Bellring Brands, Inc. Q3 FY2020 Earnings Call

Welcome to BellRing Brands Third Quarter 2020 Earnings Conference Call and Webcast. Hosting the call today from BellRing Brands are Darcy Davenport, President and Chief Executive Officer; and Paul Rode, Chief Financial Officer. Today’s call is being recorded and will be available for replay, beginning at 1:30 p.m. Eastern time. The dial-in number is 800-585-8367 and the passcode is 9248828. At this time, all participants have been placed in a listen-only mode. It is now my pleasure to turn the floor over to Jennifer Meyer, Investor Relations of BellRing Brands for introductions. You may begin.

Good morning, and thank you for joining us today for BellRing Brands third quarter fiscal 2020 earnings call. With me today are Darcy Davenport, our President and CEO; and Paul Rode, our CFO. Darcy and Paul will begin with prepared remarks, and afterward, we’ll have a brief question-and-answer session. The press release and supplemental slide presentation that supports these remarks are posted on our website in both the Investor Relations and the SEC filings section at bellring.com. In addition, the release and slides are available on the SEC’s website. Before we continue, I would like to remind you that this call will contain forward-looking statements which are subject to risks and uncertainties that should be carefully considered by investors as actual results could differ materially from these statements. These forward-looking statements are current as of the date of this call and management undertakes no obligation to update these statements. As a reminder, this call is being recorded and an audio replay will be available on our website. And finally, this call will discuss certain non-GAAP measures. For a reconciliation of these non-GAAP measures to the nearest GAAP measure, see our press release issued yesterday and posted on our website. With that, I will turn the call over to Darcy.

Thanks Jennifer. And thank you all for joining us this morning. Last evening, we reported our third quarter results as well as posted a supplemental presentation to our website. This presentation is designed to provide more insight into our business, consumption and key metrics. We reported third quarter sales of $204 million and adjusted EBITDA of $38.5 million. As we discussed last quarter, we ended Q2 with inflated trade inventories after our customers overbought following the mid-March consumer stock up. This elevated Q2 sales at the expense of Q3 and factored into our second half planning. In reaffirming guidance in May, we highlighted that the second half would be back loaded. More specifically, we expected roughly 56% of our second half revenue to fall into the fourth quarter. With July net sales coming in at close to $100 million, this plan is proving out. Outside of the timing shift, our actual results were shy of our internal expectations mainly due to a slower than expected RTD category recovery as a result of less on-the-go occasion. Specifically, we forecasted a consistent improvement from the April low, reaching pre-COVID levels by June. Instead, we saw more of a W-shaped recovery, with May dipping back down and not reaching pre-COVID levels until after the quarter ended in July. Coupled with longer-than-expected international recovery, this shaved $50 million to $60 million from our second half sales forecast, which is equally split between Q3 and Q4. Although we are seeing encouraging signs in the July RTD category consumption period, we lowered our Q4 growth assumptions given the choppy recovery we experienced in Q3. However, because of the overperformance in the first half, combined with non-strategic SG&A reductions in the back half of the year, we still expect to deliver our full year EBITDA in line with our original expectations. I'd like to now focus on brand highlights, progress against our growth strategies and end with our outlook. Despite strong COVID category headwinds, Premier Protein Shake consumption was strong this quarter, up 11% across both tracked and untracked channels. Untracked outpaced tracked channels, growing 33% in the quarter, while tracked declined 4.5%. E-commerce Premier Protein, our third largest channel, led the way up an amazing 185%. We also saw terrific growth in food and drug, up 38% and 33% respectively, driven by distribution and increased marketing and promotion. July consumption has remained strong at 12% in tracked and untracked channels. Untracked continues to drive our growth up 39%, while tracked channels faced headwinds in July due to promotional timing shifts that will reverse later in the quarter. Now to our growth strategies, strong marketing programs continue to be drivers for the brand. Premier Protein increased two share points in the quarter to 18% of the RTD category. Our promotional strategy remains effective, driving approximately 40% of our consumption growth and TDPs continue to increase 6% in the quarter. Premier Protein household penetration substantially increased year-to-date to 6.6% supported by media, including television advertising. Our new products continue to perform well and are gaining distribution. Café Latte and our powder product velocities are ranked in the top 10% of the category. Protein with oats continues to sell well and we have gained expanded distribution, which we will see in the next two quarters. I'm excited about our pipeline of new products coming out over the next several months, including—welcome back my personal favorite—Pumpkin Spice that ships this month. Now to our other brands, Dymatize's domestic business had a good quarter at 9% led by Club and e-commerce. Our launch of ISO 100 Cocoa and Fruity Pebbles has quickly shown success ranking in the top 10 SKUs where it is sold. Unfortunately, both Dymatize and PowerBar's international businesses continue to be challenged as a result of COVID. Our supply chain remains stable. During the quarter we successfully brought online a fifth co-manufacturing location. This was challenging given the COVID environment, and I'm proud of our team's hard work on this achievement. This additional capacity gives us further flexibility to support our growth plans. Now to our outlook, the pandemic has created strong category headwinds, and the slower-than-expected recovery has affected both our domestic and international businesses. As a result, we have lowered our back half sales. However, despite those challenges, we still expect to deliver double-digit net sales growth for the year. In Q4, we have significant growth drivers lined up, including promotions in most major retailers, expanded distribution and we already have a strong July in the books. Given we exceeded our expectations for the first two quarters, and we're confident in our ability to achieve our Q4 forecast, I'm happy to reaffirm our full year EBITDA guidance. I'm incredibly proud of our company and I don't want to miss the opportunity to publicly thank all of our employees and our co-manufacturing partners for navigating these stressful times. I continue to have confidence in our brand fundamentals and I am energized by the business momentum, expanded distribution, innovation pipeline and our long runway for growth. I will now turn the call over to Paul.

