Fiscal 2014 to be year of 'accelerated innovation' at Annie's
by Eric Schroeder
BERKELEY, CALIF. — Strong retail execution, including positive trends in the company’s macaroni and cheese business, contributed to improved adjusted income and sales in the first quarter of fiscal 2014 at Annie’s, Inc., even as earnings eased. Net income in the first quarter ended June 30 was $2,029,000, equal to 12c per share on the common stock, down 5% from $2,131,000, or 13c per share, in the same period a year ago.
Adjusted income in the first quarter totaled $2,219,000, up from $2,144,000.
Net sales, meanwhile, rose 14% to $39,040,000 from $34,293,000. Annie’s said its snacks business grew 17.5% during the quarter, while dressings, condiments and “other” posted 8% growth.
With one quarter of fiscal 2014 in the books, John Foraker, chief executive officer of Annie’s, said during an Aug. 8 conference call with analysts that the year promises to be one of ‘accelerated innovation.’ He said the company for the first time will have two new product platforms to support growth.
First, the company in late June began shipping new microwavable macaroni and cheese cups.
“While it’s still too early to gauge consumption, retailer acceptance has been quite strong, and initial orders are well ahead of our expectations,” he said. “We have already secured over 15,000 points of distribution for micro cups, and sales thus far have been highly incremental to our base mac and cheese business. The products began showing up in key retailers in July, and early consumer feedback has been positive. We expect our offerings to bring many new consumers into this part of the mac and cheese category, offering a great growth opportunity for Annie’s and our retail partners.”
The second platform, announced Aug. 8, marks Annie’s entry into the family-size frozen entree segment. The company later this month will begin shipping four varieties: lasagna with meat sauce, classic mac and cheese, shells and white cheddar with chicken, and butternut squash mac and cheese.
“Our selling proposition in this category is compelling,” Mr. Foraker said. “Family size frozen entrees is a nearly $3.5 billion category that’s dominated by large conventional brands and lacks an established authentic natural organic offering. Our products position us with a unique premium product that delivers great consumer value. And most importantly, they taste great. We believe the all-family appeal of the Annie’s brand, combined with our strong equity in mac and cheese, positions us to capitalize well on this significant white spaced opportunity.
“Our new entrees are expected to ship into more than 1,700 Target stores later this month, a little bit earlier than we expected, and we are actively presenting these items to retailers in all of our key channels as well.”
He said the new entrees will be priced at a premium to the conventional items on the market, with a suggested retail price in the $8.99 to $9.99 range.
“There will be a number of retailers that will be at lower numbers than that,” he said. “But, we do believe that we can attract a premium. Consumer research has showed us that, if you look across our innovation in really all of our categories over time, we have proven that we can do that. And that is our thesis and we hope to prove that out.”
Elsewhere, Mr. Foraker said Annie’s has managed to work its frozen pizza products back onto shelves. Earlier this year the company voluntarily recalled seven kinds of frozen pizza sold nationwide over the possible risk that metal fragments made their way into the dough. He said recent consumer research has shown repeat consumption of Annie’s pizza is strong and validates the brand’s unique competitive position in the category.
“We clearly had the pause button set on it, and had to rebuild ourselves,” he said. “But, we have a good plan for the rest of the year, and we are optimistic about how the pizza business is going to contribute, not only this year, but just as part of our platform going forward.”
In snacks, cheddar squares and graham crackers are proving to be successful items, as both have gained a solid distribution foothold in the natural channel and are among Annie’s highest velocity items in their respective categories, Mr. Foraker said. He said cheddar squares have accounted for more than 50% of the growth in the snack and sandwich cracker sub category, while grahams have contributed more than 60% of the growth in the graham cracker segment.
“Our traction in the natural channel and the mainstream appeal of these products gives us confidence in our ability to expand both squares and grahams into conventional channels,” he said. “We have begun to build distribution of these items in grocery mass retailers, and we expect to see continued progress in the coming months.”