Simply Good Foods closed fiscal 2025 with 9% reported net sales growth (3% organic) as Quest grew 13.4% for the year on salty-snack strength, but fourth-quarter reported sales fell 1.8% to $369 million with Atkins down 18.3% on distribution losses. Q4 gross margin dropped 450 basis points to 34.3% on high contracted cocoa costs and tariffs, and a $60.9 million Atkins impairment drove a quarterly net loss; an OWYN pea-protein quality issue affected roughly 10% of product. For fiscal 2026 management guided Quest up high-single-digits and OWYN double-digits against a more-than-20% first-half Atkins decline, with targeted pricing in market by the end of Q1 and gross-margin relief expected from Q3 as cocoa coverage rolls to lower rates.
Thank you, Operator. Good morning and welcome to The Simply Good Foods Company's fourth quarter and full fiscal year 2025 earnings call for the period ended August 30, 2025. Today, Geoff Tanner, President and CEO, and Chris Bealer, CFO, will provide you with an overview of our results, which were provided in our earnings release issued earlier this morning. Our prepared remarks will then be followed by a Q&A session. A copy of the release and accompanying presentation are available on the Investors section of the company's website at simplygoodfoodscompany.com. This call is being webcast, and an archive of today's remarks will be made available. During the course of today's call, management will make forward-looking statements, which are subject to various risks and uncertainties that may cause actual results to differ materially. The company undertakes no obligation to update these statements based on subsequent events.
A detailed listing of such risks and uncertainties can be found in today's press release and the company's SEC filings. On today's call, we will refer to certain non-GAAP financial measures that we believe provide useful information for investors. Due to the company's asset-light, high cash flow business model, we evaluate our performance on an adjusted basis as it relates to EBITDA and diluted EPS. Please refer to today's press release for reconciliation of our non-GAAP financial measures to their most comparable measures prepared in accordance with GAAP. The acquisition of Only What You Need, or OWYN, was completed on June 13, 2024. As we have now lapped the anniversary date of the OWYN acquisition, the use of organic refers to year-over-year growth for brands we have owned for more than 12 months on a comparable basis.
For Q4, organic growth includes year-over-year growth for Simply Good Foods' business, excluding the period of time prior to the closing of the OWYN acquisition, as well as the impact of lapping the extra week in the fourth quarter of fiscal year 2024. Finally, all retail takeaway data included in our discussion today, unless otherwise noted, reflects a combination of Circana's MULO++C measured channel data and company estimates for unmeasured channels for the 13 weeks ended August 31, 2025, as compared to the prior year. I will now turn the call over to Geoff Tanner, President and CEO.
Thank you, Josh. Good morning, everyone, and thank you for joining us. Fiscal year 2025 was a solid year for Simply Good Foods. We delivered 9% reported net sales growth, including 3% on an organic basis, and grew adjusted EBITDA by 3%. On a pro forma basis, including OWYN, but excluding the extra week from the prior year, net sales increased over 4% with adjusted EBITDA up approximately 6%. We largely completed the integration of OWYN, invested in our people and capabilities, and put our cash to work, paying off $150 million of debt and repurchasing more than $50 million of our stock. Our vision is clear: to be the scaled leader in high protein, low sugar, and low carb food and beverage. There is a generational shift towards these products that is quickly mainstreaming, one of the most impactful trends in food and beverage today.
This is best highlighted by the continued strength of the nutritional snacking category, our traditional aisle, which includes on-trend high protein performance nutrition, as well as adult nutrition and several other fast-growing subcategories. In aggregate, this broader category has grown at least high single digits for the past five years and grew plus 13% this year, reinforcing how relevant it is today and supporting studies that show more than 70% of Americans are actively seeking more protein and less sugar, as well as fewer carbs in their diets. In support of our vision, we have been on a journey to rapidly evolve our organization to win in this exciting and dynamic space. In the last couple of years, we have rapidly shifted our portfolio. Quest and OWYN now represent nearly three quarters of our net sales, with both growing double digits in fiscal year 2025.
Quest, which generated almost two thirds of the company's net sales in Q4, is the category disruptor, flipping the macros on large mainstream snacking categories. Over the past two years, we have accelerated the pace of product innovation while broadening our reach, with marketing up about 50% since fiscal 2023 and household penetration now approaching 20%. Our recent acquisition of OWYN enhanced our presence in the fast-growing ready-to-drink shake segment, while positioning us to become a leader of the rapidly accelerating clean label movement. To support our fast-growing salty snacks business, we're expanding capacity for the second time in two years, with construction on an additional production line now in progress. We increased our investment in innovation, strengthening R&D, and reducing time from concept to launch.
