The Simply Good Foods Company - Q4 2024
October 24, 2024
Transcript
Operator (participant)
Ladies and gentlemen, good morning, and welcome to The Simply Good Foods Company fiscal Fourth Quarter 2024 conference call. At this time, all participant lines are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mark Pogharian, Vice President of Investor Relations. Please go ahead, sir.
Mark Pogharian (VP of Investor Relations)
Thank you, operator. Good morning. I'm pleased to welcome you to The Simply Good Foods Company fourth quarter earnings call. Note that fiscal Q4 and full year amounts reflect results for the 14 and 53 weeks ended August 31, 2024. Geoff Tanner, President and CEO, and Shaun Mara, CFO, will provide you with an overview of results, which will then be followed by a Q&A session. The company issued its earnings release this morning at approximately 7 A.M. Eastern Time. A copy of the release and presentation slides are available under the Investors section of the website at www.thesimplygoodfoodscompany.com. This call is being webcast, and an archive of today's remarks will also be available. During the course of today's call, management will make forward-looking statements as subject to various risks and uncertainties that may cause actual results to differ materially.
The company undertakes no obligation to update these statements based on subsequent events. A detailed listing of such risks and uncertainties can be found in today's press release and the company's SEC filings. Note that on today's call, we will refer to certain non-GAAP financial measures that we believe will provide useful information for our investors. Due to the company's asset-light, strong cash flow business model, we evaluate our performance on an adjusted basis as it relates to EBITDA and diluted EPS. Please refer to today's press release for a reconciliation of the historical non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP. The acquisition of OWYN was completed on June 13, 2024. Therefore, the company's fourth quarter and full year 2024 results include about eleven weeks of OWYN performance.
The reference to legacy Simply Good Foods encompasses Simply Good Foods business, excluding OWYN. I'll now turn the call over to Geoff Tanner, President and CEO.
Geoff Tanner (CEO)
Thank you, Mark. Good morning. Thank you for joining us. Today, I'll recap Simply Good Foods' financial results and the performance of our brands. Then Shaun will discuss our financial results in more detail before we wrap it up with a discussion of our fiscal 2025 outlook and your questions. We're pleased with our fiscal fourth quarter financial results, with net sales increasing 17.2%. The acquisition of OWYN in the 53rd week are a 9- and 8-percentage-point contributor to growth. On a like-for-like basis, North America Quest net sales increased about 5%, and Atkins declined about 5%. Quest performance was less than expected due to temporary chip supply constraints, and Atkins was in line with our estimate.
Our gross margin improvement continued in the fourth quarter and resulted in Adjusted EBITDA of $77.5 million, an increase of 15% compared to the year-ago period. Total Simply Good Foods retail takeaway, including OWYN, in the combined measured and unmeasured channels, was about 8% for both the Q4 and full fiscal year 2024 periods. Quest and OWYN full year POS was about 13% and 80%, and Atkins was off 5%. Importantly, nutritional snacking category growth remains strong, driven by volume. Key subsegments of the category, including bars, shakes, and chips, all increased in both Q4 and full year fiscal 2024. We are category advisor at most retailers and will continue to work with our customers to develop and support initiatives in the aisle to further accelerate category growth.
Given the twin tailwinds of snacking and health and wellness, as well as low household penetration, the category is expected to maintain its momentum and its multiyear growth trajectory. As we look to fiscal 2025, we're excited about the prospects for our category and our business, and we believe we are well positioned to deliver on our objectives. We'll execute against our strategic initiatives, focusing on innovation, marketing, and increased physical availability that we expect will drive trial and increase household penetration. The OWYN acquisition closed early in Q4, and the integration work is progressing as planned. We continue to be very pleased with this brand and believe the combination of our two businesses will create future significant shareholder value through revenue growth, margin expansion, and cost synergies.
Shaun will provide you with the details of our fiscal 2025 outlook, but assuming a comparable full year of OWYN results are included in fiscal 2024, as well as the exclusion of the fifty-third week in fiscal 2024, fiscal 2025 is expected to be in line with the company's long-term algorithm. Specifically, net sales growth in the 4%-6% range and Adjusted EBITDA growth slightly greater than the net sales increase. The next slide provides you with a perspective of nutritional snacking category growth, as well as our retail takeaway performance within the IRI, Nielsen, plus C-store universe, and in the combined measured and unmeasured channels. Nutritional snacking category Q4 growth in the measured channels was 7.3%, driven primarily by volume.
The category continues to be a standout performer and is increasingly a focus of our retail partners as they look for growth opportunities. Quest and OWYN retail takeaway in measured channels increased about 9% and 112% and outpaced the category. Atkins performance, down about 8% in measured channels, was similar to last quarter. Our e-commerce business continues to do well. As a result, retail takeaway in unmeasured channels is nearly two percentage points additive to total Simply Good Foods measured channel POS. Let me now turn to Quest. In Q4, retail takeaway growth in measured and combined measured and unmeasured channels was 9% and 10%. Consumption slowed versus Q3, primarily due to temporary chips capacity constraints that resulted in stock outs at retailers. Additionally, we saw some increased competitive distribution and promotions in the bar category.
