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spk08: Good day and thank you for standing by. Welcome to the Vital Farms First Quarter 2024 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising that your hand has been raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand it over to the first speaker today, Anthony Bucalo. Thank you.
spk04: Good morning and welcome to Vital Farms First Quarter 2024 Earnings Conference Call and Webcast.
spk05: I'm pleased to speak with you
spk04: all today on my first earnings call as Vice President of Investor Relations. I'm joined on today's call by Russell Diaz-Conseco, President and Chief Executive Officer, Kelo Rita, Chief Financial Officer, and Pete Pappas, Chief Sales Officer. By now, everyone should have access to the company's First Quarter 2024 Earnings Press Release issued this morning. This is available on the Investor Relations section of Vital Farms website at .vitalfarms.com. Throughout the course of this call, management may make forward-looking statements within the meaning of federal securities laws. These statements are based on management's current expectations and beliefs and do involve risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Please refer to today's press release, the company's quarterly report on Form 10Q for the Fiscal Quarter and its March 31st, 2024, filed with the SEC today, as well as our other filings with the SEC, for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. Please note that on today's call, management will refer to adjusted EBITDA and adjusted EBITDA margin, which are non-GAAP financial measures. While the company believes these non-GAAP financial measures provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Please refer to our earnings release for a reconciliation of adjusted EBITDA and adjusted EBITDA margin to their most comparable measures prepared in accordance with GAAP. And now I would like to turn the call over to Russell Diaz-Conseco, President and Chief Executive Officer of Vital Farms.
spk10: Good morning, and thanks for your time today. And Tony, welcome again to Vital Farms. For those who haven't met Tony Bacallo, Tony joined us in April and will be leading investor relations at Vital Farms. He's got a background as an analyst at Credit Suisse, Santander, and HSBC, and he most recently led investor relations at Nomad Foods. We're grateful you're here, Tony. I'll start today's call with the big headlines from the quarter. We've had some great results to share. I'll then hand it over to our Chief Sales Officer, Pete Pappas, to cover how the relationships we've built with our customers are contributing to continued strong demand. Tee Lovreda, our CFO, will then provide more in-depth information on our first quarter results as well as updated guidance for fiscal year 2024. So let's get to the first piece of big news today, which is that we had a record first quarter with $147.9 million in net revenue and 24% net revenue growth over the prior year period. We delivered $29.1 million of adjusted EBITDA, which is double, double the first quarter of 2023, as well as 400 basis points of gross margin expansion, which is a nearly 40% gross margin. Those numbers would be impressive in any quarter, but they're particularly impressive as we start this year. As you'll remember, we grew 55% in the first quarter of 2023, due in part to the category disruptions from AVEN Influenza. In our fourth quarter call, we projected some headwinds as we lapped that result this quarter, growing 24% over one of the strongest quarters in our history year over year, reinforces our belief that momentum is building here at Vital Farms. I'm very encouraged by these results. One of the biggest drivers of our growth and the remarkable results this quarter is our incredible team at Egg Central Station in Springfield, Missouri. Over the past year, the team at ECS has redoubled its efforts to recruit and retain a phenomenal workforce, and they've made operational improvements that enable us to more effectively meet customer demand. We're just flat out better at getting our high quality eggs packed and shipped, and we were already pretty good to start with. Our ECS crew just secured two big pieces of recognition that I want to call out. First, our quality assurance manager, Robert Clark, on behalf of the entire ECS team, received the 2024 Excellence in SQF Practitioner Leadership Award from the Safe Quality Food Institute. This is one of the most prestigious awards in our industry and reflects our commitment to delivering safe, high quality food. It recognizes Robert's role promoting food safety and inspiring the next generation of food safety leaders. It was an honor to help celebrate Robert's leadership when this incredible news came through. Our expansion at ECS also just became a lead goal certified operation, further validating the investments we've made there in sustainable design. ECS is a remarkable facility. It's visibly different than most of the other food processing facilities you'll see, with solar panels in the parking lot, natural grasslands surrounding the building, and thoughtful design choices that support crew member health and help us run ECS as a zero waste to landfill facility. So we've demonstrated expertise building and running a -the-art facility in Springfield. We have a strong cash position and we have continued profitable growth along with rising demand for our products. As a result, we have the confidence to make the next major investment that will help propel us to $1 billion in net revenue and beyond. Which brings me to our second big piece of news today. We've signed an agreement to purchase land for our next -the-art egg washing and packing facility, which will be in southern Indiana. This new facility is planned to incorporate similar high quality design principles as our