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BellRing Brands, Inc. (NYSE:BRBR)
Q3 2020 Earnings Call
Aug 07, 2020, 10:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Welcome to the BellRing Brands third-quarter 2020 earnings conference call and webcast. Hosting the call today from BellRing Brands are Darcy Davenport, president and chief executive officer; and Paul Rode, chief financial officer. Today's call is being recorded and will be available for replay beginning at 1:30 p.m. Eastern Time.

The dial-in number is (800) 585-8367 and the passcode is 9248828. [Operator instructions] It is now my pleasure to turn the floor over to Jennifer Meyer, investor relations of BellRing Brands for introductions. You may begin.

Jennifer Meyer -- Investor Relations

Good morning, and thank you for joining us today for BellRing Brands third-quarter fiscal 2020 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 section 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.

Darcy Davenport -- President and Chief Executive Officer

Thanks, Jennifer, and thank you all for joining us this morning. Last evening, we reported our third-quarter results, as well as posted a supplemental presentation to our website. This presentation is designed to provide more insight into our business, consumption and key metrics. We reported third-quarter sales of $204 million and adjusted EBITDA of $38.5 million.

As we discussed last quarter, we ended Q2 with inflated trade inventories after our customers overbought following the mid-March consumer stock-up. This elevated Q2 sales at the expense of Q3 and factored into our second-half planning. In reaffirming guidance in May, we highlighted that the second half would be backloaded warded. More specifically, we expected roughly 56% of our second-half revenue to fall into the fourth quarter.

With July net sales coming in at close to $100 million, this plan is proving out. Outside of the timing shift, our actual results were shy of our internal expectations, mainly due to a slower-than-expected RTD category recovery as a result of less on-the-go occasions. Specifically, we forecasted a consistent improvement from the April low reaching pre-COVID levels by June. Instead, we saw more of a W-shaped recovery, with May dipping back down and not reaching pre-COVID levels until after the quarter ended in July.

Coupled with longer-than-expected international recovery, this shaves $50 million to $60 million from our second-half sales forecast, which is equally split between Q3 and Q4. Although we are seeing encouraging signs in the July RTD category consumption period, we lowered our Q4 growth assumptions given the choppy recovery we experienced in Q3. However, because of the overperformance in the first half, combined with nonstrategic SG&A reductions in the back half of the year, we still expect to deliver our full-year EBITDA in line with our original expectations. I'd like to now focus on brand highlights, progress against our growth strategies and end with our outlook.

Despite strong COVID category headwinds, Premier Protein shake consumption was strong this quarter, up 11% across both tracked and untracked channels. Untracked outpaced tracked channels, growing 33% in the quarter, while tracked declined 4.5%. eCommerce, Premier Protein's third largest channel, led the way, up an amazing 185%. We also saw terrific growth in food and drug, up 38% and 33%, respectively, driven by distribution and increased marketing and promotion.

July consumption has remained strong, up 12% in tracked and untracked channels. Untracked continues to drive our growth, up 39%, while tracked channels faced headwinds in July due to promotional timing shifts that will reverse later in the quarter. Now to our growth strategies. Strong marketing programs continue to be drivers for the brand.

Premier Protein increased two share points in the quarter to 18% of the RTD category. Our promotional strategy remains effective, driving approximately 40% of our consumption growth and TDPs continue to increase, up 6% in the quarter. Premier Protein household penetration substantially increased year-to-date to 6.6%, supported by media, including television advertising. Our new products continue to perform well and are gaining distribution.

Café Latte and our powder product velocities are ranked in the top 10% of the category. Protein with Oats continues to sell well, and we have gained expanded distribution, which we will see in the next two quarters. I'm excited about our pipeline of new products coming out over the next several months, including welcoming back my personal favorite, Pumpkin Spice, that ships this month. Now to our other brands.

Dymatize's domestic business had a good quarter, up 9%, led by club and eCommerce. Our launch of ISO100 Cocoa and Fruity PEBBLES had quickly shown success, ranking in the top 10 SKUs where it is sold. Unfortunately, both Dymatize and PowerBar's international businesses continue to be challenged as a result of COVID. Our supply chain remains stable.

During the quarter, we successfully brought online a fifth co-manufacturing location. This was challenging given the COVID environment, and I'm proud of our team's hard work on this achievement. This additional capacity gives us further flexibility to support our growth plans. Now to our outlook.

