Freshpet’s net sales increased 26.7% year-on-year to reach US$167.5 million during the first quarter of 2023 compared to US$132.2 million for the same period in 2022. Refrigerated pet food company however reported a net loss of US$24.8 million versus the prior year net loss of US$17.5 million during the same quarter. Freshpet reported an increased net loss as a result of higher selling, general and administrative expenses (SG&A expenses) including media expenditures totaling US$4.4 million; higher depreciation charges; and increased production plant costs; sales partially mitigated this loss; adjusted earnings before interest, taxes and amortization (EBITDA) stood at US$3.0 million for Freshpet Inc’s first quarter ended March 31. 2023.
Freshpet is an American manufacturer of fresh, refrigerated dog treats and food for both cats and dogs, boasting 100% farm-raised meat according to Petfood Industry’s Top Company Current Data.
“Organic sales growth of 27% was balanced between volume (13%) and price (14%), with year-ago trade inventory refill reducing shipment growth by about 200 basis points,” according to analysts from equity research firm William Blair in their report. Household penetration grew 7% on a 52-week basis despite decelerating sequentially due to some exits (among less engaged buyers) offsetting new users (mainly high-profit pet owning households or “Hippohs”) entering but less engaged buyers exiting, with 28% buy rate growth reflecting strong acceleration of committed users not only staying with but purchasing more often (ie buy rate up significantly more than price contribution)
“Freshpet has reached household penetration of 9 million households worldwide; Hippohs now account for 3.3 million pets – an 18% increase over last year.” Volume growth has significantly accelerated this quarter – from 12% at the beginning to 16% by quarter’s end – as investments in merchandising and marketing become effective, new fridges are placed and products introduced, and consumers adjust to higher prices. Management recognized some sensitivity among occasional users, which will need to be monitored closely. Conversely, their strategy of targeting Hippohs appears to be working well and should attract many households thanks to pet humanization trends and strong value proposition of their offering over time.
Further details regarding Freshpet’s financial performance from a press release:
Freshpet’s first-quarter gross profit stood at US$50.8 million or 30.3% of net sales, down from $44.8 million and 33.9% in the prior year period. This decline can be attributed to higher depreciation expense from expanding capacity expansion projects, increased share-based compensation payments and unabsorbed plant cost related to Ennis Kitchen; partially offsetting these costs with reduced input and quality costs as a percentage of sales.
Adjusted gross profit reached US$64.4 million during the first quarter of 2023, or 38.5% as a percentage of net sales, as opposed to US$500.6 million or 38.3% during the prior year period.