Simply Good Foods outlines FY26 net sales guidance range of -2% to +2% as it addresses Atkins decline and inflationary headwinds

Earnings Call Insights: The Simply Good Foods Company (SMPL) Q4 2025

MANAGEMENT VIEW

* CEO Geoff Tanner reported that "Fiscal year 2025 was a solid year for Simply Good Foods. We delivered 9% reported net sales growth, including 3% on an organic basis and grew adjusted EBITDA by 3%." Tanner emphasized the successful integration of OWYN and highlighted that Quest and OWYN now represent nearly three-quarters of net sales, both growing double digits in fiscal year 2025. "Quest, which generated almost 2/3 of the company's net sales in Q4, is the category disruptor," with accelerated product innovation and a 50% increase in marketing since fiscal 2023.
* Tanner acknowledged two key near-term challenges: "First, as we've discussed in the past, Atkins is losing shelf space in the highly competitive nutritional snacking aisle... Second, major challenge is inflation," noting high cocoa costs and tariffs weighing on margins. He added, "We have consciously increased our organizational output across all facets of the company" to boost agility and resilience.
* Tanner detailed that Quest's Salty snacks platform delivered 31% consumption growth for the quarter and is on target to become the brand’s largest platform by the end of fiscal 2026. He also explained the strategy to rightsize Atkins, including SKU rationalization and new marketing initiatives aimed at weight management.
* On OWYN, Tanner stated, "Consumption grew 14% in the fourth quarter and 34% for the full year," despite a product quality issue impacting Q4, which has since been addressed.
* CFO Christopher Bealer stated, "Overall, our fiscal year finished generally in line with our guidance with some modestly higher costs impacting our margins as we exited the year." He reported, "Total Simply Good Foods fourth quarter reported net sales of $369 million declined 1.8% versus last year," while organic net sales grew 3.5%. "Adjusted EBITDA was $66.2 million, down 14.5% from the year ago period."

OUTLOOK

* Management expects fiscal year 2026 net sales growth in the range of negative 2% to positive 2%, with growth from Quest and OWYN offset by Atkins. Gross margins are expected to decline in the range of 100 to 150 basis points and adjusted EBITDA year-over-year is expected to be in the range of negative 4% to positive 1%. Bealer explained, "The year will be a tale of 2 halves, with the second half expected to be stronger on both the top and bottom line than our first half."
* Pricing actions across all brands will be in market by the end of Q1, expected to be a low single-digit benefit once fully implemented, with initial elasticity expected to dampen top-line trends in the near term.
* The company plans $30 million to $40 million in CapEx for fiscal 2026, primarily to expand capacity in the Salty snacks business.

FINANCIAL RESULTS

* Bealer reported gross profit of $126.6 million for Q4, a 13.3% decline year-over-year, with gross margin at 34.3%, down 450 basis points, "largely reflecting higher input costs and the initial impact of tariffs." Selling and marketing expenses fell 20.6% to $32.4 million, mainly due to a planned pullback in Atkins marketing.
* The company recorded a noncash loss on impairment of $60.9 million for Atkins brand assets. Net loss for the quarter was $12.4 million, compared to net income of $29.3 million last year, "due primarily to the impairment charge."
* Fourth quarter diluted loss per share was ($0.12) versus earnings per share of $0.29 in the year ago period. Adjusted diluted EPS was $0.46 compared to $0.50 in the year ago period.
* Cash flow from operations was $178 million for the full year, with $20 million in capital expenditures. The company repaid $150 million of its term loan and repurchased $51 million in shares during the year. The Board approved a $150 million increase to the stock repurchase program.

Q&A

* Peter Grom, UBS: Questioned the impact and resolution of OWYN's product quality issue and its implications for guidance. Tanner responded that the issue was "rectified," with new stable formulation shipping since August and increased marketing to reignite growth.
* Stephen Robert Powers, Deutsche Bank: Asked about competition in the high-protein, low-sugar space and capital allocation priorities. Tanner explained, "Competition is not new to us... we've invested heavily in R&D and sales capabilities." Bealer added, "Our priorities have not changed. We believe we can buy back shares, invest in capital, and have capacity for M&A."
* Robert Moskow, TD Cowen: Inquired about growth expectations for Quest and OWYN versus Atkins's anticipated decline. Bealer confirmed, "We're looking at Quest up really high single digits. OWYN will be in the double-digit range. Atkins is going to be down in consumption about 20%."
* Megan Christine Alexander, Morgan Stanley: Asked about SKU performance within Atkins. Tanner said, "By far, the majority of the SKUs in the top 2 quartiles that represent 75% of sales are growing and healthy."

SENTIMENT ANALYSIS

* Analyst sentiment was slightly negative, with repeated questions about Atkins’s decline, margin pressures, and the impact of product quality issues at OWYN. There was skepticism regarding the top-line guidance and the pace of recovery for Atkins and OWYN.
* Management maintained a confident tone in prepared remarks, particularly regarding Quest and OWYN, but acknowledged near-term headwinds for Atkins and margin pressures. In Q&A, Tanner used reassuring language: "We jumped on it. We've addressed it. Confident in the near term, confident in the long term."
* Compared to the previous quarter, analyst tone shifted more negatively, pressing on lower guidance and risks, while management was more defensive and focused on mitigation strategies.

QUARTER-OVER-QUARTER COMPARISON

* Guidance for fiscal 2026 is notably lower than previous aspirations, with net sales growth projected between -2% and +2%, compared to prior quarter's expectation for continued growth in Quest and OWYN and a less severe Atkins decline.
* Strategic focus shifted more heavily toward mitigating inflationary headwinds and managing SKU rationalization for Atkins, while investing in capacity and innovation for Quest and OWYN.
* Analyst focus intensified on Atkins's contraction and the sustainability of Quest and OWYN's growth in a more competitive environment.
* Management's confidence in Quest and OWYN remains strong, but their tone around Atkins became more cautious, reflecting the impact of continued distribution losses and impairment charges.

RISKS AND CONCERNS

* Management highlighted ongoing inflation, especially in cocoa and tariffs, as significant risks to margins in the first half of fiscal 2026. There is also risk from "initial elasticities related to our recently announced pricing actions."
* Atkins faces continued shelf space reduction and sales declines, with management estimating a 20% consumption decline for fiscal 2026.
* OWYN’s recent product quality issue, though addressed, required incremental investment to restore velocity.
* Analyst concerns centered on the pace of Atkins's decline, margin compression, and the ability to offset these pressures with growth from Quest and OWYN.

FINAL TAKEAWAY

The Simply Good Foods Company closed fiscal 2025 with solid growth from Quest and OWYN, now representing the majority of sales, but faces near-term challenges from Atkins’s ongoing distribution losses and significant inflationary headwinds. Management expects a subdued growth outlook for fiscal 2026, with improvements anticipated in the second half as new pricing and productivity initiatives take effect, and is committed to investing in innovation and capacity to sustain long-term value creation.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/smpl/earnings/transcripts]

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