Simply Good Foods Co Q1 2026 earnings call

Thank you, Operator. Good morning and welcome to The Simply Good Foods Company's First Quarter Fiscal Year 2026 Earnings Call for the period ended November 29th, 2025. Today, Geoff Tanner, President and CEO, and Chris Beeler, 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 investor section of the company's website at thesimplygoodfoodscompany.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 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 a reconciliation of our non-GAAP financial measures to their most comparable measures prepared in accordance with GAAP. 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 the company estimates for unmeasured channels for the 13 weeks ended November 30th, 2025, as compared to the prior year. I will now turn the call over to Geoff Tanner, President and CEO.

Thank you, Josh, and thank you for joining us for our call. I'm pleased with our Q1 performance and want to reiterate our confidence in our plans for the balance of the year. As a result, we are reaffirming our full-year outlook for net sales and Adjusted EBITDA. Consumption in Q1 grew 2%, led by double-digit growth from Quest and OWYN, which combined to generate 71% of our net sales. This was offset by expected declines on Atkins. Quest and OWYN continue to benefit from expanded distribution and marketing, with added contribution from recent innovation. Growth was also supported by another robust quarter for the nutritional snacking category, which grew 10%. We are executing well on initiatives to drive the top line and to rebuild our gross margin.

Specifically, with respect to our margin, recent pricing actions are now reflected on shelf, with elasticities to date in line with our expectations, albeit data remains limited. Our robust productivity program, which we started 18 months ago, is delivering results, taking costs out of the system and ensuring we have a multi-year pipeline of initiatives for the future. These gains, which will be easier to see in the second half once we're past the peak levels of inflation, are a testament to the hard work from everyone in our organization, particularly the supply chain and operations team. Finally, we took advantage of the opportunity to extend supply coverage at attractive year-over-year prices on several key inputs, most notably cocoa, where we have now locked in incremental supply at sequentially more favorable levels, which will begin to flow into the P&L late in Q4 and into fiscal 2027.

We know our results for the first half of this fiscal year, for reasons we've discussed previously, are below our longer-term expectations. However, we remain confident that our top and bottom-line performance will improve once we get beyond Q2, and as mentioned, we are reaffirming our full-year outlook. With this in mind and with our stock at levels that we believe discounts our long-term growth opportunity, we borrowed an incremental $150 million during the quarter that allowed us to accelerate our share buyback program. Since the start of the year, we have repurchased over 7% of our common stock, and as you saw in our press release today, the board authorized a $200 million increase to our existing share repurchase program. Our decision to repurchase our stock reflects our continued confidence in our long-term runway, and we expect to continue with this program as long as the opportunity remains attractive.

Simply Good Foods is well-positioned as a leader in the nutritional snacking category. The growth is being propelled by the mainstreaming of consumer demand for high protein, low sugar, and low carb products. We have a strong foundation for sustainable top-line growth, which, coupled with our history of strong margins and a proven track record of successfully converting a significant percentage of Adjusted EBITDA into free cash flow, I believe will create shareholder value for the long term. Turning to our brand, Quest had another solid quarter, delivering 12% consumption growth and nearly 10% growth in net sales. Key brand metrics are up nicely. Household penetration reached nearly 20% this quarter, up 200 basis points year-over-year, and up 50 basis points versus last quarter, a continuation of sequential momentum observed for some time.

Our salty snacks business once again performed very well in the quarter, with consumption up 40%, reflecting underlying distribution gains and velocity growth, as well as somewhat easier year-ago comps when we were supply constrained. As a result, household penetration for Quest Salty surpassed 10% this quarter, up 220 basis points over the last 12 months. Our salty innovation strategy has been focused on developing and launching a full suite of exciting flavors, which continue to prove highly incremental. This is enabling us to build a highly visible brand block on shelf that enhances our leadership position. We're also introducing channel-specific packs, helping us attract new households and expand product usage occasions. To put this into perspective, ACV was up nearly five points in the quarter versus the prior year, and average items per store were up 34%.

