Simply Good Foods Co. (SMPL) reported its financial results for the first quarter of fiscal 2025 on January 8, 2025. The company surpassed earnings per share (EPS) expectations but fell short on revenue forecasts. EPS came in at $0.49, beating the forecast of $0.4646, while revenue was $341.3 million, slightly below the anticipated $346.86 million. Despite the EPS beat, the stock fell 2.54% in pre-market trading, closing at $36.76, possibly due to concerns about revenue growth.
Key Takeaways
- Simply Good Foods exceeded EPS expectations but missed revenue forecasts.
- Stock price declined by 2.54% in pre-market trading.
- The company showed strong growth in its Quest and Owen product lines.
Company Performance
Simply Good Foods demonstrated robust performance in Q1 2025, with net sales increasing by 10.6% year-over-year to $341.3 million. The company's gross profit rose by $15.4 million, reflecting a gross margin improvement of 90 basis points to 38.2%. The growth in the nutritional snacking category and strong consumer demand for high-protein, low-sugar products contributed to this performance.
Financial Highlights
- Revenue: $341.3 million, up 10.6% YoY
- Earnings per share: $0.49, up from $0.43 YoY
- Gross profit: $130.5 million, up $15.4 million
- Adjusted EBITDA: $70.1 million, up $8.1 million
- Cash on hand: $121.8 million
Earnings vs. Forecast
Simply Good Foods reported EPS of $0.49, exceeding the forecast of $0.4646 by 5.47%. However, revenue was $341.3 million, falling short of the $346.86 million forecast by about 1.6%. This mixed performance reflects the company's ability to manage costs effectively while facing challenges in meeting revenue expectations.
Market Reaction
The stock's 2.54% decline in pre-market trading suggests investor concerns, likely driven by the revenue miss despite the positive EPS surprise. The stock remains within its 52-week range, indicating no significant volatility but reflecting cautious investor sentiment.
Outlook & Guidance
For fiscal 2025, Simply Good Foods expects net sales to grow by 8.5% to 10.5%, with Owen contributing $135-$145 million. The company anticipates adjusted EBITDA growth of 4% to 6% and continued expansion in its Quest product line. However, Atkins is expected to decline in the high single digits.
Executive Commentary
CEO Jeff Tanner highlighted the mainstreaming demand for nutritional products, stating, "We continue to see a mainstreaming of demand for nutritional food and beverage products." He emphasized Owen's strong performance in the plant-based market and the strategic repositioning of Atkins as a weight wellness brand.
Q&A
During the earnings call, analysts inquired about the impact of GLP-1 drug trends on the nutrition market and the pricing strategy for Ready-to-Drink shakes. The company also addressed questions regarding Owen's market positioning and Atkins brand optimization strategies.
Risks and Challenges
- Revenue growth concerns due to the recent miss.
- Potential market saturation in the nutritional snacking category.
- Economic pressures affecting consumer spending.
- Supply chain disruptions impacting product availability.
- Competition from other nutritional brands in key segments.
Full transcript - Simply Good Foods Co (SMPL) Q1 2025:
Conference Operator: As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr.
Mark Pergarian, Vice President of Investor Relations for Simply Good Foods Company. Thank you, sir. You may begin.
Jeff Tanner, President and CEO, Simply Good Foods Company: Thank you, operator. Good morning.
Mark Pergarian, Vice President of Investor Relations, Simply Good Foods Company: I'm pleased to welcome you to Simply Good Foods Company Q1 fiscal year 2025 earnings call. Jeff Tanner, President and CEO and Sean Mara, CFO will provide you with an overview of results, which will then be followed by a Q and A session. The company issued its earnings release this morning at approximately 7 a. M. Eastern Time.
A copy of the release and accompanying presentation are available under the Investors section of the company's website at www.simplygoodfoodscompany.com. This call is being webcast and an archive of today's remarks will also be available. During the course of today's call, management will make forward looking statements that are subject to various risks and uncertainties that may cause actual results to differ materially. The company undertakes no obligation to update these statements based on subsequent events. A detailed listing of such risks and uncertainties can be found in today's press release and the company's SEC filings.
Note that on today's call, we will refer to certain non GAAP financial measures that we believe will provide useful information for investors. Due to the company's asset light strong cash flow business model, we evaluate our performance on an adjusted basis as it relates to EBITDA and diluted EPS. Please refer to today's press release for a reconciliation of the historical non GAAP financial measures to the most comparable measures prepared in accordance with GAAP. The acquisition of Only What You Need, or Owen, was completed on June 13, 2024. Therefore, the company's year ago performance for the 13 weeks ended November 25, 2023, does not include results from the Owen business.
The reference to organic or legacy Simply Good Foods refers to Simply Good Foods business excluding Olin (NYSE:OLN). I'll now turn the call over to Jeff Tanner, President and CEO.
Jeff Tanner, President and CEO, Simply Good Foods Company: Thank you, Mark. Good morning and thank you for joining us. Today, I will recap Complete Good Food's financial results and the performance of our brand. Then Sean will discuss our financial results in more detail before we wrap it up with a discussion of our fiscal year 2025 outlook and your question. We're pleased with our fiscal Q1 retail takeaway of about 8%.
Quest growth was strong despite some chip stock outs early in the quarter and Owen momentum continued. This was partially offset by expected Atkins declines, although Atkins performance was slightly better than our estimate. Net sales increased 10.6%, driven by the Owen acquisition. Legacy net sales were affected by the timing of shipment. As Sean will discuss shortly, we anticipate that legacy shipments and consumption should be more in line by the end of Q2.
1st quarter gross margin was 38.2% and greater than our forecast. The gross profit growth as well as the inclusion of Owen resulted in adjusted EBITDA growth of 13.1%. Sean will provide you with more details related to our financial performance in a bit. Nutritional snacking category momentum continued in the quarter with growth of about 12% that was largely driven by volume. All major sub segments of the category, bars, shakes and chips, increased in Q1.
