaker Change: Our guidance applies strong, top line growth of 13-17% and adjusted EBITDA growth of 7-14% with healthy adjust EBITDA margins of 21.1% at the midpoint.
Speaker Change: Overall, our second half outlook for net sales is unchanged but now reflects increased sales from our expanded fourth quarter promotions offset by third quarter reductions in retail or trade inventory levels.
Speaker Change: Starting late in Q2 and continuing into the third quarter, several key retailers lowered their weeks to supply on hand, which is expected to be a mid single digit headwind to our third quarter growth.
Speaker Change: We now expect Q3 nest sales growth of low single digits with premier protein, the main driver, and all other flat to down.
Speaker Change: Without the impact of these trade inventory changes, our underlying third-quarter growth for premier protein RTD shakes would be more in line with our expected consumption growth of mid-to-high teens.
Speaker Change: Regarding the Justice of Ibadah, we expect second half margins of just over 20% at the midpoint.
with our even a dollar growth occurring in the fourth quarter.
Speaker Change: As anticipated, third-quarter margin space moderate year-over-year pressure from input cost inflation, packaging redesign cost, and lapping some non-recurring product cost favorability.
Speaker Change: margins in the fourth quarter will be sequentially lower as higher input cost and promotional spend weigh on margins.
Speaker Change: Wrapping up, we're closely monitoring developments as it relates to tariffs.
Speaker Change: Based on current policy, a portion of our input costs could be subject to future tariffs with the majority of this potential impact from dairy protein source from New Zealand and the EU.
For fiscal 25, there is no expected impact.
Speaker Change: Regarding fiscal 26, given our normal leg time from sourcing the P&O flow, we'd only expect a partial year impact from tariffs.
Speaker Change: However, we are actually evaluating ways to mitigate tariff impacts. We will continue to monitor and provide updates later this year.
Speaker Change: In closing, we are pleased with our first half performance, our Q2 results were strong with our products continuing to resonate with consumers.
Speaker Change: Our long-term prospects for Maybright were a long runway of growth ahead. I will now turn it over to the operator for questions.
Speaker Change: Thank you so much and a sorry reminder to ask a question, press star 1-1 on your telephone and wait for your name to be announced. To remove yourself, press star 1-1 again. Please stand by for our first question.
Andrew Lazar: It comes from the line of Andrew Lazar with Barclays. Please proceed.
Great. Thanks so much. Good morning, everybody.
Thank you.
Andrew Lazar: Darcy, the convening nutrition category, as you said, has grown 12 percent in each of the first two fiscal quarters. I'm curious what expectations are built into your back half guidance when it comes to put a category growth just in light of the broader weakening consumer environment. Thanks so much.
Speaker Change: Yeah, the category fundamentals haven't changed. I mean, we are, they are continuing to be incredibly strong, macro tailwinds, also just the low, the fact that
Speaker Change: The RTD category only has 50% House of Penn, so long runway.
Speaker Change: Obviously, the RTD category, you referenced the 12% of the convenient nutrition category, but the RTD category was at 19%, and has been consistently driving the overall category, and we expect that to continue.
Speaker Change: Now, we are modeling some different scenarios. I think that we aren't seeing the kind of impact of the weakening consumer on our category as much as other people are seeing it in their categories.
and I think that just goes to kind of...
Speaker Change: The fundamentals, the macro trends that are just boosting convenient nutrition. Having said that, I think we're modeling out a few different scenarios.
Speaker Change: One that it will continue at the rate, and then also a couple that it will be slightly impacted, but nothing dramatic.
Thanks so much.
Thank you. One moment for our next question.
Econ from Thomas Palmer with City, please proceed.
Speaker Change: Good morning and thanks for the question. I wanted to ask on what you were seeing with the Retailer
Speaker Change: You know, you take away trends that have also been a lot better than many of these others [inaudible]
Speaker Change: What do you think is driving that change from your perspective? Doesn't seem like it will be kind of more of a one-time reset, and are there any on-shelf changes or product mixed changes that are accompanying those? Thank you.
