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Simply Good Foods suffered a Q2 wipeout riding the protein wave, with topline dropping 9.4% as both legacy Atkins brand and plant-based OWYN brand were soft, prompting it to cut current-year forecast. Prexy/CEO Joe Scalzo, who abruptly replaced Geoff Tanner as leader in Jan, deemed that performance unacceptable and offered a 3-part plan to get the co growing again. Its third key brand, Quest, managed to eke out some growth, but not nearly enough to offset the erosion elsewhere in SMPL. A non-cash impairment charge of $249 mil on Atkins and OWYN combined threw bottom line deeply into the red. 8-K filing this morning doesn't seem to break out relative contributions of the 2 brands to that total charge. OWYN was acquired in 2024 for $280 mil, recall. Shares plummeted nearly 30% at opening bell, tho they've recovered some of losses as trading has progressed. The 3 focuses cited by Scalzo are not trivial: "strengthening our business model economics by improving our cost structure and margins, ensuring consistency in our strategic choices driving organizational clarity and efficiency, and rebuilding brand investment behind superior marketing execution to drive household penetration." In lay terms, that means slashing overhead, focusing on fewer but bigger innovation bets and relying less on brand-undermining price promotion in favor of restoring marketing spend. Still, "the long-term fundamentals of our category, our portfolio and our company capabilities are compelling," he assured investors, saying he's glad to be back at exciting time when GLP-1 drugs are reshaping landscape of already-growing protein category.The numbers were sobering, given continued growth of protein category as a whole. Net sales declined 9.4% to $326 mil with rationalizing Atkins brand off 26.6% and OWYN plant-based brand off 16.8% as it dealt with quality issue that derailed growth. Quest edged up a mere 0.3% as velocity eroded, with the worst performance in its core nutrition bars tho its salty snacks also were off from torrid 14% growth rate of prior period. No details on shakes, representing 20% of biz, but they presumably held steady. While OWYN (Only What You Need) was lapping a strong year-earlier promo period, more ominous were "poor base velocities, including on newly expanded distribution" as higher-protein Elite line fell flat on product quality issues and extensions to core line didn't resonate. So Scalzo anticipates shelf space losses for OWYN in coming resets. At retail, sales sagged 6.4% as Quest grew 2.4%, OWYN declined 2.4% and Atkins declined 23.4%. The Atkins dropoff was no surprise, as Scalzo's predecessor had initiated a rationalization of slow movers in hope of cutting its shelf space over to healthier Quest and OWYN brands. Gross margin contracted 4.6 pts to 31.6%, "largely reflecting higher input costs and some one-time effects from actions taken to mitigate OWYN product quality issues." Surging whey and cocoa costs and Trump tariffs were key factors in rising input costs. Burdened by impairment charge, operating loss of $213.3 mil reversed year-earlier operating income of $54.7 mil. Without the charge, income would have been $35.7 mil, off 34.8% from year earlier.For 6 mos, sales dropped 5% to $666.2 mil. Operating line moved into $175.7 mil loss, reversing $109.3 mil profit a year earlier. The co said this morning that it anticipates that current Q3 will bring 11-14% topline decline to $329-338 mil range. And it now expects full-year sales to fall within $1.31-1.35 bil range, off 10% to 7%. Gross margins are expected to decline 3-3.5 pts.In his first investor call since returning to co as CEO, Scalzo indicated that co had been too aggressive in building staff, tho he didn't specify magnitude of coming layoffs. At same time, OWYN brand has suffered erosion of "some important expertise" as its execs moved on. As part of cost-cutting effort, co will be "realigning" agencies and brokers and seeking production efficiencies to generate funds to support needed marketing boost to reverse "erosion in overall household fundamentals across the portfolio." Scalzo had had 6-yr run as prexy/CEO ending in mid-2023 when Tanner was recruited and held a board seat.Quest Will Up the Focus on Bars At what's now core brand, Quest, protein-rich chips have been crucial in driving household penetration to 19.4%, so they count as successful innovation. But consumption of core nutrition bars has weakened in recent periods as Simply focused investments on "other parts of the portfolio that haven't met expectations" at time competitive activity has increased. So reaccelerating growth in bar biz is a priority. Scalzo didn't specify what additions have fallen short, tho mix has included things like Bake Shop line of protein-rich cookies. Still, CEO reiterated that Quest is only brand in category other than Atkins that plays across shakes and bars rather than being focused on one or the other.No Buyer's Remorse on OWYN During q&a, Scalzo made it clear co leaders aren't suffering buyer's remorse over OWYN pickup. Acquisition "was a smart one. We love the plant-based space. We just have got to execute better," he vowed. Tho its household penetration stands at mere 4.4%, that attests to runway ahead, he figures. He cited internal segmentation work that indicates 18% of US households are seeking plant-based, clean-label offerings and are willing to compromise somewhat on taste to attain those benefits. Still, OWYN's launch of its 32 g Pro Elite line proved a bridge too far. Quality issues affecting taste and texture, along with poor marketing execution, derailed launch during critical expansion window. Velocities of that and line extensions of core brand failed to meet retailers' hurdles, auguring shelf space losses in coming resets. Still, "we believe we'll restore growth once the near-term reset is behind us" and marketing engine can be restarted, Scalzo said. Going forward, the trick will be to pace distribution growth with growth in household penetration. Along way, in recounting brand's 9-yr history, CEO gave a shoutout to its married-athlete founders Kathryn Moos and Jeff Mroz, who're now working in A2 milk space via Pioneer Pastures brand.

Simply Good Foods Suffers Q2 Wipeout Riding Protein Wave as New CEO Scalzo Promises Urgent Fixes; Less Price Promotion, More Disciplined Innovation Among New Focuses

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