Simply Good Foods Co Q2 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Matthew Smith - Stifel - Analyst : Hi, good morning, Jeff and John. My morning. The overall active nutrition category growth slowed in the first calendar quarter of the year, and that's during the key diet season. You talked about the competitive dynamic impacting Quest and Atkins, but from a high level was the performance of the overall category in line with your expectations? And are you seeing any signs of a pickup in growth in the categories we move past March. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 04, 2024 / 12:30PM, SMPL.OQ - Q2 2024 Simply Good Foods Co Earnings Call

Question: Matthew Smith - Stifel - Analyst : Thank you, Jeff. And as a follow-up, the lowered revenue guidance includes a 7% reduction in POS for Atkins for the year. Does that outlook consider improving dollar consumption from here? Are you looking at dollar consumption for the Atkins brand and believing you can hold that level and then you benefit from easier comparisons in the second half of the year from a POS perspective that yes, that's what it is that obviously were disappointed how Atkins performed in January, February and obviously we will turn to some tough competitive merchandising comp.

Question: Matthew Smith - Stifel - Analyst : Thank you over there.

Question: Alexia Howard - Bernstein Research - Analyst : Good morning, everyone. Morning and again, just a couple of quick questions here. You've got innovation stepping up and it feels as though we've been through a few cycles of innovation over the last few years, some of which probably work some of which has and what metrics do you use to make sure innovation is successful and sustainable in the marketplace and how do you track that overtime to make sure that you're calling things that aren't going to work and obviously supporting things that are? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 04, 2024 / 12:30PM, SMPL.OQ - Q2 2024 Simply Good Foods Co Earnings Call

Question: Alexia Howard - Bernstein Research - Analyst : Really appreciate the detail from both of you. I'll pass it on. Thank you for your.

Question: Steve Powers - Deutsche Bank - Analyst : Thanks, guys. Sorry, I was on mute there hung up. First question on on Atkins and weight management category dynamics in general you talked about we expectation that the competitive environment, if the competitive dynamics would normalize as we go through the calendar year, I guess a little bit more perspective on where your confidence comes from in that. And yes, we'll take it from there. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 04, 2024 / 12:30PM, SMPL.OQ - Q2 2024 Simply Good Foods Co Earnings Call

Question: Steve Powers - Deutsche Bank - Analyst : Thank you very, very much.

Question: Pam Kaufman - Morgan Stanley - Analyst : Hi, good morning. Sir, how are you thinking about your revenue progression over the back half of the year? And what gives you confidence that you can deliver on the updated revenue guidance? I guess where do you see potential for upside or downside to your new outlook? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 04, 2024 / 12:30PM, SMPL.OQ - Q2 2024 Simply Good Foods Co Earnings Call

Question: Pam Kaufman - Morgan Stanley - Analyst : All right. That's helpful. And then can you talk about any adjustments that you're making to your strategy this year, given the performance and competitive dynamics you saw during the second quarter, you mentioned that you're accelerating some innovation like the protein shakes. Can you expand on any other changes in your innovation timing or changes to advertising or promotional plan for the year? Yes.

Question: Pam Kaufman - Morgan Stanley - Analyst : Thank you. I'll pass it on. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 04, 2024 / 12:30PM, SMPL.OQ - Q2 2024 Simply Good Foods Co Earnings Call

Question: James Salera - Stephens Inc. - Analyst : Hey, guys, good morning. Thanks for taking our question. And I think I wanted to drill down a little bit on Atkins, strong offering, some exciting to see you guys expand the RTD shake offering. Obviously, it's been a really hot category and at the same time. It's also a category that has pretty well known capacity constraints. So if you could offer any color on co-manufacturing partners, how much capacity you guys think you will have when that product kind of comes to market and if we should expect it to be maybe just in club or just in mass or kind of how the channel rollout will be as you expand that 30 gram offering?

Question: James Salera - Stephens Inc. - Analyst : Okay, great. And then maybe if I could ask a broader question, just on the consumer. As we've heard from other companies, there's kind of this bifurcation of the higher income consumers still powering forward and lower income consumer, maybe feeling a little bit more ''' since your products tend to skew towards the middle to higher income consumer. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 04, 2024 / 12:30PM, SMPL.OQ - Q2 2024 Simply Good Foods Co Earnings Call Do you have what's your confidence level as the year progresses and that the higher-income consumer will continue to be resilient relative to the overall kind of economic uncertainty.

Question: James Salera - Stephens Inc. - Analyst : Great. Appreciate the color, guys. So I'll hop back in the queue. Thank you.

Question: John Baumgartner - Mizuho Group - Analyst : Good morning. Thanks for the question for joining Orangina. Philippe, first off, Jack, you mentioned the heightened category competition around New Year new you I think you called out one specific competitor but I'm curious, can you expand a bit on competition more broadly? Are you seeing competition based solely on pass-through of lower input costs and that moderates throughout the year as those tailwinds also moderate? Or are there also any heightened activity from new innovation hitting the shelves for a larger intensity also mapping feature and display activity?