Speaker Change: Yeah, there are no changes in the inventory set. So what we've seen is back in last summer, last kind of a second half of last year. Some of our retailers leaned into inventory weeks to supply as we were exiting our supply constraints.
Speaker Change: and in particular, one of our club customers really carried a fairly healthy weeks of supply starting last, last, last second half and really carried that through.
Speaker Change: through the second quarter. We believe that's likely a response of just protecting themselves, especially as they got to, you know, the first second quarter promotions.
Speaker Change: So we believe it's one time and it's somewhat unique to us, you're right we see I think there's some broader macro impacts on why some of some of the other retailers are taking their intermediaries and optimizing them, but for us we believe it's primarily our club customers.
Speaker Change: that were protecting themselves after coming out of supply constraints last year and after...
Speaker Change: after we've done a really great job of supplying them over the last several months that they have chosen out to optimize. And so we're seeing that in our orders, particularly in April . And that's obviously with strong consumption growth that we saw in the second quarter and the consumption growth that continues into the third quarter, so we do think it's just a timing dynamic. And so we do think it's just a timing dynamic, but we do think it's just a timing dynamic.
All right. Thank you.
Ken Goldman: Thank you. Our next question comes from Ken Goldman with JP Morgan, please proceed.
Speaker Change: Hi, just to stay on the topic of the trade de-load, you know, it's fairly substantial in size obviously, and I hear your comment on how it's one time and
Speaker Change: You know, it's one, it's primarily one customer who carried a lot of supply last year, but...
Speaker Change: You know, when it's that substantial, you know, typically it doesn't happen unless there's a little bit of a either deceleration and consumption or disappointment in consumption from that retailer side. Are you hearing anything along those lines from your retailers about?
Speaker Change: You know, why they're really pulling back on this other than that they overordered because it just typically we really don't see the de-loads happen unless it's on the consumption side as well.
Darcy at the time.
Yeah, for sure. So, I really think that this-
Darcy Davenport: Dynamic is unique and related to coming out of capacity constraints.
Darcy Davenport: and so there's really no change in consumption. I mean, we continue to see strong consumption. You know, Q2 was...
Darcy Davenport: 25% posted by the New Year, New Year promotions and advertising as we go into Q3, we're expecting to continue to see strong consumption, saw 16 in April , we'll expect to Q3, the land kind of mid to high teens, so incredibly strong, so...
So, specifically one but a couple retailers.
holding on kind of protecting themselves. Bells.
coming out of capacity constraints. [inaudible]
Darcy Davenport: They worked a little bit hoarding inventory to make sure that they didn't run out of stock on shelf and then we've now showed over you know several quarters of high in stock rates and so they felt comfortable about bringing them down.
Darcy Davenport: We thought this could happen. We just had no idea when it would happen, and so, and, you know, we're seeing it, but absolutely no softness, no concern around consumption.
Can that sounds or your question?
One moment for our next question please.
Speaker Change: It comes from the line of Megan Klapp with Morgan Stanley , at least proceed.
Megan Clapp: Hi, good morning. I wanted to shift to ask about tariffs if I could.
Speaker Change: Paul, appreciate the commentary and clearly the operating environment is fluid and a lot can change. I think you said a portion of the input cost could be subject to terrorists.
Speaker Change: Wonder if you could just expand a bit, maybe remind us what percentage of input costs are.
Rommaterials related to dairy protein and...
Speaker Change: How should we think about potential mitigating actions? Are there opportunities to source some of that those input costs in the US, or would you look to things like pricing? Thank you.
Speaker Change: Yeah, so overall the dairy input for our business are, you know, call it a third to 40% of our total cost of goods sold.
Speaker Change: But only a portion of those are subject to tariffs. Our powder business is pretty much insulated on shakes. There is some of our dairy protein to do come from.
Speaker Change: from New Zealand and EU, which currently are contemplated a 10% tariff, so it's a portion there that could be impacted.
You know, as we look at the total potential impact.
Speaker Change: We would, our estimation if unmitigated and if the rates do not change from where they are now, it would be a low single digit.
Speaker Change: The impact for our total cost of goods sold to relatively minor can certainly be addressed. But as far as what can be mitigated, how can we mitigate it? That's what we're exploring. It can't be anything from...