In Q4, we estimate total unmeasured channel retail takeaway increased about 16%, driven by strong e-commerce growth of 21%. That was nearly four hundred and fifty basis points greater than Q3. E-commerce strength was partially offset by softness in specialty channels. Quest Snacks and Bars retail takeaway in the combined measured and unmeasured channels increased about 17% and 1%, respectively. Despite the chip supply challenges, we continue to be pleased with our salty snacks POS growth of 34%, which is a standout in the category and represents about 25% of Quest retail sales. Chips retail takeaway slowed during the quarter due to temporary capacity constraints that impacted our ability to keep retail shelves fully stocked. We brought on a second chips manufacturing line during the quarter, and it took some time to get up the learning curve.
As we exit the first quarter in November, we anticipate supply will be back to normal, with now two chips production lines. This positions us well for the upcoming New Year, New You season and any new distribution wins. Bar segment competition increased, driven by distribution of some new entrants into the measured channel universe. In response, we will increase promotional activity at select retailers starting in Q1 of fiscal 2025, and we have accelerated the launch of the Quest Overloaded Bar platform to February. These bars are loaded with inclusions and have a unique texture and mouth feel that will bring variety, news, and excitement to the bar segment. Therefore, in fiscal 2025, we expect that Quest will have another strong year, driven by volume, that should result in retail takeaway growth of 9%-10%. As I mentioned earlier, chips recovery has already begun.
With two production lines, we have the flexibility to meet increased demand for this fast-growing business. In the fourth quarter of fiscal 2024, we partnered with a large club customer on a small regional trial of Quest chips. Due to the success, in the second half of fiscal 2025, we'll have a broader nationwide test with this retailer that could lead to an expanded presence. At the bottom of this slide, you'll note images of the key innovation items in fiscal year 2025 that I just discussed. Additionally, the rollout of the Bake Shop line began in late fiscal 2024. It is ongoing, and while early, is progressing nicely and in line with our estimates. Importantly, Quest core products and innovation will be supported with a full-year marketing campaign.
Recall the successful It's Basically Cheating advertising debuted in mid-March and drove an almost immediate lift in consumption, particularly chips, as this is where a large portion of the advertising was focused. In fiscal 2025, we will have a full year benefit of the campaign at even higher media weights, which we expect will drive greater awareness and household penetration of all Quest products. Turning to Atkins. Q4 retail takeaway in measured and combined measured and unmeasured channels was off 8% and 5%. Strong e-commerce growth continued, driven by Amazon, whose POS growth was 15%. In Q4, Atkins retail dollar sales were relatively consistent. Specifically, during the last 11 weeks of Q4, average weekly dollars in measured channels were $10.6 million, and very similar on a week-to-week basis.
This was partially due to RTD shakes, where retail takeaway improved and was about the same as the year ago period in the combined measured and unmeasured channels. We continue to believe in the long-term vitality of the brand, given the renewed cultural relevance and conversation on weight, and we are confident we have the right plans in place to bring Atkins back to growth. I'm pleased with the execution of the Atkins revitalization plan that is progressing as scheduled. Some elements of the plan are in market now, and we expect all elements to be in the market as we exit fiscal year 2025. While early, the innovation rolling out in the marketplace, in conjunction with the full shelf resets, is tracking to our estimates.
We have a full suite of innovation across forms, including the Atkins Strong, ready to drink, thirty-gram protein shake, a new wafer bar, and Atkins Endulge confectionery gummy bears and truffles. Our innovation enabled us to maintain distribution at key food and mass customers. However, we do anticipate that some items in the more space-constrained club channel could be at risk in the spring shelf reset. Product upgrades or reformulation work is progressing as well as new packaging. The Atkins Strong Shake packaging is an indication of what you'll see. Note the fresh new look, including a bold A in the middle as our new, more modern logo. More to come here soon. As we exited fiscal 2024, new Atkins advertising was on air and the Atkins.com website was refreshed. If you haven't seen it, the revised advertising, one, more clearly communicates and owns the benefit of weight management.
Two, more strongly communicates the brand's unique macronutrient profile focused on weight. And three, emphasizes Atkins as a sustainable and diet-free eating approach to weight wellness. We believe this messaging links better to the evolving consumer views and conversation on weight wellness. Notably, one of the spots specifically positioned Atkins as a diet-free and sustainable way for GLP-1 users or anyone who has lost weight to hold on to their gains. The refreshed Atkins.com website has been contemporized and is user-friendly. As has always been the case, it is loaded with customizable tools to help consumers achieve their weight wellness goals. While we work on revitalizing the brand, we also recognize the need to ensure Atkins is a long-term, sustainable business. As such, beginning in fiscal 2025, we will work to optimize ROI and investment levels, specifically eliminating trade and marketing investments that don't meet specific ROI hurdles.
This will impact fiscal 2025 sales growth as we expect some volume declines due to the reduction in spending as well as some distribution losses. We'll also discontinue our breakeven Canada export business. As such, we anticipate Atkins full year fiscal 2025 retail takeaway to decline high single digits, half of which is due to the aforementioned planned lower spend. To conclude, we're making progress and positioning the brand to succeed in the future. However, as we have previously stated, it will take some time to get there. Turning to OWYN, this brand continues to deliver on the potential we envisioned. Retail takeaway in the measured and unmeasured channels is strong, with both distribution and velocity growth. Assuming a full year of OWYN operations, Q4 and full fiscal year 2024 net sales and retail takeaway are relatively in line with each other.
