LOUISVILLE, Colo., May 10, 2023 (GLOBE NEWSWIRE) — Sovos Brands, Inc. (“Sovos Brands” or the “Company”) (NASDAQ:SOVO), one of the fastest-growing food companies of scale in the United States, today reported financial results for its first quarter ended April 1, 2023.
Highlights:
- Net sales of $252.8 million increased 20.4% year-over-year
- Organic net sales growth of 26.7% was driven by 15.6% volume and 11.1% pricing growth1
- Rao’s net sales of $189.2 million exceeded expectations, increasing 37.7% year-over-year, continuing its rapid march towards annual net sales of $1 billion and beyond
- Rao’s sauce dollar consumption increased 21.5% versus the prior year driven by 21.9% distribution growth and a 120-basis point increase in household penetration to 12.9%2
- Rao’s sauce achieved #1 dollar share in the food channel in Q1 for the first time2
- Rao’s franchise outside of sauce – frozen, soup, and pasta – grew combined dollar consumption 46.4% year-over-year2
- Gross margin increased 230-basis points to 28.0%; Adjusted gross margin increased 210-basis points to 28.1%
- Net income was $7.8 million or $0.08 per diluted share; adjusted net income3 was $18.1 million or $0.18 per diluted share
- Adjusted EBITDA3 of $36.0 million grew 30.2% year-over-year
- Marketing and R&D increased a combined 26.9% year-over-year
- Raising fiscal 2023 guidance for net sales to $935-$955 million and adjusted EBITDA to $136-$141 million
“Sovos Brands delivered another exceptional quarter, with 27% volume-led organic net sales growth and 30% adjusted EBITDA growth,” commented Todd Lachman, President and Chief Executive Officer. “We are updating our guidance to reflect the continued strong momentum we are seeing in the Rao’s Megabrand, which meaningfully outperformed our expectations in Q1 while achieving the largest quarterly household penetration gain in three years. We’re also thrilled to report that Rao’s sauce achieved the #1 share in the food channel in the quarter for the first time ever. We will continue to invest in brand building, talent and capabilities to support our sector-leading growth and maximize long-term shareholder value.”
Summary of Reported (GAAP) and Adjusted3 First Quarter 2023 Results
| 13 Weeks Ended | 13 Weeks Ended | ||||||
| April 1, 2023 | March 26, 2022 | Change | |||||
| Net sales ($ millions) | $ | 252.8 | $ | 209.9 | 20.4 | % | |
| Net income ($ millions) | $ | 7.8 | $ | 4.1 | 93.4 | % | |
| Net income margin (%) | 3.1 | % | 1.9 | % | 120 | bps | |
| Adjusted net income3 | $ | 18.1 | $ | 13.8 | 31.5 | % | |
| Diluted EPS | $ | 0.08 | $ | 0.04 | 100.0 | % | |
| Adjusted diluted EPS3 | $ | 0.18 | $ | 0.14 | 28.6 | % | |
| Adjusted EBITDA3($ millions) | $ | 36.0 | $ | 27.6 | 30.2 | % | |
| Adjusted EBITDA margin3(%) | 14.2 | % | 13.2 | % | 100 | bps | |
Summary of Reported and Organic1 YoY Net Sales Growth
| 13 Weeks Ended April 1, 2023 | ||||||||||||||
| Reported
Net Sales |
M&A | Organic
Net Sales |
Organic Net Sales Growth
Key Drivers |
|||||||||||
| % Change | Contribution | % Change1 | Volume | Price | ||||||||||
| Rao’s | 37.7 | % | % | 37.7 | % | |||||||||
| noosa | 8.2 | % | % | 8.2 | % | |||||||||
| Michael Angelo’s | (5.6 | ) | % | % | (5.6 | ) | % | |||||||
| Total Net Sales | 20.4 | % | 6.3 | % | 26.7 | % | 15.6 | % | 11.1 | % | ||||
First Quarter 2023 Results
Net sales of $252.8 million represented a year-over-year increase of $42.9 million, or 20.4%. Organic net sales growth1 of 26.7% was driven by 15.6% volume and 11.1% price. Results reflect better-than-expected performance from the Rao’s Megabrand and a strong quarter for noosa, which generated 37.7% and 8.2% growth, respectively. Rao’s net sales growth was primarily attributable to strong consumption growth, which accelerated throughout the quarter, benefitting from substantial household penetration gains as a result of accelerated distribution growth and stepped-up brand-building investments.
Gross profit of $70.8 million increased by $16.9 million or 31.4% versus the prior year period. Gross margin was 28.0% versus 25.7% in the prior year period. Adjusted gross profit3 of $71.1 million increased by $16.6 million or 30.4% versus the prior year period supported by volume growth, pricing and productivity. Adjusted gross margin3 was 28.1%, reflecting a 210-basis point increase versus the prior year period, benefitting from pricing and productivity, as well as favorable mix driven by sauce growth.
Total operating expenses of $49.4 million increased by $8.3 million or 20.1% versus the prior year period. Adjusted operating expenses3 of $38.0 million increased by $8.4 million, or 28.3%, versus the prior year period, reflecting 26.9% year-over-year growth of combined marketing and R&D investments along with further support for our talent and capabilities.
Net interest expense was $8.7 million compared to $6.0 million in the prior year period due to higher interest rates.
Net income was $7.8 million, 3.1% of net sales, or $0.08 per diluted share. This compared to net income of $4.1 million, or $0.04 per diluted share in the prior year period. Adjusted net income3 was $18.1 million, or $0.18 per diluted share, as compared to adjusted net income of $13.8 million or $0.14 per diluted share in the prior year period.
Adjusted EBITDA3 of $36.0 million increased $8.3 million or 30.2% versus the prior year period, inclusive of substantially higher combined marketing and R&D, up 26.9% year-over-year. Adjusted EBITDA margin3 was 14.2% versus 13.2% in the prior year period.
Balance Sheet and Cash Flow Highlights
As of April 1, 2023, cash and cash equivalents were $153.6 million and total debt was $482.7 million, resulting in a net debt to last twelve months adjusted EBITDA3 ratio of 2.6x.
Cash from operating activities was $17.2 million in the first quarter, a $6.0 million increase as compared to $11.2 million in the prior year. Higher cash flow was driven by strong net sales growth, margin expansion and improved working capital. Capital expenditures were $2.2 million in the quarter.