Thanks Darcy and good morning everyone. Net sales for the quarter were $204 million and adjusted EBITDA was $38.5 million. Third quarter results, as anticipated, were pressured by the impact of COVID as well as changes in customer inventory levels when compared to prior year. COVID impacted our quarterly net sales results on several fronts. First, it took longer for retailers to reduce their on-hand RTD Shake inventory from inflated levels at the beginning of the quarter. Second, as Darcy detailed, the RTD liquid category had significant headwinds. Third, our international business, which historically has accounted for about 50% of our net sales, declined significantly compared to last year. Though we anticipated many of these impacts, the category recovery was slower than expected. From a shipment perspective, Premier Protein net sales declined 12%, with RTD Shake net sales down 10%. The disconnect between shipments and our strong 11% consumption growth for RTD Shakes was largely expected. Shipments lagged consumption as retailers worked through an overbuy in March. Additionally, recall we pulled shipments forward last year related to a fourth quarter promotion. These inventory-related headwinds were partially offset by strong distribution gains across channels. Dymatize had strong growth in the Club and e-commerce channels, which combined grew 50% in the quarter. We anticipated strong growth for these channels in the second half and the brand continues to gain distribution in FDM and Club while consistently delivering double-digit growth within e-commerce. This growth was outweighed by COVID-driven declines globally for the specialty business, resulting in an overall net sales decline of 16.6%. PowerBar net sales declined 44%, reflecting the impacts from our portfolio optimization strategy in North America, and lower international volumes driven by specialty store closures. We expect COVID to weigh on the brand's results in the fourth quarter, but the decline should moderate now that we have fully left the portfolio optimization strategy in North America. Turning back to consolidated results, gross profit of $69 million declined 24% this quarter, with gross profit margin declining 450 basis points to 33.6%. The margin decline related to anticipated higher input cost, primarily milk-based proteins, and a higher trade promotion rate. SG&A expenses as a percentage of net sales increased 240 basis points to 16%. This increase was driven by a strategic increase in marketing spend of $2 million and $2.1 million of incremental public company costs, offset partially by lower compensation expense. Adjusted EBITDA for the quarter was $38.5 million, a decrease of 37.1% with an adjusted EBITDA margin of 18.9%. Before reviewing our outlook, I would like to make a few comments on cash flow and liquidity. With the strong third quarter cash flow, generating $32 million from operations, we repaid the $65 million we had borrowed under our revolver as a precautionary measure in light of the uncertainty COVID created. This left us with $22.5 million of cash on hand and $145 million available under our revolver at quarter end. As of June 30, net debt was $715 million and net leverage was 3.8 times. Although this is an increase in leverage from last quarter, it is in line with our expectations given our quarterly adjusted EBITDA compared to prior year. We still expect to end the fiscal year with materially lower net leverage and to reach our net leverage target of three times in fiscal 2021. Turning to our outlook, we're pleased to reaffirm our fiscal year 2020 adjusted EBITDA outlook of $192 million to $202 million. However, based on lower second half expectations due to COVID, we have adjusted our net sales range to $960 million to $980 million. In spite of COVID headwinds, the fourth quarter is expected to deliver strong double-digit top-line growth driven by Premier Protein RTD Shakes, which will benefit from distribution gains and incremental promotional activity. We expect that the remaining brands will be weighed down by the lingering effects of COVID, especially the domestic and international specialty businesses. For Dymatize, these headwinds are expected to more than offset continued strong gains in e-commerce, Club and FDM. Overall, we're confident in our ability to deliver a strong fourth quarter result. Category dynamics have improved from the third quarter and the fourth quarter is off to a great start as evidenced by our strong July net sales. Premier Protein, which is 80% of our net sales, has continued to register double-digit consumption growth in the face of COVID and we expect that growth trend to continue in Q4. With that, I'd like to turn the call back over to the operator for questions.

