The Simply Good Foods Company Common Stock 2026 Q4 Earnings Call

Thank you, operator. Good morning and welcome to The Simply Good Foods Company's fourth quarter and fiscal year 2026 earnings call for the period ended August 29, 2026. I am joined this morning by President and CEO, Joe Scalzo, and Chris Bealer, Chief Financial Officer. A copy of our earnings release and accompanying presentation is available on the investors section of the company's website at thesimplygoodfoodscompany.com. This call is being webcast, and an archive of today's remarks will be made available. During today's call, management will make forward-looking statements, which are subject to various risks and uncertainties that may cause actual results to differ materially. The company undertakes no obligation to update these statements based on subsequent events. A detailed listing of such risks and uncertainties can be found in today's press release and the company's SEC filings.

On today's call, we will refer to certain non-GAAP financial measures that we believe provide useful information for investors. Due to the company's asset-light business model, we evaluate our performance on an adjusted basis as it relates to EBITDA and diluted EPS. Please refer to today's press release for a reconciliation of our non-GAAP financial measures to their most comparable measures prepared in accordance with GAAP. Finally, all retail takeaway data included in our discussion today, unless otherwise noted, reflects a combination of Circana's MULO+C measured retail channel data and company estimates for unmeasured channels for the 13 and 52 weeks ended August 29, 2026, as compared to the prior year. I will now turn the call over to Joe Scalzo.

Thanks, Matt. Good morning, everyone, and thank you for joining us today. This morning, I will explain how the actions we took in fiscal 2026 have positioned Simply Good Foods to restore the economics of the business, rebuild consumers' connection with our brands, and improve performance as fiscal 2027 progresses. I will then review our fourth quarter results and update you on the actions underway across our brands. Chris will then provide more detail on our financial performance and our fiscal year 2027 outlook before we open the call to your questions. Before I summarize our quarterly financial results, let me step back and provide some perspective on our turnaround journey so far. Fiscal 2026 was a year of taking decisive action to reset the business.

By the end of our second quarter, we finished a thorough assessment of our business and concluded that our performance was simply not where we needed it to be. As we have said previously, our brands were not performing to their potential, consumer fundamentals had weakened, our margins were under pressure, and our financial results were falling short of our expectations. We were candid with our employees, our board, and our shareholders. We made it clear that we were unhappy with the performance of the business and that a meaningful turnaround was necessary. Rather than making incremental changes, we chose to act decisively. We reset our outlook, aligned the organization around a focused set of priorities, accelerated and implemented new projects to improve our cost structure, enhanced our financial flexibility, and fundamentally overhauled the marketing approach across Quest, Atkins, and OWYN.

While the financial commitments for the year we established following our second quarter reset were modest, we delivered them. At the same time, we completed much of the foundational work to improve the long-term trajectory of the business. As we enter fiscal 2027, we are a leaner, more focused, and financially stronger company. Our priorities now are to restore the economics of the business, rebuild consumers' connection with our brands, and create a healthier foundation for sustainable growth. The actions we took in FY 2026 are expected to materially improve the economics of our business through stronger gross margins, lower selling costs in G&A, and improved cash generation. Rather than maximizing near-term earnings, we are deliberately reinvesting a meaningful portion of those improvements back into our brands. Let me provide some perspective on how we arrived at that decision.

During fiscal 2026, we completed a comprehensive overhaul of our brand strategies and marketing plans. Our recently completed marketing mix analysis confirmed that our past 18-month brand building investments generated returns well below industry benchmarks and our own expectations. That reinforced the need for meaningful change. We redesigned our strategy and plans across all three brands and launched new marketing programs in September. I will speak to those in more detail in just a moment. These programs are grounded in a deep understanding of our consumers and designed to strengthen brand connection, improve marketing effectiveness, and build consumer fundamentals over time. Given our confidence in these changes, we decided to increase investment behind our brands in fiscal 2027. We believe this investment will strengthen household penetration, deeper consumer engagement, and improve brand relevance, and in doing so, create greater long-term value for shareholders rather than maximizing near-term profit.

Based on this investment, we expect fiscal 2027 net sales and adjusted EBITDA performance to improve as the year progresses, with the second half materially better than the first half. Please note that our first half performance will be challenging from a consumer demand viewpoint. For perspective, we are entering the year with weaker underlying consumer trends than we would like. In addition, our planned pricing actions are expected to create a meaningful near-term volume headwind as we absorb consumer response from a close to a double-digit price increase. That said, these dynamics are well understood, embedded in our plan, and do not change our conviction in the actions we are taking. The margin and cost benefits we expect from our turnaround initiatives are embedded in our fiscal 2027 plan.

