Q2 2025 Vital Farms Inc Earnings Call
Good day, and thank you for standing by. Welcome to the vital forms, second quarter, 2025 earnings conference call and webcast.
At this time, all participants are in a listen-only mode.
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, John Mills, with ICR.
Good morning and welcome to vital Farm. Second quarter 2025 earnings conference call and webcasts.
I am John Mills managing partner at icr on the call today, a Russell DS Cano president and chief executive officer, Sheila Raa, Chief Financial Officer.
By now, everyone should have access to the company's second quarter 2025 earnings press release issued this morning.
This is available on the investor relations section of vital Farms, website at investors.com vitalfarms.com. And it'll be under the news Banner.
25 filed with the SEC today as well as other filings with the SEC for a detailed discussion of the risk that could cause actual results to differ materially from those expressed or implied in any forward-looking statements me today.
Please note that on today's call management will refer to adjusted Eva, which is the non-gaap financial measure. While the company believes this non-gaap financial measure, provides 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 gaap.
Please refer to our earnings press release for reconciliation of adjusted EBA, and to its most comparable measure prepared in accordance with gaap.
And with that, I will now turn the call over to Russell Diaz conco, president and chief executive officer of final forms.
Thank you, John.
Good morning, and thank you for your time today.
Before talking about the broader business Trends. I want to start with a big thank you to the entire vital Farms Crewe.
We achieved several important Milestones since our last earnings call, and these were made possible by the dedication engagement and passion of crew across our organization
These Milestones include working with more than 500 Family Farms, an increase of about 50 Farms since the first quarter.
Breaking ground on our Seymour facility and placing Birds on our first accelerator Farm.
All of these are supply chain Milestones, that deserve special recognition.
And support the future growth potential that we see for Vital Farms.
Another highlight worth mentioning up front is the appointment of Billy sear to vital Farms board of directors.
As the current CEO of fresh pets, and with his extensive consumer products expertise. Billy brings valuable experience in brand, building retail Partnerships and scaling operations in the cpg space. That will be instrumental as we continue our growth Journey with thrilled to have Billy join our board.
With that, let me talk more about the details of the second quarter.
Our second quarter performance, exceeded our initial top and bottom line expectations.
Net revenue grew to $184.8 million, up 25.4% year-over-year, driven by both volume growth and strategic pricing actions.
Adjusted, Evita of 29.9 million represents a new quarterly record for us.
I'm pleased to report that the volume growth constraints. We faced in the first quarter have begun to ease. As we forecasted. We've been able to start rebuilding our inventory and we are seeing continued strength in consumer demand and brand loyalty. Even as we implemented our recent price increases
these factors position us. Well for Accelerated growth in the back half of the year.
With this solid foundation in place, we are raising our 2025 financial outlook, and Thilo will give more details.
As I reflect on our second quarter performance, I want to share 2 key observations that shape our Outlook.
First. Despite the increasingly Dynamic macro environment, vital Farms continues to demonstrate remarkable, resilience and growth outperforming across key metrics.
Second, we believe we remain a structurally advantaged business with significant runway for growth in the category, along with meaningful long-term tailwinds.
Key to our growth are our supply initiatives, where we've made excellent progress, expanding our farmer Network, which I mentioned earlier. And we now have 9 million hens under contract
With a robust pipeline of prospective Family Farm Partners. We are confident in our ability to continue to grow this network at the necessary Pace throughout the remainder of the year, and Beyond to support our updated guidance.
The ongoing Farm Network expansion reflects the compelling value proposition. We offer Family Farms and the expertise of our world-class farm team in communicating the benefits of our partnership model.
This growing Network positions us to meet increasing demand while maintaining our high quality standards.
Scaling, our farmer Network aligns with the Strategic infrastructure Investments. We've been advancing on multiple fronts.
At egg Central Station or ECS in Springfield. Our third production, line remains on track to be operational in the fourth quarter, which we expect will expand our capacity by 30%.
Shipping capabilities and improves our efficiencies as the facility is now closer to ECS and with a purpose-built design to better handle outbound distribution.
Next week, we plan to break ground at our new Seymour Indiana facility.
After a thorough assessment by by our chief supply chain officer, Joe Holland who joined us in the third quarter of last year, we revised our Seymour expansion. Plans and are now working on installing 2 lines at the same time in set of the original plan of doing this in 2 phases.
With this updated approach, we expect to have more than 900 million dollars of Revenue capacity from the new Seymour Facility by early 2027.
It's important to point out here that the timing for the new facility to be operational does not meaningfully change with this increased scope.
The updated approach also means that we now expect capex spending of 90 to 110 million this year.
Our full plan. Now includes a cold storage facility adjacent to the Seymour facility that we plan to build but will be operated by our current Warehouse partner.
Even with this increase scope, we continue to project 5 dollars of annual revenue capacity for every dollar of capex. We're investing in the facility.
In other words, our cost per square foot is decreasing compared to the initial plan.
It also means that we're anticipating higher capex. Spend next year than previously indicated.
The recent jump in brand awareness. We've seen this year for Vital Farms eggs and our continued high growth rates indicate to us. There is unmet demand that we will have to satisfy in the coming years.
After several years of supply and capacity constraints, we want to get ahead and ensure we are well-positioned to meet our future demand expectations.
