The Simply Good Foods Company

Q1 2022 Earnings Conference Call

1/5/2022

spk_0: greetings and welcome to the simply good food company fiscal first quarter of two thousand and twenty two call at this time all participants are under listen only mode a question and answer session will follow the formal presentation if anyone should require operators distance during the conference please press stars zero or neutral from keypad as reminder this conference is being recorded or announced from the coverage over to your hosts the summer for guerin think if you may begin
spk_1: but if you operator good morning of walker reader with the company earnings call for the first quarter ended nov twenty seventh two thousand twenty one joe girl the president and chief executive officer and car comforting financial officer will provide you with an old your would go with will then be followed by q when a session the company issued it's earnings release with morning at approximately seven am eastern time a copy of the week and accompanying presentation are available under the investor section of the company's website at www dot the simply good the company dot com this call it being webcast in an archive up to date remarkable also be available during the course of today's call management will make forward looking statements are subject of various risk and uncertainty that may cause actual results to differ materially the company or the take no obligation to update the statements space or subsequent events a deep you're lifting of such risk and uncertainty can be found in today's press release him a company to as he from filings note that on trade called the war a certain non gaap financial measures that we believe will provide useful information for investors you to the company doesn't lifelong casual business model be a town where performance on an adjusted basis as it relates to eat it or indonesia dps you have included a detail reconciliation from gap to adjusted items in today's release we believe these adjusted measure are a key indicator of the underlying performance of a business the presentation of this information is not intended to be considered an isolation or the substitute for the financial information presented in accordance with gap please refer to trade personally for reconciliation of the non get financial measures to the most comparable measure prepared in accordance with go without on alcohol turned to call over the joe salvo president and chief executive officer thank you mark morning and thank you for joining us
spk_2: today a recap simply good foods first quarter results and provide you with some details on the performance of a brands and todd will discuss or furniture results in a bit more detail before we wrap it up with the discussion of or outlook and your questions very good start to the fiscal year as or first quarter results continued are strong business momentum first quarter net sales gross profit and just anybody i'll increase double digits on a percentage basis vs last year and were slightly better than our expectations that sales increased twenty one point seven percent driven primarily by volume additionally we estimate that are september fifteenth price increase was about a mid single digit percentage point benefit to the total net sales growth year over year increase in itself benefited from improvements a consumer mobility and shopper traffic vs last year's cope with nike restrictions this resulted in retail take away slightly greater than or estimates do to growing also penetration from a marketing investments improved distribution and new product innovation note that the impact of pricing is expected to be great a greater contribution to growth over the remainder of the year total simply good foods first quarter retail take away increased eighteen point seven percent in the us measure channels of iraq new low and convenience stores first quarter net sales growth was slightly greater than consumption to the timing of shipments at the end of last quarter and the typical seasonal inventory double related to distribution games and new years retail program yesterday but he a in the first quarter increase thirty four point seven percent to sixty five point six million dollars primarily due to the solid sales growth quest acquisition synergies and junaid leverage this more than offset higher marketing investment gross margin increase seventy basis points versus the year ago period as expected supply chain costs were ahead when but were more than offset by price increase unfavorable mix additionally we experience steady improvement in customer service performance during the quarter as we stated in previous conference cause we expected supply chain cost to be a significant head when he fiscal twenty two to twenty twenty two largely offset by or price increase however our supply chain cost over the remainder of the year are now projected to be higher than our previous outlook driven mostly by ingredient costs therefore the for year gross margin impact is greater than or prior estimates we'll discuss this in greater detail and just a moment that said we are confident in our strong topline growth and our ability to manage the higher costs and are increasing or full year net sales and adjusted either the a outlook we are focused on driving sales and earnings growth and competing effectively while navigating a challenging supply chain environment will continue to execute against our strategies and believe we are well positioned to continue to deliver net sales and earnings growth that we expect we'll create value for all shareholders are doing the right things over the long term for business or customers and our concerns the good food retail take away and measure channels increased eighteen point seven percent in the quarter importantly as has been the case throughout the pandemic both are brands of outperform their respective some segments of weight management and actively trisha in the quarter weight management segment was up four point four percent and and to outperform the segment with retail take away of seven point seven percent over the same period of time total class retail take away and measure channels in the quarter was up thirty six point two percent and el the act of nutrition segment growth of thirty point three percent and or ecommerce business continues to perform well as pos grow too similar to measure channels even as we anniversary strong year ago comparable atkins q what at you want us retail take away measure channels increase seven point seven percent year over year increase benefited from improvements in consumer mobility and shopper traffic particularly in the mass channel vs last year's covert restrictions as well as continued total buyer growth in the quarter consumption of bars increase three point three percent and was in line with recent trends bar by rate remains below historic levels