egg central station facility in Springfield, Missouri. And we anticipate that it will initially be able to support 165 new family farms and employ 150 additional crew members. We expect to break ground in 2025, begin hiring in the summer of 2026, and begin operations shortly thereafter. Our crew members from ECS are going to lead the way in bringing our new facility to life. They will create an important link to the rigorous standards, deep institutional knowledge, and executional excellence that we've established in Springfield. This will also help in our training and mentoring of our new workforce in Indiana. We expect to begin generating revenue from this facility in 2027, which will contribute meaningfully to our goal of achieving $1 billion in annual net revenue by 2027. We believe the land for this facility will not only provide significant capacity beginning in 2027, but will also allow for flexibility to add additional capacity in the future as we scale beyond our 2027 targets. We're now working with local stakeholders in Indiana on a formal announcement and will share the precise location of the new facility in the near future. One last note before I hand it over to Pete. As we talk about investments in our future, I want to call out the new line of butter products that we announced in April. Our team conducted a global search, and that's not an exaggeration, for the best butter supplier we could find. We're now working with family farms in Ireland to deliver a delicious, great-looking product that is 90% grass-fed. We've maintained our unwavering commitment to product quality, animal welfare, and support for family farms. We also introduced bold new packaging that reinforces our premium brand identity and really stands out on the shelf. We keep this butter stocked at our house, and my family loves it. I encourage everyone to give it a try. There's a lot of good news here. We're off to a strong start. I remain confident in our ability to sustain this momentum and achieve our ambitious long-term financial targets. It's great to see this business hit on all cylinders, and we're making hay while the sun's shining. This allows us to make smart, long-term investments in our people, brand, and infrastructure. And it gives you a taste of what Vital Farms is capable of. I'll now hand it over to our Chief Sales Officer, Pete Pappas.
spk04: Thanks, Russell. I appreciate the chance to represent our incredible sales team, share some of the success we've had in the marketplace, and talk about how we're building trusted relationships with Vital Farms customers. As Russell mentioned, we had a record first quarter. Last November, in our Q3 earnings call, I talked about our category-first approach, where we work with our retail customers to increase sales and margin performance across the entire ag category. We believe this is a real differentiator for Vital Farms. It reinforces our position as a thought leader and premium brand. And importantly, it's contributing to strong results as we expand availability with new and existing customers. We expanded distribution, increased the number of SKUs at existing stores, and delivered growth with higher price point SKUs. This enabled us to grow sales and unit volume well above the rest of the category in the first quarter. I believe our role in this critical category is to be the driver of overall category performance for our retail customers. That means growing faster than the category and competition. Looking deeper at the data in the track channels during the 13 weeks ended March 24, 2024, I'm pleased to say we continue to deliver outsized performance. The ag category experienced a retail dollar decline of 19%, while Vital Farms grew retail dollar sales in comparison by 35% in the same period. Additionally, the category saw unit volumes up 6% during the same 13-week period, while Vital Farms unit volume grew by about 27%. Our conventional 12-count in the black carton is the number one branded SKU in the food category based on dollar sales. As a reminder, due to the mixed shift to 18-count packs, our volume growth in track channels tends to be under-reported. Much of our growth has come from wins that we locked in during Q3 and Q4 last year, particularly through many of our larger national customers, where we're now the number one or number two best-selling branded ag by dollars. We're also expanding our footprint with a focus on independent grocers through collaboration with natural and conventional distributors. Many of these gains will be seen in Q2 as spring shelf resets are completed in the next few weeks. Last quarter, we said that we would have a more normalized promotional cadence in 2024 to drive trial and reach new consumers. The approach is working as it has helped us achieve the growth we've seen so far this year. We've built a disciplined strategy and cadence that maintains our premium brand position, supports our category-first approach, and provides our retail partners with the desired impact to their business. Our food service business had a strong quarter, and we're pleased with the progress we're making on that front. The strength of the Vital Farms brand is a key strategic advantage, which lends itself to unique partnership opportunities with restaurants and operators. We'll continue to execute our strategy as we align with restaurant concepts that are committed to sourcing ethical, premium ingredients. I want to close with thanks to the Vital Farm sales team, the entire Vital Farm supply chain team, and our farmers for delivering an incredible product. My team has the privilege of representing Vital Farms in the conversations we have with customers, and we deeply appreciate all the work that goes into getting our premium eggs
spk06: and
spk04: butter
spk06: onto shelves each and every week. With that, I'll pass it over to Tilo.
