Prepared remarks
Good day, and welcome to BellRing Brands First Quarter Fiscal Year 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Instructions will be given at that time. As a reminder this call is being recorded. I would now like to turn the call over to Jennifer Meyer, Investor Relations for BellRing Brands. Please go ahead.
Good morning, and thank you for joining us today for BellRing Brands First Quarter Fiscal 2025 Earnings Call. With me today are Darcy Davenport, our President and CEO; and Paul Rode, our CFO. Darcy and Paul will begin with prepared remarks and afterwards, we'll have a brief question-and-answer session. The press release and supplemental slide presentation that support these remarks are posted on our website in both the Investor Relations and the SEC filings sections at bellring.com. In addition, the release and slides are available on the SEC's website. Before we continue, I would like to remind you that this call will contain forward-looking statements, which are subject to risks and uncertainties that should be carefully considered by investors as actual results could differ materially from these statements. These forward-looking statements are current as of the date of this call, and management undertakes no obligation to update these statements. As a reminder, this call is being recorded and an audio replay will be available on our website. And finally, this call will discuss certain non-GAAP measures. For a reconciliation of these non-GAAP measures to the nearest GAAP measure, see our press release issued yesterday and posted on our website. With that, I will turn the call over to Darcy.
Thanks, Jennifer, and thank you all for joining us this morning. Last evening, we reported our first quarter results and posted a supplemental presentation to our website. I'm pleased to share that fiscal '25 is off to a good start. The business accelerated as we layered in demand drivers and kicked off new campaigns on both brands. Our first quarter results were slightly ahead of our expectations on the top line with more favorability on the bottom line. Both net sales and adjusted EBITDA grew approximately 25%, driven by Premier Protein. Our EBITDA margins benefited from favorable gross margins and the timing of marketing spend. As you saw in yesterday's press release, we raised our outlook for the year. We now expect net sales to grow between 13% and 17% over fiscal '24 and adjusted EBITDA to grow between 7% and 14%. Our strong first quarter performance, along with confidence in demand drove our decision to raise our guidance.
Before reviewing the category and brand updates, I want to share that our supplemental presentation and corresponding metrics now reflect expanded coverage of the Convenient Nutrition category as well as our business. In the new database, the total Convenient Nutrition category is now reported as $19 billion, up from $13 billion, a sizable increase in tract coverage. The new database provides a more accurate picture of the category across channels and a better reflection of our strong market position. Now to category and brand updates. The Convenient Nutrition category grew 12% in Q1. As I mentioned last quarter, it is rapidly transforming into an everyday and sports nutrition category, with those segments driving the most of the growth and making up 75% of sales. From a form perspective, ready-to-drink growth accelerated, and continued to lead the category up 18%, driven by strong consumer demand.
RTDs were the second fastest-growing category in the entire store, only behind eggs, which had unique supply-demand dynamics. Mainstream everyday and sports nutrition RTD brands continue to bring new consumers into the category and were up 31%. Ready to mix grew 8%, sustaining Q4's growth rate. Overall, we see the total Convenient Nutrition category momentum increase in Q1, and I look forward to an even stronger growth during the Q2 New Year, New Year season. Turning to our brands. Premier Shake consumption growth accelerated this quarter up 23%. Growth was strong in all channels, driven by distribution expansion, accelerating velocities and incremental promotional activity. Expansion in form, including bottles and pack size, along with improved in-stocks, drove the distribution gains. Our seasonal flavor, winter mint chocolate has demonstrated high incrementality to the brand and was the number two RTD item at a major mass retailer this season.
Consumption growth continued with January up 17%. Our brand metrics remained strong with Premier Protein reaching all-time highs in TDPs and household penetration. The brand continues to gain new consumers, reaching 20% of households this quarter. In the calendar year '24, Premier Protein grew household penetration 17%, a significant contributor to the overall RTD category growth. The brand's repeat and buy rate grew for the calendar year, demonstrating our category-leading consumer loyalty. Premier Protein, with an RTD market share of 26%, maintained its position as the number one brand in the RTD segment as well as the number one brand in the broader Convenient Nutrition category. All of this is especially encouraging because in a high-growth category with low household penetration, we see plenty of room to continue to grow our brand and expand the overall category. Premier Protein powder continued its strong trajectory with consumption up 24% in Q1, behind strong velocities and distribution gains.
