Simply Good Foods Q2 Highlights: Flat Sales, Earnings Beat, Margin Pressure, Warning On Challenging Macro & More

Simply Good Foods Company SMPL reported second-quarter FY23 sales of $296.58 million, beating the consensus of $293.55 million and almost flat on a year-over-year basis.
Gross profit was $102.7 million, with a gross margin contracting 200 basis points Y/Y to 34.6%, weighed by higher ingredient and packaging costs.
Net price realization in the quarter under review was about an 8.2 percentage point contribution, and core volume was off about 6.9 percentage points, primarily due to the effect of the prior year's retail customer inventory build.
Net sales in North America increased 0.3%, while International net sales declined 10.8% on year due to the impact of the two price increases over the last fiscal year.
Operating expenses declined 3.7% Y/Y to $60.2 million. The operating margin was 14.3%, lower than 15.5% in the year-ago period.
Adjusted EBITDA decreased 6.1% Y/Y to $50.9 million. Net income jumped to $25.6 million from $18.5 million last year.
Adjusted EPS of $0.32 surpassed the consensus of $0.29.
The company had cash of $63.2 million as of Feb. 25, 2023.
Also Read: Simply Good Foods Likely To Report Lower Q2 Earnings; Here's A Look At Recent Price Target Changes By The Most Accurate Analysts
Outlook: SMPL continues to expect FY23 net sales to increase slightly greater than its long-term algorithm of 4-6%, including a headwind of almost 1% related to frozen pizza licensing.
The company expects Adjusted EBITDA to increase, but slightly less than the net sales growth rate (prior view: increase in line with the net sales growth rate).
The company continues to foresee Adjusted EPS to increase less than the Adjusted EBITDA growth rate.
"We continue to anticipate that U.S. retail takeaway will moderate over the remainder of the year due to a more challenging comparable in the year ago period and a recessionary economic environment.....Full year fiscal 2023 gross margin will decline greater than our previous estimate due to the year-to-date gross margin performance and slightly higher costs within our supply chain over the remainder of the year," said CEO Joseph E. Scalzo.
SMPL expects its "solid plans" in place for Atkins and Quest brands to drive sales and earnings growth, particularly in the fourth quarter of fiscal 2023.
Price Action: SMPL shares are trading lower by 6.90% at $36.02 on the last check Wednesday.

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