Q1 2025 Vital Farms Inc Earnings Call
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Speaker Change: Good day and thank you for standing by. Welcome to the Vital Farms first quarter 2025 earnings conference call. At this time all participants are in listen only mode.
Speaker Change: After the speaker's presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand it over to your host, Jon Mills with ICR.
Speaker Change: Good morning and welcome to Vital Farms' first quarter, 2025 Earnings Conference call and webcast. I am Jon Mills, managing partner at ICR. On the call today, a Russell Diaz Konseko, president and chief executive officer, and
Speaker Change: By now, everyone should have access to the company's first quarter 2025 earnings press release issued this morning. This is available in the Investor Relations section of Vital Farms website at investors.vitalfarms.com.
Speaker Change: Throughout this call, management may make poor looking statements within the meaning of the federal securities laws.
Speaker Change: These statements are based on management's current expectations and beliefs and do involve risk and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements.
Speaker Change: Please refer to today's press release, the company's quarterly report on Form 10Q for the fiscal quarter ended March 30, 2025. Follow the SEC today.
Speaker Change: as well as other filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any quarterly
Speaker Change: Please note that on today's call management will refer to adjusted EBITDA and adjusted EBITDA margin, which are non-GAF financial measures.
Speaker Change: While the company believes these non-GAAT financial measures provide useful information for investors, the presentation of this information is not intended to be considered in isolation, or as a substitute for the financial information presented in accordance with GAT. Please refer to our earnings press release for a reconciliation of adjusted EBITDA.
Speaker Change: and Adjustediba.Morgin to their most comparable measures prepared in accordance with yet.
Speaker Change: And with that, I will turn the call over to Russell Diez, Conseco, President and Chief Executive Officer of Vital Farms.
Russell Diez-Canseco: Thank you, Jon. Good morning and thank you for your time today.
Our first quarter performance was in line with our expectations.
Russell Diez-Canseco: We hit new record levels for first quarter volume and net sales and maintained a momentum in delivering ethical food to the table.
Russell Diez-Canseco: With this solid foundation in place, I'm pleased to reaffirm our 2025 financial outlook.
Russell Diez-Canseco: Consumer Awareness and Demand for Vital Farms products continues to grow, confirming the strength of our brand and the relevance of our mission.
Russell Diez-Canseco: I'm grateful to all of our stakeholders, our farmers, suppliers, customers, crew members, stockholders, and communities who make our progress possible every day.
Russell Diez-Canseco: Net revenue for the first quarter was $162 million, but 10% from last year.
Russell Diez-Canseco: and the first quarter marked our 20th consecutive quarter of year over year volume and net revenue growth since our IPO in 2020.
Russell Diez-Canseco: First quarter net revenue growth was driven primarily by price mixed benefits and volume-related growth.
Russell Diez-Canseco: Volume-related growth was below trend due to ex-supply constraints and depleted inventory levels.
Russell Diez-Canseco: As we previewed last quarter, we entered the first quarter with significantly lower egg inventory, relative to the same period last year, which pressured our year over year growth rate.
Russell Diez-Canseco: We believe the volume growth headwinds we experienced in the first quarter will ease beginning this quarter, setting the stage for net revenue growth to re-accelerate as the year progresses.
Russell Diez-Canseco: Turning to our butter business, growth continues to be very robust with first quarter net revenue up 41% year over year.
Russell Diez-Canseco: Looking ahead, we expect to deliver sustained growth, driven by increasing demand for our products and improving supply as farm expansion initiatives and supply chain investments bear fruit.
Russell Diez-Canseco: Let me talk a bit more about each of these drivers starting with demands.
Russell Diez-Canseco: Well, the man for our egg product has been consistently strong. We've recently not been able to fully keep up with increased orders due to our supply constraints, just as even its ones that disrupted the market and egg prices surge.
Russell Diez-Canseco: We are confident the demand for our egg products will continue to grow as a result of two primary factors.
Russell Diez-Canseco: First, we have built strong relationships with our consumers based on trust in the brand and a sense of shared values.
Russell Diez-Canseco: We believe our strong consumer relationships represent an enormous and sustainable competitive advantage we have earned through years of consistent execution, strong brand building, and our mission-driven culture.
Russell Diez-Canseco: Our aided brand awareness continues to improve reaching 31% by the end of the first quarter, a five-point increase since the beginning of the year.