Farm recruiting is 1 piece of this puzzle and we believe we are currently in a good place there.
Production capacity is the other piece and by installing 2 production lines. In Seymour simultaneously, we anticipate having sufficient scale for the foreseeable future.
While expanding Supply is critical, the true Cornerstone of our success lies in the strength of our brand and the Deep loyalty of our consumers.
Time and again, our consumers have demonstrated remarkable commitment to our products because of our mission and what our brand represents.
In particular, we've grown household penetration while simultaneously. Increasing the Loyalty of our existing consumers.
We continue to see the record. High aided brand awareness of 31% that we hit in the first quarter and we believe we know how to turn this increase awareness into purchases over time.
This is happening across all income groups, but particularly among higher income households, who continue to demonstrate strong loyalty to our brand.
I think it's important to note that this isn't just brand loyalty.
It's a testament to the authentic relationships. We built with consumers who fundamentally understand and value our mission.
We believe they understand how we partner with family Farmers, maintain rigorous, ethical standards and consistently deliver superior quality eggs.
And we believe that our consumers are willing to pay a premium for these practices. And for the value, our brand represents
We continue to grow brand awareness through meaningful engagement. We recently rolled out a new advertising campaign built around season 4 of fx's Emmy award-winning TV show The Bear which has already generated positive feedback.
The campaign success demonstrates our ability to connect with consumers through culturally relevant content that resonates with our Target demographic.
Another good example of our broader, engagement strategy is a limited time promotional campaign that will launch later this month.
It will involve products that will only be available through an online giveaway.
They are not for sale and we want to make it very clear that it's not related to any thinking about a new category, it will just be a fun way to connect with some very critical stakeholders and continue to grow brand awareness.
We don't want to spoil the surprise yet, so please stay tuned until later this month.
In summary, we exceeded our initial second, quarter expectations, and believe our business model is uniquely positioned to continue delivering strong results.
We have a loyal consumer base, a growing network of Family Farms, delivering improving supply, chain, stability and the Investments, we make in retail penetration and brand awareness are delivering measurable results.
Considered to be pent up consumer demand.
Finally, all of our expansion plans are tracking as expected.
This momentum enables us to raise our guidance for full year 2025.
Over the long term, we see significant potential runway for growth as we capture greater market share from low penetration levels and continue building our loyal resilient consumer base.
I'm very excited about our future and believe we're on our way to becoming America's most trusted food company.
I'm certainly looking forward to it and I hope you are too.
tilo will now provide additional color on our second quarter results and increase guidance for this fiscal year 2025,
Thank you Russell. Hello everyone and thank you for joining us today. I will now review our financial results for the second quarter in the June 29th 2025 and then provide color on our guidance for fiscal year 2025.
Net revenue for the second quarter of 2025 close to 1 8 4. 8. 8
An increase of 25.4% compared to the prior year, period.
This was primarily driven by Price, mix benefits of 15.7 million and volume growth of 21.7 million.
We have seen that our second quarter, price increase has been well received which we attribute to the strength of our brand.
Gross profit for the second quarter, rows to 71.8 million, or 38.9% of net revenue from 57.7 million to 39.1% of net revenue. Last year,
the increase in gross profit dollars was primarily driven by Revenue growth from higher volume and increased pricing across our shallow portfolio and favorable mix benefits.
Gross profit margin declined slightly year over year due to increased investments in crew members to keep Pace with expected, company growth and less efficient operations due to limited ex Supply after an exceptional operating quarter last year.
Sgna expenses for the second quarter were 39.0 million or 21.1% of net revenue compared with 33.3 million or 22.6% of net revenue in the second quarter last year.
the increase in sgna and the second quarter was driven, primarily by expenses to support the expansion of our business including marketing expenses, employee related costs, including stock-based compensation, and increased headcount
Professional Service expenses technology and software related expenses and future Farm expansion expenses.
Shipping and distribution expenses for the second quarter of 2025 were 9.0 million or 4.9% of net revenue compared to 7.2 million or 4.9% of net revenue. In the second quarter of 2024, the increase was driven by higher sales volume.
Net income for the second quarter of 2025 increased 1.8% to 16.6 million or 36 cents per diluted share compared to 16.3% per diluted share. Full second quarter of 2024,
The increase in net income was driven by operating profit growth, mostly offset by year-over-year increase and tax provisions.
Adjusted ibida for the second quarter of 2025 was 29.9 million or 16.2% of net revenue compared to 23.3 million or 15.8% of net revenue for the second quarter of 2024.
The increase in adjusted evida was driven by higher revenue and scale benefits partially offset by higher Personnel Investments.
Turning now, to our balance sheet as of June 29th, 2025 we are total, Cash, Cash, equivalents and marketable, securities of 155.0 million with no debt outstanding.
Our digital transformation initiative remains on track and we continue to Target early fall 2025 for the switch over.
Before I discuss our guidance, I want to update you on our progress with remediating the material weakness, in internal controls. Previously, highlighted in our annual report on form. 10K for fiscal year 2024,
The finding relates to the revenue recognition process specifically. We lacked automated reconciliation between, purchase orders and sales reporting.
Importantly, this was a design deficiency. Only no revenue inconsistencies were found, and we do not anticipate any restatement. Our remediation plan is progressing well, and we remain on track to properly correct this by the end of fiscal 2025.
