Good day and thank you for standing by. Welcome to BellRing Brands Second Quarter Fiscal Year 2024 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jennifer Meyer, Investor Relations for BellRing Brands. Please go ahead.

Good morning and thank you for joining us today for BellRing Brands' Second Quarter Fiscal 2024 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 afterwards, we'll have a brief question-and-answer session. The press release and supplemental slide presentation that support these remarks are posted on our website in both the Investor Relations and the SEC Filings sections 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. Last evening, we reported our second quarter results and posted a supplemental presentation to our website. I'm happy to share that we had an excellent first half, with Q2 results above our expectations. The business continues to accelerate as we bring on new shake capacity and begin to drive demand. For the first time since 2021, we executed 2 successful club promotions in 1 quarter, which sparked significant consumer and retailer excitement. Net sales grew 28% over the prior year and adjusted EBITDA was up 53%. Our greater-than-expected shake demand, specifically non-promoted, drove the net sales and adjusted EBITDA margin outperformance. As you saw in yesterday's press release, we raised our outlook for the year. We now expect net sales to grow 16% to 19% over fiscal '23 and adjusted EBITDA to grow 18% to 24%. This raise at the top and the bottom line was based on better-than-expected first half performance, strong consumption trends, confidence in our capacity expansion, and our decision to execute a price increase on shakes late in Q4. Moving to shake production, we have made remarkable progress in our plan to grow and diversify our shake supply. We are making more shakes every quarter with Q2 production coming in as expected and up significantly versus the year-ago quarter. We remain on track to grow production north of 20% this year, enabling strong net sales growth in '24 and increased weeks of supply by year-end. Now to the category and brand updates. The convenient nutrition category grew 5% in Q2 as tailwinds around health and wellness and fitness continue to drive growth. Consumer interest in functional beverages and sports nutrition products continues to be high with mainstream ready-to-drink brands driving most of the growth and bringing new households into the category. RTD led the category, up 10%, driven by promotions and distribution gains, ready-to-mix grew 3%, slow in this quarter as consumers traded down to value brands and switched to other high-protein products, including RTDs. Despite this change in consumer behavior, our powder brands still outperformed the tracked category. Premier Protein shake consumption growth remained strong this quarter at 29%. Growth was robust across all channels in Q2, driven by promotions, strong velocities, and distribution expansion. The highest growth was in mass and e-commerce. Mass benefited from display activity and distribution gains, while e-commerce saw strong growth behind promotional events. The club channel, boosted by successful promotions at both of the major club retailers, drove healthy volume lift and household penetration. April consumption remained strong, up 16% despite some out-of-stocks in tracked channels. Flavors continue to drive retailer and consumer excitement. Our newest 30-gram flavor, Cookie Dough, is performing well with top 10% velocities in mass. Our seasonal flavor, salted caramel popcorn, saw solid success. Our brand metrics remained healthy. Premier Protein with an RTD market share of 21% maintained its top position as the #1 brand in the RTD segment as well as the #1 in the broader convenient nutrition category. TDPs grew 33% over the prior year quarter but saw a slight sequential decline. With shake supply remaining tight and demand greater than expected this quarter, we experienced some temporary out-of-stocks late in the quarter and into April. Retailer inventory levels are starting to improve, with TDPs stabilizing, and we expect further improvement throughout the second half. I'm pleased to see the brand reach another all-time high in household penetration this quarter, reaching over 18% of households. Premier Protein added 1 percentage point of household penetration versus Q1 and grew 26% over the prior year. As of Q1, the brand was a significant contributor to the overall RTD category growth. Premier Protein's household penetration continues to be the highest in the category, and we expect modest growth in the remainder of fiscal '24. With the RTD segment household penetration below categories such as nutrition bars and energy drinks, we still see tremendous opportunity to grow in our existing channels. Premier Protein powder continued its strong trajectory, growing 52% in Q2 behind brand investments, distribution gains, and strong velocities. We remain encouraged by the growth potential of the Premier Protein brand in this format. Premier powders continue to bring mainstream consumers into the category with 80% of its growth coming from outside the category. Its household penetration reached 1.7% this quarter, and we continue to believe that the brand will be a contributor to mainstreaming the powder category in the same way Premier did for the ready-to-drink category. Our licensing strategy continues to perform well with cereal and frozen pancakes, attracting new consumers to the brand. Although not a significant revenue driver, these 2 products boost Premier's overall household penetration to 19% or nearly 1 in 5 households. Turning to Dymatize, U.S. consumption remains strong in mainstream FDM channels, but overall consumption declined 8%, weighed down by ongoing softness in specialty channels and increased competitive activity in e-commerce. Despite these headwinds, I'm encouraged to see the brand maintain its record high household penetration with TDPs and share holding steady. Looking forward, we're increasing our investment behind the brand both in marketing and promotion. We are excited to expand our national marketing campaign with San Francisco All-Pro running back Christian McCaffrey. We are eager to see the impact that enhanced digital marketing and a top-tier influencer will have on the brand awareness and household penetration. Last, we are putting the final touches on innovation that will expand Dymatize's product line. Overall, we continue to be bullish on the mainstream powder opportunity with 2 complementary brands. In closing, our excellent first-half results position us well for an above-algorithm fiscal year. Our confidence in the long-term outlook for BellRing remains strong. Our brands are leaders in the highest growth areas of an on-trend category. Ready-to-drink and powder segments are in the early stages of growth with major tailwinds. Premier Protein and Dymatize are leading mainstream brands with low household penetration and strong loyalty. Our momentum continues to grow on shakes as we layer in promotions. Our shake capacity plan is on track to support many years of robust growth. I'm excited to see the momentum continue into 2025 as we layer in more innovation and national marketing. Thank you for your interest in our company. We look forward to sharing our progress next quarter. I'll now turn the call over to Paul.

