FreshPet (FRPT), which has had a roller coaster ride since its IPO in November 2014, has been back on the upswing in recent months and it jumped 7% yesterday. We thought this would be a good time to explain what the company does and what has been going on lately.
In case you're not familiar, FreshPet makes food and treats for dogs and cats using only natural ingredients with no preservatives. What really makes FreshPet different is that its food stays refrigerated even at the retail store. It has its own branded refrigerators, known as FreshPet Fridges, installed at thousands of retail stores (Wal-Mart, Petco, PetSmart etc.) across North America. Check it out next time you're at the store.
FreshPet says its mission is to improve the lives of dogs and cats everywhere through the power of fresh, natural food. Packed with vitamins and proteins, its foods offer fresh meats, poultry, and vegetables farmed locally. At its Freshpet Kitchens, the company prepares these natural ingredients and everyday essentials, cooking them in small batches at lower temperatures to preserve key nutrients. Freshpet refrigerated foods and treats are kept cool from the moment they are made until they arrive at Freshpet Fridges in your local market. Its foods are available in select mass, grocery, natural food, club, and pet specialty retailers across the US, Canada and are currently testing in the UK.
FreshPet founded the fresh, refrigerated pet food category in North America. FreshPet believes it's disrupting the $22.5 billion North American pet food industry by driving consumers to re-assess conventional dog and cat food offerings that have remained essentially unchanged for decades. The company positions its brand to benefit from mainstream trends of growing pet humanization and consumer focus on health and wellness.
In terms of its most recent earnings report, the stock jumped in early May when FRPT reported strong Q1 results and the stock has been extending nicely since then. A loss of $(0.09) was reported, but revenue grew nicely, by 9.7% YoY to $34.5 mln. The company's core fresh refrigerated product offering grew 12.2%. Sales for the quarter were driven by velocity gains and a 10.4% increase in Freshpet fridge store locations to 17,031 as of March 31, 2017.
FRPT says it's off to a good start in 2017. In Q1, its Feed the Growth strategic plan drove a significant increase in consumption from its stepped-up advertising investment and FRPT further optimized its supply chain to more efficiently deliver Freshpet products to retail partners and consumers at lower cost.
Going forward, FRPT expects its sales growth and gross margin expansion to be more pronounced. In fact, the company believes it's on the right path to rapidly scale the Freshpet brand behind its marketing message, outstanding product quality, and broad retail distribution. Of note, FreshPet expects to increase its media spend in 2017 by approximately 60% to drive higher awareness and capitalize on Freshpet's high repeat rate. To date, the company is very encouraged by the results and expects that over time this spend will more rapidly increase same store sales and more quickly increase new store penetration.
For full year 2017, the company reiterated its guidance and continues to expect sales to exceed $153 mln, an increase of approximately 15%, (17% for its fresh refrigerated product offering) with an increased rate of growth throughout the year. FRPT does not provide EPS guidance, but the market is expecting a loss this year and a profit in 2018. While a loss is expected, the company is reporting positive adjusted EBITDA, which it expects to come in around $16 mln, a decrease of approximately 10%. Finally, the company expects to have 18,200+ Freshpet Fridges by year-end, an increase of approximately 10%.
In sum, FRPT's financials are not great right now as they are still reporting losses. On the positive side, they are genuinely a play on the trend toward fresh food without preservatives etc. People are increasingly watching what they eat and they are increasingly choosing organic and natural foods. FreshPet's hope is that this trend will extend to people's pets. Also, while a loss is expected for 2017, the company is expected to turn profitable in 2018 on a full year basis. And they are showing good revenue growth. That Q1 report has gotten the stock back on the uptrend after it traded sideways for a long time.