The Simply Good Foods pany(SMPL) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Adjusted EBITDA for Q2 2023 was $50.9 million, down from $54.2 million in the same period last year, reflecting a decline of $3.3 million due to supply chain cost inflation and international softness [23][56] - Net sales for Q2 2023 were $296.6 million, approximately the same as the year-ago period, resulting in year-to-date net sales of $597.5 million, an increase of 3.4% compared to last year [27][57] - Gross profit was $102.7 million, a decline of $5.8 million from the previous year, leading to a gross margin of 34.6%, down 200 basis points year-over-year [28][50] Business Line Data and Key Metrics Changes - Quest retail takeaway increased by 26% in Q2, driven by strong performance across all major forms and retail channels, with core bar business retail takeaway up 24.1% [12][25] - Atkins retail takeaway in measured channels increased by 3.3%, with a notable 35% increase in POS at Amazon [24][51] - Confection POS improved from the first quarter, but Q2 confections retail takeaway was down 1.5% due to strong prior year performance [13] Market Data and Key Metrics Changes - North American net sales performance exceeded expectations due to solid retail takeaway, although net sales were impacted by customer inventory reductions [11] - International net sales were softer than estimates, affected by a price increase initiated earlier in the year [11] - Retail takeaway in the US combined measured and unmeasured channels increased by 16% during the New Year season [22] Company Strategy and Development Direction - The company aims to focus on brand growth through marketing, innovation, and sales execution, referred to as the "brand growth flywheel" [9] - There is a commitment to expanding household penetration and driving growth through a solid pipeline of innovation [14][48] - The company is positioned as a leader in the nutritional snacking category, which remains under-penetrated, indicating a long runway for growth [26] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the company's future, highlighting strong consumer trends in the nutritional snacking category [20][48] - The company anticipates that retail takeaway will moderate in the coming quarters due to tougher year-ago comparisons and an uncertain economic environment [54] - Full-year fiscal 2023 gross margins are expected to decline more than previously estimated due to higher costs in the supply chain [33] Other Important Information - The company has made significant marketing and organizational investments over the past three years, which are expected to result in growth in consumer base and market share [33] - Year-to-date capital expenditures were reported at $1.7 million, with cash flow from operations at $53.3 million [31] Q&A Session Summary Question: Sales cadence for the rest of the year - Management noted that POS growth is healthy, with Q2 at +16% and March at +12%, indicating cautious optimism for the second half of the year [36][37] Question: Retailer inventory reductions - The company acknowledged a 3% headwind from retailer inventory reductions and expects this to be a factor moving forward [38][39] Question: Gross margin expectations - Management explained that gross margin came in lower than expected due to slower-than-anticipated flow-through of lower ingredient costs and higher supply chain costs [40][41] Question: Marketing investment and promotional activity - The company plans to increase marketing investment as gross margins improve, aiming for a healthy level of spending to drive brand awareness and trial [102][104] Question: International market performance - Management discussed challenges in international markets, particularly in Australia, where pricing elasticity has been limited [110][111]