Thanks, Darcy, and good morning, everyone. Net sales for the quarter were $495 million, up 28% over the prior year, above our expectations with strong demand for Premier Protein shakes, the biggest driver of the outperformance. Adjusted EBITDA was $104 million, an increase of 53%. Adjusted EBITDA margins were 21% and also exceeded our expectations, benefiting from favorable gross margins and leverage on higher net sales. Starting with brand performance, Premier Protein net sales grew 34% behind strong volume growth for RTD shakes and powders. Promotional activity, distribution gains, and organic growth drove the increase in net sales. Shake consumption dollars grew 29% compared to shipment growth of 34%, with the difference driven primarily by the lapping of a prior year trade inventory deload. Dymatize net sales increased 5% this quarter as the brand benefited from increased distribution and promotional activity in domestic mainstream channels, along with international strength. These gains were partially offset by continued weakness in the specialty channel and increased e-commerce competitive activity. Gross profit of $164 million grew 40% with an increase in gross profit margin of 280 basis points to 33.2%. The margin increase resulted from net input cost deflation, partially offset by incremental promotional activity. Compared to our expectations, gross margins benefited from greater-than-expected non-promoted volume and nonrecurring cost favorability. SG&A expenses as a percentage of net sales were 14% and roughly flat to the prior year. Advertising and promotion spend increased by $3 million but was flat as a percentage of net sales at 3.1%. Before reviewing our outlook, I would like to make a few comments on cash flow and liquidity. We generated $16 million in cash flow from operations in the second quarter and $90 million in the first half. We expect net working capital growth in fiscal '24 to modestly exceed our net sales growth rate as we add weeks of shake supply in the second half. As of March 31, net debt was $761 million and net leverage was 1.9x. With our EBITDA growth and strong cash flow generation, we anticipate net leverage will remain below 2x in fiscal '24. With respect to our share repurchases this quarter, we bought 400,000 shares at an average price of $56.46 per share, or $23 million in total. Our remaining share repurchase authorization is $289 million. Turning to our outlook, we raised our fiscal '24 guidance for net sales to be $1.93 billion to $1.99 billion and adjusted EBITDA of $400 million to $420 million. Our guidance implies a strong top-line growth of 16% to 19% and adjusted EBITDA growth of 18% to 24% with healthy adjusted EBITDA margins of 20.9% at the midpoint. The updated guidance reflects our better-than-expected first-half results and strong consumption trends. In the second half of fiscal '24, product and logistics costs are expected to increase compared to the first half, with pricing actions on shakes planned late in the fourth quarter. At the midpoint, our second-half net sales are expected to grow 13%, with adjusted EBITDA margins of approximately 20%. As we enter the second half, we have largely lapped the relaunched shake flavors and expect sales growth to be driven by continued organic momentum and distribution gains. Compared to the second half of fiscal '23, we expect EBITDA margins to be similar. Turning to the third quarter, our net sales growth is expected to largely track our second-half growth rate. Premier Protein drives this growth as volumes are expected to increase in the mid to high teens. Dymatize partially offsets Premier's strong growth with the brand facing a tough prior year comparable in Q3 as it laps a club load-in and FDM display activity. Adjusted EBITDA margins are expected to improve modestly from the year-ago quarter with significantly higher gross margins as we lap peak protein prices. This increase was mostly offset by incremental marketing spend and SG&A as a percentage of net sales. In closing, we're pleased with our first-half momentum. Our strong first-half results give us greater confidence in our full-year outlook and long-term growth prospects. I will now turn it over to the operator for questions.