With visibility to further distribution gains and strong merchandising ahead, we remain confident in sustained growth for our salty business. Quest Bar's consumption was flat versus the prior year in Q1, with solid results from our Quest Crispy line and new Overload platform. As I've said in the past, re-accelerating growth in our bar business is a critical imperative, with Overload the first step. Beginning in the second half, we expect to benefit from several additional initiatives which are already underway, including further platform innovation and improved in-store activations and merchandising to drive trial. We are hyper-focused on ensuring strong execution of these initiatives and improving performance of this important segment. Lastly, we continue to see solid performance of our new 45 g protein milkshake, which during the quarter gained an additional eight ACV points.

We are gaining trial-focused placements across the store, including a number of new opportunities we've secured at several retailers this winter and spring. In addition, our high-protein donut launched this quarter, initially on e-commerce and more recently with a large mass retailer. We expect ACV to ramp in the coming months as more retailers reset their shelves, which will provide us with a better read-on performance. As we look ahead in the short term, we have New Year, New You merchandising program in place, including significant off-shelf displays both in and outside our aisle. I want to remind you, as we said last quarter, that consumption growth in Q2 will be below the full-year outlook, in large part due to business with a key Club customer shifting from Q2-focused last year to more balanced across the rest of the year.

However, we remain confident that these strong in-store activations and trial-driving activity will deliver continued household penetration gains, positioning the brand for a strong second half. As a result, Quest remains on track to deliver high single-digit consumption growth, consistent with our outlook from last quarter. The brand is our largest and highest-margin business. Retailers view it as the innovation leader in the category, which is why we are benefiting from significant distribution and merchandising gains today, with line of sight to further expansion in the spring. Finally, we continue to invest heavily in marketing, brand building, and new capacity and production capabilities to support ongoing demand. Shifting to Atkins, consumption declined 19%, consistent with our outlook. Declines were largely driven by lost distribution at several key retailers, which accounted for two-thirds of the headwind.

As we've said previously, we continue to work strategically with our retail partners to find the proper breadth and assortment for the brand and to repurpose space from Atkins' tail in favor of incremental gains for more productive Quest and OWYN SKUs, all in an effort to get a core assortment with a clear differentiated position in the category focused around weight. These actions are consistent with our fiscal year outlook for the brand, which continues to call for consumption declines around 20%, driven mostly by distribution losses. Over the last few months, many of our initiatives to modernize the Atkins brand have begun to hit the market. These include introducing a four-pack within our meal bar portfolio, offering consumers a more attractive entry price point, new packaging across nearly every SKU, an updated website, and refreshed marketing.

Our shift to sharpen our opening price point with a four-pack in meal bars is doing what was intended, with unit velocities on average up high single digits year-over-year, building trial and repeat rates, and a 300 basis point increase in the percentage of new buyers added to the brand. As we are only one quarter into this initiative, we will continue to assess the benefits of the lower price point versus the overall revenue that the business generates over time. I would highlight that improved brand health, including new buyers and repeat rates, is an important series of KPIs we will monitor and consider as we work to stabilize the business. The core promise of Atkins has always been to help consumers reach and maintain their weight goals, backed by science and proven results.

As we continue to see a segment of consumers turn to GLP-1 drugs to help them with their weight loss, we recently concluded a pilot clinical study to assess the effectiveness of Atkins for consumers using GLP-1 drugs. The study showed several encouraging results, including positive data around muscle mass retention, digestive comfort, and certain metabolic markers important to consumers with diabetes. GLP-1 drugs are clearly a game changer for many people in how they lose weight, and we're excited in the coming months to share more information about our research into how Atkins' nutritional approach can help these consumers achieve their goals. Moving on, we were pleased to see OWYN's performance in market this quarter, with consumption up 18%, benefiting from distribution-led growth for our RTDs and powders, and an ongoing test in some club stores. Household penetration was up 100 basis points to 4.5%.