Russell Diez-Canseco: Partly attributable to the unusually high level of media attention our industry has received in recent months.
Russell Diez-Canseco: Our data indicates that brand awareness has been a strong leading indicator of net revenue growth with a lag of several quarters.
Russell Diez-Canseco: Second, we benefit from secular trends as more consumers prefer cleaner labels and want to know where their food comes from and how it is produced.
with low levels of market penetration today.
Russell Diez-Canseco: We believe we have a long runway for growth in the years ahead as these trends build momentum.
Russell Diez-Canseco: We are also encouraged by the increased demand across all segments of consumers as they continue to place more emphasis on the values of companies they buy from.
Russell Diez-Canseco: A closer look at the data reinforces our belief that we have only scratched the surface of our market opportunity.
Russell Diez-Canseco: Despite strong growth, we are still in only 11.3% of US households.
Russell Diez-Canseco: A small fraction of what we believe to be our long-term market opportunity.
Russell Diez-Canseco: And as we're landing in the fridges of a growing number of households in the US, our consumers are becoming more loyal.
Russell Diez-Canseco: As we have doubled our household penetration over the past four years, we've also doubled the number of heavy and ultra heavy buyers of our brand.
In other words, even while we are entering new households,
Already loyal consumers are becoming even more loyal.
Russell Diez-Canseco: This trend has held true in the past, even in years when inflation in the United States outpaced wage growth.
Russell Diez-Canseco: Moving to the supply side, we're making strong progress on several of the important initiatives to expand capacity and strengthen our supply chain that we outlined on our last call, and we're on track to deliver our commitments on time.
Russell Diez-Canseco: Last year we added about 125 family farms to our network in the pasture belt and today we're pleased to share that we added approximately 25 additional farms to our network during the first quarter of 2025.
Russell Diez-Canseco: As a result, we are now working with more than 450 of the best family farmers in America, an increase of roughly 50% since the end of 2023, with 8.2 million hens under contract.
Russell Diez-Canseco: With a strong pipeline of new family farm candidates, we're confident in our ability to grow our network at a healthy pace over the remainder of the year and beyond.
Russell Diez-Canseco: I'd like to take a moment to thank our World Class Farm team for their hard work and expertise in explaining the appeal of the Vital Farms model to our family farmer prospects.
Russell Diez-Canseco: The network growth we expect to achieve leaves us very well positioned to deliver $1 billion of net revenue by 2027.
Russell Diez-Canseco: and we are already above our gross margin target of about 35% and our adjusted EBITDA margin target of 12 to 14%.
Russell Diez-Canseco: In addition to adding new family farms to our network, we are investing in our supply chain infrastructure to increase capacity and support ongoing innovation.
Russell Diez-Canseco: In addition, the construction of our new additional egg grading system at Egg Central Station or ECS in Springfield, Missouri remains on schedule for completion in the fourth quarter of this year.
Russell Diez-Canseco: We anticipate that this new system will expand ECS capacity by the end of 2025 by 30% from current levels, which will bring us to ECS revenue capacity of more than $1 billion.
Finally, our first company-owned accelerator farms are progressing as anticipated.
Russell Diez-Canseco: We intend for these farms to allow us to accelerate the pace of innovation and create a flywheel as we share our learnings and encourage the exchange of best practices within our existing farm network.
Speaker Change: Before I hand it over to Thilo, I want to address one more topic.
Russell Diez-Canseco: Just like everyone in our industry, we expect to be affected by the recently announced tariffs.
Russell Diez-Canseco: While we believe our consumer to be very loyal and resilient, we're anticipating cost impacts on our business.
Russell Diez-Canseco: To offset this anticipated impact and provide us with operating flexibility, we've announced to our retailer partners a modest low double digit percentage price increase for our shell egg products that will go into effect this month.
Russell Diez-Canseco: In summary, we delivered a strong first quarter that leaves us well positioned to achieve our financial targets.
Russell Diez-Canseco: Egg Supply remains tight, but we expected to improve beginning this quarter as Farms recently added to our network ramp up production and new farms continue to come online over the course of the year.
Russell Diez-Canseco: As a result, we expect to deliver significantly faster year-over-year net revenue growth in the back half of this year consistent with our 2025 outlook.
Russell Diez-Canseco: Over the long term, we expect demand growth to remain healthy, as we drive increased market penetration from low levels and target a loyal and resilient consumer.
