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. At this time, all participants have been placed in a listen-only mode. It is now my pleasure to turn the floor It is now my pleasure to turn the floor over to Jennifer Meyer, Investor Relations with BellRing Brands for introductions. You may begin.
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. 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. 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. Finally, this call will discuss certain non-GAAP measures. For a reconciliation of these non-GAAP measures to the nearest GAAP measure, see our press release issued yesterday and posted on our website. With that, I will turn the call over to Darcy.
Thanks, Jennifer, and thank you all for joining us this morning. Last evening, we reported our 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. 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 shaved $50 million-$60 million from our second half sales forecast, which is equally split between Q3 and Q4. Although we're 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 over-performance in the first half, combined with non-strategic 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%. E-commerce, 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 promotions. 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's 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 e-commerce. Our launch of ISO100 Cocoa and Fruity PEBBLES has 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.
The 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 we are 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 am energized by the business momentum, expanded distribution, innovation pipeline, and our long runway for growth. I will now turn the call over to Paul.
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 15% 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. Shipments lag consumption as retailers work through an overbuy in March. Additionally, recall we lapped last year's fourth quarter shipments related to a fourth quarter promotion. These inventory-related headwinds were partially offset by strong distribution gains across channels. Dymatize had strong growth in the club and e-commerce 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 e-commerce. This growth was outweighed 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 3.8x. 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 to end the fiscal year with materially lower net leverage and to reach our net leverage target of 3x in fiscal 2021.
Turning to our outlook, we are pleased to reaffirm our fiscal year 2020 adjusted EBITDA outlook of $192 million-$202 million. Based on lower second half expectations due to COVID, we have adjusted our net sales range to $960 million-$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. We are confident in our ability to deliver a strong fourth quarter result.
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.
Thank you. The floor is now open for questions. If you wish to ask a question at this time, simply press star, then the number one on your telephone keypad. If at any point your question has been answered and you wish to remove yourself from the queue, press the pound key. Our first question comes from the line of Andrew Lazar of Barclays.
Great. Thanks. Good morning, everybody.
Good morning.
First off, Darcy, as you mentioned, the trends in food and drug in tracked channels seems to be in good shape, as are club and e-commerce in untracked. It does seem like it's primarily mass in tracked channels that was some of the issue and in some of the data that we all see in scanner. If that's the case, is it primarily sort of promotional timing or is there something else going on there? 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, towards mass, start to look improved.
Sure. 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 e-commerce. There is one category aspect of that, and we are already seeing that change and improve. Specific to our brand, so 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.
Got it. Great. That's helpful. Then when we think about trial and repeat, you've obviously talked about the impressive household penetration gains and sort of about 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 the stickiness, if you will, of some of this incremental household penetration can be not insignificant if we think forward going into your fiscal 2021?
Yeah, I think the biggest predictor of the future is the past. 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. One of the pages follows household penetration from 2016 to now, and you basically see almost doubling of household penetration, but our repeat rate stays consistent at around 50%. I think that right there, when you increase household penetration, you usually see a decrease in repeat, but we haven't.
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. 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.
Thanks so much, Darcy.
Thank you.
Our next question comes from the line of Ken Goldman of JPMorgan.
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. 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? 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?
We absolutely evaluated it. As you know, we overachieved the first half. 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. 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 sales forecasts were slightly off. In many ways, we were ready for this because we wanted to deliver on our annual commitment on EBITDA. I feel confident. We have good visibility into Q4 already. That's the main reason why we didn't adjust it.
Thank you for that. 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've hoped for or expected during the crisis so far? Given your limited number of products already, was that something you didn't quite feel as much of?
Yeah, there really was no pressure around SKU assortment.
Short and sweet. Thank you.
Thank you.
Our next question comes from the line of David Palmer of Evercore ISI.
Thanks. Good morning. Just looking at your advertising and consumer marketing, the spending for the first nine months, looks like that was up almost 200 basis points as a percent of sales, which I think that was similar to what you would've thought, but although I remember the promotion and advertising was supposed to be going up 300 basis points. Could you comment on your growth spending year- to -date? Is it in line with what you were going to spend? Do you still plan on spending that same sort of step up in the fourth quarter? Then looking into 2021, are you thinking similar amounts of growth 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. I have a quick follow-up.
Great. I'll hit the strategy, and then if Paul has anything specific to add, he will. From a strategy standpoint, our plan from an 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. We were 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. Candidly, we are seeing softness in the category. We also saw benefits on cheaper advertising rates, more eyeballs, et cetera. Overall from the year, our media spend is very similar to what we expected. Just to specify, but in Q4 we will have a small A&P budget because of our heavy promotional spend.
On the 2021 question, we saw this year as really, this was our first year with television advertising. It was very effective in building household penetration, which was our main goal. We expect and plan to increase that in 2021. Obviously, we're in the process of doing that planning right now.
As we're looking into 2021, there's many gives and takes here with regard to how we should think about your top line. You were 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. How are you thinking about the major chunks of gives and takes as we try to model fiscal 2021, particularly as regard to that top line? Thanks.