Speaker Change: He's looking at different suppliers. So yeah, I think these are all things that we're assessing still obviously to our retail. And just to highlight again, we do not expect any fiscal 25 impact.
Speaker Change: The lag time from when it goes from sourcing the proteins when it flows through our P&L, as well as just some of the things we have with our...
Speaker Change: with our suppliers that would push some of that until later in the year anyway. So, again, we think it's an overall minor impact but something we're continuing to keep an eye on and we'll keep you all updated as we move forward.
Okay, great. Thank you.
Speaker Change: Thank you. Our next question comes from Matt Smith, which default please proceed.
Matt Smith: Hi, good morning, Paul. I wanted to ask about the increase in marketing and advertising. It was a little higher than I had anticipated in the quarter reaching 4.7% of sales.
Speaker Change: Should we think of the second quarter as peak levels in terms of percentage sales, and how should we think about the level of spending for the year now? You talked about the path of returning to 4% to 5% of sales on an annual basis. Have you increased the level of spending and marketing advertising relative to your previous expectations? Thank you very much.
Speaker Change: or is the higher investment really more focused on incremental promotional activity in the fourth quarter. Thank you.
Speaker Change: Yeah, overall our second quarter spend was right in line with what we expected. So again, with the national advertising campaign behind Premiere and just our focus on marketing during kind of that peak new year new season, the marketing was right in line from what we expected.
Speaker Change: As far as overall for the full year, we had previously called for
Speaker Change: of high threes range. So that's what we expect for our parking spend in the in the
Thank you.
Speaker Change: Our next question comes with a line of Peter Grum with UBS, please proceed.
Thank you.
Peter Grom: Thanks operator and good morning everyone. So I wanted to ask a question around.
Peter Grom: How you think about her, how you're approaching guidance and what remains of really...
Andrew Lazar: You know, dynamic backdrop. And Darcy, in some ways this is a follow-up, do you respond to Andrew's question where you talk about category growth and kind of scenario blending but
Peter Grom: You know, I'm just being curious, you know, given the many moving pieces that's in uncertainty, are you approaching guidance differently or kind of giving yourself more Christians just given the backdrop? Thanks.
Yeah sure, so I would just, you know, again
Speaker Change: Adding on to what we said, how I commented to Andrew's question, we feel great about the opportunity. We continue to feel that...
Speaker Change: There is a ton of growth potential, a lot of tailwinds, the category R Brands, just the overall opportunity we feel great about, but yeah, the kind of consumer uncertainty is there. And so, yeah, we are being a little more cautious.
Speaker Change: I think, you know, historically in this quarter, we would have, you know, tightened our guidance range. We chose not to. And the reason is because we, you know, there, we want
Speaker Change: We know a lot, we have visibility to, you know, we have five months left of the year, we have visibility into promotional plans, we have visibility into marketing plans, we have visibility to our distribution gains.
Speaker Change: But there are still some unknowns and part of that is kind of the consumer backdrop and what's going on there. So I think that our approach has been cautious and we will continue to be that way as the kind of...
Speaker Change: the consumer is a bit more unstable than we've seen in the past.
Great. Thanks so much. I'll pass it on.
Speaker Change: Thank you. Our next question is from Jim Salera with Stevens, please proceed.
Darcy Paul, thanks for taking our question.
Jim Salera: I want to maybe ask about some of the changes in the competitive landscape. You know, we go back a couple years.
Speaker Change: Premier was really kind of at the vanguard of having a 30 gram.
Jim Salera: RTV Shake Operating, and I think really deserves credit for kind of standardizing that for the industry, and we've seen a lot of...
Competitors kind of make that their standard offering as well.
Jim Salera: Recently, we've seen some launches that are kind of over 40 grams, but still have, you know, limited over 200, but they're not by much, and in that RTD format, if any thoughts on, do you think
Jim Salera: You're going to need to continue to raise the protein content.
Jim Salera: You know, is that kind of the most important characteristic that consumers look for? Where's our balance between the parking content and the taste and the color count? Is there any color there that would be helpful and how you guys think about, you know, how that affects your competitive position?
