Earnings Call Transcript - MAMA Q2 2025

Operator, Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to Mama's Creations Second Quarter Fiscal 2025 Earnings Conference Call. This conference is being recorded today, September 10, 2024, and the earnings press release accompanying this conference call was issued after the market close today. On our call today is: Mama's Creations' Chairman and CEO, Adam L. Michaels; and CFO, Anthony Gruber. Before we get started, I'd like to read the disclaimer about forward-looking statements. This conference call may contain, in addition to historical information, forward-looking statements within the meanings of federal securities laws regarding Mama's Creations. Forward-looking statements include, but are not limited to, statements that express the company's intentions, beliefs, expectations, strategies, predictions or other statements relating to its future earnings, activities, events or conditions.

Adam L. Michaels, Chairman and CEO

Thank you, operator, and thank you to everyone for joining us today. I'd like to welcome you to our second quarter fiscal '25 financial results conference call. The second quarter was highlighted by strong 14% broad-based revenue growth against a healthy backdrop of operational execution and a continued focus on our 4Cs: cost, controls, culture, and catapults. Our goal to emerge as a leading one-stop shop deli solution on a national scale is grounded in a purposeful, persistent, and patient strategic plan to capture what is a generational change in our consumer preferences. A significant driver of this change has been the challenges and changes in the restaurant industry, underlined by a seismic shift in consumer preferences. Inflation, consumers with less disposable income and rising labor costs are only some of the issues that have combined to challenge the ability of restaurants to run their businesses profitably and, in turn, have forced them to raise prices. Food delivery, which was expected to improve restaurant sales, is increasingly turning away customers. Between the service fees, delivery fees, and tips added off at checkout, the price of a meal on a third-party delivery app can be far higher than what many consumers expect. Again, restaurant owners are often left to raise menu prices to cover service commission fees or risk losing out on convenience-minded customers. Rising restaurant prices and inflation are bringing consumers back to the grocery store, but with higher expectations. They want an experience and to be excited about the quality of products across multiple retailers and formats. In turn, grocery retailers have had to pivot quickly and differentiate to be able to cater to customers, including the introduction of new deli prepared meals, the shelf space of which continues to expand. Nearly three-quarters of households purchased deli prepared foods at least once during the 52 weeks ending October 7, 2023, according to the Power of Foodservice at Retail 2023, published by FMI - The Food Industry Association. The report also revealed an annual deli prepared purchase frequency of 9.8 occasions, $8.38 spent per transaction, and yearly dollars spent per buyer of $82, up 7.2% based on Nielsen data. Compared to a year ago, 25% of consumers said that they've replaced quick service and fast casual restaurant meals with Foodservice at Retail, up 17% the year prior. The result of this substantial change in consumer preferences is being felt now in the grocery aisle. July's consumption report from IRI announced that deli again leads the perimeter on unit growth. The $30 billion deli-prepared subcategory was up 5% in dollars in July and up even more 5.2% in units. Prepared meats, a $6.2 billion subset of deli-prepared, where we focus the most, was up 10.5% over the last 52 weeks and up 11.9% in units. Consumers are seeking out new flavors and customers are seeking to meet their needs. Mama's one-stop shop strategy was and is tailor-made for this virtuous cycle of category growth. The opportunity we're facing is clearly significant. We're in the right place, at the right time, and with the right product portfolio. The Mama's Creations product offering is, in my opinion, second to none in variety, quality, and service; grocers are recognizing that. Since I joined as CEO in September 2022, we have refocused to address this incredible opportunity. We formed an initial 3C strategy to improve our cost, controls, and culture; areas that, in my opinion, required the most attention. We rebuilt and strengthened the foundations of our business and became brilliant at the basics. We methodically addressed the biggest pain points across each of these areas and implemented key operational KPIs under the mantra of, 'What gets measured, gets improved.' The first was Cost. Our gross margins were 11.9% in the quarter ending July 31, 2022, with significant potential that needed to be unlocked. The path to our targeted high-20s gross margin profile is through countless small improvements throughout the organization. From step changes in freight and procurement efficiencies to implementing processes to reduce labor over time, our operations run much more efficiently today than ever before, being able to successfully navigate, as we have recently seen with historically high north of $2 a pound of chicken prices and commodity headwinds that may come our way. The improved margins and cash flow are being