Hostess Brands, Inc. (TWNK) Q4 2020 Earnings Call Transcript

Hostess Brands, Inc. (TWNK)
Q4 2020 Earnings Call
Feb 24, 2021, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings and welcome to Hostess Brands Inc.'s fourth-quarter and fiscal 2020 earnings conference call. [Operator instructions]. I would now like to turn the conference over to your host, Mr. Chris Mandeville.

Thank you. You may begin.

Chris Mandeville -- Investor Relations

Good afternoon and welcome to Hostess Brands' fourth quarter and fiscal 2020 earnings conference call. Joining me on today's call are; Andy Callahan, Hostess Brands president and CEO; and Brian Purcell, chief financial officer. By now, everyone should have access to the earnings release for the period ended December 31, 2020, that went out this afternoon at approximately 4:05 P.M. Eastern Time.

The press release and an updated investor presentation are available on Hostess' website at www.hostessbrands.com. This call is being webcast and a replay will be available on the company's website. Hostess would like to remind you that today's discussion will include a number of forward-looking statements. If you will refer to Hostess's earnings release as well as the company's most recent SEC filings, you will see a discussion of factors that could cause the company's actual results to differ materially from these forward-looking statements.

Please remember that the company undertakes no obligation to update or revise these forward-looking statements. The company will make a number of references to non-GAAP financial measures. The company believes these measures provide investors with a useful perspective on the underlying growth trends of the business as it is included in this earnings release a full reconciliation of non-GAAP financial measures to the most comparable GAAP measures. And with that, I will now turn the call over to Mr.

Andy Callahan.

Andy Callahan -- President and Chief Executive Officer

Thank you, Chris, and good afternoon. We appreciate you joining us today. Before reviewing our strong fourth-quarter 2020 results, which capped off a challenging yet successful year for Hostess, I continue to give my best to all those impacted by the pandemic. We could not have driven such impressive performance without the extraordinary daily efforts of our team members and retail partners.

The resiliency is inspiring, and we will continue to prioritize the health and well-being of our team and partners. In 2020, the Hostess team delivered for our consumers, customers, and our investors, rooted in our core value our team rose to the occasion and once again, delivered in an uncertain and changing environment brought on by COVID-19. Hostess is well-positioned to continue this strong momentum and performance into 2021. Before we look ahead, I'd like to reflect upon some of the many notable 2020 accomplishments that will serve as foundational support to our profitable growth in 2021 and beyond.

We achieved our 12th consecutive quarter of net revenue growth, driven by strong market share gains inconvenience and other key channels and growth in repeat consumers, particularly in younger demographic groups, which provide a strong foundation for long-term growth. We executed the Voortman acquisition and seamless integration including the transition to the warehouse model ahead of schedule and under budget, creating a profitable platform for future innovation and market opportunities and serving as yet more proof that Hostess is a platform well-suited for complementary acquisitions. We drove a 5.8% increase in our rolling three-year innovation revenue contribution versus '19, driven by the strong performance of our 2020 innovation, and a 39% increase in our 2019 innovation velocities. Behind sharper behavior-based insights and capabilities, our 2021 innovation slate is even better.

We are focused on growing consumer snacking sub-segment where we have leading market positions and see strong opportunities for above-average growth. While these are only a few of our many accomplishments in 2020, they speak to how well we are positioned to deliver on sustained, profitable long-term growth, and leading shareholder returns. Now to financial highlights from the quarter. Net revenue grew 18.1% with the Voortman acquisition contributing $28.7 million to this growth.

Sweet Baked Goods revenue increased 4.9%, or $10.6 million, driven by strong Hostess branded revenue growth. This was partially offset by planned lower value brand and private label sales. Hostess manufacturer point of sale grew 4.9% ahead of the category, driven by 7.1% growth of the Hostess brand. Our successful Hostess partner program and advantaged distribution model helped drive distribution gains and increased our market share 220-basis-points in C-store, helping to grow our profitable single-serve POS by 3% in the quarter versus the channel declines due to COVID.

These share gains put us in an advantaged position for continued growth in this channel as traffic returns to the C-store. Over the course of the year, we made strategic decisions to enhance our portfolio and focus on higher-margin growth opportunities, and those actions are paying off with expanded gross margins of almost 270-basis-points in the quarter. We achieved this with our focus on the margin accretive Voortman acquisition and the strong growth of our Hostess brand. We remain very positive about our new slate of innovation coming to market in 2021, which leverages key consumer insights and trends and penetrates faster-growing consumer usage occasions.

This continues to expand Hostess' footprint in the growing indulgent snacking segment where Hostess has a strong relative position and consumer affinity. Our development in high-growth subsegments of snacking is one of the drivers of our consistent growth ahead of the category and why we are confident we can achieve significant growth in innovation revenue as we bring more differentiated ideas to market. We are seeing a strong retail response to our 2021 innovation slate. We have several items that entered the market at the beginning of Q1 including Hostess Muff'n Stix, Voortman's Super Grain cookies, and Voortman mega wafers for convenience stores, all of which are building distribution well.

In addition this spring, we will expand our Hostess brand with two fantastic new sub-brands with our Crispy Mini and bundt cakes that we expect will generate incremental growth for our business. Our strong Hostess branded performance in breakfast highlights our focus and advantage in this growing occasion. Our Hostess branded breakfast business grew 13.4% in the fourth quarter, bringing our share of the breakfast daypart in Sweet Baked Goods up 150-basis-points to 18.6%. Best of all, this growth was very balanced across several product forms with meaningful gains in Donettes, Coffee Cakes, Honey Buns, and Muffins.

As we look ahead, we see clear opportunities for growth where we have a right to win in faster-growing subsegments of the snacking universe. We believe there is significant headroom for growth within key consumer groups that will continue to drive outsized revenue growth for years to come. In order to achieve this growth, we are focused on four key strategic growth priorities as we build our innovation pipeline. These include invigorating our core icons, growing household penetration with young families, continuing C-store consumer growth, and establishing Voortman's distinct positioning to optimize growth potential.