Jim Salera: Yeah, sure, Jim. So, we have seen some entrants that have up the protein level. I do not think that will be the standard. Ultimately, what drives, what has driven our business is
This combination of...
An approachable brand.
Jim Salera: Really good nutritional, so high protein, kind of low sugar, fat in calories, and unbelievable, uncompromising taste.
So that is what is driven our business.
I think as we see, you know, this idea is...
Jim Salera: There was a time when you know 30 grams was thought of as you know a fair amount of protein in a shake now we're starting to see kind of push the upper limits but we're also seeing lower limits so like I think what you're seeing is that
Consumers.
or continue to want more protein.
Jim Salera: But they want more protein for some consumers want more protein because they're trying to boost their protein after a workout. Some consumers want less protein because they're looking at wanting an incremental snack.
Jim Salera: Expand and mature and deliver on different occasions and different consumers. And I think it's actually super exciting. I think that we would never have fought that 40 grams of protein or more would be appropriate for the mainstream. I still think it's somewhat limited, but there's definitely, but it's expanding. So to answer your question, I do not think...
Jim Salera: Levels of protein, I think we'll see innovation in what else goes with protein. I think you'll see innovation to be more appropriate for certain types of people for different occasions, etc.
Okay, great, thank you [inaudible]
Thank you.
Speaker Change: Our next question is from Kaumil Gajrawala with Jeffrey's, please proceed.
Thank you everybody, good morning.
I get two things, one on just a really...
Speaker Change: Make sure for absolute certainty on this destocking thing. It's a...
Speaker Change: It's a one and done, or is it a sort of one and maybe reverse his back?
Speaker Change: and then sort of my main question is on marketing spend, or this is the first time that you've really kicked up.
Speaker Change: Advertising and Marketing and Ernest, maybe just some initial thoughts on how it's been received and what the returns are or what you're sort of any metrics you can share on how it's going would be useful. Thanks.
Darcy Davenport: I can take the first one, Darcy, we are not modeling or our guidance does not contemplate that in the trade inventory levels rebound and go back up so that we would consider to one and done.
and then from a marketing perspective.
Darcy Davenport: and for a marketing perspective, we are still so, as you know,
Darcy Davenport: For the New Year, New Year, we had a bunch of different demand driving levers. So it is hard to isolate what is causing the, you know, up 25%.
Darcy Davenport: Consumption. That will come later this quarter when we do kind of a full analysis where you can really isolate the variables. But what we do know is we have certain KPIs that we follow, and it's going well. I mean, we've hit all of our benchmarks.
Darcy Davenport: that we set out to head, you know, total impressions, up 30% above expectations web traffic, up over 25%
Darcy Davenport: Organic Search, really healthy. So we are getting our consumers attention and I think that and we're seeing some nice...
Darcy Davenport: Momentum within the business, but specific ROI bi-tactic that will come later in the quarter.
Dar, thank you.
Speaker Change: Thanks. Our next question comes from John Baumgartner with Mizuhau Securities, please proceed.
Good morning. Thanks for the question.
Maybe, first off, Darcy, for ready to mix? [inaudible]
Speaker Change: Category level pricing is still soft on the 13 weeks relative to the 52 despite the upstream cost inflation and I'm curious is is there a sense that with new capacity coming on stream later this year that competitors are just sort of waiting it out and absorbing some of the temporary margin pain or are there any indications that given the higher base for retail prices now that maybe elasticity is more of a tipping point with more pricing. [inaudible]
Speaker Change: List Price, but what we've seen is actually, yes, some slight increases in frequency and depth.
Speaker Change: from a promotional standpoint. And yeah, I think that we still expect some tightening. The only thing I can say is that within ready to mix.
Speaker Change: There are a lot of kind of upstarts, pretty low barriers to entry. So I think that what those, I think
Speaker Change: are really focused on top line and not as concerned about profitability and so and mainly you know they're looking to sell. So I think that is one piece that is kind of unique to I think ready to mix.
Speaker Change: We have heard kind of rumors that, or actually I think it's public.
Speaker Change: Scott, that there are some big players that will be taking price and get to later this year.
