Packaged food company Simply Good Foods (NASDAQ: SMPL) met Wall Street’s revenue expectations in Q3 CY2025, but sales fell by 1.8% year on year to $369 million. Its non-GAAP profit of $0.46 per share was 3.1% below analysts’ consensus estimates.

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StockStory’s Take

Simply Good Foods’ third quarter was met with a significant negative market reaction following results that showed a year-on-year revenue decline and non-GAAP profit below Wall Street consensus. Management cited persistent challenges in its Atkins brand, which lost shelf space at major retailers and saw declining sales, while inflation, particularly in cocoa costs and tariffs, further pressured margins. CEO Geoff Tanner acknowledged the magnitude of these headwinds, noting, “This process will better align Atkins shelf space with sales in support of a sustainable business powered by a strong core assortment.”

Looking ahead, management is positioning Simply Good Foods for a recovery by leaning into its higher-growth brands, Quest and OWYN, and investing in innovation and marketing. The company expects a more favorable margin profile in the second half of the year as cocoa costs normalize and productivity initiatives take hold. CFO Chris Bealer emphasized, “By the second half, we expect trends to improve meaningfully, driven by an exciting slate of innovation launches across our brands, normalizing elasticities, lapping the initial impacts from OWYN’s product issues and tailwinds from distribution.”

Key Insights from Management’s Remarks

Management attributed the quarter’s performance to strong momentum in Quest and OWYN, offset by significant declines in Atkins and persistent cost pressures.

• Quest and OWYN growth: Quest and OWYN brands now account for nearly three-quarters of company net sales, both delivering double-digit growth in the quarter. Quest’s Salty Snacks portfolio, in particular, saw a 31% rise in consumption, marking it as a key driver for the company’s top line, while OWYN benefited from distribution gains and increased marketing investment.
• Atkins brand reset: Atkins continued to struggle, with ongoing shelf space reductions at major retailers and a focus on eliminating low-velocity SKUs, leading to double-digit declines in both sales and consumption. Management noted that 75% of Atkins sales now come from higher-turning SKUs, and only 10–15% of Atkins items remain in the lowest category quartile, as the brand shifts to a more sustainable core offering.
• Margin headwinds from inflation: The company faced elevated input costs, particularly from historically high cocoa prices and new tariffs, which weighed on gross margins. While productivity initiatives and price increases were implemented, management expects margin relief later in the year as lower-cost cocoa contracts begin to take effect.
• OWYN product quality issue: A raw material sourcing decision prior to the OWYN acquisition led to a product quality issue that negatively impacted consumption and online ratings. Management responded by updating the formulation and increasing trade and marketing support to restore growth, with the issue now largely resolved.
• Capacity expansion and strategic investments: To support growth in its Salty Snacks business, Simply Good Foods is investing in additional production capacity and ramping up R&D, with capital expenditures focused on reinforcing its competitive position in high-growth segments.

Drivers of Future Performance

Management expects Quest and OWYN to drive future growth, but lingering margin pressures and Atkins declines will weigh on overall results.

• Quest and OWYN investments: The company is substantially increasing marketing and trade support for Quest and OWYN, aiming to expand household penetration and accelerate innovation, with new product launches and expanded distribution expected to lift growth, particularly in the second half of the year.
• Atkins rationalization and impact: Atkins is expected to continue declining as shelf space is reduced and the product assortment is trimmed to its best-performing SKUs. Management believes this reset will ultimately create a more focused and profitable brand but anticipates ongoing sales pressure in the near term.
• Margin recovery dependent on input costs: Margin improvement is tied to the normalization of cocoa prices and the effectiveness of recent pricing and productivity initiatives. Management sees gross margins modestly improving in the third quarter and more significantly by the fourth quarter, but cautions that commodity volatility and tariffs remain key risks.

Catalysts in Upcoming Quarters

In the upcoming quarters, our analysts will watch (1) progress on margin recovery as cocoa costs and tariffs moderate, (2) the impact of increased marketing and new product launches on Quest and OWYN’s growth, and (3) continued rationalization and stabilization efforts at Atkins. Execution in expanding physical distribution and innovation uptake will also be critical for restoring momentum.

Simply Good Foods currently trades at $20.91, down from $24.97 just before the earnings. Is the company at an inflection point that warrants a buy or sell? Find out in our full research report (it’s free for active Edge members).

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