Ladies and gentlemen, thank you for standing by, and welcome to the Vital Farms 4th Quarter 2020 Earnings Conference Call. At this time, all participants' lines are in a listen only mode. After the speakers' presentation, there will be a question and answer session. I would now like to hand the conference over to your speaker today, Mr. Matt Feiler, Vice President of Investor Relations.
Please go ahead, sir.
Thank you. Good morning, and welcome to Vital Farms 4th quarter and fiscal year 2020 earnings conference call and webcast. I'm pleased to be speaking with you today during my first earnings call on board as Vice President of Investor Relations at Vital Farms. On today's call are Russell Diaz Conceica, President, Chief Executive Officer and Beau Meissner, Chief Financial Officer, who is also speaking on its first earnings call as CFO this morning. By now, everyone should have access to the company's 4th quarter and fiscal year 2020 earnings press release filed this morning.
This is available on the Investor Relations section of Vital Farms' website at investors. Vitalfarms.com. During the course of this call, management may make forward looking statements within the meaning of the federal securities laws. These statements are based on management's current expectations and belief and involve risks and uncertainties that could cause actual results to differ materially from those described in these forward looking statements. Please refer to today's press release and the company's annual report on Form 10 ks for the fiscal year ended December 27, 2020, each filed with the SEC earlier today and other filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward looking statements made today.
Please note that on today's call, management will refer to adjusted EBITDA, which is a non GAAP financial measure. While the company believes this non GAAP financial measure provides useful information for investors, the presentation of this information is not intended to be Considered in isolation or as a substitute for the financial information presented in accordance with GAAP, please refer to our earnings release for a reconciliation of adjusted EBITDA to its most comparable measure prepared in accordance with GAAP. I'd also like to note that we are conducting our call today from our respective remote locations. As such, there may be brief delays, crosstalk or other minor technical issues during this call. We thank you in advance for your patience and understanding.
And now I'd like to turn the call over to Russell Diaz Canseco, President and Chief Executive Officer of Vital Farms.
Thanks, Matt. Good morning, everyone, and thank you for joining today. I'd like to welcome Bo and Matt to their first earnings call with Vital Farms. As many of you know, Bo joined us last July and officially transitioned to Chief Financial Officer on December 28, 2020. Matt joined us earlier this month and will be leading our communications with the investment community.
On today's call, I will briefly review our Q4 and full fiscal year 2020 financial highlights and provide an update on each pillar of our growth strategy. Beau will then review our 2020 financials in more detail and provide our outlook for 2021. We then look forward to answering your questions. We reported record performance in 2020, our 1st year as a public company. Net revenue for the full fiscal year increased 52 percent to $214,300,000 In the 4th quarter, net revenue was $54,000,000 a 30% increase compared to the Q4 of fiscal year 2019.
Vital Farms is the leading pasture raised egg brand With over 80% dollar share of the U. S. Pasture raised egg market, the 2nd largest egg brand based on retail dollar sales And the largest contributor to category growth by retail dollar sales in 2020, contributing almost half of total egg category growth. Our products are sold in over 16,000 stores and in 2020, 5,000,000 households purchased our high quality Ethically produced eggs. Our continued track record of growth prior to and throughout 2020 is reflective of the mission and values that distinguish Vital Farms within our category and help us cultivate long standing trust and loyalty amongst our consumers.
We operate the business through the lens of conscious capitalism, maintaining a belief that a business can only be sustainable over time If it's sustainable for all stakeholders. Since the day we were founded, we have prioritized our stakeholders, Farmers, suppliers, employees whom we call crew members, customers, consumers, communities, the environment and stockholders and treated them as true co creators of the business. Our model guides us far beyond producing pasture raised foods and challenges us to consider how we can improve the lives of people, animals and the planet in everything we do. Our designations as a certified B Corporation and Public Benefit Corporation are natural extensions of the purpose driven business we built from the beginning. In January 2021, we published our 1st stakeholder summary, a review of how we serve our stakeholders throughout 2020.