The growth of the category shows the increasing relevance and mainstreaming of nutritional snacking products as consumers seek high protein, low sugar, low carb food and beverage options. With 3 uniquely positioned brands aligned against these consumer megatrends and world class innovation and sales capabilities, we believe Simply Good Foods is well positioned to drive sustained growth and increased shareholder value. We're excited about the prospects for the category in our business and we are on track to deliver on our objectives. As a result, we reaffirm the fiscal year 2025 outlook discussed last quarter. Moreover, assuming a comparable full year of Owen results are included in fiscal 2024, as well as the exclusion of the 53rd week in fiscal 2024, fiscal year 2025 is expected to be in line with the company's long term algorithm, specifically net sales growth in the 4% to 6% range and adjusted EBITDA growth slightly greater than the net sales increase.
Let me now turn to Quest. The increased relevance and mainstreaming of consumers seeking high protein, low sugar, low carb foods is a driver of Quest's growth. The brand is one of the pioneers of the mainstreaming of this category and has a broad range of products with this nutritional profile. Quest Salty Snacks is a great example as we essentially created a $300,000,000 retail sales business in a short amount of time since the acquisition. Given the size of the total salty snacks addressable market, we believe we are still in the early innings of growth for this platform.
In addition to our portfolio today, our world class R and D team has an impressive pipeline of new products that represent a sustained source of growth for years to come. Unlike many large cat food companies, our outsourced co manufacturing business model provides us with the flexibility to quickly follow the consumer and an efficient way to create new avenues for growth, rather than be constrained by what a specific company owned asset can produce. In Q1, Quest retail takeaway growth was 10% and was solid across all major channels and customers. While early, we're pleased with our recent innovation that is performing in line with our estimate. This includes new products such as strawberry frosted cookies and bakeshop muffins and brownies.
In Q1, Quest total unmeasured channel retail takeaway increased mid teens, driven by strong e commerce stores of about 18%. E commerce strength was partially offset by softness in specialty channels. Quest Snacks and Bars retail takeaway in the combined measured and unmeasured channels increased about 19% and 1% respectively. We continue to be pleased with our salty snacks POS performance where Q1 growth was 26%. However, as we noted on the last call, coming into the quarter, we were supply constrained and we're starting up a second production line.
As we exited Q1 with the 2nd line up and running, we are no longer capacity constrained. And as we enter the New Year New Year season, retail inventory is back at optimal level. As evidenced, retail takeaway for Quest Chips in November December was about 35%, the strongest growth rates we've achieved since June. We now have the capability to fully support merchandising and programming as well as increased distribution. Quest bar growth of about 1% was relatively in line with expectations.
The brand responded well to targeted marketplace investments in the C store channel, the retail takeaway improved to nearly 4%. Despite this, our bar growth is not what we expect from the leading protein bar brand, which is why we are accelerating an exciting new overload bar platform. Over the remainder of the year, we expect Quest momentum will continue and anticipate fiscal year 2025 retail takeaway growth of 9% to 10%. Key drivers of growth include continued chips momentum and a calendar Q1 nationwide trial at a large new club customer will assess results upon completion of the test that could potentially lead to an expanded presence. Performance of our new bake shop item that is proving to be highly incremental to both the brand and the category.
The February launch of the Quest overload bar platform. These bars are loaded with inclusion and have a unique texture and mouth feel that will bring variety and excitement to the bar segment. And finally, a full year of the successful It's Basically Cheating advertising campaign. GRPs will increase meaningfully in fiscal 2025, particularly in Q2, supporting the New Year, New You season and should drive greater brand awareness and trial. Recall, the campaign debuted in mid March of 2024 and helped drive an almost immediate lift in consumption.
Turning to Atkins. Q1 Retail Takeaway was off 4%. This was slightly better than planned and sequentially improved from the Q4 decline of 5%. Better than expected performance was driven by ready to drink shakes, but retail takeaway increased about 5%, with growth in both measured and unmeasured channels. We're particularly pleased that total brand retail takeaway increased at Atkins' 2 largest customers, which when combined represents about 50% of total brands retail dollar sales.
Specifically, e commerce PLS increased 12%, driven by growth of all 3 major forms, bars, shakes and confection. Additionally, retail takeaway at Atkins' largest customer increased about 2%, driven by shakes growth of 13%. We remain focused on executing the Atkins revitalization plan and continue to be optimistic about the long term future for the brand, especially given the renewed cultural conversation and relevance of weight wellness, driven in part by the new weight loss drug. The new Atkins items we launched in the fall are performing well and importantly are significantly outperforming the items they replaced. The top performing items are the 30 gram Atkins Strong Protein Shake and Atkins Indulge Gummies and Truffle.
We know innovation is critical for the brand and I'm pleased with the multi year pipeline we now have in place. The new advertising campaign, Atkins Way, has been in market since September and more strongly positioned Atkins as a weight wellness brand. The top performing spot specifically references the new GLP-one drug and positions Atkins as a sustainable and diet free way for GLP-one consumers and by extension anyone who has lost weight to hold on to their weight loss gain. These ads scored exceptionally well and while early, we believe they are contributing to the improved results we've seen this quarter. Other elements of the revitalization plan, including new packaging, bar reformulation and enhanced category management capabilities are tracking to plan.
However, despite the recent progress, we continue to anticipate Atkin's fiscal year 2025 retail takeaway to decline high single digit. Recall, we are proactively eliminating low ROI investments, including trade and marketing programs that don't meet specific ROI hurdles. The effect of these decisions will disproportionately affect Retail Takeaways over the balance of the fiscal year, particularly in calendar Q1, where POS could be down low double digit. Additionally, during the New Year New Year season, we will not repeat a large volume driving promotion at Atkins' largest customer. These are difficult decisions, but necessary to ensure Atkins is a long term sustainable business.
Also as mentioned last quarter, in the space constrained club channel, we lost distribution in October and as expected, we will see some further losses in this channel in the spring. However, we are having very productive discussions with this customer to repurpose and optimize the space with other Simply Good Food brands and forms. More to come here in the second half of the year. In summary, we continue to believe in the long term vitality of Atkin, and I'm pleased with the progress we are making to revitalize and position the brand for a new era of weight wellness. We believe the actions we are taking should improve the trajectory of the brand as we exit fiscal Q4 and enter fiscal 'twenty six, all in support of building a healthy, profitable and sustainable long term business.