It's not one customer or channel. OWYN growth has significantly accelerated across all major retail customers. In the measured channel universe, OWYN is the third largest sports nutrition multi-pack brand in the U.S. and growing the fastest in dollar sales. We remain confident in our ability to effectively integrate OWYN into our business and deliver on the acquisition model commitments. In 2024, OWYN benefited from increased distribution into new customers. With solid ACV in fiscal 2025, we expect POS growth of 20%-30%, driven by higher velocities and increased items or SKUs at select retailers. As such, in fiscal 2025, we expect OWYN net sales to be in the $135 million-$145 million range. Also, a 20%-30% increase versus the last year. The integration work is underway and progressing as planned.
As a reminder, to align with our fiscal year-end 2025, we will achieve the majority of the synergies, about 80%, at the onset or first day of fiscal 2026. This should result in OWYN fiscal 2026 Adjusted EBITDA margin of high to mid-teens. To summarize, Simply Good Foods is uniquely positioned as a 1.4 billion net sales leader in the nutritional snacking category, with a diversified portfolio across brands and product forms. The relevance of the category and demand for our products only continues to increase as more and more consumers turn away from high carb, high sugar food, seeking high protein, low sugar, low carb options. We believe our category and our brands represent the future of food and beverage, and we have three uniquely positioned brands that are aligned around these consumer megatrends.
Consumers trust our brands to help them achieve their wellness goals. As such, we're focused on our innovation and marketing plans to provide consumers with products to help them in their journey. We will continue to execute our strategic priorities that we expect will enable us to deliver on our long-term growth objectives that ultimately drive increased shareholder value. The work we're doing in fiscal 2025 positions us well for fiscal 2026, which should enable us to achieve results at the high end of our long-term algorithm. Now, I will turn the call over to Shaun, who will provide you with some greater financial details.
Shaun Mara (CFO)
Thank you, Geoff, and good morning, everyone. I will begin with an overview of our net sales. Total Simply Good Foods' fourth quarter net sales of $375.7 million increased 17.2% versus the year ago period. The primary drivers of growth were the OWYN acquisition and the 53rd week that were about a nine and eight percentage point benefit, respectively, to net sales growth. Legacy net sales growth, excluding the extra week, increased about 1%. Full year net sales of $1.33 billion increased 7.1% versus the year ago period. OWYN was a 2.4 percentage point contribution to net sales growth. Legacy net sales increased 4.8%, including the benefit of the 53rd week, that was slightly less than a two percentage point benefit.
As we exited fiscal 2024, retail inventory returned to normal levels, but slightly below the fiscal 2023. The reduction in retail inventory levels, combined with additional incremental trade investments, resulted in full year legacy retail takeaway, slightly greater than net sales. Moving on to other P&L items for the quarter. Gross profit was $146 million, an increase of $25.5 million from the year ago period, driven by lower legacy business ingredient and packaging costs, partially offset by a non-cash $3.2 million inventory purchase accounting step-up adjustment related to the OWYN acquisition. As a result, gross margin was 38.8%, a 120 basis point increase versus last year. The non-cash inventory purchase accounting step-up adversely affected gross margin by 90 basis points.
Adjusted EBITDA was $77.5 million, an increase of $10.2 million from the year ago period. Selling and marketing expenses increased $10 million-$40.8 million, primarily due to increased investments in marketing growth initiatives and the inclusion of OWYN. GAAP G&A expenses were $41.3 million, an increase of $11.8 million versus last year. The increase was primarily due to higher employee-related costs, the inclusion of OWYN, stock-based compensation, as well as executive transition and integration costs. Excluding stock-based compensation, as well as executive transition and integration costs, Q4 G&A increased $8.7 million-$32.1 million. Additionally, in the fourth quarter of fiscal 2024, the company incurred costs related to the OWYN acquisition of $11.8 million.
Finally, net interest income and interest expense was $8 million, an increase of $1.6 million versus the fourth quarter of fiscal 2023. The increase versus the year ago period is primarily driven by a higher debt balance due to the OWYN acquisition. And our Q4 effective tax rate was about 28.3%, slightly higher than a year ago period due to the OWYN acquisition. As a result, net income was $29.3 million versus $36.6 million last year. Moving on to full year results. Gross profit was $511.6 million, an increase of $58.1 million compared to the year ago period.
The increase was driven by the legacy business due to lower ingredient and packaging costs, partially offset by a non-cash $3.2 million inventory purchase accounting step-up adjustment related to the OWYN acquisition. As a result, gross margin was 38.4%, a 190 basis point increase versus last year. The non-cash inventory purchase accounting step-up adversely affected gross margin by 20 basis points. We're pleased with our gross margin progress in fiscal 2024. However, in fiscal 2025, we anticipate that input cost inflation will be a headwind and result in gross margin contraction of about 200 basis points. Note, this includes OWYN as about a 50 basis point headwind to total company gross margin. Adjusted EBITDA was $269.1 million, an increase of 9.6% versus last year.
In addition, for the full fiscal year 2024, the company incurred costs related to the OWYN acquisition of $14.5 million. Net interest income and interest expense was $21.7 million, a decline of $7.2 million versus last year. The interest expense component decline was due to a lower term loan, but debt balance prior to the OWYN acquisition versus the year ago period. Our fiscal 2024 tax rate was about 25%, and we anticipate fiscal 2025 to be similar. As a result, net income was $139.3 million versus $133.6 million last year. The next slide provides you with a reconciliation of reported and adjusted diluted EPS.