Russell Diez-Canseco: I'm very excited about our future and believe we are on our way to becoming America's most trusted food company.
Russell Diez-Canseco: I'm certainly looking forward to it and I hope you are too.
Thilo Wrede: And with that, I'll now turn the call over to Thilo.
Thilo Wrede: Thank you, Russell. Hello, everyone, and thank you for joining us today. I will now review our financial results for the first quarter and at March 30, 2025, and then provide color on our guidance for fiscal year 2025.
Thilo Wrede: Net revenue for the first quarter of 2025 goes to $162.3 million, an increase of 9.6% compared to the prior year period. This was driven by price mixed benefits and volume-related growth of $1.9 million.
Thilo Wrede: The volume-related growth was well below trend due to limited ex-supply.
Thilo Wrede: As a reminder, we expected the first slaughter to be our slowest volume Ant-Net revenue growth slaughter this year, due to the previously discussed supply constraints, and we continue to forecast improving year by year volume Ant-Net revenue growth beginning in the second quarter.
Thilo Wrede: Rose Profit for the first quarter, rose to 62.5 million dollars or 30.5% of net revenue from $38.9 million dollars or 39.8% of net revenue last year.
Thilo Wrede: The increase in gross profit dollars was primarily driven by revenue growth, lower conventional commodities and diesel costs, also contributed to the profit gain.
Thilo Wrede: Rose Prophet Martin was down year over year due to increased investments and crew members to keep pace with expected company growth and less efficient operations due to the limited ex apply after an exceptional operating quarter last year.
Thilo Wrede: SGNA expenses for the first quarter were $31.9 million or 19.7% of net revenue compared with $27.1 million or 18.3% of net revenue in the first quarter of last year.
Thilo Wrede: The increase in SGNA in the first quarter was driven primarily by employee related costs, including stock-based compensation and increased headcount, professional service expenses, and technology and software related expenses.
These costs always like the expansion of the business.
Thilo Wrede: Slipping the distribution expenses for the first quarter of 2025 were 8.8 million dollars for 5.4% of my revenue.
Thilo Wrede: 17.6 million dollars or 5.1% of net revenue in the first quarter of 2024. The increase was driven by higher sales volumes and higher line haul rates.
Thilo Wrede: Net income for the first quarter of 2025 decreased 11.2% to 16.9 million dollars or 37 cents per per diluted share compared to 19 million dollars or 43 cents per diluted share for the first quarter of 2024.
Thilo Wrede: The decrease in that income was driven by increased investments of future growth of the business partially offset by higher sales and growth profits.
Thilo Wrede: Adjusted EBITDA for the first quarter of 2025 was 27.5 million dollars, the 16.9% of net revenue compared to 29.1 million dollars from 19.7% of net revenue for the first quarter of 2024.
Thilo Wrede: The decrease in adjusted EBITDA was driven primarily by higher personnel investments, partially upset by higher sales and gross profit.
Turning now to our balance sheet.
Thilo Wrede: As of March 30, 2025, we are total cash equivalent and marketable securities of $161.3 million with no debt
Thilo Wrede: Our balance sheets reflect the land parcel in Indiana, valued at $3.2 million as an asset held for sale, which was previously acquired for potential accelerator farm development.
Thilo Wrede: We have identified available land that better means our needs and are therefore selling this plot. I believe the situation exemplifies exactly the kinds of learnings we can only gain through putting ourselves into the shoes of our family farmers and reinforces the rationale for developing our extollerant defiance.
Thilo Wrede: It is also worth noting that this decision has no impact on our ability to deliver the about 15 accelerator farms we have permitted as our existing landholdings fully support our development plans.
Thilo Wrede: Before I discuss our guidance, I would like to address our targets on remediating the material weakness in thermal controls previously highlighted in our 2024 annual report on form 10K filing.
Thilo Wrede: Defining relates to the revenue recognition process. Specifically, we like automated reconciliation between purchase orders and sales reporting.
Thilo Wrede: Importantly, this was a design deficiency only. No revenue inconsistencies were found, and we do not anticipate any restatement.
Thilo Wrede: Our remediation plan is progressing well and remain on track to address this issue. We remain confident in our financial reporting integrity and overall control environment.
Now looking ahead.