at their the high correlation a bar consumption to being at work ak shakes in the quarter retail take away was up twelve point nine percent and sequentially improved versus the fourth quarter of last year performance was particularly strong and a mass channel up about twenty percent atkins all other product forums continue to show strong growth these include confections and cookies as well as the just launched achatz protein chips and q one achatz all other retail take away increased about nine percent driven by cookies which contributed about two percentage points to total actions brand retail take away growth his actions were modestly as we lap last year successful dessert bar much first quarter pos growth increased across all channels and was particularly strong and mass up about ten percent driven by increased traffic were pleased with atkins ecommerce performance amazon app and second largest customer you want retail take away increase low teens on a percentage basis versus the year ago period the lack of ecommerce pos growth in the quarter was similar to measure chance atkins growth of total buyers remains strong by rate remains lead single digits below historic levels due to the high correlation between consumption of bars in the workplace therefore the improvement in actions by rate remains an opportunity for the brain i mean i'll turn to class were first quarter retail take away increase thirty six point two percent in the measured i er i knew los c store universe and outpaced the active nutrition saying both versus the year ago period was driven by the increase in the house or penetration and proving shopper traffic a rebound in bars in successive new product forums quest bars first quarter retail take away measure channel increased twenty two point eight percent we call quest bars are nearly sixty percent of total class measure channel retail sales snack your portion of quest products about forty percent of us retail sales continue to do well and increase the hundred and six percent in the quarter driven by strong performance a chip cookies and confections we continue to see robust ships demand and are on track for incremental supply to come online as the year progresses we add another good quarter of growth across off he retail channels foot traffic in the mass channel and convenience stores with salad you won pos growth and these channels were up about fifty and forty percent respectively west ecommerce take away increased about twenty two percent versus last year
spk_1: as expected to the strong performance in a year ago period the growth rate moderated someone
spk_2: a business at amazon remain strong and cuoco is solid across all major forms in summary we're pleased for the first quarter results that will better than what we expected that said retail take away growth in the first half of the year will be stronger than the second half of the year as comparable to become significantly more challenging we have a good balance of innovation as was consumer and customer programming a place that we believe will drive solid retail take away and net sales growth throughout the year a customer service levels have improved during the quarter and we are approaching more normal performance we expected supply chain costs will be a significant headway during the fiscal year pricing and cost savings initiatives or played the mitigate the impact of inflation however as i mentioned earlier supply chain costs remain high and we now expect them to linger it elevated levels throughout this fiscal year and into the fiscal twenty twenty three therefore we're updating our previous view and expect total fiscal year twenty twenty two gross margins he declined about two hundred fifty basis points vs last year as we have stated on numerous occasions we believe our gross margin and overhead costs structure offer us the ability to invest in the future growth of our brand and organization as we assess the impact of lingering supply chain cost inflation over the balance of this fiscal year and into fiscal twenty twenty three we will consider all options available to us to protect our qa structure including further pricing action as you move into q two weeks back retail take away growth to be similar to q one that said we remain cautious about consumer seasonal participation and return to work trends you to the recent surge in kobe the nineteen cases from the omni cranberries we're executing well against our plans that we believe we're in position to deliver another year a solid net sales and adjusted either the a growth at a path to increasing shareholder value on out now turn the call of it it's hard to provide you with some greater financial details of then end up a pair march with details on assumptions related to our revived alpha
spk_1: thank you joe in the morning everyone i will begin with a review our net sales totaled simply get food first quarter net sales increased twenty one point seven percent to two hundred and eighty one million dollars
spk_3: north american net sales increased twenty four point five percent and was primarily driven by volume as joe stated during the chinese and implementation of the previously announced price increase we estimate pricing was a mid single digit percentage point benefit to total net sales growth therefore pricing will be a great
spk_2: or contribution to sales growth over the remainder of the year the international business declined twenty seven point three percent due to the european business exit poor international net sales growth and three percent and the european business tax it was a one point six percentage points headwind to total company sells growth moving onto other piano items gross profit was one hundred and sixteen point six million dollars an increase of twenty three point nine percent gross margin of forty one point four percent increase seventy basis points versus a year ago period as expected supply chain cause inflation with a headwind as quarter however it was more than offset by the previously mentioned price increase lower trade promotion a bubble product product and customer channel max and carry carry over coverage of select law material
spk_3: as joe manchin we anticipate significant supply chain inflation has got to get higher costs related to raw material packaging and logistics
spk_2: why thing and cost saving programs are in place to help offset the costs just leave it at increased thirty four point seven percent to sixty five point six million dollars to the higher sales and je ne letters selling and marketing fencing increase twenty one point two percent to thirty point five million driven by firebrand building initiative on both brands due to a large ramp up of marketing spent and second half of the school twenty twenty one the majority of the increase in the fiscal twenty twenty two marketing a cool worker in the first half of the year
