This is a quiet week due to the holiday, but Simply Good Foods (SMPL) is serving up some tasty earnings results for Q3 (May) this morning. Simply Good Foods primarily sells weight loss nutrition bars and shakes under the Atkins and SimplyProtein brands. While Atkins is a well-known brand, most people are not familiar with Simply Good Foods itself.
EPS jumped 167% yr/yr to $0.16 while revenue rose 30.1% yr/yr to $139.5 mln. Both results were better than expected with revenue showing a very strong upside. Sales growth was primarily driven by volume growth with some modest net price realization.
SMPL has had a good problem the past few quarters. Demand has been so strong that it's having trouble keeping up with supply. In fact, SMPL has been working with its manufacturing suppliers to secure additional product to keep pace with robust demand.
This supply/demand imbalance has led SMPL to cut back on promotional activity, which has helped keep product on customer shelves. Some good news is that SMPL says in today's press release that its "supply situation has improved and we believe we are well positioned to meet consumer demand."
One of the reasons why sales have been so strong is that the company has shifted its marketing strategy in recent months to a broader target audience and to focus more on weight loss. Also, SMPL has focused more on celebrity endorsements (Rob Lowe), new packaging graphics, a cleaner label, and increased spending on marketing in general.
Retail takeaway is a key metric that investors watch with SMPL as the company compares it to sales growth each quarter. It's generally a positive sign for SMPL when retail takeaway exceeds sales growth as that shows end user demand. Retail takeaway exceeded sales growth in FebQ, but that flipped in MayQ as sales growth exceeded retail takeaway (+30.1% vs +19.5%). It's not a huge concern, as SMPL expected this to happen in MayQ "driven by the timing of inventory changes compared to prior year at key retailers. Year-to-date net sales growth and retail takeaway are now relatively in-line."
This stock has been a slow and steady climber over the past year growing from the mid-teens to around $25.50 currently. It's rare to hear a company struggling to maintain supply in order to keep up with robust demand but that has been the case with SMPL in recent quarters and it's a positive sign. Shifting its marketing strategy to a broader customer base has really paid off.