Thilo Wrede: Before the year 2025, we are happy to confirm that we continue to expect net revenue of at least $749 or at least 22% growth versus 2024.
Thilo Wrede: and adjusted the EBITDA of at least $100 million, or at least 15% growth. The guidance includes the price increase, Russell had mentioned, and any expected impacts from our current understanding of the new tariff environment.
Thilo Wrede: Give me increasingly dynamic and uncertain macroeconomic backdrop, created by the recent terror announcements, we are reiterating our full year guidance.
Thilo Wrede: While recently announced tariffs put impact the purchasing behavior of our consumers, as well as our cost structure, we believe we will be relatively insulated from these pressures given our premium consumer base domestic focus in the non-cyclical nature of our product categories.
Thilo Wrede: As for the cadence of the year, respect volumes to accelerate over the course of the year as supply improves.
Thilo Wrede: As recently added, Farms ramped up production, and additional farms come online, we expect sequential capacity increases to drive accelerating the over-year bond growth each quarter as we move through the year.
Thilo Wrede: Lastly, we still expect fiscal year 2025 capital expenditures in the range of 50 to 60 million dollars.
Thilo Wrede: The previously discussed cap-expanding will be elevated in 2025 and 2026 because of the new upgrading system of ECS Springfield, the plant new facility in Timo, Indiana, the construction of Accelerator Farms.
Thilo Wrede: and our internal digital transformation project, which I'll provide an update on in just a moment.
Thilo Wrede: We plan to fund our current plans with Seymour and all other projects this year with existing cash and operating cashflow.
Thilo Wrede: We project that every dollar of Capric's investment in Seymour will generate more than five dollars of annual revenue capacity, which we consider a very strong return.
Thilo Wrede: As always, we continue to evaluate and monitor our capital and location priorities. After the last several quarters, we want to ensure that we have enough capacity in place ahead of expected demand growth and that we optimize the use of capital and the return for all of our stakeholders.
We will provide updates on this as necessary.
Thilo Wrede: Now to discuss our digital transformation initiative, which includes our new ERP system implementation.
Thilo Wrede: We've updated the launch date from summer to early fall 2025 to ensure flawless switch over. The timing adjustment supports our commitment to minimize any risk for operational disruptions and does not add cost to the budget for the project.
Thilo Wrede: A long-term guidance remains unchanged. We are continuing to target $1 billion of net revenue by 2027, with a gross margin of about 35% and an even lower margin of 12 to 14%.
Thilo Wrede: The financial outlook of just shared reflects the strength of our business model and the proven success of our strategy. Our loyal customer base provides us with a resilient foundation, but our growing network of family farms ensures product quality and supply chain stability.
Thilo Wrede: Every investment we make to increase retail penetration and brand awareness is delivering measurable results as our economic products reach more households quarter after quarter. We are executing against our commitments and remain confident in the value we are creating for all stakeholders.
Thilo Wrede: Once again, we thank you for your time and interest in Vital Farms today and for the confidence that you have placed in us for your investment. With that, we are now happy to take your questions.
Hey Brian, we can't hear you.
Speaker Change: When we go into the reminder, if you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.
And we heard you for a second.
Speaker Change: Your next question comes from the line of Robert Moskow at TD Coven, your line is now open.
Robert Mosca: All right, hopefully we'll have a little better luck here. Hello, Russell. Hi there, good morning. The price increase that you've announced, you described this low single digit. My perception is that a lot of retailers have raised prices already on your products a lot more than that, just because of category dynamics. Thanks.
Robert Mosca: So, did you consider raising prices more in line with what retailers have already done?
Robert Mosca: And then secondly, I guess what I would hope is that if the retailers have already raised prices a lot, that they won't take this as a signal to raise them even further. So, can you talk a little bit about that balance?
Absolutely. Hey, Rob, it's Russell.
Great questions.
Robert Mosca: So as we've said before, we think about pricing primarily in service of protecting our gross margins which we believe are reflective of the power of our brand.
Robert Mosca: Great relationships and frankly great economics for our retail partners and you know pricing that ensures great kind of consumer surplus or value for our consumers as well relative to the price they're paying.
Robert Mosca: So we drove this primarily based on our assessment of what we thought we needed to do in order to ensure a strong make on our guidance this year.
Robert Mosca: Now, as for retailer pricing, you know, there's, every retailer has their own process for that and it's not really something we have a lot of influence over or any package goods company, I think for that matter.
