The Simply Good Foods Company (SMPL) Earnings

Management highlights

### Turnaround Progress & Core Priorities - The company remains in the early stages of its turnaround, with overall results still well below target, but Q3 performance came in ahead of expectations, confirming current strategic actions are correct. - Three core turnaround priorities: 1) Strengthen business economics and rebuild margins; 2) Drive organizational clarity, focus and efficiency through consistent, disciplined strategic choices; 3) Rebuild brand investment tied to consumer insights and data-driven ROI. ### Economic & Cost Actions - A high single-digit price increase across most of the portfolio will go into effect in September 2026 to offset persistent inflation across protein, packaging, and other key input costs, which is required to rebuild margins and fund future marketing investment. - Productivity initiatives are gaining traction and are expected to deliver ongoing cost benefits. Discipline around overall cost structure is being maintained, with structural cost-reduction actions ongoing. ### Organizational & Marketing Updates - Organizational decision-making has accelerated, priorities are clearer, and resources are now concentrated on fewer higher-return opportunities, with Q3 outperformance serving as early evidence of progress. - The company is shifting marketing investment to top-of-funnel streaming and connected media to drive higher ROI and strengthen brand metrics. - A thorough assessment of GLP-1 therapy impacts on consumer consumption behaviors has been completed, providing new insights to guide future marketing and innovation. - A new marketing agency has been hired for Quest to refocus brand messaging on superior nutrition and craveable taste, particularly for the core bar segment, which is the company's highest priority growth opportunity. ### Brand-Specific Strategic Updates - **Quest**: Reaccelerating growth in the core bar segment is the top priority, with work focused on improving top-of-funnel communication, updating the innovation pipeline to match evolving consumer preferences, and increasing marketing investment. Chips and milkshakes remain strong growth drivers aligned with consumer demand for better-for-you snacks. - **Atkins**: The brand retains{strong loyal consumer base and meaningful equity, and is well-positioned to serve GLP-1 users seeking weight management support. Current focus is on resetting the retail baseline, restoring clarity around the core weight management proposition, and operating with greater discipline. Comps will become more favorable starting in Q4 as the company laps last year's household penetration and distribution losses. - **Owen**: The brand has long-term potential in the growing clean-label plant-based nutrition segment, with underlying consumer demand intact. Current challenges stem from integration and execution issues, which are being addressed. Priority is on completing the distribution reset and refocusing growth on the core ready-to-drink and powder product lines. ### Core Company Strengths - The purposeful nutrition category remains attractive, outperforming broader food and beverage, supported by long-term consumer trends around health, wellness, and convenient nutrition. - The portfolio of strong brands serves distinct consumer segments, and the company has built competitive capabilities in marketing, sales, R&D, and outsourced supply chain management. - The asset-light operating model provides flexibility, strong cash generation, and the ability to allocate capital to the highest return opportunities. The balance sheet remains strong with substantial financial flexibility to invest in brands and pursue strategic opportunities.

Guidance

- Fiscal year 2026 net sales are guided to a range of $1.345 billion to $1.355 billion, representing a year-over-year decline of 7% to 6%, assuming current consumption trends continue and including expected distribution losses for Owen and Atkins. - GAAP gross margins for fiscal 2026 are expected to decline roughly 375 bps, driven by higher input costs, supply chain restructuring costs, and costs to resolve the earlier Owen product quality issue. - Fiscal 2026 adjusted EBITDA is guided to a range of $220 million to $225 million, representing a year-over-year decline of 21% to 19%. - Capital expenditures for fiscal 2026 are now expected to be $25 million to $30 million, a downward revision from the prior 30% to 40% range, reflecting updated investment priorities. - Fourth quarter fiscal 2026 net sales are expected to be $322 million to $332 million, a year-over-year decline of 13% to 10%, matching Q{3 consumption trends with planned intentional undershipment to right-size customer inventories. - Q4 GAAP gross margin is expected to be the strongest of the fiscal year, with productivity initiatives offsetting some inflationary pressure. Q4 adjusted EBITDA is guided to $52 million to $57 million, a year-over-year decline of 22% to 14%. - The fiscal 2026 weighted average diluted share count is expected to be approximately 90 million shares. The Q4 effective tax rate is expected to be roughly 25%, and interest expense expectations remain unchanged from prior guidance.