I'd like to share a few highlights that felt especially meaningful and reflective of the trusted ethical food brand we're building. Specifically, as we've expanded our farmer network to over 200 farms, nearly 2,500,000 hens enjoy a meaningfully better life In 2020, we donated 15,000,000 eggs to food banks across the country, saved 25,000 trees by transitioning our egg cartons to a carbon neutral lid and donated to 43 nonprofits that advocate for causes including Animal Welfare, Environmental Conservation, Children's Health and Addressing Systemic Racism. Now I will provide an update on each pillar of our growth strategy. 1st, increasing household penetration 2nd, expanding retail distribution 3rd, growing our foodservice footprint and 4th, innovating new ethical food products within existing and new categories. Starting with household penetration.
We ended 2020 with 3.9% household penetration for Vital Farms eggs, which represents 5,000,000 households that purchased our Shell eggs, a 50% increase over the prior year. New purchasers defined as households who purchased Vital Farms in 2020 and not in 2019 increased 55% And retained households defined as households that purchased Vital Farms in 2020 2019 increased 38% versus the prior year. We retained 50% of the households that purchased our eggs in the initial 8 week stock up period between March April 2020, With 61 percent of those consumers making 2 or more repeat purchases. We believe our strong household We plan to invest in attracting additional new households as well as continually engaging loyal consumers through strategic marketing that educates consumers about our brand, Values and the premium quality of our Pasteurised products. In January, we launched our newest brand campaign titled where honest food is raised.
This new campaign, the first that features all of our products, stars a crew member from our farmer support team And humorous storytellers who highlight the attributes that define our egg, butter and egg bites products. Humanely treated hens and cows Digital, social and streaming television platforms. This is just one example
of how we're
continuously investing to build our brand From increasing awareness by educating consumers on our values to driving loyalty with multiple product And digital touch points like the monthly Vital Times newsletter that comes in each carton or our thoughtful and personal interactions with consumers on social media. Now to expanding our retail footprint. As of December 2020, our products are sold in more than 16,000 stores, a 12% increase from the prior year. Following a significant increase in store count that we saw in the Q3, our 4th quarter count remained relatively flat as most retailers do not perform shelf resets during this time of year. We continue to see faster growth in the mainstream versus the natural channel.
For the full year 2020, natural channel retailers represented 46% of retail dollar sales compared to 49% in 2019. Mainstream channel retailers represented 54% of retail dollar sales compared to 49% in 2019. Additionally, we have significantly expanded the number of placements in each channel with 46% 2 year CAGR in mainstream And 27% 2 year CAGR in natural. We believe mainstream channel sales representing a slightly higher percentage of our overall consumption Demonstrates the growing consumer demand and preference for high quality ethically produced foods. We also believe there are several opportunities for growth ahead of us, including incremental growth in distribution across existing channels, building on current momentum and expanding to new channels.
We're also seeing increased demand for free range and pasteurized eggs, which we refer to as outdoor access eggs across the entire category. In 2020, demand for outdoor access eggs in the mainstream channel increased 33% versus 1 year ago, representing a 10% share of total eggs sold. In the natural channel, demand for outdoor access eggs increased 20%, representing 59% Total eggs sold. Across both channels, our dollar share of the Outdoor Access segment increased to 27% as of December 2020, And we contributed 55% of the growth in the Outdoor Access segment versus 1 year ago. From 2019 to 2020, our share of the Outdoor Access Ag segment increased 480 basis points.
The growing demand for outdoor access eggs across both channels combined with our strong growth within the outdoor access category speaks to our potential to further penetrate both channels. We see significant opportunity in the mainstream channel. The 10% share for Outdoor Access Eggs is relatively small, though steadily growing. And we believe our branded products will enable us to expand distribution within existing and new Additionally, recognizing the accelerated demand in online grocery, we invested in marketing initiatives with existing customers, including Target and Kroger, as well as 3rd party delivery companies such as Amazon Fresh, where we have the 2nd ranked egg brand by retail dollar sales. We expect online grocery to remain an attractive convenient option even after widespread vaccinations against COVID-nineteen and we will continue to invest, Test and expand our e commerce capabilities to meet consumers where and how they prefer to shop.