spk_1: dna an expense excluding quest integration cost restructuring expensive stock based compensation and other costs more about the same as a year ago period
spk_2: fire and incentive compensation was offset by lower corporate expense and integration synergies
spk_1: we anticipate solid dna leverage this year and expect leverage will be greater in the second half of the year due to the timing of when we began to accrue incentive compensation and fiscal y twenty one
spk_2: will lead to other items in the piano catered interest expense declined to million dollars to six point four million didn't pay down of term loan and the first quarter of fiscal twenty twenty do the noncash charge would lead to read measurement about private warrant liabilities and seventeen point three million dollars in the year ago period we recorded a non cash twenty point five million dollar game related to the one
spk_1: our statutory tax rate and you want excluding the charge related to the warrant lie building was about twenty five percent you continue to anticipate that are for your tax rate will the approximately twenty seven percent
spk_2: that incoming que one was twenty one point two million versus forty three million and
spk_4: during to eat yes
spk_1: first quarter report a dps with twenty cents per share diluted compared to twenty three percent twenty three cents per share diluted for the comparable period of twenty twenty one
spk_3: in addition to the previously mentioned warrant the impact depreciation and amortization extensive was four point seven million dollars and similar to a year ago period
spk_2: doc based compensation and two point six million increase one point five million versus last year and costs associated with quest integration and restructuring were zero point one million dollars vs three point eight million dollars last year
spk_3: adjusted deluded dps which excludes these items with forty three cents an increase of forty cents versus a year ago period note that we calculated justice deluded dps as adjusted ebitda less interest income countries expand and income taxes additionally the calculation of adjusted below dps into one assumes all your luggage shares outstanding of one hundred and two point five million versus ninety seven point nine nine hundred gap
spk_2: the difference the difference vs gap is due to the exclusion of the private warrants employ deluded shares outstanding under gap is it a private warrants been classified as a liability on balance sheet
spk_1: please refer to today's press release for an explanation and reconciliation of gone gap financial measures
spk_2: we did about shooting casual in november twenty twenty one the company pay down twenty five million dollars of it's charm loan and at the end of the first quarter the outstanding principal balance was born and thirty one point five million dollars in the first quarter the net cash news in operating activities was seven point three million noted that this was affected by the timing
spk_3: what and capital tax thing that's an increase in in in incentive compensation payments versus the buyer year
spk_1: the company continues to anticipate full year fiscal twine trying to cash for from operations will be greater than last year
spk_2: as of noon as of november twenty seven twenty twenty one the company had cash of thirty five point four million and a trailing twelve month net get to adjust to keep it out ratio was one point in time
spk_1: capital expenditures in the first quarter were two point seven million dollars for your cat act is expected to be about five to six nine
spk_3: we anticipate gap interest expense to be about twenty five
spk_1: reporting noncash amortization expense related to the third final defeat i would like now like to throw call back to job for closure remarks
spk_2: thanks dad for strong first quarter results or good start to the year a retail take away trends remain solid and we have marketing customer programming and new product plans in place to continue to drive growth this gives us confidence to increase or full year net sales and adjusted the but yea outlook vs our previous estimates note that are forecast is not assume any meaningful changes the workplace mobility looking at the key metrics of are updated for year fiscal twenty twenty two outlook we expect net sales increased while the forty percent versus last year and this includes a one percentage point had when related to the european business exit it stated earlier higher supply chain cause vs or previous outlook driven mostly by ingredients remains a headwind and twenty twenty two and will result in full year gross margin contraction of about two hundred fifty basis points with the biggest impact in the second and third quarter but you have to be the da's anticipated to increase slightly less than the net sales growth rate we continue to expect that marketing expense will increase of vs last year although it a lower rate than the net sales increase additionally we anticipate benefiting from significant as she and eight leverage and the decline in interest expense should result in an increase of adjusted deluded dps greater than the adjusted ebitda yeah growth rate with his fate the net sales growth in the first half of the year will be stronger than the second half as the year over year comparisons are significantly more difficult as we proceed to the year additionally we expect our retail take away growth rate in the second quarter of fiscal twenty twenty two to be similar to the first quarter and due to higher cost we expect you to adjusted either the a growth will be less than a net sales growth rate we're excited about the growth opportunities that exists within our business and this category we're executing against our strategies and increasing household penetration that is resulting in solid sales and earnings growth are strong balance sheet and cash flow generation enable us to invest in our business and evaluate in a opportunities as a path to increasing shareholder value we appreciate everyone's interest in our company and we're now available to take your questions
spk_0: thinking at this time of the conducting a question and answer session if you like to ask a question please post star one and you tell phone keypad a confirmation time and again in line is in the question him he meets her start to if you'd like to remove your question from the camp for participants using speaker equipment in may be necessary to pick up your hands set before pressing the star keys
spk_5: any interest of time we ask that you eat keep to one question and one follow thank you
spk_0: i first question comes mine of chris grayling was deeper
spk_6: hi good morning us my christmas the morning i just had a question for you i'm at yearns to the color of a popular topic on on on many companies calls but was listen to seems to keep going in and need to pricing and as a result not totally offsetting the cost inflation least there's the me some gross margin effect from that i wonder if you could give me a or if you could have