That pandemic has created strong category headwinds, and the slower-than-expected recovery has affected both of our domestic and international businesses. As a result, we have lowered our back-half sales; however, despite those challenges, we still expect to deliver double-digit net sales growth for the year. In Q4, we have significant growth drivers lined up, including promotions in most major retailers, expanded distribution, and we already have a strong July in the books. Given we exceeded our expectations for the first two quarters and are we confident in our ability to achieve our Q4 forecast, I'm happy to reaffirm our full-year EBITDA guidance.

I'm incredibly proud of our company, and I don't want to miss the opportunity to publicly thank all of our employees and our co-manufacturing partners for navigating this stressful time. I continue to have confidence in our brand fundamentals, and I'm energized by the business momentum, expanded distribution, innovation pipeline and our long runway for growth. I will now turn the call over to Paul.

Paul Rode -- Chief Financial Officer

Thanks, Darcy, and good morning, everyone. Net sales for the quarter were $204 million and adjusted EBITDA was $38.5 million. Third-quarter results, as anticipated, were pressured by the impact of COVID, as well as changes in customer inventory levels when compared to prior year. COVID impacted our quarterly net sales results on several fronts.

First, it took longer for retailers to reduce their on-hand RTD shake inventory from inflated levels at the beginning of the quarter. Second, as Darcy detailed, the RTD liquid category had significant headwinds. Third, our international business, which historically has accounted for 50% of our net sales declined significantly compared to last year. Though we anticipated many of these impacts, the category recovery was slower than expected.

From a shipment perspective, Premier Protein net sales declined 12%, with RTD shake net sales down 10%. The disconnect between shipments and our strong 11% consumption growth for RTD shakes was largely expected. Shipment delayed consumption as retailers worked through an overbuy in March. Additionally, recall we lapped last year's pull-forward shipments related to a fourth-quarter promotion.

These inventory related headwinds were partially offset by strong distribution gains across channels. Dymatize has strong growth in the club and eCommerce channels, which combined grew 50% in the quarter. We anticipated strong growth for these channels in the second half, and the brand continues to gain distribution in FDM and club while consistently delivering double-digit growth within eCommerce. This growth was outlaid by COVID-driven declines globally for the specialty business, resulting in an overall net sales decline of 16.6%.

PowerBar net sales declined 44%, reflecting the impacts from our portfolio optimization strategy in North America and lower international volumes driven by specialty store closures. We expect COVID to weigh on the brand's results in the fourth quarter, but the decline should moderate now that we have fully lapped the portfolio optimization strategy in North America. Turning back to consolidated results. Gross profit of $69 million declined 24% this quarter, with gross profit margin declining 450 basis points to 33.6%.

The margin decline related to anticipated higher input costs, primarily milk-based proteins, and a higher trade promotion rate. SG&A expenses as a percentage of net sales increased 240 basis points to 16%. This increase was driven by a strategic increase in marketing spend of $2 million and $2.1 million of incremental public company costs, offset partially by lower compensation expense. Adjusted EBITDA for the quarter was $38.5 million, a decrease of 37.1%, with an adjusted EBITDA margin of 18.9%.

Before reviewing our outlook, I would like to make a few comments on cash flow and liquidity. We had a strong third quarter for cash flow, generating $32 million from operations, and we repaid the $65 million we had borrowed under our revolver as a precautionary measure in light of the uncertainty COVID created. This left us with $22.5 million of cash on hand and $145 million available under our revolver at quarter end. As of June 30, net debt was $715 million and net leverage was 3.8 times.

Although this is an increase in leverage from last quarter, it is in line with our expectations given our quarterly adjusted EBITDA compared to prior year. We still expect the end of fiscal year with materially lower net leverage and to reach our net leverage target of 3 times in fiscal 2021. Turning to our outlook. We are pleased to reaffirm our fiscal year 2020 adjusted EBITDA outlook of $192 million to $202 million.

However, based on lower second-half expectations due to COVID, we have adjusted our net sales range to $960 million to $980 million. In spite of COVID headwinds, the fourth quarter is expected to deliver strong double-digit top line growth driven by Premier Protein RTD shakes, which will benefit from distribution gains and incremental promotional activity. We anticipate the remainder of our brands will be weighed down by the lingering impacts of COVID, especially the domestic and international specialty businesses. For Dymatize, these headwinds are expected to more than offset continued strong gains in e-commerce, club and FDM.