Our first question comes from Ken Goldman from JPMorgan.

I wanted to clarify that you mentioned non-promoted sales of Premier performed well this quarter. I'm interested in understanding what led to the increase in those base products, especially considering the success of the promoted products during the same period. Is there a natural connection between the two in terms of new generation, or am I overthinking this?

About 80% of our growth is driven by sources outside of the category. We continue to attract many new households, as evidenced by our record high household penetration this quarter and a 1-point increase. Generally, our sales increase with the volume we ship. However, our fill rates in FDM haven't been very healthy yet. This quarter, we experienced strong promotions with our two club customers, which aligned with our expectations, but notably higher non-promoted sales were observed across nearly all channels outside of those promotional periods.

Understood. As we consider the guidance increase and look toward the upper end of that range, is there a possibility, and I'm not trying to suggest even higher guidance than what you've already provided, but I'm just trying to understand if there is demand, how much above the high end of your sales guidance could you potentially reach, considering some of the capacity?

Yes. We have production that can absolutely satisfy the full range of our guidance, obviously. As I've said on past calls, we do not have enough internal inventory. We need to build safety stock. However, toward the end of the year, we plan to get up to our target of 6 to 8 weeks. If demand continues to be robust, then we have the flexibility to toggle between building more inventory versus going and satisfying sales. So I think we've always said that we're going to be nimble this year just because we are building safety stocks and internal inventory, but rest assured that we have the production to satisfy the high end of our full guidance, and then we're going to have to just assess the situation in Q4.

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

It was clearly a dynamic quarter with the ramp-up in promotion mix due to the two club promotions. At the same time, there was a strong gross margin. I wanted to delve deeper into these two aspects. What were the insights gained, both expected and unexpected, from the increase in merchandising during the quarter? You mentioned those two promotions; does that suggest it was an unusual occurrence or is it more in line with what you would typically anticipate regarding the effect of promotional activity on price mix in the upcoming quarters?

Paul, I'll start with learnings and then you can hit on any price mix, different things. So the learnings from the promotions, so remember, we haven't done really any significant club promotions or promotions at all since 2021. So it's been a while. So we weren't exactly sure what to expect. Honestly, there was a ton of excitement. The key to our success on promotion is display. Get out of the aisle, get new people to see our product, and that is where we increase household penetration. We get the bump and stick for the brand. It has been true for the entire time this brand has been around. So sure enough, that is exactly what happened. We got great displays and a ton of retailer support for the events, and that flowed straight into strong results. So I would say I don't think it's a lot of new learnings but more confidence that the fundamentals of the brand are very much intact, and there's a ton of excitement from consumers and retailers.

We always anticipated that the second quarter would be the biggest challenge for pricing due to the substantial promotional efforts we were implementing for shakes. As we move into the second half of the year, we still foresee some minor promotions in the fourth quarter on shakes, while expecting either significant challenges or advantages for pricing in each quarter. Later in the fourth quarter, we expect a small benefit to pricing, but it's late in the quarter, so the benefit will be modest. The focus will really be more on 2025. Overall, there isn't a significant impact on pricing for shakes.

And then just on the gross margin, the 300-or-so basis points expansion there. How would you describe that maybe build up to the 300 in the quarter? And how should we think about that going forward?

And your question is compared to a year ago?

Regarding gross margins, while it's difficult to specifically quantify how many basis points can be attributed to each factor, could you share your thoughts on the contributions of commodity prices, product mix, and volume leverage, after accounting for promotions, to the gross margin expansion this quarter? Additionally, how do you see this affecting the second half of the year?