Of our price increase. We are raising our full year 2025 guidance.
We now expect that revenue of at least 770 million representing growth of, at least 27% versus 2024, an increase from our previous guidance of at least 740 million.
This increased Outlook reflects the strength, we are seeing in our Core Business. Particularly the positives consumer response to a recent price, increase and accelerating volume growth. As our newly added Farms ramp up production.
We increasing our adjusted DBA in to at least 10 to 10 million dollars from the previous guidance of at least 100 million dollars for the full year. 2025 for the remainder of 2025, we continue to expect different margin Dynamics between the first and second half of the year, the first half of the year has benefited from the impact of favorable price, mix our recent price, increase and relatively stable commodity costs
However, in the second half, we anticipate margin pressure from 3 key sources.
First, the impact of us terrorists on imported items. This had been continues to be challenging to protect in terms of timing and magnitude of the impact, but we currently expected to manually affect the fourth quarter.
Second now that our supply constraints of the East, we plan to increase promotional activity in the second half of the year.
And third similar to Prior years. We anticipate higher marketing spend as percent of net sales in the second half compared to the first half of the year.
We affected these headwinds into our guidance and pricing decisions and remain confident in our ability to deliver on our increased full year Revenue guidance.
Lastly, we now expect 2025 capital expenditures in the range of $90 million to $110 million, pulling forward capital that was previously planned for later years. This is an increase from our previous guidance of $50 million to $60 million and reflects our strategic decision to construct both production lines at our Femur, Indiana facility simultaneously rather than in phases, together with on-site cold storage.
We believe this will provide us with needed capacity for future growth and optimize our Capital efficiency on a per square foot basis.
Once operational we expected 2 lines to have total annual revenue capacity of more than 900 million dollars.
As previously disclosed, we will have elevated capex spending in 2025 and 2026 because of the new production line at ECS Springfield. Construction of our plant new facility and Seema Indiana, the construction of accelerator farms and our digital transformation project. We expect to fund our current plans for our
Be more facility and all other projects this year with existing cache and operating cash flow. We continue to project that every dollar as capex investment and see more will generate more than 5 dollars of annual revenue capacity which we consider a very strong return.
This decision to accelerate, the SEMA buildout means we are putting our balance sheet to work. And we expect free cash flow to turn negative this year of the 2 very strong positive years.
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 our stakeholders.
As always, we continue to evaluate and monitor, our Capital allocation priorities, and we'll provide updates on this as necessary.
The raised Financial Outlook, I've just shared demonstrates the strength of our business model and validates. Our strategic decisions. We continue to see our loyal consumer base growing and we believe expansion of our network of over 500 Family Farms strengthens our supply chain capabilities, our investments in retail penetration and brand awareness are delivering strong results as we reach new households and deepen relationships with existing customers.
The positive consumer response to our brand that we have seen combined, with our operational execution, reinforces our confidence that we are creating sustainable value. For all stakeholders, as we progress toward our long-term objectives,
Once again, we thank you for your time and interest in vital Farms today and for the confidence that you have placed in us with your investment with that, we are now happy to take your questions.
At this time, I would like to remind everyone in order to ask a question. Please press star then the number 1 on your telephone keypad, we request that you limit yourself to 1, question and 1 follow up.
We will pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Megan clap with Morgan Stanley, your line is open.
Hi, good morning, Russell tilo to things for taking my question.
Start with the the volume performance and then maybe what's changing in the guide. So you know, volumes at Mid teens and the second quarter are really nice acceleration from last quarter. Maybe you can talk about just how that played out versus your own expectations and then big picture. It does seem like, you know, the the pricing going better than expected. And the positive consumer response you called out is the primary driver of what's changing in in kind of the better second half implied Outlook. But maybe TL, you can just unpack a little bit more in terms of how we should think about what's changing in the back half and and the Cadence of growth, uh, 32 to 4 q. I know there's a lot in there, so thank you.
All right.
Good morning, Megan, I I appreciate how you're asking 3 questions and 1. Um, so the, um,
First call to call, we talked about that. We wanted to give ourselves a bit of time to to watch how retailers are reacting to our price increase from mid-may, and then how consumers are reacting to it. Um, I think the price elicits the similar to, to a previous price increases as well as um, better than what we have assumed um and with that the volume growth. Um, as it plays out over the course of the quarter, it it it played out the the way we thought it would write acceleration throughout the quarter. Um that is what is reflected in the guidance right now that we continue to accelerate
Volume growth, um, every quarter third, quarter higher than the second quarter. Fourth quarter higher than the third. And so the, the year from the volume perspective is, is pretty much playing out the way, uh, we had initially planned it at the beginning of the year. And then we have the benefit from the price increase on top of that, right? And that price increase first quarter. We were we were hesitant to already, uh, put all of that into the guidance because we wanted to first see how how the action is with the reaction now. Um, you know, I would call the positive territory, we feel more confident, uh, putting a bit of that price increase into the guidance as well.