Overall, we are confident in our ability to deliver strong fourth-quarter results. Category dynamics have improved from the third quarter and the fourth quarter is off to a great start as evidenced by our strong July net sales. Premier Protein, which is 80% of our net sales, has continued to register double-digit consumption growth in the face of COVID, and we expect that growth trend to continue in Q4. With that, I'd like to turn the call back over to the operator for questions.

Questions & Answers:


Operator

Thank you. The floor is now open for questions. [Operator instructions] Our first question comes from the line of Andrew Lazar of Barclays.

Andrew Lazar -- Barclays Capital -- Analyst

Great. Thanks. Good morning, everybody.

Darcy Davenport -- President and Chief Executive Officer

Good morning.

Andrew Lazar -- Barclays Capital -- Analyst

First off, Darcy, as you mentioned, the trends in food and drug in tracked channels seems to be in good shape as is club or as are club and eCommerce in untracked. So it does seem like it's primarily mass in tracked channels that was some of the issue in some of the data that we all see in the scanner. If that's the case, is it primarily sort of promotional timing? Or is there something else going on there? I am trying to get a sense of when we would expect to start to see some of that tracked data, which is heavily weighted, I think, toward mass, start to look improved.

Darcy Davenport -- President and Chief Executive Officer

Sure. So one of the things that we experienced during Q3 was that COVID hit club and mass harder than the other channels. Consumers stayed away from the larger stores in favor of smaller local grocery stores and eCommerce. So there is one category aspect of that and we are already seeing that change and improve.

Specific to our brands, we are -- specifically, in July, we're seeing improvement across consumption. But specifically, in July, we are lapping promotional timing in both tracked club and mass, and that should turn around later in the quarter.

Andrew Lazar -- Barclays Capital -- Analyst

Got it. Great. That's helpful. And then when we think about trial and repeat, you've obviously talked about the impressive household penetration gains and sort of that 50% or so repeat rate.

Just as you think, therefore, if we think forward a little bit, is there any other research or data points that you've got as you tally up what consumers are telling you that makes you feel like that type of repeat rate or there's a stickiness, if you will, right, of some of this incremental household penetration can be not insignificant if we think forward going into your fiscal '21?

Darcy Davenport -- President and Chief Executive Officer

Yeah. I think the biggest predictor of the future is the past. And one of the things I mentioned in my prepared remarks is, we included a supplemental deck on our website that goes through some of our key metrics and goes back in time to give you a broader perspective, and one of the pages that follows household trends from 2016 to now. And you basically see almost doubling of household penetration, but our repeat rate stays consistent at around 50%.

And so I think that right there, I mean, when you increase household penetration, you usually see a decrease in repeat, but we haven't. So for us, our challenge and opportunity has always been to increase household penetration because 6.6 is great growth from 2016, but it's still relatively low in the broader scheme. And we're confident that we'll get the repeat and the loyalty because we've shown that the brand has some of the strongest in the category.

Andrew Lazar -- Barclays Capital -- Analyst

Thanks so much, Darcy.

Darcy Davenport -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Ken Goldman of J.P. Morgan.

Ken Goldman -- J.P. Morgan -- Analyst

Hi. Thank you. I wanted to dig in a little bit more toward guidance. Obviously, you made changes to your sales number, but now your EBITDA number, and you gave us some reasons why.

But was there any consideration to maybe given some of the downside surprise this quarter, potentially take the opportunity to take EBITDA down a little bit as well, just to give yourself a little bit of cushion? Or do you really feel like there's just that much visibility into your cost structure and the related sales that you feel it just wasn't necessary?

Darcy Davenport -- President and Chief Executive Officer

So we absolutely evaluated it. As you know, we overachieved the first half, and our EBITDA margins have been running toward the high end of our long-term algorithm. And both of those things gave us some EBITDA flexibility. And then in addition, when we entered into this pandemic, we ensured that we maintained some financial flexibility within our P&L, just in case that our forecast, our sales forecast, were slightly off.

So in many ways, we were ready for this because we wanted to deliver on our annual commitment of EBITDA. So I feel confident we have good visibility into Q4 already. And that's the main reason why we didn't adjust it.