spk07: Thank you, Pete. Hello everyone, and thank you for joining us today. I will review our financial results for the first quarter and end it March 31, 2024, and then provide details on our updated guidance for fiscal year 2024. We kicked off the year with another record quarter. Our net revenue rose to $147.9 million, an increase of .1% compared to the prior year period. This was driven by strong volume growth of .4% and price mix of 4.9%. The volume growth was driven by increases at both new and existing retail customers, and is in line with our mostly volume-driven growth plans for the year. Growth profit for the first quarter of 2024 was $58.9 million, or .8% of net revenue, compared to $42.7 million, or .8% of net revenue, for the first quarter of 2023. The increase in growth profit was primarily driven by a price mix benefit, enhanced operational efficiencies, and benefits of scale. Conventional commodities and lower diesel costs contributed to the margin gains. The growth margin upside was partially offset by a return to a normal promotional rate, as well as increased investment in our crew members at Excentra Station and higher overhead costs as we scale our world-class organization. SG&A expenses for the first quarter of 2024 were $27.1 million, or .3% of net revenue, compared to $23.9 million, or .1% of net revenue, in the first quarter of last year. The increase in SG&A was driven primarily by the increased investment in crew members, as well as increased marketing investment as we scale. Shipping and distribution expenses in the first quarter were $7.6 million, or .1% of net revenue, compared to $7.8 million, or .6% of net revenue, in the first quarter of 2023. The decrease in shipping and distribution expense was driven by a decline in line haul rates, lower diesel costs, and internal operational efficiencies. Net income for the first quarter of 2024 was $19.0 million, or 43 cents per diluted share, compared to $7.2 million, or 16 cents per diluted share, for the first quarter of 2023. Adjusted EBITDA for the first quarter of 2024 was $29.1 million, or .7% of net revenue, compared to $13.9 million, or .6% of net revenue, for the first quarter of 2023. Finally, a quick update on our capital structure. As of March 31, 2024, we had total cash, cash equivalents, and marketable securities of $137.5 million, with no debt outstanding. Now, looking ahead. For the full fiscal year 2024, we are now guiding to net revenue of at least $575 million, or at least 22% growth, compared to our previous expectation of at least $552 million, or at least 17% growth. And we are guiding to adjusted EBITDA of at least $70 million, or at least 45% growth, compared to our previous expectation of at least $57 million, or at least 18% growth. This updated guidance reflects the stronger than expected first quarter, increased confidence in our performance for the remainder of the year, and higher conviction in a more favorable commodity outlook. We remain focused on reinvesting in marketing and expanding our retail presence in order to drive awareness, deepen loyalty with consumers, and ultimately drive household penetration on our path to 30 million households by 2027. We continue to expect higher adjusted EBITDA margin in the first half versus the second half of 2024. Given the better than expected growth in Q1, we now expect net revenue growth to be relatively evenly split between the first and the second half of the year. Lastly, on guidance, we still expect fiscal year 2024 capital expenditures in the range of $35 to $45 million. Note that this includes the previously highlighted $11 million of timing shift from the capex spend that was initially planned for 2023. We anticipate having elevated capex spending over the next few years because of the new facility, with the majority of the spending occurring in 2025 and 2026. We believe we have the necessary funds to build the facility and project that every dollar of capex investment in this new facility will generate more than $5 of annual revenue capacity, which we consider a really strong return. We continue to evaluate our capital allocation priorities and, if necessary, will provide updates on future earnings calls. Overall, the first quarter was a very strong start to the year for Vital Farms, and we are very excited to build on this momentum, especially as we are building plans to break ground on our new facility next year. We remain focused on building greater retail penetration to raise brand awareness and deliver our X to more and more households. Before I close, let me also once again welcome Tony Bucalo to the Vital Farms team. I'm very much looking forward to working with him and benefiting from his experience as we continue to build out our investor relations function. Thank you for your time and interest in Vital Farms today and for the confidence that you have placed in us with your investment. With that, we will now be happy to take your questions.
spk08: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.
