Mama's Creations - Earnings Call - Q1 2026

Executive Summary

• Strong Q1 FY26 print: revenue $35.255M (+18.2% YoY), gross margin 26.1%, diluted EPS $0.03; cash from operations $6.005M drove cash to $12.011M and reduced total debt to $4.6M.
• Estimates: revenue beat consensus $32.739M by ~7.7% and EPS beat $0.023 by ~29%; 3 EPS and 4 revenue estimates contributed to consensus (S&P Global)*.
• Pricing actions fully implemented by May to defend margins; record trade promotion investment at 6% of gross revenue (vs 2% in Q4) delivered high ROI with Publix-branded “Pub Sub” and Costco national digital MVM.
• Operations: chicken commodity headwinds (≈+50% YoY) offset by fixed-price protein contracts (>50% of FY26 needs), throughput gains, yield improvements via tumbling/trimming, and overtime down ~70%.
• Catalysts: margin stability at high-20s%, expanding club and mass retail distribution (Costco/BJ’s/Walmart/Lidl/Amazon Fresh/Sheetz), WMS/S&OP rollouts, and disciplined M&A optionality supported by improved cash and leverage.

What Went Well and What Went Wrong

What Went Well

• Revenue growth outpaced category growth (~5x) and was >90% volume-driven; gross margin at 26.1% despite record trade spend, with pricing actions in place by May.
• Operational efficiency gains: overtime down ~70%, tumbling increased yields by ~10%, in-house trimming 35% ahead of plan; fixed-price protein contracts secured for >50% of FY26 needs.
• Cash generation and deleveraging: CFO reported $6.0M cash from operations; cash rose to $12.0M, total debt cut to $4.6M.

Management quote: “Our enhanced and reimagined chicken operation drove meaningful efficiency increases, with overtime down by nearly 70% and significant yield increases… performing ahead of plan”.

What Went Wrong

• Continued chicken commodity inflation pressured margins, necessitating heavier trade investment (6% of gross revenue) to drive velocities and brand equity.
• Marketing spend increased 71% YoY (historical underinvestment being addressed), tempering operating leverage in the near term.
• No formal numeric revenue/EPS guidance; margin commentary implies high-20s% target, but macro commodities remain volatile and hedges cover only “more than half” of protein needs.

Transcript

Operator (participant)

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to Mama's Creations, first quarter fiscal 2026 earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. This conference is being recorded today, Tuesday, June 3rd, 2025, and the earnings press release accompanying this conference call was issued after the market closed today. On our call today is Mama's Creations Chairman and CEO, Adam L. Michaels, and CFO, Anthony Gruber. Before we get started, I'll read a disclaimer about forward-looking statements. This conference call may contain, in addition to historical information, forward-looking statements within the meaning of the federal security laws regarding Mama's Creations.

Forward-looking statements include, but are not limited to, statements that express the company's intentions, beliefs, expectations, strategies, predictions, or any other statements relating to its future earnings, activities, events, or conditions. These statements are based on current expectations, estimates, and projections about the company's business, based in part on assumptions made by management. These statements are not guarantees of future performance and involve risk, uncertainties, and assumptions that are difficult to predict. Therefore, actual outcomes and results may and are likely to differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors discussed from time to time in the company's 10-K and other documents which the company files with the U.S. Securities and Exchange Commission. In addition, such statements could be affected by risk and uncertainties related to the factors beyond the company's control.

Matters that may cause actual results to differ materially from those in the forward-looking statements include, among other factors, the loss of key management personnel, availability of capital, and any major litigation regarding the company. In addition, throughout today's call, the company may refer to adjusted EBITDA, a non-GAAP financial measure, which it believes provides helpful information to investors about the performance of the business on an ongoing basis. A reconciliation of adjusted EBITDA to its most directly comparable GAAP financial measure is included in today's earnings release, which is available on Mama's Creations website under the investor tab. Finally, this conference call contains time-sensitive information that reflects management's best analysis only as of today and time of this conference call.

The company does not take any obligation to publicly update or revise any forward-looking statements to reflect the future events, information, or circumstances that arise after the date of this conference call. At this time, I'd like to turn the call over to Chairman and CEO, Adam L. Michaels. Thank you, Adam. The floor is yours.

