Simply Good Foods (SMPL) Tops Q3 EPS by 11c, Revenues Beat; Offers FY20 EPS Guidance Above Consensus, FY20 Revenue Guidance Below Consensus

Simply Good Foods (NASDAQ: SMPL) reported Q3 EPS of $0.26, $0.11 better than the analyst estimate of $0.15. Revenue for the quarter came in at $215.1 million versus the consensus estimate of $208.08 million.

Third Quarter 2020 Financial Highlights vs. Third Quarter 2019

• Net sales increased 54.2%, or $75.6 million, to $215.1 million
• Gross profit margin of 41.2%, an increase of 60 basis points
• Net income of $16.4 million versus $13.5 million
• Adjusted EBITDA(1) increased 74.2% to $43.4 million, primarily related to the Quest acquisition
• Earnings per diluted share (“EPS”), $0.17, an increase of $0.01 per fully diluted share
• Adjusted Diluted EPS (2) of $0.26 versus $0.20

“The impact of COVID-19 during our fiscal third quarter was unprecedented,” said Joseph E. Scalzo, President and Chief Executive Officer of Simply Good Foods. “Despite the challenges of working remotely, our employees performed admirably, adjusting to the evolving market changes while continuing to execute well against our plans. I want to thank our employees, suppliers and co-manufacturers for their commitment to our customers and consumers and operating at the highest standards during this challenging time.”

“Third quarter performance was impacted significantly by COVID-19 factors that resulted in changes in shopping and consumption behavior. Following a three week period of pantry loading by consumers in early March, subsequent movement restrictions resulted in lower on-the-go and away-from-home usage occasions for some of our products. Total Simply Good Foods third quarter net sales increased 54.2% driven by the Quest acquisition. Legacy Atkins net sales declined 8.3% as solid e-commerce growth, an increase of 125% versus last year, was offset by softness in measured channels. Quest net sales declined modestly versus the year ago period. Importantly, Adjusted EBITDA(1) increased 74.2% reflecting the inclusion of Quest. Notably, legacy Atkins profitability improved driven by a reduction in trade promotion, favorable supply chain costs and lower Selling and marketing and General and administrative expenses.”

"As at home confinement restrictions began to ease in May and into June, the beginning of our fourth quarter, marketplace trends of our brands in measured channels improved. Specifically, total Simply Good Foods retail takeaway for the four weeks ended June 28, 2020 was 2.2%, in U.S. measured channels, outpacing the nutritional snacking category. Assuming U.S. movement restrictions remain at the current level we anticipate full-year 2020 net sales of $790-800 million and Adjusted EBITDA1 of $145-150 million. Recall, the fifty-third week in fiscal 2019 is about a 2 percentage point headwind to growth in 2020 and ERP implementation costs ramp-up in the fourth quarter. We’re encouraged by the improving retail takeaway trends and continue to manage the business effectively during these challenging times.”

GUIDANCE:

Simply Good Foods sees FY2020 EPS of $0.86-$0.90, versus the consensus of $0.75. Simply Good Foods sees FY2020 revenue of $790-800 million, versus the consensus of $810.59 million.

“The marketplace trends of our products have improved sequentially as movement restrictions eased during our fiscal third quarter and into the early parts of the fourth quarter. We believe the increase in consumption is due to increasing brand relevance among consumers, increased shopping trips and more on-the-go consumption. As retail takeaway trends improved we stepped-up marketing and merchandising investments in our brands in anticipation that the benefits of our products would become increasingly more relevant to our target consumers. Over the remainder of the fourth quarter and into fiscal 2021 we will position our business for long-term growth. We are confident that as home confinement eases in the U.S., snacking and meal replacement usage occasions will increase, our brand benefits of weight management and active nutrition will grow, and that shopping behavior will return to more normal patterns,” Scalzo concluded.

Given the visibility the Company has over the remaining seven weeks of its fiscal year it is able to provide a full year 2020 outlook. Assuming U.S. movement restrictions remain at the current levels, the Company anticipates full-year 2020 net sales of $790-800 million and Adjusted EBITDA(1) of $145-150 million. Legacy Atkins net sales and Adjusted EBITDA(1) is expected to be about the same as the year ago period, including the headwind of a fifty-third week in fiscal year 2019. The Company estimates that the extra week included in fiscal year 2019 is a headwind to year-over-year comparisons of reported legacy Atkins net sales growth in fiscal 2020 of about 2 percentage points.

The Company anticipates 2020 Adjusted Diluted Earnings Per Share(2)(3) to be in the range of $0.86 to $0.90 versus $0.77 in 2019.

For earnings history and earnings-related data on Simply Good Foods (SMPL) click here.

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