Fourth quarter reported EPS was $0.29 per diluted share, compared to $0.36 per diluted share in 2023. Adjusted diluted EPS was $0.50 per share, compared to $0.45 in a year ago period. Note that we calculate adjusted diluted EPS as adjusted EBITDA, less interest income, interest expense, and income taxes. Please refer to today's press release for an explanation and reconciliation of non-GAAP financial measures. Moving to the balance sheet and cash flow. Fourth quarter and full year cash provided by operating activities was about $49 million and $216 million. Strong cash generation is a hallmark of the company. As a result, at August 31, 2024, the company had cash of $132.5 million.
In fiscal 2024, the company repaid $135 million of its term loan, and at the end of the year, the outstanding principal balance was $400 million, resulting in a trailing twelve-month net debt to adjusted EBITDA ratio of 1x. Capital expenditures in 2024 were $5.7 million. In fiscal 2025, CapEx is expected to be in the $10 million-$15 million range. In fiscal 2025, we anticipate net interest expense to be around $25 million-$27 million, including non-cash amortization expense related to the deferred financing fees. We currently anticipate our net debt to adjusted EBITDA ratio to be about 0.5x or better by year-end fiscal 2025. Now to wrap up.
While early, retail takeaway is off to a good start, and we believe we're on track to deliver our fiscal year 2025 plans. We continue to execute against our strategic initiatives and are making investments in the business that we expect will strengthen our brands in the marketplace. Our integration work is well underway and progressing as planned. We expect strong Quest and OWYN net sales and retail takeaway growth in fiscal 2025, driven by greater velocity, increased distribution, innovation, and marketing investments. As Geoff discussed earlier, in fiscal 2025, we're focusing on optimizing Atkins ROIs related to brand investments. This will affect Atkins net sales and retail takeaway in fiscal 2025, but we believe this is necessary to ensure Atkins remains a sustainable and profitable business over the long term.
In fiscal 2025, the company continues to expect input cost inflation. Solid productivity and cost savings initiatives are in place that partially offset these higher costs. However, given the unprecedented increase in the cost of select inputs, we anticipate gross margin compression in fiscal 2025. Therefore, in fiscal 2025, total company reported net sales are expected to increase 8.5%-10.5%. Embedded in that, we anticipate our full fiscal year 2025 net sales to be in the $135 million-$145 million range. Total company reported adjusted EBITDA is expected to increase 4%-6%.
Note that the fifty-third week in fiscal 2024 comparison year is about a two percentage point headwind to both net sales and adjusted EBITDA growth in full year fiscal 2025. Lastly, assuming a comparable full year of OWYN results are included in fiscal 2024, as well as the exclusion of the fifty-third week in fiscal 2024, fiscal 2025 is expected to be in line with the company's long-term algorithm. Specifically, net sales growth in the 4%-6% range and adjusted EBITDA growth slightly greater than the net sales increase. Just as importantly, we believe the work we're doing in fiscal 2025 positions us very well for fiscal 2026, which should enable us to achieve top and bottom line results at the high end of our long-term algorithm.
We appreciate everybody's interest in our company, and we're now available to take your questions.
Operator (participant)
Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Ladies and gentlemen, we will wait for a moment while we poll for questions... Our first question comes from the line of Brian Holland with D.A. Davidson. Please go ahead.
Brian Patrick Holland (Analyst)
Yeah, thanks. Good morning. Maybe just starting with some of the recent innovation, you know, specifically looking at Bake Shop and some of the coffee drinks, which seem to be performing quite well. You've talked before about some of the struggles from an innovation standpoint, and then, you know, having gone quiet for a little while. Any perspective that you can provide about the incrementality of these launches, what you're seeing so far, vis-a-vis previous innovation cycles at the company?
Geoff Tanner (CEO)
Yeah, good morning. Let me start with innovation on Quest and specifically Bake Shop. So it's a big platform launch for us. We're encouraged by the early read. If you recall, this was a muffin and a brownie, 10 grams of protein, less than 1 gram of sugar. Where it's in distribution, performance is on par or even better than some of our best-performing innovations. And certainly, feedback from retailers is very encouraging. That platform hits on flavor, taste, checks all the boxes, protein, low carb, low sugar. It's also targeting a sizable, addressable market, which is sweet baked goods. So in the early innings, still building distribution, but very encouraging. Chips, which I'm sure we'll probably talk about on the call.
As we recover supply, we continue to drive that. We've got new flavors coming out. It's about a $300 million business today, directly growing at 25%-30%. Again, and that's a massive addressable market, where we see the largest source of volume from mainstream salty snacks. So at a high level, very encouraged by what we're seeing on Quest innovation. What Quest does is it flips the macros on large addressable snacks. And the inroads we've made into salty snacks, now with baked, you can believe we're looking around the store, identifying other spaces where we can disrupt. And then just to close it out on Quest, we have accelerated the launch of the Overload Bar, which is chock full of inclusions. It's delicious, and so we're also innovating on our core.