Speaker Change: So I do think that it's going to happen. As far as you know our pricing we did announce a price increase on premiere protein powders as well as
a small line within dimet eyes. And...
Speaker Change: to take Christ as of the beginning of this month. It's small, it doesn't really affect like the overall our overall business because it's a small part of our business. But you know, we are starting, we'll see that reflected soon. So I think it's a little bit of a mixed bag and a little bit of a bit of weight in the face.
Speaker Change: Okay, thanks for that. And then I'll dimatize in the US. Sales are growing at ECOM, but they're down in every other channel.
Speaker Change: And I'm curious the extent to which that's more structural where you're seeing performance oriented consumers migrating more brilliant e-commerce.
Speaker Change: and if that's the case, we're sort of bricks and mortars and now becoming more structurally inhabited by the everyday consumer. I guess how do you see retailers responding to that? I mean, can we see linear space being reduced for the category in total? Does the category maintain space, but it's easy to shop for new consumers? Is it a benefit for everybody to brand like premiere? Like how do you see this shelf set sort of changing going forward given all the dynamics here?
Speaker Change: So Eacon has been a major driver of this category for a long time and as you know, you know the category well and that's really if you back up, really the specialty, you know it was predominantly a specialty category so this but
Speaker Change: But in that, as kind of the specialty channel, how to ton of headwinds, that...
It's shifted to E-Com, so E-Com has been...
Speaker Change: Promise or for the kind of mainstream retail channels, and we see it for mainstream brands. I think it will always, I think the e-commerce is a discoverer, it's where consumers discover brands, especially in ready to mix, so that will continue in a lot of the upstarts. [inaudible]
can make their way. [inaudible]
First, you'll see them first.
Speaker Change: on E-Com. But then once they hit a certain level and they're going after kind of the mainstream audience I think we should expect to continue to see those move from E-Com into mainstream channels. And I think for premier protein, huge opportunity.
Speaker Change: Again, 2% household penetration, loss of room, and even opportunity for dimatized, so within mainstream channels.
Thank you, Arcy.
Speaker Change: Thank you, our next question comes from Robert Moskow with Sidi Kaum, and please proceed.
Speaker Change: Yet even with that Destocking.
Speaker Change: You still could have.
Speaker Change: Narrowed the guidance.
Speaker Change: Can I separate those two things.
Speaker Change: Yes, we absolutely could have.
Speaker Change: And again with just with the kind of consumer uncertainty I think that we are just being more cautious about about guidance.
Speaker Change: Okay I'll pass it on thanks.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Bryan Spillane with Bank of America. Please proceed.
Bryan Spillane: Thanks, operator, good morning, everyone.
Speaker Change: Darcy can you talk a little bit about the.
Speaker Change: Now the interplay between channels. So I think if we look at the sequential.
Speaker Change: Growth.
Speaker Change: From from the previous quarter.
Speaker Change: It looks like e-commerce slows a little bit.
Speaker Change: And maybe mass club.
Speaker Change: Club flows a little bit and we're growing in.
Speaker Change: For instance, grocery a lot faster so just trying to get an understanding like how much is there any cannibalization, we should be thinking about as you expand especially into the more traffic parts of large food retailers and then if you could also just give us some some thoughts on how youre thinking about.
Speaker Change: Pricing across channels right. So just that there is.
Speaker Change: There is no conflict or eliminating reducing channel conflict from a price basis. Thanks.
Speaker Change: So from a channel perspective.
Speaker Change: We are not seeing necessarily any cannibalization across channels are a lot of shifting.
Speaker Change: That.
Speaker Change: What.
Speaker Change: You are seeing I think we continue if you look at kind of market share.
Speaker Change: We see the most opportunity.
Speaker Change: For our share of shelf and the upper is around food food.
Speaker Change: At the end of the drug mass specifically food remember those were that was also the channel that last year and the year before that have the most out of stocks.
Speaker Change: No.
Speaker Change: If youre looking at kind of we're still experiencing some tailwind from kind of a lower comp, especially in those channels.
Speaker Change: Where the in stocks were a little better in some of the other.