spk04: Our
spk08: first question comes from Brian Holland of DA Davison. Go ahead, Brian.
spk03: Yeah, thanks. Good morning, everyone. Maybe just to start, good morning. So, to your point, Russell, first quarter growth really strong in the context of lapping the previous avion influenza cycle. I think what also continues to be impressive is the balance of distribution and velocity growth in the business. If I just focus on the velocity side, can you frame it all, the benefits of increased skew placements in stores? I know you've moved off a base of closer to two. So, you know, thinking about the out of stock issues that can happen when you're that lightly represented on shelves. And so, actually adding skews rather than cannibalizing your business is actually driving greater productivity. So, maybe just a comment on that and what you're seeing there.
spk10: Thanks, Brian. I appreciate the question. I think it's an important one for us at this point in our growth and it's a really interesting phenomenon. So, first of all, what we've seen in early days when we got our first skew on the shelf with a new retail partner was that sometimes it was a little hard to stand out on a shelf. There are an awful lot of skews in the egg set and the egg set is pretty tight as it is and it's crammed with all this variety. And so, it's really hard to get anybody's attention with one facing of our little carton of eggs. Even if you knew to look for us, it might be hard to find us. The second facing, even if our velocities justified a second facing of that first skew, typically would be another item. And what we often found was there was zero cannibalization of the first with the second. In fact, in many cases we saw an interesting pattern which was that our maybe daily or even sometimes weekly revenue from that slot was about exactly one case worth of product, meaning we basically sold out and then waited for replenishment. And so, as we were supporting this brand, we're very strong in terms of conveying the value to consumers and building brand loyalty. The demand's there and the question is can we support it on the shelf? So often the additional skews have two impacts. One is potentially addressing a different household need, whether it's with a larger pack size, for example, or an organic versus a not organic product. But it's also simply more holding power on the shelf and visibility on the shelf for our brand. And we see that when we add the second and the third and the fourth. So there's both a leaning into growing consumer demand but also leaning into supplying existing demand that happens when we add skews to the shelf. And it's a powerful combination.
spk03: Appreciate all that, Carl Russell. And then maybe just focusing below the top line now, you know, you guys have targeted a 12 to 14% EBITDAO margin long term, 35% gross margin. Obviously we're looking at a 40% gross margin this morning and closer to 20% EBITDAO margin. I understand there's moving parts, commodity tailwinds and such. But you've also highlighted operational efficiency, scale benefits, etc. So I just wonder as we look forward, you know, is it too early or to what extent does first quarter results here sort of lead to thinking about maybe a higher margin profile on this business longer term?
spk10: Yeah, thanks, Brian. I appreciate where you're going and I think we all like to dream a little. You know, I caution against thinking about a fundamentally different business profile here. I think we've been very intentional with that long term guidance for some important reasons. You know, you could imagine a couple of things that are helping us, you know, supporting our profitability, our profit profile right now. That may or may not be true in the future. One is, as you know, I think many of you are seeing, we have had some nice sort of temporary potentially transitory benefits from some changes in commodity costs, for example. And you know, that we're not immune to changes in commodity costs, although we've done I think an admirable job of making sure we're insulated from really big swings. And that's a little bit of a tailwind right now, to be very frank. Another is that we're at a moment in time when I think we've built a lot of great distribution in last year and added a lot of high quality households that are having a nice conversion to more loyal households. And that's been a wonderful tailwind. What we've been saying around here is we're really firing on all cylinders. We've got a lot of things going right. And as, and you know, I'm someone who likes to hope for the best but plan for the worst. And so I love the results we're seeing. And I don't have a reason to say we won't have similarly strong results throughout the year. I think the guidance we've given for our long-term targets is an appropriate place to be anchored.
spk06: Okay, thank you. Thank you. Please stand by for our next question. And our next question comes from
spk08: Matt Smith with Staple. Matt, go ahead.
spk12: Hi, good morning. I wanted to ask a question about the phasing of revenue growth. You mentioned a more equal phasing between the first and second half. You started the first quarter very strongly, which suggests a bit of a slowdown in the second quarter before a re-acceleration in the second half. I just wanted to make sure I was understanding that correctly. And if you could talk about some of the dynamics in the second quarter, I believe you have a bit of a tailwind coming off of AI benefits where on-shelf availability returned very healthily for the rest of the category.