We remain encouraged by the growth potential of the Premier Protein brand in this format. Its household penetration reached 2% this quarter and during the calendar year '24, Premier Powder's household penetration grew 22%, the second highest of any competitor in the powder category. We continue to believe Premier will be a contributor to mainstreaming the powder category in the same way that Premier did in ready-to-drink. We're thrilled to share that our Premier Protein national marketing campaign hit screens late in December, just ahead of the New Year and New Year Season. It is a high-energy spot that captures how Premier Protein brings joy to the health journey. Featuring the tagline Sweeten the Journey, it shows that healthy eating doesn't have to be hard, but can actually be enjoyable and fun. It is our first nationwide campaign since 2021 and will reach TV, streaming and social media audiences.
Although early, the campaign is generating significant increases in search and traffic to our website is up 80% versus a year ago. From an innovation standpoint, we launched a new line of Premier Protein products, our indulgent line, which are available in four decadent shake flavors and one powder flavor. These items are richer and creamier, targeting an incremental consumption occasion while still delivering on the nutrition that our consumers expect from the Premier brand. The items are building distribution and although early, are off to a promising start. More innovation is planned throughout fiscal '25. In addition to exciting advertising and new products, we are updating our logo and redesigning our packaging for the first time in close to a decade. The refreshed design builds on our strong-performing current design and brings a modern look that improves discoverability on the shelf.
We expect the updated design will start to hit the shelves in the second half. Turning to the Dymatize, the international business drove the global brand this quarter, more than offsetting domestic headwinds. Despite recent US trends, the brand remains strong, holding the number two share position within sports nutrition powders, which represents about half of the overall powder category. While household penetration and overall distribution levels remain stable, we are starting to see some encouraging signs from both our marketing campaign as well as our new products. Our marketing campaign with San Francisco running back Christian McCaffrey exceeded our benchmarks and drove strong lift to our brand metrics. As a result, we have expanded our core team of Dymatize athletes and influencers by partnering with tennis professional and Olympic medalist Tommy Paul, who is ranked number nine in the world.
On the innovation front, we launched two new platforms this quarter. We know that Dymatize consumers purchase both pre-workouts and RTD products. So in December, we launched RTD Shakes with Fruity and Coco Pebbles flavors as well as pre-workout powder called Energize available in three flavors. Early results for both products are positive, and we continue to be bullish on the sports nutrition category opportunity. In closing, our Q1 results position us well for another above-algorithm year. Our organization has officially pivoted to demand driving. Strong macro tailwinds around protein are driving robust long-term growth in our category with ready-to-drink and powder segments in the early stages of growth. Premier Protein is already the number one Convenient Nutrition brand and we are just starting to drive demand. Our innovation pipeline on both brands is rich, enabling us to bring excitement to consumers and our retail partners for years to come.
Last, we have a scalable, regionally diverse supply chain able to support our long-term growth projections. Our confidence in the long-term outlook for BellRing remains high. We look forward to sharing our progress next quarter.
Thanks, Darcy, and good morning, everyone. As Darcy highlighted, we had a good start to fiscal 2025. Net sales for the quarter were $533 million and adjusted EBITDA was $125 million. Net sales grew 24% over prior year and adjusted EBITDA increased 25%. Adjusted EBITDA margins were 23.5%, meaningfully exceeding our expectations. Starting with brand performance, Premier Protein net sales grew 26% behind strong volume growth for RTD shakes and powders. Distribution gains, incremental promotions and organic growth drove the sales increase as well as a benefit from our price increase on shakes taken in Q4. Shipment dollar growth slightly outpaced consumption dollar growth. Dymatize net sales increased 13% this quarter on 12% higher volume. Similar to recent quarters, strength in the international business continued with double-digit sales growth. This was partly offset by domestic headwinds. Gross profit of $200 million grew 35% with an increase in gross profit margin of 310 basis points to 37.5%.