However, as we have previously stated, it will take time to get there. Turning to Owen. Retail takeaway of 67% in the combined measured and unmeasured channels was driven by both distribution and velocity increases. In the measured channel universe, Owen is the 3rd largest sports nutrition multi pack brand in the U. S.
And growing the fastest in dollar sales. Our measured channel growth was a solid 39%. We continue to be excited about the acquisition and the runway for sustained profitable growth. Owen is the leading plant based ready to drink protein shake in the market. The brand continues to outpace growth of both the plant and dairy based protein shake segment because of its superior taste profile that also appeals to mainstream consumers.
Conversations with retailers are universally and unanimously positive and we expect both near term and long term distribution growth, not just of the existing lines, but also new flavors and pack sizes. Looking a little further out, I'm excited by what I'm already seeing from our joint R and D team in terms of where we can further extend the brand. We continue to have confidence we'll double net sales in 3 to 4 years. The integration is progressing as planned. As a reminder, to align with our fiscal year end 2025, we will achieve the majority of the synergy, about 80% at the onset or 1st day of fiscal 2026.
This should result in Owen fiscal 2026 adjusted EBITDA margin in the mid to high teens. To summarize, Simply Good Foods is uniquely positioned as a $1,400,000,000 net sales leader in the nutritional snacking category with a diversified portfolio across brands and product forms. We're pleased with our Q1 results and retail takeaway on all three brands. Additionally, while early, Q2 is tracking to our expectation. Although as we discussed, the proactive reduction of Atkins' low ROI investment and lost club distribution will pressure brand performance.
However, as I stated earlier, we believe our category and our brands represent the future of food and beverage given the increased relevance and mainstreaming of consumers seeking high protein, low sugar, low carb foods and beverages. We have 3 brands that are aligned with this consumer megatrend and world class innovation and sales capabilities that we believe position us well to drive sustained growth and increased shareholder value. Now, I'll turn the call over to Sean, who will provide you with some greater financial detail.
Sean Mara, CFO, Simply Good Foods Company: Thank you, Jeff. Good morning, everyone. I will begin with an overview of our net sales. Total (EPA:TTEF) Simply Good Foods' 1st quarter net sales of $341,300,000 increased 10.6% versus last year, primarily driven by the Owen acquisition. We're very pleased with Owen's performance and given the strong POS growth, Owens net sales increase was slightly greater than our plan.
Legacy Q1 net sales of $309,000,000 was about the same as the year ago period. Atkins was in line with our estimates and Quest was less than planned due to the timing of shipments that occurred subsequent to the end of Q1. We estimate the timing of shipments that slipped into the Q2 was about a 3 percentage point miss and non price display and promotion capture between gross and net sales was a 1 percentage point headwind to growth. Importantly, demand for our products is strong as evidenced by the Q1 legacy U. S.
Retail takeaway increase of about 4 percent. As we have said in the past, quarterly net sales in POS may not align due to timing of shipments, but we are confident that it should be more in line by the end of Q2 and somewhat similar by year end. Moving on to other P and L items for the quarter. Gross profit was $130,500,000 an increase of $15,400,000 from the year ago period, driven by lower than anticipated legacy business ingredient and packaging costs as well as the inclusion of Owen. This was partially offset by a non cash $1,000,000 inventory purchase accounting step up adjustment related to the Owen acquisition.
As a result, gross margin was 38.2%, a 90 basis point increase versus last year. The non cash inventory purchase accounting step up adversely affected gross margin by 30 basis points. Adjusted EBITDA was $70,100,000 an increase of $8,100,000 from the year ago period. Selling and marketing expenses increased $1,000,000 to $33,000,000 primarily due to the inclusion of Owen. GAAP G and A expenses were $38,100,000 an increase of $11,100,000 versus last year.
The increase was primarily due to higher legacy employee related costs and corporate expenses, the inclusion of Owen as well as business combination and integration expenses. Excluding stock based compensation, as well as business combination and integration costs, Q1 G and A increased $6,800,000 to $29,500,000 Net interest income and interest expense was $7,100,000 an increase of $2,100,000 versus Q1 of fiscal 2024. The increase versus the year ago period is primarily driven by a higher debt balance due to the Owen acquisition. Our Q1 effective tax rate was about 20%, lower than the year ago period due to equity compensation. We continue to anticipate the fiscal year 2025 tax rate to be around 25%.
As a result, net income was $38,100,000 versus $35,600,000 last year. The next slide provides you with a reconciliation of reported and adjusted diluted EPS. First quarter reported EPS was $0.38 per share diluted compared to $0.35 per share diluted in 2024. Adjusted diluted EPS was $0.49 compared to $0.43 in the year ago period. Note that we calculated adjusted diluted EPS as adjusted EBITDA, less interest income, interest expense and income taxes.
Please refer to today's press release for an explanation and reconciliation of non GAAP financial measures. Moving to the balance sheet and cash flow. As of November 30, 2024, the company had cash of $121,800,000 Cash flow from operations in Q1 was about $32,000,000 compared to $47,500,000 last year. The decline was primarily due to higher net working capital, principally inventory, including Olin. During the quarter, the company repaid $50,000,000 of its term loan debt.
And at the end of the Q1, the outstanding principal balance was $350,000,000 Capital expenditures in Q1 were $300,000 Despite this, in fiscal year 2025, we continue to expect CapEx to be in a $10,000,000 to $15,000,000 range. In fiscal year 2025, we anticipate net interest expense to be about around $23,000,000 to $25,000,000 including noncash amortization expense related to the deferred financing fees. Now to wrap up with our outlook. Due to solid retail takeaway, visibility in the 2nd quarter orders and strong adjusted EBITDA growth to start the year, we reaffirm our fiscal year 2025 outlook. We expect organic sales growth to be driven primarily by volume and have strong advertising and marketing plans in place as well as innovation, merchandising and promotions that should enable us to achieve our objectives.