spk07: Yeah, that's a good question, Matt. I think when we started the year, we didn't expect Q1 to be this strong. So with that, we thought growth in the second half would be bigger than in the first half given how the first quarter came in. We're now thinking growth is going to be much more evenly split between the first and second half. I'd like to point out that last year we had a probably weaker than expected second quarter after the first quarter tailwinds from AI. The order patterns by retailers, they took a bit to catch up to new demand patterns. And so orders last year, second quarter, were a bit slower than what we had expected. So now we need to laugh that. It creates a headwind for us this year in the second quarter. And so that is, Matt, where our thinking now comes out that first and second half of the year will be relatively similar in overall growth. Second quarter, I would assume growth being better than first quarter despite the headwinds that I just talked about, simply given that we had this massive laughing from the first quarter last year. So there's a lot of play, but what we're seeing so far is that the orders keep coming in at a very healthy clip. I think when you look at Scana data, you see the salt group. And so the business is in very good shape right now.
spk12: Thank you. And just one follow-up for me. Can you talk about your ability to continue to meet the volume demand? The volume demand obviously started the year very strongly above your expectations. Have you been able to keep pace with new farm additions and confident in your ability to service the demand if it stays at this elevated level through the year?
spk10: Yeah, I think it's another terrific question. It's the other side of the supply and demand question. The short answer is yes. We absolutely have the supply of eggs and capacity to deliver on our plan and our guidance this year and then some. And that's generally how we operate. We always have, we try to have some cushion, some additional capacity in order to meet maybe unexpectedly high demand or frankly to meet the growing demand that we're seeing from consumers and retailers. So that continues to be a source of strength I think in this industry for us. Great farm relations and a wonderful ability I think to build a pipeline of excited new growers. I think it's a reminder, I think it's an important reminder of how we are very intentional in our planning and we try to make sure that we're eliminating any bottlenecks to our growth proactively. It's why part of our news today is choosing a site and buying land for our next egg packing plant even though we won't actually start packing eggs there for a few years because we want to make sure that when we need it, it's there reliably.
spk07: And Matt, let me just add one point from the, basically just reiterating from the prepared remarks. We have the supply of eggs, we have the pipeline of farms to come online over time, but we also over the last 12 months I think made a lot of changes at ECS to make sure that the supply of eggs we can process them, we can put them in cartons, we can get the cartons out the door. So these operational improvements that we have seen at ECS are a big part of why we are able to grow volume this way.
spk12: Thank you, Tilo and Russell, I'll pass it on.
spk06: Thank you. One moment for our next question. And our next question
spk08: comes from Ben with Lake Street Capital Markets. Go ahead, Ben.
spk02: Thanks for taking my question. Just kind of one high-level strategic question from me here given the success that you guys have seen here, especially accelerating over the last few quarters. And to what extent does your recent success impact your new plan and your growth strategy? Does it make you kind of less inclined to pursue new adjacent markets? Does it make you want to expand the scope of your new facility or is your kind of long-term vision really unchanged in the context of your recent results?
spk10: Thanks, Ben. It's Russell. I'll take that and see if Tilo finds anything to add. The short answer is it doesn't affect our confidence in this brand and its ability to grow to be the most trusted food brand in this country. And that could mean being in more categories beyond the ones we're already in, well, likely. The reality is that I think the risk that companies face perhaps at this phase in their growth often is that they can get distracted. And I think a lot of what has helped us get to this place and have such momentum at this place instead of maybe starting to see cracks in the foundation of this place is our intense focus and intentionality on scaling a world-class organization, scaling systems and capabilities to support the incredible growth that we're driving. And so job number one is to not take our eyes off the ball as we explore the incredible interest and demand from consumers and retailers and frankly even from our farmers and their new categories and to bring even more solutions to households in this country and to retailers in this country. And so it's not an either-or, it's an and. And my focus is on making sure that as we do both of those things we do them both really well. So that's a little bit of a windy answer to the question of does it affect our timing, does it affect our focus? Not at all. The real answer is I believe there's a future for Vital Farms that expands beyond primarily eggs and we will get there when we are confident that we can do that well and really take this egg business to its full potential which we haven't quite found a limit to at this point.
spk02: Got it. Very helpful. Plenty more to talk about but I'll leave it there. Congratulations on a great, great quarter and I'll jump back in queue.
spk08: Thank
spk02: you.