Speaker Change: Some of the other channels.
Speaker Change: So really it has to do with kind of a year ago, but kind of I would just say macro.
Speaker Change: As we continue to see a ton of a ton of room and opportunity really in every single channel.
Speaker Change: But the biggest opportunity really is is <unk>, so and specifically food. So that's one piece.
Speaker Change: And maybe I would just emphasize this even more is.
Speaker Change: Every channel has opportunity around household pen so even some of.
Speaker Change: Or kind of more mature channels.
Speaker Change: The channels that we started in like club they have a ton of opportunity with our brand as well as the overall category because.
Speaker Change: It is only a 50% household penetration.
Speaker Change: Category, so lots lots lots of opportunity.
Speaker Change: And what was the second question was around pricing.
Speaker Change: Yes between channels.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: Right.
Speaker Change: To the extent that you're watching for channel conflict right.
Speaker Change: Price between channels doesn't encourage.
Speaker Change: Cannibalization.
Speaker Change: No I mean, we have we have kind.
Speaker Change: Kind of rules around that.
Speaker Change: Pack sizes and channels and so yes.
Speaker Change: Yes, no I think the only thing that we see is kind of in an environment where.
Speaker Change: <unk>.
Speaker Change: Consumers are maybe value shopping a little bit more I would say the only thing that we see is.
Speaker Change: We have seen and I've talked about it in past calls I think that we've seen kind of a.
Speaker Change: Moving up from kind of four counts to 12 counts, we've seen some movement and even to the bigger the bigger packs like the club packs. So that is one thing that we've seen because they are looking for kind of a a slightly better value per shake but.
Speaker Change: Other than that.
Speaker Change: I think that.
Speaker Change: Very rational.
Speaker Change: One moment for our next question.
Speaker Change: It comes from the line of Bill Chappell with Twist Securities. Please proceed.
Bill Chappell: Thanks, Good morning, Thanks for taking my question.
Speaker Change: Sorry can you just kind of go back to what you had said.
Speaker Change: New entrants into the category going for more I guess lower protein instead of the 40 Gram high protein.
Speaker Change: Historically premier's kind of addition, well for those who wanted the 30 Gram protein shake.
Speaker Change: You've had more with a great taste is is there a thought that you need to be more aggressive work to kind of get those new users with some lower protein shakes go the other way.
Speaker Change: Or is it just so much opportunity right at that kind of that core 30, Gram and consumers moving up from <unk> to 'twenty.
Speaker Change: 20 to 30 that youre in a good spot so kind of any thoughts is that not necessarily the next couple of quarters, but longer term do you need to get a good is that opening price point, but opening protein point.
Thanks.
Speaker Change: I think I would answer that would kind of yes. There is a lot more opportunities with our core 30 Gram shake.
Speaker Change: Whenever we do testing.
Speaker Change: That is by far the.
Speaker Change: The most kind of mainstream offering in the one that resonates with the most consumer so we still see a ton of opportunity in household penetration.
Speaker Change: And in distribution for our 30 Gram shake just to continue to proliferate.
Speaker Change: Across pack.
Speaker Change: Pack sizes across flavors et cetera.
Speaker Change: And I think there is also.
Speaker Change: A lot of opportunity to to innovate.
Speaker Change: And.
Speaker Change: In the past.
Speaker Change: Once you get through kind of our approach to innovation, which is is really around capturing either a new a new consumer.
Speaker Change: Incremental to the 30 gram or a new occasion.
Speaker Change: And that's where kind of innovation can play so part of that can be macros, so up or down in protein levels.
Speaker Change: It can also be like our indulgence line.
Speaker Change: Clearly goes after a new occasion, however, what's I think nice to see is we actually are getting new consumers also with indulgence line. So.
Speaker Change: I think I'd just go back to the fundamentals of of this category when youre dealing with a category that only has 50% household penetration.
Speaker Change: There is just a lot of opportunity usually within the base as well as with innovation.
Speaker Change: One moment for our next question.
Speaker Change: It comes from Jon Andersen with William Blair.
Speaker Change: Hey, good morning, everybody. Thanks.
Speaker Change: Yeah.