Adam L. Michaels (Chairman and CEO)

Thank you, Operator, and thank you to everyone for joining us today. I'd like to welcome you to our first quarter fiscal 2026 financial results conference call. Our fiscal first quarter saw robust performance driven by sustained momentum in market share gains and significant progress across our core four Cs. Revenue grew approximately 18% year-over-year to a record $35.3 million, driven more than 90% by volume, further supported by targeted customer expansions and successful new product introductions across multiple channels. We achieved these gains despite a continued challenging macroeconomic environment, highlighting the resiliency and relevance of our value-oriented, grandma-quality deli-prepared foods offerings across any macroeconomic landscape.

We are pleased to report that gross margins returned to our near-term target range, achieving 26.1% in the quarter, and that is with a record investment throughout the quarter in high ROI trade promotion, which was a robust 6% of gross revenue in the quarter, up from 2% last quarter. This improvement reflects our strategic CapEx investments as well as ongoing efficiency gains in both procurement and production. While inflationary pressures remain elevated, our proactive measures to manage commodity volatility continue to bear fruit. Specifically, we secured fixed-price contracts covering more than half of our anticipated protein volume needs for fiscal 2026, providing substantial margin stability in an unpredictable macro environment. Turning to market dynamics, we continue to benefit from ongoing shifts towards daily prepared foods due to increasing restaurant price fatigue and consumer trade-down trends.

The latest CPI data underscores this dynamic, revealing a nearly twofold disparity between at-home and away-from-home inflation rates. In April, while at-home inflation actually decreased 40 basis points, away-from-home increased the same amount, putting further pressure on restaurants. With grocery store inflation notably lower, shoppers are increasingly opting for supermarket-prepared foods, positioning Mama's Creations to capture incremental consumer spend. This generational shift is clearly supported by recent Progressive Grocer data indicating that more than two-thirds of shoppers have purchased daily prepared meals recently, with millennials and Gen Z consumers significantly driving growth, both key demographic segments for Mama's. Operationally, this quarter marked another significant step forward in our executing our foundational four C strategy: cost, controls, culture, and catapult. Starting with cost, our meticulous incremental efforts to improve efficiency across the entire value chain continued to deliver meaningful gains.

As those that know us well, our "what gets measured gets improved" mantra is at the core of our culture, and this quarter was no different. Chicken operations, bolstered by our new installed grill lines, realized ongoing throughput improvements, with capacity more than doubling year-over-year. Concurrently, labor efficiency improved significantly, with overtime hours declining nearly 70% compared to prior periods, now that our capacity allows for steady production across a more efficient five-day workweek. In-house trimming processes are also outperforming initial targets, already running 35% ahead of plan, while new tumbling procedures have increased yields by roughly 10%. Collectively, these initiatives are translating into tangible and sustainable margin enhancements that enable our record trade promotion investments. The second C, controls, saw equally impactful progress.

Our recently implemented warehouse management system at the Farmingdale facility has provided real-time visibility into our inventory management, significantly improving accuracy, minimizing waste, and unlocking valuable working capital. This system will be replicated and fully operational in our East Rutherford facility before the end of Q2. I also continue to be excited about our sales and operations planning, S&OP implementation, being rolled out in Q2, allowing us further production efficiency while delivering higher quality and improved service levels to our customers. Our third C, culture, remains central to our operational excellence. We recently appointed a seasoned head of procurement and planning, tasked with optimizing sourcing across our product lines and proactively managing risk related to tariffs and commodity volatility. This hire complements our broader leadership team improvements and strengthens our capacity to execute strategic supply chain initiatives.

I'm also super excited about the work Abby is doing in people operations, partnering with Skip to launch a first-for-Mama's career pathing initiative, aligning compensation and job progression for our over 300 colleagues, creating not just jobs, but careers. As our friend Richard Branson once said, "Train people well enough so they can leave. Treat them well enough so they don't want to." Turning to our fourth strategic pillar, catapult, we saw exciting new distribution wins during the quarter, securing new customer accounts and product placements at major national retailers.