Turning to our merchandising efforts. We continue to see the excellent performance in our seasonal limited-time offer programs with a significant year-over-year increase in the execution of our Valentine's program as we begin 2021. We are also executing various initiatives, including enhancing our Hostess partner program in an effort to increase our single-serve sales in the small format convenience channel. In addition, we are adapting our execution of our multi-pack and bagged donut displays in large-format grocery and mass retailers to enable improved inventory flow into and out of our retailer DCs that have been stressed from excess demand during COVID.

These changes are already driving greater impulse purchase opportunities. Regarding e-commerce, we continue to make targeted investments in our e-commerce platforms to support this growing business, namely the click and collect or retail grocery delivery. We are conducting market tests to support our new Hostess innovation and Voortman brand awareness. We're also planning to increase our investment in working advertising for our Hostess brand in 2021 as we continue to learn and scale up our marketing investments that drive top-of-mind awareness and growth.

Looking to Voortman. Results for the quarter continued to be strong contributing 66 basis points of EBITDA margin expansion to our consolidated results and the full-year EBITDA contribution of approximately $28 million, well above our original 2020 forecast of $20 million. The Voortman integration and related conversion to a warehouse distribution model could not have gone better. We are eager to strengthen the brand as we move into 2021 and transition into Voortman's next stage of growth, which has strong building blocks of innovation, expanded depth of distribution, penetration into new channels, and increased merchandising.

We are confident Voortman will continue to meaningfully contribute to the company's future revenue growth and margin expansion in 2021. Over the past several years, we have been executing various ESG initiatives and expect to issue our first ESG corporate responsibility report in the coming months. As a few examples of the advancements we have recently made, our transition to our new distribution center removes millions of miles in gas emissions from our distribution network. Additionally, this year our newly implemented safety initiatives resulted in a decline in total recordable injury rates and lost time with rates, which are significantly better than industry benchmarks.

Our COVID task force has been instrumental in ensuring we are informed and prepared to respond to the ever-changing landscape we have been navigating over the past year due to the pandemic. We also continue to focus on our diversity, equality, and inclusion initiatives including expanding training and career development opportunities as we remain committed to providing an inclusive culture that encourages employees to bring their whole self to work. These efforts are paying off as we have achieved meaningful improvements in our female and diverse leadership hires over the past year with over 50% of our leadership hires in 2020 being female or diverse. On the governance front, our board of directors has taken a strong leadership goal reinforcing the continued importance of these initiatives, expanding the oversight of ESG generally, and increasing focus on material risks and opportunities for our business.

They have demonstrated their commitment by increasing the diversity and independence of the board, supporting eliminating the supermajority voting requirement, and declassifying the board during 2020. We are committed to advancing our ESG initiatives and further integrating our initiatives into our culture as we head into 2021 and beyond. Over 20 months ago at Investor Day, I committed to building a sustainable growth model that consistently grew revenue in the top quartile at leading margins versus our peers. We're doing just that and are well-positioned for the momentum to continue into 2021 and beyond.

Our 2020 results and operational improvements reinforce our confidence in the tremendous opportunities ahead for Hostess and how this translates into sustainable, long-term growth and profitability. As COVID took hold early in the year and proved highly disruptive to the supply chain and drove changes in consumer behavior the Hostess heroes rose to the occasion, leveraging the strength of our brands, the depth of our insights to drive strong performance and showcase the agility and skilled execution of our team. The continued strong consumer demand and successful execution enabled us to achieve double-digit growth across all key metrics including net revenue, gross profit, EBITDA, and EPS. We accomplished this strong growth, while also deleveraging to below our original target for the year.

In summary, we had a record year financially and I am very pleased with what we accomplished operationally during a trying 2020. The first quarter of 2021 is off to a good start, and we look forward to another successful year of profitable growth and delivering increased shareholder value. Longer-term, we have strong positions in growing occasions and have the right people, the right processes, the right products, and the right capabilities. In addition, we continue to look for accretive acquisition opportunities to further enhance our strong value creation potential.

Now, I'll turn it over to Brian, to go through the details of the quarter's results.

Brian Purcell -- Chief Financial Officer

Thanks, Andy. As I step back and look at my first year with Hostess, I'm amazed at the strength and resiliency of our team and the outstanding results they achieved in this very challenging environment. I'm more confident than ever in the ability of this team to continue to drive profitable growth and create shareholder value heading into 2021 and beyond. Today, I'll review our fourth quarter 2020 financials and other data from this afternoon's release, as we think about our business heading into 2021.

Net revenue for the quarter was $256 million, an 18.1% increase. This increase was primarily driven by the acquisition of Voortman, which contributed $28.7 million in net revenue for the quarter. Sweet Baked Goods net revenue increased $10.6 million, or 4.9%, driven by strong Hostess branded revenue growth, partially offset from lower value brand and private label revenue. Gross profit was $95.8 million for the fourth quarter of 2020 and gross margin was 37.4%.

On an adjusted basis, during the quarter, gross profit increased by $20.5 million, and we expanded adjusted gross margins by 267-basis-points, primarily due to improved price mix initiatives, operating efficiencies as well as accretion from Voortman. On an adjusted basis fourth-quarter operating costs increased primarily due to the timing of accruals versus the prior year and the addition of the Voortman business. Our effective tax rate was 25.6%, compared to 20.2% in the prior-year quarter. The increase in the effective tax rate is primarily due to the Class A for Class B share exchanges that occurred throughout 2020.

Net income was $24.4 million, and diluted EPS was $0.18. Adjusted EPS was $0.21 per share, an increase compared to $0.16 per share in Q4 last year as a result of the Voortman accretion and the higher EBITDA contribution from core Hostess. Adjusted EBITDA for the quarter was $63.7 million or 24.9% of net revenue. The $11.3 million increase was primarily driven by the addition of Voortman, which contributed $8.6 million of adjusted EBITDA accretion for the quarter with the balance coming from strong Hostess branded performance.