Thank you. The floor is now open for questions. Our first question comes from the line of Andrew Lazar of Barclays.

Great, thanks. Good morning, everybody.

Good morning.

First off, Darcy, as you mentioned, the trends in food and drug in tracked channels seems to be in good shape as is Club or as are Club and e-commerce in untracked. So it does seem like it's primarily mass in tracked channels that was some of the issue and in some of the data that we all see in scanner. If that's the case, is it primarily sort of promotional timing or there's something else going on there and trying to get a sense of when we would expect to start to see some of that tracked data, which is heavily weighted, I think, towards mass start to look — to improve?

Sure. So one of the things that we experienced during Q3 was that COVID hit Club and mass harder than the other channels and consumers stayed away from the larger stores in favor of smaller local grocery stores and e-commerce. So there is one category aspect of that and we are already seeing that change and improve. Specific to our brands, in July we're seeing improvement across consumption, but specifically in July, we are lapping promotional timing in both tracked Club and mass and that should turn around later in the quarter.

Got it, great, that's helpful. And then when we think about trial and repeat, you've obviously talked about the impressive household penetration gains and sort of the 50% or so repeat rate, just as you think — if we think forward a little bit, is there any other research or data points that you guys tally up what consumers are telling you that makes you feel like that type of repeat rate or the stickiness, if you will, of some of the incremental household penetration can be not insignificant if we think forward going into your fiscal '21.

Yeah, I think the biggest predictor of the future is the past. And one of the things I mentioned in my prepared remarks is we included a supplemental deck on our website that goes through some of our key metrics and goes back in time to give you a broader perspective. One of the pages follows household penetration from 2016 to now. You basically see almost a doubling of household penetration, but our repeat rate stays consistent at around 50%. And so I think that right there, when you increase household penetration you usually see a decrease in repeat, but we haven't. So for us, our challenge and opportunity has always been to increase household penetration because 6.6 is great growth from 2016, but it's still relatively low in the broader scheme. And we're confident that we'll get the repeat and the loyalty, because we've shown that the brand has some of the strongest in that category.

