Simply Good Foods: A Snack Attack on Growth and Value

The Simply Good Foods Company (NASDAQ: SMFG) delivered a robust Q2 2025 performance, showcasing the power of brand diversification and operational discipline in an inflationary environment. With Quest driving organic sales growth and OWYN's acquisition fueling momentum, the company is positioned to capitalize on secular trends in low-carb, high-protein snacking. Even as margin pressures loom from rising input costs, management's focus on cost savings and deleveraging suggests this stock is undervalued relative to its growth trajectory.

Q2 Results: A Recipe for Growth

Net sales rose 15.2% year-over-year to $359.7 million in Q2, with Quest's 4.4% organic growth and OWYN's 52% retail takeaway surge as the primary catalysts. Quest's expansion into high-protein milkshakes and bars—products with “macro-flipping” appeal (high protein, low sugar)—is resonating with health-conscious consumers. Meanwhile, OWYN's distribution expanded by 22% post-acquisition, with its plant-based, protein-rich offerings gaining traction in grocery and club stores.

Even as Atkins' sales declined 10% due to lost club-store distribution, management emphasized that Quest and OWYN now represent ~70% of total sales, signaling a successful rebalancing of the portfolio. The company reaffirmed its FY2025 sales growth guidance of 8.5%–10.5%, driven by organic volume and OWYN's projected $140–$150 million in annual sales.

Margin Resilience Amid Headwinds

Gross margin dipped 120 basis points to 36.2% in Q2, pressured by OWYN's non-cash inventory step-up adjustments and rising commodity costs. However, Adjusted EBITDA rose 18% to $68.0 million, reflecting cost discipline and productivity gains. Management expects FY2025 Adjusted EBITDA to grow 4%–6%, despite a 200-basis-point gross margin headwind from tariffs and input costs.

The company's deleveraging progress is equally compelling. Net debt fell to $300 million after repaying $100 million of its term loan, reducing the net debt-to-Adjusted EBITDA ratio to 0.7x—a conservative level that provides flexibility to navigate macro challenges.

Why This Is a Buy Opportunity

1. Secular Tailwinds: The low-carb, high-protein snacking market is booming, driven by trends like keto and “clean eating.” Quest's innovation pipeline (e.g., 45g protein milkshakes) and OWYN's plant-based offerings position SMFG to capture this demand.
2. Margin Levers: While tariffs pose a near-term risk ($5–$10 million headwind estimated), the company is mitigating this via pricing, supply chain optimization, and cost savings. The 0.7x net leverage ratio leaves room to invest in growth or buy back shares.
3. Undervalued: At current prices, SMFG trades at ~12x 2025E Adjusted EBITDA—well below peers like General Mills (GIS) at 15x and Clif Bar (CLIF) at 18x. The FY2025 sales and EBITDA growth targets suggest upside to consensus estimates.

Risks to Consider

• Atkins' Decline: The brand's reliance on club-store sales and promotional pricing could continue to weigh on results.
• Input Costs: Commodity inflation and tariffs could squeeze margins further if passed through to consumers.
• OWYN Integration: While synergies are materializing, execution risks remain in scaling distribution and managing the brand's higher flow-through costs.

Investment Thesis

Simply Good Foods is a rare play on two high-growth categories: keto-friendly snacks and plant-based protein. With a solid balance sheet, disciplined cost management, and a portfolio now dominated by high-margin brands like Quest and OWYN, SMFG is primed to outperform peers. The 8.5%–10.5% sales growth and 4%–6% EBITDA expansion targets are achievable, and the stock's valuation leaves room for multiple expansion.

Recommendation

Buy. A target price of $18–$20 (15x 2025E EBITDA) reflects reasonable upside, with catalysts including Q3 sales growth, deleveraging updates, and potential share buybacks.

Disclosure: The author holds no position in SMFG. Analysis is based on publicly available data and may not account for all risks.