As of December 31, we had cash and cash equivalents of $173 million and net debt of $929.7 million with a leverage ratio of 3.9 times which was ahead of our target heading into 2020. Turning to our outlook for 2021. We are encouraged by the strong foundation for growth we have established with the strength of our core Hostess brand, our market share gains in C-store and other key channels, and the successful integration of the Voortman business. We expect to drive topline net revenue growth of 3% to 4.5% and expect adjusted EBITDA to be between $255 million and $265 million with adjusted EPS of $0.80 to $0.85 per share.Our growth outlook includes continued strong growth from the Voortman business with approximately $120 million of expected net revenue and adjusted EBITDA approaching $38 million during 2021, which are both ahead of the original acquisition expectations.

Importantly, we feel confident we will achieve the original 2022 EBITDA expectation of $40 million to $50 million for the Voortman business. Absent the benefit of the lap of Q1 Voortman integration, we expect to hold our margins relatively flat, as we look to cover inflation with pricing and productivity initiatives. We are currently anticipating inflationary pressures on our cost of goods sold, driven by rising commodity, packaging, and transportation costs, in addition to the normal cost of living and benefits increases. We have locked in a significant portion of our commodities through the end of the year and are actively managing to minimize future cost headwinds.

We have a multifaceted approach to offset these industry headwinds which include targeted pricing mix, improvement, and productivity initiatives. We expect 2021 adjusted EPS of $0.80 to $0.85 per share. Our estimated effective tax rate in 2021 is approximately 27%, which reflects an increase as a result of the elimination of the non-controlling interest with the final exchange of the Class B shares in the fourth quarter and higher state tax rates. As we look ahead to 2021, we remain committed to investing for growth and generating shareholder value.

As we lap the transition costs incurred to integrate Voortman in early 2020, we expect to have increased cash flow available to invest in our strategic priorities. We continue to believe that disciplined investments in our business to drive organic growth are the best use of our cash. We expect 2021 capital expenditures in the range of $60 million to $65 million, which includes a $25 million investment in a new cake line to support our continued growth. This critical investment has a strong ROI and will enable continued growth in our high-margin core business for the next few years.

We also remain committed to maintaining our target long-term leverage between three and four times. With our strong EBITDA and cash flow expected in 2021 absent any strategic acquisitions or buybacks, we anticipate our leverage to be approximately three times by the end of 2021, which represents a reduction of almost a full turn during the year. As previously disclosed, our outstanding warrants expired in November of 2021. Our EPS and leverage guide reflects an assumed effective net share settlement consistent with the current methodology used for reporting diluted EPS.

We are excited by the opportunities we have ahead of us to generate long-term shareholder value, as we remain committed to delivering our long-term objectives of organic net revenue growth, adjusted EBITDA margin, and free cash flow conversion in the top quartile of our peers. With that, I will turn the call back to Andy for closing comments.

Andy Callahan -- President and Chief Executive Officer

Thanks, Brian. 2020 was truly an extraordinary year and one that will shape the consumer landscape for years to come. Thankfully, due to our outstanding team and maniacal focus on our five strategic pillars: one, growing the core; two, growing through innovation; three, improving through agility and efficiency; four, cultivating talent and capabilities; and five, leveraging our strong cash flow we have come out of the year stronger than we went in. I remain confident in our operational excellence, innovation, and market position as we enter the New Year.

With our strong cash flows, we have many available levers to activate growth and generate value for shareholders. With that, Brian and I are available for your questions.

Questions & Answers:

Operator

At this time, we will be conducting a Q&A session. [Operator nstructions]. Our first question comes from Ken Goldman with J.P. Morgan. Please, proceed with your question.

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

Hi. Thank you. I wanted to ask about the share losses in the mass channel. It looks like those share losses continue to accelerate down over 400 basis points in the fourth quarter.

It doesn't look like it was a particularly tough comparison. Can you just remind us what's happening with this channel and your products? And what's in your forecast for recovery there?

Andy Callahan -- President and Chief Executive Officer

Yeah. Hey, Ken. Thanks for the question. When you did say -- just let me take it broader.

COVID impacted every channel, every business in its own unique way. One of the issues that, we had across different ones realigning our merchandising model, our supply chain mix, and how we went through the supply chain to be able to adapt to changes within customers. That definitely was true in the mass channel. And we have a really, really good line of sight across all of our businesses that the changes we've made are going to help and grow our business long term.

And actually, one of your assumptions is true related to Q4. But if you look at the consumption over the last several weeks, there's a meaningful and steady improvement in that, based on our realigning our approach to merchandising and how we go to market. And mostly -- it's mostly related to the supply chain, as I mentioned, going through the warehouse, making things more automated. Over time, it's going to become much more frictionless.

And we're going to be -- it's going to be more profitable and continue to drive growth. So, we feel really good about it going forward and feel good about it improving from the Q4 as we move forward. And then also related to that, despite that, if you look at the last several weeks that is improving, but our consumption as you can see through 2013, our overall consumption dollar growth is up 11% versus the category up 6% per Nielsen. So, we feel good about that and feel good about how we've aligned all the supply chains across all channels.

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

Ok. That is helpful. It is -- just wrapping that all up and above then should we expect starting, I don't know first quarter whenever you start regaining share in that channel? Or is it sort of losing less share? I just wanted to get a sense of what we should be building into our models.

Andy Callahan -- President and Chief Executive Officer

Yeah. Well, I don't -- we can take any details that you want to talk about, but we don't forecast share. But I would certainly anticipate continued consumption improvements.

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

Ok. I'll let it go there. Thank you.

Andy Callahan -- President and Chief Executive Officer

Thanks, Ken.

Operator

Our next question comes from the line of Rob Dickerson with Jefferies. Please proceed with your question.