Ken Goldman -- J.P. Morgan -- Analyst

And then I wanted to follow up with asking about your SKU assortment. You had talked, Darcy, about some of the products, the oat product doing very well. Was there any pressure from your customers to reduce SKUs by a more meaningful amount than you would have hoped for or expected during the crisis so far? Or given your limited number of products already, was that something you didn't quite feel as much of?

Darcy Davenport -- President and Chief Executive Officer

Yeah. There really was no pressure around SKU assortment.

Ken Goldman -- J.P. Morgan -- Analyst

Short and sweet. Thank you.

Darcy Davenport -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of David Palmer of Evercore ISI.

David Palmer -- Evercore ISI -- Analyst

Just looking at your advertising and consumer marketing, the spending for the first nine months, it looks like that was up almost 200 basis points to the percentage of sales, which I think that was similar to what you would have thought, but although I remember the promotion and advertising was supposed to be going up 300 basis points. So could you comment on your gross spending year-to-date? Is it in line with what you were going to spend? And do you still plan on spending that same sort of step-up in the fourth quarter? And then looking into '21, are you thinking similar amounts of gross spending? In other words, there need not be another step-up or maybe even -- you don't even need to have the same level in that year and I have a quick follow-up.

Darcy Davenport -- President and Chief Executive Officer

Great. I'll hit the strategy. And then if Paul has anything specific to add, he will. From a strategy standpoint, our plan from A&P standpoint was always to focus our biggest spend in Q2, which is around New Year new you, when most people are entering the category and then we are going to have a smaller spend in the back half.

We chose to move that smaller spend into Q3 and spend it in Q3 because we felt like we had a very strong promotional plan in Q4. And candidly, we are seeing softness in the category. And we also saw benefits on cheaper advertising rates, more eyeballs, etc. So, overall, from the year, our media spend is very similar to what we expected.

And just to specify, but in Q4, we will have a small A&P budget because of our heavy promotional spend. On the '21 question, we saw this was our first year with television advertising. It was very effective in building household penetration, which was our main goal. So we expect and plan to increase that in '21.

And, obviously, we're in the process of doing that planning right now.

David Palmer -- Evercore ISI -- Analyst

As we're looking into '21, there's many gives and takes here with regard to how we should think about your top line. You're kind of unlucky with a lot of the on-the-go this year. But then again, you're lapping some out-of-stock issues or supply chain issues. And then God knows how things will work as far as the recovery rate of on-the-go into this next year.

So how are you thinking about the major chunks of gives and takes as we try to model fiscal '21, particularly as regard to the top line? Thanks.

Darcy Davenport -- President and Chief Executive Officer

Yeah. I don't think we're in the position right now to talk in detail on '21, which we will obviously do in the next quarter, but we are seeing improved category trends in July. So although the recovery took longer than we predicted, it was actually only about a month different than what we predicted. So we are seeing the July liquid category up above pre-COVID levels.

So in many ways, although there are no promises with COVID, but in many ways, we believe we are back to having the category tailwind. We know what works to drive our business, and it's kind of back to our original playbook.

David Palmer -- Evercore ISI -- Analyst

Thank you.

Darcy Davenport -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Jason English of Goldman Sachs.

Jason English -- Goldman Sachs -- Analyst

Hey. Good morning, folks.

Darcy Davenport -- President and Chief Executive Officer

Good morning.

Jason English -- Goldman Sachs -- Analyst

Darcy, your performance this quarter definitely cost a little bit flat-footed in terms of the magnitude of decline. But your forecast for next quarter implies a pretty robust snapback. I think at the midpoint of your guidance implies around 23% growth, roughly speaking. I'm hearing you referenced consumption in July of around 12 on Premier.

I'm assuming international, Dymatize, PowerBar, is still down. So somewhere in the mid- to high-single-digit overall consumption for the portfolio in aggregate. And tell me if I'm off base there. If that is generally right, what's going to drive the incremental growth to get to that 23%-type level in the fourth quarter?

Darcy Davenport -- President and Chief Executive Officer

Yeah. So you're exactly right that we're expecting continued declines in the international business, so specifically Dymatize, PowerBar. But we are expecting to see pretty robust growth in Premier shakes specifically. And that's really driven by promotions that we have in almost every single major account, as well as the category rebound of being more of a tailwind than it has been.