In the near term, consistent with our outlook from last quarter, we expect Q2 consumption growth to slow somewhat due to the impact of initial elasticities following the recent pricing action, lapping elevated prior-year promotional levels, and a lingering impact on velocities from the product issues we talked about on our last call. I'm pleased with our team's effort to address the product quality issues. We've seen our ratings level improve versus the summer, helped by our new and improved formula, which has been shipping since August, but we also know we have work to do to rebuild the quality perception with some consumers. As we look ahead, we remain confident in the brand and will leverage the full scale and capabilities of Simply Good to drive growth of the business.

Thanks, Geoff. Good morning, everyone. Thank you for joining us. Overall, we delivered a solid start to the year relative to our plan, with net sales and Adjusted EBITDA modestly ahead of our expectations. Quest continued to be the engine of growth on the top and bottom line, most notably in salty snacks, with solid execution across the organization as we position the company for improved results in the second half. First quarter reported net sales of $340.2 million were essentially flat versus a year ago. Quest net sales grew nearly 10%, driven by robust consumption growth of 12%, while Atkins and OWYN declined 17% and 3%, respectively.

For Atkins, while challenged versus prior year, net sales pace slightly ahead of the expectations we provided last quarter, as retailer reductions in trade inventory proved less of a headwind than we had expected. On OWYN, Q1 net sales lagged consumption meaningfully, driven by lingering product quality issues and the related impact on retailer inventory levels, which began the quarter in an elevated position. As we enter new year, inventory balances are now more aligned for shipments to match consumption. Gross profit of $109.9 million declined 15.8% on a reported basis from the year-ago period, driven primarily by elevated inflationary costs, most notably Cocoa and our first full quarter of tariffs, which were approximately $4 million.

Gross margin was 32.3% on a GAAP basis, a decline of 590 basis points versus prior year, largely reflecting higher input costs and about 120 basis points impact from tariffs, which were only partially offset by productivity and mix. Excluding approximately $2.6 million of one-time OWYN integration expenses in the current period and $1 million of non-cash purchase accounting inventory step-up expenses in Q1 of fiscal 2025, gross margin declined 540 basis points to 33.1%. Selling and marketing expenses of $29.7 million declined 10.1% versus prior year, primarily the result of a planned pullback in Atkins marketing. Quest and OWYN marketing in aggregate increased nearly 10%. G&A expenses of $38 million were flat year-over-year.

Excluding stock-based compensation, one-time integration, and other costs, including $2.8 million related to the extension and upsizing of our term loan and revolving credit facilities, G&A declined 4.4% to $28.3 million, driven by cost synergies related to the OWYN acquisition and cost management across the organization. As a result, Adjusted EBITDA was $55.6 million, down 20.6% due to the margin pressures I spoke about a moment ago. Net interest expense of $3.8 million was down nearly 50% versus the prior year as a result of lower average debt balances, while the effective tax rate was 25.3%. Net income was $25.3 million, a decline of 34% versus last year, due primarily to the aforementioned margin challenges and one-time costs. Diluted earnings per share was $0.26 versus $0.38 in the year-ago period. Adjusted diluted earnings per share was $0.39 versus $0.49 in the year-ago 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 Q1, the company had cash of $194.1 million and an outstanding principal balance on its term loan of $400 million, bringing our net debt to trailing 12-month Adjusted EBITDA to approximately 0.8x. Cash flow from operations of $50.1 million represented an increase from approximately $32 million last year due to improved working capital. Capital expenditures were approximately $2.1 million. Higher cash and debt balances at quarter end reflected the company's strategic decision to borrow an additional $150 million as part of the refinancing and extension of our credit facilities, which closed in November.