spk_7: the the level of inflation out back and then i guess we're not looking for ford prospects here for pricing but just in the in a world where you look to utilize the gross margin to reverse back in the business are you limited in that regard this year because of the gross margin all of your for the business now
spk_2: yeah so i'll take that one chris so first of all just to be clear we are very comfortable with our ability to navigate the biennale even with this incremental supply chain cost as your her we raise both our top and bottom line guys we feel terrific about that
spk_8: yeah regarding levels of inflation going into the year we kind of with me on there were significant inflation with a significant price increases and the inflation that we were seeing was probably hi single digits is now increase the kind of low double digits for our total business so that's that's the you know new new outlook for for comedic
spk_3: off
spk_8: so what is significant harm in a we love the shape of our p l we love our ability to invest in our business you can count on us to increase marketing in this year he may not be at the same level of growth rate that we've gone in the previous years as youth has you know we've increased marketing substantially well ahead of net sales and allow several years so we're close to ten percent of net sales from a marketing investment
spk_7: with feel great about will increase it a may not be at the level and the growth rate we've done in the past but you can expect us to continue to invest in our business
spk_8: and industry clear on that side is the of do you have better visibility those in because our city of more coverage i guess the question that we i lie the have the comfort of that yeah and so whereabouts were about seventy five percent covered for this year's we do have a little bit of explosion a little bit restless arrest year but again we do have levers in rp an alpha males that work
spk_3: very very comfortable and obviously if the thing continued to linger
spk_7: you know where we will not hesitate to to take some additional pricing action
spk_2: okay i just want to go quick follow on the on the atkins brand sounds like of by rate is mostly unchanged she just more buyers that was only measurable change in that sequentially from from the fourth quarter now we're still chris was still say what we've been experiencing which is strong interest in the brand evidence the number of buyers participating so we continue to see growth and buyers and the bar form in particular for actions the number of snacking occasions or bars is being impacted now negatively by people not be back at work that the good news is as we mentioned in our prepare comments are kind of all other forms nine shake nine bar business is doing really well those are incremental of consumption occasions highly less correlated to being at work
spk_7: and that starting to pick up some of the slack for my by rachel point
spk_0: look at take so much for time
spk_2: thinking or next question comes to mind at least an english with common pleas for shooting question
spk_8: a away about couple quick questions first quit back of yeah it looks like you're cutting a gross profit forecast for your parents reset and a it is correct and be with a bit i actually will be higher in context of gross profit be lower where the offset yeah so the an email to your mother your mouth is generally correct so first of all we have significant jian a leverage and p an hour when you're out the good news is when you're taking the volume up now and you get out the incremental profits from the volume but from a percentage basis from large and perspective you get a nice kicker at the give done margin line with the dna he flat the growing very modestly for the year and then has a you know as or talked about par with the but chris growth question what we're we're going to increase marketing we have the ability to toggle that back
spk_2: as now depending on where we see the gross margin come in it'll be an increase this year but there were still a very healthy what level of marketing so we have the ability to have some more modest increases and marketing if necessary
spk_8: so to put a finer points on your hands are tied it sounds like a plane spend less marketing the you initially planned coming into the air did i get a correctly
spk_2: probably a little bit depending on how your plays out yeah we be our new show guidance when we were having you know eight to ten percent net sales growth was that for that to be basically in line so implying kind of a high single digit growth initially it's probably going be a bit lower than that data is and you started so confident on your gross margin alec last year to it out here we are a few months later and it looks back to the envelope like you're year and ingredient forecast by fifty percent or so for the four year at what a m any we on the outsider looking at spot market that look like a little off a little down but added just moving sideways what's really caught you off guard what changed so much of last three months you are ridge earth is joe the original view of the marketplace was that it would not stay at the sustained hi high levels that we're experiencing as we moved into the year in our view of it now as looks like it's gonna linger longer than what we expected so it's not a matter of costs are going up there just not debating is what we aim what we expected and frankly that view is a pretty recent view so we're starting that were just starting the process is stepping back and say
spk_9: okay this is gonna linger while and are prepare comments we said side of the second half of the year we expect the malangre into the next fiscal year what our options and what are we gonna do about and we've been pretty clear with the market from the very beginning we think the shape of rpn now a competitive advantage gross margins over forty percent marketing investment around
spk_2: around ten he the da as a present a sales around twenty percent right so i'm a if if these costs seem to be lingering you can expect us to act in order to maintain our margin structure
spk_10: got gotta understood and congressional striped memo at about wake up as a kid
spk_11: agitated thinking or next question comes from line of wendy nicholson city please proceed with your question hi my question is just on the supply chain on in terms of your availability on the labour side in terms of the work you have to call manufacturers are you seeing any challenges i know you talked about strengthening our atkins shake tesla