While it is still too early to assess the impact of our new commercial initiatives on top-line performance, we see several encouraging early indicators that give us confidence we are on the right track in our turnaround. First, we successfully executed price increases approaching double digits across much of our portfolio. While it remains early and we are closely monitoring consumer response, we expect pricing elasticities to be well above one, weighted more heavily to the first half of the year. That said, the pricing action is expected to materially improve the economics of the business, moving gross margins closer to our historic level of 40% and providing the financial firepower to reinvest in our brands. Second, we have validated the need for change through rigorous analysis and successfully launched new marketing programs across all three brands. The work is now in the marketplace and no longer in development.

We are cautiously optimistic about the top-line impact we believe these programs can have on our business. Third, we have renewed our focus on grounding new product innovation in a deeper understanding of consumer needs. We are prioritizing fewer, bigger opportunities that translate those insights into more relevant products. While innovation takes time to develop and bring to the market, we are encouraged by the potential of the pipeline we expect to launch as we close fiscal 2027 and move into fiscal 2028. Finally, we have simplified our operating model, strengthened organizational alignment, and improved accountability across the business. The organization today has greater clarity around our priorities and greater focus on the actions we are taking to improve performance. Evidence of this increased focus is our delivery against our financial commitments over the last two quarters. We expect these actions to translate into consistent priorities and high-quality execution.

Our focus is now delivering the financial improvements embedded in our plan and translating our commercial initiatives into stronger consumer fundamentals and improved top-line performance. We expect performance to improve over the course of the year as our marketing investments take hold, the buying impact of pricing eases, and year-over-year comparisons become more favorable. Our objective for FY 2027 is straightforward: restore the economics of the business, rebuild consumer connections with our brands, improve brand fundamentals while exiting FY 2027 with better momentum, stronger profitability, and a healthier foundation for long-term growth. With that context, let me turn to our fourth quarter FY 2026 results. Our fourth quarter results were modestly ahead of our expectations, reflecting consistent execution against a difficult operating backdrop. Retail consumption remained pressured and our performance was well below our long-term expectations for this business. Fourth quarter net sales declined 9.7% to $333.3 million.

Gross margins were 34%, a decline of 30 basis points, and adjusted EBITDA declined 13.2% to $57.5 million. Total company retail consumption, which we believe is the best indicator of the overall health of our business, declined 8.4% in the fourth quarter compared with the prior year. Before turning to our brands, let me emphasize a company-wide strategic priority. Since rejoining the company, I have become convinced that deepening our understanding of our target consumers, their needs, and their motivations must guide decisions across every brand and function. That priority underpins the brand strategies I will discuss next. Turning first to Quest, our largest and most important brand. Quest fourth quarter retail takeaway declined 2.1%, but performance across the portfolio was mixed. Salty continues to perform well, with consumption growth of approximately 13% in the quarter, helped by the launch of Dill Pickle Original Chips.

This launch exceeded our expectations, bringing new consumers into Quest and generating encouraging cross-purchase across the portfolio, especially on bars. Our ability to identify new and interesting flavor trends continues to be a core strength for Quest, especially in our salty snack portfolio. Household penetration on the brand increased approximately 50 basis points to 20.2%, demonstrating the brand continues to recruit new consumers. The overall decline in retail takeaway was driven primarily by softness in bars, which were down approximately 6%, including an incremental club rotation and the performance of non-core innovation, including baked snacks. Within bars, performance was also affected by a lack of compelling innovation at a time when newer competitive offerings were generating consumer interest in the category.

Our diagnosis is that Quest's near-term issue is less about relevance and more about buy rate, the effectiveness of support behind the core, and an innovation mix that was too broad and lacking consumer insight. In fiscal 2027, we are addressing that diagnosis directly by focusing the Quest portfolio on its core bars and salty businesses, which represent approximately 80% of the portfolio. We are concentrating resources behind those priorities and advancing fewer, bigger, and more differentiated new product innovation. At the center of that strategy is a clear understanding of our target consumer, a group we call Performance Maxers. These consumers see health and wellness as a path to becoming their best selves. They actively seek the best nutrition to fuel their progress and are unwilling to compromise on taste. For them, performance is about personal progress, not just athletic achievement.