Yeah, I don't think we're in the position right now to talk in detail on 2021, which we will obviously do in the next quarter. We are seeing improved category trends in July. Although the recovery took longer than we predicted, it was actually only about a month difference than what we predicted. We are seeing July liquid category up above pre-COVID levels. 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. It's kind of back to our original playbook.
Thank you.
Thank you.
Our next question comes from the line of Jason English of Goldman Sachs.
Good morning, folks.
Good morning.
Darcy, your performance this quarter definitely caused 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, your guidance implies around 23% growth, roughly speaking. I hear you reference 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. 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?
You're exactly right that we're expecting continued declines in the international business, specifically Dymatize PowerBar. We are expecting to see pretty robust growth in Premier shakes specifically. 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 two-thirds of our quarter from a shipments perspective. Candidly, that is what's giving us confidence.
Okay.
The other thing I would add.
Go ahead.
The only thing, yeah, I would add quickly is that recall that we were also lapping some favorable comps in the fourth quarter of prior year because of the early load into Q3. That is about 9% of benefit to the fourth quarter.
Okay. For my follow-up, I'm going to try to cheat a little bit here and squeeze two questions in. My apologies. I know Jennifer's going to punish me later for it. First, the volatility of the business. From up 32% to up 19% to down 14% to up 23%. That's just this year, we see the volatility going back. Is there ever a scenario, 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? Second part of the question, which is totally unrelated in the cheat of the second question. I look around, the world does not feel anything like a post-COVID world yet, I'm not expecting it or 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?
Yeah. Great questions. Okay, I'll hit the first one around consistency. Our business is just naturally because of we have some club concentration, we have a natural kind of lumpiness in our quarter to quarter. 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. Even last year, we had our capacity constraints. There should be some predictability around promotions, because in essence, the difference between quarter to quarter is usually just promotional loads and deloads. 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 you think about convenient nutrition. The bars, the on-the-go piece and bars have definitely gotten hit the most. In the quarter, bars were down 24%, where RTDs were only down 4%. What's happening within RTDs is I still, even in July, where it is up 7% versus pre-COVID levels of six. I think there are some unique things happening. One, I still believe that the on-the-go use occasion is still under-indexing. People are not out and about like they were before. However, the in-home use is over-indexing. What we're seeing is some new trends around food as medicine or proactive health. 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. I think those are some of the dynamics that where our business actually can benefit, candidly, from kind of a post-COVID or a COVID world.
Thank you very much. I'll pass it on.
Thank you.
Our next question comes from the line of Rob Dickerson of Jefferies.
Great. Thank you so much. I guess kind of a follow-up to the comment you just made in terms of maybe seeing some benefit at home consumption. Around use as a medicine equivalent, so to speak. I feel like, if I remember correctly, I saw it in the last call, you had discussed how maybe a decent percentage of your overall buyer base actually consumes the product at home. Not on the go. Obviously, primarily buying that in a club channel. I guess the question I would have is, if that consumer base, relative to, let's say, other consumer bases within the category, consume 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?
Yeah. It's a great question. You're exactly right. We see about 80%, 85% of our business consumed in the house or at home. What we're doing is, like many other CPGs, is we're evaluating these change of consumer behavior and adjusting. 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 renovate or use packaging call-outs on our packages to call out certain benefits that we have to really leverage some of these trends. On the longer standpoint, we are definitely looking at product ideas that would be leveraging some of the trends that I already talked about.
Okay, great. Then secondly, just speaking with a number of people within the industry and more specifically around your category, there's a feel that's kind of brewing that as we go into shelf resets later this year, that retailers overall are still supporting some of the larger brands. That's obviously the case across all food, but more specifically just with your category. Given there's so many players 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 those shelf resets. Now, I realize you're focused more on clubs.
Maybe the reset isn't adjacent to things, or isn't as consistent or is a little bit different, but how do you feel about your share gaining potential as we go through this process and as you are promoting heavily and as you are trying to expand that household penetration further?
Yeah, I'm really excited about the upcoming resets. Specifically, I think in the past, I've talked about 50% of the shelf sets reset in the fall, 50% in the spring. That can change to be more of a 60/40 split. We have visibility to the new resets that are coming up in our Q1. 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. We're gaining some significant space, which I would argue is long overdue, but I'm very excited to see it.
That's great to hear. I'll pass it on. Thank you so much.
Thanks.
Our next question comes from the line of John Baumgartner of Wells Fargo.
Good morning. Thanks for the question.
Hi, John.
Paul, I wanted to come back to the gross margins. Just given the pressure this quarter, the pressure last quarter, the outsource model, you're not seeing as much leverage as you would if it was insourced. 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, changes in year-over-year promo, maybe just more detail there. 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.
