Snapshot
Simply Good Foods Co reported $326M of revenue in Q2 2026, up -9.4% year over year, with diluted EPS of $-1.73 and an operating margin of -65.4%.
- Revenue
- $326M
- YoY growth
- +-9.4%
- Diluted EPS
- $-1.73
- Operating margin
- -65.4%
What management said
- •I'm happy to be here on my first earnings call and pleased to be 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.
- •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.
- •Our second quarter net sales of $326 million and adjusted EBITDA of $55.5 million were both well below our expectations.
- •Our fiscal year 2026 guidance now calls for net sales in the range of $1.31 billion-$1.35 billion and adjusted EBITDA of $217 billion-$225 million.
- •I believe Simply Good Foods can return to delivering the durable long-term growth that you would expect from a leading nutrition company.
- •With that perspective, I'll turn the call over to Chris, who will provide more details on this quarter's results and our updated outlook for the year.
- •After Chris is finished, I'll return to discuss how we plan to get our performance back on track.
- •Quest consumption grew 2.4% as bars were impacted by softer baseline velocities.
- •Salty grew 14% in the quarter, although this represented a deceleration from Q1.
- •Gross margin was 31.6%, a decline of 460 basis points versus prior year, largely reflecting higher input costs and some one-time effects from actions taken to mitigate OWYN product quality issues.
- •Gross margin was 32.8%, a 350 basis point decline versus the same period last year.
What went well
- •Salty snacks consumption grew 14% in the quarter, and Quest consumption grew 2.4%, while the company believes it is well positioned to fix its performance with urgency.
- •The purposeful nutrition category continues to show solid growth even as much of the broader food and beverage industry has been pressured, remaining predominantly branded with limited private label.
- •The company sees GLP-1 medication adoption as reinforcing demand for nutrient-dense, high-protein, low-carb foods consistent with its brands' positioning.
- •Net debt to trailing twelve-month adjusted EBITDA stands at approximately 1.2x, and the company repurchased almost 5 million shares in the quarter and over 10% of outstanding stock over the past 12 months.
- •A major fixed-cost reduction initiative is underway to restructure staffing, realign external agencies and brokers, and improve manufacturing and logistics efficiency to fund increased brand investment.
What went wrong
- •Second quarter net sales of $326 million declined 9.4% and adjusted EBITDA of $55.5 million declined 18.4%, both well below expectations.
- •Retail takeaway slowed significantly versus Q1, declining 6.4% year over year, with weakness especially in the second half of the quarter during the New Year promotional period.
- •Gross margin fell 460 basis points to 31.6% on inflationary costs, most notably cocoa, whey, and tariffs, plus one-time costs from mitigating OWYN product quality issues.
- •Atkins consumption declined 23.4% on known distribution losses, and OWYN consumption was down 2.4% on poor base velocities that will lead to lost distribution in coming months.
- •The company recorded a non-cash impairment of $249 million related to the OWYN and Atkins brand assets, producing a GAAP operating loss of $213.3 million and a net loss of $159.7 million.
- •Household fundamentals across the portfolio have eroded, with the P&L shape moving away from its ideal structure to mid-30s gross margins, reduced marketing as a percent of sales, and G&A growing faster than the business.