From a gross margin perspective, we saw significant expansion due to lower protein costs. Last year, particularly in the second and third quarters, we experienced very high protein costs, especially in our powder business. In contrast, the fourth quarter saw a decrease in these costs, which contributed to stronger gross margins compared to a year ago. Specifically, in Q2, we experienced notable expansion in gross margins, although this was partially offset by significant promotions. Additionally, we benefited from approximately 50 basis points due to some nonrecurring items, such as co-manufacturing adjustments and payments related to minimum volume agreements. However, most of the expansion is attributable to reduced protein costs, countered by promotional activities.

Our next question comes from the line of Thomas Palmer from Citi.

I wanted to maybe start off back on the input cost environment, it sounded like you're expecting less favorability as we move through the year, but you also noted 3Q, a year ago, was a bit elevated along with the second quarter. So is it kind of less deflation as we move into 3Q? And then is there a point we kind of return to inflation? Or is that more a fiscal '25 consideration?

Yes. So if you look at the second half, we are expecting cost to go up from the second quarter, mostly on our powders, which go up significantly. It's about a 50% increase from Q2 to Q3. So it’s significant. Shakes start to modestly head up higher in the third and fourth quarter on proteins. So from a sequential basis, increases, versus a year ago. We still see very significant favorability on proteins in the third quarter, but it does start to significantly moderate in the fourth quarter. So there's a very little benefit in the fourth quarter, but still pretty significant favorability in the third quarter. And again, that's just the dynamics of lapping last year's high kind of peaks at Q2, Q3 last year, and we're seeing kind of the, I'll call it, the floor in the current protein environment here in the second quarter, then it starts to head up again. So that's the dynamic. So we still should see some favorability in the second half but mostly in the third quarter on our proteins.

Regarding marketing, you've mentioned in recent quarters that there's some leeway to reduce marketing efforts if demand is particularly strong. I understand that part of what you're discussing involves a transition between brands. However, it appears that for Premier, the safety stock is quite limited while demand remained robust during the quarter. Can you explain the extent of the shift with a reduction in Premier compared to an increase in Dymatize? How does this balance out as we look toward the second half of the year compared to your initial plans?

Yes. We have decided to move the major equity campaign from the fourth quarter of this year to 2025, but we allocated some of those funds to Premier powder, Premier bottles, and Dymatize. Consider the Tetra side of our business with Premier as the constrained part. We are still investing, but in other areas of our business, not just Dymatize. We are certainly spending on Premier powder and bottles.

And just to expand, yes, I mean we called previously for low 3s, kind of 3%, 3.5% for the year. We're still in that ballpark. As Darcy said, we have toggled a little bit between brands and pulled back slightly from maybe from our prior expectation, but it's a modest change.

Our next question comes from the line of Bryan Spillane from Bank of America.

So just two. One, a clarification, Paul, just following the discussion around gross margins in the back half of the year. So will gross margins be up a little bit more in the third quarter versus last year than they will be in the fourth quarter? It sounded to me like Q3, Q4 should be roughly similar, maybe Q3 a little better because you won't have as much promo and then Q4 a little less gross margin expansion. But I just want to make sure I was hearing that correctly.

Yes, you are correct. We expect Q3 and Q4 to have similar gross margins. However, you will notice that the third quarter will show more improvement compared to last year than the fourth quarter. This difference is due to the dynamics of protein, as we anticipate a rise in protein sales in the second half of the year, whereas last year, they began to decline in Q4. This is why the improvement in Q4 is not as pronounced, though it is still favorable.

All right. Darcy, can you discuss how the consumer base is changing, if at all, rather than focusing on household penetration? Specifically, I'm interested in whether you are bringing in more kids, how the male versus female ratio looks, and the different age groups. Initially, the consumer base was quite narrow, but I'm curious if it's expanding.

We definitely are. This is an adult brand, focusing on high protein. While we are attracting younger consumers, we realize that with our low household penetration, we are actually bringing in a diverse range of ages and genders. What's unique about Premier is our ability to appeal to all ages, as people seek different benefits. The primary reason many come to Premier is to lose weight, but we also attract consumers from adult nutrition and sports nutrition. Our range of consumers is extensive, and our gender split is fairly balanced. The magic of this brand lies in its broad appeal, which is evident in the diverse consumers we're bringing in.

