Freshpet(FRPT) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q4 2025, net sales were $285.2 million, an increase of 8.6% year-over-year, primarily driven by volume growth of 9.7% [17][32] - For the full year 2025, net sales reached $1.102 billion, up 13% year-over-year, aligning with guidance [18][33] - Adjusted gross margin for Q4 was 48.4%, compared to 48.1% in the prior year, while full year adjusted gross margin was 46.7%, up 20 basis points year-over-year [18][34] - Adjusted EBITDA for Q4 was $61.2 million, a 16% increase year-over-year, and for the full year, it was $195.7 million, up 21% [18][36] - Net income for Q4 was $33.8 million, compared to $18.1 million in the prior year, and for the full year, it was $139.1 million, up from $46.9 million [35][36] Business Line Data and Key Metrics Changes - The company reported a significant increase in e-commerce, which grew nearly 40% last year and now represents 14% of total business [9][15] - The company expanded its distribution network, ending the year with products in 30,235 stores, with 24% having multiple fridges [19][20] - The company achieved a household penetration of 15.2 million households, up 10% year-over-year, with a total buy rate of approximately $115, up 4% [21][22] Market Data and Key Metrics Changes - The total addressable market for Freshpet has grown to 36 million households, reflecting a continued interest in high-quality pet food [10] - The company increased its market share in the US dog food segment to 4.0% [19] - The company reported broad-based consumption growth across channels, with Nielsen-measured dollars showing 9.4% growth in total US pet retail [32] Company Strategy and Development Direction - The company is focused on building an omni-channel presence, leveraging its brand equity and manufacturing capabilities to meet consumer demands across various channels [11][52] - The company plans to rebalance its media mix to be more diversified and digital-forward, targeting Millennials and Gen Z consumers [13] - The company is investing in new manufacturing technologies to enhance product quality and operational efficiency, aiming for a competitive advantage [11][16] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges faced in 2025 but emphasized the lessons learned that strengthened the company for future growth [6][7] - The company expects net sales growth of 7% to 10% for 2026, with adjusted EBITDA projected between $205 million and $215 million [24][40] - Management expressed optimism about the potential for growth despite macroeconomic headwinds, citing early signs of improvement in household penetration and buying rates [39][63] Other Important Information - The company welcomed new leadership, including a new CFO and SVP of Supply Chain, to support its growth strategy [27] - The company received $95.5 million from the sale of Ollie, a DTC dog food brand, which will enhance its financial position [29][30] Q&A Session Summary Question: Can you elaborate on the implied uptick in EBITDA margins for 2027? - Management indicated multiple pathways to achieving 20%+ EBITDA margins, including improvements in gross margin and operational efficiencies [44][46] Question: What insights were gained from the investment in Ollie? - The investment provided valuable insights into the DTC market, leading to a focus on building an omni-channel business [50][51] Question: What are the key drivers for consumption growth in 2026? - Management ranked effective advertising, distribution growth, and affordability initiatives as primary drivers for consumption growth [58][61] Question: How is the Fridge Island expansion progressing? - The company is in the test phase with Fridge Islands, which provide increased capacity and assortment, enhancing brand visibility [66][68] Question: What are the expectations for volume growth versus sales growth in 2026? - Management anticipates that volume growth will exceed sales growth due to affordability initiatives and improved entry-level price points [71][73]