The Simply Good Foods Co. NASDAQ: SMPL is a maker of nutritional snacks under the Atkins and Quest Nutrition brands and a member of the Consumer Staples sector. The popularity of GLP-1 weight-loss medications like Semaglutide drug Ozempic and Wegovy made by Novo Nordisk A/S NYSE: NVO and Eli Lilly & Co. NYSE: LLY Tarazepide drug Mounjaro and Zepbound has caused a global trend.
Celebrities like Oprah Winfrey revealed her 60 lbs of weight loss using GLP-1 medications reverberated with consumers. While users may consume less food, they need protein to prevent muscle loss. The demand for protein bars and shakes has caused a surge in business and stock prices for Simply Good and its peer, BellRing Brands Inc. (NYSE: BRBR), the maker of the popular Power Bars. Investors want to know if they can ride the GLP-1 trend in 2024.
GLP-1 users driving the protein consumption trend
While GLP-1 users experience significant curbing of appetites, leading to weight loss, not all weight loss is the same. Ideally, users prefer to lose fat over muscle, even though muscle weighs more than fat. This entails a workout regimen and plenty of protein to mitigate muscle loss while cutting calorie intake. This has led to the increased consumption of protein bars and protein shakes as convenient meal replacement alternatives.
The popularity of weight-loss drugs has fueled the robust demand for healthier protein options. It's easier, cheaper and more convenient to down a ready-to-drink (RTD) protein shake than to cook a steak, especially when you're not hungry. Get AI-powered insights on MarketBeat.
Simple steady growth
Simply Good Foods released its fiscal Q1 2024 earnings report on January 4, 2024. The company earned 43 cents per share, beating analyst estimates by 3 cents. Net income was $35.6 million, and adjusted EBITDA rose to $62 million versus $60.08 million in the year-ago period. Revenues rose 2.6% YoY to $308.7 million, falling short of the $309.13 million consensus analyst estimates. However, gross margins rose 40 bps to 37.3% YoY due to lower packaging and ingredient costs. Quest Nutrition drove volume growth, offsetting weakness with the Atkins brand. North American sales grew 2.6%, while international sales bumped up 0.7% YoY.
The company ended the quarter with $121.4 million in cash. Cash Flow from operations rose to $45.7 million, up from $8.7 million in the year-ago period. Its term loan debt balance was $275 million. Term loan debt pay-down was $10 million in the quarter. Capital expenditures were $700,000.
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Reaffirmed guidance
Simply Good reaffirmed its fiscal 2024 outlook, with net sales expected to grow at the high end of the long-term forecast of 4% to 6%, which also includes the benefit of a 53rd week. Adjusted EBITDA is expected to grow slightly more than its net sales growth rate. Fiscal 2024 capital expenditures are expected to be between $8 million to $10 million. Gross margins are expected to be higher than fiscal 2023. Net interest expense, including amortization of debt issuance costs and interest income, is anticipated between $17 million to $19 million.
Simply Good CEO Geoff Tanner commented, "I'm particularly excited to announce that we will debut a new advertising campaign in February that will be supported by a reach-based media model. Despite the business's size, Quest's brand awareness is significantly below several competitors, and this campaign has the potential to accelerate growth further." Simply Good has nearly doubled Quest Nutrition's net sales at $700 million since it was acquired in November 2019. Tanner expects Quest to be a billion-dollar brand in 2024.
The Simply Good Foods Co. analyst ratings and price targets are at MarketBeat. The Simply Good Foods Co. peers and competitor stocks can be found with the MarketBeat stock screener.
Daily ascending triangle breakout attempt
The daily candlestick chart for SMPL illustrates an ascending triangle breakout pattern. The ascending trendline formed at $35.56 on October 26, 2023. SMPL formed higher lows on each bounce that retested the flat-top horizontal upper trendline at $40.38. The daily Golden Cross is represented by the rising daily 50-period moving average at $38.96 and the rising 200-period moving average at $36.85.The daily relative strength index (RSI) peaked at the 70-band and turned down, falling under the 60-band. Pullback support levels are at $39.52, $37.11, $35.56 and $32.33.
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