The Simply Good Foods pany(SMPL) - 2022 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total net sales for the second quarter increased by 28.7% to $297 million, with North American net sales rising by 31.5% primarily driven by volume [25][30] - Adjusted EBITDA increased by 27.1% to $54.2 million, attributed to higher sales and G&A leverage [11][26] - Gross margin declined by 250 basis points to 36.6%, impacted by supply chain cost inflation, although partially offset by pricing and favorable product mix [26][30] - Net income for the second quarter was $18.5 million, compared to a loss of $26.2 million in the prior year [30] Business Line Data and Key Metrics Changes - Simply Good retail takeaway in measured channels increased by 19.6%, with the weight management segment up by 0.4% and Atkins outperforming with a 6.4% increase [13][15] - Quest retail takeaway surged by 40.1%, significantly outpacing the Active Nutrition segment growth of 20.5% [14][19] - Atkins shakes saw a retail takeaway increase of 11.7%, while all other product forms, including cookies and chips, showed strong growth [16][17] Market Data and Key Metrics Changes - U.S. retail takeaway in unmeasured channels, primarily e-commerce, increased in low double digits compared to the previous year [14] - The overall retail takeaway growth in the mass and convenience channels was nearly 45% [20] - The company anticipates retail takeaway to continue being solid, although growth rates in the second half of the year are expected to be more challenging due to tougher year-over-year comparisons [21][22] Company Strategy and Development Direction - The company is focusing on driving sales and earnings growth while navigating a challenging supply chain environment, with plans for price increases in the fourth quarter due to ongoing cost inflation [12][23] - A licensing agreement for the Quest frozen pizza business was entered into with Bellisio Foods, indicating strategic moves to optimize brand portfolios [12] - The company aims to maintain a strong balance sheet and cash flow generation to invest in business growth and evaluate M&A opportunities [42] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving full-year objectives despite challenges, with expectations for net sales growth of 13% to 15% for the fiscal year [39][40] - The company is cautious about workplace mobility improvements and the unpredictable nature of COVID-19, which may impact future performance [22][63] - Management noted that consumer response to price increases has been stronger than expected, with lower elasticity observed [82] Other Important Information - The company repurchased $20.4 million of its common stock during the second quarter, indicating confidence in its stock valuation [36] - The anticipated full-year fiscal 2022 cash flow from operations is expected to be similar to the previous year due to tax payment timing [35] Q&A Session Summary Question: Guidance for back-half sales growth - Management explained that the guidance reflects a two-point negative impact from the European exit and licensing, with expectations for organic growth around 8.5% [46][48] Question: Success of new product forms for Atkins - Management indicated that the confection business for Atkins is about 25% of the portfolio, with early results for cookies being promising [49][50] Question: Input cost coverage - Management confirmed that over 90% of input costs are covered through contracts with suppliers, with no financial hedges involved [56] Question: Pricing strategy and elasticity - Management noted that the need for additional pricing was due to higher-than-expected inflation, with minimal impact expected in the current fiscal year [61][82] Question: Consumer trade down evidence - Management stated that there has been no evidence of consumer trade down into or out of the category [86][87] Question: M&A environment and valuation expectations - Management observed that seller expectations are starting to change, making the environment more conducive for potential deals [99]