Darcy Davenport: This one was a new one. So, obviously Q2, new year, new you, we always see increases in promotion and marketing because it’s the time when the most new people enter into the category. But this year was much more extreme than in the past, meaning a ton of – more of the emerging brands, so the smaller brands, doing very deep discounting and really leaning into marketing. So highly competitive and, I would say, and that’s very much the entire powder category. We also saw some consumers seeking value, so not only buying brands on deal that I just referenced, but also some trading down to value brands. And then even – what we saw in Dymatize is actually buying – looking for value, but actually upsizing. So going from a 20 serve, for instance, to a 5 lbs because it was a better value.
So a lot of deal shopping in general, just value seeking. Do we expect it to continue? It continued in April. So I think, in general, we expect that it will continue through Q3. I think the big question is in the powder category, when commodities decrease, for the most part competitors invest that money into promotion. Well, now prices – commodities are going to start increasing again. So we do believe that there will be less deep discounting because of that.
Matt McGinley: And one quick follow-up on the revenue trend in the back half. It’s a little bit difficult to tease out your seasonal trends given all the volatility you’ve had in the supply chain for the past few years. Do you expect the third quarter to generate more revenue than you did in the second, or does that step down?
Paul Rode: We expect it to modestly increase from the second quarter sequentially.
Operator: Our next question comes from the line of Jon Andersen from William Blair.
Jon Andersen: Two quick ones. I was just hoping you could give us an update on your kind of capacity plans, not for the balance of 2024, but looking out to 2025 and supporting growth in 2025, what your expectation is there in terms of shake capacity additions. And then the second question is just on powders. It looks like Premier Protein powder was up, consumption was up very nicely in the quarter, Dymatize a bit softer. Are you seeing anything in the market that would have you maybe thinking about balancing your resources against those two equities differently going forward in the Powder segment?
Darcy Davenport: Production first, so 2025 production, we feel good about the production increases. I know you weren’t asking about 2024, but on track for 20% plus production increase. And remember, that was always back-end loaded. So we are expected to see strong production – we saw strong production in Q2 and that will continue into Q3 and Q4 of this year. When we go into 2025, that will continue into 2025. So without specific numbers, we have enough production to support high end of our algo plus buffer capacity, plus any – so the needed production to rebuild internal inventory if we do not get back to target levels by the end of 2024. So I feel really good about the production ramp up. Just know that we are still scaling up our two greenfield facilities.
And so, those start every quarter becoming more and more important. So that’s one piece. Secondly, around powder. The one thing I didn’t say when I was talking about ecom and the dynamic of consumer-seeking value, Premier has been a big beneficiary of that. So think of Dymatize as being kind of a super-premium athletes brand. Well, Premier is very much a mainstream powder brand that is a good value. And so, we’ve actually seen one of the reasons why Premier’s doing so well is because of the dynamic going on. So, yes, to answer your question. I think it’s less about diverting resources from Dymatize to Premier Powder, but we have the ability to support both businesses and we will continue to increase the support on Premier Powder because we’re really encouraged by that format.
And I said it in my prepared remarks, but we believe with 80% of the growth coming from outside of the category, we really think that Premier can help mainstream the powder category very much like the brand did for RTD. So we’re really bullish on the opportunity with Premier Powder.
Operator: Our next question comes from the line of John Baumgartner from Mizuho Securities.
John Baumgartner: Maybe first off, I just wanted to follow-up on promo, Darcy, and getting more display outside of the aisle. Right now, this category and brand stand out for growth and retailer interest follows. But that also takes you into greater, I guess, conflicts or overlap for space with other food and beverage that’s maybe higher margins for the retailer, or I guess even general merchandise. How do you think about sustaining outside the aisle merch over the longer term? Is placement mostly contingent on retailers maintaining their interest in health and wellness shelf sets? Does the cost of display go up? Is outside the aisle just destined to be more of a seasonal phenomenon? How do you think about that over time?
Darcy Davenport: It’s an interesting question. So I can tell you that every single one of our conversations with retailers, they see the trends within health and wellness. They see the growth coming from this category, and specifically RTDs. And it is stronger than almost any other category in the store. So it has the attention, it has the support. They also know that it’s a low household penetration category, so the growth should continue. I think it’s less concern around the retailer support and borrowing from other categories. I think it’s there. Right now, our conversations are really – and we’re seeing it – is that space is increasing. Space is increasing not only for RTDs, but within – and taking space from the other parts of the business or the other segments, but also increasing the overall space for convenient nutrition.
So if you’re talking about displays, obviously, it’s more competitive, but the retailers appear to be very excited about the opportunity, and I’ve never heard the margin pushback as to giving display space versus other categories.