As we expanded our retail distribution throughout the year, Our total brand velocities remain strong outpacing our top 5 competitors in both channels. Finally, we fulfilled the heightened demand across all channels Without any significant disruption to our supply chain and we continue to invest in our future growth. We're on track with our facility expansion, which will nearly double our current Square footage and increase our capacity to manage increased distribution. We expect to complete this facility expansion by mid-twenty 22. On to increasing foodservice distribution.
We maintain this segment of the business with flat performance in 2020, given the unfortunate And understandable headwinds the restaurant sector faced as a result of the pandemic and significantly reduced diner traffic. We launched 2 regional concepts in 2020 with Cafe Patichu, a breakfast and lunch restaurant with 5 locations in the Indianapolis area And King David Tacos, a brand that specializes in Austin style breakfast tacos based in Brooklyn with additional points of distribution across New York City. We see significant opportunity for medium to long term growth across the foodservice channel. In January, we launched a new partnership with Acosta Foodservice, a U. S.
Foodservice sales and marketing agency that specializes in the consumer packaged goods industry. Acosta is our 1st national sales and marketing agency for foodservice and will focus on increasing broad line distribution and expanding into more national and regional restaurant chains. We invested in this partnership because we believe we'll substantially expand our foodservice footprint by partnering with values driven operators who source our high quality products and believe our brand will resonate with their diners. Our brand has a differentiated value proposition, and we believe the same trends that attract consumers to our pasture raised products at the grocery shelf We'll influence diners eating outside of their home as they continue to seek food selections they can trust. Now an update on innovation, where we're investing to expand our product offerings in new and existing categories.
The success we've seen with our core products confirms our belief A growing number of consumers are interested in more pasture raised and ethically produced foods from Vital Farms. As we look beyond our existing categories, We continue to research and test offerings that adhere to the ethical standards consumers know and trust from us. This includes convenient snacking products, Building off the Egg Bites launch in August 2020, where we have steadily increased distribution to 13 10 retail stores and as of December 2020 are the leading eggbite brand in the natural channel. We plan to launch our next product innovation later this year. Finally, a word on what we're seeing at this point in 2021.
In the 1st couple of months of 2021, we're seeing consumption patterns consistent with or in some cases outpacing those we observed in the Q4 of 2020. Now before I turn the call over to Bo, I want to be very clear in our belief Vital Farms is uniquely positioned to address a substantial market opportunity. I also want to address any questions about our ability to And the growth we saw in 2020 in the post pandemic Europe. First, we demonstrated significant growth in net revenue, Retail distribution and household penetration prior to the pandemic. We believe this growth was largely driven by the growing number of consumers seeking ethically produced foods as well as the trust, honesty and transparency that's inherent in our brand.
2nd, Like many food companies, we did see an acceleration of growth due to stay at home trends in 2020. But I want to emphasize the number of households who stayed with us throughout 20 When presumably they had more options at the shelf once the initial pantry stocking period ended in April. Both prior to the beginning of the pandemic And throughout 2020, we have demonstrated that our high quality products and trusted brand inspire loyalty. We attracted households in a shorter period of time than we expected as a result of the pandemic and we believe that we'll retain these households and continue to attract new consumers to our brand in the months years to come. 3rd, we're investing 1,000,000 In our future across every pillar of our growth strategy, this includes growing our network of farm partners, which is now over 200 farms, Doubling our capacity at Egg Central Station, our world class egg washing and packing facility, launching a national food service partnership with Acosta And attracting talented and experienced crew members and board members to expand the breadth and depth of our competencies.
I am confident that Vital Farms is well positioned for continued growth and success in 2021 and beyond. I'll now turn the call over to Beau.
Thank you, Russell. Hi, everyone, and thank you for joining us today. It's an honor to be here on my first earnings call and to follow Jason in this position. I look forward to helping Vital Farms carry out its mission to deliver ethically produced food to millions of households across the country. As Russell mentioned, I will review our financial results for the Q4 and the full year ended December 27, 2020, and provide our outlook for 2021.