Our pricing actions offset modest input cost inflation in the quarter. We expect the rate of inflation to increase throughout the year. Compared to our expectations, first quarter gross margins benefited from $5 million of nonrecurring cost favorability and $1.5 million of unrealized mark-to-market gains on our commodity hedges, which combined drove margins higher by approximately 120 basis points. SG&A expenses were $80 million, an increase of 270 basis points as a percentage of net sales with higher spend for advertising and promotion and warehousing the main drivers. Advertising promotion spend was 2.8% of net sales, up from 1.4% in last year's first quarter as we kicked off new campaigns for both Premier Protein and Dymatize. However, we shifted roughly $4 million of marketing spend from the first quarter to later in the year. This along with favorable gross margins contributed to adjusted EBITDA margins coming in above our expectations.
Operating profit of $115 million increased $42 million compared to prior year and was positively impacted by lapping $17 million of accelerated amortization last year. Before reviewing our outlook, I'd like to make a few comments on cash flow and liquidity. We generated $3 million in cash flow from operations in the first quarter. As anticipated, our working capital increased as we added shake supply to our inventory. Moving forward, we believe our inventory levels are largely normalized and accordingly, our adjusted EBITDA to cash flow conversion will improve for the remainder of the year. We continue to expect our cash flow in fiscal '25 to be in line with fiscal '24 and weighted to the back half of the year. As of December 31, net debt was $790 million and net leverage was 1.7 times. With our EBITDA growth and strong cash flow generation, we anticipate net leverage will remain below 2 times throughout fiscal '25.
With respect to our share repurchases this quarter, we bought 143,000 shares at an average price of $77.12 per share or $11 million in total. In January, we repurchased about 550,000 shares at an average price of $72.79 per share or $40 million. As of January 31, our remaining share repurchase authorization is $124 million. Turning to our outlook, we raised our fiscal '25 guidance for net sales to be $2.26 billion to $2.34 billion and adjusted EBITDA of $470 million to $500 million. Our guidance implies strong top line growth of 13% to 17% and adjusted EBITDA growth of 7% to 14% with healthy adjusted EBITDA margins of 21.1% at the midpoint. As Darcy mentioned, our better than expected first quarter performance drove our decision to raise our outlook. Before reviewing our second quarter outlook, I want to give some perspective on our cadence throughout the year. Overall, our quarterly sales phasing hasn't changed significantly from our November guide.
Recall, we expect sales growth to be weighted to the first half of the year as the second half laps trade inventory loads in '24, which we estimate to be a mid single-digit headwind to our second half growth. Regarding adjusted EBITDA, we have made some modest changes to our quarterly phasing. Recall, I mentioned we shifted marketing spend from the first quarter to the second half. Additionally, protein costs in the first half are trending slightly more favorable than expected and more unfavorable in the second half. The combination of these items in a stronger than expected first quarter has shifted EBITDA growth toward the first half. In addition, our guidance continues to include second half costs related to packaging redesign. As a result, we expect second half EBITDA margins to be modestly lower than the first half with the full year above our long-term algorithm at 21%. Moving to our second quarter forecast.
We expect mid-to-high teens net sales growth with Premier Protein the main driver. Dymatize and all others expect to be flat to down year-over-year. We expect consumption dollar growth to meaningfully exceed shipment dollar growth for Premier Shakes, which is typical in the second quarter. We expect second quarter adjusted EBITDA margins to decline modestly compared to a year ago with significantly higher marketing spend more than offsetting higher gross margins. In closing, we are pleased with our strong start to fiscal '25. Our Q1 results give us greater confidence in our full year outlook and long-term growth prospects.