Segment performance

Total company net sales declined 6.3% year-over-year to $357 million in Q3 fiscal 2026. - Quest: Net sales grew 1.1% year-over-year, accounting for the largest share of the company's portfolio. Quest retail takeaway grew 1.4% year-over-year, with total household penetration increasing 120 bps to 20.5%. Quest Chips grew consumption over 17% and has ~11% household penetration, while Quest milkshakes grew almost 50% from a small base. Quest bar consumption declined ~5%, which held back overall brand performance. - Atkins: Net sales declined 24.6% year-over-year. Atkins retail takeaway declined 23.9% year-over-year, with total household penetration falling 220 bps to 8.5%, driven by past insufficient marketing support and messaging drift from the brand's core weight management proposition. - Owen: Net sales grew 3.6% year-over-year, while retail takeaway declined 1.3% year-over-year. Total household penetration stayed flat at 4.3% year-over-year. Performance was negatively impacted by a past product quality issue and poor marketing execution, leading to expected distribution losses over the next 6-12 months.

Risks & headwinds

- Persistent input cost inflation across proteins, packaging, and freight continues to pressure gross margins, even as cocoa prices have declined in line with prior expectations. - Atkins has faced multi-year declines in household penetration and distribution driven by past underinvestment in marketing and messaging drift from the brand's core proposition, requiring a retail baseline reset that will weigh on near-term results. - Owen is expected to face distribution losses over the next 6-12 months as non-core underperforming SKUs are removed from the portfolio following past poor execution and a product quality issue, which will weigh on near-term top line performance. - Quest's core bar segment has experienced consumption decline, and reaccelerating growth requires successful execution on marketing messaging changes, updated innovation, and increased investment, with no guarantee of near-term improvement. - The September 2026 price increase is expected to result in volume declines in fiscal 2027, creating near-term headwinds for household penetration and consumer momentum, even as it improves long-term margin structure. - Turnaround progress is expected to unfold in stages, with an uncertain timeline for meaningful improvements in consumer metrics and financial performance.

Analyst Q&A

• Q: Q3 performance beat expectations, but guidance implies a weaker Q4 exit rate. What explains the shipment-consumption gap, and how should we think about 2027 top line trajectory following the September price increase? /

  A: Q4 consumption trends are expected to remain similar to Q3's better-than-expected trends. The weaker shipment guidance reflects intentional undershipment to right-size customer inventories, including aligning inventory with expected distribution losses for Owen. Management is still in planning for fiscal 2027, and expects the high single-digit price increase to cause volume impact given demand elasticity, which creates short-term consumer headwinds. The price increase is needed to fix margin erosion, rebuild marketing firepower, and deliver long-term gains even with near-term volume pressure.

• Q: Quest bar consumption declined 5% in Q3 despite a club rotation benefit. What should we expect for Q4 and next year, and when will marketing investment increase to support the brand? /

  A: Quest has no brand relevance issue: household penetration continues to grow, and chips and milkshakes perform very well. Bar underperformance stems from misaligned past innovation, weak top-of-funnel marketing, and lost focus on the brand's core value proposition of superior nutrition and craveable taste. Similar bar consumption trends are expected in Q4 while the club rotation benefit continues, with softer trends likely in early fiscal 2027 as the rotation burns off. Marketing investment will be reallocated from lower-ROI down-funnel activities back to higher-ROI top-of-funnel work, with a marketing mix study upcoming to confirm ROI. Long-term, margin improvement will be needed to fund increased overall marketing spend, with all investments justified by ROI.

• Q: You expect distribution losses for Atkins and Owen over the next 6-12 months. What should we expect for overall portfolio net distribution change, and when will marketing changes flow through to positive household penetration gains? /

  A: Management has shifted focus from distribution as a core metric to consumer-centric metrics like household penetration and buy rate, which are more predictive of long-term growth. For Owen, non-core underperforming SKUs will be removed over six months, leaving the core ready-to-drink and powder business which is already showing early growth. For Atkins, distribution losses are a reset to align with current smaller household penetration, and comps will start improving in Q4 and into 2027 as last year's losses lap. Quest will continue gaining distribution, but this is not the core growth driver for the brand. Turnaround happens in stages rather than hitting a specific timeline; investors should watch for consistent strategy execution, improving margins, and stabilizing household metrics as leading indicators before seeing financial gains.

• Q: What is the plan for leveraging GLP-1 weight management trends, especially for Atkins, after your recent consumer assessment? /

  A: A new strategic project with Atkins' legacy successful marketing agency is ongoing to develop a GLP-1 aligned go-to-market strategy. Early research confirms high existing overlap between Atkins consumers and GLP-1 users, proving the brand is already relevant to this audience. Management plans to test new positioning ideas in market early in fiscal 2027, and will share more details once testing is planned and insights are confirmed, with any investment required to deliver positive ROI.

• Q: How is capital allocation prioritized going forward, after significant recent share buybacks? /

  A: The first capital priority is funding the company's turnaround, followed by committed capacity expansion for the Quest chips business. Capital expenditure guidance has been reduced to $25-$30 million from $30-$40 million after revisiting investment priorities. Management will continuously assess the highest return uses of free cash flow going forward, which could include additional turnaround investment, share buybacks, debt paydown, or other strategic priorities.