Thanks so much, Darcy.

Thank you.

Our next question comes from the line of Ken Goldman of J.P. Morgan.

Hi, thank you. I wanted to dig in a little bit more toward guidance. Obviously, you made changes to your sales number, but not your EBITDA number and you gave us some reasons why. But was there any consideration to maybe given some of the downside surprises this quarter, potentially take the opportunity to take EBITDA down a little bit as well just to give yourself a little bit of cushion or do you really feel like there's just that much visibility into your cost structure, and the related sales that you feel just wasn't necessary?

So we actually evaluated it and as you know, we overdelivered in the first half and our EBITDA margins have been running toward the high end of our long-term algorithm. Both of those things gave us some EBITDA flexibility. And then in addition, when we entered into this pandemic, we ensured that we maintained some financial flexibility within our P&L just in case our sales forecasts were slightly off. So in many ways, we were ready for this because we wanted to deliver on our annual commitment of EBITDA. I feel confident we have good visibility into Q4 already. That's the main reason why we didn't adjust that.

Thank you for that. And then I wanted to follow up with asking about your SKU assortment. You had talked Darcy about some of the products, the oat product doing very well. Was there any pressure from your customers to reduce SKUs by a more meaningful amount than you would have hoped for or expected during the crisis so far? Or given your limited number of products already, was that something you didn't quite feel as much of?

Yeah, there really was no pressure around SKU assortment.

Short and sweet. Thank you.

Thank you.

Our next question comes from the line of David Palmer of Evercore ISI.

Thanks. Good morning. Just looking at your advertising and consumer marketing, the spending for the first nine months, it looks like that was up almost 200 basis points as a percentage of sales, which I don't think was similar to what you would have thought, but although I remember the promotion and advertising was supposed to be going up 300 basis points. So could you comment on your growth spending year-to-date? Is it in line with what you were going to spend? Do you still plan on spending that same sort of step up in the fourth quarter? And then looking into '21, are you thinking similar amounts of gross spending? In other words, there need not be another step up or maybe even, you don't even need to have the same level in that year and I have a quick follow up.

Great, I'll hit the strategy and then if Paul has anything specific to add, he will. From a strategy standpoint, our plan from an A&P standpoint was always to focus our biggest spend in Q2 which is around New Year when most people are entering the category and then we're going to have a smaller spend in the back half. We chose to move that smaller spend into Q3 and spend it in Q3 because we felt like we had a very strong promotional plan in Q4. Candidly, we are seeing softness in the category, and we also saw benefits on cheaper advertising rates and more eyeballs. So overall, from the year, our media spend is very similar to what we expected. And just to specify, in Q4, we will not have a large A&P budget because of our heavy promotional spend. On the '21 question, we saw this year as really our first year with television advertising. It was very effective in building household penetration, which was our main goal. So we expect and plan to increase that in '21. Obviously, we're in the process of doing that planning right now.

As we're looking into '21, there are many gives and takes here with regard to how we should think about your top line: you're kind of unlucky with a lot of the on-the-go this year. But then again, you're lapping some out of stock issues or supply chain issues and then God knows how things will work as far as the recovery rate of on-the-go into this next year. So how are you thinking about the major chunks of gives and takes as we try to model fiscal '21, particularly as it is in regard to the top line? Thanks.

I don't think we're in the position right now to talk in detail on '21, which we will obviously do in the next quarter, but we are seeing improved category trends in July. So although the recovery took longer than we predicted, it was actually only about a month difference than what we predicted. We are seeing July liquid category up above pre-COVID levels. So in many ways, although there are no promises with COVID, we believe we are back to having the category as a tailwind. We know what works to drive our business. It's kind of back to our original playbook.

Thank you.

Thank you.

Our next question comes from the line of Jason English of Goldman Sachs.

