Vital Farms Inc Q3 2024 Earnings Call Transcript

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

Question: Benjamin Klieve - Lake Street Capital Markets - Analyst : Congratulations on a really nice quarter here. First, I have a question on a high level about kind of conditions throughout the quarter. Nielsen data seemed to indicate there's a sequential increase in demand from second to third quarter, but you guys also noted that you had done the water main break and some kind of intentional maintenance occurred in the period. I'm wondering if you can comment on a high level about your ability for supply to match demand in the period and then kind of quantify the overall impact of the facility dynamics here within the third quarter, REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 07, 2024 / 1:30PM, VITL.OQ - Q3 2024 Vital Farms Inc Earnings Call

Question: Benjamin Klieve - Lake Street Capital Markets - Analyst : No, that makes plenty of sense. Thanks, Russell. And then one more for me on this dynamic, and then I'll get back in queue, around these planned maintenances. Can you talk about expectations in the current quarter for overall levels of maintenance kind of in an order of magnitude relative to the third quarter? Is that going to be picking up sequentially, relatively flat, or did you do more maintenance in the third than you expect in the fourth?

Question: Brian Holland - DA Davidson - Analyst : I wanted to sort of go back to Pete's comments about sort of category dynamics through the quarter. Maybe just a high-level question. We saw obviously the spike in retail egg prices, but we also saw an increase in promotion against those prices in September. I think the spot egg price came down, maybe retailers were sort of using this as a loss -- using the category, the commoditized section of the category as a loss leader. And you guys sort of decelerated concurrent with that through September. We saw that start to stabilize. I guess, Pete, just asking about category dynamics going forward. Mindful you said, and I think we see industry data points that suggest supply is tight, prices are going up, but promotion has been elevated I guess of late at the commoditized level. How do you see that evolving kind of going forward? Just mindful of the impact on your consumption when these price gaps narrow? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 07, 2024 / 1:30PM, VITL.OQ - Q3 2024 Vital Farms Inc Earnings Call

Question: Brian Holland - DA Davidson - Analyst : Got it. Appreciate the color. And then second question, just mindful that fiscal '24 is playing out to be a well above algorithm year, anything that you can share at this point with respect, I appreciate it's early, but just looking out to fiscal '25, again, relative to the algorithm that you sort of laid out back in September '23? anything worth calling out to help us think about the shape of '25, just again, given the well above expectation

Question: Robert Moskow - TD Cowen - Analyst : I guess I have two. One is, just in general, like how much flex is there in your capacity in a given year? Because you started the year, if I have this right, thinking that you'd have 17% organic growth. Probably going to finish the year closer to 30%, and almost all of it is volume. That's my first question. Is that, like as we head into 2025 and you've given guidance, if demand is better than you thought, is that how much the system can flex in a given year? It seems atypical. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 07, 2024 / 1:30PM, VITL.OQ - Q3 2024 Vital Farms Inc Earnings Call

Question: Robert Moskow - TD Cowen - Analyst : Okay. And then anecdotally, I had heard about stockouts at retailers who don't carry enough of your SKUs. And I think that's probably the main issue. Any thoughts on whether that had a quantitative impact on your sales in the quarter? And does it give you the ammunition into 2025 to say, give us more facings and you won't have this issue?

Question: Jon Andersen - William Blair - Analyst : Congrats on the strong quarter. I just wondering if you could talk a little bit about the dynamic that you laid out in your long-term plan. And what I'm referring to is kind of some of the household penetration goals versus spending per household or buy rate objectives. Given the outsized REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 07, 2024 / 1:30PM, VITL.OQ - Q3 2024 Vital Farms Inc Earnings Call demand this year, how are you seeing household penetration versus buy rate trending? Is it in line with your expectation? Are you kind of getting the trial to bring those new households into the franchise that you're expecting? And what kind of plans do you have in terms of updating those measures on a go-forward basis?

Question: Jon Andersen - William Blair - Analyst : That's helpful. And I don't know if you have this perspective or data, but for a household that's buying or a user of Vital Farms eggs, are they often or typically using other brands as well as their brand switching going on? Or is this kind of increasing buy rate more indicative of just more use cases maybe around more dayparts for the brand in general?

Question: Jon Andersen - William Blair - Analyst : That's helpful. If I could squeeze one more in. I think advertising and promotion, your rate relative to sales last year was somewhere in the mid-single digits, about 5%. How do you expect that to kind of evolve through 2024 and beyond? You've talked about incremental marketing and promotion spending. But obviously, there have also been very strong sales. Is that a level from a rate perspective that you feel is adequate and you want to maintain? Or do you lever that up or down over time?

Question: Robert Dickerson - Jefferies - Analyst : Apologies if I touch on something that's been discussed, I just hopped on a little late. Russell, I just wanted to ask you about kind of the step-up in the marketing spend. I mean clearly you talked about that last quarter. You have enacted I think a decent amount of it. Just curious as to kind of how you view those returns on that investment so far and then the learnings you're getting out of that investment relative to kind of where your national distribution is and the velocities. Is there anything that comes out of that as you think forward such that, well, maybe on a seasonal basis, we don't need to do it as much maybe in Q1 versus Q2 next year. Or maybe we think we actually have exactly the right amount of investment given where we are in the business cycle. That's the first question.

Question: Robert Dickerson - Jefferies - Analyst : Okay. Fair enough. And then I guess maybe another question for you, Thilo. Just on the gross margin. I mean, clearly, gross margin continues to impress overall. If we're thinking let's say about Q4 or I don't want to say '25 because I don't want to scare you away. But kind of in general, it seems like the momentum is there to kind of at least be still kind of hitting that mid-30s range. If we're in Q4, we're just kind of thinking about going forward, if let's say, if feed costs kind of stay where they are. I mean I'm just trying to -- because I get a lot of questions about, oh, the gross margin, is it sustainable? No, I don't think they really want you to think that. But at the same time, you continue to do really well on the gross margin, and I'm also trying to think about what are the offsets outside of feed cost that would lower the gross margin from here?