First, I'd like to touch on 4th quarter financial results. As Russell mentioned, we achieved net revenues of $54,000,000 an increase of 30% compared to the Q4 of 2019, which was driven by an increase in egg and butter sales due to high turnover rate of sales to our retail customers and new distribution at both new and existing customers. We believe the impact of COVID-nineteen pandemic resulting in fewer or smaller holiday gatherings was offset by the increased consumption due to continued stay at home trends. Gross profit for the 4th quarter was $17,600,000 or 33 percent of net revenue compared to $9,800,000 or 24 percent of net revenue for the Q4 of 2019. The $7,800,000 increase in gross That was primarily due to the increase in net revenue with the majority of the 905 basis point expansion attributable to better egg utilization, Lower material costs for eggs and butter and volume leverage over our direct labor and overhead costs.
Adjusted EBITDA loss for the 4th quarter $100,000 compared to a loss of $4,700,000 for the Q4 of 2019. Now turning to our full year results. For fiscal year 2020, net revenue was $214,300,000 up 52% compared to $140,700,000 in net revenue in 2019. Growth in net revenue for 2020 It was primarily driven by an increase in egg and butter sales due to a high turnover rate of sales to our retail customers and new distribution at both new and existing customers, some of which resulted from stay at home trends associated with COVID-nineteen. Gross profit was $74,500,000 or 35% of net revenue for fiscal year 2020 compared to $42,900,000 or 30% of net revenue for fiscal year 2019.
The $31,700,000 increase in gross profit was primarily due to the increase in net revenue With a portion of the 4.31 basis point expansion in gross margin attributable to the lower material costs for eggs and butter and volume leverage over our direct labor and overhead Total operating expenses were $62,300,000 or 29 percent of net revenue compared to $39,500,000 or 28 percent of net revenue last year. This includes SG and A expenses of $47,400,000 a $17,900,000 increase compared to 2019 And shipping and distribution expenses of $14,900,000 which increased $4,900,000 year over year. The increase in SG and A was driven by higher employee related costs due to larger overall headcount to support our operations And more professional fees and commercial insurance costs due in part to our status of the newly public company. The higher level of spending on shipping and distribution expenses was due to stronger sales volume, which resulted in increased costs related to 3rd party freight associated with distribution of our products. Total income from operations was $12,200,000 this year compared to $3,300,000 a year ago, driven by the aforementioned factors.
Net income was $8,800,000 or $0.27 per diluted share compared to $3,300,000 or $0.07 per diluted share in 2019. Our adjusted EBITDA was $16,800,000 for fiscal year 2020 compared to $6,400,000 for fiscal year 2019, which represents 162% increase. The improvement in adjusted EBITDA was primarily due to volume increases to our distributors and expanded gross margin as well as leverage over fixed operating costs. The increase was partially offset by higher SG and A expenses due to the larger headcounts as part of our operations and the increase in professional fees and commercial insurance costs due in part to our status as a newly public company. Now shifting to our capital structure.
As of December 27, 2020, we had total balance sheet, Cash and investable securities of $97,900,000 We also paid off all of our current and long term debt outstanding within the year. Looking ahead to 2021, we expect net revenues in the range of $246,000,000 to $253,000,000 representing growth of 15% to 18% over 2020, which was aided by COVID driven demand that added roughly 20% for the top line growth last year. Additionally, we expect the second half of the year will produce stronger net revenue growth rates in the first half We see a range of $6,000,000 to $8,000,000 in fiscal year 2021. We expect the lower year over year level of adjusted EBITDA will be driven by increased commodity costs and higher distribution expenses, increased marketing spend as we proactively expand the retail footprint of the business and finally increased SG and A as we enter a full year as a public company. Thanks for your time and interest in Vital Farms.
Before we take your questions, I want to reinforce our confidence in the year ahead. We have a strong brand portfolio of high quality products that millions of households across the country trust for ethically produced food. We believe this foundation combined with the acceleration of growth we have seen prior to and throughout 2020 leave us well positioned for a successful 2021 and beyond. And with that, I'll turn the call back over to Russell.