Hey, good morning, folks.

Good morning.

Darcy, your performance clearly was a little flat-footed in terms of the magnitude of decline, but your forecast for next quarter implies a pretty robust snapback. I think at the midpoint your guidance implies around 23% growth, roughly speaking. I'm hearing you reference consumption in July of around 12 on Premier, I'm assuming international Dymatize and PowerBar still down. So somewhere in the mid to high single digit overall consumption for the portfolio in aggregate — tell me if I'm off base there. If that's generally right, what's going to drive the incremental growth to get to that 23% type level in the fourth quarter?

You're exactly right that we're expecting continued declines in the international business, specifically Dymatize and PowerBar, but we are expecting to see pretty robust growth in Premier Shakes specifically. That's really driven by promotions that we have in almost every single major account, as well as the category rebound of being more of a tailwind than it has been. What is encouraging is that at this point in the quarter, we actually have very good visibility to at least two-thirds of our quarter from a shipment perspective. That's what's giving us confidence.

The only thing I would add is that recall we were also lapping some favorable comps in the fourth quarter prior year because of the early load in Q3. So that is about a 9% benefit to the fourth quarter.

Okay. And for my follow up, I'm going to try to cheat a little bit here and squeeze two questions in, but my apologies. First, the volatility of the business, I mean, from up 32% to up 19% to down 14% to up 23% — that's just this year and we see the volatility going back. Is there ever a scenario or a case where we don't have as much volatility going forward? Is there anything you could do to manage the business for a little more consistency? Second, I look around this world and it does not feel anything like a post-COVID world yet, and I'm not expecting a pre-COVID world yet. I'm not expecting to feel like a pre-COVID world for quite some time. Why should we expect your business to perform at pre-COVID type levels anytime in the next six months even though it may have hit that level in July? Why should we believe it will be durable?

Great question. On consistency, our business is naturally lumpy because we have some Club concentrations, so there is quarter-to-quarter lumpiness. By providing more transparency with the supplemental deck, our goal is that you guys start understanding that it actually can be more predictable. This year was unusual; however, there should be some predictability around promotions because the difference between quarters is usually promotional loads and D-loads. On the second question, I agree it does not feel like a post-COVID world. Some dynamics unique to our category: on-the-go usage occasions and bars have been hit the most. In the quarter, bars were down 24% while our TDPs were only down 4%. Within our TDPs, even in July, they are up 7% versus pre-COVID levels. I believe the on-the-go usage occasion is still under-indexing because people are not out and about like before, but in-home usage is over-indexing. We're seeing new trends around food as medicine or proactive health, which benefits the everyday nutrition side of our business and the RTD side. It has hurt weight management and sports nutrition, but I think those will come back. I believe our business can benefit from some of the structural changes in consumer behavior even through COVID.

Thank you very much.

Thank you.

Our next question comes from the line of Rob Dickerson of Jefferies.

Great, thank you so much. So I guess kind of a follow up in terms of benefit at-home consumption around — I feel like, if I remember correctly, I thought in the last call you discussed how a decent percentage of your overall buyer base actually consumes the product at home, not on-the-go and primarily buying that in a Club channel. So my question is, if that consumer base relative to other consumer bases within the category consume more at-home, is there something you can do to support ongoing at-home consumption of your product and/or potentially shift or think about adjacencies, confections, snacks, what have you?

Great question. You're exactly right: we see about 80% to 85% of our product consumed at home. As many other CPG companies are doing, we evaluated changing consumer behavior and adjusted. We adjusted our communication strategy to focus more on using our products in recipes, which has always been successful on social. We adjusted our A&P strategy. As we go forward, we're looking at different ways to renovate or use packaging to call out certain benefits to leverage these trends and on the longer term we're exploring product ideas that leverage the trends I mentioned earlier.