I think that what is encouraging is, at this point in the quarter, we actually have very good visibility to at least 2/3 of our quarter from a shipments perspective. And candidly, that is what's giving us confidence.

Paul Rode -- Chief Financial Officer

OK. The only thing I would add quickly is that, recall that we were also lapping some pretty good old favorable comp in the fourth-quarter prior year because of the early load into Q3. So that is about 9% benefit to the fourth quarter.

Jason English -- Goldman Sachs -- Analyst

OK. And for my follow-up, I'm going to try to cheat a little bit here and squeeze two questions in, so my apologies. And I know Jennifer is going to punish me later for it. But first, the volatility of the business, I mean, from up 32% to up 19% to down 14% to up 23%, and that's just this year, and we see the volatility going back.

Is there ever a scenario or a case where we don't have as much volatility going forward? Is there anything you could do to manage the business for a little more consistency, I suppose? And then the second part of the question, which is totally unrelated, the cheat of the second question. I look around, the world does not feel anything like a post-COVID world yet, and I'm not expecting a pre-COVID world yet. I'm not expecting it to feel like a pre-COVID world for quite some time. Why should we expect your business to perform at pre-COVID-type levels for any time in the next six months, even though it may have hit that level in July? Why should we believe it will be durable?

Darcy Davenport -- President and Chief Executive Officer

Yeah. Great questions. OK. I'll hit the first one around consistency.

So our business is just naturally -- because we have some club concentration, we have a natural kind of lumpiness in our quarter-to-quarter. However, what we are, and hopefully you guys have had a chance to look at that supplemental deck, is by providing more transparency to what we usually see quarter-by-quarter, our goal is that you guys start understanding that it actually can be more predictable. This year, not predictable, obviously. And even last year, we had our capacity constraints, but there should be some predictability around promotions.

Because, in essence, the difference between quarter-to-quarter is usually just promotional loads and deloads. So that's the first piece. The second piece is just around -- I agree, it does not feel like we are in a post-COVID world. I think some of the dynamics that are unique to our category, specifically when I -- so when you think about convenient nutrition, the on-the-go piece and bars have definitely gotten hit the most.

I mean, in the quarter, bars were down 24%, where RTDs were only down 4%. What's happening within RTDs is, I feel, even in July, where it is up 7% versus pre-COVID levels of 6%, I think there are some unique things happening. One, I still believe that the on-the-go use education is still under-indexing. People are not out and about like they were before.

However, the in-home use is over-indexing. And what we're seeing is some new trends around food as medicine or proactive health. And that is really benefiting the adult nutrition side of our business, but it's also benefiting our side of the business, the everyday nutrition side of the business. It's hurting weight management and sports nutrition, but I think those are some of the dynamics where our business actually can benefit, candidly, from kind of a post-COVID or a COVID world.

Jason English -- Goldman Sachs -- Analyst

Thank you very much.

Darcy Davenport -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Rob Dickerson of Jefferies.

Rob Dickerson -- Jefferies -- Analyst

Great. Thank you so much. So I guess kind of a follow-up to the color you just made in terms of maybe seeing some benefit at-home consumption around use of kind of as a medicine equivalent, so to speak. If I remember correctly, I thought in the last call, you would discuss health, how maybe a decent percentage of your overall buyer base actually consumes the product at home.

Right? So not all on-the-go. And obviously, primarily buying that in the cross-channel. So I guess the question I would have is, if that consumer base relative to, let's say, other consumer bases within the category consumed more at home, is there something you can do to essentially support ongoing food at-home consumption of your product and/or potentially shift or think about adjacencies, call it, confection, snacks, what have you?

Darcy Davenport -- President and Chief Executive Officer

Yeah. It's a great question. So you're exactly right. We see about 80%, 85% of our business consumed in the house or at home, and what we're doing is, like many other CPGs, as we're evaluating this change of consumer behavior and adjusting.

So we've adjusted our communication strategy. We did it right away to focus more about using our products and recipes, which has always been very successful on social. Obviously, we adjusted our A&P strategy. I think, as we go forward, we are looking at different ways we can kind of renovate or use packaging call-out on our packages, to call out certain benefits that we have to really leverage some of these trends.

And then on the longer standpoint, we are definitely looking at product ideas that would be leveraging some of the trends that I already talked about.

