Simply Good Foods (SMPL) has quietly traded up to new
52-week highs this week after reporting strong Q2 (Feb) results. SMPL is a
Denver-based food company with a product portfolio consisting primarily of
nutrition bars, ready-to-drink shakes, snacks, and confectionery products
marketed under the Atkins, SimplyProtein, Atkins Endulge, and Atkins Harvest
Trail brand names. Target customers at the core of the company’s base include participants
in branded weight management programs. These consumers, a profitable portion of
the company’s base, are among SMPL's most loyal and frequent purchasers.
Atkins has become an iconic American brand for "low carb," "low sugar," and "protein rich" nutrition options. The emphasis that the Atkins nutritional plan places on nutrition bars and RTD shakes positions SMPL to capitalize on consumers' busy schedules. SMPL benefits from such trends as 1) increased consumption of smaller, more frequent meals throughout the day; 2) consumer preference for "better-for-you" snacks; 3) consumer focus on health and wellness; and 4) consumers moving toward low carb, low sugar food items.
Sales in FebQ increased 13.2% yr/yr to $123.8 mln. SMPL delivered double-digit sales, gross profit, and adjusted EBITDA growth in the quarter. SMPL says that it's particularly pleased that its US retail takeaway continued to be strong and was up 22.1% yr/yr.
Given supply constraints due to unexpected double-digit base POS growth, SMPL dialed back the frequency of bar promotions in Q2 to focus on on-shelf inventory. This resulted in favorable retail promotional spending and improved customer inventory levels.
The company was also optimistic in terms of its outlook. Given the strength and momentum of the business in the first half of the fiscal year, the company is more optimistic than it was last quarter in its ability to exceed its long-term sales growth target of +4-6%. Specifically, SMPL expects FY19 sales and adjusted EBITDA to both increase by double digits during this fiscal year.
Retail takeaway is a key metric for SMPL. It's good when retail takeaway growth exceeds sales growth. SMPL has been working with its manufacturing network partners to secure additional supply to keep pace with robust demand. At the same time, SMPL has been reducing promotion activity to temper demand.
On the call, while not providing specific guidance, SMPL said that its Q3 (May) is off to a good start. Its advertising and marketing spend continues to drive strong volume growth and improved customer inventory levels as well as access to increased supply. Lower promotional volume on bars have enabled SMPL to keep pace with strong consumer demand.
In sum, SMPL has a good problem. Demand is so strong that it's having trouble keeping up with supply. This has led SMPL to curtail promotional activity, which has helped to keep product on customer shelves. It's good that SMPL is seeing strong volume growth and an acceleration in its business due to such adjustments as improved advertising, including celebrity endorsements (Rob Lowe), new packaging graphics, a cleaner label, and increased marketing investment.
SMPL has also shifted its marketing strategy in recent months to a broader target audience and has shifted its brand promise to that of a lifestyle, weight management story. Consumer response has been very encouraging, as evidenced by SMPL's accelerated retail takeaway.
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