As this is the year of the entire chicken breast, which, as a reminder, allows us to trim in-house and significantly improve chicken margins, Chris and his team continue to overdeliver, getting new grandma-quality chicken items into Albertsons and BJ's with their strips, Costco with chicken meatballs, and most recently, we received new commitments from Publix with our enhanced Meals for One. I'm also excited about new customers we're now shipping, utilizing once again the entire chicken breast, including chicken stuffed meatballs at Lidl, chicken-based Meals for One at Amazon Fresh, and chicken-based paninis at Sheetz. If I have not mentioned this before, I continue to marvel at the partnership Skip, Chris, and Lauren have created over six short months. They deliver for each other, allowing me to deliver for you, my fellow shareholders.

We intensified our trade promotion strategy in the quarter as well, increasing spend to a record 6% of gross revenues, more than tripling our investment relative to the fourth quarter and our historical averages. We decided to double down, no, triple down on trade promotion for one reason: because it's working. Investments at Publix are accelerating, prompting Publix to add us to their weekly circulars, and for the first time in our 10-plus year partnership, our branding of their meatball pub sub. At Costco, trade investments are made in the quarter, open the door for the first time ever to be invited to participate in their digital multi-vendor mailer, or MVM, not in one or two or even three regions, but nationally in all eight regions at once. This four-Xed our revenue versus last year's rotation, and more importantly, four-Xed our gross profit while maintaining margins at the customer level.

These are just two examples, but I hope you see that we are not deploying trade just to increase sales, which we did, but rather to build a national branded business for the future and become an indispensable partner for our customers. Lauren and the marketing team also delivered in the quarter, delivering amazing results, investing 70% more than the team did last year while delivering record returns on ad spend. For example, our Instacart promotions delivered over a $6 ROAS, return on advertising spend, while our highly successful Walmart digital campaigns supporting our new Walmart chicken items, which achieved an outstanding double-digit ROAS. When something works, we lean in, and these campaigns brought new households to the Mama's brand, expanding our consumer base with the goal of creating sustainable, lasting growth. From a financial perspective, our disciplined approach continues to bear fruit.

We saw robust cash flow from operations of $6 million, enabling us to strengthen our balance sheet with cash and equivalents rising to $12 million. This fortified balance sheet positions us exceptionally well to capitalize on potential strategic acquisitions and ongoing operational investments. Lastly, while organic growth remains our clear priority, we continue to actively evaluate potential M&A opportunities. We have refined our acquisition criteria and remain disciplined in our approach, seeking targets that enhance our category leadership, expand our capabilities, and/or further scale our operations at a fair price. With our improved balance sheet and operational infrastructure, we are confident in our ability to successfully integrate any opportunities that may arise. In closing, the strategic and operational improvements made in the quarter have created a stronger, more agile, and efficient business platform.

With significant new customer wins, product expansions, and continued operational improvements now realized, Mama's is exceptionally well-positioned for profitable growth, margin expansion, and market share gains throughout fiscal 2026 and beyond. I remain incredibly proud of our team's execution, adaptability, and relentless commitment to excellence, and I look forward to sharing our continued progress in the quarters ahead. I now like to turn the call over to Anthony Gruber, our Chief Financial Officer, to walk through some key financial details for the first quarter of fiscal 2026. Anthony?

Anthony Gruber (CFO)

Thank you, Adam. Moving to the financial results, revenue for the first quarter of fiscal 2026 increased 18% to $35.3 million as compared to $29.8 million in the same year-ago quarter.

The increase was largely attributable to volume gains driven by same-customer cross-selling of new items, accelerating velocities of existing items, and new customer door expansion, partially offset by a tripling of trade promotion investments from 2.1% to 6% of gross revenue, which grew 23.4% to $37.5 million in the quarter. Targeted pricing actions were successfully negotiated in Q1 and all pricing implemented by the beginning of May to ensure the company maintained gross margin targets. Gross profit increased 23.1% to $9.2 million, or 26.1% of total revenues in the first fiscal quarter of fiscal 2026, as compared to $7.5 million, or 25% of total revenues in the same year-ago quarter. The difference in gross margin was primarily attributable to operational efficiency improvements across the organization, partially offset by continued chicken commodity headways.

Operating expenses totaled $7.6 million in the first quarter of fiscal 2026, as compared to $6.7 million in the same year-ago quarter. As a percentage of sales, operating expenses decreased in the first fiscal quarter of 2026 to 21.6% from 22.4%. Operating expenses in the first quarter benefited from increased operating leverage and ongoing operational efficiency improvements, partially offset by a 71% year-over-year increase in marketing spend, an area of historical underinvestment to help drive repeatable and profitable brand growth.