Rob Dickerson -- Jefferies -- Analyst

Great. Thanks so much. Just had a question kind of around the implied EBITDA margin for 2021, which seems like the kind of at the midpoint maybe expand still by let's call it 100-basis-points. But then you had some commentary saying kind of you expect that margin to be somewhat flattish kind of once you got past Q1.

So it sounds like Q1 has a nice little jump basically tied to Voortman. But then it also sounds like maybe, you can hold that margin as you go forward. And then, you said you could have a higher cost basket, but there are ways to offset that. Partially that would be the single-serve mix effect and also pricing.

So, I just want to kind of get some general color on how should we -- how we should be thinking about the year in terms of the cadence of that margin progression, No.1. And then, No. 2, as you do mention pricing to potentially offset some of the additional cost inflation, I don't know what your visibility is on that pricing and how good you feel about that pricing. It sounds pretty good.

That's it. Thanks.

Brian Purcell -- Chief Financial Officer

Yeah, sure. I'll start Rob, and then Andy can chime in as well. So overall, if you look at our guide, right, your question on margins. I think you're right.

If you look at Q1 overlap, particularly because of Voortman, we should see some margin expansion. And the best way to think about that is probably to take a Q4 run rate -- Q3, Q4 run rate with Voortman and carry that forward. Relative to what we're lapping, you'll see Q1 there's definitely a benefit there. And if I think about margins in total, we'll see a little bit of accretion from Voortman.

And what we were talking about holding margins relatively flat, I think that was sort of excluding the Voortman accretion piece. If we think about the first half of the year, we'll have the Voortman accretion. We'll also have, particularly in Q2 we'll have the single-serve mix favorability that was a little bit of a headwind last year. And then if we think about the back half of the year, we're going to be enacting pricing in the back half of the year more than the front half.

We have some carryover pricing in the front half, but more pricing actions in the back half to help offset any inflationary pressures. So broadly, we have pricing. We've got a mix. We've got the Voortman component was included in the mix.

And we've got productivity and that's kind of the multi-basket approach that we have to offset inflation. And that's kind of the first half and second half cadence of how we should think about it.

Rob Dickerson -- Jefferies -- Analyst

Ok. Great. And then just quickly in terms of the new innovation, say coming in the spring. It sounds like obviously, that's still forthcoming.

While at the same time, in your prepared remarks you said the initial sell-in of the innovation has done well. So, as we think through that top line again, it seems like the ongoing sell-in of the innovation should continue to do well. But then, as we kind of get into the spring namely let's call it Q2, which I guess, the assumption here is that hopefully, you would be picking up some incremental distribution versus replacing old products. I'm trying to also get some sense and feel of how we should be thinking about the progression on the volume side, not the pricing side, just given the solid innovation slate as we get through the year? That's it.

Thank you.

Andy Callahan -- President and Chief Executive Officer

Hey, thanks, Rob. Appreciate it. Yes, and I agree with Brian's assessment of margins. The headline is we looked at a lot of them, and there's a lot of opportunities, but I think we have it pretty well planned.

And then on the innovation side, depending on the channel, it sells at different rates. So for example, most of -- a lot of our C-store channel and innovation -- first of all, I agree. I feel terrific about the innovation slate in 2021 by the way. It gets better every year.

It's behavior-based on consumers. We're in platforms that have grown, and I made these in our prepared remarks. I would think about flowing it through some of the other platform ideas like Crispy Minis are flowing through later. That's based on the timings of the resets.

Some of the things within the C-store channel are already going out. The Voortman mega pack has already flown through the C-store channel. But some of the ones within Sweet Baked Goods like baby buns, which is just tremendous consumer scores and very huge retailer reception but very excited about it. Crispy Minis, which is a new extension into our platform those are flowing through a little bit more in the spring.

And some of the early channel ones and mostly in C-store are already going in early. So I think through the spring Q2 and back half impact on some of the ones within the more traditional channels and the C-store is coming in early.

Rob Dickerson -- Jefferies -- Analyst

Great. Thank you so much.

Andy Callahan -- President and Chief Executive Officer

Yeah. Thanks, Rob.

Operator

Our next question comes from Brian Holland with D.A. Davidson. Please proceed with your question.

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

Yeah. Thanks, good evening, everyone. So maybe the first question on the top line guide. So this is more specificity than you've provided.

Maybe the past one, certainly last year, and maybe I think even in the past couple of years where maybe it's just been -- the language has been above category and now you sort of quantify that a little bit tighter. So I'm interested in the thought process behind that. And then I'm kind of getting to like if you back out Voortman, 1.5% to 3% growth, which would be below your algorithm in the past few years, which certainly had been very strong. And when I pair that with the innovation slate maybe some easier compares on the convenience channel may be some improvement in mass, if you could just kind of walk through the thought process there.

And maybe some of them take that I'm not considering here.

Andy Callahan -- President and Chief Executive Officer

Yeah. Hey, Brian. It's Andy. Thanks for the question.

Here's the headline.  We feel great about our continued top-line revenue growth. We felt we should give some level of indication because consistently we've over-delivered what the Street has pegged us to which is kind of -- which is honestly in what we've said, which is we expect to do the category or better than the category and most people have the category. It's somewhere in the 1%, 1.5%. We've actually done a deeper dive this quarter and looked at where we compete and even asked ourselves we're consistently doing meaningfully better than the category.

We have revenue realization opportunities. We're going to do better than that and we're going to do meaningfully better than that over time. This year's -- in my over 26 years of doing this, this is certainly potentially one of the more difficult areas to plan. As we come out of COVID, all indications that we have when we look at these are that it's going to continue to be positive and generate good revenue.

Is there an upside to that revenue number? Not sure. Our best guess is given the uncertainty it's pretty good -- we feel comfortable with the guide and we feel comfortable that we'll continue to perform better because we're in segments that are growing faster. We're -- we've attracted new consumers in the home. Those rituals are going to stay.

They're younger consumers. They're learning how to celebrate with indulgent snacks around specific occasions, like Valentine's Day, which is up. C-store is coming back. Our platform innovation is scoring better and more incremental than it's ever been.