Questions and answers
Thank you. Our first question comes from David Palmer with Evercore ISI. Your line is open.
Thanks. Good morning. I wanted to ask you about your growth this year and how it differs from last year, as well as the opportunities ahead. Going through this transcript reveals a lot of activity, including the indulgent types and new packaging options like PET versus aseptic boxes. We've observed strong growth in e-commerce. I'm curious how you would describe the growth drivers this year and what is coming in stronger or mostly importantly, how this might evolve even beyond 2025.
This year is significantly different from last year. We have sufficient capacity to truly propel the business forward. I noted in my prepared remarks that the entire organization is now focused on driving demand. A key indicator of this is that we have initiated national advertising for our shake business for the first time since 2021, which is a substantial change. This advertising is crucial because it has the potential to boost all channels. Additionally, we have expanded our distribution and innovation efforts. Last year, we faced out-of-stock issues, particularly in food accounts, but this year we are actively improving distribution and innovation. Another important aspect is our promotions in the food sector. Last year, we took a gradual approach to promotions, starting in the club channel and then growing from there. This year, we have promotions in place across the board, with a focus on displays in the food channel. It's worth noting that our approach to promotions is not centered around deep discounting. Our goal is simply to ensure that displays are effective in moving our business. Starting in January, February, and March, which are peak months for new consumers entering the category, we aim to see our prominent displays similar to those of previous years. Those are the three major areas that distinguish this year from last year. I hope this addresses your question.
Thanks. I have a follow-up question regarding Dymatize International, which showed significant strength this quarter with an estimated increase of around 40%. How do you foresee the Dymatize brand developing this year? Was the international performance this quarter an anomaly? Any insights on Dymatize for 2025? Thank you.
Yes, we anticipate the Dymatize International business to remain strong throughout the year and drive overall performance. In the US, the international segment accounts for about 40% of the global brand. However, the US business is facing challenges. A few years ago, there was a significant increase in pricing due to rising whey protein costs, and we are still seeing those commodity prices climb. This has put pressure on our profit and loss statement, especially in the US where consumers are feeling the impact more acutely. As we evaluate the global brand, we expect international to maintain its strength throughout the year, projecting single-digit growth for the overall brand.
Thank you. Our next question comes from Andrew Lazar with Barclays. Your line is open.
Great. Thanks so much. Good morning. Darcy, last quarter, you talked about the learnings from several of the tests that you did of your advertising campaign behind Premier. And that is now in full swing on a national basis. I know this is the first one in many years. So I'm trying to get a sense of what sort of response knowing it's still early that you're seeing to the campaign based on whatever metrics that you use to sort of assess the lift or the payback?
It just launched at the end of December, so it's very new. Although it's too soon to see significant market lifts, we are monitoring website traffic and online searches, which look very strong. We’re gaining consumers' attention, and they are actively searching for Premier Protein, which is exactly what we wanted to see. This campaign was well-researched; as I mentioned last quarter, we conducted three test markets and a lot of creative testing to ensure we got it right since it was our first national media launch in several years. All the test markets met or exceeded our lift expectations. We identified a few areas in the creative that we could enhance, and we successfully made those adjustments. Overall, we are quite pleased with the early performance.
Thank you for that. And then I think last quarter, you mentioned sort of starting to have more top-to-top discussions with key customers. Now that you have sort of ample capacity and some more innovations to talk about that sort of warrant, right, talking about more incremental shelf space in the store. Would you expect this to lead to sort of material gains along these lines of this fiscal year? Or are those things and those sorts of decisions by retailers really a sort of a longer burn sort of process? Thanks so much.