Looking ahead, we continue to believe that our normalized gross margin profile, not including major commodity fluctuations, will continue to hover in the high 20% range, while right-sizing our trade promotion investments from the low single-digit % of revenue today, closer to our goal of 10%, which we made meaningful steps towards in the first quarter, growing trade from 2% to 6% of gross revenue, but never at the expense of hitting our gross margin targets. Net income for the first quarter of fiscal 2026 increased 123% to $1.2 million, or $0.03 per diluted share, as compared to net income of $0.6 million, or $0.01 per diluted share in the same year-ago quarter. First quarter net income totaled 3.5% of revenue, as compared to 1.9% in the same year-ago quarter.

Adjusted EBITDA, a non-GAAP measure, increased 12% to $2.8 million for the first quarter of fiscal 2026, as compared to $2.5 million in the same year-ago quarter. Cash and cash equivalents as of April 30th, 2025, grew to $12 million as compared to $7.2 million as of January 31st, 2025. The change in cash and cash equivalents was primarily driven by $6 million in cash flow from operations during the first quarter, primarily driven by improved profitability and working capital optimization. As of April 30th, 2025, total debt stood at $4.6 million, as compared to $8.3 million as of April 30th, 2024. This cash war chest, coupled with our commercial lines of credit, reduced debt, and a stronger balance sheet, is preparing us well for whatever inorganic opportunities proactively or reactively come our way. This completes my prepared comments.

Now, before we begin our question-and-answer session, I'd like to turn the call back to Adam for some closing remarks. Adam.

Adam L. Michaels (Chairman and CEO)

Thank you, Anthony. In closing, we're incredibly optimistic about the road ahead, having emerged from recent operational challenges stronger, wiser, and better positioned for sustainable growth. The strategic investments we've made in new production capabilities, enhanced automation, and stronger management are now fully operational and already delivering meaningful returns. These improvements are matched by our expanded distribution footprint, deepened customer relationships, and increasingly robust grandma-quality product offerings. As consumer habits continue shifting towards convenient, high-quality deli-prepared foods and our customers continuing to grapple with labor shortages, we are well-prepared to capitalize on these trends, continuing our transformation into a truly national one-stop-shop deli solutions provider.

I couldn't be prouder of what our team has achieved this quarter and throughout the past year, and I am truly excited about the opportunities that lie ahead. With that, Operator, let's open the lines for questions.

Operator (participant)

Thank you. With that, we will now be conducting a question-and-answer session. For telephone participants, if you have a question, please press Star followed by one on your touch-tone keypad. If you would like to withdraw your question, please press the Star followed by the number two. Again, that is Star one if you have a question. If you are using speaker equipment, you will need to lift the handset before making your selection. One moment while we poll for questions. Our first question comes from the line of Ryan Meyers with Lake Street Capital. Please proceed with your question.

Ryan Meyers (Senior Research Analyst)

Hey, guys. Thanks for taking my questions.

Congrats on another really strong quarter of growth here, ahead of our expectations. Just wondering how we should be thinking about growth rate for the balance of the rest of the year, given the strong growth rate you reported this quarter, maybe what you're seeing here in Q2, and kind of if you're still confident and be able to kind of generate that double-digit growth rate.

Adam L. Michaels (Chairman and CEO)

Yeah. Thanks, Ryan. Again, continue to be just prouder and prouder every quarter of the team. Look, I feel good. I'm proud. I think we had Q4 around 25%-26% growth. Now we have 18% growth. I still feel comfortable at the double-digit growth number. Obviously, we don't know. Lots of things are happening to our end consumers. What I do know, though, is I feel stronger and stronger that our customers, our retailers, are asking for this stuff.

Consumers are looking for it. They're expanding the shelf set. Labor is getting harder and harder, which they need more of our help with, which we're able to do. I feel good with the double-digit growth, but we have to—I want to stay focused. It has to be profitable growth, right? It's important that the stuff that we're bringing forward, we're developing in our new product development process, is profitable for us, is a good value to the end consumer, and then, of course, to the retailer as well.

Ryan Meyers (Senior Research Analyst)

Okay. Got it. Switching gears a bit here and thinking about the gross margins for the business, are you confident in the sense that you have part of the chicken hedged as well as the efficiencies and throughput improvements that you guys are making that you can see gross margin improvement throughout the year?