As discussed last quarter, the company expects input cost inflation in fiscal year 2025, with headwinds increasing beginning in the Q2. There is no material change to the company's fiscal year 2025 gross margin outlook, with productivity and cost savings initiatives expected to partially offset these higher costs. Therefore, in fiscal year 2025, Oil Company reported net sales are expected to increase 8.5% to 10.5%. Embedded in that, we anticipate all in fiscal year 2025 net sales to be in the $135,000,000 to $145,000,000 range. And total company adjusted EBITDA is expected to increase 4% to 6%.
Note that the 53rd week in fiscal year 2024 is about a 2 percentage point headwind to both net sales and adjusted EBITDA growth in fiscal year 2025. Before we move to Q and A, I want to take a moment and highlight this will be Mark Pugarian's last conference call as Head of Investor Relations at Simply Good Foods, as he will be retiring later this spring. I've worked with Mark for many years. I want to thank him for his leadership across a number of functions, in particular, leading us through our de SPAC process, multiple M and A transactions and building a strong IR practice here at Simply Good Foods. On behalf of the management team and Board of Directors, we commend Mark on a great career and wish him well.
As we move forward, I am proud to announce that Josh Levine joined the company last month with a plan for him to succeed Mark beginning in February. Many of you know Josh from his prior roles on the sell and buy side as well as his time at Solos Brands. Josh is a seasoned and experienced professional, and given the overlap with Mark, we know it will be a seamless transition. We
Conference Operator: you. Our first question comes from the line of Tom Palmer with Citi. Please proceed with your question.
Tom Palmer, Analyst, Citi: Good morning. Thanks for the questions and congratulations both Mark and Josh. I hope to just fine tune expectations, I guess, on the gross margin side. I think you previously discussed around 200 basis points of gross margin compression in each of the next three quarters. Is this still the outlook or might there be a bit more nuance to consider from quarter to quarter at this point?
Sean Mara, CFO, Simply Good Foods Company: Yes. I mean, let's take a step back on Q1, first of all. So the headline for Q1 is margin came in better than we thought. That's largely due to more favorable commodities than we had forecasted. The main reason here is the fact that our co mans had slightly higher levels of lower priced raw materials on hand than we expected.
It took a little longer for the higher cost raw material inventory to flow through the P and L. Our guidance for the full year holds around down 200. Q1 favorability helping to offset greater than expected inflation we're seeing in Cocoa and Whey that will happen towards the end of the year. As it relates to Q2, we expect gross margin decline to be close to about 300 basis points versus last year. As the flow through of the higher commodity costs we thought about in Q1 will hit us in Q2, in addition to the impact of O1, which is about a third of the decline.
You didn't ask the question, but overall from a coverage standpoint, we're covered through fiscal Q3, little longer with the flow through to the P and L. Want to be cautious here as we consider the inflationary levels of some of the input costs, particularly Coco and Way. All that said, we're in a much better sense of where we are for margin for the year in the April conference call at that point in time while commodity is largely locked up for the year. Does that answer your question or not?
Tom Palmer, Analyst, Citi: That answered it and more. So thank you for that. 2nd, you noted the collaborative discussions with a flood channel customer just related to kind of offsetting the distribution losses for Atkins and repurposing that. Just I know it's still early, but any details on kind of what products are really being focused on here and when that placement might take hold?
Jeff Tanner, President and CEO, Simply Good Foods Company: It's a little early. We're probably midway through those conversations. They have been very productive. They're big fans of both Quest and Owen, and both brands have opportunity there. Hopeful by April, we'll be able to share more details on where we see opportunity across both of those businesses.
Tom Palmer, Analyst, Citi: Great. Thank you.
Conference Operator: Our next question comes from the line of Matt Smith with Stifel.
Matt Smith, Analyst, Stifel: Jeff, just to start at a high level, the overall category growth remains a standout in the store with volume growth accelerating on a sequential basis. As you look at the category and the sub segments that drove the sequential improvement, has your expectation for the category growth changed over the remainder of fiscal 2025?
Jeff Tanner, President and CEO, Simply Good Foods Company: Not materially, Matt. We continue to be excited about the levels of growth we are seeing, which is high single digit and on average. And as you noted, it is materially greater than rest of food and beverage. The reason that nutritional snacking is a standout is that we continue to see a mainstreaming of demand for nutritional food and beverage products. The products that historically perhaps would have been more specialty or targeted towards athletes or gym goers are now mainstreaming as consumers seek higher protein, low sugar, low carb.
And this trend is accelerating. It's backed by science. It's amplified on social media. One of the drivers of the growth underlying that is that we continue to bring new products to market that are more mainstream. Products like chips, where we've built a $300,000,000 business.
We're very pleased with the early read on our Bakeshop platform. We've got a crackers business that we're going to be able to accelerate as we will get additional supply. And as we bring more mainstream products to the market, what we're seeing is those products are bringing in more and more consumers. And they're more they're highly incremental to the category. So I think this represents what we're seeing as a long term trend.
And very simply, it's consumers seeking high protein versus high carbs and seeking low sugar and products where we will continue to be the leader in offering them more choices. And I will say that that trend is also obviously noticed very much by retailers who are working with us very proactively on how we can expand the presence of those products in the store.
Matt Smith, Analyst, Stifel: Thank you for that, Jeff. And Sean, as a follow-up to the comments on the shipment timing, there were 3 points of timing impact in the Q1. Can you clarify if that was entirely for the Quest brand? And is the comment that shipments and takeaway are more aligned in 2Q implies that that headwind reverses in the second quarter so that fiscal year to date consumption and shipments are aligned or that shipments and consumption align going forward without that reversal?
Sean Mara, CFO, Simply Good Foods Company: Okay. Fair question. I know it's a little complicated. So let me just start with the quarter. To answer your specific question about Quest, it's probably about 2 thirds of the 3 points if you want to call it that.