Okay, that's helpful and not to be greedy. But if I could just sneak in a follow-up on that, um, the the promotions tilo that you expect to pressure gross margin in the second half relative to the first half, I guess it. It seems like, you know, those those were already in the plan as Supply comes online, but maybe you can just clarify that, you know is, are you increasing promotions any more than you had previously expected, just given the price increase or is it mainly, you know, similar to what you would planned coming into the year and and it's around, it's really more about driving trial. Now that you have Supply
Yeah, it's really similar to what we have planned at the beginning of the year. Um, and and I think we had talked about it at the beginning of the year as well, right? Just Supply increases, uh, we are in a much better, uh, position to support the lift that we usually get from promotions and so promotions were always back half weighted. There is still a bit of a wild card out there, which is, um, impact from tariffs magnitude of tariffs and so on. Um, and we had talked about it on the first quarter, call that um better Supply picture in the back of of the Year gives us maybe a bit of flexibility to to, you know, potentially get more aggressive on promotions if tariffs allow us to do that while we're watching gross margin, right? So the overall picture the way we think about the backup of a year, right now is uh, promotions. The way we had. Always planned them for the year, but if there's an opportunity to maybe do a bit more um,
Based on which terms are landing? Um, then we would be open to doing that.
Okay, great. Thank you. I'll pass it on.
Thanks.
Your next question comes from the line of Jean Anderson with William Blair. Your line is open.
Hey, good morning guys. And congrats on a good quarter. Um,
I wanted to ask on the the revenue Cadence for the year, you know, the 25% growth
Uh you put up in 2 Q. Looks like, you know, we'll accelerate to Something in the mid-30s uh, in the back half based on on the current guidance.
Uh, so that kind of 10 percentage points step up. I was just wondering if, if you could, um, give us a sense of how much of that
is related to um, you know, full full full full benefit of price increase which I think went in around the middle of 2q and how much of that is related to um,
You know, Step Up, Step Up in volume.
Hey, good morning John. Um,
The um, I think we've been talking about the Cadence of the year that we'll see and acceleration and growth.
um, sequentially every quarter over the course of a year and
and that continues to hold up, uh, the pricing then, um, is is on top of that, right? So the the acceleration in the back half of the year, it's primarily driven, um, by the, by the better Supply. Um, and then pricing gives us a little bit of a cherry on the top there.
Great. Just a quick follow-up. Um,
I'm curious if a little bit more detail around the decision to, um,
you know, kind of commit to to 2 lines, right out of the gates and see more and, you know, pulling forward that that that Capital spend, um, what, what kind of the, the kind of the benefits of, of making that decision to do that now. Uh, and also, you know, if as, as you pull forward capital, uh, spending does that alter your ability to kind of um, you know, self fund that out of, you know, from your own balance sheet. Thank you.
Thanks, John, good morning. Um, so as we said in the prepared remarks, uh, so much of that decision is rooted in a desire to kind of catch up to the, to the growth that we've, uh, generated with this powerful brand over the last 5 plus years, I think we've been to varying degrees, uh, you know, Supply or capacity constrained, um, which in many respects has been a good problem to have. But the reality is that uh this is really sort of a sexual secular shift in the way that uh people look to Brands like ours to feed their families. And uh we need to get um closer to really fulfilling that demand. I think that pulling forward that second line, which is all this is is is pulling forward uh, an investment we plan to make later. Uh, gives us a a much better chance at a sort of catching up to the demand we're creating and and, uh, and really doing um, an even better job of satisfying, the needs of both our, our retail customer
Customers, uh, Food, Service, customers and our, and our consumers. Um, I I don't think this in any way, affects our ability to fund it ourselves as, as you, well know, we have a very strong balance sheet. Uh our operations are cash flow positive and so um, you know, tilo can speak in more detail about how that works. But we've always said that we, you know, after maintenance capex growth capex is our number 1 priority and I think this is a great example of how we're leveraging our balance sheet to drive.
Accelerated growth in the future.
Yeah, I think that's exactly why I did. It's about acceleration of cap. Expand this was always in our 5 year plans to spend this capex.
Um, now we're pulling it forward and, you know, with the 150 million plus of cash and and Investments that we have on the balance sheet, with the operating cash flow, that we are generating this year next year. Um, that is, that is how we are funding this. We, we will continue to maintain a very healthy cash position, uh, just because we like to have that cushion, uh, but there's no need to to tap any loans for this. Um, we, we have the money, and it's also just put it right now. We're putting it to work. And, and I'm happy to to use some of the cash that we've been building up.
Great. Thanks so much. Congrats again.
Your next question comes from the line of Robert Moscow with t.
Hi, thanks and uh, congratulations. Uh just a a couple of questions. Um, 1 is uh it it's great to see, you know, the price elasticity coming out better than you expected. Can you talk also about price gaps versus other pasture-raised uh competitors. Uh our data would indicate that those gaps, kind of increase a little bit, not a lot. Um, are, are you comfortable um where they are compared to to normal? Um, and then I had a quick follow-up for you.
Thanks Rob. Good morning. Um, yeah, you know, uh, we as we've seen, I think time and time again, the brand that we've built. Uh, I think resonates with consumers and establishes us as something more than just a producer of a commodity called pasture raised eggs. Um, at this point, you know, we're not seeing anything in in pricing data or, uh, or or, uh, consumption data that would suggest that we are somehow kind of out of whack with, uh, meeting the needs of our, our consumers and customers at at the prices at which they, well, value what we're doing. So, uh, I think the headline would be. Yeah, I'm comfortable with Where We Are.