Our next question comes from the line of Robert Moskow from TD Cowen.

I think in your prepared remarks, you said that TDPs are showing signs of stabilization in most recent periods, and the out-of-stocks have stabilized. How soon do you think it will be before you can get those ramping higher again? Like, is it in the next few weeks, we should expect TDPs to start recovering higher or not?

Yes. We'll see improvement kind of every month. So we'll see improvement throughout Q3 and then we'll get back to kind of all-time highs in Q4.

Okay. Great. And then a quick follow-up. These club promos you did were obviously very successful. Do you think your competitors are going to conduct similar promotions in the second half of the year? And if so, does that present any kind of risk of a shock to your demand in that channel or not?

From the perspective of club promotions, most competitors are already engaging in promotions. The only exception is Fairlife, which hasn't been running promotions, but I anticipate that they will once their supply situation improves. Our brands complement each other well. I believe there's space for two strong brands in a market with low household penetration and high growth potential. Both of us have been quite successful across all channels, particularly in the club channel.

Our next question comes from the line of Kaumil Gajrawala from Jefferies.

Well done. Can you talk a bit about aisle placement? I think for quite some time, it was about moving the products to other parts of the store. And with the business still being so sort of linked to feature and display and pulling them out of the aisles. Are you able to shift where in the store you are or increase the number of places you are within the store?

Our current focus is on increasing our presence in the pharmacy with effective stock management. Display plays a significant role for us, and we believe there is still considerable potential for growth within the pharmacy, particularly by expanding displays outside of that section. In the long term, we see possibilities for additional display placements. We are already implementing this strategy in several mass and food retailers with single items in coolers, catering to grab-and-go customers. We are actively pursuing such opportunities. To answer your question, we are definitely looking for more locations within the store to expose our brand to a wider audience. In the medium to long term, we find the idea of shifting product placements into different aisles intriguing, but currently, we believe there is significant upside in enhancing our core business within the pharmacy and increasing display placements throughout the store.

Okay. Great. And on the price increase, maybe just some more details on why it is linked to where costs are? Because it looks like it's coming through just as capacity is going to kick up again. So just any more details on the thought process behind the price increase.

Sure, we've noticed increases in costs related to co-manufacturing, logistics, and packaging. Many of our competitors have raised their prices, with our largest competitor doing so in Q1. This is primarily due to rising costs across the entire category. Although dairy inputs have been stable, they are expected to increase again, as Paul mentioned, towards the end of the year, likely in Q4. We are confident in our pricing strategy relative to our competitors following the price increase.

Our next question comes from the line of Jim Salera from Stephens.

Darcy, I wanted to drill down a little bit on the TDPs that you mentioned from the out of stocks. Do you have any sense for what retailers did with those shelf placements as there were some out of stocks, did they flex bars in? Do they move a competitor in? Just any color there would be helpful.

We didn't lose any shelf space, which indicates that the situation is temporary. The stock issues are sporadic; we have certain flavors available in 4-counts for a time, followed by 12-counts. Retailers sometimes have gaps on the shelves. It's not that they are expanding other products to fill those gaps, but rather that these stockouts are short-lived and not widespread enough to remove the entire brand from the shelf.

Okay. That's helpful. And then, I guess, as a follow-up to that, do you have the ability to see, for example, if my favorite flavor isn't on shelf, do I just then reach for chocolate, which is 2 slots down? Or does that typically end up in just kind of a lost sale?

Yes, you're highlighting the difficulty in forecasting because we’ve found that there are significant capacity constraints, especially with 4-count packs. Consumers often switch to a different flavor, and occasionally to a different pack type. For instance, if 4-count chocolate is unavailable, they might opt for 12-count chocolate instead. There’s also some channel shifting, where they may seek out the product in a different store. This interplay between flavors and pack sizes complicates accurate forecasting. Generally, consumers stick with the brand, but there are instances, albeit infrequent, when someone will wait to purchase their preferred flavor until it’s back in stock during their next shopping trip.

Our next question comes from the line of Matt Smith from Stifel.

I wanted to ask you, Paul, a follow-up question about the third quarter guidance. You mentioned it was aligning with the expected second-half growth rates for revenue, and it seems there will be a relatively steady growth in the second half of the year, with a more challenging comparison in the fourth quarter. Is that correct? Also, could you discuss the timing of promotional activities for the remainder of the year? Are there significant events year-over-year that we should be aware of?