Thanks, Bo, and thanks to everyone who's on the call today. We really appreciate your interest in the Vital Farms mission, and our products and our growth story. 2020 was a record year and we're really excited about what 2021 has in store.
Our first question comes from Rob Dickerson with Jefferies.
Great. Thank you so much. Just a couple of quick questions for me. Just the first question, Just around the top line, I think you had said the expectation would be for more normal rates of growth Potentially in the back half of the year, but also sounds like maybe consumption is coming in a little bit better In Q1, you may have expected and we can see some of that through the data. So I'm just curious, given all the moving parts So just the top line inclusive of new business wins, lapping the pandemic, what have you.
As we think through the year, Could you maybe just give a little bit more color as to kind of how you would think through that cadence on the top line in growth terms? Like maybe Q1 is a little bit better and then there's a lap that comes down and then maybe you kind of normalize out to kind of a More normal rate of growth in the back half, that would be helpful. And I just have a quick follow-up.
Yes. Thanks for being with us, Rob, and appreciate the question. So yes, I think the general kind of Summary that you offered is fair, which is we attracted a lot of new households in 2020 and have retained a big chunk of them, which We described in the earlier part of the call. In terms of how the year plays out, I mean, we as you know, we aren't offering quarterly guidance, but what I will say is that Quarterly guidance, but what I will say is that, certainly on the distribution side, we're seeing retailers Return to a more normal cadence of kind of reset windows and conversations and The ones we've had so far that will affect the back half of the year are happening with a pretty good That's right, similar to what we might have expected in a normal year. So that has returned to normal, we think, and that will give us upside opportunity in the back half of the year.
In terms of marketing, as we described, we're making substantial investments in attracting new households and retaining them And that will continue in 2021. And so we feel great about our ability to continue to drive growth in both ways, both with new distribution and with attracting new households.
And Rob, the only thing I would add to that Rob is just that In the supplemental deck, we sort of put in our best estimate of what we thought the lift was from COVID by quarter in 2020. If you back that out and look at The growth we're anticipating in 2021 ex the COVID lift in the pantry load periods, We're anticipating slightly above 30% growth, which is what we've seen for the last couple of years. But in the first half, we're anticipating that that So it will be less than 30% in the back half, greater than 30%. As we have it on supply last year, It wasn't really until post the load periods in Q2 that we really started to add Supply because we're coming from a period of oversupply. So the farms that we have coming on board are really coming on in the back half of the year, which is why we're also seeing slightly higher growth along with The retail is going to a regular cadence of new distribution.
Got it. That's extremely helpful. And then just one quick question On the cost structure, more focused on the commodity side. I know you share some of the cost on the feed side. I just asked because I get a lot of questions around this.
It seems like there is some incremental cost inflation pressure, not just for you, but for a lot of companies right now. So maybe if you could just kind of help us understand a little better how some of that feed cost inflation pressure Kind of flows through for you specifically because again it doesn't sound like it's maybe as bad As I might think, that'd be helpful. That's all I have. Thank you.
Thanks, Rob. I'll take the first stab at that and then if Bo wants to chime in on things I've missed, That'd be great too. So, you're right. The way that our contracts are structured with our farmers, we made the choice years ago to take the burden of input cost pressure off of the farmer. And what that means is that Each quarter, we adjust the price we pay our farmers for their eggs based on The actual fee input costs they experienced in that prior quarter.
So With some delay, we do see changes in the price we pay the farmer for the eggs that are meant to Make their profit potential neutral to the impact of changes in commodity So the if you think about our cost and gross margin structure, feed costs are just a smaller portion of our cost of goods, I think then producers of lower priced or more commodity type eggs and other proteins. Bo, do you have anything to add to that?
Yes. And Rob, I think as Russell described as percent of sales, certainly that's the case for us. But one of the metrics that we provided in the S-one and updated in the K just based on our volume trends is what a 10% change I mean, average weight of our commodity costs would impact our P and L. And based on the volumes for 2020, We estimate that a 10% change in commodity costs would result in about a $3,400,000 change in our P and L. Now a portion of that's for butter Costs, but you can think of the lion's share of that being the feed cost that Ryan that Russell had talked about.