We invested in new sales talent and selling capabilities, expanding our opportunity to drive distribution both within and beyond our core aisle and to deepen penetration within channels. We ramped up productivity initiatives to combat inflation and free up funds to fuel our growth. Additionally, to compete and win in our space, we have consciously increased our organizational output across all facets of the company. We have challenged ourselves to reduce lead times in innovation and marketing, embrace agility in our supply chain, and evolve our marketing playbook to incorporate an insurgent mindset to compete against brands, large and small. The goal is an organization that combines the agility and speed of an insurgent challenger with the advantages of scaled R&D, supply chain, and selling capabilities. I am excited by the improvements we have made and how these actions position our company to win.
In the near term, however, we must address two important challenges. We understand the magnitude of each, have plans against both, and are confident we will work through these headwinds as we continue to evolve the company. First, as we've discussed in the past, Atkins is losing shelf space in the highly competitive nutritional snacking aisle. Over the last several years, as sales for this category doubled in size, with space at a premium, Atkins' large distribution and merchandising footprint has come under pressure, with sales declines in recent periods, mainly driven by distribution cuts at several retailers, especially at Club and Mass. 75% of Atkins' retail sales today come from approximately half of its SKUs, which turn in the top two quartiles of the category velocity rankings.
As we enter fiscal 2026, our tail SKUs that turn in the bottom of category velocity rankings have been trimmed back at some accounts. As we consider potential future distribution risk across our top accounts, it's important to note that only approximately 10%-15% of Atkins' SKUs on average are still in the bottom quartile today. While painful in the short term, this process will better align Atkins' shelf space with sales and support of a sustainable business powered by a strong core assortment. Encouragingly, at a large retailer, where we recently saw a double-digit decline in distribution, our average velocities are up nicely across the reset, giving us confidence we're on the right track. To help strengthen the brand and attract new consumers, in September, we began to flow into market several initiatives.
These include new advertising that reorients Atkins from a more general lifestyle brand back towards weight management, as well as modernized packaging, innovation, and an updated website. We've also brought to market a smaller pack size within our bar portfolio, providing consumers a more attractive entry price point intended to stem declines in one of the more challenged parts of the business. Our strategy acknowledges the need to right-size Atkins' space rather than trying to prop up our underperforming tail. A key component of this approach is proactively working with senior teams at our key retailers to manage our assortment and flow back to support the continued expansion and prioritization of Quest and OWYN. Again, while these decisions may be painful for the Atkins brand in the short term, we're taking the right decisions and the right actions for the brand, the category, and for Simply Good Foods Company.
Our second major challenge is inflation. In order to ensure we had adequate supply to meet consumer demand, we contracted for cocoa at historically high prices, which, in addition to tariffs, weighed heavily on our margins in the back half of fiscal 2025. This pressure will continue in the first half of fiscal year 2026. At this point, we're confident our gross margins will improve, beginning modestly in Q3 and more meaningfully into Q4, driven in part by the coverage we've already secured on cocoa through most of the second half at rates well below prior year. We continue to monitor the markets and note that current spot levels present further potential favorability as we exit this year and primarily into fiscal 2027.
In addition, we've also responded to inflation with aggressive productivity actions and pricing, which we announced to the trade in August and which will be in market by the end of Q1 of fiscal 2026. I'm pleased with the significant progress our teams have made on productivity, a capability that we've significantly expanded over the past two years, with benefits that will flow into our margins in the second half of fiscal 2026 and into 2027. Looking ahead, we're in a strong position. We operate in an on-trend, high-growth category, benefiting from a generational shift towards high-protein, low-sugar, low-carb products. We will lead this shift and create value for our shareholders by accelerating innovation, expanding physical availability of our products, and breakthrough marketing.
Our world-class R&D team, asset-light model, category leadership role with retailers, and enhanced selling capabilities give us a competitive edge, and our strong balance sheet provides optionality for M&A. Turning to Quest, which represented almost two-thirds of our net sales in Q4, Quest delivered year-over-year consumption growth of 11% in the quarter and expanded household penetration to 19%, up 170 basis points versus prior year. For fiscal year 2025, Quest grew consumption 12% and net sales over 13% on a 52-week basis, helping to deliver a five-year CAGR of nearly 20% under our ownership. As the brand approaches $1 billion in net sales, we're very pleased with its performance, and we remain confident in our ability to continue to disrupt the nutritional macros across many categories.
