The Simply Good Foods pany(SMPL) - 2022 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Full year net sales growth was 16.2%, slightly exceeding expectations, while adjusted EBITDA increased by 13% [8][12] - Fourth quarter net sales increased by 5.5% to $274.2 million, driven by better-than-expected retail takeaway [30][13] - Gross margin for Q4 was 37.1%, a decline of 310 basis points year-over-year, primarily due to supply chain cost inflation [33][14] - Adjusted EBITDA for Q4 was approximately $51 million, an increase of 5.2% compared to the previous year [15][33] - Full year net income was $108.6 million, significantly up from $40.9 million in the prior year [39] Business Line Data and Key Metrics Changes - Quest brand saw a full year retail takeaway increase of 32.3%, outperforming the active nutrition segment growth of 20.4% [16] - Atkins brand retail takeaway increased by 3.2% in the weight management segment, which declined by 2.4% overall [17] - In Q4, Atkins retail takeaway in combined channels was slightly up, with e-commerce growth offsetting softness in traditional retail [18][19] - Quest's core bar retail takeaway increased by 11.1%, outpacing the bar category segment growth of 7.8% [24] Market Data and Key Metrics Changes - Combined measured and unmeasured channel U.S. retail takeaway growth for the full year was 15.5% [9] - For the six weeks ended October 8, point-of-sale growth in combined channels was up about 14% [11] - E-commerce growth for Atkins was significant, with Q4 POS at Amazon increasing by 75% [19] Company Strategy and Development Direction - The company aims to leverage its diversified portfolio across brands, products, and channels to navigate the recessionary environment [12][26] - Pricing and cost-saving initiatives are in place to offset projected supply chain dollar cost inflation [27][49] - The company is focused on maintaining brand relevance and expanding its consumer base through innovation and marketing investments [47][48] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding growth prospects in a challenging economic environment, with expectations for supply chain costs to be higher in fiscal 2023 [11][47] - The company anticipates adjusted EBITDA growth to align with net sales growth, despite expected gross margin contraction [49][27] - Management noted that consumer behavior is shifting towards value-oriented purchasing, which may impact sales strategies [75] Other Important Information - The company repurchased $31 million of shares in Q4, with a total of $60 million repurchased for the full year [43][44] - Capital expenditures for fiscal 2022 were $5.2 million, with expectations of $5 million to $6 million for fiscal 2023 [45] Q&A Session Summary Question: Insights on new product activity and shelf resets - Management indicated a robust pipeline of new products for both Atkins and Quest, with expectations for continued retailer focus on larger brands during shelf resets [55][57] Question: Improvement in Atkins brand growth rate - Management noted that while there were challenges, the brand's relevance remains strong, and improvements in e-commerce and core products are expected to drive growth [61][64] Question: Inflation and gross margin outlook - Management confirmed that about 50% of costs are covered through hedging, with expectations for gross margin declines primarily in Q1 [70][72] Question: Price elasticity and volume declines - Management acknowledged that while there were volume declines, true consumption volume was up about 1% to 2%, and they are monitoring price elasticity closely [82][85] Question: Future growth for Quest bars - Management highlighted strong distribution growth and innovation pipeline for Quest bars, indicating a long runway for growth [95][98] Question: E-commerce growth for Atkins - Management attributed e-commerce growth to improved product offerings and strategic pricing, with plans to further enhance the catalog [101][103]