The Simply Good Foods Company (SMPL) — Q1 FY2023 Form 10-Q
Reporting period: Thirteen weeks ended November 26, 2022; comparative period ended November 27, 2021. Results are unaudited. The company sells Atkins and Quest branded nutrition snacks and meal-replacement products, primarily in North America.
Financial performance
| Metric | Q1 FY2023 | Prior-year quarter | Change |
|---|---|---|---|
| Net sales | $300.9 million | $281.3 million | Up 7.0% |
| Gross profit / margin | $111.0 million / 36.9% | $116.6 million / 41.4% | Profit down 4.8%; margin down 450 bps |
| Operating income / margin | $52.5 million / 17.4% | $58.0 million / 20.6% | Down 9.5% |
| Net income / diluted EPS | $35.9 million / $0.36 | $21.2 million / $0.22 | Net income up $14.7 million |
| Adjusted EBITDA | $60.8 million | $65.6 million | Down 7.4% |
| Operating cash flow | $8.7 million | $(7.3) million | Improved $16.0 million |
Sales growth reflected the fiscal 2022 price increase and higher e-commerce sales for both brands. North America sales grew 7.8%; international sales declined 16.5%. Quest sales were $161.5 million versus $138.3 million, while Atkins sales were $131.7 million versus $133.8 million.
Higher raw material, packaging, co-manufacturing, freight and logistics costs outpaced sales growth, reducing gross profit and margins. Selling and marketing expense fell 6.5%; general and administrative expense rose 8.2%, partly due to stock compensation and corporate and employee costs. Net income increased largely because the prior-year quarter included a $17.3 million non-cash warrant revaluation loss; operating income and Adjusted EBITDA both declined.
Cash, debt and liquidity
- Cash was $54.1 million at quarter-end, down from $67.5 million at August 27, 2022. Current assets were $357.3 million and current liabilities $80.9 million.
- Cash used in investing was $1.2 million, primarily capital expenditures. Financing used $20.8 million, including $16.4 million of share repurchases and $6.5 million of term-loan principal payments; $4.6 million of option-exercise proceeds partly offset outflows.
- Term-loan principal was $400.0 million; reported long-term debt, net of financing fees and current lease maturities, was $397.0 million. The term loan’s effective rate was 7.7%, and maturity is July 2024. No principal payments were required over the twelve months after quarter-end.
- No revolving-credit borrowings were outstanding. The $75.0 million facility was reduced by $3.5 million of letters of credit. The company reported covenant compliance and said liquidity was expected to cover operations and planned needs for at least twelve months.
Outlook, risks and notable items
- Management expected inflationary cost pressures and supply-chain challenges to continue through the remainder of FY2023. It said price increases and cost-saving initiatives should partially offset these pressures, but cannot assure full offset.
- The company cited uncertainty from inflation, possible recession, consumer purchasing patterns, labor and ingredient disruptions, and the war in Ukraine’s potential effects on raw-material availability and costs. It expected product availability to remain adequate to meet customer orders for the foreseeable future.
- No numerical financial guidance was provided in the filing.
- The board had authorized up to $150.0 million in stock repurchases; $16.4 million was repurchased during the quarter, with approximately $71.5 million remaining available at November 26, 2022.
- Management reported no litigation it considered material, no material changes to previously disclosed risk factors, effective disclosure controls, and no material changes in internal control over financial reporting.
Key facts for investors to verify
- Whether pricing, productivity and cost savings can recover gross margin as input, manufacturing and logistics costs remain elevated.
- Whether sales momentum—particularly Quest and e-commerce—can offset international weakness and changing consumer demand.
- Plans and available financing for the $400.0 million term loan due July 2024, including exposure to variable interest rates.
- How management allocates cash among debt repayment, repurchases and growth while maintaining liquidity.