I would highlight that despite upsizing our credit facility, we were able to maintain a consistent spread over SOFR of our Term Loan B, reflecting the credit market's confidence in our long-term story, our cash flow, and our balance sheet today. With the additional liquidity and our stock trading at attractive levels, we aggressively increased our rate of share repurchases since we last spoke with you in October. For Q1, we repurchased five million shares for $100 million, and on a fiscal year-to-date basis through January the 6th, the company has spent nearly $150 million to repurchase more than 7% of the shares outstanding at the beginning of this fiscal year.

Finally, as Geoff mentioned, with our prior authorization nearly exhausted and our stock remaining at attractive levels, the Board of Directors recently approved an additional $200 million increase to the company's existing stock repurchase program, building on the $150 million incremental authorization announced last quarter. As of today, the company has approximately $224 million remaining under its current stock repurchase program. At current prices, we see share repurchases as a very attractive use of cash. Moving on to our discussion of our outlook. Reflecting our Q1 results and continued confidence in the return to growth on the top and bottom line in the second half, we are reaffirming our outlook for fiscal year 2026. Specifically, we continue to 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 the long-term growth of the total company and will look to provide more fuel should we find the opportunity to do so. Following the increase in the company's borrowings and accelerated rate of share repurchases, we are updating our outlook for certain below-the-line items. Net interest expense is now expected to be in the range of $19 million-$21 million, while the weighted average diluted share count is expected to be approximately 96 million shares. Our expected full-year effective tax rate remains 25%.

As we look at the shape of fiscal year 2026, consistent with what we laid out last quarter, we continue to expect that the second half will be stronger on both the top and bottom line than our first half. Specifically, consistent with our prior outlook, we assume Q2 will be the weakest quarter for consumption and net sales growth versus prior year. While we will see the underlying benefit of recent distribution gains on Quest and OWYN, growth will be muted by a combination of initial price elasticities, lingering impacts from the product quality issues on OWYN, and challenging comps for Quest and OWYN, both of which benefited in the prior year New Year, New You merchandising programs. All in, we expect Q2 net sales to decline in the range of 3.5%-4.5%.

Below net sales, we expect to deliver sequential improvement in year-over-year gross margin declines as compared to Q1, with Q2 gross margins down approximately 300 basis points versus prior year, helped by the contribution from pricing and productivity, which we expect will begin to offset headwinds from historically high Cocoa prices, recent increases in whey, and tariffs. As a result, Adjusted EBITDA is now expected to decline double digits, slightly below our previous outlook given the impact of more elevated whey costs than we had previously expected. By the second half, we expect growth to improve meaningfully on both the top and bottom line. Specifically, net sales growth is expected at the higher end of our full-year range, benefiting from distribution growth, including some recent wins, normalizing elasticities, lapping the initial impacts from OWYN's product issues, and an exciting slate of innovation launches across our brands.

On the gross margin line, consistent with our outlook from last quarter, we expect second half levels to be roughly in line with or slightly better than our full-year fiscal 2025 gross margins on a GAAP basis. This implies flattish year-over-year gross margins in Q3 before Q4 expansion of nearly 200 basis points on a year-over-year basis. I would also highlight that this reaffirmed outlook includes modest tailwinds towards the end of the year from lower expectations for Cocoa costs and tariffs given recently secured supply commitments and announced trade agreements and exemptions. These new benefits will be offset by higher assumptions for whey across the year.

For Adjusted EBITDA, consistent with what we have said last quarter, phasing should generally track the shape of our expectations of gross margins, with much stronger results by Q4, which we expect will be our strongest period of profit growth, up double digits year-over-year. We continue to expect capital expenditures to be in the $30 million-$40 million range, due mainly to the ongoing previously discussed co-investment with a key co-man partner to support additional capacity in our fast-growing salty snacks business. Finally, I will note that our outlook assumes current economic conditions, consumer purchasing behavior, and prevailing tariff rates will remain generally consistent across the company's fiscal year. While our outlook includes a number of important assumptions, there remain several uncertain swing factors outside of our control that could represent risk to our outlook. For a comprehensive summary of our full-year outlook, please see slide 15 in our presentation.