So the driver here is really timing of shipments to a single customer for Quest at the end of the quarter, where we think the focus for that customer was on Black Friday and separate money, less so on the food side. The balance of the changes is basically gross and net adjustments. If I just take a step back and look at consumption overall, consumption continues to be solid. We're essentially on plan through the Q1, up 4% on a combined legacy basis. Quest is up around 10%, snacking and as Jeff said, in particular, chips continuing to grow nicely and even bars up again.
At the same time, Atkins came in a little better than we were thinking, helped by performance in the 2 key customers, as Jeff mentioned, with innovation and performance in RTDs encouraging for us. As we look to Q2, we expect shipments and consumption to be much more in line with each other. If you look at it by brand, we continue to expect Quest consumption to be high single digit, low double digits, shipments largely in line with consumption through the first half. Atkins could show high single digit declines in Q2, driven by a number of items we previously talked about, reducing the low ROI trade events. Additionally, in Q2, we anticipate shipments will trail consumption due to expected club distribution losses.
So for the first half, we'll be largely in line with consumption overall. For the full year, we expect consumption and shipments to be largely in line by the end of the year. Does that help you or Matt?
Matt Smith, Analyst, Stifel: Yes. Thank you for that. I'll leave it there and pass it on.
Conference Operator: Thank you. Our next question comes from the line of John Baumgartner with Mizuho (NYSE:MFG) Securities. Please proceed with your question.
John Baumgartner, Analyst, Mizuho Securities: Good morning. Thanks for the question. Good morning. And Mark, all the best. Many thanks for your assistance over the years.
Really appreciate it. Maybe first question, I wanted to come back to the innovation that was launched at the end of the summer, both for Atkins Snacks and the Quest Bakeshop. The run rate contributions are accretive by over about 2 points to sales in Nielsen. And I know it's still early, but can you comment at all, Jeff, on what you're seeing, how incremental are these products? Do you have a sense for the return of lapsed users to the brand?
Is it mostly new first time consumers? Just any high level thoughts there would be appreciated.
Jeff Tanner, President and CEO, Simply Good Foods Company: Let me start with Atkins. We are very pleased with how the new items are performing. Recall, we launched around about 17 new items in the fall that essentially replaced items, items on shelf. Those new items are outperforming the items they replaced by about 2 to 1. And as you look at the sequential improvement we've been seeing in Atkins, that's a key driver of that improvement.
And to drill down one more level, the top performing new items are the Atkins strong 30 gram shake, which is highly incremental for the Atkins brand and actually proven to be relatively incremental to the category. And then you have gummies and truffles also performing very well. Gummies in particular is proving out to be highly incremental. Turning to Quest. As I referenced, I think it was Matt's question.
The Bakeshop platform is meeting our expectations. It's proven to be 50% incremental to Quest and 30% incremental to the category. And this comes back to the view that we have around how this category is mainstreaming that when we bring more products that are beyond just size and shapes, We're reaching new consumers. They're coming to the category. And what we're seeing early is that those consumers then that becomes a gateway into other products across the business.
And certainly that's what we saw on Quest Chips. So Quest Chips, which is now $300,000,000 business has become a gateway into the rest of the portfolio on Quest. So it's an astute question because the Judge innovation, you want to look at how well is it performing in total, but importantly, how incremental is it? How incremental is it to the brand and how incremental is it to the category? And on both of those measures, I'm very pleased on both Quest and Atkins.
John Baumgartner, Analyst, Mizuho Securities: Okay. Thanks for that. And then on Owen, Q1 sales, I think, were better than expected. You reiterated the guide for the full year. In terms of the sales drivers, looking at the Nielsen data, it looks as though the multi packs are becoming a larger share of sales.
You've got some new flavors seeing a strong contribution. And then distribution also is building, it looks like, in the drug channel as well. Are there any components over the next 9 to 12 months are tracking more broadly better than expected or areas where you see potential risks at this point, whether it's supply chain, shelf resets, just your thoughts there in terms of the balance of upside versus downside?
Jeff Tanner, President and CEO, Simply Good Foods Company: Yes, we continue to be really pleased with how Olin is performing, very pleased with the acquisition. It's consumption nearly 70% in Q1. And notably, you're seeing growth in both distribution and velocity. You don't normally see those 2 trend in the same direction that we are with Owen. As you know, the growth is coming from the core.
And multi pack in particular has been a gap on the business that we have been working against and we continue to drive additional doors on the business. In recent customer meetings, they're very positive and we have strong support for expanded distribution gains across 2025. I would also highlight powders. It's a smaller part of the business right now, but it is growing and is proving to be highly incremental. If you think about Owen, the average number of SKUs at retail is about 6, okay?
So there is significant headroom for multi packs, LTOs, limited time offerings and just expanding the number of doors. And then household penetration obviously is low, awareness is low. So that's why we're confident that we'll be able to deliver on our commitment for this business to double sales in the next 3 to 4 years. Thanks, Jeff. Thanks, Ron.
Thank you. Thanks, Jeff.
Conference Operator: Thank you. Our next question comes from the line of Steve Powers with Deutsche Bank (ETR:DBKGn). Please proceed with your question.
Steve Powers, Analyst, Deutsche Bank: Hey, great. Good morning, everybody. Good morning. Jeff, I wanted to drill into some of your comments on Atkins, if I could. So I 100% appreciate the incremental headwinds that will build January forward on the brand consistent with what you call that coming into the year.
But as you also highlighted, the consumption through December has been ahead of expectations and there are some consumer trends that you can, as you talked about, lean into a bit. So I'm just trying to take your temperature a little bit on whether you're feeling at all more optimistic on the trajectory of that brand and kind of maintaining the full year call down high school digits more out of prudence or if the January forward headwinds are really going to be as material a setback as implied?
Jeff Tanner, President and CEO, Simply Good Foods Company: Yes. No, Steve, it's a very fair question. Look, I remain confident in the long term trajectory of Atkins. And that's somewhat reinforced by the sequential improvement we have seen. And as we mentioned earlier, when you click underneath that, with better innovation that's outperforming the items that are replaced, the advertising is performing well.