Yes, you are correct in tracking that we expect growth to be quite similar in the third and fourth quarters compared to a year ago. In the fourth quarter, we have some minor promotions, but it's not significant. We also had light promotions on shakes in the fourth quarter of last year. Overall, there isn't a dramatic change in promotional activity between the years.

Just one more follow-up for me, and I'll pass it on after. Shipments were in line with consumption in the current quarter. Do you expect that to persist through the second half of the year? Or is there a potential for retailers to start to increase their inventory levels exiting the year?

Our expectation is that shipments and consumption will largely track; it would likely modestly swing towards shipments. It's a little bit of an inventory load but nothing dramatic in the second half. So again, we're trying to replenish shelves as well as keep up with the demand. So we expect a little bit of shipments above consumption in the second half.

Our next question comes from the line of Matt McGinley from Needham.

You noted the increased e-commerce competition for Dymatize this quarter. Can you expand on what you saw there competitively? And is that something you expect to persist? Or is that something that was more unique to this quarter?

Yes, this is a new development. During Q2, which marks the beginning of a new year, we typically see an uptick in promotions and marketing as many new customers enter the category. However, this year's increase was significantly more pronounced compared to previous years, with many emerging brands engaging in aggressive discounting and ramping up their marketing efforts. The competitiveness was heightened across the entire powder category. We observed some consumers looking for value—not only purchasing discounted brands but also opting for lower-cost brands. Additionally, we noticed consumers were upsizing their purchases for better value, like moving from a 20-serving container to a 5-pound one. Overall, there was a considerable amount of deal shopping driven by a quest for value. Looking ahead, this trend continued into April, and we anticipate it will persist through Q3. The key question in the powder category is how competitors will respond as commodity prices rise again; typically, when prices drop, companies invest savings into promotions. However, since commodity prices are expected to increase, we foresee a reduction in deep discounting.

That makes sense. I had one quick follow-up on the revenue trend in the back half. It's a little bit difficult to tease out your seasonal trends given all the volatility you've had in the supply chain for the past few years. But do you expect the third quarter to generate more revenue than you did in the second? Or does that step down?

We would expect it to modestly increase from the second quarter sequentially.

Our next question comes from the line of Jon Andersen from William Blair.

Two quick ones. I was just hoping you could give us an update on your capacity plans, not for the balance of '24, but looking out to '25 and supporting growth in 2025. What your expectation is there in terms of shake capacity additions? And then the second question is just on powders. It looks like Premier Protein powder was up, consumption was up very nicely in the quarter. Dymatize a bit softer. Are you seeing anything in the market that would have you maybe thinking about balancing your resources against those 2 equities differently going forward in the powder segment?

Regarding production for 2025, we're confident about the expected increases. While I understand you weren't asking about 2024, we're on track for over a 20% rise in production. This growth was always expected to be weighted towards the end of the year. We experienced strong production in Q2, which will carry through Q3 and Q4. This trend will continue into 2025, and although I can't share specific numbers, we have sufficient production to meet the higher end of our algorithms, with additional capacity to rebuild internal inventory if we don’t reach our target levels by the end of 2024. I'm optimistic about the ramp-up in production, keeping in mind that we are still scaling up our two new facilities, which are becoming increasingly significant each quarter. On the topic of powders, I want to highlight that Premier has benefitted from consumers prioritizing value. Dymatize is positioned as a premium brand for athletes, while Premier serves as a mainstream option that offers good value. Premier's success can be attributed to this market dynamic. To clarify, our strategy isn't about reallocating resources from Dymatize to Premier Powder; we have the capacity to support both brands. We will continue to enhance our support for Premier Powder, as we are optimistic about its potential. I mentioned earlier that 80% of the growth is expected to come from outside the category, so we truly believe that Premier can play a key role in bringing more visibility to the powder category, similar to what the brand achieved for ready-to-drink products. We're very enthusiastic about the prospects for Premier Powder.

Our next question comes from the line of John Baumgartner for Mizuho Securities.