Or is there a little too much volatility in the kind of chicken suppliers? Or how should we be thinking about kind of gross margins as we progress through the year?

Adam L. Michaels (Chairman and CEO)

Yeah. Absolutely. There is that volatility out there. Let's start again. I think it's really important in understanding gross net. I know it's something I've done my entire life. I know not everybody has done it. For all intents and purposes, as a reminder, we had about 26% gross margin. In addition to that, we put six points of margin of trade on that. In reality, theoretically, if we did not do the trade, our gross margin would have been 26% + 6% is a 32% margin. It's an incredible margin that Skip and our operations team was able to deliver.

Now, we said, hopefully, we've been very clear that we see great opportunities now that we have Chris here, Lauren, to invest that trade at the right places to build our brands. It's a good ROI, certainly, we feel internally, hence why we did it. And we think it's a good return for our investors that this is where you want to invest. This is where you want to see the accelerated growth. This is where you want to see the stronger brand getting our name out in the marketplace. I think that's really important. Going forward, yeah, it's hard. The team has done incredible work. Chicken is literally, without exaggeration, 50% up versus prior year. That's a hard number. Obviously, you don't nearly see that at all in our numbers, but that's because the team has done a great job. We have contracts for our chicken.

The team has done an amazing job, as I mentioned just a minute ago. We're trimming more than we had planned. The tumbling that we're doing is actually increasing the yield. While you do see these macro headwinds, our team is doing an incredible job to blunt those headwinds. You're seeing, again, 26% + 6%, to me, is a 32% margin. That's pretty amazing. I really do hope chicken prices have gone down. Chicken prices have literally not changed for the entire month of May. It was the easiest average calculation that Anthony did for us. Super simple. All the "experts" say that chicken prices are going to come down. That's going to help our gross margin. Our job is to hit these high 20% numbers.

When we feel that the number's quite a bit higher than that, reinvest that into trade, and that's what we're going to do.

Ryan Meyers (Senior Research Analyst)

Got it. That's super helpful. Thanks for taking my questions.

Adam L. Michaels (Chairman and CEO)

You got it. Thanks, Ryan.

Operator (participant)

Thank you. Our next question comes from the line of Eric Des Lauriers with Craig-Hallum. Please proceed with your question.

Eric Des Lauriers (Senior Research Analyst)

Great. Thank you for taking my questions. Congrats on another very strong quarter here. On that chicken trimming coming in nicely ahead of expectations, that's actually where my first question is. Could you just kind of help us understand the sort of ability you have to continue increasing the mix of in-house trim chicken? I would imagine you sort of get to an appropriate sales mix, and then it's more about increasing overall sales.

Just kind of trying to understand if trimming 100% of chicken in-house is something achievable within the next year, or is this maybe a two or three-year goal? Or can you just kind of help us understand sort of where you are in this broader strategy?

Adam L. Michaels (Chairman and CEO)

Absolutely, Eric. And thank you. It is absolutely this year. Our goal is to develop the sales items. I should have mentioned from the very beginning, actually, I just got back last night. My team's still at IDDBA, if you guys remember, International Dairy Deli and Bakery Association. This is our Super Bowl, and Lauren has done an amazing job putting it all together for us. Our sales team is down there. Chef Chris is down there, and we're getting great reactions. As we develop these new items, which we have, it's about selling them in.

Chris and his team have done an amazing job getting strips into BJ's, like I mentioned, Albertsons. These are major players, right? The chicken stuffed meatballs, personally, most importantly, are my house favorites. Our kids love them, and they're doing a great job at Costco. I mentioned some great work that we just got with Publix and getting these new Meals for One, which uses our chicken trim. Super clearly, from an operational standpoint, we could do all of the trimming today, 100%. It's not an operational issue. Thanks to you and Eric. I know you've been there. You've seen the trimmers, right? We have multiple trimmers, multiple types. We have exactly what we need from an operational standpoint. It is now the job, which we've done really well, develop the products, which we've done, get them sold in, which we're doing.

That is why we're ahead of plan on the trimming. The more we sell in, the faster we sell it in, the more we can trim ourselves. This is absolutely an in-year thing.

