Freshpet, Inc. Q1 FY2025 earnings call

Macro Environment Impact

• Significant shift in macro-environment impacted growth, but Freshpet still outperforms category across age and income groups.

Strategic Responses

• Increased media investment and tailored media strategies to attract higher-income consumers.
• Launched new entry-price-point bag product under Freshpet Complete Nutrition label.
• Focused on multipacks for better value and stockpiling.
• Expanded small DTC business nationally and focused on value-oriented stores like clubs.

First Quarter Highlights

• Net sales $263.2M, up 18% y-o-y; adjusted gross margin 45.7%; adjusted EBITDA $35.5M, up 16% y-o-y.
• Market share details: 3.5% in US dog food/treats, 96% in gently cooked fresh frozen branded dog food.
• Retail presence: 28,521 stores, 37,044 fridges, 20.8 SKUs in distribution.

Operational Progress

• Throughputs up, Ennis improving efficiencies, quality costs low, logistics costs below target.

First quarter net sales were $263.2 million, up approximately 18% year-over-year, primarily driven by volume growth. Adjusted gross margin in the first quarter was 45.7% compared to 45.3% in the prior-year period. Adjusted EBITDA in the first quarter was $35.5 million, up approximately $5 million or 16% year-over-year. Freshpet competes in the $54 billion US pet food category and has only a 3.5% market share within the $37 billion US dog food and treat segment. In Nielsen brick-and-mortar customers, it has a 96% market share within the gently cooked fresh, frozen branded dog food segment. Retail-wise, it's in 28,521 stores, 23% of which have multiple fridges in the US and Canada, with 37,044 fridges and an average of 20.8 SKUs in distribution.

2025 Guidance

• Net sales expected $1.12B-$1.15B (15%-18% y-o-y), down from previous guidance.
• Adjusted EBITDA $190M-$210M, down from previous.
• Capital expenditures $225M, down from previous.
• Media spend to increase, with targeted strategies; expect sequential net sales increase, back-half weighted adjusted EBITDA.
• Monitoring tariffs, minimal impact on P&L but assessing sales impact, with ~5% of US COGS from imported raw materials.

• Macro economic uncertainty affecting consumer behavior towards pet food purchases.
• Potential impact of tariffs on supply chain and capital expenditures, especially on steel costs for new construction/equipment.
• Consumer hesitation due to economic uncertainty delaying decisions on new dogs or premium pet food.

Q: Ken Goldman from JPMorgan asked about updated guidance and macro outlook.

A: Billy Cyr stated they assessed various scenarios, assuming first quarter conditions continue, and if macro worsens, they'll take actions. Todd Cunfer added on media spend and margin expectations.

Q: Peter Benedict from Baird asked about incremental changes in value products, marketing, etc.

A: Scott Morris said they're accelerating affordability efforts, changing marketing mix including media targeting and creative.

Q: Bill Chappell from Truist Securities asked about market progression and advertising/promotions.

A: Billy Cyr and Scott Morris discussed market outperformance, no discounting/planning, and leaning into media spend.

Q: Brian Holland from D.A. Davidson asked about Complete Nutrition line performance and media strategy.

A: Scott Morris talked about media creative and targeting progress, and Complete Nutrition's role in attracting new consumers.

Q: Rupesh Parikh from Oppenheimer & Company asked about inventory health and channel shifts.

A: Billy Cyr and Todd Cunfer said inventory is in good shape, value channels winning, and they're shipping close to consumption.

Q: Robert Moskow from TD Cowen asked about contingency plans and free cash flow.

A: Todd Cunfer discussed adjusting capital expenditures, monitoring capacity, and still expecting free cash flow positive in 2026.

Q: Jon Andersen from William Blair asked about store count, cubic feet growth, and consumer cohorts.

A: Scott Morris and Billy Cyr talked about fridge cubic feet growth, TDPs, and MVPs/HIPPOs as key consumer groups.

Q: Michael Lavery from Piper Sandler asked about buy rate of non-MVP consumers and Sam's Club expansion.

A: Scott Morris said focus on MVPs/HIPPOs, and Sam's Club is a test with potential for more expansion.

Q: Steve Powers from Deutsche Bank asked about DTC expansion and Sam's Club impact.

A: Scott Morris discussed DTC subscription service performance and Billy Cyr said Sam's impact on guidance.

Q: Kaumil Gajrawala from Jefferies asked about leverage, competition.

A: Todd Cunfer and Scott Morris talked about margin management, competition discounting, and DTC evolution.

Q: Tom Palmer from Citigroup asked about margin targets and sales levels.

A: Todd Cunfer and Billy Cyr said they have tools to hit margin targets even with slower sales, including technology and operational efficiency.