Simply Good Foods: Q3 Results Beat Expectations, Integrating OWYN
In its first quarterly earnings since announcing the acquisition of protein shake maker OWYN in April, The Simply Good Foods Company (SGFC) reported “slightly better than expected” gross margin and sales growth from the Atkins and Quest Nutrition brands.
OWYN’s earnings were not reflected in the Q3 report, but the company did announce that former OWYN CEO Mark Olivieri had joined SGFC as the nutrition shake brand’s SVP and GM.
Between Quest Nutrition and Atkins, SGFC posted net sales of $334 million, a nearly $10 million gain over Q3 2023. Profits rose to $133.6 million and reflected a gross margin increase to 39.9%, compared to 36.7% in the same period last year.
“We’re very pleased with our execution in Q3,” said SGFC president and CEO Geoff Tanner during prepared remarks. “Quest acceleration and Atkins revitalization plans are on-track and we reaffirm our full-year fiscal 2024 net sales outlook for the legacy business.”
Sales growth outlook (excluding OWYN, which will be included in the Q4 report) is anticipated to be in the “mid-point” of 4% and 6% for the year. OWYN full-year net sales are expected to range between $25 and $30 million.
The integration of OWYN into SGFC will slightly soften the top line numbers, CFO Shaun Mara noted, as the RTD shake business has lower margins than the rest of SGFC’s portfolio and OWYN is not at a “fully synergized level” yet.
More importantly, higher cocoa prices are expected to create headwinds for SGFC as chocolate is used in products from all three brands, Mara added.
Adjusted EBITDA was $71.9 million beating William Blair analysts’ estimate of $69 million. The analysts advised that SGFC “is expected to trend toward the lower end of long-term algorithm in fiscal 2025” with OWYN adding a “high-single-digit percentage to company sales growth and mid-single-digit percentage to company EBITDA growth.”
Quest Nutrition was a key driver of SGFC’s earnings gains with “solid” volume growth, Tanner said, who was “pleased” with the increased investment in the “It’s Basically Cheating” advertising campaign which he expects will drive higher household penetration in the salty snacks category.
The brand reported Q3 point-of-sale MULO plus-convenience retail growth up 13.5% and unmeasured channel POS growth of about 12%.
Company executives expressed confidence that the elevated consumer interest in GLP-1 weight loss drugs will help the revitalization plans for the Atkins brand which continues to be a sore spot on the SGFC balance sheet.
Tanner conceded that in looking deeper at Atkins, the company has “over-invested in marketing and trade as a percentage of sales” and is focused on identifying some “low-performing ROI trade and marketing events” to transition the brand into a long-term sustainable business.
Innovation is part of that plan: Atkins is expected to release 17 new items this fall that will replace lower-performing products while maintaining “flat distribution” across the brand’s retail network.
Atkins Q3 point-of-sale MULO + C-store retail was down -9%, a slight improvement over the -11% in Q2 2024.
Leadership briefly discussed plans to incorporate OWYN into the company, including expanding the brand into new (or revisited) formats like bars and chips. Part of the decision to acquire OWYN was to grow its core base out of the RTD format and into new occasions as well as appeal to Gen Z and Millennial shoppers, an underrepresented demographic in SGFC’s portfolio.
Tanner has been “excited” to see the brand cross over to more mainstream consumers.
“Our thesis for the first year has been that OWYN will largely run somewhat independent for this first year, while we focus on integration,” Tanner said. “Then we’ll be able to bring the full suite of capabilities of Simply to really accelerate that growth.”