spk_2: este obviously that up a very low base because it's a new product but can you talk about bars or shake that you're see any specific challenges and in and getting product in the door yeah when to get to a good question as we said and or prepare comments or performance improved during the quarter so we were below what we our expectations on customer service and frankly it wouldn't it was not one thing though throughout the supply chain we've run into challenges from ability to get access to customers docs to the ability to get products from coal man the ability to get ingredients to get products and comment pretty much you your playing supply chain whack a mole on a daily basis that said or our our our supply chain team is done a particular the any job in the first quarter of that of addressing those challenges and improving our customer service such that when we exit the first quarter we're getting pretty close to out or where we expect our customer service performance to be
spk_11: so in look i don't or are we out of the woods from a supply chains they point know i expect i expect it will continue to be challenged on a daily basis with issues nothing is smooth right now by a team is shown the ability to manage through that we're pretty confident
spk_12: and on on i can shake this is obviously you know protein shakes great category rapidly growing but also very competitive you know the atkins brand obviously speaks for itself in terms of brand recognition but but it just can you were my is gonna how is that positioned and how do you intend to kind of carve out a niche in a in in what is a very crowded
spk_2: category right now yeah so let me to spell that it's a category it is not so a very unusual in this nutrition category you got products informs that don't compete with each other so let me give you the simplest example sure and boost high protein low carbs and sugar source and interact very little with actions and premier protein because the consumer benefit is fundamentally different consumer targets are different consumer benefits are different so as if you try the group anything that the shake that high protein low carbs and low sugar together you're actually making a mistake and on how to think about the category i think what's happening is because people are home more shakes or a full there are more uses occasions of those shakes across the consumer targets and across the consumer benefits i think you're seeing that second if you can supply the product you're getting preferential treatment among retailers because you can get you can services it you can get display and keep yourself that we've not had issues with our shake business and were benefiting a little bit from that but again there's not a lotta interact
spk_13: june two very unusual you've got a danica products the do not interact with each other because the consumer targets in the benefits of so fundamentally different
spk_11: fair enough
spk_12: and then my last question it was just one of the comment you made on at the very beginning was about the shipments outpacing inventory a little bit in anticipation of sort a normal inventory belden and a new years promotions but i guess my question is just in the first get up whatever two weeks of the year with el mercado whatnot on are you seeing any
spk_2: tom delay and purchases people going back to the store since i'm just wondering if there's it's that inventory build means there's gonna be excess inventory on store shelves for some time to count the i think our our prepare comments to be clear prepare comments had two factors in that first we ended last year at a lower trade him in tory level the more we would have expected and it had to do with our ability to flow products to customers both on the customer side and our side so we had some make up to do in the in the quarter and in second gear rightly pointed out in the build up for merchandising at retail in new years really too early to call new years consumption yet right so we haven't gotten that
spk_0: kind of first complete week of january from a pos standpoint point so it's hard to tell exactly with the consumer off take is gonna be a new years he found out the good a yankee when
spk_14: and you are next question comes to mind afternoon or swallow with credit suisse please proceed with your question ah guys good morning
spk_15: like a follow up a little bit on the supply chain commentary just made do you have a a sensor an idea that impacted might have had on an overall top line or was it as simple as into the customer service wasn't where he wanted it to be
spk_2: first quarter again ability to service the customer impacts your revenue when you're out of stock right so if you miss a sale because somebody comes into a store and you're out of stock that's the challenge of the business we had our stopped in the first core so we we saw those as the quarter progressed steadily get better
spk_14: though obviously we're a little bit more optimistic our services better out of stocks are being reduce the ability to flow product to the shelf is smoother than it was as we won into the that's that's all good news
spk_16: okay great and then to talk a little bit more on on hustled penetration the context of market share on your knees benefit from ability but you've benefited from a lot of brand momentum recently as well since you're in so many categories it's a little difficult for us from the outside to get a good sense on on where the shrimp share trends look
spk_2: i would anticipate their up nicely but if you could give any more context or collar on where you sit in terms of share in the context of how you look at your ah your brands yes a week and maybe it would be helpful sounds like you may be sub segmenting the brand's by form or a be are strong recommendation that you look at some segments of weight management for actions regardless of form and on quest regardless of form active nutrition which would include brands like premier protein to name a few right so in both of those segments atkins his outperform the weight management segment and quest is outperform the active nutrition segment and that's what we track there's so much interaction with in our brands with in the forms it's it is more accurate to take a brand v you there for a brand consumer benefit view than it is trying to sub segment chips and cookies and shakes and bars because the brand will interact so much within those you get a false read of what's really going on get to give you an example the highest interaction of atkins me oh bars his actions shakes so by a we're on a roll on shakes because of innovation because merchandising because a good communication we see an impact in our meal bar business and vice versa so look at the brand from a from a consumer benefit weight management active nutrition and evaluate the total bring against those segments and would you'll see as we've been steadily grow
spk_16: i would share in both of those subsequent
spk_5: cecil thank you
spk_17: think you are not as intense mine alexi howard with bernstein
spk_18: the morning everyone