You can see the impact it's having on the business. And I think that the proof of that is in 2 of our most important customers that represent over 50% of the business, we're growing. Now with that being said, and particularly as we look to Jan, Feb, March, there are some actions that we're taking that will have a short term disproportionate negative impact on consumption. And they are the right decisions for the business long term, but we did want to call them out because, for example, we're not repeating a large bonus pack program that was unprofitable, but certainly drove a lot of volume. We are reducing our footprint in sands.
Now we hope and expect to offset that through gains from Owen and Quest, but we'll certainly see the impact of that. And as we've noted before, we are pulling low ROI trade that has been subsidizing the base business. They're all the right decisions for the long term, but they will have a short term volume effect that we believe would be most pronounced January, February, March. But that notwithstanding, I am very pleased with what I'm seeing in the business. The demand for weight loss, weight wellness is still high.
60% of people looking to lose or maintain weight. As we've talked about in the past, the weight loss drugs have amplified the cultural conversation. We're part of that. I think it's a GLP, it can work very well with people on the GLP, whether you're on this or coming off the drug. I think the long term future for this business is strong.
But what we have to do is we've got some short term decisions that will have a short term volume impact. But I think as we look forward to particularly 'twenty six, I'd like to see this business, expect to see this business come back and be a lot more stable. Just another point, just
Sean Mara, CFO, Simply Good Foods Company: to build off of that, Steve, just we entered the year, I think we knew there were 3 timeframes from a calendar standpoint that would present some challenges to the business. One was the fall resets and how the innovation did in the last fall, New Year, New Year performance with less trade and the competitive activity and then fall 'twenty five resets and what the innovation is to help offset that. I think as we get through the Q1, we're happy that we performed better than planned in Q1. As Jeff said, innovation performed well and allowed us to secure distribution related to the fall resets. We're going to have a much better picture on New Year, New You in the next couple of months and we'll have fall 'twenty five resets sort of decided later this year.
So as we look past this year, as Jeff said, we expect velocities to stabilize and we shouldn't have further investments to remove, but we need to see where we are in New Year, New You and the fall resets before we get a feel for 426 and beyond performance overall. It's going to be bumpy, not linear as we go through this, but we do think we need to do the right things longer term for the business despite the short term pain. So I just think that's how we're looking at it internally as we think about it calendarization wise. I don't know if it
Jeff Tanner, President and CEO, Simply Good Foods Company: helps you or
Steve Powers, Analyst, Deutsche Bank: not, so that's just effective. Yes. No, that is very helpful. It actually kind of dovetails into my next question on it. But because I think, Jeff, you called out an expectation that you'd enter fiscal 'twenty six, right, with momentum kind of from the get go is the way I interpreted your commentary.
And I guess, if there's these incremental headwinds building in the back half of 'twenty five, they're going to carry over into 2026
Jeff Tanner, President and CEO, Simply Good Foods Company: and
Steve Powers, Analyst, Deutsche Bank: you're going to be lapping this better performance in the early part of 'twenty five. So the call for improved performance to kick off 'twenty six seems to put a lot of pressure on those fall resets that Sean just mentioned, if I'm thinking about it correctly or but maybe I'm not. So just want to clarify that.
Jeff Tanner, President and CEO, Simply Good Foods Company: Well, the fall resets are critical for us as they always are. And I'm really pleased with the innovation that we have in the pipeline that we'll do what we did this year, which is replace lower performing items with better performing items. If you think about fiscal 'twenty six, I wouldn't sit here and say we expect the brand to return to growth necessarily. But what we've done in 'twenty five is we've removed unsustainable investment And that's why we've got the high single digit decline in our footprint for 25 on Atkins. So as Sean noted, when we get to 26, we won't be repeating that.
To your point, we will be likely lapping sand, but that will be part of the lap in 'twenty six. But this is very specifically a profitable part of the business. So I don't know if that answers your question. Wouldn't sit here and say model growth on Atkins for 26%. But what I would what I do want to emphasize is we're using 25 to remove the unsustainable investment in the brand that crept in over the past few years and that is why 2025 will be a more challenging year for us.
Steve Powers, Analyst, Deutsche Bank: Yes. Okay. Very helpful discussion. Thank you.
Conference Operator: Thank you. Our next question comes from the line of Robert Moskow with TD Cowen. Please proceed with your question.
Robert Moskow, Analyst, TD Cowen: Hi, thanks for the question. And Mark, thanks for all the help over the years. I wanted to know, Jeff, if you could kind of focus in on Quest Bars. And I think you said yourself, it's a little bit weaker than you thought. Can you talk about the new product launch that you have planned and how it's differentiated from what I perceive as a pretty crowded and low entry low barriers to entry category?
If you look at all these small players, I think that it's very confusing to shop that area. And so my next question would be down the road, does your bars business still need to grow in order to hit your targets for Quest? Like could you foresee the growth of Quest coming from other segments of the portfolio rather than bars or does bars really need to grow in order to hit your numbers?
Jeff Tanner, President and CEO, Simply Good Foods Company: It's a good question. I'll answer it directly and then come back. For us to hit our forecast, long range forecast on Quest, we need buzz low single digit. The majority of growth in Quest is going to come from ships where we still we think we're still in the early innings even with $300,000,000 in retail sales. That platform is still growing 30% and now with double supply.
Bakeshop represents another big platform opportunity for us. And we have such an impressive pipeline that I'm excited to bring to market over the coming years that will prove to be very additive and incremental to the brand. Yes, Bags is a more mature segment. And so for us to hit our algorithm, low single all we need is low single digit growth on Bags. With that being said, I'm not satisfied with that.
And it's why over the last year, we have significantly ramped up our innovation and focus on bus. And this is a category that does respond to new news and excitement. And the new overload platform that we're bringing out in the spring, in my opinion, best tasting protein bar I've had in my life. It is shocked full of inclusions. It's absolutely delicious.
And I think it's going to bring needed news and excitement, not just to Quest, but to the category. But coming behind that, we now have multi years of exciting new bar innovation that will certainly bring new life into Quest, if not the category. We're turning on of a focus on advertising, on bars. So we're certainly not giving up on bars. All we need is low single digit, but I think we can do significantly better than that.