Okay, great. And and to just so I'm uh sure. Uh, when you say that the wildcard for the back half of the year is tariffs, and it may influence your, your promotional plans are, are you saying that? If, if the tariffs are are less than you think, that means you have more money to spend on the promo? Is it, is that what you meant, or something else?
Yeah.
Just reminder that we we look at pricing as a way to protect those margin, right? We took pricing um at the beginning of the year or you know became effective middle of the second quarter um in anticipation of higher costs that there we would have to offset in the business and tariffs were a part of that.
Um, obviously tariffs are still, you know, at least to me, they still feel like a bit of a moving Target right now and so as we get more clarity on what the tariffs, what what the Tariff levels are for the countries that we are importing from, and, and how quickly they are, they're impacting our business. As we get more clarity on that. We'll have a bit more clarity on, on how much pricing. We need to keep in the market to, to do this growth margin protection that I just talked about and as we get more clearly there we get more clarity on. Um, how much could be potentially? Do you know, in addition to what we already have planned in, in terms of promotions?
Okay, great. Thank you.
Your next question comes from the line of Eric boras with Craig Halen. Your line is open.
Great. Thank you for taking my questions and congrats on, uh, very strong quarter here. Um, wondering if you can elaborate a bit on the decision to add Cold Storage to both ECS and adjacent to Seymour, um to what extent are you currently utilizing cold storage and you know how does this change impact profitability or throughput or otherwise improve your Supply Chain management?
Thanks, good morning, you know, at a high level, you know, certainly eggs being a refrigerated product, uh, Cold Storage is a is a critical part of our of our supply chain bringing eggs in off of farms, bringing them from Cold Storage, to our, our processing facility, in in Springfield, and then, you know, in the future, uh, Seymour. And then ultimately outbound distribution from a cold storage facility. It's, it's very tightly integrated, um, and we do work with a, with a partner in in Springfield, same partner, 10 plus years.
Uh, which is doing a terrific job for us. The reality is that because that cold storage facility is not co-located with our processing plant. Uh that product has to ride on trucks. And so, a big part of the equation is simply eliminating, the need to put product on and pull it back off of trucks to move between the cold storage part of our supply chain and the farms on 1 end and the, and the packing Center on the other end, obviously, we'll still need to bring eggs in off of farms, but we eliminate the other half of that, uh, by eliminating the trip between the packing Center and the cold storage facility. So the economics are just really compelling to be able to do that, um, in in Seymour. Meanwhile, we also mentioned in the prepared remarks that, uh, our partner has been able to construct a new facility, that's much closer to egg Central Station in Springfield and that, uh, already, uh, provides us with an opportunity for improved, uh, economics as we ship product between the 2 facilities,
and,
we had always, uh,
Intended to use cold storage and Seymour as well to Russell's point right? As we store the eggs, before we process them, we need cold storage and that's what they're the more detailed planning on on the facility. In Seymour we realized that that literally having a shared wall between cold storage and the facility that just drives up efficiency and uh with that we made the decision to construct Cold Storage on site.
So that we make this and and the process that is as efficient as possible, Right. This goes back to how we've been talking about CMO for a while, that all the learnings that we we got from Springfield, we want to apply them to Seymour to make sure that that we get the best bang for the buck there.
Initial expectations. Um, you know, you have a very robust pipeline there, you know, it's obviously a lever you can pull to help meet the demand just kind of help us understand the the risks of doing that, you know, either too quickly or too, slowly help us understand how you're kind of thinking about managing that pipeline.
Yeah great question, I appreciate it. So you know as as you've come to know about us, we're pretty darn intentional in everything that we do. And you know, the number 1 risk that, you know, we work to manage in every decision is really the trust. We built with all of our stakeholders including the trusted brand we built with consumers and Retail Partners. So the number 1 risk, we would look at when we accelerate something like, uh, new Farm, uh, additions to our Network. Would be, how do we do that without compromising, uh, the quality of that farmer, our ability to train an onboard them and set them up for success to do a great job of caring for the hens and producing a really high quality product.
So long before we accelerated the rate at which we brought on New farmers, we accelerated and built out our capability to do. So, by building out a bigger team by arming them with better technology, um, and by, uh, uh, actually bringing in a really powerful leader, our sales leader Pete, papus to lead the entire Farm, uh, support and farm recruiting team. So we really started the process of preparing for that acceleration. Uh,
At the beginning of the year and and what we're seeing now is the beginnings of the fruition of all those Investments. Um, beyond that, I think, you know, our plans are not to have farms in advance of our ability to pack eggs. It's really, uh, a process that we that we plan to be very much in sync and and balanced. So as we continue to hit new production records at ECS uh every week or so as we continue to to build out the team do the training and and improve our operations there. We're looking at head to the Q4, uh, you know, uh, third line being coming online in Q4 of this year. Um, those things are all timed, so that we'll have the processing capacity to to bring those eggs to Market.
It's very helpful. Appreciate that caller.
Thank you.
Your next question comes from the line of Matt Smith with this tank, fill your line is open.
Hi, good morning. Thanks for taking my question. Russell, I, I wanted to come back to the demand environment that you're seeing. As you exit the supply, constraint more from a retailer perspective. You've talked about the opportunity for growth in the future um expansion of distribution to come from getting more items on Shelf versus new retailers. Can you update us on your thoughts there given the the significant growth you've seen in the category and how that in
Your decision to expand cm are you seeing a a greater opportunity from new stores? Or is it more still about greater items of Greater number of items on shelf? Thank you.