Rob Dickerson -- Jefferies -- Analyst

OK. Great. And then, secondly, just speaking with a number of people within the industry and more specifically around your category, there's a feel that was kind of brewing that, as you kind of go into shelf resets later this year, that retailers overall are still kind of supporting some of the larger brands. Right? I mean, this is the case across all of food, but more specifically just in your category.

And given there's so many players, right, within a higher-growth category like sports nutrition, especially on the bar side, the feel is that, well, maybe some of the larger players could actually benefit through their shelf reset. Now I realized you're focused more on club, maybe the reset isn't adjacent to seeing even as consistent or is a little bit different, but how do you feel about your share gain potential as we go through this process and as you are promoting heavily, right, and as you are trying to expand that household penetration further?

Darcy Davenport -- President and Chief Executive Officer

Yeah. I'm really excited about the upcoming resets. And specifically, I think, in the past, I've talked about kind of 50% of the shelf sets reset in the fall, 50% in the spring. Second change to be more of a 60-40 split.

And so we have visibility to the new resets that are coming up in our Q1. And I think what you explained about retailers supporting the larger brands, specifically the larger growing brands, I think that our resets will show you that. And we're gaining some significant space, which I would argue is long overdue, but I'm very excited to see it.

Rob Dickerson -- Jefferies -- Analyst

That's great to hear. I'll pass it on. Thank you so much.

Darcy Davenport -- President and Chief Executive Officer

Thanks.

Operator

Our next question comes from the line of John Baumgartner of Wells Fargo.

John Baumgartner -- Wells Fargo Securities -- Analyst

Good morning. Thanks for the question.

Darcy Davenport -- President and Chief Executive Officer

Hi, John.

John Baumgartner -- Wells Fargo Securities -- Analyst

Paul, I wanted to connect to the gross margins. Just given the pressure this quarter, the pressure last quarter, the outsourced model, you're not seeing as much deleverage as you would have if it was in-sourced. And could you drill down a bit more into the components there of that pressure? You mentioned the cost inflation in your comments, between cost inflation change in year-on-year promo, maybe just more detail there. And then as a follow-up, with the dislocations from COVID, how is that impacting any sort of changes in your outlook for dairy cost inflation going forward? Thanks.

Paul Rode -- Chief Financial Officer

Yeah. Sure. Yeah. So from a third-quarter perspective versus last year, you're correct, our margins were down.

And it's really two primary components: it is the increased promotional spend, as well as the increase in milk protein cost. So it's kind of 60-40 split really from the drivers on the margin side. As we look into next year, dairy costs have been somewhat volatile since kind of after COVID. We were expecting higher protein costs as we went into fiscal '21.

That's been a little bit tempered based on the markets recently, but we're still expecting some minor headwinds on the milk protein side. On whey protein, actually, those have been a bit more favorable, not increasing and so there may be a marginal benefit there. But any protein costs for next year, our thinking is that, with some of our supply chain initiatives, there are opportunities to offset some of that. But we do think there will be some modest headwinds for protein as we go into next year.

John Baumgartner -- Wells Fargo Securities -- Analyst

And is there any ability to, I guess, maybe hedge more than you had historically? Any changes in the supply chain initiatives on that front? Or is still just historical to be the norm in terms of, I guess, leaving up more to chance as opposed to hedging?

Paul Rode -- Chief Financial Officer

Yeah. We're evaluating several strategies. At any given time, we're looking at different ways to do that. And we have, even in this fiscal year, implemented some different strategies than we have executed in the past.

And we're continuing to explore some additional opportunities there. So yes, we're continuing to evaluate to find the best way to mitigate that.

John Baumgartner -- Wells Fargo Securities -- Analyst

OK. Thanks Paul.

Paul Rode -- Chief Financial Officer

Yeah. Thanks.

Operator

Our next question comes from the line of Pamela Kaufman of Morgan Stanley. Pamela, make sure you're not on mute. Our next question comes from the line of Brian Holland of D.A. Davidson.

Brian Holland -- D.A. Davidson -- Analyst

Most of my questions have been answered, so maybe just two quick kind of follow-ons. One, Darcy, it sounds like, from everything you're saying, that you have pretty good line of sight on distribution gains amid the upcoming shelf reset, which is certainly encouraging to hear, given the kind of the landscape and some uncertainty going in about how shelf reset timing was going to play out. So maybe just first point of clarification, do you feel very comfortable with the line of sight you have on distribution gains going into fall?