spk_19: i like it
spk_20: i am so this going into this year and i know where entering the second quarter for you guys now that the level of uncertainty is unprecedented just given a pandemic given the impact cost inflation and all the other moving pieces supply chain disruption and so on if you had to rank order from hear what the key
spk_21: he said of uncertainty is our and hands of risks and opportunities are given the changing guidance that we just seen from you how would you how would you rank order the things that you don't know and or all the get habitability ancient from here thank you an awful lot at the killer question affect the
spk_2: what keeps me up at night all right so i think any change to consumer mobility and shopping behavior that would be the first right we saw it the beginning of a pandemic that led to huge levels of volatility i'm from a consumption standpoint of remember the early stages consumption spike than than a decline and shopper traffic was down and channel makes change so if if if if you were looking at risk to the business the the crime the i'm the kind of cranberry it's impact on pill people shopping behaviors as and their mobility or the out about it or is his life at least reasonably similar to one it's been in this kind of the post co vid consumer mobility world that would be the first i think the second in our businesses we took a price increase on september fifteenth you know for the most part doesn't start really the hit the shelves and till early november so retailers don't move price that quickly so we don't really have a lot of data on at the impact on buying of the price increase the that's a second half of the year risk i think so that when keeps me up a little bit and then i think they're just in general we know we're going to be chasing supply chain challenges for the year right so our ability to be responsive to those challenges our teams done a phenomenal job but they are playing whack a mole every day night as and they're chasing issues that you typically don't deal with in a year nothing's flowing steadily so you know our customer service has gotten significantly better
spk_22: but like a duck on the water look smooth but we're working really hard to make that happen i would say a in that cost environment
spk_2: you know i think we he is the absolute price has been pretty steady i think somebody said that in their comments so for us now it's how long is it going to linger and then what do we want to do about it so i'm less concerned about
spk_20: i'm less concerned about the price because it appears to have plateaued the fundamental question is how long is it gonna be around and then how do we address it going for
spk_8: makes perfect sense and thank you so much times it's a real quick followup you mentioned favorable met in the press release this morning i'm
spk_2: what is that a tribute to the attributable to and how long is it likely to continue yeah dirt mean during during covert during the height of kobe the hum both on both brands the bar business really suffered and now that we're getting back to you know somewhat normal consumer behavior the bar
spk_20: business particular on the quest side has has rebounded really nicely and also from a customer standpoint you're getting a better balance between brick and mortar and he can see store business on a quest sizes with has had a tremendous you know last couple of months here and those are all positive things from and mix perspective for
spk_0: yes
spk_23: perfect thank you so much a hostage on
spk_2: thinking or next question comes from line of rob dickerson with jeffries please proceed with your question great thanks so much
spk_20: first quick question just you know the top line guide obviously you know implies deceleration year by year well did you one
spk_24: and then you realize that second after like they grow more slowly in the first half decent terms of to to
spk_2: yeah joe i guess and and tied to just your comments it away with it
spk_8: it sounds like you you know of hedged a bit so to speak in terms of some us to city arrest or for you to and then also there's the implied gonna roll off of the inventory build benefits so i'm just curious years with a q two year be are taught by relative the you one is your any kind of expertise and for an increase in placing given the tiger the pricing you've already implemented and into on the boy inside is or anything in there are that could decelerate a bit you know outside of just give a toy dog benefit you got your said better get allotment yeah told me he saw that the biggest pos growth in the first the quarter really total consumption with that eighteen or nineteen percent range which is no obviously we're very pleased about and and when we send our campus we think that can be about the same and que to and we ship a little bit of a had a consumption so that was is getting him into our back on the shelves from what was going on during the summer period and so we have the shipped a bit
spk_3: ahead of consumption
spk_8: or commissar we're getting a pos is consumption is gonna be about the same it's always a little bit of a while car where the inventories gonna fall as as we as we end the quarter or we're kind of and that you know high teens twenty percent you know kind of consumption rate we feel we feel comfortable about what more net sales exactly also depending on ya where shipments are you up it's always hard to tell within within a couple points but we think the pos will be very very consistent and then as again to the second half obviously first half of last year we grew wanted to percent second half of last year we grew twenty five percent so we're blabbing much more challenging numbers and as joe pointed out on with it with the last question we still have you know noise around pricing a leftist it iraq assume mobility
spk_2: so you know the waves were playing out potentially a little bit conservative second half assumptions fear but we have a much more difficult lap and second half
spk_20: he a thing as they get a little then it's a little deceptive is your second half growth rate starts to step down voted the first half were really confident in our ability to grow the top line the absolute our sales is a manifestation of a year ago comparison to the second half year not our ability to grow the business we're very confident in
spk_23: that and we feel like we've got the products the marketing be a programming at retail can continue to draw out drive strong and ourselves we're very confident that
spk_25: are enough and it is currently on the detrimental patient commentary it would seem as if we can have given the timing of your fiscal year