On Atkins, innovation is a key driver of this business performance, and, as I've stated on previous calls, when I joined the organization, you know, the state of the pipeline on Atkins was not where it needed to be, had contributed to the slowdown we've seen in the business. Credit to the team, we did jump-start efforts there. The recent slate of innovation in the marketplace is performing well. In the case of Atkins, what we're doing is replacing underperforming SKUs, say, at a Walmart or a large, you know, customer, you know, one and a half units per week, and replacing it with items that these new innovation items that are doing two to two and a half.
So whether that be the Atkins Strong, the gummies, the truffles, they've, rule of thumb, kind of doubled the velocity performance of the items that they're replacing, and it just underscores how critical innovation is on Atkins. And so we have made sure that we're filling that pipeline so we can continue to bring items to market on Atkins. We're largely looking to replace underperforming items with better items, but it is now a key focus for the business.
Shaun Mara (CFO)
And just to kind of maybe dimensionalize a little bit, Brian, just on that-
Brian Patrick Holland (Analyst)
Yep.
Shaun Mara (CFO)
On the Atkins piece, I'd say, just an example, if you look at Walmart, I think we, they took out 17 SKUs for the fall reset. They replaced them with about 18 or 19 SKUs of innovation. That innovation, to dimensionalize what Geoff was saying, is turning about two times a week as opposed to one time a week for the stuff they replaced. So it's been a good early read on innovation for Atkins.
Brian Patrick Holland (Analyst)
No, great color. Appreciate that. And then just looking into New Year, New You, and maybe this follows on to the innovation point. I know historically that period can be volatile in both directions. You called out earlier in the 2024 resolution season, impacted by you know, another category participant and, you know, who didn't have adequate supply in 2023, had adequate supply in 2024. As you look at the setup into 2025, any sense whether we're kind of in a more stable backdrop or if there are any heightened competitive issues or somebody out of stock, in stock, whatever?
I know some of that we may not know until early 2025, but as we look at fall shelf sets, do we feel like we're in a more stable place than we have been the past couple of years?
Geoff Tanner (CEO)
As I look at the fall shelf, fall shelf sets, you know, I'm very pleased with how we performed on both businesses and OWYN as well. To your point, last year, it was somewhat of an anomaly because we were lapping, and you made this point, we were lapping a period where we had received outside support due to a large competitor being out of stock. So that was a difficult lap for us. Looking forward to this upcoming new year, New Year, I'm encouraged by the plans we have in place. We have strong merchandising plans at every customer. You know, to your point, it's a competitive category.
We don't know, you know, what the competition is gonna do at this point, but I'm very pleased with how our teams built the plans customer by customer, which should put us in a strong position. But again, you know, you said it, we'll know much more, you know, February, March.
Brian Patrick Holland (Analyst)
I'll leave it there. Thanks.
Operator (participant)
Thank you. The next question is from the line of Matt Smith with Stifel. Please go ahead.
Matthew Edward Smith (Analyst)
Hi, good morning. I wanted to-
Geoff Tanner (CEO)
Hi, Matt.
Matthew Edward Smith (Analyst)
Dig in a little bit about around the underlying growth outlook for the legacy business in fiscal 2025. I think guidance implies like 3% underlying growth on a like-for-like basis, but there's a few moving parts here, including the Quest capacity improving in the first quarter. You get some new distribution in the second half of the year, and on Atkins, you have lower or you're optimizing ROI or optimizing trade spend there. So can you help with the phasing of growth for each one of those brands through the year, given the moving parts here?
Geoff Tanner (CEO)
Phasing in terms of quarterly growth?
Matthew Edward Smith (Analyst)
Just if there's any unique consideration we should take into account, you know, when we think about Atkins pulling back on trade and merchandising support, is that changing the shape of the decline through the year that we should be considering?
Geoff Tanner (CEO)
Yeah, I mean, I think if you take a step back and look at the kind of quarters, just in general, I'll just kind of. You know, depending on where your guidance range is, net sales on a reported basis, reported, should be somewhat similar in Q1-Q3, up low double digits to maybe low mid-teens. Q4 will be flattish because the year-ago period included the 53rd week and 11 weeks of OWYN. And then EBITDA, depending again, where you are in guidance, should be up mid to high single digits on a reported basis the first three quarters and then, down slightly in Q4. From a gross margin standpoint, we're gonna benefit from lower input costs, earlier in the year, so close to flat in the first quarter and then down about 225 basis points the rest of the way.
That excludes the impact of the one-time step-up that we talked about on the call. So I don't know if that's what you're looking for, Matt?
Matthew Edward Smith (Analyst)
No, it's great. I appreciate that. And then as a follow-up-
Geoff Tanner (CEO)
The only added color I would just give you is on Quest chips, which we talked about in the scripted remarks. We had been trending. I'll just give you an idea of how this should flow. We've been trending in the $4.75 million-5 million per week range in measured channels. Because of the stock outs, we ended up closer to $4 million. And you know, we expect to get that business back in the $5 million per week range, starting the end of October. We've got a great co-man partner. We've got two sites operational. We've got a test with a large club customer coming up. So, if you look at the consumption trends and you think, how's that gonna flow into the new year?
You know, you should probably look at that as adding two, perhaps three points to Quest growth versus what you're seeing right now. The other thing, Matt, I'll say is related to Atkins POS. I think you were kind of poking around there. I think you're gonna see that a little softer in January through August than where it's trending for the first six weeks of the fiscal year. We have not seen the cuts in the underlying investments, really. That starts in kind of October-ish, and then it kind of continues through fiscal year. So you'll see softer as we go through the year versus where it is today.