Darcy Davenport -- President and Chief Executive Officer

Yeah. We do. We have some minor reset happening in the grocery side of the business in Q4, but the major ones we will see in our Q1. And, yes, we already know where those will land, and it's positive for our brand.

Brian Holland -- D.A. Davidson -- Analyst

OK. Got it. And then just quickly on the scanner data. Obviously, some scrutiny there that's been referenced throughout the call, and you did a great job of walking through the puts and takes there.

But just to help us understand, as we watch this data over the next few months, I know you lapped some material promotional events in the prior-year period, just taking the COVID backdrop out of this, as we look forward over the next couple of months, no significant events that we are lapping that maybe won't be repeated that we should just be mindful of one way or the other that might impact the way the scanner would look?

Darcy Davenport -- President and Chief Executive Officer

I always want to be careful with none, but no major ones. If you remember, so last year, we actually only did -- we did only a handful of promotions, specifically in our club accounts. And we have a small promotion in mass, which we're lapping right now. But what's different about this year is we basically have promotions in almost all of our different retailers.

Brian Holland -- D.A. Davidson -- Analyst

Appreciate the color, best of luck.

Darcy Davenport -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Bill Chappell of Truist Securities.

Bill Chappell -- Truist Securities -- Analyst

Thanks. Good morning.

Darcy Davenport -- President and Chief Executive Officer

Good morning.

Bill Chappell -- Truist Securities -- Analyst

First question, I just want to go back to the third quarter, the inventory or the trade inventory issue. I'm just trying to understand, did we just mismodel that? Or did it happen a little different than expected? Because I think I was going back, and I think the comment was it was expected to be kind of a $50 million hit to demand equally over the next two quarters, but it seems like majority of it happened in 3Q. So did something happen differently? Or did we just not get the message?

Darcy Davenport -- President and Chief Executive Officer

Yeah. I think there are two things. So we did our best to communicate the high customer inventory at the end of Q2, which benefited Q2, but hurt Q3, and that when you're looking at the back half, it was back-loaded to Q4. Clearly, we need to do a better job because we look back at the scripts, and we thought we were clear, but clearly not.

So we can work on that for sure. What we meant was and what was the new information is the rate of recovery of the category. And that was what I was talking about kind of the W. I mean if you go back to the overall convenient nutrition category, but specifically liquids, you'll see week on week that it hit a low in April.

And then toward the end of April, the category actually saw a steady recovery. We expected at that time with the information we had that that would continue gradually up to pre-COVID levels as of June. Obviously, that actually went back down, and that was that W curve that I talked about. So that was really, honestly, the miss, as opposed to we had visibility to, obviously, the high customer inventories.

Bill Chappell -- Truist Securities -- Analyst

Got it. And kind of follow-up on the same lines, like what are your kind of current thoughts for active nutrition as we come out of COVID? And the reason I say that is, as you saw, as your numbers were declining, I mean, sales of ketchup and frozen potatoes were tripling. And so clearly, there are consumers that have gone to comfort food and are still on comfort food and just didn't know if you thought it would race back? Is everybody trying to shed the pounds and be more active and nutritious coming out of this? Or whether there's kind of a permanent pause on some of the active nutrition growth as people slowly come out of it?

Darcy Davenport -- President and Chief Executive Officer

Yeah. So I mean, big picture, from a trend perspective, there's the temporary piece, which is really this on-the-go reduction. So that, I think, will continue, once there's a vaccine, even it's starting to come back, I think, as we're all learning more about the virus and understanding how to function with it. So I think that is a temporary piece that we're already starting to improve.

I think that, when you look at need state, the area that is benefiting is adult nutrition and somewhat everyday nutrition. What's getting hit is weight management and sports nutrition. I believe that those will come back. So sports nutrition has been hit for a while, but I believe they will come back, I think, as people start wanting to get back into their health routines, etc.

So the fundamentals of this category are strong. People are looking to improve their health. They want convenience. So I have no doubt that this category will rebound.

Bill Chappell -- Truist Securities -- Analyst

OK. Great. Thanks for the color.

Darcy Davenport -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Ken Zaslow of Bank of Montreal.

