Turning Point Brands, Inc. Q2 FY2026 earnings call

• Strategic Priorities & Core Focus

  • Management is prioritizing scaling the Modern Oral nicotine pouch business to capture share amid a generational shift in nicotine consumption away from cigarettes, a long-term opportunity for the firm.
  • Disciplined capital allocation directs all available cash flow from stable heritage businesses (Stoker's, ZigZag) toward accelerating Modern Oral growth.

• Commercial Expansion & Distribution

  • Modern Oral growth is driven by expanded retail distribution across both the free and out brands, and strong performance in both direct-to-consumer and brick-and-mortar channels. Total chain store count is on track to increase 70% year-over-year by the end of 2026, with initial shelf resets already underway at new large national retail accounts, to be completed incrementally through the end of the year.
  • Early phased international expansion into select European markets has begun, with a disciplined, partnership-based approach to avoid high upfront overhead.

• Brand Building

  • A co-branding partnership with TKO and UFC is driving increased brand awareness and consumer engagement, with in-store co-branding now rolling out to convert awareness to point-of-purchase sales.
  • For ZigZag, targeted brand investment (including the recent "Life's Fast, Burn Slow" campaign) deepened consumer engagement and delivered the strongest 420 weekend in the brand's history, stabilizing the heritage business.

• Operational & Infrastructure Investments

  • The sales force is on pace to grow ~50% in 2026 to service new retail accounts, support in-store execution, and maximize performance across all segments; after this build-out SG&A leverage will improve as revenue scales.
  • Subject to FDA regulatory approval, U.S. domestic manufacturing for Modern Oral is on track to launch by the end of 2026; full domestic scaling is expected to reduce COGS over time and deliver gross margins of approximately 70%.

• Financial Position

  • The firm ended the quarter with $268 million in cash, generated $26 million in free cash flow (driven partially by an $18 million tariff refund), and raised $60 million in new equity to support Modern Oral strategic objectives.

Consolidated net sales for the quarter increased 23% year-over-year to $143 million. Gross profit was reported at $94 million, or $81 million adjusted for an out-of-period tariff refund, representing a 22% year-over-year increase; adjusted gross margin was 57%. Adjusted EBITDA decreased 50% year-over-year to $15 million, with an 11% margin.

1. Stoker's Segment: Net sales increased 55% year-over-year to $108 million, accounting for 75% of total consolidated net sales. Within the segment, Modern Oral nicotine pouches achieved net revenue of $68 million (up 128% year-over-year) and gross revenue of $87 million (up 149% year-over-year), comprising 48% of total consolidated net sales (up from 26% year-over-year). Heritage Stoker's Brands net revenue decreased 1% year-over-year to $39 million. Adjusted gross profit for the full Stoker's segment increased 41% year-over-year to $61 million, with adjusted gross margin of 57% (down 600 basis points due to higher chain penetration).

2. ZigZag Segment: Net sales decreased 4% sequentially to $35 million. Gross profit was $23 million, with adjusted gross profit of $20 million (57% of net sales), flat sequentially.

• Management raised full-year 2026 Modern Oral gross sales guidance to $330–$350 million, up from the prior guidance range of $280–$300 million.
• Full-year 2026 Modern Oral net sales guidance was raised to $260–$270 million, up from the prior range of $210–$225 million.
• Full-year 2026 adjusted EBITDA guidance is maintained at $70–$90 million, which includes planned increased investments in the nicotine pouch business.
• Base 2026 capital expenditure guidance remains $4–$5 million, excluding Modern Oral-specific projects; an additional $3–$5 million is budgeted in 2026 to support the FDA PMTA application process.

• National retail chain shelf resets have long lead times, so new distribution gains will be incremental and may not generate immediate revenue.
• The FDA PMTA regulatory approval process is resource-intensive, and approval timing remains uncertain.
• While heritage businesses generate stable cash flow to fund growth, the ZigZag segment has experienced near-term softness that pressures overall profitability.
• Higher penetration of national chain retail accounts has reduced gross margins in the Stoker's segment in the near term.
• The nicotine pouch category is seeing increased competitive promotional and investment activity from peers, which could impact market share gains.

Q: How are conversations with additional C-store chains progressing, and when should we expect additional distribution wins? / A: Significant large chain wins were secured in spring 2026, and conversations with remaining chains will continue through fall, which is the typical next reset season. Additional wins are expected to be finalized and rolled out in the fall reset period.

Q: Is domestic manufacturing timing tied to FDA PMTA approval, and when can we expect it to launch? / A: U.S. manufacturing infrastructure is already in place, but regulatory qualification requires completion of the PMTA process first. The firm is prioritizing PMTA progress first to be able to quickly ramp domestic production once regulatory clarity is received.

Q: Why is EBITDA guidance maintained even after the upward revision to Modern Oral sales guidance? What is the expected EBITDA trajectory as sales ramp? / A: The firm is deliberately investing heavily in long-term brand building, sales team expansion, and marketing for Modern Oral, which temporarily depresses near-term earnings. Management remains confident in the current full-year EBITDA guidance, and expects EBITDA will grow over time as the business matures and these up-front investments are leveraged across a larger revenue base.

Q: What is the go-to-market strategy for international expansion, and will the firm build an independent international sales force? / A: International expansion will be structured entirely through local partner relationships, who will handle both regulatory requirements and sales and distribution. There are no current plans to build a dedicated in-house sales force outside the U.S.

Q: How does a competitor's recent MRTP approval for lower-risk claims impact the category and Turning Point's regulatory outlook? / A: Positive regulatory news for competitors is broadly good for the entire nicotine pouch category, as it improves consumer perception of reduced-risk products and validates the category. Turning Point remains focused on progressing its own PMTA applications and building brand equity, and feels well-positioned to capture share as the category grows.