Matthew Edward Smith (Analyst)
Great. Thank you for all the detail. I'll pass it on.
Geoff Tanner (CEO)
All right. Thanks, Matt.
Operator (participant)
Thank you. The next question is from Jon Andersen, from William Blair. Please go ahead.
Jon Robert Andersen (Analyst)
Hey, good morning, everybody. Thanks for the questions.
Geoff Tanner (CEO)
Hi.
Jon Robert Andersen (Analyst)
Good morning. I wanted to ask about the point of sale assumptions for fiscal 2025 by brand. It looks like the assumptions that you communicated for both Quest and Atkins are kind of in line with recent scans, but quite a bit lower for OWYN. It looks to us like OWYN's been running up, you know, closer to triple digits, and I know you've kind of communicated 20%-30%. Can you just talk a little bit about the dynamic there for OWYN in 2025? Is it more challenging comparisons, or is there a certain element of conservatism baked in as it's a new brand, you know, for your business? Thanks.
Geoff Tanner (CEO)
Yeah, and I appreciate the question. You know, we continue to be excited about this acquisition. It expands our presence in the fast-growing shake category. It's the fastest-growing multi-pack protein shake in measured channels, the last 13 and 26. You know, and we purchased this business because it reaches a new consumer, both looking for plant and clean label, and clear and obvious cost synergies. To your point, if you look at current performance, it's exceptionally strong. It's up around 80% all outlets. You know, Sam's Club is a big driver. You know, you're seeing significant growth in every customer, so it's not just one customer. Our focus right now on this business is driving the core.
You know, expanding the number of doors, perhaps adding a larger pack, and then integrating the business, delivering on the synergies, which will hit in 2026. In terms of why we have a lower growth number, in our fiscal 2024, we saw significant growth in distribution as they got into new stores and channels. In fiscal 2025, there's still distribution opportunities, but as I said, it's more around filling voids, pack sizes, and we're lapping some pipe. The recent growth is very much driven by a significant distribution push. We'll continue to look to fill voids, look to drive increased pack sizes, but it won't be at the same level that we have currently seen the benefit of.
Shaun Mara (CFO)
I think in the first half of the year, you're gonna see OWYN consumption trends higher than they are for the full year, as we really lap that stuff in the second half of the year.
Jon Robert Andersen (Analyst)
Thanks. That's helpful. Thanks for that. Just to follow up on marketing. I know you've tweaked, I think, the messaging around some of the marketing campaigns for Atkins. And then you have some, I guess, in-market data on Quest, and it's basically cheating messaging. Can you talk about the kind of the state of the marketing programs today and your sense of the ROI you're getting there? And then your overall level of marketing spending. Are you at the right level now, you know, by brand? Thanks.
Geoff Tanner (CEO)
Yeah, let me start with Quest. So, in fiscal 2025, we will have a full year of this basically cheating campaign. I've been doing marketing for, you know, over 20 years, and it's very rare to see a campaign drive a significant short and long-term increase in sales. That's exactly what happened with the Quest campaign. And where we really saw that was on chips, an almost instant, significant lift in consumption. Candidly, that's what caused us to have to revisit the second site on chips. And so we're excited to see a full year benefit of that. And in fiscal 2025, you'll see over an increase, a 20% increase in advertising on Quest.
Getting the Quest advertising levels up, you know, to that eight-ish percent range, which, you know, probably a good ZIP code. On Atkins, we've recently dropped new advertising into the market. It's still early, that advertising didn't really start until September. The advertising more squarely positions Atkins as a weight brand and emphasizes our unique macronutrient profile to support that. What I will say is, in our testing, neuro testing, it was one of the top-performing ads that Nielsen has seen, and particularly the spot that referenced the new weight loss drugs. So I'm encouraged and optimistic.
It's a little early to tell, but I think what we're learning from this advertising is going back to the core promise of the brand, which is weight wellness, putting it in a culturally relevant context, for example, these new weight loss drugs, and being very clear that we are the solution to consumers, the 60% of consumers who wanna lose weight. So now, I'll close by saying one of the areas that we are throttling back on Atkins is the level of marketing, which had gotten ahead of where we wanted it to be. Most of those cuts have come in non-working, but there will be some impact, you know, probably mid-single digit impact to the actual media impact.
Shaun Mara (CFO)
Yeah, and just in terms of level of spend, I think if you look at 2024 results, we're probably now low 9s% of sales. We'll probably be mid- to low 8s% overall as a company. But as Geoff said, a big chunk of that is actually non-working media that we've, or marketing that we cut back. So I think the level of spend we think is right for the business as of right now. We'll continue to evaluate that, and we'll probably look at that further as we get into 2026. Just wanna go back on the OWYN thing, in terms of where we are for next year for growth rates. It's a 20%-30% growth rate. Just to dimensionalize it a little bit, if we grow 20%-30% over the next three years, we've kinda double the business.
So it's not like it's, you know, an insignificant growth on the overall business.
Jon Robert Andersen (Analyst)
Absolutely. Thanks so much.
Geoff Tanner (CEO)
Thanks, Geoff.
Operator (participant)
Thank you. The next question is from Alexia Howard, from Bernstein. Please go ahead.