Okay, great. And then secondly, just speaking with a number of other people within the industry, and more specifically around your category, there's a feeling that as we go into shelf resets later this year retailers overall are still supporting some of the larger brands. Given there's so many players within the category, it feels that maybe some larger players could benefit through the shelf resets. How do you feel about your share gain potential as we go through this process and as you are promoting heavily and as you are trying to expand that household penetration further?

I'm really excited about the upcoming resets, specifically the bulk resets. In the past I've talked about roughly 50% of a shelf reset in the fall and 50% in the spring, with the back end shifting to more of a 60-40 split. We have visibility to the new resets that are coming up in our Q1 and I think what you described about retailers supporting larger, growing brands rings true. Our resets will show that and we're gaining significant space, which I think is long overdue. I'm very excited to see it.

That's great to hear. I'll pass it on. Thank you so much.

Thanks.

Our next question comes from the line of John Baumgartner of Wells Fargo.

Good morning, thanks for the question.

Hi, John.

Paul, I wanted to come back to the gross margins, just given the pressure this quarter and last quarter, the outsourced model — you're not seeing as much leverage as you would if it were insourced. Can you drill down a bit more into the components there of that pressure? You mentioned cost inflation and changes in year-on-year promotion. Maybe more detail there. And then as a follow up with the dislocations from COVID, how is that impacting any sort of changes in your outlook for dairy cost inflation going forward? Thanks.

Sure. From a third quarter perspective versus last year, our margins were down and it's really two primary components. It is the increased promotional spend as well as the increase in milk protein cost — roughly a 60-40 split from the drivers on the margin side. As we look into next year, dairy costs have been somewhat volatile since COVID. We were expecting higher protein costs as we went into fiscal '21. That's been a little bit tempered recently, but we're still expecting some minor headwinds on the milk protein side. Whey protein has been a bit more favorable and may provide a marginal benefit. For any protein costs next year, our thinking is that with some of our supply chain initiatives there's opportunity to offset some of that, but we do think there will be modest headwinds for protein as we go into next year.

Is there any ability to actually hedge more than you have historically, any changes in the supply chain initiatives on that front or still historically to meet the norm in terms of moving up to hedge as opposed to not hedging?

We're evaluating several strategies. At any given time, we're looking at different ways to do that and we have implemented some different strategies this fiscal year than in the past. We're continuing to explore additional opportunities there to find the best way to mitigate that.

Okay. Thanks Paul.

Yeah, thanks.

Our next question comes from the line of Brian Holland of D.A. Davidson.

Thanks. Good morning. Most of my questions have been answered, so maybe just two quick follow-ons. One, Darcy, it sounds like from everything you're saying that you have pretty good line of sight on distribution gains amidst the upcoming shelf reset, which is certainly encouraging to hear given the landscape and some uncertainty going in about how the shelf reset timing was going to play out. So maybe just first point of clarification, do you feel very comfortable with the line of sight you have on distribution gains going into fall?

Yes, we do. We'll get some minor reset happening in the grocery side of the business in Q4, but the major ones we will see in our Q1. We already know where those will land and it's positive for our brand.

Okay, got it. And then just quickly on the scanner data, obviously some scrutiny there that's been referenced throughout the call and you did a great job of walking through the puts and takes there. But just to help us understand as we watch this data over the next few months, I know you had lapped some material promotional events in the prior year period — taking the COVID backdrop out of this — as we look forward over the next couple of months, are there significant events that we are lapping that might impact the way the scanner would look?

I always want to be careful saying none, but no major ones. Last year, we only did a handful of promotions in our Club account and a small promotion in mass, which we're lapping right now. What's different about this year is we have promotions in almost all of our different retailers.

Appreciate the color, best of luck.

Thank you.

Our next question comes from the line of Bill Chappell of Truist Securities.

Thanks. Good morning.

Good morning.

