While much of the market's attention is rightfully focused today
on Apple's (AAPL) lowered Q1 guidance, we also want to take a quick look at a
small food company that reported its Q1 (Nov) results this morning.
Simply Good Foods (SMPL 19.92, +1.00, +5.29%) 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 buyer base include participants in branded weight management programs. These consumers are SMPL's most loyal, profitable, and frequent purchasers.
In America, Atkins has become an iconic brand among "low carb," "low sugar," and "protein rich" nutrition options. The emphasis that the Atkins nutritional plan places on nutrition bars and Ready-To-Drink shakes positions SMPL to capitalize on consumers' busy schedules. SMPL benefits from trends such as 1) increased consumption of smaller, more frequent meals throughout the day, 2) consumers' strong preference for "better-for-you" snacks, 3) consumers' greater focus on health and wellness, and 4) consumers moving toward low carb, low sugar food items.
In the company’s first quarter, which ended on November 24, EPS jumped to $0.18 from $0.04 in the prior year period. Revenue rose 13.5% year/year to $120.9 mln. Both results were slightly below market expectations. SMPL said that its business continues to be driven by strong base velocity gains of its core products.
SMPL maintained retail momentum, with U.S. retail takeaway up 23.5%. As expected, said the company, retail takeaway growth exceeded sales growth as SMPL worked with its manufacturing network partners to secure additional supply that could manage to keep up with “robust” demand, but at the same time, the company did note that the strength of point of sales growth has led the company to continue having some difficulty matching the pace of interest. Consequently, SMPL has been reducing promotion activity in an effort to temper demand in order to mitigate persistent short-term challenges involving securing supply.
Looking ahead, given the solid start to the fiscal year, SMPL expects FY19 sales growth to exceed its long-term target of an increase of 4-6%. This compares to its previous outlook for growth that would "slightly exceed" its long-term target. SMPL expects solid volume growth in the first-half of the year, partially offset by those short-term supply issues as well as challenging top-line growth comparisons in the latter half of the year.
The company anticipates that adjusted EBITDA will grow at a higher rate than net sales, including uncertainty surrounding inflation, in the second half of the year.
The stock appeared ready to open lower based on pre-market action, albeit which came on very light volume. Overall, this was a bit of a disappointing quarter. After being range-bound in the $12-14 area for much of the first half of 2018, the stock has been climbing fairly well since then.
It's good that SMPL is seeing strong volume growth and an acceleration in its business due to improved advertising, including, in recent quarters, celebrity endorsements (Rob Lowe), new packaging graphics, a cleaner label, and increased marketing investment. SMPL has also shifted its marketing strategy to a broader target audience and slightly altered 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. A problem has been not having enough supply to satisfy demand, although it sounds like SMPL is making progress on this front.
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