Earnings Call Transcript - SMPL Q3 FY2026

Speaker 4

Greetings, and welcome to the Simply Good Foods Company third quarter fiscal 2026 earnings call. At this time, all participants are in a listen-only mode. Our question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Matt Seiler, Vice President of Investor Relations and Treasury. Please go ahead.

Speaker 9

May 30, 2026. I'm joined this morning by company.com. This call is being webcast, and an archive of today takes no obligation to update these statements. A detailed listing of such risks and uncertainties can be found in today's information for investors, EBITDA, and diluted EPS. Please refer to today's press release for reconciliation of our non-GAAP financial measures to their most comparable measures. Takeaway data included, as noted, reflects a combination of CERCAN-C measured retail channel data and company estimates for unmeasured channels.

Speaker 8

And declined 390 basis points, 2.5%. And adjusted EBITDA declined 22 points. The economics of the business by improving our cost structure, plan in managing our cost base, and are executing against the structural actions we previously outlined. We are taking the actions needed to offset inflation and other cost proteins, operating with greater performance in the quarter, ramping our brand-building capabilities through stronger consumer insights, more effective marketing. Penetration increased to 120 basis points. Flex evolving consumers by reasserting. Losses continue to be the more proposition. Weighed decline 1.3% in the third quarter compared to a decline of 2.4% last. Soul penetration currently stands at 4.3%. Last quarter, the combination of a product quality issue and ineffective marketing execution negatively impacted performance on a number of O and O issue, but do expect distribution losses over the next 6 to 12 months because of poor marketplace performance. Confident in the future of Simply Good Foods, trends around health, wellness, and convenient nutrition, translated those flexibility, allows us to direct resources. We continue to maintain a strong balance sheet and confidence that we can restore profitable growth and deliver against our long...

Speaker 2

$357 million. Adjusted EBITDA was $57.2 million, a decline of 22.5% year-over-year. A profit of $116.1 million decreased 16.2% versus last year, largely driven by volume decline to streamline our operations. Decline versus the prior year period, exceeding our activity initiatives. $2 million, 9% versus the comparable year-ago period due to a marketing agency change. Demarketing mixed study, which will improve the effectiveness of our future marketing spend. $2 million decreased 1.9% versus the comparable year-ago period. Actoring costs in the current period and $5.2 million of integration expenses from the prior period, G&A declined 5% to $34.2 million, principally due to the impact of lower employee costs. On a gap basis, we had an operating loss of $49.9 million to $59.3 million last year, primarily due to the non-cash loss on impairment of $82 million related to Goodwill and the Atkins and Owen Brown intangible assets, $5.1 million, while the effective tax from net income of $41.1 million last year, impairment I noted a moment ago, $3.9 million, $400 million, bringing our net debt to EBITDA to approximately 1.2 times. About 2 million shares in the third quarter for 12 months, $15 million this fiscal year, $158 million remaining to authorization. $1 million last year, reflecting the investment to support additional capacity in our Salty Snacks business that we previously discussed. Expected in the range, $355 billion, representing a decline of seven. Includes the impact of these margins are now expected to decline, roughly is a result of slides within our supply chain and a cost of mitigating that is now expected in the range of $220 million to $225 million, representing a year-over-year decline of 21% to 19%. Tax rate to be roughly 25%, $25 to $30 million, approximately 90 million shares outstanding, $2 million to $332 million, which represents a decline of 13% to 10% versus prior year. The 2-4 GAAP gross margin performance will be our strongest of the year, as productivity initiatives provide some relief against sustained inflationary pressure. The EBITDA is in the range of $52 to $57 million, representing a year-over-year decline of 22% to $14 million.

Speaker 4

Thank you. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. To allow for as many questions as possible, we ask that you each keep to one question and one follow-up. Thank you. Our first question comes in the line of Peter Grum with UBS. Please proceed with your question.

Peter Grum, Analyst — UBS

Thank you, and good morning, everyone. So I was just hoping to get some perspective on the top-line trajectory. I think the quarter itself came in better than most were expecting, but the guidance does imply a bit of a weaker exit rate. So can you maybe speak to that, maybe, you know, touch on kind of what we should be thinking about in terms of the gap relative from shipments and consumption? That's part one. And then I guess just as we think about, and I know we'll get guidance to the later date, but just as we think about 27, you know, Any thoughts around how we should be thinking about the exit rate, as well as the fact that you touched on kind of this high single-digit pricing action in September? So just any thoughts on how we should be thinking about the top-line trajectory and the related pricing as we look at the 27 would be helpful as well.