directly and immediately put back into further investment in CapEx, such as the grills we installed in our Farmingdale facility over the last several weeks; doubling chicken capacity and increasing labor efficiencies through reduced overtime, creating a cycle of higher and higher gross margins. Logistics management, which has been a highlight of our efficiency efforts, has been cut in half since our team came together, further reduced by 40 basis points this quarter, driven by greater use of full truckloads versus less-than-truckloads, as well as stronger partnerships with our logistics third-party logistics providers. Beyond COGS, we're building new capabilities in-house, which has allowed us to wean ourselves off higher professional services and support we relied on in the past, reducing our SG&A by 254 basis points versus the prior year. Second, were our Controls. I've been sharing with you over the past year the successful implementation of our NetSuite ERP system, providing unparalleled visibility to our business; improving pricing, margins, inventory management, and so much more. Lauren Sella, our incredibly agile Chief Marketing Officer, has taken over our new product development process, adding some needed end-to-end structure and, possibly counterintuitively, allowing us to get new items out even faster, cheaper, and more efficiently. New controls in quality are strengthening our policies and procedures, making us even prouder of our Grandma Quality manufacturing. Just last month, we added X-ray technology to our existing metal detection and are investigating cutting-edge PCR testing to ensure that what comes into our plants is as safe as possible. We are also reaping the benefits of driving down complexity in our business. SKU rationalization is a major focus for us, driving down inventory, improving buying power, reducing waste, and saving time. In our creative salads and branch businesses, for example, our efforts to date this year have resulted in cutting over 150 SKUs or more than 35% of our portfolio, impacting only about 0.5% of our revenues. Massive complexity reduction without noticeably impacting our top line as much of these orders flowed back into our existing items. To further focus on these first two Cs, we recently appointed end-to-end supply chain leader, Skip Tappan, to the role of Chief Operating Officer, bringing over 30 years of experience to Mama's as a Senior Supply Chain Executive and significant end-to-end supply chain mastery from time with Gordon Food Service, Walmart, Campbell Soup, and Procter & Gamble. Skip has strong strategic and tactical business planning skills and a proven ability to deliver significant improvements in broad-based operating results; and will be focusing on supply chain optimization, business planning, cash flow, cost optimization, asset utilization, and organizational capability building. While Skip's operational skills are laudable, it's his team and people skills that I am most excited to see take Mama's to the next level. The third C was Culture, where we implemented formalized processes and a company-wide culture committee to ensure we're doing right by our employees at every level of the organization. Our team has a passion for learning, and everyone on our team is striving to do more. As such, we're starting to roll out various training programs, from 101s straight out of Mama's Pantry to focused functional training depending on particular roles. As Sir Richard Branson once said, 'Train people well enough so they can leave, treat them well enough so they don't want to.' Our focus on culture is driving more production efficiency, higher retention, and higher quality of our products because we're all pulling the wagon together. With the successful evolution of our Finance, Operations, and HR organizations underway and financial results reflecting this, we have put in place the processes and culture to begin to accelerate growth. At our Investor Day in East Rutherford in February, we announced the introduction of a fourth C, Catapult, representing the investments in trade promotion and marketing that we are making to grow the business profitably at a faster rate. Our 14% growth in the second quarter after 29% growth in Q1 and 17% growth in the quarter before that demonstrates, with some help from new stores, new items, and a little bit of trade rocket fuel, what type of growth is possible. Today, we have grown our sales leadership team, our first Catapult lever, to 6 dedicated employees, which is especially important as we enter the new back-to-school reset window. The sales team now works more seamlessly with their operations counterparts, and stronger demand and supply planning is delivering us enhanced service levels and lower logistics costs. I am proud of how our new sales team has come together, and we will actively seek out additional sales talent in areas that can step change our growth. For the second quarter, I am so proud of the new doors our sales team opened up among dozens and dozens of new independents, mostly in the West, driving nearly 40% growth in that region. We are proud to add Costco North Cal, Spartan Nash, Freshtime, and rallies to our family of customers. We also added more legacy products in existing customers, including Stop & Shop, Publix, and Schnuck. In addition, we are cross-selling new success of our brands and existing customers, including Roundy's, a Kroger