I would say yes to both. First of all, one of our main growth drivers is about securing our fair share of shelf space. With about a 25% market share and being the leader in the category, we should definitely have a quarter of the shelf, if not more, since we are bringing most new consumers into the category. This is already happening, and you will see strong increases in TDPs reflected in our supplemental presentation. Additionally, the discussions with key customers focus on the future of the convenient nutrition category, which is relatively new at about 30 years old and is rapidly evolving. The product offerings on the shelves vary significantly between food accounts, mass accounts, and club accounts. There is a significant opportunity to leverage consumer insights to help them understand the various products, their uses, and target audiences, as it is currently quite confusing. These discussions not only aim to expand the convenient nutrition category but also to grow sports nutrition and the everyday segment of the category, which now constitutes three-quarters of it. Such discussions and changes take time, but in the meantime, we are also working on securing our fair share of shelf space.
Great. And just lastly, what would you put your share of shelf at versus your market share right now?
I don't have the exact number, but it's about half of what it should be.
Thank you. Our next question comes from Ken Goldman with J.P. Morgan. Your line is open.
Hi, good morning, and thank you for the help in sort of framing the rest of the year in terms of cadence. I was wondering if I could ask a follow-up to that, which is how would you like us to think about Premier mainly ready-to-drink consumption in track channels? Any sort of ups or downs or unusual trends we should think about just as we look ahead at the biweekly releases going forward.
And Ken, you're mostly talking about Q2?
Yes and no, yes, but I'll say yes and yes, just like you did a little bit of both, whatever you can offer would be great.
In January, we experienced a 17% increase. We anticipate that overall Q2 will be in the mid-20s range, indicating acceleration as we move into February and March. This is primarily influenced by MULO+, which gives us a comprehensive view of track channels, including both Amazon and Costco. We expect to see strong consumption throughout the year as we continue this upward trend into Q2.
Thank you. Regarding the ready-to-mix category in the US, I had hoped there might be a rollback situation in January with a major customer involving several manufacturers. Can you confirm if we were anticipating that? Did it occur as expected? Additionally, what are your expectations for overall category pricing considering the challenges in the premium segment and rising input costs moving forward?
Okay, Ken, can you clarify if we were expecting a rollback?
I'll simplify that, Darcy.
Yes. That'll be great.
I thought there might be some incremental promotions at a specific customer in January for ready-to-mix, but I could have misunderstood last quarter. Overall, I’m trying to understand your outlook on pricing in that category, particularly for the premium segment, considering the challenges and the increase in weight costs.
Yes, it makes perfect sense. We're monitoring the situation closely because, as you mentioned, Whey pricing is rising and is expected to keep increasing. Currently, promotions across the category are relatively stable. So far, we haven't observed a reduction in promotions to counterbalance the increase in Whey Protein. We still believe that there will be changes later in the year, as this is when we typically begin to see the significant increases in Whey Protein. However, we have not witnessed any major changes in promotions, either positively or negatively.
Got it. Thank you.
Thank you. Our next question comes from Thomas Palmer with Citi. Your line is open.
Hey, thanks for the questions. First, I just wanted to make sure I understood the timing of cost inflation and kind of what's driving it. You talked about mid-single digit. Is that still the expectation? And then what's driving that uptick as we move into the back half? Is it really just looking at way or kind of other items to call out? Thanks.
Yes. Our overall expectation remains unchanged at mid-single digits. In my prepared remarks, I noted that some of the adjustments in Protein for the full year are neutral, but the first half looks a bit more favorable compared to the second half, which shows a slight decline, but net, it isn't significantly different. In terms of the drivers, there are minor impacts from both Whey Protein and Milk Protein, resulting in a small uptick overall. This is primarily market-driven, as the supply-demand dynamics for Whey Protein continue to be tight, keeping costs high. For Milk Proteins, which are essential for our shakes, there has been a steady increase. The market for non-fed dry milk has experienced some fluctuations. We are not fully hedged for the latter part of the year, so we are being cautious in monitoring that market. However, these changes are relatively minor and do not alter our expectation of mid-single digits for the full year.
Right. Thanks for that. And then on Dymatize, you noted earlier in the call how pricing had run up quite a bit a couple of years ago, and I think last year was given some cost tailwinds rather promotional for the group as a whole. Maybe update on the promotional intensity you're seeing now that costs are really starting to escalate? And are you seeing any outright price increases or at least a pullback in that promotional activity by the Group? Thanks.