Yeah, sure. From a third quarter perspective versus last year, you're correct, our margins were down. It's really two primary components. It is the increased promotional spend as well as the increase in milk protein cost. It's kind of a 60/40 split, really, from the drivers on the margin side. As we look into next year, dairy costs have been somewhat volatile since after COVID. We were expecting higher protein costs as we went into fiscal 2021. That's been a little bit tempered based on the markets recently, 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, there may be a marginal benefit there. Any protein costs for next year, our thinking is that with some of our supply chain initiatives and their opportunities offset some of that.
We do think there will be some modest headwinds for protein as we go into next year.
Is there any ability to, I guess, maybe hedge more than you have historically? Any changes with your supply chain initiatives on that front, or is [audio distortion] historical than even norm in terms of, I guess, moving up more to chance as opposed to hedging?
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. Yeah, we're continuing to evaluate to find the best way to mitigate that.
Okay. Thanks, Paul.
Yeah, thanks.
Our next question comes from the line of Pamela Kaufman of Morgan Stanley. Pamela, make sure you're not on mute. Our next question will come from the line of Brian Holland of D.A. Davidson.
Thanks. Good morning. Most of my questions have been answered, so maybe just two quick kind of follow on. One, Darcy, sounds like from everything you're saying, that you have pretty good line of sight on distribution gains amidst 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. Maybe just first point of clarification, you do feel very comfortable with the line of sight you have on distribution gains going into fall?
Yes, we do. We have some minor resets happening in the grocery side of the business in Q4, but the major ones we will see in our Q1. Yes, we already know where those will land, and it's positive for our brand.
Okay, got it. 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. 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?
That I always want to be careful with none, no major ones. If you remember, last year, we did only a handful of promotions, specifically in our club accounts. We had a small promotion in mass, which we're lapping right now. What's different about this year is we basically have promotions in almost all of our top retailers.
Appreciate the color. Best of luck.
Thank you.
Our next question comes from the line of Bill Chappell of Truist Securities.
Thanks. Good morning.
Good morning.
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? 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, it seems like a majority of it happened in 3Q . Did something happen differently, or did we just not get the message?
Yeah, I think there are two things. We did our best to communicate the high customer inventory at the end of Q2, which benefited Q2, but hurt Q3. 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. We can work on that for sure. What we missed was, and what was the new information, is the rate of recovery of the category. That was what I was talking about, kind of the W. 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, it actually went back down, and that was that W curve that I talked about. That was really honestly the miss, as opposed to we had visibility to obviously the high customer inventories.
Got it. To kind of follow up on the same lines, what are your kind of current thoughts for active nutrition as we come out of COVID? The reason I say that is, as you saw, as your numbers were declining, sales of ketchup and frozen potatoes were tripling. Clearly there are consumers that have gone to comfort food and are still on comfort food. Just didn't know if you thought it would race back as everybody's 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.
Yeah. Big picture from a trend perspective, there's the temporary piece, which is really this on-the-go reduction. 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. I think that is a temporary piece that we're already starting to improve. I think that when you look at need states, the area that is benefiting is adult nutrition and somewhat the everyday nutrition. What's getting hit is weight management and sports nutrition. I believe that those will come back. 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, et cetera. The fundamentals of this category are strong. People are looking to improve their health.
They want convenience. I have no doubt that this category will rebound.
Okay, great. Thanks for the color.
Thank you.
Our next question comes from Ken Zaslow of Bank of Montreal.
Hey, good morning, everyone.
Good morning.
How does this affect your long-term growth rate?
It doesn't. If you remember, our long-term algorithm, we had planned to have a higher growth rate this year because we were lapping the SKU constraints. The long term was 10%-12% growth with 18%-20% EBITDA margins. Actually, what we're seeing because of COVID is we're actually still delivering on that long-term algorithm. However, we thought we would be over-delivering this year.
Okay. My second question is, when you did the promotional shift from second quarter to third quarter and fourth quarter, how'd that play out? I'll leave it there.
The promotional shift.
Yeah. 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.
No.
That's not the case?
Yeah, no, you're right. A couple things happened. We actually, this last quarter, those moved to Q4 and actually into Q1. What changed in this quarter is we actually ended up doing an incremental promotion in our club accounts, mainly because our club accounts saw the decline in category, and we were their first call. Net-net, we actually ended up with the same amount of promotions in this year, even though we thought they were moving.
Great. I'll leave everything to later. Thank you very much.
Thank you.
Our final question comes from one of Chris Growe of Stifel.
Hi, 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 de-loading to go.
Paul, you want to take that?
I'm sorry, yes. Coming out of the third quarter, we feel like the inventory levels are in balance at our key customers where we have full visibility. We do not anticipate the fourth quarter having significant deviations between shipments and consumption.
Okay, great. 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? On TDPs, are there varying repeat rates based on the new products that are influencing the performance?
Sure. 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. That feels really good. With regards to buy rate, we are seeing some decline in buy rate, mainly just because we're going from big packs in club to smaller packs in FDM, but still very strong. I think I answered your question. Did I get everything?
Thank you.
Thank you.
Ladies and gentlemen, that was our final question. With that, we do conclude today's conference call. You may disconnect your lines at this time, and have a wonderful day.