But we felt we needed to move, people thinking about us more 100-basis-points and it could be higher above where they were thinking about historically. And that was our thought process.

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

Appreciate all the color, Andy. That's great. And then just thinking about breakfast. Obviously, there were -- we talked about single-serve think about C-stores, some pressure points around COVID.

But certainly one of the strong points I think industrywide has been breakfast. And certainly, you've done better than the categories you compete in. But again, it sets up for tougher comps there. So can you help think about the -- help us understand the puts and takes there with what you're comping up against? And maybe another way to ask this question, forgive me is this was a huge opportunity at the time of the Cloverhill acquisition and you've obviously executed against it.

Where do you kind of -- I don't -- how do you index, where the Hostess brand is in breakfast versus where it is in some of its other core categories? I'm just wondering where we are on the runway. Maybe that's a better way to frame the question and just ask a pre-and post-COVID question if that makes sense.

Andy Callahan -- President and Chief Executive Officer

Hey, Brian, there's this meaningful runway for continued growth.I mean the breakfast subsegment is a $3.6 billion subsegment, we are -- it's growing faster sweet breakfast, sweet starts and sweet indulgent AM snacking which we've articulated last time is growing faster than overall indulgent snacking. We've grown -- as you mentioned, our point-of-sale was up 13.6%. It has been fueled by some capabilities. And I expect that to continue.

I do not view it as us even close to the maturity curve and our ability to continue to innovate and grow within our morning and AM indulgent snacking case. We have mega brands in that case. Our Donette brand is very well received. We can innovate beyond, even where we are right now.

Our Donette snack pack innovation is -- continues to be on fire as one of our leading innovators. So, your thought around where we're at the maturity piece we don't view it that way. We view it as we're just getting started not approaching maturity.

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

Yeah. No, appreciate that. And if I could just clarify, I think if I'm looking here in your deck, you've got like a 19% share for the overall Hostess brand. I mean, is there --

Andy Callahan -- President and Chief Executive Officer

Yes.

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

Yes -- something we can comp that against for the breakfast item, for your breakfast like where your share is there today?

Andy Callahan -- President and Chief Executive Officer

Oh, you mean, is that more mature than the rest of your portfolio?

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

Yeah. I guess, like if you've got a 19% share overall of broader Sweet Baked Goods do you have a 5% share today of breakfast, 10%, 15%?

Andy Callahan -- President and Chief Executive Officer

Well, our breakfast share of the Sweet Baked Goods segment over the last quarter is about the share of our total portfolio. So if you remember, when I first started almost three years ago we said we were underdeveloped at breakfast. We've done such a good job dealing with new innovation around Donettes fueling our -- we're pretty close to the overall share. But we're just going to continue to grow share.

From a consumer standpoint, we look at it broader than the category the Sweet Baked Goods. So we access consumers' usage beyond just Sweet Baked Goods. So it's going to continue to grow beyond 19%, in my opinion.

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

Yeah. I appreciate all the color, Kudos, on the great work here and continued success going forward.

Andy Callahan -- President and Chief Executive Officer

Yeah. And I don't have a share -- I know, it's a $3.6 billion sub-segment, so I wasn't trying to -- I'll follow through if we can look at the relative addressable market where I can do that. As a follow-up, I think, because, I know you're hunting for that a little bit as well.

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

Yeah. Of course, appreciate it. Thank you.

Andy Callahan -- President and Chief Executive Officer

Yeah. Thanks for appreciating it.

Operator

Our next question comes from Ryan Bell with Consumer Edge Research. Please proceed with your question.

Ryan Bell -- Consumer Edge Research -- Analyst

Hey, everyone. Would you be able to talk a little bit more about the opportunity for Voortman within the convenience channel? Maybe something with respect to some of the cadence of the expansion and is there something that we could compare it against in terms of the benchmark for the growth over the next few years, kind of where you see the ACV going for the product? And then, maybe just the overall sort of size of the opportunity?

Andy Callahan -- President and Chief Executive Officer

So, hey Ryan good. I appreciate the question. Headlines here sweet Baked Goods is a very mature category within C-store. Our Hostess partner program is world-class best-in-class in C-store.

We brought our Voortman mega wafer underneath that program. It's being very well received early. So we -- but it still needs to test the consumer and the velocity proposition. So we have in that channel, we have multiple avenues to grow.

Voortman gives us an opportunity to do that. I'm trying to look at the page, but we're still well below the over -- the distribution opportunities long-term within the C-store channel. Overall, our Voortman distribution started at zero. It will get up to even with mega wafers that will get up to the first 20%, 25% as we get into the first half of this year.

So there's still meaningful upside on that. But I want you to just think more broadly if you would come along with me. The growth of the Voortman franchise it's all consumer -- first of all, its consumer base. It has a really distinct and unique wholesome positioning in segments, whether it's sugar-free or the wholesomeness that is growing at two times to three times the rate of total cookies.

And we've done the warehouse distribution. We also have distribution opportunities within the food. We're 15 points below in the food segment. We're just talking about C-stores.

We're moving into a dollar. And then we have opportunities within the merchandising and then the innovation. So, it's multifaceted the breadth. And so although I know you focus on the mega wafer and it is a big opportunity, it's just one component of a broader opportunity for Voortman over the years.

Ryan Bell -- Consumer Edge Research -- Analyst

That's helpful. And I think you had a slide that was talking about some of what you saw as demographic wins among young transitional. Would you be able to maybe talk a little bit about some of the household penetration trends and your thoughts about how to retain some of the consumers across -- or rather as we exit the COVID environment?

Andy Callahan -- President and Chief Executive Officer

Yeah. Yeah, this is one of the most exciting things about our entire portfolio, the segments in which we compete and the affinity of our brand is our ability to be able to attract and penetrate new consumers. As we went into COVID, there's a lot of uncertainty a year ago. But what we're really seeing and I know some of my peers talked about this, we're seeing consumer behavior around a reassociation with in-home rituals attractiveness to brands.