Yeah, good morning. Um terrific question. So you know we continue to be in in well over 20,000 stores. I think different measures have us somewhere between 23 and 25,000 stores but it's in that range and if we did our jobs right over the last 15 years, we're in the right first 24, 20 24 or so thousand stores.
The opportunity I believe is to to continue to build out uh our portfolio of products and frankly shelf space um in in those really high performing doors and and the fact that we've got um, entrance into the category of pasture-raised eggs, which really is a process that got started back in 2014 2015, I think has done a terrific job of of growing awareness of different types of eggs. Um, and expanding the, you know, the the the Tam as if if you will for uh, a very premium egg, it it, I don't believe it's come at the expense of our own growth.
So anything we can do to continue to both highlight the availability and and benefits of buying a premium egg, and more importantly, to expand the holding power on those shelves of the brand vital Farms. Whether it comes in the form of additional skus or simply additional facings of existing skus, I think will be an important driver of our growth.
Up in the second half with some flexibility reserved there. But from a mixed standpoint, anything to call out is we move forward. Thank you.
Yeah, good morning. Matt, uh, I found a mixed perspective. We continue to have a long-term trend of the, the business shifting from conventional legs to organic X. So there there's a price break unit benefit that we get from that. Um, second quarter, we obviously had, you know, roughly half a quarter of the, the the, the benefit of the price increase, um, second half of the Year, obviously, that will be full quarters. But then partially offset from the, um, from the increase in promotions that we talked about. And then the last piece that benefited Us in Q2 and, and that will, uh, fade in the second half is this shift from, um, untracked channels to track channels. We talked about it on the first quarter call that we were sending less x to the, to the breakout Channel, or the wholesale Channel. Because we found more outlets in the retail channel for these eggs.
And with that, we get a, a price mixed benefit as well. That was, you know, a few points in in the second quarter. Um, given that we are starting to lap this effort to move X from the breaker channel, to the retail channel that benefits, um, will be less prevalent in the second half of the year, but it it certainly. Um, wasn't, was it positive impact on Q2?
Thank you. I'll pass it on.
Thanks. Bye.
Your next question comes from the line of Brian. Holland with da Davidson your line is open.
Yeah, thanks. Good morning. Um, most of my questions have been answered, but I did want to ask about the guidance, um, and maybe it's a bit of a philosophical question, or, uh, but you typically, you have not slowed through all of the upside, um, that you are realizing in current quarter when you, when you take guidance up in the, at least in the recent past, um, obviously there's, there's a number of reasons for that whether that's reinvestment, um, or, or what have you. Uh, so I'm just curious because again, you flow through again, dangerous doing math, um, me doing back to the envelope math this morning, but,
Curious. If, if you did a deep flow through all of the
Other side, right? It implies kind of second half estimates. You need to at least stay where they are. Come up.
What are you seeing specific?
Specifically to give you that level of confidence and visibility is is whether it's through with respect to the consumer competitive land.
Escape your customers. Just just curious if there's anything, you can sort of hone in on their thanks.
You Brian? Good morning. So I'll I'll start since you use the word philosophical. Uh, that's that's my love language. We'll, we'll let tilo follow up with the math. Um, you know, philosophically as you've come to know. We're, you know, til and I we're pretty conservative, in, in how we operate and how we think about and forecast the business. And so at at a high level philosophically, this is not reflect a change in our level of conservatism our desire to, uh, do what we say and say, what we do, throughout the business, uh, this reflects, you know, our perspective on the, on the, on the high level of execution we're seeing, as we expand the supply of eggs coming off Farms, expand the capacity that we have at egg Central Station week over week over week. Um, and as we continue to see really high levels of consumer awareness, um, and, and, uh, consistently high levels of of conversion through the funnel from awareness, all
All the way through to heavy user, the the commercial engine, if you will remains strong and has been and our operations are now really substantially catching up to that commercial engine. And so it's it's fun to see. It's it's not always so exciting. It's day to day blocking and tackling but uh it's great uh to see our plans come to fruition.
This year.
Yeah, Brandon, I would just add to that. We, we set up for the first quarter call. We wanted to give ourselves a bit more time to to see the, you know, the the reaction in the market to the price increase. Now that we have had the time now that we've been able to watch how how retailers are reacting, how consumers are reacting? We're just getting more confident, um, that the plans for the second half. There was this point that they were working out the way we thought they would work out and, um, and with that we thought it was, um, the right thing to do to, to, um, to reflect that in the guidance that we continue to have this strong volume growth that we have planned um, since the beginning of the year and um, and that we get some additional benefit from pricing.
Hey, I appreciate the color from both of you. And that's, that's, I guess directionally where, what? I was trying to get at, uh, what? What, what you're what you provided in your answer there, so appreciate that, uh, but maybe just kind of double clicking on that, right? I mean, so like we just take last year, for instance, you know, you talked about, hey, uh, we're going to reinvest, we're going to pull forward, you know, hiring of of, of people, um, advertising, you know, infrastructure all that good stuff. Um,
You know, as we start to look forward, you know, kind of where are we in that process of, you know, having people, having infrastructure relative advertising levels, are those numbers that you still think you under index to relative to where you need to be, or conversely, as we start to look for, are we getting to a point where we start to see the scale benefits of those investments in over the last 12, 24 months, whatever, um really flow through the model. Um as you continue to keep up this level of of volume throughput. I'll leave it there. Thanks.
