The Simply Good Foods pany(SMPL) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported Q4 net sales of $375.7 million, a 17.2% increase year-over-year, driven by the OWYN acquisition and the additional week in the fiscal calendar [21][22] - Full-year net sales reached$ 1.33 billion, up 7.1% from the previous year, with OWYN contributing 2.4 percentage points to this growth [22] - Adjusted EBITDA for Q4 was $77.5 million, a 15% increase compared to the same period last year [6][23] - Gross margin improved to 38.8%, a 120 basis point increase year-over-year, despite a non-cash inventory purchase accounting step-up adjustment related to the OWYN acquisition [23][25] Business Line Data and Key Metrics Changes - North America Quest net sales increased about 5%, while Atkins sales declined about 5% on a like-for-like basis [6] - OWYN's retail takeaway in measured channels was strong, with significant growth across all major retail customers, making it the third largest sports nutrition multi-pack brand in the U.S. [17][18] - Quest snacks and bars retail takeaway in combined channels increased about 17%, with salty snacks showing a standout growth of 34% [10][12] Market Data and Key Metrics Changes - The nutritional snacking category grew by 7.3% in measured channels, driven primarily by volume [9] - OWYN's growth was attributed to increased distribution and velocity, with expectations of 20% to 30% growth in fiscal 2025 [18] - The e-commerce business continued to perform well, contributing nearly 2 percentage points to total retail takeaway [9] Company Strategy and Development Direction - The company aims to focus on innovation, marketing, and increased physical availability to drive trial and household penetration in fiscal 2025 [7][19] - The integration of OWYN is progressing as planned, with expectations of significant shareholder value creation through revenue growth and cost synergies [8][18] - The company plans to optimize ROI on Atkins brand investments, which may lead to a decline in sales growth in fiscal 2025 [29] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the nutritional snacking category's growth trajectory, driven by health and wellness trends [7][19] - The company anticipates input cost inflation to impact gross margins in fiscal 2025, projecting a contraction of about 200 basis points [25][30] - Management expects fiscal 2025 net sales growth in the range of 8.5% to 10.5%, with adjusted EBITDA growth slightly greater than net sales [30][31] Other Important Information - The company repaid$ 135 million of its term loan in fiscal 2024, resulting in a net debt to adjusted EBITDA ratio of 1x [28] - Capital expenditures for fiscal 2025 are expected to be in the range of $10 million to$ 15 million [28] Q&A Session Summary Question: Insights on recent innovation performance - Management noted that the Bake Shop platform is performing well, with early distribution feedback being encouraging [32][33] Question: Competitive landscape for the upcoming New Year - Management is optimistic about their merchandising plans and believes they are well-positioned despite competitive pressures [37][38] Question: Growth outlook for legacy business - Management indicated that underlying growth for the legacy business is expected to be around 3% for fiscal 2025, with various moving parts affecting performance [39][43] Question: OWYN's growth assumptions - Management explained that OWYN's growth expectations are conservative due to the need to fill distribution voids and the impact of previous significant growth [45][47] Question: Marketing effectiveness and spending levels - Management highlighted the success of the "it's basically cheating" campaign for Quest and indicated a 20% increase in advertising spend for fiscal 2025 [50][53] Question: Expectations for Atkins brand performance - Management acknowledged that negative sales growth for Atkins is anticipated until fiscal 2026, due to strategic investment decisions [55][57] Question: Quest Bars competition and revenue expectations - Management recognized increased competition in the Quest Bars segment but remains focused on innovation and pricing strategies to maintain market leadership [61][63]