So I think if you just look at the what the market has done year over year in terms of an increase, you can help model you can model that out based on The change factor that I just quoted, realizing that there's a 1 quarter lag between when we true up the farmers and when the commodity prices change. So With that, we're really going to see, I think, assuming commodity prices level off the largest increase versus year ago.
Yes, that's great. Really appreciate the transparency. Very helpful. Thank you, everyone.
Thanks, Rob.
Thank you. Our next question comes from Adam Samuelson with Goldman Sachs. Your line is open.
Yes, thanks. Good morning, everyone.
Hey, Adam. Good morning.
Hi. So, Russell and Bo, maybe just
continuing on that exact point on
the commodity just to be
Clear. If I take that commodity sensitivity that you just discussed and I look at kind of where Main feed ingredients have moved. I would and think about some growth in your volumes kind of consistent with your revenue growth. I would think about a kind of $8 or so $1,000,000 or $300 to 3.50 basis point Gross margin headwind from Feedingredients in 2021 on a year on year basis and Just want to make sure that is that fair or conversely what is actually embedded in the
Thanks for the question, Adam. I think the only thing that in your quick talk that you just did that you Probably have included is that there's a portion of that $3,400,000 for a 10% shift that is butter. And if you think of the butter, it's a higher percentage of the ingredient cost for the butter sales that we have. So I think it would be a little bit south of what you quoted just because you have to back off of the 3.4 to back out the impact of butter, but you're certainly in the range.
Okay, that's helpful. And then maybe just again more continuing on that point on guidance and just help us Think about kind of you've had a step up in SG and A in the second half and should we look at 4Q as maybe more reflective Of the run rate as we move into 2021? Bo?
You may take that Yes. I think that that's a good basis to start with. I mean a couple of things to remember is that In Q4, we did have our secondary offering. So there's some costs associated with the secondary offering that won't be replicated In 2021, in the quarters. And we're still planning to invest behind the business with additional headcount to support the growth that we're seeing.
So I think if you used Q4 as the base and then assume that it's going to grow over time as we Still increase our headcount. I think that's a good assumption.
Okay. And then just finally, On innovation, it was something that, Russell, you mentioned briefly in your prepared remarks. And You talked about kind of next innovation later in the year. And I guess I'm just trying to think about, a, Not really a meaningful incremental revenue contributor in 2021, that stuff that hasn't been introduced yet. But B, just trying to think about the trajectory into 2022 and 2023 at a high level, are we thinking about more kind of Line adjacencies like egg bites or are we thinking that no, this is Vital Farms and kind of entirely new Larger kind of categories that could have a bigger step change contribution to the revenue forecast.
Yes. Appreciate that, Adam. I think we've been pretty consistent in our messaging that you don't have to believe in kind of a big Blue Sky new category entry to believe in the Vital Farms growth story. At the same time, any new product we introduce We'll meet a bunch of really stringent criteria for us across both consistency with our mission and brand all the way to something that we know we can execute really well. And so I think in the near to midterm, what you can expect from us Our continued focus in the value added dairy space and continuing to focus on the farmers and Supply chain we know well.
So, we will continue to incorporate, I think very realistic expectations for the results from our innovation in our forecasts, But I wouldn't categorize it as a totally new space for us.
Okay. I really appreciate that color. I'll pass it on. Thank you. Thanks.
Thank you. Our next question comes from Matthew Smith with Stifel. Your line Matthew, please check your mute button.
Hi, good morning. Sorry about that. The new customer gains in household penetration Progress in 2020 was well ahead of our expectations. It was aided in part by the pandemic and the surge at at home consumption. But Can you discuss your priorities for investments in 2021 as you look to continue the progress in household penetration and retain the new buyers?
Should we expect increases in both marketing and promotional activity?
Yes. Good morning, Matthew, and thanks for that. So I think we mentioned in the earlier part of the call, that on a kind of percent of revenue basis relative 2020, you'll see expanded investments on both sides, both marketing and trade. And those reflect As much a return to normal as they do, a substantial change in, our the level of investment that we place in those two So, it looks a little bit more like a return to pre pandemic levels, I would say. But yes, we're there's a Tremendous amount of growth potential ahead of us and it relies on us attracting new consumers to our marketing efforts, including the new ad campaign that we launched this year And retaining them with both marketing efforts and an appropriate cadence of trade spend to keep us top of mind when they shop.
