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Freshpet (FRPT +3%) is trading higher following its Q1 earnings report this morning. This supplier of refrigerated, premium dog and cat food reported a surprise loss on a GAAP basis. However, there were some charges in there, so we are not sure what the clean EPS number is. Revenue rose a healthy 17.6% yr/yr to $263.2 mln, which was better than expected. However, FRPT lowered FY25 guidance for sales to +15-18% from +21-24% prior guidance. It also lowered FY25 adjusted EBITDA guidance.

• The company mentioned that the slowdown in its sales growth came on very quickly as the macroeconomic climate changed a few months ago. Freshpet says that historically it has been able to grow through all sorts of economic conditions. However, FRPT is seeing consumers become hesitant about getting a new dog and they are becoming more hesitant to try a more expensive pet food until they have greater clarity on their economic fortunes.
• In response, FRPT plans to increase its ad spend to attract more higher income consumers via digital social channels as well as linear TV. It also plans to launch a new entry price point bag product under the Freshpet Complete Nutrition label. The goal is that the Complete Nutrition brand attracts customers with its lower price point and ultimately those households trade up within the portfolio.
• Another strategy is to focus more on multi-packs to give consumers better value. FRPT has also expanded its small DTC business nationally so that consumers can sign up for subscription options, which saves them money. FRPT is also focusing more on value oriented retail stores, including warehouse clubs. FRPT announced today that it's now in its first Sam's Club store, and the early results are encouraging. FRPT is optimistic this will lead to a greater expansion over time.
• FRPT notes that it continues to grow and add new users across all income and age groups. However, those new consumers are just not a big enough group to support a growth rate above 20% right now. It is also important to note that FRPT does not see consumers trading down or out of Freshpet. The issue is more that it's not adding new consumers at the same rate given the macro uncertainty.

The common wisdom is that consumers tend to continue to spend on their pets even in times of economic hardship. Those sales are seen as pretty durable. However, that rule is clearly not absolute. Freshpet is on the high end of the pet food price spectrum. FRPT is doing ok with current customers, it's not seeing a trade down effect. However, attracting new customers is becoming more difficult given its position as a premium brand. We like the steps FRPT is taking in terms of value-packs and subscriptions. However, it sounds like the balance of 2025 is going to be a struggle.