Alexia Jane Burland Howard (Analyst)
Good morning, everyone.
Geoff Tanner (CEO)
Morning, Alexia.
Alexia Jane Burland Howard (Analyst)
So just sticking with Atkins, it sounds to me as though, given the top line headwinds that you've mentioned, the pullback in promotion, a bit of a pullback in marketing, the possibility of distribution losses, are we basically saying at this point, we shouldn't expect an inflection and back to positive sales growth organically until fiscal 2026?
Geoff Tanner (CEO)
I mean, I think that's fair. So you know, we, we've made these difficult, but they're the right decisions to right-size investments. You know, the focus has been on very low ROI spend on marketing. The predominance of the cuts have come in non-working, but there will be a small impact to media. And in more space-constrained channel like club, you know, we certainly expect to lose a slot or two. That will have a volume impact in fiscal 2026. And that is despite the positive signals we're seeing from the revitalization plan, whether it be the new innovation that is performing well, new advertising, it's early, but I'm encouraged. We've got new packaging coming.
But the net effect of that, Alexia, is that we should expect. We are expecting, you know, a negative, accelerated decline on Atkins. But you have to remember that most of that are choices we've made, including getting out of our breakeven Canada business. Looking forward, you know, our thinking is just to continue sequential. We'd like to see sequential improvement, but we have to address these issues, and we've decided to do it now.
Shaun Mara (CFO)
Yeah, let me just take a-
Operator (participant)
Go on.
Shaun Mara (CFO)
Let me just mention a little bit. I think if you look at the guidance we gave on consumption, kind of high single digit decline on Atkins. Basically, we break it down. We think base velocity declines are gonna improve versus Q4. Effectively, innovation is gonna offset distribution losses effectively in the club channel. We're at the next phase, where we assess the investment levels. We're eliminating, as Geoff said, unprofitable investments, discontinuing our breakeven business in Canada, and half of the expected decline is basically gonna be decisions we make overall. I'd also point out that all elements of the plan are not in the market until the end of fiscal 2025. So as we continue to get more innovation, like we said, for Walmart, as an example, for this fall, we're gonna replace lower performing SKUs, which should help the business overall.
So I think it sets us up nicely for 2026, but there will be some impact on 2025.
Geoff Tanner (CEO)
Yeah, the goal on Atkins is a relevant, modern, contemporary brand that is sustainable and profitable, and one that we can bet on for the long term.
Alexia Jane Burland Howard (Analyst)
Perfect. And then as a follow-up, on Quest, are you able to quantify the potential benefits from the club customer rollout? I think you said that was probably in the second half of the fiscal year. Any views as to how much distribution you'll gain as a percentage, or how many percentage points on sales that might give you on the Quest brand? Thank you, and I'll pass it on.
Geoff Tanner (CEO)
Yeah, look, Alexia, a little reluctant to share specific gross numbers or dollar numbers by, by customer. You know, with this we've had a small, very regional test with this customer, mostly on the West Coast, and we're very pleased with the performance. Based on that, based on that performance, we have now a nationwide test. Now, it's a significant customer, so it's not an insignificant amount, but I still view it as a, as a test, and we still have to prove it out. But I'm sure you can appreciate if, if we perform in this test, the upside potential to our business, starting with chips, is significant.
Alexia Jane Burland Howard (Analyst)
Great. I'll pass it on. Thank you.
Geoff Tanner (CEO)
Thanks, Alexia.
Operator (participant)
Thank you. The next question is from the line of John Baumgartner with Mizuho Securities. Please go ahead.
Isabella Sun (Analyst)
Hi, this is Isabella on for John. Thank you for taking our question. So in terms of the Quest Bars business, looks like the brand has recently faced some elevated competition from increased distribution and discounting from some smaller brands in the category. So from this competition, what have you learned about Quest Bars? Has it given you any reason to think maybe differently about the relative demand drivers for the brand? And what are your expectations for Quest Bars' revenue in fiscal year 2025? For example, is it reasonable to think like mid-single digit growth for the full year is achievable? Thank you.
Geoff Tanner (CEO)
You know, as we look at Quest Bars, obviously, it's a significant part of the business. It's a, it is a more mature business, versus, say, chips or baked goods. But if you look, you take a step back and look at the overall protein bar category, that category has increased around 4%-5% in Q4. Quest Bars were up, not quite at that level. And recall that when we think about the bar category, we're focused on protein bars, not the better-for-you bars, but high-protein bars. So the overall bar category is pretty healthy, up 4%-5%. We're not quite keeping pace with that. As the leader in the category, that is unacceptable to me, it's unacceptable to Team Quest.
In response, we have, firstly, we are accelerating the launch of the Overload platforms I mentioned earlier, pulling that forward to February. This is a category that responds to new news, and this is a, an incredibly delicious platform chock-full of inclusions, and we'll strongly support it with the It's Basically Cheating marketing campaign. We are, and we do acknowledge that we have seen competition in this space. That's not new in the context of the, of, you know, overall bar category, but we have seen some competitors come in, and, we are gonna also respond to that, as you would expect, as the leader, by sharpening some price points in key channels.
