The Simply Good Foods pany(SMPL) - 2026 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported net sales of $340.2 million for Q1 2026, which was essentially flat compared to the previous year [20] - Adjusted EBITDA was $55.6 million, down 20.6% year-over-year due to margin pressures [23] - Gross profit declined 15.8% to $109.9 million, primarily driven by elevated inflationary costs [21] - Net income was $25.3 million, a decline of 34% compared to the previous year [23] - Diluted earnings per share decreased to $0.26 from $0.38 in the year-ago period [23] Business Line Data and Key Metrics Changes - Quest brand net sales grew nearly 10%, driven by robust consumption growth of 12% [20] - Atkins consumption declined 19%, largely due to lost distribution at key retailers [13] - OWYN's consumption increased by 18%, benefiting from distribution-led growth [16] Market Data and Key Metrics Changes - The nutritional snacking category grew by 10%, with Quest and OWYN contributing significantly to this growth [5] - Household penetration for Quest reached nearly 20%, up 200 basis points year-over-year [9] - OWYN's household penetration increased to 4.5%, up 100 basis points [16] Company Strategy and Development Direction - The company is focused on driving top-line growth through expanded distribution and marketing initiatives [5] - A robust productivity program initiated 18 months ago is expected to yield results in the second half of the fiscal year [7] - The company plans to continue investing in marketing and innovation to support growth, particularly for Quest and OWYN [18] Management's Comments on Operating Environment and Future Outlook - Management reaffirmed confidence in the full-year outlook for net sales and Adjusted EBITDA despite challenges in the first half [5] - The company expects Q2 to be the weakest quarter for consumption and net sales growth, with a projected decline of 3.5%-4.5% [29] - Management anticipates stronger performance in the second half of the fiscal year, driven by distribution gains and new product launches [30] Other Important Information - The company borrowed an additional $150 million to accelerate its share buyback program, repurchasing over 7% of its common stock since the start of the fiscal year [8] - The board authorized a $200 million increase to the existing share repurchase program, reflecting confidence in long-term growth [26] Q&A Session Summary Question: Can you elaborate on the confidence in the back half inflection and key risks? - Management indicated that the plan anticipated first-half headwinds and second-half tailwinds, with confidence in new distribution and merchandising gains [36][38] Question: What needs to be done on the legacy bar business? - Management acknowledged that flat performance is unacceptable and outlined a multi-pronged plan to re-accelerate the bar business through innovation and improved merchandising [44][46] Question: How should we judge the step-up in marketing investment for OWYN? - Management emphasized the relationship between household penetration and brand awareness, indicating significant upside potential for OWYN [50][51] Question: What is the current status of the Atkins business? - Management noted that two-thirds of declines in Atkins were due to lost distribution, with plans to optimize the assortment by replacing underperforming SKUs [82][84] Question: When will tariff relief be seen? - Management expects tariff benefits to start flowing in the second half of the year, alongside cocoa cost benefits [90] Question: What is the company's view on M&A and capital allocation? - Management remains open to M&A opportunities but currently sees share repurchases as the best use of cash due to undervalued stock [93]