Robert Mosca: I can only speculate that they'll continue to price relative to their competitive needs and making sure that they're meeting their own brand commitment to their consumers.
Robert Mosca: Okay, and then as a follow-up, I mean, just anecdotally, you know, you look at the shelves today, they look a lot more full in the egg aisle than they were during the height of avian influenza.
Speaker Change: So to what extent are you right now fully up to speed at retailers in line with the rest of the category which also appears to be, you know, back to normal.
Speaker Change: are placing through their orders. We certainly see continued elevated orders from retailers which we think reflect.
Speaker Change: Both their desire to refill their channel with our eggs but also with eggs from throughout the category so we're not out of the woods yet in fact there was yet another layer flock impacted not ours but in the industry by even influenza within the last few weeks. we're not out of the woods yet we're not out of the woods yet we're not out of the woods yet
Speaker Change: That said, as you can see from our own scan data in recent weeks, the volumes continue to go up as we execute on the plan that we shared at the end of the year to increase our volume throughout the year.
Speaker Change: and I'm hopeful that we'll see a reprieve from Avian and Slowenza, and we'll get back to a more normalized market in the back half.
Okay, great. Thank you.
Thanks, Rob.
Speaker Change: Your next question comes from the line of Jon Andersen, it's William Blair, your line is now open.
Good morning. Thank you for the questions.
Speaker Change: I wanted to ask about volumes both in the quarter and then kind of the full year.
Speaker Change: You know, it was the kind of low single digit volume growth in Q1 consistent with kind of your expectations and as you progress through the year. Is your expectation that the way that. [inaudible]
Speaker Change: The kind of the ex-supply kind of on-boards via your new farms.
and you know, your capacity, processing capacity of those eggs.
Speaker Change: that the step-up in growth from quarter to quarter as you move through the year is fairly uniform.
Speaker Change: Or are you expecting more of an unlock, you know, at some point during the year, I'm just trying to get a little bit more sense of that. And then I did want to confirm on the pricing crease that you said low single digit on all shell eggs.
Thanks.
Speaker Change: Thanks, Jon. Great question. I appreciate you asking the question about volume because there is a little bit of detail. I want to make sure we share. I'll ask Thilo to answer the question about the price increase.
Speaker Change: So we did show, as you saw, a low single-digit percent increase in volumes a year on year, which is lighter than I think reflects the actual growth of our strong commercial business.
Speaker Change: and the X-Factor here is the volume of sort of waist-eggs or second grade-eggs that we sell into the breaker market and don't make it into a Vital Farms carton.
We have become much more efficient at processing our eggs.
and so we have much fewer eggs.
that aren't making it into a carton. [inaudible]
Speaker Change: So our yields are up which supports our strong growth margins but the volume that we end up sending into that market is down and in fact if you normalize if you take out breaker volume both last year and this year our volume growth was 5.6%
Speaker Change: So, the underlying branded business had much stronger growth than the financial volume reporting would indicate. Thilo, do you want to comment on pricing?
Thilo Wrede: Yeah, it's on the, what we said about pricing was that it was low, double digit, in space and pricing over the charging retailers.
Thilo Wrede: and so that will come into effect this quarter. And then as we're going through the year, I think the, you know, the question asked about the cadence of volume growth.
Thilo Wrede: As you look at the rest of the year, I think the volume growth that you'll see will reflect a bit more of the farm growth that we've talked about over the last few quarters as those farms come online, we can now start selling those eggs.
Speaker Change: What dragged down the volume girls in Q1 in addition to what Russell just said about the wholesale market not showing up in Scandinavia, for example, but showing up in our results.
Speaker Change: The other part that dragged down Q1 was the fact that we had inventory loss, the other we could tell the retailers and we didn't really have inventory this year.
Speaker Change: And so, as we are now starting to bring farms online, then Q2 will still be somewhere as a transition point in terms of volume growth. And then as we get into the back half of the year, probably the accelerate.
Super helpful. Thank you so much.
Thanks Jon.
Speaker Change: Here next question comes from the line of Matt Smith with Tiffle. Your line is now open.
Hi, good morning. Thank you for taking my question.
Good morning.
Jim.
Speaker Change: You reiterated the guide for the year, but can you talk about how the...
Um...