spk06: One moment for our next question. Our next question comes from Robert Dickerson of Jefferies. Go ahead, Robert.
spk05: Great. Thanks so much. Hey guys. Morning, Rob. Good morning. I just had a couple of questions or maybe just one core question on gross margin. Apologies, I jumped on the call a little late. Clearly gross margin, very impressive. In Q1, seems like what's kind of implied is that margin steps down maybe as we get through the year just given how you got to EBITDA. So I guess one, maybe just kind of speak to why that might not be sustainable but also in the context of the longer term kind of outlook and goal to get to a mid-30s gross margin because it seems like we're there. So maybe Russell too, if you could just spend a minute speaking to maybe what the new potential could be because I feel like you kind of hit the target. Thanks.
spk07: Yeah, Rob, let me take this one with T-Low. So gross margin, clearly we were ahead of our long-term target this quarter. I think we had a few benefits that we don't necessarily expect to repeat quarter after quarter after quarter. This was a quarter where everything went right. We had no disruptions. There were no weather events. There were, you know, crude, did an incredible job at ECS. We had a benefit from commodities. We put the pricing on the organic portfolio at the beginning of the quarter. We didn't see any price elasticity impacts on that one that wasn't expected and so on, right? And so with that, the margin was a bit better than what we expected. We don't necessarily foresee that happening every quarter from here on out. We don't expect that to be the case when we get to 2027. So the mid-30s target that we laid out for 2027, that is still what we're aiming for. What this quarter now allows us to do is to do a bit of reinvestment in the business, putting a bit more money into marketing than we had previously planned, maybe accelerating some of the hiring to build capabilities and to wrestle through and to scale this world-class organization that's been part of the growth algorithm for us. And so that is why the EBITDA margin that's pretty much implied in the guidance, we don't expect the EBITDA margin from the first quarter to carry through for the rest of the year because of these reinvestments. But these reinvestments are very much in line with how we think about the business. We plan it for the long term. We invest for the long term. We make the investments before we need them. And so hiring crew may be a bit earlier than necessary so that we can get up to speed and allow us to ultimately grow faster. Investing in marketing when we can so that we ensure that we get to that household penetration number that we need for the billion dollars in revenue by 2027, that is what this quarter now allows us to do. And that is why we expect the EBITDA margin for the year to come in where the guidance implies it.
spk11: Okay.
spk05: Well said. Thank you. And then I guess maybe just kind of a broader question around demand. Well, you clearly continue to grow volumes very nicely. If we listen to a lot of different food companies or read the news, what have you, there's ongoing pressure, especially on the low end consumer. Some people would say, wow, those eggs are expensive. But at the same time, eggs on a kind of per serving basis aren't that expensive as an alternative form of great protein. So I'm just curious kind of like what your feel is around kind of your own given demand and kind of demographic focus -a-vis kind of the broader consumer landscape and kind of how eggs fit into that. So a lot in there, but important question. Thank you.
spk04: Yeah, I think you're right. We continue to see that bifurcation within our category as consumers migrate to value as well as to premium. We're obviously very well positioned. We're pleased because we've been able to maintain our discipline from a promotional standpoint. We see a very strong performance in our base volume. So we're not getting a disproportionate amount of our growth in promotion. We're seeing extremely strong performance in our base velocity, which I'm really proud of. And I don't anticipate that changing at all throughout the balance of this year. So we've been very disciplined as we've talked about in the past. We will continue to be very disciplined about that. Fortunately, the brand stands for something and I think consumers recognize that. Despite what we're seeing within the market, we continue to grow households. We continue to expand our distribution. We continue to expand our presence on shelf. And we continue to have a significant amount of opportunity to continue to grow in those respective areas. So I think despite our gains, we have a significant amount of opportunity that still sits in front of us, which I'm really excited about, to be quite honest with you.
spk07: Rob, let me just add one thing to that. I think for me what stood out this quarter is the fact that we previously talked about that we took pricing on the organic portfolio, low double digits at the beginning of the quarter. We haven't really seen any impact on demand or on orders. So the consumer that we're selling to, I think they're still very much willing to pay for the quality and for the trust that we stand for. I truly believe there is a problem with the consumer segment that is getting weaker, but that is not the consumer that we're selling to and that is not our core consumer. And so with that, I think we're still very confident and our consumer continue to show strong demand.
spk05: Fabulous. Thank you.