We haven't observed any pricing changes yet. There are some rumors, but we have not seen anything on the shelves indicating a price increase. Additionally, the promotional levels have remained stable. We anticipate that there will be changes later in the year as the higher protein costs begin to impact the profit and loss statements, but so far, there have been no noticeable changes.
Understood. Thank you.
Thank you. Our next question comes from Kaumil Gajrawala with Jefferies. Your line is open.
Hi. Hey, everyone. Good morning and congratulations, you're liberated from all the capacity constraints over recent years. There's a lot going on in what you've laid out. I guess the big sort of question is what's the right pace of doing all these things between the marketing and the repackaging and the innovation? There is sometimes a risk of going too fast, especially because this is really your first year of having the ability to be a lot more demand-focused. So how do you know you're sort of going at the right speed and not too fast?
I appreciate that question. Looking at the past year, from the end of 2023 through 2024 and now into 2025, we have been consistently accelerating our efforts. We initially introduced promotions in some channels and made some light innovations around flavors to create excitement for consumers and retailers. This year, we are launching both innovations and advertising. However, we have not yet reached our goal of allocating 4% to 5% of our spending on marketing. We are gradually increasing our efforts because we want to avoid a supply constraint situation. Our aim is to find the right level of support to consistently drive our business year over year. It’s a delicate balance, but I believe we are managing it well. Regarding packaging, we have been working on new designs for a while, and I'm excited about the updated graphics. It’s an evolution rather than a complete overhaul, but it’s definitely a positive change. This will enhance our testing and improve product discoverability with a more modern appearance. We have made minor changes to our packaging because it has been effective, but we haven't undertaken a logo or package redesign in about a decade. This change is quite exciting and should be rolled out in the second half of the year.
That's good context. Thank you.
Thanks.
Thank you. Our next question comes from Jim Salera with Stephens. Your line is open.
Hey, Darcy and Paul. Thanks for taking our questions. Darcy, I wanted to go back to something you mentioned earlier, which is that, your Premier is really driving most of new entrants into the category. If you look at the scan data, it really seems like Premier and maybe one other brand are the ones that continue to gain share. Can you just give us some insights into why some of the other legacy brands aren't seeing the same level of engagement from these new consumers given that the category as a whole is kind of seeing a lot of new people engaging with it?
Yes, the growth is coming from mainstream segments, specifically everyday nutrition and sports nutrition. This represents a modern trend. When we break it down into categories like adult nutrition, sports nutrition, everyday nutrition, and weight management, we notice a shift. Adult and weight categories, which once dominated, are now either declining or stagnating, while sports nutrition and everyday nutrition are experiencing significant growth. This change is likely because these latter categories promote positive health messages, unlike the adult and weight categories that focus more on deprivation. This shift reflects a changing consumer perspective towards a more positive approach to wellness, rather than just a focus on body modification.
Great. And then if I think about Premier in particular, is there a way to split up the volume gains between frequency among existing households? So whether it's, I used to have it once a week and now I have it three times a week versus just new households coming from the brand that haven't tried the product before?
I don't have that information right now, and I want to avoid giving you incorrect numbers. What I can say is that our supplemental presentation shows that we are not only increasing the number of households, but we are also seeing growth in buy rates and repeat rates. It’s uncommon for a business to grow its household count and distribution while also boosting buy rates and repeat rates. I don’t have the specific breakdown, but I can say both factors are contributing to our growth.
Thank you. Our next question comes from John Baumgartner from Mizuho Securities. Your line is open.
Good morning. Thanks for the question.
Good morning.
Darcy, on the Shake side, it sounds as though you're gaining confidence that the depth of deal on promo for the consumer doesn't need to be as deep as it's historically been. And I'm curious to the extent to which that then enables you to recalibrate your budget and transfer more funding into slotting or other areas that open new opportunities for where in the store you can be displayed or increase the frequency of quality promo. Is there maybe a longer term benefit to be had here?