So you'll see continued investment in both this year.
Great. Thank you. And then as a follow-up, can you discuss your expectations For new customer wins in 2021 versus building out distribution at existing accounts, whether that's more doors or Additional products and existing doors?
Yes, I appreciate that. I definitely we're in So many of the major retailers that can really move the needle in terms of New chains that we might get into. However, as we've said on past calls, we're not necessarily in every door in those chains And we certainly have room to expand our portfolio in many of those doors. So if I were to rank kind of the upside opportunities, 1st and foremost, it's continuing to build on our high trust relationships with our retail partners To grow our presence on their shelves and expand our portfolio on their shelves. In addition, as our products perform well in the doors that we already have that often leads to our ability to get more doors.
Finally, it's the conversations with chains that we have no Today, but again, there aren't too many of those left.
Great. Thank you, Russell. I'll leave it there and pass it
Thanks so much. Thanks.
Thank you. Our next question comes from Zane Zaslow with BMO. Your line is open.
Hey, good morning, everyone.
Good morning. Good morning. Just
When you think about the commodity cost and you think about your pricing structure, do you think how you balance the idea of potentially taking pricing versus penetration? Or is it that you will allow The higher input cost to kind of do what it's got to do and eventually it will come back down and you're looking for greater penetration. Can you talk The balancing between the 2 of that and just as a follow-up to that, as you renegotiate your contract, are there any changes to that that would change
And again, if I've missed anything, Bo, please chime in. So first of all, in the spirit of the question Around potentially impacting price. We have not taken kind of a price change in And I think that's very consistent with our focus on top line growth first and foremost and on the notion that we're building a trusted CPG brand as opposed to being a cost plus commodity producer. And so we're very reluctant to think about Taking costs, although that's not necessarily off the table. But our focus in the near term has actually been on potentially Reducing the depth of our promotional spend and our promotions at retailers, potentially to reflect The increased commodity prices and the impact that we may see in the pricing of other egg on the shelf, for example.
Our Our guidance reflects the view that we won't take a substantial price change to reflect commodity pricing, but also reflect the potential that more commodity egg offerings may see price increases and that pricing compression can help accelerate Sales because it reduces the gap between our pricing and the pricing of lower cost alternatives. In terms of our contracts with Again, we think it's really important for the long term sustainability of our farmers that they not bear The brunt of changes in commodity prices. I think we've seen in the industry, I think the last We saw a big jump in commodity prices back in 2012 that put a lot of pressure on farmers that didn't enjoy the kind of relationship that we have with them. And we I want to have a farmer who's finding this unsustainable financially, they don't have the ability to affect pricing, and we do. So we think it's important that we link the ability to affect pricing and the ability to absorb commodity price changes together and that's on us.
Bo, anything You would add to that.
No, I think that you got every piece I would have had, Russell. Thanks.
Thank you, guys. Thank you. Thanks a Thank you. Thank you.
Our next question comes from Jacob Nivash with Credit Suisse. Your line
is open.
Hi Hi there, guys. Thank you very much for the question. I'm on for Rob here. Just a quick one for me.
I think we covered most of my questions here. But the capacity expansion plans, is that Still on track for I think you guys said first half of twenty twenty two, is that still on track there? Hey, Jacob. Yes, absolutely. So We continue apace the we love seeing the pictures.
We hope someday to have you all out To see the expansion, we're really excited about it. And yes, we're on schedule for an opening in the first half of twenty twenty two.
Okay. Yes, that's it for me. Thank you very
much. Thanks again. Thank you.
Thank you. I'm showing no further questions at this time. I'd like to turn it back to Matt Seiler for any closing remarks.
Just want to say thanks to everyone for their time today. If you have any questions, I'll be around all day and
Thank you for participating. You may now disconnect. Everyone, have a great day.