Speaker 2

First question. So in terms of Q4, better than expected. Q4 is Q3 overall. we think we're going to slightly undershift consumption in Q4 to enter next year to the distribution losses we're expecting mostly on Owen and then from an EBITDA perspective we've updated guidance to reflect the Q3 outperformance and overall improving gross margins again keeping in mind the restructuring cost that we had in Q3 we talked about again on the prepared remarks

Speaker 8

and then you mentioned

Peter Grum, Analyst — UBS

that was great thank you both for that super helpful I'll pass it on

Speaker 4

Thank you. Our next question comes from the line of Matt Smith with Stiefel. Please proceed with

Matt Smith, Analyst — Stiefel

your question. Hi, good morning. I wanted to come back to the performance of Quest in the quarter. Consumption was down 5%, but that included the benefit of a club rotation. Should we think of a deceleration in consumption for Quest in the fourth quarter without that rotation? Can you kind of expand on your view of the performance of the brand in the rotation and distribution

Speaker 8

expectations for Quest as we move forward? And not highly support. So having to fix the top of the funnel communication and strategy such that it more directly addresses bars is important. And where I think we've been missing there is this is a brand that's always been about. And then as we look at the investments that we've made less money on top of the funnel on the brand overall, has not helped our bar business. Again, bars is a piece of the business. We've got to get back on track, but we're doing that from the basis of a pretty healthy brand. So as you look at what we experienced in the third quarter relative to the fourth quarter, assumption in the third quarter down 5%, we had a bar rotation at a club store, which will continue to consume through the fourth quarter. So, Joe, and if I could ask a follow-up,

Matt Smith, Analyst — Stiefel

You talked about the requirement or one of the priorities for the business is increasing the investment in top of the funnel marketing or maybe marketing overall. You have a couple of changes underway, marketing agency and your marketing mix study. Do you have the ability to confidently increase the investment in marketing today? Are you kind of waiting out for the new messaging to be tailored and the new marketing mix results to come in? I guess as we look ahead, you talked about some of the pressure in fiscal 27. Is it waiting to increase the marketing spend, or do you feel confident you can start to pursue that more quickly?

Speaker 8

You know, first of all, in coming back and fresh eyes in the business, we're going to get the consumer for the P&L. that we're going to use ROI to justify further investments. That's true on Quest, and that's true on any other brand, right? It's got to be justified. My fundamental belief is that if your insights are good, it's good enough, and I'm optimistic about the future, we've got some work to do right now to get there.

Matt Smith, Analyst — Stiefel

Appreciate it, Joe. I'll pass it on.

Jim Solera, Analyst — Stephen Zink

Okay, Matt.

Speaker 4

Thank you. Our next question comes in line of Jim Solera with Stephen Zink. Please proceed with your question.

Speaker 7

Good morning, guys. Thanks for taking our question. So you talked about the distribution losses for Atkins and Owen over the next 6 to 12 months. I assume there's probably still opportunity for Quest to continue to gain distribution. Can you just walk us through how we should think about the portfolio as a whole, you know, plus or minus on distribution for the next, you know, kind of 6 to 12 months?

Speaker 8

Bringing people into your brand, distribution could be a topspin, but I never believed it's the... That said, I'll answer. I'll talk about Owen first because I think it's a majority non-core, underlying core, and that's going to take us, call it six-plus months for that. Nicely, though, if you look at the core, so our 32-gram protein shake business and our powders have between our household penetration somewhere around 4% and the universe of people interested in the benefits of plant-based and clean, which is closer to 18%, 19%. So that one's easily to understand. That's going to happen over the next situation, though. Atkins, we, the driver of it was our ability to recruit consumers. And the key weapon that we had is our ability to increase marketing support. You pull the marketing back, your household penetration shrinks, and you lose distribution. So we've been undoing what we, back to the fundamentals in Atkins. So we're seeing distribution losses that reset the business at retail in line with our current household penetration. So that's, you're going to start seeing as we move through the fourth quarter and then the next year, the comparison starts, start seeing the business start to stabilize. So that's going to happen, call it, as we move through, it'll start getting, the comps get a little bit better in the fourth quarter. And as we move through next year, the comps continue to improve, right? And then it's going to be our job, you know, once we get that reset, can we actually grow household penetration on this brand? Can we find a consumer insight idea, the room in the P&L to make the investment? By the way, when I ran this company before, the highest return on market.

Speaker 7

Yeah, that was exceptionally expansive. And if you'll indulge me in a small follow-up, just kind of expanding on the conversation related to the household penetration. how should we think about the impact of some of the changes you're making on the marketing front, whether it's the messaging or scaling? What's sort of the time frame when we should really start to see that flow through to velocity and presumably back to household penetration in a

Speaker 8

positive way? Yeah, it's a good question. And it's probably the question that keeps me up the most at night. And are we saying the same things? And are we executing better? Do we say what we're going to do and deliver on what we say. And then a real key one, our results will follow. The when, it's going to come in stages. My crystal ball is not that good, frankly. So we're just going to... Well, I appreciate all the detail. I'll back in the queue. Thank you. Our next question

Speaker 4

comes from the line of Alexia Howard with Bernstein. Please proceed with your question.