Yes, our primary focus is on display. We believe we don't need to dive as deeply into promotions as we did in the past. However, it's important to note that our strategies are often influenced by negotiations with our retail partners, who have specific guidelines about the depth of promotions required to secure display space. If we had the choice, we would minimize, if not eliminate, temporary price reductions and focus solely on display, as that effectively attracts attention, drives trial, and helps build our customer base, resulting in strong repeat purchases. Yet, we have to consider the various stakeholders involved, each with their own requirements.
Thank you for that. Regarding the ready-to-mix category, I'm curious if the success of Shake is leading the powder segment to maintain prices and possibly accept some margin pressure to emphasize relative value. Is there a possibility of a fundamental shift in how powder is priced, particularly if there's optimism for lower costs later this year?
Paul, do you want to talk a little bit about where we think pricing is going to go?
From a protein cost perspective on Whey?
Yes.
We are observing that costs have remained high, and we anticipate this trend to persist throughout our fiscal year. We have not yet seen any relief in the Whey powder market, which continues to exhibit a tight supply-demand balance. This situation is likely to last into our fiscal year and may extend beyond it, though that will be clearer as we progress. Our overall impression is that the conditions are enduring longer than we initially anticipated.
There is definitely a different dynamic because Milk Protein Concentrate is the protein we use in our shakes, while Whey Protein is used in the powder business. Both are increasing in cost, but Milk Protein Concentrate is more stable, whereas Whey Protein is more volatile and has increased significantly over time. Therefore, there is a different profit and loss reality on both sides of the business.
Okay. Thanks, Darcy. Thanks, Paul.
Thank you. Our next question comes from Brian Holland with D.A. Davidson. Your line is open.
Thanks. Good morning. Darcy, could you clarify how much of the distribution gains are due to easing capacity constraints versus new product launches? It appears you have a significant potential for growth, as you've mentioned in the past year, regarding expanding your products into new formats and channels. As we consider the long-term potential for this brand and category, how much of the distribution growth this quarter is fundamental work due to eased capacity, and how much is about exploring the long-term growth opportunities?
From an out of stocks perspective, let's start with the core issues we are addressing. Most of the out of stocks should be resolved by the end of Q2, which has carried over into Q3. By Q4 of last year, our shelves were mostly full. If we consider our growth, I estimate that a single-digit percentage, possibly about a quarter of our growth in the first half, can be attributed to this. Looking at the long-term distribution opportunity, I categorize it into two aspects. I mentioned to Andrew that if our shelf share were to match our market share, we should essentially double our space. This varies significantly from account to account, but on a broader scale, we should approximately double our shelf space based on our current market share. This addresses just the share of shelf. Additionally, in a high growth category—one of the fastest growing in-store—the overall category space should expand. This is where things become even more interesting; once we've secured our fair share of the shelf, we can then focus on the overall growth of category space. The discussions at the top level will favor the brands that are attracting new consumers, and we are among the few brands doing that.
Thanks. That's very helpful. And then maybe just on that last point. Capacity constraints are easing, presumably not just for you, but for the category. We've seen little green shoots some tinier brands, certain private label SKUs, having some nice growth here off of obviously low bases. Just curious how you're seeing the competitive landscape evolve around you as maybe more capacity becomes available. And certainly, to your earlier point about the category being the second strongest behind eggs right now from a growth standpoint, clearly, that brings eyeballs from a competitor standpoint. So just curious what you're hearing and seeing with respect to competitive activity, innovation, et cetera, around the moat that you've built here with Premier Protein and ready-to-drink.
