The Simply Good Foods Company Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Acquisition of OWYN completed in June 2024; organic growth now refers to brands owned over 12 months.
• Generational shift towards high-protein, low-sugar, low-carb products is a key trend, with the nutritional snacking category growing 13% in fiscal 2025.
• Quest delivered strong growth with 13% net sales growth in fiscal 2025, household penetration at 19%.
• OWYN, despite a product quality issue, is seeing double-digit growth in Q4 and has plans for increased marketing and trade investments.
• Atkins is rationalizing tail SKUs to align shelf space with sales, shifting marketing spend to align with business size.
• Invested in capacity expansion for Salty Snacks, strengthened R&D, and enhanced sales capabilities to compete in the category.

Segment Performance

• Quest: Represented nearly 2/3 of net sales in Q4. Delivered 11% year-over-year consumption growth in Q4, 12% consumption growth and 13% net sales growth for fiscal year 2025. Household penetration at 19%, up 170 basis points.
• Atkins: In fiscal year 2025, consumption declined 12% for Q4 and 10% for the full year. 75% of retail sales come from top 2 quartile SKUs; tail SKUs are being rationalized.
• OWYN: Consumption grew 14% in Q4 and 34% for the full year. Household penetration up to 4.2%. Experienced a product quality issue in Q2 due to raw material sourcing, but mitigated and ramping up marketing and trade investments.

Guidance

• Fiscal year 2026 net sales growth expected to be in the range of -2% to +2%, with second half expected stronger than first half.
• Q1 gross margins expected around 32.5%, with Q4 expected to have nearly 200 basis points year-over-year expansion in gross margins.
• Adjusted EBITDA expected to have pressure in the first half and stronger results in the second half.
• CapEx of $30 million to $40 million in fiscal 2026 for capacity expansion, particularly in Salty Snacks.

Risks

• Atkins losing shelf space due to distribution cuts and underperforming tail SKUs, with short-term pain expected.
• Inflation impact on margins, particularly cocoa costs and tariffs, with pressure in the first half of 2026.
• OWYN's product quality issue affecting recent growth, requiring incremental marketing and trade investments to reaccelerate trial.

Question and Answer

Q: Peter Grom asked about OWYN's product quality issue and full year sales guidance.

A: Geoff Tanner stated the product quality issue was due to a raw material sourcing decision prior to acquisition, rectified with a new formulation, and expressed confidence in OWYN's long-term trajectory.

Q: Steve Powers inquired about competition and M&A appetite.

A: Geoff Tanner mentioned competition is managed by an agile organization, and Chris Bealer noted the company has cash flow to support buybacks and M&A if opportunities arise.

Q: Robert Moskow asked about top line guidance and Quest/OWYN growth.

A: Christopher Bealer explained price elasticity, Atkins trade inventories, and Quest/OWYN facing tough laps in the first half but expected to improve in the second half.

Q: Jon Andersen asked about mainstreaming the category.

A: Geoff Tanner said the company is expanding physical availability outside traditional aisles, using secondary placement and innovative products like chips and milkshakes.

Q: Megan Clapp asked about Atkins' SKUs.

A: Geoff Tanner said top 2 quartile SKUs are growing, and tail SKUs are being rationalized to align shelf space with sales.

Q: Brian Holland inquired about selling and marketing spend.

A: Geoff Tanner and Chris Bealer discussed advertising impact on Quest, marketing allocation to OWYN, and shifting to digital for cost-effective marketing.

Q: Kaumil Gajrawala asked about OWYN's brand impact.

A: Geoff Tanner said the product issue is resolved, with investments in marketing and confidence in OWYN's future growth.

Q: John Baumgartner asked about Atkins inventory and Quest merchandising.

A: Geoff Tanner addressed Atkins net sales decline and Quest lapping heavy merchandising in Q2, noting strong momentum in Salty Snacks.

Q: Matt Smith asked about margin component and cocoa hedges.

A: Geoff Tanner and Christopher Bealer discussed cocoa cost percentage, coverage, spot price decline, and margin improvement timeline, with Q4 expected to show relief.

Q: Jim Salera asked about cocoa hedges and margin relief.

A: Geoff Tanner and Christopher Bealer explained cocoa cost coverage, spot price decline, and margin improvement expected in the second half of 2026.