Ken Zaslow -- Bank of America Merrill Lynch -- Analyst

Hey. Good morning, everyone.

Darcy Davenport -- President and Chief Executive Officer

Good morning.

Paul Rode -- Chief Financial Officer

Good morning.

Ken Zaslow -- Bank of America Merrill Lynch -- Analyst

How does this affect your long-term growth rate?

Darcy Davenport -- President and Chief Executive Officer

It doesn't. So if you remember, we had planned our long-term algorithm, we had planned to have a higher growth rate this year because we were lapping the SKU constraints, but the long term was 10% to 12% growth with 18% to 20% EBITDA margins. And actually, what we're seeing because of COVID is we are actually still delivering on that long-term algorithm. However, we thought we would be over-delivering this year.

Ken Zaslow -- Bank of America Merrill Lynch -- Analyst

OK. My second question is, when you did the promotional shift from second quarter to third quarter and fourth quarter, how did that play out? And then I'll leave it there.

Darcy Davenport -- President and Chief Executive Officer

The promotional shift?

Ken Zaslow -- Bank of America Merrill Lynch -- Analyst

Yes. And two quarters ago, you said that you were delaying the promotions from the second quarter to the third and fourth, unless I made a mistake and misread the transcript. Is that not the case?

Darcy Davenport -- President and Chief Executive Officer

No, you're right. Yes, no, no, no, you're right. So a couple of things happened. So we actually, this last quarter, because of -- so those moved to Q4 and actually into Q1.

But what changed in this quarter is we actually ended up doing an incremental promotion because in our club accounts, mainly because our club accounts saw the declining category and we were their first call. So net-net, we actually ended up with the same amount of promotions in this year even though we thought they were moving.

Ken Zaslow -- Bank of America Merrill Lynch -- Analyst

Great, I'll leave everything for later. Thank you very much.

Darcy Davenport -- President and Chief Executive Officer

Thank you.

Operator

And our final question comes from the line of Chris Growe of Stifel.

Matt Smith -- Stifel Financial Corp. -- Analyst

This is Matt Smith, on for Chris. My first question relates to the inventory position at retail. Could you talk about what happens in the fourth quarter? When I look at the bars on the slide that you provided, it looks like there's potentially more inventory deloading to go.

Darcy Davenport -- President and Chief Executive Officer

Paul, do you want to take that?

Paul Rode -- Chief Financial Officer

Of course. Yeah. Coming out of the third quarter, we feel like the inventory levels are in balance at our key customers where we have full visibility, so we do not anticipate the fourth quarter having significant deviations between shipments and consumption.

Matt Smith -- Stifel Financial Corp. -- Analyst

OK. Great. And then my follow-up would be, as it relates to the household penetration and repeat rates that you provided, could you talk about the benefit of new products and how those are impacting repeat rates? And then on TDPs, are there varying repeat rates based on the new products that are influencing the performance?

Darcy Davenport -- President and Chief Executive Officer

Sure. So there are a few things that kind of you expect with repeat rates is that as you expand distribution and you expand households is that your both buy rate and repeat rate would go down. I think that's one of the things that I was saying at the very beginning is, that's what I'm really excited about is that we actually see a very stable repeat rate over the years. So that feels really good.

And with regards to buy rate, we are seeing some decline in buy rate, mainly just because we're going from big packs in clubs to smaller packs in FDM, but still very strong. So I think I answered your question. Did I get everything?

Matt Smith -- Stifel Financial Corp. -- Analyst

Thank you.

Darcy Davenport -- President and Chief Executive Officer

Thank you.

Duration: 49 minutes

Call participants:

Jennifer Meyer -- Investor Relations

Darcy Davenport -- President and Chief Executive Officer

Paul Rode -- Chief Financial Officer

Andrew Lazar -- Barclays Capital -- Analyst

Ken Goldman -- J.P. Morgan -- Analyst

David Palmer -- Evercore ISI -- Analyst

Jason English -- Goldman Sachs -- Analyst

Rob Dickerson -- Jefferies -- Analyst

John Baumgartner -- Wells Fargo Securities -- Analyst

Brian Holland -- D.A. Davidson -- Analyst

Bill Chappell -- Truist Securities -- Analyst

Ken Zaslow -- Bank of America Merrill Lynch -- Analyst

Matt Smith -- Stifel Financial Corp. -- Analyst

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