Snacking's not -- well when the economy opens up, snacking is not one that's going to go mobile. In-home snacking or morning snacking is going to continue. The rituals that they and the reassociation they have whether it was brought Halloween home, our Valentine program is high, our natural snacking and affinity to snacking across our broad-based portfolio are really high, and it's increased with younger consumers as well. And I'm very confident that that behavior that they're doing now, the best predictor of future behavior is the current behavior.

And indulgent snacking has been consistently growing higher than overall food consumption. It's going faster than BFY snacking. And then the reintroduction of new behaviors to the 101-year-old brand is very encouraging. I expect that to stick and continue.

And that's why we have it in the presentation because that revitalizes and regenerates the brand.

Ryan Bell -- Consumer Edge Research -- Analyst

That's it for me.

Andy Callahan -- President and Chief Executive Officer

Thanks, Ryan.

Operator

Our next question comes from David Palmer with Evercore. Please proceed with your question.

David Palmer -- Evercore ISI -- Analyst

Thanks. I wanted just to dig into gross margins gross profit outlook for 2021. You mentioned in the release looking back on your fourth quarter that promotions were down. Mix was actually a positive.

You have the Voortman synergies and perhaps some productivity. I wonder if you could maybe think about the frame -- that is a framework for the 2021 promotions mix, Voortman's productivity, and then of course net of commodities which I guess would be a little bit more of a headwind at this point in your view. Could you just comment on those things and how they generally lead you to think about your gross margin outlook for 2021?

Brian Purcell -- Chief Financial Officer

Sure. Yeah. David, this is Brian. Then, I guess the first piece is if we think about inflation. And from an inflation standpoint, we're seeing probably in line with other companies 2.5 points to 3.5 points of inflation, roughly for 2021 in our guide.

We've got a lot of our commodities locked in through the year, but there is some inflation we're seeing in transport markets and elsewhere. So, you start with the inflation piece. And as I mentioned earlier, I think there's a couple of things working for us particularly in the front half. We're going to have the accretion of Voortman as we lap the Q1 performance, we're going to have a single-serve mix favorability, and we're going to have some pricing carryover from this year.

The back half is going to be more weighted toward pricing actions and in addition to productivity to help offset some of the inflation. So, net-net the way that we're thinking about that is maybe some margin accretion based from a Voortman standpoint. But overall, not looking to expand margins in the base business materially as we're in an inflationary environment. But I think the work we're doing to offset that with pricing, productivity, and mix will put us in a good spot.

David Palmer -- Evercore ISI -- Analyst

And just to follow-up on that. I would imagine you mentioned that mix was a positive for the fourth quarter. I was a little surprised to see that because you have the -- you would expect single-serve to be trailing your bulk package, which I would presume to be different margin profiles and for the mix to be more of a positive in 2021. Is that your thinking going into 2021?

Brian Purcell -- Chief Financial Officer

Yes. So there's actually -- there's a pretty good slide in our investor deck I think it's slide 11. And it breaks out the quarterly cadence of our single-serve versus multi-pack. And if you look at that you'll see there is -- our multi-pack was up almost 20% in Q2.

Our single-serve was down about 5%. But in Q3 we grew single-serve 2.6%. In Q4 we grew at 2.9%. And we also saw multi-pack start coming back down.

So if you look at just the multi-pack up 6.6% in Q4. Single-serve was up 3%. And single-serve is a pretty powerful margin driver. You got those two.

What we don't list on the page where you've also got some declines in our private label and value brands. And that net-net gives us a little bit of mixed favorability. Not material for Q4, but it's trending relative to the prior quarters where we're seeing a mixed detriment. It leveled out for us and we got a little bit of expansion in Q4.

David Palmer -- Evercore ISI -- Analyst

Great. Thanks.

Operator

Our next question comes from Bill Chappell with Truist Securities. Please proceed with your question.

Bill Chappell -- Truist Securities -- Analyst

Thanks. Good afternoon. Andy, just to kind of talk a little bit more about I mean the COVID impact and COVID outlook. I mean, what's your thought of if we open up this summer if schools are fully back in is that upside to your revenue and margins or revenue profitability? Or is there not that big of an impact? And kind of what are you putting in your forecast for kind of a reopening?

Andy Callahan -- President and Chief Executive Officer

Yeah. So Bill, thanks for the question. Good to hear from you. We ran this scenario, I'll be honest with you. I feel very good going forward.

I'm optimistic. We ran scenarios in a lot of different ways. And we came to revenue. And I should have mentioned this when the -- about the earlier question about the revenue seems to be up.

The mix the lapping of multi-pack may have a slight revenue offset to some of the single-serve balancings. So there are numbers here and then you got pricing. There are a lot of moving parts. We ran multiple scenarios on the opening of the COVID -- the economy.

And regardless of how we look at it, we're in a better position to drive profitable growth going forward. We believe some of the multi-pack changes in the home whether it's parents packing, lunches versus in-school lunches, in-home rituals in snacking, C-store traffic which will come back and benefit us at a greater scale. I just looked at some data my C-store team provided me and we're still down versus the January benchmark. The traffic in C-store is still down 13% in January.

We got a little bit of improvement in the summer, but it's still 13%. Any way we look at it there's a positive for Hostess. So we assumed -- we absolutely assume the positive. It's difficult to forecast.

I believe that the -- it's hard to say whether earlier is better. I do think potentially there's upside if it's earlier, but I believe a lot of the multi-pack penetration due to consumer behavior is going to stay and we're advantaged in C-store especially with single-serve when the mobility increases. So I feel earlier has potential. It's hard for me to prognosticate.

The models don't really work in the current opening in the economic world. But we ran a bunch of scenarios and feel like we're in a good spot.

Bill Chappell -- Truist Securities -- Analyst

Got it. Now that's helpful. Yes, it's certainly hard for any of us to gauge at this point. But switching to a kind of thinking about the Chicago Bakery and you talked about how you had a decline in the private label sales which was the mix benefit.