First question, I just want to go back to the third quarter inventory or the trade inventory issue. I'm just trying to understand, did we just mis-model that or did it happen a little different than expected? Because I think I was going back and I think the comment was it was expected to be kind of a $50 million hit to demand equally over the next two quarters, but it seems like the majority of it happened in Q3. So did something happen differently or did we just not get the message?

I think there are two things. We did our best to communicate the high customer inventory at the end of Q2, which benefited Q2 but hurt Q3, and when we were looking at the back half, it was back loaded to Q4. Clearly, we need to do a better job of communicating because we thought we were clear, but clearly not, so we can work on that. The new information was the rate of recovery of the category, and that was the W-shaped pattern I mentioned. If you go back to the overall convenient nutrition category, specifically liquids, you'll see week-on-week it hit a low in April and then toward the end of April the category saw a steady recovery. We expected with the information we had that that would continue gradually up to pre-COVID levels by June. Instead, it went back down and that was the W curve. That was really the miss as opposed to not having visibility to the high customer inventories.

Got it and kind of a follow up on the same lines: what are your current thoughts for active nutrition as we come out of COVID? The reason I ask is, if your numbers were declining, sales of ketchup and frozen potatoes were tripling. Clearly consumers have gone to comfort food and some remain there. Do you think active nutrition will reach back as people try to shed pounds and be more active coming out of this, or is there a permanent pause on some active nutrition growth as people slowly come out of it?

Big picture, there's a temporary piece which is the on-the-go reduction. I think that will continue to recover as people start returning more to normal activities and as we all learn how to function with the virus. I think the in-home trend has benefited our business; we're seeing strong trends in everyday nutrition and adult nutrition, while weight management and sports nutrition have been hurt. I think those areas will come back as people resume health routines. The fundamentals of this category are strong: people want to improve their health and they want convenience, so I have no doubt the category will rebound.

Okay, great. Thanks for the color.

Thank you.

Our next question comes from the line of Ken Zaslow of Bank of Montreal.

Hey, good morning, everyone.

Good morning.

How does this affect your long-term growth rate?

It doesn't. If you remember, our long-term algorithm was 10% to 12% growth with 18% to 20% EBITDA margins. What we're seeing is that despite COVID, we are still delivering on that long-term algorithm. We had planned to have a higher growth rate this year because we were lapping a few constraints, but the long-term outlook remains intact.

Okay, my second question is when you did the promotional shift from the second quarter to the third quarter and fourth quarter, how did that play out?

A couple things happened. We moved some promotions to Q4 and into Q1, but we ended up doing an incremental promotion in our Club accounts because those accounts saw a decline in category and we were their first call. Net-net we actually ended up with roughly the same overall amount of promotions this year even though the timing shifted.

Great, I'll leave everything for later. Thank you very much.

Thank you.

And our final question comes from the line of Chris Growe of Stifel.

Hi, this is Matt Smith on for Chris. My first question relates to the inventory position at retail. Could you talk about what happens in the fourth quarter? When I look at the bars on the slide that you provided it looks like there's potentially more inventory de-loading to go?

Paul, you want to take that?

Of course, yes. Coming out of the third quarter, we feel like the inventory levels are imbalanced at our key customers where we have full visibility, so we do not anticipate the fourth quarter having significant deviations between shipments and consumption.

Okay, great. And then my follow up would be as it relates to the household penetration and repeat rates that you provided, could you talk about the benefit of new products and how those are impacting repeat rates? And then on TDPs, are there varying repeat rates based on the new products that are influencing the performance?

There are a few things to expect with repeat rates as you expand distribution and household penetration: both buy rate and repeat rate typically go down. I'm really excited that we actually see a very stable repeat rate over the years, which feels good. Regarding buy rate, we are seeing some decline mainly because we're moving from big packs in Club to smaller packs in FDM, but it's still very strong. I think that answers your question.

Thank you.

Thank you.

And ladies and gentlemen, that was our final question. And with that we do conclude today's conference call. You may disconnect your lines at this time and have a wonderful day.

Thank you.