spk08: Thanks,
spk06: Rob. Thank
spk08: you. One moment for
spk06: our next question. Our next question comes from
spk08: Adam with Goldman Sachs. Go ahead, Adam.
spk13: Thank you. Good morning, everyone. Morning. So I guess the first question is obviously very strong growth in the period and you can see that in the scanner data. Wondering if you were seeing a more meaningful divergence in performance in the natural channel versus mass. I would think that more elevated commodity egg prices and some of the potential supply issues associated with that would become more evident on the mass side and that might have unlocked new placings or items and distribution opportunities for you. But is that actually how part of the story this quarter or was the growth and the sales acceleration more broad-based across channels?
spk04: Thanks. Thanks for the question. I think we're seeing very balanced growth. I'm pleased with that. The AI impact thus far really has been restricted to organic eggs and that's really been driven most recently and we haven't seen a significant impact in that regard. Some of the impact that you're talking about has really been isolated to the West Coast. Again, our performance there has been very, very strong and isolated to a handful of retailers and in those retailers our performance has been quite strong. We have really, I would say we've reinforced our position. I don't think it has been disproportionate in that regard. It has not been outsized as a result of what you're talking about. Our performance in natural has been very consistent. Our share performance continues to be quite strong. We're far and away the leader in natural and our performance within food and mass continues to grow disproportionately as we've talked about in our opening statement. So I'm really pleased. I don't think, as Russell said in the outset, this first quarter we really hit on all cylinders and I'm really excited about that. I think what you're seeing is for us a little bit of how high is high and without any outside influence because we did not have any of the interference that we've experienced in some past quarters and you're starting to see what we're capable of when we can really execute without some of those outside forces. So given the opportunities that we have in front of us and the partnerships that we're establishing with some of these world class retailers I'm really, really excited about what the future holds.
spk13: Okay, that's very helpful. And then a clarification question just going through the queue and you disclose your revenue from the retail channel which if you compare that to the total revenues it looks like your sales in the non-retail channel were actually down year on year. So I just want to be clear, is that some of the egg products and non-core items or is that an actual decline in food service and maybe bridge that a little bit. Thanks.
spk07: Yeah, it's a great observation Adam. It really is a function of first quarter last year. So when AI hit there were no eggs available at times we were the least expensive offering for the food service channel and so we had a bit of an outside demand in the food service channel last year. That came back down to earth once AI this really big impact from AI had passed. And so with that on a year over year basis food service sales for us were down. There's still overall growing part of the business. It's just the last year first quarter the business went up by multiples rather than by percentages and now we're falling back to a more normal pattern
spk10: that's really behind that Adam. And there's one other piece of the non-retail sales Adam which we've discussed in quarters past which is that small percentage low single digit percentage of our eggs that don't make it into a carton and end up going into the wholesale processing channel. And we don't price to take advantage of short term disruptions in the market. However, the price we get for those wholesale eggs are based on market prices. And so a year ago those prices spiked just as they were spiking on the shelf and we're just a taker of those prices. So there was a temporary increase in the price we got for our non-branded kind of wholesale eggs as well.
spk13: That makes total sense. Very helpful. I'll pass it on. Thank you.
spk10: Thanks Adam.
spk08: Thank you.
spk06: One
spk08: moment for our next question.
spk06: Our
spk08: next question comes from John Anderson with William Blair. Go ahead John. Thanks. Good morning everybody. Hey John.
spk09: Two quick ones. I was wondering if you could talk a little bit about what you're seeing demand wise kind of across the portfolio and what I'm getting at here is the kind of growth that you're seeing for the kind of conventional 12 count relative to maybe some of the higher price point skews, 18 count, organics, blues, just to get a sense for your ability to kind of continue to attract that consumer at higher price points. And then the second question just around resets and distribution gains in 2024. I'm wondering if there's any way to kind of characterize where you kind of are in that spring reset process. What percent perhaps is complete? What's built to come and where that distribution is coming from? Thank you.