Speaker Change: And can you talk about the visibility you have into the phasing of egg availability, Thilo? You just talked about the farms coming online, but is the timeline consistent with your previous expectation of when you sign up a farmer and when they start taking or start producing eggs off the farm? Thank you.
Thanks.
Speaker Change: Thanks, Matt. I'll take the first part of that, which was that no, we did not anticipate a price increase when we offer a guide at the beginning of the year. I think we were really clear in our guidance that there was no anticipated price increase.
Speaker Change: But as we progressed into the year and we started to learn more about the impact of tariffs, for example, on the cost of various commodities, we thought it was prudent to take this modest price increase to ensure that we're in good great shape to deliver on our commitments for this year.
and so that's all that it is.
Speaker Change: We have built in a fair bit of flexibility into our operating model, as we've always had, to make sure that we can deliver the plan. And we may find in the back half that we have different ways to allocate the revenue that we get from that price increase again to ensure we deliver both on our long-term goal of building a sustainable brand and our short-term financial commitments.
Speaker Change: and then Matt just said to the disability of Fram's coming online. Fram's are coming online pretty much at the pace and at the magnitude that we anticipated 12 months ago.
Speaker Change: They're coming online at the post that the announcements from last year, quarter of a quarter, would imply.
Speaker Change: The timeline between signing a firm and the firm coming online, what we've just talked about for quite a while now, we're taking, you know, somewhere on nine months to go take.
Speaker Change: that hasn't changed. And so that is all pretty much, that is all on track. And that gives us the visibility that we need for the remainder of the year to feel really confident about our
Unknown Person: and just won't follow up on the tariff exposure, Russell. Can you talk about...
Speaker Change: Where some of the cost pressure you're seeing is coming from. I think the butter business is fully imported, pretty clear that that would have an impact, but maybe where you're seeing the cost pressure on the egg business. Thank you.
Speaker Change: and as we're building out the accelerator farms, some of the farm equipment comes from Europe .
Speaker Change: Obviously, as we're building up a farm network, our family farmers that we're recruiting are also importing the same barn equipment. So for them, the construction costs are increasing, presumably with the tariffs. Now, that being said,
Speaker Change: I think compared to the rest of the consumers' ways to reporting right now, I think our exposure to terrorists is a bit more limited.
Speaker Change: and we have a very good handle on what the turf impact could be. And so with that, the pricing piece that we've talked about that is more than sufficient to cover the impact of the terrors.
Speaker Change: And with that, I think with the price and power that we have, with the resilience of the business that we have, I think we're a really well positioned for this year despite the terrors.
Thanks to you, I'll pass it on.
Speaker Change: Your next question comes from the line of Ben Klieve that lakes treat capital markets your line is now open.
Ben Clive: All right. Thanks for taking my question. First, I'd like to ask a question on the retail distribution. It looks like in your presentation that you know the distribution increased from 24,000 stores to 26 here. That's 24,000 number. It's been kind of stale for my record to show like about a year and a half. And so I'm wondering if you can elaborate a bit on this distribution increase and kind of characterize the retailers that were included in that increase. And so I would like to ask a question.
Ben Clive: Yeah, then let me take that one. That one is really more technicality, rather than increasing distribution. As you know, we switched our data provider from Nielsen to Sakana.
Ben Clive: Sokana has a somewhat different universe that they're tracking relative to Nielsen. And so in Sokana, we're now on 26,000 stores, not in 24,000 stores if Nielsen is tracking.
Ben Clive: We had some distribution gains over the course of the quarter.
Ben Clive: but certainly not to the degree that the change in numbers in the deck would imply.
Ben Clive: And so, don't read too much in that change from 24 to 26,000 retailers. It really is just a change in data source. There's no out-of-line meaningful growth of new retailers that we are in. Or new doors that we are in, I should say.
Got it. Okay, fair enough.
Speaker Change: And then last one for me, and then I'll pass it on, follow up to the tariff question, totally makes sense for all the impacts on the income statement. Can you elaborate though on any impact you see on the expansion into Seymour? Are you, you know, expecting your pricing to increase in a material way for that project or have you fully considered that in the plans that you've discussed today?
Speaker Change: Yeah, the Seymour is certainly will be somewhat of a tariff impact, some of the equipment that we are installing and the team order comes from Europe , so there will be an impact.
Speaker Change: It's construction costs overall go up because of, you know, terrorism steel, for example, that will impact us, but that is all within the range of our budget for sea more as it is.