Darcy Davenport: Darcy I'll kind of follow up on that last point around innovation My question was.
Speaker Change: Could you share maybe a little bit more.
Speaker Change: Insight around what Youre seeing for initially for the indulgence line as you mentioned it seems like Thats an opportunity to go after a new occasion is that primarily what youre seeing existing users using it for snacking or a different day part and then I think you have another innovation, which might be a big guy.
Speaker Change: Not a little I planned for.
Speaker Change: Latter part of the fiscal year.
Speaker Change: How should we think about that innovation is there more you can say about it is that more about expanding.
Speaker Change: The range from a from a consumer perspective.
Speaker Change: Occasion based as well thank you.
Speaker Change: Yes, so the early.
Speaker Change: From for indulgence I'll start there.
Speaker Change: We have seen some early success.
Speaker Change: And I think what we're seeing is and we launched it first in mass.
Speaker Change: And the success there.
Speaker Change: It has led to acceptances in other retailers so expect.
Speaker Change: Expect to start seeing that roll out across kind of food drug mass as well as as club. So I think that that is great. It is doing what we wanted it to do which is it's highly incremental to the category.
Speaker Change: And from an occasion standpoint, but.
Speaker Change: But I think the sort of a little bit of a surprise is also getting at new locations. So.
Speaker Change: It's about that.
Speaker Change: One of our one of our mass retailers.
Speaker Change: We're seeing about 35%.
Speaker Change: <unk> are about 35% new to the category.
Speaker Change: So again in a low household penetration category, we want to bring in new people and it is it is doing that which is really exciting also when you go onto reviews.
Speaker Change: Online you also see a lot of mentions about treat dessert et cetera, you think of our baseline really you've seen many more around breakfast replacement and so the fact that we're getting nods to treat and dessert. It is confirming our strategy, which feels very good.
Speaker Change: Hi.
Speaker Change: The second question just about upcoming innovation, yes, we have another innovation coming in the latter are in Q4 and I will just say that yes. The strategy is around <unk>.
Speaker Change: New consumers. So if you step back we had two innovations. The first one is really designed to go after new occasions. The second one is going after new consumers.
Speaker Change: Thanks, so much.
Speaker Change: Thank you and our last question one moment.
Steve Powers: From Steve powers with Deutsche Bank. Please proceed.
Speaker Change: Okay.
Speaker Change: Hey, Thanks, a lot appreciate it.
Speaker Change: Just maybe tie together a number of threats you've already spoken about.
Speaker Change: Just maybe a little bit more color.
Speaker Change: And detail into your thinking as to specifically why you are leaning into the fourth quarter promotions that you called out.
Speaker Change: Yes.
Speaker Change: Because I guess.
Speaker Change: Thats kind of why this basic question is.
Speaker Change: Is it opportunistic.
Speaker Change: Given the current environment, just given the state of the consumer given the innovation plans you just spoke to.
Speaker Change: Or should we think about this is no.
Speaker Change: More of a fixed part of the calendar that's likely to repeat.
Speaker Change: Yes, I think I view it as a fixed part of the calendar so again.
Speaker Change: If you go back we have always.
Speaker Change: Pre COVID-19 free supply constrained and we historically had two large club promotions annually.
Speaker Change: For probably close to a decade.
Speaker Change: And that was kind of the.
Speaker Change: It was it was consistent.
Speaker Change: And I think that when we look at the improvement in brand metrics in Q2 last quarter.
Speaker Change: We measure our focus is on household penetration we saw really nice bump in household penetration, we know that when we do these type of club promotions we get.
Speaker Change: Really really nice displays eyeballs and that leads to increased household penetration and when we saw that worked so well in Q2, and we have the inventory support it.
Speaker Change: We were able to to kind of expand the Q4 promotions. So really it was a strategic move that was enabled because we have the inventory to support and it's nice to be able to partner with our retailers to bring value to consumers given that backdrop.
Speaker Change: Okay. Thank you very much.
Speaker Change: Thank you and ladies and gentlemen, this concludes our Q&A session and program for today. Thank you all for participating and you may now disconnect.
Speaker Change: Good day.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.