company, BJ's, Wakefern, and Aldi. And starting next month, we're adding Walmart to our customer list with the addition of two new protein offerings at about 2,000 stores to start. Walmart was a major target for us this year and the achievement continues to reinforce what we say, we do. However, this is just the beginning. This represents a single product across two SKUs in about half the Walmart locations. We expect the same success we have had recently with our launches at Albertsons and QVC to be replicated at Walmart. And like Publix and BJ's and so many others, once we get our foot in the door, new additional items seem to always be requested. The second Catapult lever is trade promotion, seeking to accelerate the velocities of our existing SKUs by driving trial and larger baskets, combo buys with complementary products, multi-buys of our family of products, and print and online circulars are just a few of the recent tactics we have used to deliver the growth you're seeing today. We're seeing tremendous results from these programs, such as Stop & Shop combo buy circular with Bottoni pasta. While we're happy with the revenue part of the circular, we find an added benefit from the promotion. The stores are actually more vigilant about ensuring our products are on the shelf at all times, which drives further velocity. The third lever in Catapult is marketing. Lauren Sella, our innovative and tech-enabled Chief Marketing Officer, is driving strategic marketing activations, such as digital media and in-store advertising. Lauren's partnership with Dan and Scott during the Costco Roadshow created a multiplying effect, partnering with Instagram influencers to activate the events in the physical as well as the virtual world. The Roadshow was a success, and our sauce is now confirmed for rotation in the Costco Northeast region. Congratulations team. We also received a Costco National Buy for our successful 3-pound branded meatball sleeves, picked up in six regions, two of which are new for us. Costco's high-volume warehouses are ideal venues for our products, while our strict focus on margins ensures each sale meets our requirements regardless of customer. Our team has recently engaged a digital marketing agency to catapult the Costco National Buy and other strategic customers, and we will be investing in geotargeting media to build awareness and drive retail. Additionally, we're continuing to leverage new marketing technologies, such as our custom QR code platform to further engage with our consumers. The Costco 3-pound meatball pack is the first item to carry a customer code and drives consumers to receive recipes, offers, and importantly, entry into our CRM database through email capture. And finally, we're pleased to have been named a finalist in the deli business news beyond the Flavor Innovation Awards for our flame-grilled paninis. In the next month, we'll be able to share some additional exciting award news with you as well. Taken together, the goal of Catapult is to continue to drive up our average items carried, which increased this quarter again to 7.6%, 0.5 points more than last year and 0.25 points more than the prior quarter. We will also continue accelerating the velocities of our existing items and opening up new doors to build broad-based national distribution. I promise we are just getting started. With our new team and capabilities, we increased the likelihood of opening up entirely new channels, whether that's the convenience channel, e-commerce channel, or additional major retail customers, such as our recent Walmart win, Kroger, Target, HEB, Food Lion, and others. Opening these could be impactful to our growth trajectory, hence, our strategic CapEx investments to prepare for whatever the future may hold. We're investing mid-single-digit million dollars in CapEx this year, already paid for and funded from cash flow from operations with the goal of improving automation at both of our production facilities, while concurrently building new in-house capabilities earlier in the value chain. These investments paired with ongoing operational improvements have the potential to offset some of the commodity price inflation and ultimately move our gross margins into the low-30% range over the long term while concurrently growing our trade promotion investments from low single-digit percentage today towards our long-term goal of 10%. Some recent examples I'm excited about are the installation of two new grills in our Farmingdale facility. This doubles our chicken capacity, which will allow for higher labor efficiencies through reduced overtime as previously, our chicken grills were running effectively 20-plus hours a day. In addition, the installation of additional chicken processing equipment in-sources key value-added services that were previously outsourced, lowering our cost of goods and improving margins in what remains a difficult commodity environment. That being said, nothing worth doing is easy, and the installation of these new chicken grills were no different. Significant construction took place at Farmingdale throughout the second quarter and the first half of the third quarter, which impacted margins by about 500 basis points in Q2, with that construction mostly concluded last week. We faced some degree of short-term pain from this, but for an incredibly long-term gain that provides significant runway for our chicken business for years to come.

