What Management Said
Read the full Q1 2026 transcript ↗Today, Geoff Tanner, President and CEO, and Chris Beeler, CFO, will provide you with an overview of our results, which were provided in our earnings release issued earlier this morning. 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. As a result, we are reaffirming our full-year outlook for net sales and Adjusted EBITDA. Consumption in Q1 grew 2%, led by double-digit growth from Quest and OWYN, which combined to generate 71% of our net sales.
Growth was also supported by another robust quarter for the nutritional snacking category, which grew 10%. We are executing well on initiatives to drive the top line and to rebuild our gross margin. Specifically, with respect to our margin, recent pricing actions are now reflected on shelf, with elasticities to date in line with our expectations, albeit data remains limited. Our robust productivity program, which we started 18 months ago, is delivering results, taking costs out of the system and ensuring we have a multi-year pipeline of initiatives for the future.
However, we remain confident that our top and bottom-line performance will improve once we get beyond Q2, and as mentioned, we are reaffirming our full-year outlook. The growth is being propelled by the mainstreaming of consumer demand for high protein, low sugar, and low carb products. Turning to our brand, Quest had another solid quarter, delivering 12% consumption growth and nearly 10% growth in net sales. Household penetration reached nearly 20% this quarter, up 200 basis points year-over-year, and up 50 basis points versus last quarter, a continuation of sequential momentum observed for some time.
What went well
- First quarter consumption grew 2%, led by double-digit growth from Quest and OWYN, which together generated 71% of net sales, with the nutritional snacking category up 10%.
- Quest delivered 12% consumption growth and nearly 10% net sales growth, with household penetration reaching nearly 20% (up 200 basis points year-over-year), and Quest Salty consumption grew 40% with household penetration surpassing 10%.
- Net sales and Adjusted EBITDA came in modestly ahead of expectations, and management reaffirmed the full-year fiscal 2026 outlook for net sales and Adjusted EBITDA.
- Cash flow from operations rose to $50.1 million from about $32 million a year ago on improved working capital, and net debt to trailing 12-month Adjusted EBITDA was approximately 0.8x.
- The company repurchased five million shares for $100 million in Q1 (over 7% of shares outstanding fiscal year-to-date for nearly $150 million), and the board authorized an additional $200 million to the repurchase program.
- Management locked in incremental Cocoa supply at sequentially more favorable prices that will benefit the P&L late in Q4 and into fiscal 2027, and the productivity program started 18 months ago continues to deliver.
What went wrong
- First quarter reported net sales of $340.2 million were essentially flat year-over-year, and management acknowledged first-half results are below longer-term expectations.
- Gross profit declined 15.8% to $109.9 million and gross margin fell 590 basis points to 32.3% on a GAAP basis, driven by elevated inflation (notably Cocoa) and about $4 million of tariffs (~120 basis points).
- Adjusted EBITDA fell 20.6% to $55.6 million, net income declined 34% to $25.3 million, diluted EPS was $0.26 (versus $0.38), and adjusted diluted EPS was $0.39 (versus $0.49).
- Atkins consumption declined 19% and net sales declined 17%, with two-thirds of the headwind from lost distribution at several key retailers.
- OWYN net sales declined 3% and lagged consumption meaningfully due to lingering product quality issues and elevated retailer inventory, and Quest Bars consumption was flat versus the prior year.
