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Simply Good Foods (SMPL +9%) shares are making a strong move after reporting upside results for Q2 (Feb). The weight loss nutrition company (brands include Atkins, Quest, OWYN) reported its largest EPS upside in the past ten quarters. Revenue rose a brisk 15.2% yr/yr to $359.7 mln, which was also better than expected. In fairness, that growth was aided by the 2024 acquisition of Only What You Need (OWYN), a plant-based protein shake brand. Organic sales were up 4.4%, driven by Quest.

• SMPL said that growth at Quest and OWYN are more than offsetting declines at Atkins. First half retail sales for Quest (60% of sales) and OWYN, which collectively represent 70% of sales, increased 12% and 57%, respectively. SMPL says it's executing well, adding new doors, winning with innovation and driving brand awareness and household penetration. Atkins has been a meaningful drag on growth, and SMPL plans to rightsize investment levels on the brand.
• SMPL was quite bullish on OWYN during the call, calling it one of the fastest growing brands of scale in the category. Also, SMPL thinks the brand is in its early innings of growth.
• A big reason is because the brand's superior taste is increasingly attracting mainstream consumers, which make up the lion's share of this high growth category. Also, the brand has low-single digit household penetration and awareness. SMPL remains confident it can double sales of the core business in 3-4 years.
• SMPL remains excited by the trajectory of the nutritional snacking category in general. Total Nutritional Snacking category growth was 12% in Q2, marking the 16th consecutive quarter with category growth of at least high-single digits. SMPL says category growth reflects the continued mainstreaming of consumer demand for high-protein, low- sugar, low-carb food and beverage options. SMPL sees its three brands as being aligned with these consumer megatrends.

In terms of the stock reaction today, we think the company reaffirming full year guidance for revs and EBITDA is helping to fuel today's move. The company said it expects FY25 sales to be driven primarily by volume. To reaffirm, despite inflation and macro issues, is calming investors' nerves.

That is especially true considering that the price points for SMPL's products are on the high side of the spectrum. It would make sense for consumers to pare back on high priced weight loss products, but SMPL appears to be confident and investors are responding to that confidence. We also think SMPL's bullish outlook on OWYN and growth at Quest are adding to today's move.