Anthony Gruber, CFO

Thank you, Adam. Revenue for the second quarter of fiscal 2025 increased 14% to $28.4 million as compared to $24.8 million in the same year-ago quarter. The increase was largely attributable to successful pricing actions as well as volume gains driven by increased demand, successful trade promotions, same customer cross-selling of new items, and new customer door expansion. Gross profit totaled $6.9 million or 24.2% of total revenues in the second quarter of fiscal 2025, as compared to $7.5 million or 30.3% of total revenues in the same year-ago quarter. The difference in gross margin was primarily attributable to significant commodity cost increases from historical averages, as well as non-recurring impacts from construction surrounding the now mostly completed installation of strategic CapEx projects, which management estimates negatively impacted corporate gross margins by approximately 500 basis points. Operating expenses were flat at $5.3 million in the second quarter of fiscal 2025 as compared to $5.2 million in the same year-ago quarter. As a percentage of sales, operating expenses decreased to 18.6% from 21.1% in the same year-ago quarter. Operating expenses as a percentage of sales decreased due to lower payroll expense, insurance costs, professional fees, and freight expenses. Net income for the second quarter of fiscal 2025 totaled $1.1 million or $0.03 per diluted share as compared to net income of $1.7 million or $0.05 per diluted share in the same year-ago quarter. Second quarter net income totaled 4% of revenue as compared to 7% in the same year-ago quarter. Adjusted EBITDA, a non-GAAP measure, totaled $2.7 million for the second quarter of fiscal 2025 as compared to $3 million in the same year-ago quarter. Cash and cash equivalents as of July 31, 2024, totaled $7.4 million as compared to $11 million as of January 31, 2024. The change in cash and cash equivalents was primarily driven by $3.5 million in capital investments and $2 million of debt paydown. As of July 31, 2024, total debt stood at $6.8 million. The cash forecast, coupled with our commercial lines of credit, reduced debt, and a stronger balance sheet is preparing us well for whatever inorganic opportunities proactively or reactively come our way. Looking ahead, we believe that our normalized gross margin profile, not including major commodity fluctuations, will continue to hover in the high-20% range. Our long-term goal leveraging strategic CapEx investments, procurement efficiencies and continuous operational improvements would be targeting margins consistently maintained in the low-30% range, while rightsizing our trade promotion investment from low-single-digit percent of revenue today, closer to our goal of 10%. Turning to adjusted EBITDA, our long-term goal is to achieve adjusted EBITDA margins in the teen's percentage range.

Adam L. Michaels, Chairman and CEO

Thank you, Anthony. In summary, the quarter continued our cadence of purposeful and profitable growth, impacted by temporary construction-related pressures that are now largely behind us as of the middle of the third quarter. Looking ahead, there's a compelling and growing opportunity in the deli space as grocery stores invest in grab-and-go food offerings to inch into retail restaurant territory and inflation pushes consumers towards alternatives. In the past two years, we have built the team and company to become an innovative prepared foods leader in what is currently a fragmented market. We have several levers available to drive growth from new SKUs and existing customers to new Tier 1 customers, and continued investments in marketing and trade promotion to increase velocities of our existing in-store items. We also believe that, supported by our strong balance sheet, attractively priced M&A opportunities in the industry will enable us to become a consolidator in a fragmented prepared foods market and emerge as a leading one-stop shop deli solution on a national scale. The fun has only just begun, and I look forward to speaking with you all in the year ahead. With that, I'll turn it over to the operator to begin our question-and-answer session.

Operator, Operator

We will now be conducting a question-and-answer session. Our first question is from Ryan Meyers with Lake Street Capital. Please proceed with your question.

Ryan Meyers, Analyst

Hey guys, congrats on the nice quarter. First question from me. Just wondering if you can speak to what you're thinking about for revenue growth rate for the full year, especially now that we brought on large customers like Walmart? I know last quarter, you communicated double-digit growth rate as kind of the target for the year. But any commentary on that would be helpful.

