A year after acquiring OWYN, The Simply Good Foods Company (SGF) continues to gain strength on the back of its protein-forward portfolio, while the Atkins brand “remains under pressure,” driving a narrower full-year outlook.
While sales and net income rose during its third quarter, SGF saw operating expenses rise and a gross margin decline as inflation weighed on the company’s profits.
- Net sales in Q3 were $381 million, up 12.8% year-over-year.
- Gross profit was $399.1 million, a 9.2% rise from the year-ago period.
- Adjusted EBITDA of $73.9 million versus $71.9 million.
- Gross margin declined to 36.4%.
“While our margins remained strong overall, they were under pressure during the quarter as we realized higher levels of inflation, most notably from cocoa and whey,” said SGF president and CEO Geoff Tanner in prepared remarks.
In response to these headwinds, the company took pricing actions “on select items,” Tanner said, and would be “evaluating pricing more broadly across the portfolio…but we’re right now in the middle of figuring out how best to go execute that as we look at what input costs remain stubbornly high.”
Quest – which represents about 60% of SGF sales – grew its bars 3%, while its Bake Shop platform is proving to be “incremental” to the shakes and other protein snacks business. Tanner pointed out that the new Quest Overload bars and 45-gram-protein shakes have been “performing very well” just a few months since launching, and he is “increasingly optimistic about what a sizable beverage business could mean for Quest.”
Tanner conceded during the question-and-answer section of the earnings call that the brand had “taken its foot off the gas” on innovation with both Quest and Atkins in the last few years.
OWYN, which is newer to the SGF portfolio but is slightly more established in the protein shake category, grew RTD shakes in retail by over 20%. OWYN contributed $33.6 million in the quarter.
CFO Chris Bealer reported that OWYN also represented a “headwind” for SGF as it allocated capital to the integration process and marketing costs.
The biggest drag on SGF remains the Atkins brand, which is expected to continue to decline by low double digits for the rest of the fiscal year. Tanner explained that SGF is still confident that the core of the Atkins brand products are “strong” but that there is a “long tail of lower-velocity SKUs” that need to be addressed. He expects there will be more SKU rationalization for Atkins in the retail channel as SGF continues on its revitalization plan to “build a more sustainable, profitable and efficient business.”
The company forecast net sales to increase 8.5% to 9.5% (previously 8.5% to 10.5%) and adjusted EBITDA between 4% and 5% (previously 4% to 6%).
William Blair analysts maintain an “outperform” stock rating for the company as its “on-trend brands and a lean, cash-generative operating platform can support attractive internal growth augmented by external means.”