Maybe first off, just wanted to follow up on promo, Darcy, and getting more display outside the aisle. Right now, this category and brand stand out for growth, and retailer interest follows. But it also takes you into greater, I guess, conflict or overlap for space with other food and beverage that's maybe higher margin for the retailer or I guess, even general merchandise. How you think that's sustaining outside the aisle merch over the longer term? I mean, is placement mostly contingent on retailers maintaining? Is there interest in health and wellness shelf sets? Does the cost of display go up? Is outside the aisle just definitely more of a seasonal phenomenon? How do you think about that over time?

It's a fascinating question. I can share that every conversation we've had with retailers indicates they recognize the trends in health and wellness. They see growth coming from this category, particularly ready-to-drink beverages, which is outpacing nearly every other category in the store. This category is receiving significant attention and support. Retailers also understand that it has low household penetration, suggesting that growth will likely persist. Therefore, I believe there's less concern regarding retailer support and competition with other categories; the support is clearly there. Currently, our discussions suggest that the space allocated to this category is expanding. Not only is space for ready-to-drink beverages increasing by taking away from other segments, but overall space for convenient nutrition is also growing. While displays are becoming more competitive, retailers seem genuinely enthusiastic about the potential. I've not encountered any objections regarding margin pressure when it comes to dedicating display space compared to other categories.

Okay. And then in terms of Dymatize and the e-commerce pressure there, you stressed pricing as a big factor. But I'm curious with the advantage Dymatize has over the emerging brands in brick-and-mortar and marketing resources, is there anything you can do in physical channels to drive more engagement, more ingredients awareness, and sampling purchases that then converts back to stronger e-com sales even at the higher price points?

Yes, I believe there is a lot that Dymatize can achieve. We learned quite a bit this last quarter, and it was somewhat surprising how aggressive many emerging brands were in the e-commerce space. We ran a marketing campaign, but we were somewhat conservative in our approach, resulting in a lower share of voice than necessary. Going forward, we plan to be more assertive in the second half, not only with our marketing efforts across all channels but also with a strong focus on e-commerce. We may also explore more promotional strategies to stay competitive. I'm particularly excited about our partnership with Christian McCaffrey. The timing of when we signed him and when we can release promotional assets is crucial, but leveraging his celebrity will be a significant opportunity for us. Dymatize is an outstanding brand, being the second-largest whey protein brand in e-commerce. Overall, I feel positive about the business. We encountered some learning experiences in the second quarter, but I believe we will be able to correct our course and return to growth in the latter half of the year.

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

Darcy, I would like to follow up on Bryan's question regarding new consumers. I'm curious if you can quantify the percentage of male consumers and the repeat rates you might have. My concern is that the household penetration metric is difficult for me to grasp. While you mentioned having low household penetration, being at 18% or 19% suggests that 1 in 5 households is actually a decent figure for this stage in the category. Even for a beverage category, that seems to indicate you should have much higher revenue. I'm trying to understand what this really means or how you view the opportunities beyond household penetration. How do you quantify household penetration in a way that excites you? It seems that insights on repeat rates or the inclusion of new consumers would help us better understand this metric.

First, regarding the gender distribution, Premier has a fairly balanced split, slightly favoring males at around 60-40 or 55-45, which is distinctive. Most diet brands tend to attract more women, while nutrition brands are typically favored by men. Other brands in the market often cater to specific demographics, making it challenging for them to expand beyond their defined consumer base. This balance is one of Premier's unique advantages. Now, on household penetration and repeat rates, we have a strong repeat rate of about 50%. Our household penetration is approximately 18%. In the ready-to-drink shake category, household penetration is about 45%, with overall convenient nutrition around 75%. This shows there's significant growth potential. If we compare it to the energy drinks category, which has similar household penetration figures of around 70-75%, we see that the top two brands have a market share of 50%. This indicates that there’s ample room for growth, especially since 80% of our growth is coming from outside the current category, and we have not intensified our marketing efforts yet. This suggests that both our brand and the category have substantial opportunities to expand.

Yes, definitely. I'm sorry, I could probably keep going, but I will keep the call short and go to Dymatize for a follow-up. Do you think the growth of Premier powder is leading to some trade downs that are affecting Dymatize, or is it mainly discounting from other brands?

They're very different consumers. There is not a lot of interaction. So definitely other brands. And like I said, the beauty, again, same dynamics between Premier RTD and Premier powder. Over 80% of the growth on both businesses are coming from outside of the category. So it's less switching and trading down but actually, consumers are entering the powder category through Premier.

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