Guidance changes
| Metric | Period | Previous | Current | Change |
|---|---|---|---|---|
| Net sales | Full year fiscal 2026 | — | $1.31 billion to $1.35 billion (down 10% to 7%) | Lowered |
| Adjusted EBITDA | Full year fiscal 2026 | — | $217 million to $225 million (down 22% to 19%) | Lowered |
| GAAP gross margin | Full year fiscal 2026 | — | Decline of 300 to 350 basis points, with Q4 margin expansion | — |
| Net sales | Q3 fiscal 2026 | — | $328 million to $339 million (down 14% to 11%) | — |
| Adjusted EBITDA | Q3 fiscal 2026 | — | $46 million to $50 million (down 38% to 32%) | — |
| Effective tax rate | Full year fiscal 2026 | — | Roughly 25% | — |
| Weighted average diluted share count | Full year fiscal 2026 | — | Approximately 92 million shares | — |
| One-time fixed-cost initiative cost | Fiscal 2026 | — | Approximately $15 million including CEO transition costs | — |
Performance breakdown
| Metric | YoY change | Reason |
|---|---|---|
| Net sales | Down 9.4% to $326 million | Weaker consumption across the portfolio, especially Atkins distribution losses and softer Quest and OWYN velocities. |
| Adjusted EBITDA | Down 18.4% to $55.5 million | Lower sales and gross margin compression from input cost inflation. |
| Gross margin | Down 460 bps to 31.6% (350 bps ex one-time items) | Higher input costs, most notably cocoa and whey, tariffs, and one-time OWYN product quality mitigation costs. |
| Atkins consumption | Down 23.4% | Known distribution losses and related trade inventory reductions, roughly in line with expectations. |
| Salty snacks consumption | Up 14% | Continued growth, though a deceleration from Q1. |
| G&A expenses (adjusted) | Down 12% to $29.3 million | Reduction in short-term incentive accrual and increased focus on controlling G&A amid the management transition. |
Earnings call themes & trends
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Turnaround and structural reset | — | New CEO diagnosing eroded household fundamentals, prioritizing fewer bigger ideas, restored brand investment, and a rebuilt P&L structure | Early stage |
| Input cost inflation | Cocoa expected to ease | Cocoa savings still expected to start in Q4, but whey, whey isolate, and milk isolate at historic highs partially offset cocoa relief | Mixed, with protein costs rising |
| Pricing and promotion strategy | Increased reliance on price promotion | Reducing low-return price promotion and using justified pricing to recover gross margin lost to inflation | Shifting away from promotion |
| Brand portfolio roles | Quest and OWYN expected to bolster results while fixing Atkins | Quest is the primary growth driver, OWYN being reset after execution issues, and Atkins positioned for GLP-1 users after resizing | Broader work needed |
| GLP-1 medications | — | Viewed as a tailwind reinforcing demand for nutrient-dense, high-protein products, with research underway for Atkins positioning | Emerging opportunity |
| Fixed-cost reduction | G&A growing faster than the business | Major initiative to reduce staffing and overhead, with first quarter of savings expected in Q4 | Underway |
Q&A summary
Are there structural reasons the prior financial structure is no longer the right benchmark, or is the goal to drive gross margins back toward the upper 30s to fund marketing?
Rebuilding the financial structure is paramount; deteriorating household metrics stem from strategic choices and reduced investment, and the company aims to restore gross margins to fund brand investment.
How will the cost-structure opportunity phase, and does non-marketing SG&A get pushed out to fund marketing?
The intent is to make progress on gross margins and overhead in fiscal 2027, with the balance depending on 2027 inflation, while reducing reliance on low-return price promotion frees up dollars.
What underpins confidence in returning to 4% to 6% growth and ~20% EBITDA margins given impairments and competition?
Confidence rests on a good growing branded category, strong company capabilities, and a differentiated brand portfolio led by Quest, though a reset period is expected before reaching the long-term algorithm.
What drives the back-half EBITDA margin step-up and is Q4 a reasonable run rate?
Drivers include a Q1 price increase flowing through, a ramping productivity program reaching full swing by Q4, and the first quarter of fixed-cost savings in Q4; the Q4 P&L will serve as a reasonable baseline.
Are the brands healthy enough for more price increases given weak velocities and competition?
The company has justification to price after absorbing cost net of pricing, with recent price increase elasticities in line with expectations, but deteriorating household metrics require better choices, investment, and execution alongside pricing.
What is the root cause of slowing base velocity in Quest chips and bars?
Marketing was not sufficiently focused on the core chips and bars business; the company will refocus investment, return to athlete-worthy nutrition positioning, and pursue fewer, bigger innovation ideas on the core.