Guidance Changes
| Metric | Period | Current guidance |
|---|---|---|
| Net sales growth | FY2026 | -2% to +2% (Reaffirmed) |
| Gross margin | FY2026 | Decline of 100-150 basis points (Reaffirmed) |
| Adjusted EBITDA growth | FY2026 | -4% to +1% (Reaffirmed) |
| Net interest expense | FY2026 | $19 million to $21 million (Updated for higher borrowings) |
| Weighted average diluted share count | FY2026 | ~96 million shares (Updated for buybacks) |
| Effective tax rate | FY2026 | 25% (Unchanged) |
| Quest consumption growth | FY2026 | High single digit (On track) |
Performance Breakdown
| Metric | YoY | Note |
|---|---|---|
| Reported net sales (Q1) | Flat at $340.2 million | Quest growth offset by Atkins and OWYN declines |
| Quest net sales (Q1) | +~10% | 12% consumption growth led by salty snacks, distribution, and velocity gains |
| Atkins net sales (Q1) | -17% | Lost distribution at several key retailers, two-thirds of the headwind |
| OWYN net sales (Q1) | -3% | Lingering product quality issues and elevated retailer inventory |
| Gross profit (Q1) | -15.8% to $109.9 million | Elevated input costs (notably Cocoa) and first full quarter of tariffs |
| Adjusted EBITDA (Q1) | -20.6% to $55.6 million | Margin pressure from inflation and tariffs |
| Adjusted diluted EPS (Q1) | -$0.10 to $0.39 | Margin challenges and one-time costs, partly offset by lower interest expense |
Earnings Call Themes & Trends
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Quest Salty snacks | Supply constrained a year ago | Consumption up 40%, household penetration over 10%, ACV up nearly 5 points, items per store up 34% | Strong growth |
| Quest Bars re-acceleration | Critical imperative with Overload as first step | Flat consumption in Q1; multi-pronged plan with platform innovation, merchandising, distribution, and marketing expected to show results in the second half | Turnaround in progress |
| OWYN integration and growth | Recently acquired, building synergies | Consumption strong but shipments lagging on quality issues and inventory; marketing more than doubled, plans for powders and platform innovation | Recovering |
| Atkins rationalization | 10%-15% of business is tail SKUs | Unchanged; 75% of sales from top-half-velocity SKUs; partnering with retailers to replace tail SKUs with Quest and OWYN; more flowback than forecast | Managed decline |
| Margin rebuild | Pricing and productivity lagging inflation | Lag begins to overlap in second half; pricing, productivity, and Cocoa tailwind to lift toward mid-36% gross margin by Q4 and 37%+ over time, partly offset by whey inflation | Improving into h2 and fy2027 |
| Capital allocation / buybacks | Open to M&A; portfolio brand approach | Borrowed incremental $150 million to accelerate buybacks, repurchased over 7% of shares, board added $200 million authorization, viewing stock as undervalued | Aggressive repurchases |
| GLP-1 clinical study | Two-year pilot underway | Encouraging results returned last month showing Atkins-diet patients retained more muscle mass and had fewer side effects; will leverage in New Year, New You media and retailer selling | Emerging opportunity |
Q&A Summary
What underpins confidence in the back-half inflection in the guidance, and is the year playing out as anticipated?
Geoff Tanner said it is playing out as expected, with known first-half headwinds (shifted promotions) and second-half tailwinds: new distribution and merchandising on Quest, the innovation pipeline shipping in spring, Atkins lapping distribution losses, full benefits of pricing and productivity, and favorable Cocoa positions; Chris Bealer added Q3 gross margins flattish, Q4 strongest with EBITDA up about double digits.
Quest Bars were flat, underperforming the category; what needs to be done on the legacy bar business given its size?
Geoff Tanner said flat is unacceptable and the Q1 result reflected lapping promotions and pricing impact; a comprehensive multi-year plan combines platform innovation (spring), additional merchandising, new distribution, and more marketing, with results expected in the second half.
On OWYN, what drove the gap between strong consumption and weaker shipments and how confident are you it closes?
Geoff Tanner and Chris Bealer attributed the gap to elevated incoming inventory (partly from an ERP cutover taken to avoid supply disruption) and lingering product quality effects; they believe inventory is now better aligned and Q2 shipments will be much closer to consumption.
Is there a major margin ramp over the next 18 months back toward 37%, and what are the drivers?
Chris Bealer cited pricing and productivity overlapping inflation in the second half, the Cocoa tailwind starting in Q4, mix shift from Atkins to Quest, and OWYN synergies, partly offset by whey inflation, supporting a rebuild toward 37%+; Geoff Tanner emphasized the enhanced productivity program's strong visibility.
How much did pricing help in Q1 and what is the status of right-sizing Atkins assortment?
Chris Bealer said pricing was almost zero benefit in Q1 (effective late October) and will be a low-single-digit benefit for the balance of the year; Geoff Tanner said Atkins tail SKUs remain 10%-15%, two-thirds of declines are lost distribution (largely past by April), and the company is partnering with retailers to replace tail SKUs with Quest and OWYN, seeing more flowback than forecast.
Given competitive dynamics, is M&A still attractive and are you confident current brands support the long-term algorithm?
Geoff Tanner said the capital allocation framework is unchanged and M&A is always under consideration, but with the stock viewed as significantly undervalued the best current use of cash is opportunistic buybacks; Chris Bealer noted the strong balance sheet (under one turn of leverage) and the $200 million authorization increase reflect long-term confidence.
More on Simply Good Foods Co
Reported 2026-01-08 · figures from the Simply Good Foods Co Q1 2026 earnings call.
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