And I would contest also that we expect and probably are seeing some cannibalization, small amount of cannibalization as we launch bars, as we launch chips. Highly incremental to the business, but likely not 100% incremental. But rest assured, bar is a big part of the Quest business. We're the market leader, and we're going to act that way. We are going to defend our house, and we're gonna do what Quest does best, which is bring world-class innovation and just step up our game there.
Shaun Mara (CFO)
... Yeah, I think just, as you think about the year, I think, 2025, the plan for bars right now is sort of low single digits to flattish overall for Quest as we kind of get into the year. I would say this, that the headwind we're gonna have in the first quarter would be the spend we're having on these sharpening the price points. However, when I look at consumption quarter to date, the first six weeks of the quarter, including all outlet, we're up 3% in bars, overall for Quest. So we're making some progress there. As Geoff said, not exactly where we wanna be yet, but, I feel like we're kind of bouncing back from where we were in Q4.
Isabella Sun (Analyst)
Great. Thank you for the color. And then for the OWYN business, what are you learning about the business? Is it taking an appreciable amount of sales from the few other plant-based shakes in the category, or is it sourcing more volume from dairy protein? And how do you think about OWYN's ability to bring incremental consumers to the category once you bring to market? Is there anything you can take away from the experience of other plant-based shakes brands that have already begun to scale ahead of OWYN? Thank you.
Geoff Tanner (CEO)
Yeah. So as I said earlier, we continue to be really excited about this acquisition. It's delivering on everything we saw in the business. As we said when we announced the acquisition, obviously this gets us into the plant clean-label segment, which is growing about double the rate of the total shakes category, which is a very healthy category. What really excited us about this acquisition, though, was OWYN is increasingly pulling in consumption from more mainstream consumers. And when we dug underneath that, we did our own research that showed that just on pure taste study, and we did a comprehensive taste study, that OWYN has separated from plant-based shakes and has gotten much closer to dairy-based shakes.
This explains why they're pulling in consumption from consumers who wanna add a clean or plant-based option into the rotation. That total addressable market, obviously, is significant, and that we see as upside. Become the clear leader in plants and increasingly grow through attracting consumption from more mainstream consumers. That's the, that's what we saw in our research, and we continue to see it in the results. That's why they're up to 80%. What I will say is, you know, you should expect us to... Right now, we're focused on driving the core, but you should assume that we're going to look at the Quest playbook on this business, and how can we extend OWYN outside of shakes. We've started work on that. Combining our R&D organizations creates a very powerful and very, very talented team.
And so you should assume that we wanna continue to grow this brand beyond just core shakes. More to come, but that's our thesis, and I'd look to the Quest playbook and say, "Yeah, this, it's some high derivative on how we're gonna run OWYN.
Isabella Sun (Analyst)
Great. Thank you so much.
Operator (participant)
Thank you. Ladies and gentlemen, we take the last question from the line of Jim Salera from Stephens Inc. Please go ahead.
James Ronald Salera (Analyst)
Hey, guys. Thanks for fitting us in. Appreciate all the detail on OWYN. Wanted to ask a follow-up there. If you continue to see, you know, household adoption and higher velocities, can you just give us a sense for what the capacity is for 2025, especially in light of, you know, some of the success you saw with the Quest chips leading to capacity constraints there? Is there kind of an upper bound for OWYN for what you guys can do for 2025?
Geoff Tanner (CEO)
Yeah, I mean, short answer is no, we don't. There are no capacity issues near term or even medium long term for OWYN. I will say one of the benefits of bringing them into Simply Network is we have significantly helped them expand their capacity. And in this industry, yes, capacity was constrained, but a lot of new capacities either come online or coming online. So capacity is not an issue at all.
Shaun Mara (CFO)
I'd also say, as we look at it, we think there's an opportunity, and we're working on it right now, as we optimize that network for RTDs, for the overall business, for Quest, Atkins, and OWYN. I think there's an opportunity from a cost-saving standpoint. We wouldn't see that in fiscal 2025, but we are looking hard at that, and that could be a meaningful synergy for us.
James Ronald Salera (Analyst)
Great. And then one final question. Given that, you know, you guys have already levered the balance sheet back down to just one times, just any thoughts on capital allocations into FY 2025, given that it sounds like you guys have a pretty detailed plan on marketing, but I would expect there's gonna be some cash flow leftover. So any thoughts on buybacks or anything there?
Shaun Mara (CFO)
I mean, listen, take a step back. I think cash generation is a hallmark of the company. I mean, I think we had a fantastic year last year. Cash from operating activities, $215 million. Should be strong again this year. We have over $100 million in cash on the balance sheet right now. So we continue to evaluate what the best way to return cash to our shareholders is. That, look at debt paydown, we look at share repurchases, we look at M&A. So we'll continue to evaluate that, and we'll look at opportunities to buy back shares and really finalize and continue to fine-tune our capital allocation strategy as we get into the year.
James Ronald Salera (Analyst)
Great. Thanks, guys. I'll hop back in queue.
Operator (participant)
Thank you. Ladies and gentlemen, this concludes our question and answer session. I would now hand the conference over to the management for closing comments.
Mark Pogharian (VP of Investor Relations)
Great. Thank you so much for joining us today. I'll be available for any follow-up calls you may have, and we'll be. I look forward to updating on our first quarter results in January.
Operator (participant)
Thank you. The conference of Simply Good Foods Company has now concluded. Thank you for your participation. You may now disconnect your lines.