spk_2: ah you know if you were to implement incremental pricing at retail and is given to the lag of an your relative it the shelf would seem like that can be of may be kind of a late fiscal twenty two that if needed but in a probably higher probability that kind of rolls and twenty three so that their when you when you are a maybe this will be helpful right when you make the decision to price tag three or four months the executed with customers yep tell them in it he pulled the trigger
spk_23: it's three or four months before you can execute and then from a retailer standpoint another few months for them to reflected it show so there's a delay to that the and again as i'm with as i mentioned in one of the previous with to the one of the previous questions you know that our view of the lingering cost is a research
spk_0: and to one so we're just starting to evaluate our options right now
spk_26: the data are great thanks a lot thanks rob thank you are next question comes from line offend the and the new with stephen king is pretty with your question i think morning on our a follow up on the revenue tiny question you talked about among
spk_2: in a potential risks of how you control one of which being consumer ability when you think about your ability to mitigate risks and thinking about innovation as driver and your ability to price how comfortable you feel in terms of the elements that are within your control to help mitigate any risk with external factors that around under control
spk_9: the a good question i think to in others to rest that people lock up in home
spk_2: and or don't want to go into stores my those are the two risks i think so when they lock up and home the snacking occasions change right so for us probably the single biggest mitigate or has been the growth and all other forms go out when when i mean by that is on both brands we have a bar business and a shake business which i think it's center the fairway core business for us right and as we've noted in our commentary with actions that bars especially bracken highly correlated to being at work and being in transit the nice thing that we've learned as we've launched into cookies chips and confections is they don't correlate to location at all so our ability to grow those is a nice hedge against the risk that we seeing consumption on bars if people would i'm kind of go back to be staying at home and not going out the second factor is shopping behavior if remember the earliest that's what you mean it's been two years but remember the earliest behaviors people stop shopping and limited in number of retail outlets they were going to best hedge there has been ah
spk_26: he commerce business so the major brick and mortar retailers have accelerated there ah ecommerce business both ordering online and having it delivered as well as pick up and delivery so ah as them they combined with accurate at with the amazon is a natural hedge to people shopping behavior and retail doors changing so we feel like yes there's a risk out there
spk_27: probably gonna be trans am but with have some natural hedges to offset those challenges still keeps me up at night though
spk_8: okay that's great thanks to my second question is is a follow up on past he talked about six seventy five percentage your exposures covered to discuss is that uniform across the year or would it be what the nature that be that your fully covered for the next several quarters and more exposed for maybe the fourth quarter and then within that coverage were at a bucket
spk_26: please vs most coverage
spk_0: yeah
spk_28: would rather not get into that level of specificity there are due to to answer your question broadly there are some commodities where we are covered for the entire year there are some commodities and some more minor a greedy and where we might be only cover for fifty to sixty percent of the year so it's not uniform
spk_2: the but again i don't wanna get for compare written someone get into specifics but dumb yeah seventy five percent of the year there's not a huge difference between the commodities but there there there are some commodities that we are fully covered on okay fair enough thanks so much better luck with rest the
spk_28: like it
spk_2: making or next question testing line as see powers with don't think please visit with your question get say thanksgiving guess how important it is a gets
spk_8: as you think about the the cadence of the school twenty two from a gross margin perspective i guess i'm try to get a better feel for you your anticipated exit with a on gross margin into twenty three it seems likely that the sure hit to come versus prior to the patients in the next couple of course but i guess i'm less clear where your guidance and
spk_2: four cats have you actually twenty two vs three months ago
spk_8: and where you want to be to do it is said early that forty percent plus gross margin the are your piano advantage the reproduced as we step away from that the next couple of quarters i guess how much progress that to make back towards that bad
spk_3: towards that edition by year end
spk_2: yeah so as we mentioned earlier it's the our we're going to avidly start to see the hit pretty significant here hit here and two two to three will be the toughest comp for us now only from a twenty two costs perspective if you remember que three last year we had a blowout gross margin expansion
spk_8: just kind of everything was clicking one hundred boy bases point a gross margin expansion even despite the opry difficult environment so the that that going to be a tough lap we saw saw cost start to rise in queue for of last year a bit still had gross margin expansion so you know again we are not completely covered for the year and i'll probably a lot of things can change in the next year six to nine months but yeah we should start to see gross margin
spk_28: ah degradation be a little bit you know less severe to go into cute for really depends on where commodities are for the end of the year really depends on whether we take any very specific actions but damn it should be better and queue for and if it's as we say had several times you're on the call it things are not where we wanted to be you can rest assured we will take some action that he'll either starter impact you four or more importantly got impact twenty three
spk_2: yeah okay but i guess from i am just a what's embedded in your outlook i get the year by year dynamics because you'll get the cops but sequentially are you are you take a big step down to queue and i'm gonna go sideways like three quarters or are you expect to see sequential improvement a gross margin
spk_9: given letters yeah i make italy again it depends depends how everything plays out it'll be fairly as we get into cute three and queue for the those those gross margins will be relatively the same from an absolute basis you ever year it'll be some obviously changes will rogers was sad but the absolute gross margins to be wrong
spk_2: relatively young people and que three to four okay fair enough i guess if i could just totally different topic