Speaker Change: and so the Capix Gardens that we've given for the year, the 50 to 60 million, that is the impact that we're foreseeing for phase one of Seymour right now, and with that, we don't see any of the need for now to censor.
Speaker Change: Very good. Okay, I appreciate the color. It takes to take my questions. I'll get back in
Speaker Change: Your next question comes from the line of Eric Des Lauriers, with Craig Hallum, Capital Group. Your line is now open.
Eric Desolorez: Great. Thank you for taking my questions. First ones for me are around consumer behavior. I apologize if any of this is being repeated. I got some audio issues when you were discussing them.
Consumer Metrics, but just wondering if you've seen any...
Eric Desolorez: Changes in recent weeks to consumer behavior in the pastures and categorize the whole or in your brand.
Eric Desolorez: If you've seen any evidence of increased trial by new customers, given the heightened prices for conventional bikes.
Thanks Eric, Russell here.
Eric Desolorez: You know, I think this quarter has been a wonderful proof point of the power of the model that we've been using to build this brand over the last decade.
Eric Desolorez: We shared a terrific slide in the presentation that accompanied our release, which shows how we, as we have grown households over the last several years, we've had a very consistent breakout of heavy users, medium users, light users, etc. And what that tells me is that in good times and bad, in challenged economy and not...
Eric Desolorez: Our consumers continue to go very predictably from awareness to trial, to repeat, to have a user and that hasn't changed, including with this macro backdrop.
Additionally, we found I think a very powerful increase. [inaudible]
Eric Desolorez: in Brand Awareness. I believe that's from 26% to 31% over the last quarter, and some of that certainly would be from the eggs simply being more in the news.
but I think it's also reflected in the fact...
that
Eric Desolorez: We did not go dark in our commercial efforts and our marketing efforts even though we are in a period of supply constraint because we know that investing in awareness now will help us drive increased household penetration and expansion of our brand in the course of years to come.
That's very helpful. Thank you.
and then this last one from me.
Speaker Change: Yeah, really strong growth in the butter business, I guess, you know, sort of on the backs of the improving brand awareness. Just wondering if you could talk a bit more about the dynamics of building the supply side of the butter business. I'm wondering, you know, what levers you have to sort of expand supply and capitalize on growing demand. Thanks.
Speaker Change: Yeah, thank you for that. So as we have discussed over the last several quarters.
Speaker Change: We spent, excuse me, 2024 really transitioning our butter supply chain. For several quarters prior to that, we had been very limited by our ability to source the high quality cream and ultimately butter that we thought was critical to our brand and to the product we wanted to offer consumers.
Speaker Change: and lots of structural reasons for that here in the United States.
Speaker Change: That said, the kind of butter we offer is much more consistent with growing practices and production practices in Ireland, and that's why we made that change. And so with that change, we do not anticipate bottlenecks to our continued growth for years to come.
Thanks for watching!
Speaker Change: Your next question comes from the line of Ben Mayhew, at BMO Capital Markets, your line is now open.
Hi, good morning.
So my friend, Ben, welcome.
Speaker Change: Hey, good to be here. So the comment around your guidance, taking into account the potential impact.
Speaker Change: that global trade and economic tensions could have on consumer spending. This is hopefully the case with people happy because that is really important to the youth here. So, could you try to get the ability of skills, skills, and profitability in an environment where larger price gaps between violence and vegetables and where consumer spending is better?
Speaker Change: One, your connection broke up there. I've picked guidance from through my terrorist spy scaps, something along those lines with me retry again.
Speaker Change: Let me take a shot at what I think the question was, which was, hey, if tariffs challenge consumer, will that in turn impact how we think about sales growth and driving top line growth?
And the answer is we actually don't see an impact.
from a potential…
Speaker Change: You know, macro impact from tariffs on the consumer, impacting our Continued ability to drive the growth that we've put up historically year after year after year. And I think there are two reasons for that.
The most important of which is that…
Speaker Change: We have a brand that connects with consumers and really creates value because we do things with a purpose and we produce our eggs in a different way than the traditional producers do.
Speaker Change: The other reason is that we have one of the highest
Speaker Change: once they've tried our eggs, once they understand our story, they're really reluctant to trade away from that in general.
Speaker Change: Yes, thank you. That answered my question and just my last one here. You noted that you have exceeded 460 family farms now for 425.