Robert Moskow, Analyst, TD Cowen: It's very helpful. A follow-up to that. When you talk about the pipeline broadly, are there is there a consistent is there a considerable effort to come up with new categories to extend into as well? Or is most of the innovation you have in the pipeline just to build out chips more, bakeshop more, etcetera?
Jeff Tanner, President and CEO, Simply Good Foods Company: Yes and yes. We must innovate on buzz as we talked about. We're in the very early innings on chips. Think about the size of the addressable market of salty. We're a tiny fraction of that market with a very small range of products.
So probably not a surprise that we have a very robust salty line of products to come out over the coming years. But with that being said, what Quest does is it flips the macros on unhealthy, high carb, high sugar categories like we've just done on Bakeshop. So you should assume that we're looking at large addressable categories when we can go in and flip those macros. And for me, this all added back to the mainstreaming of the demand for high protein, low sugar. And Quest had pioneered the product expansion under that trend and we will continue to do so and we'll continue to look at where we can continue to bring products that flip those macros.
So it's an and, it's yes and yes.
Conference Operator: Our next question comes from the line of Brian Holland with D. A. Davidson.
Tom Palmer, Analyst, Citi: Yes. Good morning, everyone. And Mark, congrats and thanks.
Jeff Tanner, President and CEO, Simply Good Foods Company: And Josh, look forward to working with you. Great to have you back.
Tom Palmer, Analyst, Citi: Maybe just as we step in here to New Year, New Year season, obviously, you've gone into great detail talking about some of the forces that play within your own portfolio and the drivers and things to be mindful of. Just wondering what your perspective is with respect to the category, so retail activity, competitive activity, consumer behavior. Last year, obviously, you were kind of set up and then were impacted by a competitor bringing product back on shelf. So just curious if you could compare, contrast the broader setup into New Year, New You in 2025 versus 2024?
Jeff Tanner, President and CEO, Simply Good Foods Company: Yes. So from what we can see, retailers are continuing to get behind New Year New Year in a bigger way year on year on year again it comes back to they're seeing the same trends that we're seeing, which is consumers seeking out these products. So at a total category level across the customer base, we're seeing increased support for the category, whether that's merchandising, displays, promotions, etcetera. Drilling down, we're very pleased with our own plans. As we've noted, Atkins has a couple of areas where we are pulling back.
But Quest, extremely pleased with the level of support we're getting. To drill down one level lower, ships in particular is a part of the business where we expect significantly increased support over the New Year, New Year period. Now with that being said, it's too early to see the level of competitive activity. As you noted last year, a major competitor came back and we were negatively impacted by that. I think we're more eyes wide open to the competitive landscape this year, but it will play out.
But the retailers, look, they're looking across the store. They're seeing the same growth we are. They're moving their assets to support that growth. And I think at a total company level, we will perform very well.
Tom Palmer, Analyst, Citi: Appreciate that. And then forgive me if this was addressed clearly and I just missed it. But with respect to input cost and directionally where they're moving, just views on if or when pricing action would need to be taken in response?
Sean Mara, CFO, Simply Good Foods Company: Well, we did do pricing actions as it relates to RTDs. We announced a mid single digit price increase in that will be effective in the spring. So we did do that. We continue to evaluate commodities and we really focus more on productivity at this point in time. And with productivity, we'll see some of that in this year and a full impact of that really in 'twenty six.
So we'll continue to evaluate pricing, but we have not announced anything beyond the mid single digit increase for RTDs.
Jeff Tanner, President and CEO, Simply Good Foods Company: Great. We'll leave it there. Thanks. Thank you.
Conference Operator: Thank you. Our next question comes from the line of Jim Celera with Stephens Inc. Please proceed with your question.
Tom Palmer, Analyst, Citi: Hey, guys. I wanted to drill a little bit on the RTD shake growth at Atkins. I think in general Atkins is better than expected, but that was a kind of particular bright spot. In those RTD shake consumers, are you seeing Atkins consumers that maybe have kind of gotten away from the brand reengaging? Or do you find that those are new consumers coming to the Atkins brand through that very popular RTD shake format?
Jeff Tanner, President and CEO, Simply Good Foods Company: It's both. We're seeing new users come into the brand more than we had forecast. We're also seeing buy rate increase. I think there's a couple of drivers of that. 1, it's early, but we think the new advertising is performing exceptionally well.
And then the other driver of that is we launched a 30 gram shake with Action (WA:ACT) Strong with fiber, which was positioned as a great companion for those on a GLP-one, but certainly not limited to that. And that has been an important driver of the growth we're seeing in shakes. And so if you look at the overall performance of shakes, that addition of the 30 grams, that's the thing we have right now is proving to be highly incremental for the Atkins shake business. And I
Tom Palmer, Analyst, Citi: know it's still early days, but is there an opportunity if you're bringing new consumers to the Atkins brand through the shake platform to convert them to some of the other innovations like the gummies or the truffles? Or do you find that they if you're a shake consumer, you're kind of siloed in that consumption format?
Jeff Tanner, President and CEO, Simply Good Foods Company: No, it's a great point. One of the strengths of Atkins is the breadth of the portfolio. And we do see that when they come in on a shake, they'll go with the ready to eat or vice versa. So there's a lot of switching within the portfolio. And it's too early to know if that's happening on Strong, for example.
But certainly that's consistent with how the brand has grown in the past, which is they'll come into the brand. They understand the brand promise to see different products and then they'll shop across those products. So that's what I would expect, but it's a little early to tell right now whether that's happening on Strong, for example.
Tom Palmer, Analyst, Citi: Great. I
Jeff Tanner, President and CEO, Simply Good Foods Company: appreciate the color. I'll hop back in a few.
Conference Operator: Thank you. Our next question comes from the line of John Anderson with William Blair. Please proceed with your question.
Tom Palmer, Analyst, Citi: Yes. Thanks for the question, operator. And Mark, Sharra to you on retirement and thanks for your help over the years. One question on Atkins and one on Owen. On Atkins, you've talked a lot about optimizing spend and eliminating low ROI spend.