Yeah, I I would argue on that. Um, we are starting to see a scale benefit, so, I, I think we've been seeing scale benefits, um, um, for, for quite a while now. And, um, the the acceleration of hiring that we did second off of last year after we had a very strong
Margins in the first half that we're starting to allow right. So there there's a bit of a benefit there. Um, but remember we we continue to invest in the business, right? I think the the change in the Catholics guidance, that's 1 example of where we are investing in the business to make sure that we continue to to deliver the the high growth rate that you expect from us. And, um, you know, there, there are a few additional, um, positions that we are creating and filling. Maybe a bit ahead of time. It is less of a, um, meaningful acceleration of the hiring than what we had last year, but given that the year is playing out pretty well. We, we continue to build out the the organization. We, you know, we have our aspiration level World Class organization to drive this business and that, um, that continues to require Investments, um, and that's not to say that, that, um, that we are reinvesting all the profit that we are generating, right? Obviously, we want
To generate, um, margin upside from scale, but margins are also at a level where we are very comfortable with with the level that we are at. And so that gives us the, I think the the flexibility to make these investments in the business to, to ensure that we deliver the next quarter, but we also deliver the next decade.
Your next question comes from the line of cat marks with Jeffrey. Is your line is open.
Hey, good morning guys, thanks so much for taking our questions. Um, first thing I want to ask about, you have made some commentary around being able to rebuild some of your own internal inventories. So wondering if you can just kind of share an update on that in terms of where you are relative to where you think you need to be in order to drive a more smooth growth rate. Let's say going forward.
Yeah, great question Scott. Um, so with inventory, um, if you look through the press release, you see that we had quite a bit of inventory building in the second quarter. Um, that will, we will have to continue on that path for a little bit longer with X. We are just at at over, you know, just over a week of inventory for for X to come off the farm.
Uh, we prefer to have 2 or 3 weeks of inventory there, simply because it gives us a bit of a buffer as we go into the busy season in Q4, but also, uh, because it allows us to to run ECS much more efficiently than than the way we run it. When we only have a few days of inventory, right? So expect to build of of additional build up there. Um, our butter inventory, the
Really busy season of the year is the fourth quarter when, uh, when the country gets to, to Really, um, a lot of baking. And so we like to build up inventory, going into that. And then we have packaging inventory. That, you know, it has to grow with the business. We we need to have enough packaging on hand to make sure that we can keep running. So given that we started the year with a very low inventory position,
um, it's
On working capital for the year, um, and you know, thinking back to the earlier question about how we're funding our CapEx, um,
Even with more inventory building, we have the cash flow and we have the cash on hand um to ensure that we can fund all of our capex projects out of existing cache without having to go to the markets in any way.
Got it, thanks for that. And then last 1 from me, um, as we think about maybe the more mainstream part of the egg Market, where we've had more Ave and flu, uh, disruption. I know there's been um what seems like some some signs of normalization of Supply there. And I know there have been some questions about what that means for kind of, you know, pricing and shelf space and other Dynamics, um, in the egg market. So wondering, if you can, just share your updated view on what's happening there and whether or not you are seeing any impacts to your business. Because of that,
Thanks Scott. Um you know, it is our sincere hope that we do not see a return of Avian Influenza this fall. Uh and the Mass Slaughter of so many laying hens in this country. Um,
You know, and, and that's, and that's anybody's guess. I, I don't have any Insider information about the likelihood of that returning. I will say that in our experience, the pricing of, of commodity eggs in the market, has a very limited impact on our, on our business, our ability to grow our ability to attract and retain, uh, new households and so, um, you know, we are, I think we can all see in the scan data. Sequential, uh, decreases in in egg retails as Supply comes back online as the national flock gets rebuilt as it were still, I think, uh, above same time last year, but coming down. Um, that's not uh, appearing to impact consumer demand, or retail or demand for our products. I think we're just playing in a different, uh, part of the market and appealing to, uh, a different set of consumer needs.
Got it. Thanks so much. I'll pass it on.
Thank you.
Your next question.
Street Capital Markets, your line is open.
Thanks for taking my questions and, uh, congratulations and good quarter here. Um, Russell a philosophical question for you. Um, the, uh, it's really encouraging to see the expanded farm supply network um, and and also really encouraging to see that the data point you called out of having kind of 8 times the number of folks in the pipeline relative to the you know number of of
New Farms that you need here in the next year, I'm curious given the success that you've had in onboarding new folks and that pipeline if that kind of changes. Uh your philosophy around, um, the need for accelerator Farms
Yeah. Um, thanks Ben and and uh, appreciate you continuing on the philosophy theme. You know, the the the intention of accelerator Farms which are continued to be. I think, an important part of our long-term strategy is not as a substantial source of supply for eggs.