Eric Des Lauriers (Senior Research Analyst)

It is great to hear and how crucial that can be for margin. Great to hear. I guess just kind of sticking on this topic quickly. It is clear that all the capital investments you have made into the facilities the past year, year and a half, are really starting to bear fruit here. What other CapEx projects are on the horizon, if any? I mean, I know you have significantly expanded your capacity. Maybe there is not any near-term need to add any new pieces of equipment.

Just kind of wanted to check in here, see if there's any other CapEx projects over the next, call it, 12 months or so that we should be aware of.

Adam L. Michaels (Chairman and CEO)

Yeah. Nothing too major. Again, we do stuff every day. Anthony just approved for us a new stuffing machine. The chicken stuffed meatballs are doing well, already exceeding plan. Already we anticipate the machinery is not going to be enough. We already got another machine. The situation, though, is it's $100,000, and we get it in three weeks. It's not like the one-year million-dollar-plus grills that you saw installed last year. There's nothing super major that I expect this year from Capital. Anthony and I look at our—we actually do two things. I'm not sure if you're allowed if others do it.

Anthony and I look at our CapEx and our actual M&A spending in one bucket. Last year was the year about us investing in ourselves, right? Go to the gym and things like that, right? Investing in ourselves. This year, we feel good. Again, we do not need it, but we very much want an acquisition this year. Anthony says, "Adam, you cannot get both. You cannot get a new grill and a company." Adam, this is the year that we are going to put our money into acquisitions. That is what we are doing very well. I feel good with the progress we are making and excited to hopefully share more in the future.

Eric Des Lauriers (Senior Research Analyst)

Awesome. That is all great to hear. Thank you for taking my questions. Congrats again.

Adam L. Michaels (Chairman and CEO)

Thanks, Eric.

Operator (participant)

Our next question comes from the line of George Kelly with Roth Capital Partners.

Please proceed with your question.

George Kelly (Managing Director and Senior Research Analyst)

Hey, everybody. Thanks for taking my questions. A couple for you. First, Adam, I think you said in your prepared remarks that you refined your M&A criteria. So I was wondering if that's the case, could you walk through any changes there?

Adam L. Michaels (Chairman and CEO)

Yeah. Thanks, George. Again, it's getting more focused. Again, the three things are the three things, right? It hasn't changed. We worked hard on those. What's wonderful is we are seeing, and actually, it's a bit of a surprise, a lot of inbound interest. So people are coming to us and saying, "Hey, I heard you might be interested in expanding organically, inorganically. What do you think about us?" What has been great is our pipeline is quite full. The more you see, the more we realize what we want and what is more important and less important.

Again, and I have shared some of this with you already. Absolutely. There is an alien in my body if I buy a non-deli company, right? Deli company with their own manufacturing, that is absolutely critical. Does it have to be West of the Mississippi? Our team, Rebecca, is doing an incredible job from a logistics standpoint. The improvements we have made in logistics are mind-blowing. Can we save more by being on the West Coast, on the western side of the country? Yeah, we can save a little bit of money, but it is not critical. I hope you guys—I do not expect you guys to have read the entire 10Q in five minutes—but I am super impressed with our geographic distribution. Remember, when we all started, when Anthony and I first started here, we were a Northeast meatball company.

I mean, if you look at the geographical split of our products, we're all around 25%, 26%, 27%. I don't think much bigger than that. We are showing, we are proving that because we have the volume across the country, going out to Seattle is not that huge a deal. We are doing an incredible job. Most of our stuff, almost entirely, is full truckloads. Their sales, the business is getting so big, we don't need to do LTL. That drives a lot of efficiency internally. That's just one example of we just continue to refine and see where we are. The core three things hasn't changed. We're doing a great job. The team is getting very hands-on. My extended leadership team, so I'll give you one last thing. I was the M&A guy, and I did 98.3% of the work.

There are a couple of opportunities that are getting pretty live. I have brought the rest of my leadership team in. Hopefully, that gives you some sense that I'm really not even in the, "Let's just build a pipeline stage." We're well past that. Hopefully, that helps.

George Kelly (Managing Director and Senior Research Analyst)

It does. Yeah. That's good context. Thank you. Second question for you on Costco. You included a little note about the MVM that you ran in the quarter in your press release and commented in your prepared remarks. I guess the question is two questions. A, do you have additional promotions with Costco planned for the year, and can you give any update on timing or what those promotions might look like? B, you've done so well at Club. I'm curious, with respect to Costco, what's the near and medium-term opportunity?