Adam L. Michaels, Chairman and CEO

Thanks, Ryan. Yes, I think we're going to stick with this double-digit growth target. I'm really proud of the team. They are doing everything we told you we would do, and we did it. I'd like to stick to this double-digit target. I don't know what's going to happen. I know they're changing rates, the Presidential debate tonight. I just don't want to predict too far out. But I feel good about what we committed to doing. And now we keep doing that quarter-after-quarter.

Ryan Meyers, Analyst

Got it. Makes sense. And then thinking about gross margin, so it sounds like there was a 500 basis point impact, which surprisingly is a rebound quicker than, I think, what we were expecting. So outside of that, the construction impact, are there any other headwinds that still remain? Basically asking if you guys feel relatively confident you'll be up that high-20s in the second two quarters of the year?

Adam L. Michaels, Chairman and CEO

Yes. Thank you for bringing that up, and I really appreciate it. I want to give a shout-out to the team in Farmingdale. The amount of construction is significant. I really appreciate Anthony, Ray, and the entire team that has been working there. I do believe they have done even better than we had planned. Really, there are only two things that keep me up at night; the construction, which, again, I was just there last week; it's looking beautiful. All four grills are up, and I'll be there tomorrow. The second one is commodity prices. No one would have expected, and I speak to anybody that will listen, that the chicken prices are just not going down. If you look at these charts, it should be going down now. I don't know what's going on. It does, and everyone hopes it does, but those are the only two things that keep me up at night. The construction is pretty much done now, and the commodities are unfortunately out of my hands. I do say, sorry, I take that back. One thing that the Farmingdale team is doing so well is, yes, commodities are tough. But what we're doing by bringing the trimming and tumbling process in-house has massively blunted that. You can see for yourselves in our gross margin numbers; that is a testament to what the team is doing to manage efficiencies better. Overall, overtime and labor are down. Bringing in the trimming and tumbling is really impressive. So I appreciate you for bringing it up. But yes, that's where we are.

Ryan Meyers, Analyst

Got it. That makes sense to me. Thanks for taking my questions.

Operator, Operator

Thank you. Our next question is from Eric Des Lauriers with Craig-Hallum Capital Group. Please proceed with your question.

Eric Des Lauriers, Analyst

Great, thank you for taking my questions, and congrats again on the new hire of Skip Tappan and the great news around Walmart and Costco. Super cool question here. So you mentioned that once you get into new doors, you seem to always get requests for new items, and we've certainly seen that over recent quarters here. My question is, how long does it typically take for customers to request new items? Is this sort of a three to six month thing or 12 to 18 months? Any help you can give us there?

Adam L. Michaels, Chairman and CEO

It's incredible. I will tell you that our team on the West Coast is doing an amazing job opening up operations there, and you can see that in just the sheer volume going out. We just got into a new customer just one week or two ago, and they've already added two items. We haven't even received the first item that we initially gave them yet. So yes, it can take forever. Equally, we just got two new items into a customer that they haven't even received the first item, and that wasn't even planned. The thing is, we're ready, right? That’s why we have the capacity. That’s why we have the agility. What we’ve been able to accomplish in East Rutherford, with Eric leading the charge, it is the agility we can bring to fulfill these customer needs. I'm really proud of the team; if the customer needs it, we will have it on the truck for you ASAP.

Eric Des Lauriers, Analyst

That's great to hear. Just one quick one on the construction. So you mentioned it's largely behind you. Could you just comment on what remains? And are you willing to provide an estimate on how much longer that construction may take?

Adam L. Michaels, Chairman and CEO

Again, it's mostly completed now. Now it’s the fine-tuning. And I mean literally, it's just fine-tuning the grills. The grills are working and producing chicken right now. Are they producing at the same 100% efficiency level as our other two grills are? No, they are not at that level yet. So it's just the fine-tuning that takes a little bit of time. But again, we're talking about days and weeks, nothing more than that. The hard stuff regarding whether the grill would actually show up or whether we get town approvals is all behind us now. Now it's just fine-tuning.

Eric Des Lauriers, Analyst

It's great to hear. Last question from me here. Just a comment on how C-store penetration is progressing. And then so relatedly, just any comments on how the in-a-cup offerings are trending as well?

