| Author | Message | ||
     Entrepreneur Kurra Bewarse Username: Entrepreneur Post Number: 3880 Registered: 05-2011 Rating: N/A |
Simply Good Foods posts healthy quarterly results, but softer margin outlook shakes out some investors (40.19 -2.15) Simply Good Foods (SMPL), a maker of diet-based snacks and shakes, delivered a solid beat-and-raise quarterly report, highlighted by a 22% jump in 1Q22 net sales. Increased foot traffic across the mass channel and at convenience stores, combined with product price increases, fueled the company's upside performance. However, shares are trading sharply lower on the session despite the better-than-expected results and the bump in FY22 net sales growth guidance. The weakness can partially be attributed to some profit-taking following a near 20% run higher in the stock since the beginning of December. However, fundamental reasons are also in play, including SMPL's expectation that supply chain costs will remain elevated throughout its fiscal year, further pressuring margins. To combat supply chain cost inflation, SMPL pushed through price increases in mid-September, which have been widely absorbed by consumers. Demand for its Atkins and Quest brands was resilient, as evidenced by both brands outperforming their respective subsegments. Specifically, retail takeaway for Atkins was 7.7% compared to 4.4% for the weight management segment overall. For Quest, retail takeaway in measured channels came in at 36.2%, surpassing the active nutrition segment growth of 30.3%. Bolstered by higher household penetration for its products, improving mobility/shopper traffic, and additional price increases, SMPL lifted its FY22 net sales growth guidance to 12-14% from its prior guidance of 8-10%. As the company progresses through Q2, it expects to sustain the momentum it achieved in Q1, forecasting retail takeaway growth to remain stable. This positive outlook, though, is tarnished by a couple items that are creating angst among investors. First, during the earnings conference call, CEO Joseph Scalzo voiced concern that the recent surge in COVID-19 cases could slow the return-to-work trend. That could have a negative impact on sales of products such as protein shakes and bars, which many people consume at work. Scalzo noted that while Q1 bar consumption growth of 3.3% was inline with recent trends, it still remains below historic levels due to the work-from-home shift. Second, and perhaps more concerning, is that SMPL doesn't see any relief on the horizon in terms of supply chain disruptions and the spike in ingredient costs. Consequently, it cut its FY22 gross margin outlook, projecting a yr/yr contraction of about 250 bps. Previously, the company had guided for a "modest gross margin contraction." SMPL does intend to implement addition pricing actions, but they won't be enough to fully mitigate the cost pressures. Overall, SMPL is performing quite well and its assortment of healthy snack alternatives are on trend. Unfortunately, the all-too-familiar supply chain and inflationary headwinds are casting a cloud over its outlook, providing investors with a reason to lock in gains on a stock that's made an impressive move. |