Alexia Howard, Analyst — Bernstein

Good morning, everyone. Can I switch to the margin side of things and the inflation question. I'm specifically interested in cocoa. I think the input must be coming down at this point. That was a problem last year. But you're now faced with a fairly sharp spike in trucking costs here in the U.S. And I assume that dairy input cost inflation is also trending up fairly meaningfully. Where are you at in terms of expected COGS growth and therefore how much

Speaker 2

pricing are you expecting to take in september i would keep in mind we all single digit pricing that'll be effective in september in our pnl there's really no change in the cocoa price we'll have in the pnl and q4 and that's significant actually there is a deflation there versus what we had uh this time last year but again that's very consistent with what we said that's been as i said last quarter significantly offset by the coffee and whey pricing um so yes we're seeing inflation. We are seeing some freight inflation as well. And this is exactly why we've announced recently a high single-digit price increase that we need to offset the input inflation and start to move our economic long-term algorithm that Joe laid out earlier. Great. And as a follow-up,

Alexia Howard, Analyst — Bernstein

you mentioned the plan to lean into the GLP-1 opportunity more deliberately. um could you talk about how you're planning to do that based on the insights you've generated so far i think previously the former management team thought um they were going to help people who were coming off those drugs to maintain their weight loss once they gave up the glp1 drugs is there a new idea here um for how to to lean into that thank you and i'll pass it on

Speaker 8

Lastly, I love the question. Suffice it to say, give me a little bit.

Speaker 4

Sounds good. I'll look forward to that. Thank you. I'll pass it on. Thank you. Our next question comes from the line of John Anderson with William Blair. Please proceed with your question.

Jon Anderson, Analyst — William Blair

Yeah, thanks, Operator. Two quick ones. You know, for Quest, Chip's business has really been kind of a workhorse for the franchise, you know, the past few years. I was wondering, Joe, if you could talk a little bit about the recent performance of the CHIPS part of that portfolio and maybe more important kind of your outlook, you know, kind of performance outlook as you look ahead to maybe more fiscal 27 and maybe the competitive backdrop. And then the second is just related to capital allocation. You obviously have plans for reinvestment in the business, and you've talked about top-of-funnel marketing, et cetera. Also, but buying back quite a bit of stock. So how are you thinking about capital allocation going forward relative to the past couple of years?

Speaker 8

I came back that I was surprised I hadn't progressed more was our cheesecracker business. And I believe there's opportunities for that business to grow. And then I've looked at the innovation pipeline. I'm very confident that there are ideas coming in Salty that will enable us to continue to growth. But overall, very optimistic in it. You know, can you grow a half-a-billion-dollar brand? Can we grow household penetration growth?

Speaker 2

I'll take the capital allocation question. I mean, our first priority on capital is to provide funding for the turnaround, as Joe mentioned. Second priority that we've, again, commitments we've already made, we've talked about previously, is the capacity expansion on chips. And as you probably noted in the updated guidance, we did reduce our capital expenditure outlook. We made some investment priority changes. So we reduced our outlook to $25 million to $30 million from $30 million to $40 million. So we're taking a hard look at everything we're spending capital on. It would be for debt paid out. Continuously assess where the best returns are for the business.

Speaker 4

Thank you. Our next question comes in line of Robert Moskow with TD Cowan. Please proceed with your question.

Robert Moskow, Analyst — TD Cowan

Thanks, Joe. Thanks, Chris. Just a clarification there, Chris. The guidance for share count of $90 million would imply that there's a lot of share repurchase going on in fourth quarter. So, as you went through your capital priorities, I didn't hear you bring that up. Am I doing the math right? Is there a big slug coming in fourth quarter?

Speaker 2

On the day of the earnings.

Robert Moskow, Analyst — TD Cowan

Oh, okay. So, I understand now. And maybe just a broader kind of marketing question. Joe, I remember you talking a lot about how not all proteins are created equal and that net protein or net carbs is like a really important metric that consumers should be more educated on. Is there any effort from a marketing standpoint that you're working on to try to educate the consumer, either through retailer advocates or others, to help you versus competition?

Speaker 8

Parts of our marketing mix do that in a more competitive way, right? Point out opportunities in some of the competition.

Speaker 4

Thank you. Our final question this morning comes from the line with Steve Powers with Deutsche Bank. Please proceed with your question.

Steve Powers, Analyst — Deutsche Bank

Hey, great. Thanks so much. So Chris, just a quick follow-up on just to 100% clarify on the share count. So you're saying, you know, round about 90 million for the fourth quarter, which I think would imply more like 93 for the year, as opposed to, I think a lot of people this morning were thinking 90 for

Speaker 2

the full year. So just want to fully confirm that. For the year, so that might be calculation you're looking at. And we did, as you said, we did retort it. We just ended.

Steve Powers, Analyst — Deutsche Bank

Yeah. Yeah. Okay. I got it. And then, Joe, you know, we talked about it a lot across the portfolio, but the perspective I wanted to get from you was more around aggregate skew complexity and productivity per skew. It sounds like on Owen, there's some envisions, you know, reduction there as you refocus on the core. As I think about plans on Quest and Atkins, you talk more about top-of-the-funnel communication and that kind of stuff. Didn't seem like there's as much kind of work to clean up the portfolio in terms of eradicating less productive SKUs. Just wanted to get your perspective on where that stands and whether there is work to do there or

Speaker 8

not. Great. Thank you very much. Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back for final comments. Thank you. This concludes

Speaker 4

today's conference call. You may disconnect your lines at this time. Thank you for your participation.