Adam L. Michaels (Chairman and CEO)

The first question around Costco, yes, we have an incredible partnership. Scott gets a lot of that credit, how he's built these relationships with these eight different buyers. As a reminder, Costco is somewhat unique in the sense that there is no national buyer. We work with eight different buyers, and they share learnings with each other. I hope to do more. We'll see more. I could tell you coming up, we have actually a rotation next quarter on our chicken stuffed meatballs. We're constantly talking with them about other things. We're in conversations with them. Just for clarity, we did a digital MVM in Q1. We're in conversations about an MVM possibly. There's no guarantees, but we're in talks there. I expect Costco to get stronger and stronger.

I will tell you, I personally believe that Costco is in a very strong position as a retailer, right, for the consumers today. Much to your second point, I love the broader Club channel as well. I could speak to you forever on Costco. I could equally speak to you forever on BJ's. Great new items. If you guys are—if you have a BJ's near you, my new favorite item, actually, is our roasted sweet potatoes. Super clean, tastes great. We were actually sharing those at IDDBA. Beautiful color. We have that product. We have a new tortellini product that's coming out with BJ's. Now, two things that are really interesting. Hopefully, you noticed something on those two that I just shared. There's no commodities. There's no chicken in there. There's no beef in there. Obviously, that helps a lot.

It gives me at least an extra 13 or 14 minutes of sleep at night that we have some more of those type items. So BJ's, we're doing great. And Sam's is a tremendous partner, getting stronger and stronger with the items that we have there. Some possibly new items coming up. I'm very bullish on the Club space. Each of these three that I just mentioned could be massive partners for us, and they already are.

George Kelly (Managing Director and Senior Research Analyst)

Okay. Excellent. And then just a quick one maybe for Anthony on pricing, the pricing that you had fully implemented in May, I think you said. Is there any way to think about just kind of—can you give any kind of quantification there? That's all I had. Thank you.

Anthony Gruber (CFO)

Yeah. I can't give a quantification at this time. I think we'll be speaking about that probably during our next call.

I do not want to go into that just yet.

Adam L. Michaels (Chairman and CEO)

It is different by item. It is different by customer. The goal is that we maintain our ultimate margin. The customers realize that. What is wonderful about our business, positive or negative, I am always the optimist, is you could go right now to the USDA website, and you could see what the price of chicken is and see what the price of beef is. When we go and speak with our customers, first of all, it is very collaborative, right? They see the same thing we do, and we work jointly to find the best way. I will give you actually one quick example. It is not just about price per se. We have some partners that will work with us and say, "Hey, why do we not double the size of our packaging?" First of all, that cuts packaging costs, right?

If we could put twice as much in the same corrugate box, that saves on packaging. It also saves on logistics. We could get more on the pallet. The super double-top secret thing that's awesome is that by having more in each box, when the team opens that box to put it out on the shelf, there's twice as much that's going out on the shelf, which gives us a better shelf presence. Yes, it is incredibly collaborative, and we do it one-on-one with customers.

George Kelly (Managing Director and Senior Research Analyst)

Thanks.

Operator (participant)

Our final question comes from the line of Anthony Vendetti with Maxim Group. Please proceed with your question.

Anthony Vendetti (Executive Managing Director)

Thank you. Adam, I was wondering if you can give us any update on how the rollout is going in Walmart and then any color on Kroger or Target.

Adam L. Michaels (Chairman and CEO)

Yeah. Absolutely.

Chris and Peter are spending a lot of time in Cincinnati with Kroger and Minneapolis with Target. We got to see a number of them at IDDBA. That's going well. We'll see how that goes. Definitely, we've made the most progress this year with Chris on board than we have in my two years prior. Walmart's also doing well. I mentioned to you, and again, I love these broader partnerships. I told you about how well we're doing with their digital partnership and their digital team, literally double-digit ROAS. We're actually expanding the Four Count. The Four Count's doing quite well. We're actually expanding doors to that item. We've had a number of conversations about expanding the number of items. I feel really good. Again, I want—and it's important to us—just like I just spoke to you earlier about I like nice equal distribution of geographic split.