Is there an opportunity to exit more and more of that business? I mean, I know some of that's contract manufacturing that you kind of inherited. But if the breakfast business is doing so well on your branded side could you -- is there a way to permanently make the change?

Andy Callahan -- President and Chief Executive Officer

Yeah. So the way we look at it is -- and we've been -- if you look at what's driving our growth and driving our profitability, we're significantly improved from where we were 2.5 years, 3 years ago at the headline. Now, with that being said there is some -- there is a role for potentially lower absolute margin, but operational efficiencies. But if it's not -- if the cost of that complexity or that business isn't paying off for our return or it's disproportional, we'll either price it till it does and if that doesn't work we'll exit it. So we have a pathway, especially, with inflation coming that needs to contribute at a fair margin or profitability to our portfolio.

We have very good -- we have some business that is very good private label, but it also serves a consumer base. So it may continue to be flat to declining. But, if not, we will price to it and make sure that we're -- they drive efficiency and then realize the revenue. There may be some opportunity for it to continue to move out of the mix.

We will certainly not compromise our higher-margin branded growth, because an asset is being tied up for a lower margin private label business. That's absolutely true.

Bill Chappell -- Truist Securities -- Analyst

Got it. Thanks for the color.

Operator

Our next question comes from Faiza Alwy with Deutsche Bank. Please proceed with your question.

Faiza Alwy -- Deutsche Bank -- Analyst

Yes. Hi. Thank you. So, Andy, I just wanted to go back to your comments around the category and just want to see if I'm understanding it correctly.

It seems like the indulgent snacking category got a lift in 2020 from COVID and people spending more time at home. Are you effectively saying that, as we look out to 2021 and post-COVID, the category growth rates have accelerated? Or are you saying that this is now a more normalized level and you kind of go back to that 1%, 1.5% category growth going forward?

Andy Callahan -- President and Chief Executive Officer

Let me just go to a couple of places on that, and thanks for the question. The category is indulgent snacking, sweet snacking, and the subsegments of which we compete have over the last three years been more in the 3% growth range, versus the 1% to 1.5%. That's just the actual performance of the category. During COVID, that has moved up about 100 basis points.

So even if it goes back to pre-pandemic levels, it's still higher than what some of the perceptions around sweet snacking are. We hear a lot of that. We hear sweet snacks off trend. It's absolutely the consumer behavior and the way consumers behave, not just in our category, but across others, some of our peers.

That's not true. When it comes to what's going to happen afterward, it's difficult to predict. But my opinion, based on what we see in consumer behavior is, indulgent snacking and especially like our products, is continuing to be higher than more in the 3% range. And the subsegments of which we compete, I believe, are very positive and very good.

Now when we look at 2021, it's difficult, because we have multi-pack as you saw in our deck, our -- Q2, our multi-pack sales were up 19%. So we're lapping some things that shouldn't distract us, relative to our revenue forecast in 2021. But, overall, we believe that the consumers are going to continue to look in a very responsible way for these sweet moments of joy that we can bring them, in sweet snacks.

Faiza Alwy -- Deutsche Bank -- Analyst

Ok, great. Understood. And then, just a quick question on capital allocation. You're saying that you're going to be sort of at the low end of your leverage level around 3 times by the end of the year.

You do have a share repurchase authorization and you've also mentioned acquisitions. Can you talk about how you're approaching that, sort of, what comes first? It sounds like its acquisitions. And if so, could you maybe put some parameters around that? Sort of, what types of things you might be looking at? Is there a certain size that we should be thinking about? Would you lever up beyond 4 times, for example? Just more color around capital allocation would be helpful.

Brian Purcell -- Chief Financial Officer

Faiza, yes. So as you kind of heard in the script we talked about, our guide implies, right, absent any acquisitions or buybacks, that we'll deliver close to a full turn. So, first of all, I think we feel great about that, because with the integration costs that we have for Voortman and the cash use of that behind us, we're able to deliver more quickly. So we feel great about our ability to deleverage.

That's kind of the first thing. In terms of our capital allocation priorities, we talk about reinvesting in the business. We're going to invest in our cake line, which we talked about upfront. So it's a $25 million investment.

It's going to be great for growth over time in our snacking business and that's going to come online more in the back half of the year. So in terms of any impact of that will probably be more 2022 and beyond. But investing in the business we happily invested in our Donette line also increased our capacity there this past year. Those are two good examples.

Edgerton is another one where we moved our warehouse last year which has put us in a great position. So invest in our business deleverage I talked about. Acquisitions, absolutely strategic acquisitions like Voortman. Voortman has been a great acquisition.

If we could do another acquisition like Voortman, we absolutely would. We love the business. The integration has gone fantastic and the growth trajectory of that business also we feel very good about. And then lastly, we talked about returning capital through shareholders -- through security repurchases rather.

So on the buybacks piece that's also another tool that we announced to be able to return capital to shareholders. But in terms of priorities, I think we talked about it investing in the business. The cake line is an example of that delivery. And like I said if we could execute another Voortman, we would.

Faiza Alwy -- Deutsche Bank -- Analyst

Got it. Thank you very much.

Andy Callahan -- President and Chief Executive Officer

Yes. Yeah. And just on the M&A side. So as Brian mentioned, we are maniacally focused on unlocking shareholder value and we believe we have a very high cash flow to be able to give us the flexibility to be able to do that.

With the Voortman acquisition, we certainly believe that we've demonstrated that we have a platform to be able to do that, execute that. And we also are in a position that for other snacking access that we think we can sustainably grow them profitably and there are assets out there that we call scalable niches. We believe we have a high opportunity to do that. And that's the way we look at it.

Is it branded? Does it fit in our portfolio? Can we drive the right synergies and the shareholder return? You believe there are assets out there and that's what we're focused on doing.

Faiza Alwy -- Deutsche Bank -- Analyst

Got it. Thank you.

Operator

Our next question comes from Andrew Wilson with UBS. Please proceed with your question.