spk04: Sure. Thanks for the question. This is Pete. And we're seeing very, very healthy growth in our core portfolio across both segments of natural and our food business. So while we are seeing migration into 18 count, the value proposition in large pack size as you can see probably across the entire food segment, it does exist in the egg category and within our portfolio. We are still seeing solid growth within our portfolio on the core black box item. And both across the food segment and probably less so within natural, primarily within natural because we have such a disproportionate mix within organic. The organic 12 count product is a larger selling item in the natural segment of business. And then to your second question around percentages of retailers that are in the midst of resets, probably a little bit more of a difficult answer for you. I would say we're just right in the heart of that. Typically these decisions are made in March. So we're probably, I would say we're probably -60% complete. Those resets are being done and actively completed now. And we'll start to see some of those benefits flow through in the next, probably next two reporting cycles is when we should see some of that bump. But very optimistic that we're going to see some nice results as a result of the efforts of the sales crew.
spk09: That's super helpful. If I can squeeze one more in. I know your 2027 ALGO calls for household penetration gains. I'm wondering if there's another part to the story here that you're seeing today and will also contribute to growth, which is growing your share of requirements with existing households. So buy rate. And if you can comment on kind of the loyalty, the repeat activity you're seeing for the brand and how that stacks up relative to kind of food overall. Any color around that would be helpful. Thank you.
spk07: John, so the hitting the 27 targets, as you pointed out, it depends on household penetration. It also depends on us increasing our buy rate. I think at our end of the day back in September on the fourth quarter call, we had pages in our decks that showed buy rate growth. In 2023, buy rates went from 28 to 34 dollars per household. However, households are buying a whole lot more than 34 dollars of X over the course of the year. So we are still only a fraction of household purchases for X. And so getting that loyalty from consumers up, that is certainly part of our I think we are on a great path there, the loyalty that we get from consumers. I think the growth of 18 count is part of that expression of loyalty. It's not just that consumers are looking for a lower cost per egg, but when they buy an 18 count, we take away half a purchase occasion that they normally have. We are already locked in with them and consumers are willing to pay the price of the product at the premium that we
spk01: deserve because they are willing
spk07: to lock us in if you want. And so consumer loyalty I think is a really big part of what we are going after and that means that we keep telling our marketing message, we keep focusing on quality, we keep focusing on being able to suck the shelf as retailers. All these intent that we make, they are all aiming to increasing household penetration and increasing buy rate. Makes sense, thank you.
spk08: Thank you.
spk06: One
spk08: moment for our next question.
spk06: Our next question. Question comes from Robert Moscow with TD
spk08: Cohen. Go ahead, Robert.
spk11: Hi, thanks and congratulations on some great results. Thanks, Rob. Maybe you do this annually, but do you have any update on just overall awareness, consumer awareness of the vital brand name, like top of mind awareness and if that continues to move in the right direction, I'm sure it does. And is there any kind of like, have you done anything around tipping points where you get to a certain amount of awareness, a certain presence on shelf and some brands, I remember Fresh Fat used to talk about some kind of parabolic effect where you hit this tipping point and the growth accelerates because of that, probably because of the pickup in awareness. So maybe that's jumping ahead too far, but wanted to ask.
spk07: So Rob, the awareness, we're tracking it, it's not a metric that we talk about every quarter, but we're making progress on awareness where we want to be this year. I don't think I can talk to us having a kind of parabolic effect and I wouldn't want to copy from Fresh Fat, but I think what we have seen is that increased distribution begets more distribution and begets awareness. I think Russell talked about it in one of the first questions. When we have one facing on the shelf with a black heart, we kind of get lost in the sea and the exit. When we have three or four skews on the shelf with maybe one or two facings per skew, all of a sudden we have a brand block and the consumer realizes there's a significant portion of the shelf here that's vital farms. Even if the consumer had never heard of us before, when you have this kind of brand block in the fridge or on the refrigerated shelf at the retailer, the consumer picks up on that. To us then, that is the indication that increasing awareness should accelerate over time. I'm not going to call it a parabolic effect because we haven't done the math and I don't want to promise you something that I don't know if we can stick with that, but the fact that as we grow, our growth becomes more self-reinforcing if you want, and kicks off this flywheel, that effect is certainly there.
spk10: I think it's important, Rob, it's a great question. The only thing I would add to that is even with a brand like ours, with a wonderful community of really loyal repeat consumers, a big percentage of the purchase choice is still happening at the shelf. We still have to get their attention. We can't take for granted that simply being on the shelf is enough. It's kind of compelling at the shelf. That's a street fight every day and I think we've got the right people in that fight.
spk08: Thank you. Thank you. This concludes the question and answer session. I would now like to turn it back over to Anthony Bucato.
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