Can you give us a little bit more context on what this means from how much the historical spend has been, what it might look like post optimization and the margin implications for the Atkins brand? And then on Owen, are you seeing or expecting any changes from a competitive standpoint in the category or the segment? And are those kind of baked into your kind of expectations through the balance of the year and into fiscal 'twenty six? Thank you.
Sean Mara, CFO, Simply Good Foods Company: I guess on the Atkins one, we don't really want to get into a lot of profitability by brand. For competitive reasons, we don't really look at that. I think what we're trying to do is use the spending that we have overall in the most efficient and effective way. We do see a lot of the spend that we are reducing for Atkins being reinvested in Quest and a little bit more in Owen. So I think overall, we're trying to get to a business that we think is a sustainable business longer term and as we think we can get to for Atkins by eliminating some of the investments and the returns on those and aligning those more with expectations.
So I don't really want to get more into the detail on that, if that's okay.
Jeff Tanner, President and CEO, Simply Good Foods Company: The only example I'll give you is trade, where over the years, and I think driven perhaps by not having sufficiently robust innovation pipeline, trade did creep into the business. And when we review every single trade event, what we found is that many of those events were very unprofitable. But perhaps even more importantly, we're subsidizing base business. And that looking at the business from that lens, it's the right decision to remove trade, but it's not that is unprofitable and it's generally just subsidizing the base. So just to give you one example.
And on marketing, our marketing spend had gotten out of line with even our own guidelines on marketing as a percentage of sales. What I would note is that the majority of the cuts in marketing were to non working. I would also note that through a new media partnership we have, we're able to offset the working impact, but there still is an impact as we bring that spend back into line. I think your question, I just want to clarify, was it on competitive response to O and was that the question?
Tom Palmer, Analyst, Citi: Yes. Yes. O and any changes to the competitive landscape and plant based segment?
Jeff Tanner, President and CEO, Simply Good Foods Company: No, we haven't seen any. Owen is the clear leader in plant based. And I think when we announced the deal, the data point that really convinced me to make this acquisition was that O. N. Just excels on taste.
It's the plant based offering that is now close enough to the dairy based alternative on taste. And that's why it is a clear leader in plant based and it's not easy to get there. But they figured it out. Actually we're working with them on getting an improved taste profile. But that taste profile is now close enough to dairy, which is why we're seeing the majority of new consumers come into that business from dairy.
So we're not hearing, we're not seeing plant based competitors of note to Owen. It has emerged as the clear plant based leader. What What I would say is, as we look at the future of the business, we want it in the rotation as part of the mainstream consumer. That's where we're going with this business.
Tom Palmer, Analyst, Citi: That's great. Thank you so much for the color.
Conference Operator: Our final question today comes from the line of Alexia Howard with Bernstein.
Jim Celera, Analyst, Stephens Inc.: Okay. So can I start with the GLP-one question? You mentioned your plans to tap into that GLP-one trend in your prepared remarks. Can you give us a little bit more color on what that what it is that you're doing and by when? Is it messaging and marketing?
Is it on pack labels? Is it dedicated new products? Just a little bit more color would be helpful. And then I have a follow-up.
Jeff Tanner, President and CEO, Simply Good Foods Company: Yes. So Alexia, I mean, it's obviously still early innings with the GLP-one drugs, but we do see this as a tailwind to our category. And the tailwind is both our products are a great companion when you're on the drugs. What we found even in our own research is that consumers when they're on the drugs are looking for protein to maintain muscle mass and fiber is very important because many of them have gut health issues. And then the equal opportunity, if not greater, is as an off ramp, which is they've achieved their weight loss goals.
They're looking to how they can sustainably hold on to the emotional and physical benefits of that weight loss, which is where Atkins in particular has an important role to play. So then your question is what are we doing? How are we tapping into that? On Atkins, our new advertising specifically references GLP-one users and specifically that positions Atkins as a sustainable offering to hold on to those gains. That ad was the best ad best scoring ad we've ever had on Atkins.
And while early, we believe that is part of the reason we're seeing sequential improvement in the consumption numbers right now. And as we as I mentioned just previously, we also launched a product Atkins Strong that is positioned as a perfect companion high protein, high fiber and that product continues to do very well. And then we obviously have supporting all of that we do have targeted advertising where we're positioning that product into digital to as a GLP-one companion. So our primary focus on tapping into GLP-one is Atkins, but what I would say is that Quest will also benefit just from that demand that consumers have for high protein and more healthy products. Lastly, we are working with customers at a category level to reinforce the importance of the category and it's how important it is to support consumers within their own drug GLP-one consumers and also Retailers get it.
It's a benefit to be located near the pharmacy section. We're working on some tie ins with some pharmacies with some retailers. So we see that as a significant tailwind. And we're pleased with the early response we're seeing to some of the tactics and initiatives we have in place.
Jim Celera, Analyst, Stephens Inc.: Perfect. Just to finish up here. First of all, Mark, thank you so much for your help over the years. And Josh, welcome. Do you have any data specifically on repeat rates for Owen and how those are trending over time?
I'll leave it there. Thank you so much.
Jeff Tanner, President and CEO, Simply Good Foods Company: Yes. So Owen repeats have actually improved significantly over the last 3 years. Again, this was another data point we looked at closely during diligence. And what's really interesting is you can tie the increase in repeat rates, which I think now are around 40 ish percent to the product improvements that made over time. And that was another data point that gave us confidence that this was the right acquisition of was that if you have a repeat rate with a 4 in front of it Alexia, you're in pretty good shape.
And Owen is there right now. And I think as we combine our 2 R and D organizations, we'll get even better.
Jim Celera, Analyst, Stephens Inc.: Wonderful. Thank you very much. I'll pass it on.
Conference Operator: Thank you. That concludes our question and answer session. I'll turn the floor back to management for any final comments.
Mark Pergarian, Vice President of Investor Relations, Simply Good Foods Company: Great. Thank you so much for joining us for today's call. Josh and I will be around to answer any follow-up questions you may call and we'll speak to you again during our fiscal Q2 conference call in early April. Thank you.
Conference Operator: Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.
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