Vital Farms, Inc. (NASDAQ:VITL) Q2 2023 Earnings Call Transcript

I say broadly — and certainly, I would encourage Pete to speak up, too, or maybe even Thilo, in terms of promotional spend, I don’t see us entering a period of different levels of promotional spend than we’ve historically done. I think that’s — we’ve had that historically appropriately dialed in. I think this is simply a resumption of a more normal pattern as the market returns to a little bit of a more normal dynamic.

Robert Dickerson: Okay. Super. And then I guess just in terms of where costs are. And I guess as you kind of think through just pass-through dynamics of contracts with your farmers. Is there anything there to add? I mean, the commodity markets have been a little fickle, but kind of generally, it still looks like you have some kind of core feed costs that are been deflationary. So just kind of wondering, there might be some pass-through dynamic on the contracts, but it doesn’t sound like you’re talking about kind of pass-through dynamics on the end product kind of net of the promotional spend?

Russell Diez-Canseco : Yes. The thing I’d call out there, Rob, is that it’s funny. Yes, we’ve seen that short-term decline in corn and maybe even soy. But if you compare it to three or four years ago, it’s still up, in some cases, 50% plus. I don’t have the latest data, but it’s substantially higher than it was just a few years ago. And so that combined with everything from hourly — labor for our hourly crew at Egg Central Station, which is much higher than it was just a few years ago. Certainly, as we’ve described, we’ve taken farmer pay up above what the kind of contractual mechanisms would do in part to help accommodate increases in costs that are outside of feed. We don’t see a lot of those things reversing. And so our sense is that this is probably the new normal in terms of our pricing. And the hope is that we’ve taken enough pricing to sort of accommodate those inflationary pressures that we’ve seen.

Robert Dickerson: All right, super. And then I guess just lastly, in terms of the volumes, I understand there was some kind of choppiness in the order side and flocks normalizing, et cetera. I think you called out kind of that mid-single-digit kind of one-off delta in demand. I guess that would have been there for it were more normalized. Then if we’re thinking kind of back half given strong volumes in shipments last year, it kind of seems like you still sort of talking to maybe like low double-digit volume potential. I mean, I’m just taking the 6% volume in Q2 and putting mid-single-digit on top of that and your comps are necessarily more challenging. So I don’t know if you provide that level of detail, but just trying to get a sense of that volume health trajectory.

Thilo Wrede: Yes, Rob, I mean, we’re not giving volume guidance. But as I think about the second half, we do have shelf resets coming in the fall that will help us get some additional products on the shelf that should help with volume. We talked about that we have — we gained about 2,500 new doors over the last 12 months. That is now a volume that we can sell through. And then this year, for the first time since we have gone public, we have a 53rd week in December. It’s a week between Christmas and New Year. So for us, it’s a bit of uncharted territory, what they’ll mean in terms of how much volume upside that will drive, but there is the benefit of having an extra week this year. So all those pieces come together as you think about the volume growth that we will get for the balance of the year. And these pieces are part of the reason why we feel comfortable taking out guidance.

Robert Dickerson: All right. And then maybe just last — one last quick one, kind of housekeeping. Clearly, shipping distribution rates have come down a little bit kind of across the board for everyone. Q2, more attractive for you than it has been historically. Is that kind of a — kind of general normalized run rate as you think through at least the back half of the year? Or is there anything that could change?

Thilo Wrede: Yes. If I have a crystal ball, I would probably be doing a different job. But for now, we are assuming that we will continue to have year-over-year benefits from better distribution rates. And there are really two pieces at work for us, right? One is that just the line haul rates have come down and fuel costs have come down. So that certainly benefits us. The other part is that our shipping is getting more efficient with scale. We’re able to put more pallets on trucks. And you pay for the truck, right? You don’t pay per pallet. And with that, the cost per pallet is coming down. And so with the growth that we are delivering, it drives some margin benefits for us through more efficient distribution.