Yes. From a competitive perspective, there haven't been many significant changes in recent quarters. The leading sports nutrition brands are attracting new consumers to the category and expanding their distribution both on and off the shelves, which is crucial since household penetration is still low, meaning visibility is important. While some smaller brands continue to launch new plant-based products, very few have made a noticeable impact or secured significant shelf space in the ready-to-drink segment; this contrasts with the ready-to-mix area, where new entrants appear regularly. The distinction between ready-to-drink and ready-to-mix is significant. The ready-to-drink sector poses greater challenges for new entrants due to the complexities and manufacturing requirements, which are capital intensive and time-consuming to set up, creating barriers that favor established brands like Premier Protein.
Thank you. Our next question comes from Matt Smith with Stifel. Your line is open.
Hi, good morning. Darcy and Paul, you called out the shift in marketing spend from 1Q to the second half. Can you talk about what drove that change in timing? I know there's a focus on returning marketing and advertising back towards historical levels, but I'm curious how locked-in marketing spend is in the second half.
I can begin, Paul, and then you can add anything I miss. The decision was related to our marketing plan, which was originally scheduled to start in the middle of December. We delayed it by a few weeks because we needed more time to make adjustments to the creative materials. Consequently, we commenced marketing in the last week of December, just before New Year. That's the reason for the delay. Paul, would you like to add anything?
Yes. So obviously, we talked about the shift out of Q1 and really we shifted some from Q1 to Q2, which then shifted some to the second half. So the net impact is about a $4 million shift to the second half. But the level of spend for us is still the same as it was when we gave guidance last in November. So nothing has dramatically changed on our marketing spend. We still feel like we have the right level in our guide and our plan. So no big changes there other than just the timing.
Thanks, Paul. And Darcy, as a follow-up, the innovation launch indulgence. How does the expansion play out from here? I think it was launched in some limited customers. Do you expect that to start to expand in this fiscal year? And is that shelf space incremental to Premier's current shelf space where you've already launched it?
Yes and yes. So yes, we started. We launched it in Q1 with one mass customer and then we started in e-Com and then we are planning to expand from there. So you'll start seeing it pop up in different accounts throughout the year. And yes, it's incremental. Yes. Thank you.
Thank you. Our next question comes from Robert Moskow with TD Cowen. Your line is open.
Sorry about that. Darcy, I was hoping for an update on a couple of things. One is, have you given any extra thought to expanding into the convenience store channel, your convenience nutrition drink? I think you should be in the convenience channel. And then secondly, on GLPs, any new data on how the growth of GLPs is helping your business?
The convenience channel remains a future opportunity, accounting for about 10% of the overall category, which is relatively small. While I agree we should be present in that space and plan to expand there, there are currently larger opportunities to pursue. We've discussed direct store delivery (DSD) quite a bit in the past, and we're currently evaluating our approach. Right now, we're implementing a hybrid strategy where we ship via warehouse and merchandise similarly to DSD within our channels, testing how effective that method can be without fully committing to DSD. Convenience is certainly a future opportunity, but it's not something we are focusing on immediately. As for GLP-1s, we are closely monitoring this area. Based on our research, the penetration of GLP-1s is growing more rapidly and significantly than initially anticipated. This development positively impacts our products, particularly both ready-to-mix and ready-to-drink, with around a quarter of our growth attributed to this trend.
However, we have noticed in the last quarter that there are more individuals dropping out than before, leading to a stable household penetration level, indicating that the rate of new users entering the market is balancing with those exiting as they reach their target weight. We will keep a close eye on this in the upcoming quarters, but we still see it as a strong benefit for the category.
That's interesting. So when you say that it represents 25% of your growth, if penetration rates do stabilize here, what would happen to that 25% number? Does that mean that it goes to zero or how do I connect those two?
I believe the growth will continue because many people start using GLPs, and not everyone is using RTDs. It's one quarter that has stabilized, and this is still a relatively new area to monitor. What's promising is that individuals use RTDs while on the medications and also afterwards to maintain the benefits. Ultimately, we still have a low household penetration rate, with our product at 20%. This is just one of several growth drivers we see for our business and the category overall.
Got it. Thank you.
Yes.
Thank you. This concludes our question-and-answer session. Thank you for your participation. You may now disconnect. Everyone, have a great day.