Question: John Baumgartner - Mizuho Group - Analyst : So we stepped up our merchandising activity and programming it just the share of voice was less than what it was comparatively to everybody else. Does that help? Yes, definitely. And I guess sticking with that theme, I guess last quarter it sounded like your initial perceptions on new marketing coming out of auto was was pretty encouraging in the early days. I guess building on your on your point that Sean made, you get the sense that the ROI on that marketing, does it does it require further increases in spending from here? Just sort of maintain share of voice? How do we think about that? And then for the Atkins brand milestones going forward? I guess how impactful Are you expecting the autumn shelf resets to be in terms of jump-starting sales? So those should those autumn resets really give used material catalyst or disappoint?

Question: John Baumgartner - Mizuho Group - Analyst : Okay. Thanks, Sean.

Question: John Baumgartner - Mizuho Group - Analyst : Okay, thank you.

Question: Kaumil Gajrawala - Jefferies - Analyst : And for the follow-up on the comment on ad spend, can you maybe just talk a little bit more about what's the right percentage of sales for ad spend, particularly in the context of so many new innovations this year? Does it need to be at some higher level for a temporary period of time. And then and then sort of taper off or is where you're going linked to what you mentioned before, some of the GM benefit that you're about to field.

Question: Kaumil Gajrawala - Jefferies - Analyst : Useful. Thank you. And I'm just a quick follow-up boring question 53rd week on any context on contribution, do we just take it out of next year? Are you actually thinking about next year? Yes, you get to that first.

Question: Kaumil Gajrawala - Jefferies - Analyst : Thank you.

Question: Brian Holland - D.A. Davidson - Analyst : Yes, thanks. Good morning. I wanted to go back to the competitive dynamic component because we're seeing a pretty clear divergence between bars and shakes the entire bars category has been softer of late. And then within shakes, there's sort of a bifurcation between the weight management and some of the other heavier protein products. So maybe maybe a two-part question here. One, I guess I'm a little bit surprised to hear the attribution for the weakness. Well, when it's coming from the I guess the growth is coming from shakes that you're talking about, that's where the supply is improving. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 04, 2024 / 12:30PM, SMPL.OQ - Q2 2024 Simply Good Foods Co Earnings Call So the impact that's having on bars and everything else. So maybe a little bit more color around just understanding why do you think that is particularly impacting Atkins? Because I get them, I'm surprised, but we would see that level of shopping cross-shopping between those brands. And then the second one is not necessarily a new dynamic. We knew that supply was coming. It's something that had been communicated something that's been ongoing. So maybe so I guess to the extent that it's hitting your business at a level or at a magnitude greater than expected. So it was the impact of that supply coming back online just greater than what you thought. And the consumer response to a greater than you thought of because it doesn't seem like something that we didn't know was coming. Yes.

Question: Brian Holland - D.A. Davidson - Analyst : So appreciate all the color. And then just back to Atkins, you know, to carry your messaging has been fairly consistent up the patent unit since you talked about the revitalization plan and you know the potential opportunity over time with the GLP-1 complement Just curious if you've picked up anything anecdotal to increase your conviction to that end? Because I do think that seems to be a point of contention with investors who, you know, I hear a lot of inbound, you know, kind of inquiries about, hey, they feel like this is a head that this would be a headwind to the business because of the overlap of the consumer and maybe that they may be changing their routines away from an Atkins just using the GLP-1. So clearly, the innovation seems to be, you know, the 30 grams of protein, and that seems to be resolving some of this. But just curious what you've picked up anecdotal that gives you increased confidence that Atkins indeed will be a complement and GLP-1 will be a tailwind for that business? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 04, 2024 / 12:30PM, SMPL.OQ - Q2 2024 Simply Good Foods Co Earnings Call

Question: Brian Holland - D.A. Davidson - Analyst : I've got to forgive me if I could just sneak a really quick one in if you stated this earlier, I apologize of was Quest in line with expectations in the quarter?

Question: Brian Holland - D.A. Davidson - Analyst : Okay, great. Thank you.

Question: Jon Andersen - William Blair - Analyst : Thank you very much for squeezing me in a question about household penetration. You talked about the category of Active Nutrition being

Question: Jon Andersen - William Blair - Analyst : Just real quick on the penetration you some reference point for you worked at almost 17 points for Quest right now for household penetration. If you go back a couple years, we're actually a little below 14 right. So I think we've made tremendous part of our growth that that brand has been distribution, but also household penetration and awareness. And I think we see that for future as we look at Quest as well as an opportunity. Yes, one housekeeping. So the balance sheet's in good shape. Your leverage ratio, I think is below half a turn at this point you've paid down more debt in the quarter. What is that how are you prioritizing use of excess free cash flow going forward in the business?