I always talk to you about we have a great balance of beef versus chicken. It's equally important to me that as best as we can, we continue to diversify our customers, which makes a potential Kroger or Target opportunity really exciting. You could already see it in stores if you guys go out. We just got two new items into Lidl, chicken stuffed meatballs, one being one of them. Sheetz, the paninis at Sheetz are doing incredibly well. Just launched in Amazon Fresh. I love all my children equally. Same sort of thing. Lots of great opportunity with customers.

Anthony Vendetti (Executive Managing Director)

And then just a follow-up, just to make sure I'm doing the math correct here. You obviously saw the ROI of putting 6% of gross revenue into trade promotion.

If you had, instead of putting 6%, had not put anything in there, would your gross margin be 32%?

Adam L. Michaels (Chairman and CEO)

Obviously, the easy answer would be sure. The truth of the matter is, to understand the elasticity of would we have gotten the digital MVM at Costco? It is sort of binary. I do not know. Maybe. This certainly helped a lot. Would we have gotten—I was—my mom, my parents live in Florida. They are very proud when they see it in the Publix circular that says Mama Mancini's Pub/Sub program. Would they have branded the item if we did not use all the trade? I do not know. Maybe.

What I can tell you, and this is something that Chris and I look at a lot, we actually compare the Publix work that we did, the amount of gross margin increase that we got at Publix is higher than the incremental trade that we put in, comparing year over year. That, to me, says that's a really good ROI. Hopefully, that's helpful to answer your question.

Anthony Vendetti (Executive Managing Director)

Sure. Sure. No. There's always a balance/trade-off there. Just lastly, I know you've significantly increased the number of chicken SKUs.

Maybe just to put things in context, when you took over as Chairman and CEO, how many total SKUs were there, and how many total SKUs do you have at this point, including—yeah, I know some of the SKUs are like, "Okay, it comes in this single-serve pack versus multi-pack." If you included all, not just the difference of, let's say, a chicken SKU, but like, "Okay, it also comes in different forms," how would you count the number of SKUs today versus what you had when you took over?

Adam L. Michaels (Chairman and CEO)

Yeah. I do not know what you think about this, but I can actually tell you that we have significantly reduced the number of SKUs since I have started, actually cut more than 50% of the SKUs. Why?

First of all, I'm cheap, and we're more efficient if we need to have fewer raw materials, and we could strengthen or increase the volume of fewer items. Two, there were lots of items that just were not profitable at all. Why do you need that? Why do you need a blueberry and a boysenberry cream cheese? It's important that I kept the chocolate chip cream cheese because that's what my boys love the most. We actually have fewer SKUs now. What we have is more strategic SKUs. We have massively more—and when I say massively, maybe it's a dozen. Lauren will yell at me. Maybe it's a little more, a little less. Of these chicken "bottom SKUs," the artisan-cut chicken, we have more of those because that's what we need to sell. To me, it's less about how many SKUs we have.

The answer is fewer. It's more about do we have the right SKUs? And we absolutely, compared to where I was three years ago, "Here, I'll give you one more." We had nothing for Sheetz when Anthony and I first started, right? Everything that we made was a three-pound container. Not many people go into Sheetz looking for three pounds of meatballs. So we developed the cups. We developed these incredibly successful paninis. I will tell you, the number one taker at IDDBA this year was the paninis. That was the most requested item, both by customers, and I just mostly think people just needed something to eat for lunch while they were there. So we didn't have those things before. Now we could get into the convenience channel. That's why we're doing so well at Sheetz and others.

It is about the strategic items that are more important than just the absolute amount.

Anthony Vendetti (Executive Managing Director)

Okay. Very helpful. Thanks so much. I'll hop back in the queue.

Adam L. Michaels (Chairman and CEO)

Absolutely.

Operator (participant)

Thank you. With that, this does conclude our question-and-answer session. I would now like to hand the call back over to Chairman and CEO Adam L. Michaels for closing remarks.

Adam L. Michaels (Chairman and CEO)

Thank you, operator. Thank you again to each of you for joining us today. We look forward to continuing to update you on our progress as we strive to deliver value to our fellow shareholders and execute upon our vision of becoming a leading national one-stop-shop deli solution provider. Thank you very much.

Operator (participant)

Thank you, ladies and gentlemen. With that, this does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time and have a wonderful day.