Speaker Change: Thanks, very fair question as we've said in the release and and in the in the prepared remarks, we continue to recruit farmers on our schedule as we've as we've elected to we have a really terrific field.
Speaker Change: Does everything from build awareness of who vital farms is in the farming community to helping educate prospective farmers on what it takes to do really well working with US and then perhaps even most important provides the support necessary for our.
Speaker Change: In the in the months and years to come after they've signed up with us and.
Speaker Change: You know with that sort of nine to 12 month lead time between signing a contract with a new farmer and having eggs coming off of that farm.
Speaker Change: The number of farms producing today was essentially what we elected to add nine to 12 months ago. That's always been the case and and we're having terrific success, adding the farms, we have chosen to add this year as well.
Speaker Change: Great. Thank you.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Megan Clap with Morgan Stanley. Your line is now open.
Megan Clap: Hi, good morning, Thanks, so much maybe a follow up to some of the the comments earlier around the price increase and the guidance you know certainly I don't want to want to put words in your mouth, but if you could just clarify it does sound like maybe you could have raised the guide.
Megan Clap: Increase but makes sense and is prudent to leave some cushion just given the consumer uncertainty and maybe some flexibility to go after demand in the second half would just be curious your reaction to that.
Megan Clap: I don't think you're far off the thing that I would add is that would probably have less concern about consumer uncertainty than some other companies do again lots of reasons that we believe our consumers both resilient and much less willing to trade away from our product.
Megan Clap: And and you can see that in our ability to put up strong growth and gross margins over time, regardless of price gaps to the lowest priced eggs in the market, which I think is the maybe the key proof point that even when the.
Megan Clap: In an egg that on the outside looks the same as ours, the consumers who have come to appreciate our brand and what it stands for aren't interested in trading down to those so.
Megan Clap: But the but the rest of it sounds pretty reasonable and is very consistent with what we've been doing since we went public which is making sure that we set ourselves up for success and to be able to deliver on our commitment to all stakeholders, especially our shareholders. So.
Megan Clap: We believe we've got the right mix of levers, including the benefits from this modest price increase to deliver on the guidance. We gave at the beginning of the year.
Megan Clap: Let me just add to that we are just you know finished Q1 Q1 played out the way we thought of a play out with volume with maybe slightly better price mix and what we initially thought but overall it played out the way we thought.
Megan Clap: This was always intended to be the smallest quarter of the year. So we still have a long way to go and I would argue across the entire U S economy, and certainly I certainly increase so before we think about how high for the year I would.
Megan Clap: Like what the year really looks like and how the year will play out before we reconsider what what guidance would be.
Megan Clap: Yes, Sir.
Megan Clap: Yeah. The gross margin was was pretty much where we saw it looked out after the first quarter last year that we had very healthy gross margin because ECS ran incredibly well.
Megan Clap: This year was the first quarter was much more a normal quarter I would say so for example, we we had.
Megan Clap: No. It's snowstorm in Missouri that resulted in in us not being able to to ship any eggs because trucks wouldn't show up at east trucks, just couldn't drive in Missouri, right and so this wasn't much more normal quarter in terms of operations the quarter was also.
Megan Clap: Tech supply constraint that means that easy S. Just doesn't run as efficiently as it normally would because you have to do more switch overs, depending on when X come in and so on and so with that the quarter. This quarter, we obviously start would be lower.
Megan Clap: Graffing up in anticipation of growth for the rest of the year right. So we're staffing up before we actually need through so we have the time to train them and and to build up their skills and those were costs that we started to incur in the first quarter already and with that.
Megan Clap: Thank you, calling and gross margin was was really something that we expected.
Megan Clap: For the full year.
Megan Clap: Yeah, the the pricing that we announced my benefit I think but keep in mind second quarter last year was also a very strong quarter last year because E. T. S. Again ran exceptionally well probably not going to repeat this year.
Megan Clap: Between tariffs and commodity costs in the back half of the year, probably wouldn't expect gross margin to repeat at the same level as not yet.
Megan Clap: Thank you so much.
Speaker Change: That concludes our question and answer session I will now turn the conference back over to John Mills for closing remarks.
Speaker Change: Great. Thank you and thank you everyone for participating on our first quarter call. Today, we look forward to updating everyone on our progress for this fiscal year during our second quarter call of everyone has a wonderful day.
Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.