Credit goes to the Quest team, a nimble and competitive culture, and a framework for growth based on disruptive innovation, expanding physical availability, and increasing brand awareness. Our Quest salty snacks portfolio continues to outperform, with consumption up 31% for the quarter and 34% for the full year. From representing 20% of Quest retail sales three years ago, Salty is on target to be our largest platform by the end of fiscal year 2026. The size of the addressable market is large. We have a rich pipeline of innovation. We continue to gain shelf and merchandising space in and outside our aisle. As mentioned, we've invested to expand capacity. Our Quest bar business grew 2% in Q4 and for the full year, driven by our Hero line and our new Overload Bar platform.
If you recall, our Hero, or chocolate-covered crispy line of bars, and our recently launched Overload Bars with delicious inclusion-heavy offerings are part of the wave of more indulgent protein bars. These products amp up taste and texture while delivering the nutritional macros consumers are looking for. While we're moving in the right direction on bars, our goal is to further accelerate our growth in the space. Over the past 18 months, we've built an impressive pipeline of exciting new bar forms, flavors, and textures that we'll bring to market in the coming years. Our Quest Bake Shop platform continues to perform, and I'm excited for the launch of our first Bake Shop line extension, a great tasting high protein donut expected to hit shelves during Q1 of fiscal 2026.
Thank you, Geoff. Good morning, everyone. Overall, our fiscal year finished generally in line with our guidance, with some modestly higher costs impacting our margins as we exited the year. Organic net sales grew at least 3% in each of the last three quarters. We continue to invest in our brand, our talent, and our capabilities to position the company for the long term, and we generated a lot of cash that we put to work. We are operating from a position of strength as we exit fiscal 2025 and assess the challenges facing us in fiscal 2026. I will now discuss our financial results. For net sales, total Simply Good Foods' fourth quarter reported net sales of $369 million, declined 1.8% versus last year.
Excluding the small contribution from OWYN prior to the anniversary date of the acquisition's closing, as well as the lap of the 53rd week, organic net sales grew 3.5%. The key driver of this organic growth was Quest, which grew 15.9% primarily from strong performance in our salty snacks business, while Atkins declined 18.3% as a result of distribution losses and related trade inventory reductions. Gross profit of $126.6 million declined 13.3% on a reported basis from the year-ago period, driven mainly by lapping the 53rd week and elevated inflationary costs, most notably cocoa. Gross margin was 34.3%, a decline of 450 basis points versus prior year on a GAAP basis, largely reflecting higher input costs and the initial impact of tariffs that were only partially offset by productivity and pricing.
Excluding the inventory step-up related to the acquisition of OWYN, which was a 90 basis points headwind to gross margins in the fourth quarter of last year, gross margins declined 540 basis points. Selling and marketing expenses of $32.4 million were down 20.6% versus prior year, primarily the result of a planned pullback in Atkins marketing and lapping the 53rd week. G&A expenses of $40.6 million declined 1.6%, primarily due to lapping the 53rd week that was mostly offset by OWYN integration expenses. Excluding stock-based compensation and one-time integration and other costs, G&A declined 16.6% to $27.6 million, driven by lapping the 53rd week and the initial realization of cost synergies related to the OWYN acquisition. As a result, adjusted EBITDA was $66.2 million, down 14.5% from the year-ago period. Excluding the lap of the 53rd week, adjusted EBITDA declined in the high single-digit range.
During the fourth quarter, we determined that there were indicators of impairment related to the Atkins brand and related intangible assets. After conducting a quantitative impairment assessment, we recorded a non-cash loss on impairment of $60.9 million. The impairment is the result of Atkins' performance in fiscal year 2025 and updated projections of future revenue. Net interest expense of $3.6 million was down $4.3 million versus the prior year as a result of lower debt balances, while the effective tax rate was 20.2%. Net loss was $12.4 million, down from the net income of $29.3 million last year, due primarily to the impairment charge I just mentioned. On a full-year basis, reported net sales grew 9%, mainly driven by the OWYN acquisition, which added nearly eight points of growth, partially offset by approximately 2% impact from lapping the 53rd week.
On an organic basis, net sales increased 3%, driven by Quest, which grew 13.4%, as well as a small contribution from OWYN in Q4. Atkins was down 12.9%. Gross profit grew 2.8% year-over-year on a reported basis, driven by net sales growth that was partially offset by inflation, while gross margins for the full year declined 220 basis points as a result of elevated input costs, as well as dilution from the OWYN acquisition. Finally, adjusted EBITDA grew 3.4%, driven primarily by net sales growth, while reported net income declined largely as a result of the loss on impairment and other significant one-time costs, primarily related to the OWYN acquisition. Fourth quarter diluted loss per share was $0.12 versus earnings per share of $0.29 in the year-ago period, driven primarily by the impairment charge I mentioned a moment ago, which was a $0.45 after-tax headwind in the quarter.