Adam L. Michaels, Chairman and CEO

Yes, the cups continue to do nicely, not crazy, but they are continuing to gain momentum. If you guys are in the Northeast, Stop & Shop just took in our cups. It wasn't our original intention, but it's great that they have them, and they are actually going well. So I’m happy with the cups again; the cups are still more of a C-store offering. C-store penetration has been a little slower than I would have liked, I'll be honest. We had some personnel transitions. I feel really good about where we are now. I feel even better about where we are right now. But that has held us back a little with the C-store work. It's important to note that the C-store was sort of an add-on to our internal plans, meaning that it was small, 1% to 2%. So yes, we want it, and we will absolutely continue to pursue it. However, it is slower than we originally planned, and since it’s a very small percentage of our business, it won't have a larger impact on our overall annual results.

Eric Des Lauriers, Analyst

Makes sense. Congrats again. Thanks, guys.

Operator, Operator

Thank you. Our next question is from George Kelly with ROTH Capital Partners. Please proceed with your question.

George Kelly, Analyst

Hey, everybody. Thanks for taking my questions. So a few for you. First, your 14.5% growth in the quarter. I'm curious how much of that was pricing and what are your plans with respect to pricing in the back half of the year?

Adam L. Michaels, Chairman and CEO

Thanks, George. Pricing was about 80% of our growth so far, with the remaining 20% coming from volume growth. It’s incredible. I don’t think I’ve ever seen a company where so much of our growth is driven by volume. We have been taking pricing, and that is roughly where we are at with the growth. I wish we could do a little more; that said, it’s becoming increasingly difficult to raise prices going forward. We were very intentional about this, anticipating potential challenges, and we executed on a lot of pricing during January, February, and March. I don’t foresee us needing to take more pricing unless commodity prices start to come down. If commodities could plateau or decrease, we should be fine without needing any price increase. The pricing we took in the beginning of the year will remain effective for the next 12 months.

George Kelly, Analyst

Okay, understood. That’s helpful. And then next question on your trade spend. I understand the dynamic. You’re waiting for your gross margin to rebound, and it sounds like there's still going to be a bit of pressure from construction in Q3, so is it fair to say that the real ramp in trade spend we should probably wait until calendar year '25? Or do you anticipate there’s still an opportunity this year to start to push on that more? And then the second question is, are you seeing anything with the spend that you have committed thus far? Are you seeing the return that you hoped for?

Adam L. Michaels, Chairman and CEO

Yes, absolutely. Great questions. While I’m slightly disappointed, you're probably right; I think you're not going to see the kind of aspirations I have for 10% trade spend this year by any stretch of the imagination. So I think you're going to see the ramp-up more in the beginning of next year. Now, that said, one incredible thing about having the trade talent here is you'd be surprised at how many programs we’ve got for free. There are a lot of providers out there who will tell you that having only branded items is the right approach. But remember, we have a balanced mix of branded and private label. The beauty of private label is retailers invest for us without any cost. Therefore, you’ve seen some growth this year as a result of getting great velocities from end caps. The things we are doing right now at Costco are amazing, thanks to Scott for spearheading that initiative. A lot of what you're seeing is driven by free trade, for lack of a better term. So yes, I want to keep investing in trade. What’s more important to me is that you all know I’m the margin guy, so I’m holding back and not going to allocate a huge amount of money into trade unless we have the gross margin to support it. But yes, I think what you said is right. As for the returns we’ve seen, they are just awesome. I mentioned earlier, even with some of our online and digital programming, we're seeing returns on advertising spend in the $3 to $5 range. Actually, one of our big customers is seeing over $6 returns on their advertising spend. So we are very fortunate. What gets measured gets improved is applicable in the trade area. We can see the returns on every single program we implement. Some have been successful, and I’m also glad we uncovered things that don't work because those won’t be on our list for next year. We are measuring every part of it all the time.

George Kelly, Analyst

Okay, and then two last quick ones. What products are launching at Walmart? And what are you seeing with respect to M&A? That’s all I had.