spk_29: if any comments on the i'm in a landscape in terms of opportunities crossing your desk
spk_2: the as well they changing your appetite to entertain deals it's given the uncertainty you're facing we've been talking about the last you know almost our
spk_30: the pretty busy environment with a lot of opportunity and as which stated
spk_2: on number of occasions sellers have brought the expectations and buyer need that buyers need to be were salvia okay
spk_15: and we will continue to evaluate complimentary brands to our portfolio and
spk_28: where are we we have
spk_31: we it
spk_0: like to think of ourselves as value buyers that we're looking for were looking for assets a decent size given the size of our portfolio the number brands in the size of those brands
spk_32: we need to understand the consumer promise as part of that have a pretty good understanding of who the consumer target is and our ability to more effectively market that brand to that consumer target in order to grow it and now obviously we have
spk_33: he has supply chain synergies a strong selling organization that we could add a bread about a brand to the bag to and accelerate but for the most part you're looking for strong consumer brands at a complimentary to our portfolio today those are out there and you just continue to have to chase them to see if you can that
spk_34: i get a business at a decent day
spk_2: appreciate your tax or else and can get a thinking i met a shinkansen line of pamela kaufman with morgan stanley fish pretty we get much
spk_33: hi good morning point up i know that it's a very dynamic environment that as just curious if you are undeserving any changes in demand from the reset renewed rise and call the cases and would you expect any short term headwinds term changes in consumer nobility on and what if anything you factor in see
spk_21: outlook santa ana crime
spk_2: yeah we'd not you first prepared marks we've not factored any changes either positive or negative from a demands damn parts are view is it remains where it is on the crime has been recent phenomenon if you think about it last month it was in south africa now ninety five percent of cases in the united states ah so it's a little too early to call i will we not seen dramatic of foot traffic changes when not seeing dramatic changes in consumption behavior or apparently movement a but you know you have to keep your eyes open the thing is pretty dynamic and pretty volatile hey of and then i have brought a broader question on class request has seen very strong growth over the last several years how are you thinking about them they can growth rate for the brand and and what do you see as the key drivers how much would you accept a come from increase household penetration first distribution expansion innovation yeah well let me let me define it let me tell you how we think about it and then it it might be give you some insight right so for us the key metric from a marketing standpoint is also penetration all the other factors are derivative factors to help that don't share voice of marketing white space from a distribution standpoint product innovation all accelerates our ability to drive household or penetration to the quest brand has benefited in the last call a year or so from to big factors factor number one has been the bar business has started to recover from kobe confinement and in particular
spk_33: channel has helped the bread we have a big see store business small format business that team has done a phenomenal job at kickstarting as foot traffic is improve their kickstarting the bar business for class so you're seeing a rebound in bars which is sixty percent of the quest business
spk_8: the that's been a big factor for us the second is gonna all other forms wouldn't what mark cause the snack your portion of the quest portfolio all have done with the exception of our t d business request all of the snack your portion of the portfolio is done extremely well cookies continue to grow chips weep been supply constrain the demand has been so strong confections
spk_35: had done extremely well those have road driven oversize growth rates in the business i think collectively and are prepared marks up one hundred percent year on year you're not gonna law law of large numbers while then surely effect the growth rate a we would expect quest to continue to out
spk_0: perform sub segment of the rare category the act and nutrition category that they're in on a sustainable basis
spk_2: thank you and you are and and and then just click question on pricing hill pricing wise and a single digit benefit in the quarter and that you indicated that it had continued to del the over the course of the yes i'm still has to be think about the magnitude of contribution from pricing over the remainder of the year yeah we took a with a price increase that averaged about you know seven half a percent and because of the timing of the price increase wouldn't get the full benefit and one all year round five six percent so cool get an extra two points from pricing know that your that's a good news question is what is what's the impact on volume and year and him how he was destinies but i'm a pure pricing perspective will get an extra two points for the remainder of the year thank you that's helpful thank you i next question comes from line of and he put global security question yeah thanks guys and and congressional a good court for joy i just wanted a dial back to the kind of the category grow up your ear the toll attrition category of the you folks in your sub segments are outperforming your your your peers but in the first quarter of maybe this is just the timing issue and what what happened a year ago maybe these numbers really aren't all that important from of one quarter perspective but what segments of the of electrician oh snap fucking category are actually going faster than you and and maybe it's not something that maybe it isn't that what what value proposition segments are growing faster and not a sustainable what i mean how i am looking the total good yeah you hit it right on the nose we don't compete and we were
spk_29: we see the category three pieces active nutrition with quest premier protein a number brands weight management with actions and then we see nutritious bars cliff kind ah
spk_36: as the third segment that category is experiencing right now against very easy comparable strong growth so it is that along with active nutrition is outperforming weight management or year old your basis that a moderate as the comparable get more challenging rights of bars
spk_0: really got slammed in cove it so the natasha's bar segment is cop and some easy comps they'll get difficult as you move through the year were really comfortable overall if you look at the total category were comfortable we can outperform the total category in any one quarter half year given
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