Andrew Wilson -- UBS -- Analyst

Yeah. Hi, guys. Good evening. I just wanted to zero back in on the C-store channel.

Obviously, you saw some impressive gains there, despite some disruptions in the middle of the year. Could you talk about your confidence in gaining share there as you look out to next year versus just holding those share gains as that channel opens back up? And maybe touch on how you leverage the differentiated Hostess partnership program to drive those gains?

Andy Callahan -- President and Chief Executive Officer

Yeah. Hey, Andrew thanks for the question. See we are -- we have a terrific C-store business. We have highly loyal consumers within C-store and we have a world-class consumer insights and sales team that I wouldn't trade in for anybody in the industry barring on I don't care what size they are.

We've been able to drive share and growth in C-store despite 13% traffic decline. We've been able to do it because -- and this is true across the board during the pandemic. We never stayed focused. Never -- we took care of our team and our consumers and customers and never lost focus on the long-term.

We continue to innovate. We continue to invest in insights and we continue to service our customers and that's true on C-stores as well. I believe coming out of the pandemic, the share gains we've had will provide a great platform that as the overall channel increases, we're going to do that out from a higher water wall. So that in and of itself has upside.

We're not really modeling tons of share growth, but I wouldn't put it past our team to be able to continue to drive share. We have Muff'n Stix going in there now for constant. Those are great innovations. Mega wafers are going in.

So I feel really good. There's -- I'm just very bullish on C-store in total. I think we'll continue to grow share over time as we lap some of the short-term share gains. We didn't model a huge amount of upside.

We more modeled to Bill's question a lot of scenarios, but more modeled a return to the overall traffic at our higher water line of share which is great upside for us both on mix as well as long-term growth.

Andrew Wilson -- UBS -- Analyst

Great. Thank you.

Operator

Our next question comes from Rebecca Scheuneman with Morningstar. Please proceed with your question.

Rebecca Scheuneman -- Morningstar -- Analyst

Good afternoon, and thanks for having me in. So the Hostess brand has been gaining share of the Sweet Baked Goods category for several years now. Can you shed some light on how much of that is driven by distribution gains expanding into new categories and reaching new consumers? And to the extent that some of the gains are driven by distribution, at what point do you think the Hostess brand will reach its full distribution potential? I see it's already 91% ACV. Thanks.

Andy Callahan -- President and Chief Executive Officer

Yeah. I appreciate your question. This is -- I've been with Hostess it will be three years in May. And I've been getting similar to that question for three years.

And it's actually a good one. It's a valid one. And we're pretty much at full distribution. We've been doing a lot of smart things underneath that distribution to fix the mix brings to prune SKUs that weren't driving to increase the velocities of our existing ones, bringing innovation that's more platform is driven and incremental.

That gets better every year. 2021 is by far our best. And we're continuing to test and learn on our investments on e-commerce. So our insights are better, our data analytics with customers are better and we're just scratching the surface.

So for example our investments on e-commerce, we will continue to learn and then increase those investments. We have relatively spoken a good investment but modest in 2021. And as we continue to prove that model out, we'll continue to grow. The reason why I'm optimistic about that is that growth that's been able -- we've been able to do within that distribution has come with increased penetration with the younger consumers, a higher repeat of the consumers that we do have, and insights of areas to mine with innovation that continues to give me confidence that we're going to grow going forward.

So we haven't been growing that much from absolute innovation. We've been growing a lot through understanding how we can optimize the space we have and bringing better innovations improving our consistency of products and then testing and learning and then expanding our direct-to-consumer communication. And that's what's going to really provide continued and sustained growth going forward. We don't view the category just as we bake goods.

We view it as the snacking universe and that's as someone asked earlier that's a huge platform for us to be able to grow into in a trend that continues to grow.

Rebecca Scheuneman -- Morningstar -- Analyst

Ok. Great. Thanks. And as a follow-up, I'd just love to share some of your insights and your expectations for club stores.

As the newer channel, I had expected that growth would be maintained as the Hostess brand expanded some distribution into it. But the point of sales has been declining the last couple of quarters. I'd just love to hear your outlook for that channel? Thanks.

Andy Callahan -- President and Chief Executive Officer

Yes. One of the reasons why you're seeing the -- and optically it doesn't look as strong as it really is. If you look at the Hostess brand sales in club, they're up double-digits, meaningfully double-digits. The sales -- what you're seeing that's offsetting that is some of our value brand, the lower value brand that is more for the business consumer.

That was disproportionately impacted by COVID or that we had intentionally pruned coming into the year. So that is impacting the club. But what you should take away is that our Hostess brand is growing double-digits within the club channel. And we have some good ideas and new forms that are -- we expect that to continue as we're in 2021.

Rebecca Scheuneman -- Morningstar -- Analyst

Ok, great. Thank you so much.

Andy Callahan -- President and Chief Executive Officer

Yeah. You're welcome. Thank you.

Operator

We have reached the end of the Q&A session. At this time, I'd like to turn it back to Andy Callahan for any closing comments.

Andy Callahan -- President and Chief Executive Officer

Thank you. And thanks to everyone for your participation and interest in Hostess. We're excited to continue the strong execution against our priorities as we drive growth and increase shareholder value in 2021, and many years to come. We're a better Hostess, and we look forward to increasing your shareholder value by working hard for our investors.

Thanks again.

Operator

[Operator signoff]

Duration: 66 minutes

Call participants:

Chris Mandeville -- Investor Relations

Andy Callahan -- President and Chief Executive Officer

Brian Purcell -- Chief Financial Officer

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

Rob Dickerson -- Jefferies -- Analyst

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

Ryan Bell -- Consumer Edge Research -- Analyst

David Palmer -- Evercore ISI -- Analyst

Bill Chappell -- Truist Securities -- Analyst

Faiza Alwy -- Deutsche Bank -- Analyst

Andrew Wilson -- UBS -- Analyst

Rebecca Scheuneman -- Morningstar -- Analyst

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