Adam L. Michaels, Chairman and CEO

Yes, so the Walmart products are proteins. I’m going to hold off on specifics until they are in the market next month. As for M&A, it’s something that we continue to focus on. Anthony and I have our list, and it’s a growing list of potential targets. Anthony's been pointing out the number of NDAs we have to sign, which is true. I'd like to see what we have, but in reality, I've been spending more of my time than I anticipated on all the construction-related stuff and commodity challenges. It really helps having Skip here; I’m excited to have him as part of the team. Skip’s role is to maximize our current two facilities. However, we also hired Skip with the vision of expanding to five more facilities all over the country. My wife says I need to be home once in a while, so having Skip will help with that. I’m happy with our M&A pipeline, though it’s slower than I’d like because of the internal focus, but it remains 50% of our strategy.

Operator, Operator

Thank you. Our next question is from Anthony Vendetti with Maxim. Please proceed with your question.

Nick Sherwood, Analyst

Hi, this is Nick Sherwood speaking for Anthony. Good evening, gentlemen, congrats on the quarter. My first question is how are you working with Walmart to promote the activation of your new SKUs?

Adam L. Michaels, Chairman and CEO

Yes. Again, I don't want to share too much, but it's a combination of in-store promotions and outside digital marketing. So I just mentioned some things that Lauren is doing. I can tell you some of the Costco initiatives we're involved in, like geotargeting, where we reach people as they are either in stores or nearby. I spoke earlier about the QR codes we’re using, so you should expect similar types of campaigns for our Walmart launch.

Nick Sherwood, Analyst

Understood. And can you provide any insights into the philosophy behind which stores were selected? 2,000 stores is about half of Walmart's locations. Were you targeting specific regions where your products are already popular, or was it more on their side of which stores were chosen?

Adam L. Michaels, Chairman and CEO

It's a combination. You guys know I focus on margin management. We wanted to concentrate on particular distribution centers. If you have five items in every single distribution center around the world, that's less efficient than being concentrated. So it was definitely a partnership with Walmart regarding this selection.

Nick Sherwood, Analyst

Okay, and then my last question is, do you know how many additional stores you're in with Costco with your first National Buy? And just some details on whether you expect more of your products to be part of that National Buy program?

Adam L. Michaels, Chairman and CEO

Yes. I mean, Costco has to be. I know everyone is very excited about Walmart, as we are. I would say Costco is actually even cooler given the breadth of products we are winning with. So think about it this way: this is now the most regions we’ve ever been in, right? We’re now in six regions, and we're in Texas as we speak. Everybody in Texas should be able to get our 3-pound meatballs, which we have never offered in that region before. The number of regions we are expanding into is fantastic. Additionally, the range of items we are promoting has improved. We only sold meatballs before, but now we have sauce, sausage, and peppers. I think you guys will be really happy about the additional items that will be coming out imminently as part of our partnership with Costco. The variety of items is magnificent, and the volume size is impressive. This National Buy is genuinely exceptional compared to anything we’ve done in the past. All these components together create a strong foundation for future success.

Nick Sherwood, Analyst

And so then you expect that National Buy to begin affecting the top line with the Back to School resets? Or is that something that’s already underway?

Adam L. Michaels, Chairman and CEO

Yes. Mostly, it’s in Q4. So remember that our Q4 is in November. Some of it is happening now; if you walk into stores, I believe you will find it in North Cal, LA, and Texas now. The larger impacts will happen in Q4 where we anticipate significant sales.

Nick Sherwood, Analyst

Okay, thank you. Those are all my questions.

Adam L. Michaels, Chairman and CEO

Great.

Operator, Operator

Thank you. This concludes our question-and-answer session. I will now hand the call back to Chairman and CEO, Adam L. Michaels, for his closing remarks.

Adam L. Michaels, Chairman and CEO

Thank you, operator, and thank you again to each of you for joining us on today's earnings conference call. We look forward to continuing to update you on our progress as we strive to deliver value to our fellow shareholders and execute on our vision of becoming a national one-stop shop deli solutions provider.

Operator, Operator

Ladies and gentlemen, this does conclude today's conference. Thank you for your participation. You may now disconnect your lines at this time and have a wonderful day.