Q4 adjusted diluted earnings per share was $0.46 compared to $0.50 in the year-ago period. On a full-year basis, the company generated diluted EPS of $1.02, a decline of 26.1% versus the prior year, largely due to the aforementioned impairment charge and one-time integration costs. Adjusted diluted EPS of $1.92 increased 4.9% versus the comparable prior year period. Please note that we calculate adjusted diluted EPS as adjusted EBITDA, less interest income, interest expense, and income taxes divided by diluted shares outstanding. Moving to the balance sheet and cash flow, as of the end of Q4, the company had cash of $98 million and an outstanding principal balance on its term loan of $250 million, bringing our net debt to trailing 12-month adjusted EBITDA to approximately 0.5 times. Full-year cash flow from operations was $178 million compared to approximately $216 million last year.
The decline was primarily due to higher uses of working capital. Capital expenditures finished the year at approximately $20 million, reflecting the timing of initial payments related to the strategic investment we're making to support additional capacity. I will discuss this in more detail in a moment. For fiscal year 2025, the company repaid a total of $150 million of its term loan debt, bringing total repayments since the OWYN acquisition to $240 million, or essentially all of the $250 million borrowed to fund the purchase. We remain very comfortable with our gross debt levels today. In addition, during the quarter, the company used approximately $27 million to repurchase nearly 900,000 shares. For the full year, the company used approximately $51 million to repurchase nearly 1.6 million shares, or almost 2% of our outstanding common stock.
Finally, as detailed in this morning's press release and to reflect management's and the board's continued confidence in the business, the board of directors recently approved a $150 million increase to the company's existing stock repurchase program. As of October 23, 2025, the company has approximately $171 million remaining under its revised stock repurchase authorization. Moving on to a discussion of our outlook. Since we last spoke with you in July, here is what has changed. First, as a result of the accelerating pressures from inflation and tariffs, we announced the targeted pricing actions that will be in market by the end of Q1 and are expected to be a low single-digit benefit once fully implemented. These actions cover all three brands and will help us restore our margins, but in the near term, will cause our top-line trends to be more subdued as a result of initial elasticity.
Second, near-term growth slowed for OWYN as a result of the identified quality issue, which will also require incremental trade and brand investment to re-accelerate growth. Third, the impacts from tariffs are now generally more certain, apart from any changes in the prevailing tariff rates for Chinese imports, considering the ongoing negotiations where timing and magnitude remains uncertain. Assuming no significant change in prevailing tariff rates on China, we estimate our total tariff exposure will be less than 2% of our fiscal 2026 cost of goods sold on a net basis, including the benefit of currently identified mitigants against which we are already taking action. Given the trade agreements announced to date, the blended tariff rates will come in slightly higher than we were previously expecting.
Fourth, we have a secured coverage on cocoa supply that, as we move through the second half of fiscal 2026, will be progressively at prices below prior year, giving us good visibility on cost and margin improvement as we move through fiscal 2026 and into 2027. We continue to diligently monitor the commodity markets with the opportunity to further lock in more favorable costs and ensure supply. Finally, while not a change, I want to point out that we remain committed to investing in our growth platforms for the long term, even while we face higher inflation, especially in the first half. Therefore, for fiscal year 2026, we expect the following. Net sales growth is expected to be in the range of -2% to +2%, with growth from Quest and OWYN offset by Atkins.
Gross margins are expected to decline in the range of 100-150 basis points, and adjusted EBITDA year-over-year is expected to be in the range of -4% to +1%. This includes increased marketing spend on Quest and OWYN to support growth, while focusing on profitability for Atkins. Management is focused on long-term growth for the total company and will look to provide more fuel should it find the opportunity to do so. As we look at the shape of fiscal year 2026, the year will be a tale of two halves, with the second half expected to be stronger on both the top and bottom line than our first half. Starting with net sales, we expect growth in the first half to be at or below the lower end of our full-year range, with Q2 likely to be our weakest quarter of the year.
The first half will be impacted by initial elasticities related to our recently announced pricing actions and the wrap-around drag from Atkins' distribution losses. While we will see the underlying benefit of recent distribution gains on Quest and OWYN, growth will be muted by the lingering effects from the OWYN quality issue and a generally tough lap for Quest and OWYN, both of which benefited in the prior year from strong merchandising programs, particularly in Q2. By the second half, we expect trends to improve meaningfully, driven by an exciting slate of innovation launches across our brands, normalizing elasticities, lapping the initial impacts from OWYN's product issues, and tailwinds from distribution. Therefore, we expect net sales growth in the second half of the year to be at the higher end of our full-year outlook range.