It is to help make better, uh, the performance of and the, um, and the, uh, uh, uh, uh, the performance of the profitability of, and the Animal Welfare of our network of growing, uh, Family Farms. It's to try out new technologies, new techniques, uh and and see on our dime with our capex limited uh capex. Um, what else is possible to help? Improve the performance of those existing Farms the, the reality is, if, if anything ironically, it makes the work we're doing on those accelerator Farms even more important because we're able to Leverage The learnings in the future over more and more and more Family Farms. So, uh, while I certainly don't think, um, it it, uh, it increases the need for, for additional Farms. I think the number that we've planned roughly
2015 accelerator Farms will give us learnings that we can leverage over more and more and more Family Farms and improve outcomes for those Farmers uh for our for the hands. And and for the quality of the products we bring to Market.
Very good, I appreciate that. Um, all right thanks for taking my questions. I'll get back to you.
Thank you.
Your next question.
Mayo with BM Capital markets, your line is open.
Hey, good morning guys, and congratulations on strong results.
um,
On maybe the health of the consumer and what you guys are seeing in your data specific to vital Farms, but also, you know, the larger food category, and you mentioned that there's an opportunity with unmet demand. So I was just hoping that you could maybe unpack that a little bit more as it, um, relates to, to vital Farms. Thanks.
Yeah, great. Great questions. You know, we certainly see a lot of headlines and a lot of discussion, um, in your world around the health of the consumer. Um, I think the reality is that while there are certainly, um, you know, potentially macro headwinds out there.
um, I don't know that it's having a big impact on our ability to create and communicate the value of our brand,
To our current and potential consumers. And I think that's the critical point here. This is not a big sort of capital purchase uh for households. This is an under $10 in most cases. Um you know consumption item that is uh uh is is in reach for a lot of American households. And the important part is whether we're creating and communicating enough value to Warrant to justify them, spending their precious dollars on our products, and that's the job at hand.
Um, and so while, um, you know, American consumers may be facing a different set of choices about how they spend their money, our job is simply to make sure that we're one of the choices they do make. Um, and I think we've proven our ability to continue to do that regardless of the macro backdrop. So we, and what gives us confidence that there's unmet demand, besides the fact that, you know, the orders that come in from retailers aren't always getting met in full week to week, but we're getting better, um, is the fact that we have driven a substantial increase in consumer awareness of our brand this year. Um, and that the historic relationship between consumer awareness and a preview of trial and new household penetration has shown that there's been a gap that's formed there, where we've driven a lot more awareness than we've captured in households. And I think that's driven by our limited supply.
In the first half of the year. So the growth, in the back half in large part, simply satisfies, the need of the households, we've reached but aren't fully supplying yet.
Thank you. That's very clear. I'll uh, hop back in the queue.
Thanks.
Your next question comes from the line of Gene Bumgartner with Mizzou Securities. Your line is open.
Good morning. Thanks for the question.
Maybe, good morning, maybe building on that, good morning. Um, maybe building on that scene with with consumption, but looking more at met demand, rather than unmet demand, when you segment, your buyers, by frequency the light, the medium, the heavy over the past few years, the proportions hasn't really changed and I understand that as new buyers come in with household growth. That naturally keeps that light by our portion in the heavier end. But I'm curious how you think about your ability to actively migrate a larger share of buyers up that frequency curve from you know 1 unit a year to more regular purchases are there are there non-economic factors or levers that you can address to accelerate conversion other certain geographies or demos that are under penetrated. That could be naturally heavier buyers right out of the gate or is it more? So just, you know, sort of waiting for the market to develop on its own.
Yeah, you know, it's it's interesting. I, I actually view that that statistic, the fact that the proportion of light medium heavy extra heavy over time has remained consistent, remarkably consistent, even as we have grown uh the number of households as as a real positive. I think that there's a very uh natural and
Holds, uh, over time is the highest and best use of our, of our commercial dollars. And, uh, and and we haven't, uh, come close to hitting the point at which, uh, we need to focus to shift. Focus from new households to Simply improving the profitability or, or Buy rate of the existing ones.
Thank you.
Thank you.
Your next question comes from the line of sarin vorro with Tulsa group. Your line is open.
Great. Uh, congrats on a great quarter and guidance. Uh, my question is on Seymour, Indiana. You know, you are accelerating the production line setup 2 lines, 900 million Revenue. Um, you know, back of the envelope math suggests, you need another 500 Farms roughly, uh, to support this, uh, lineup of 900 million dollars. I'm so curious to know, like, you know, how is the core of the family farm ramp? You expect over the next 2 years? Is this like a, you know, 26 and 27 could be a massive ramp of like, you know, roughly 500 Farms or it could be a little longer, uh, curve or, you know, over the farms. And then the production line, just curious to know how you're thinking of, you know, see more Indiana curve.
Thank you.
Yeah, appreciate that. Good morning. So I do think that that uh previewing the curve of new Farm ramp UPS is in some, in some senses, a preview of uh of longer term, uh, guide. And so, we're not quite prepared to do that. What I would say is that our current plans are are to continue our current pace of adding new Family Farms, um, and as, as we continue, uh, through this year and perhaps in the next year, uh, we may be in a better position to update further out goals for the brand, and for the company.
Great. Thank you.
I will turn the call back over to John Mills for closing remarks.
Great. Thank you. Thank you.
Participating on the vital Farm second for a call today. Um, we have a number of investor events that we will be attending in the next few months and look forward to seeing hopefully each you there.
Also, we look forward to updating you on our business progress during our third quarter call, which will take place in November. Thanks, everyone, and have a great day.
Ladies and gentlemen, that concludes today's call, thank you all for joining. You may now disconnect