Damien Albin Douarre @Lyssky: "🔔 𝐄𝐚𝐫𝐧𝐢𝐧𝐠 𝐜𝐚𝐥𝐥 - $VITL..."

France

🔔 𝐄𝐚𝐫𝐧𝐢𝐧𝐠 𝐜𝐚𝐥𝐥 - $VITL (Vital Farms Inc) Vital Farms just dropped its Q1 earnings… And they’re not good, directly hitting the original thesis. However, there are some bright spots which indicate some quality management response to a difficult period. 𝗜𝗻𝗰𝗼𝗺𝗲 𝗦𝘁𝗮𝘁𝗲𝗺𝗲𝗻𝘁 🔹 Net revenue: $187.2M, up 15.4% YoY (below the 25% 5-year CAGR), driven by volume growth but partially offset by egg oversupply, which pressured prices. 🔹 Gross profit: $53M vs $62.5M in Q1 2025, with gross margin falling to 28.3% (vs. 38.5%), reflecting higher input and production costs alongside lower selling prices. 🔹 Operating loss: -$2.3M, compared to $21.8M of operating income last year, due to the factors above and increased cost of sales associated with volume expansion. 🔹 Adjusted EBITDA: $5M vs $27.5M. 🔹 Net income: -$1.5M (vs. +$16.9M), or -$0.03 per share (vs. $0.37). Industry-wide oversupply forced the company to lower prices and redirect part of its output toward breakers and wholesale channels, significantly compressing margins. Rising input and operating costs compounded the pressure. While volumes increased, this was not enough to offset the impact. 𝗕𝗮𝗹𝗮𝗻𝗰𝗲 𝗦𝗵𝗲𝗲𝘁 (𝗤𝟭 𝟮𝟬𝟮𝟲 𝘃𝘀 𝗤𝟰 𝟮𝟬𝟮𝟱) 🔹 Current assets: $209M vs $262.5M Including $51.4M in cash and equivalents vs $113.3M 🔹 Total debt: $0 vs $53M 🔹 Share buybacks: $20M at $19.97 (1,001,747 shares repurchased; $80M authorization remaining) 🔹 Shares issued: 182,180 shares ($2.8M, stock-based compensation) 🟢 The positives: The company is now debt-free, with over $50M in cash, providing a strong financial position and flexibility for future growth investments. Net share repurchases reduced the float (-819,567 shares for the quarter). Stock-based compensation remains a useful tool to align employees and management incentives. 🟠 The concerns: Inventory increased from $66M to $90M, highlighting ongoing oversupply and potential write-down risk. Additionally, the share buybacks at around $20 appear poorly timed, consuming cash that could have been deployed more efficiently after the anticipated downturn materialized in the share price. 𝗠𝗮𝗻𝗮𝗴𝗲𝗺𝗲𝗻𝘁 𝗔𝗰𝘁𝗶𝗼𝗻𝘀 & 𝗦𝘁𝗿𝗮𝘁𝗲𝗴𝘆 Management announced several strategic adjustments: ➡️ Exit the butter business (≈5% of revenue) to refocus on core egg operations ➡️ Reduce capex by ~50% to avoid exacerbating oversupply and margin pressure In Q1, capex totaled $20.8M, primarily for a second egg washing and packaging facility and accelerator farms. Guidance was revised downward: ➡️ Revenue: $775M–$800M (~5% growth YoY vs. historical ~25% CAGR) ➡️ Adjusted EBITDA: $0–$10M, reflecting continued pressure from oversupply and related costs 𝗢𝘃𝗲𝗿𝗮𝗹𝗹 𝗩𝗶𝗲𝘄 I maintain a bullish stance. Prioritizing volume over margins is a rational strategy, as volume growth is harder to achieve and more critical long-term. Cutting noise from the butter business is also a good way to “diworseify” as Lynch would say, bringing back the focus on what works. The decision to slow capex is also sensible given current excess supply, though continued investment will still be necessary to sustain future growth. Cash reserves have declined, and operations are currently losing $2.3M per quarter. With $51M in cash, this provides about 2 years of runway to successfully restore profitability, which is manageable in an environment where oversupply is not sold at a discount. The debt-free balance sheet is a major strength and gives flexibility to shift capex financing toward low-cost debt if needed, preserving liquidity for operations and allowing opportunistic share buybacks at current lower price levels (~$9). 𝗞𝗲𝘆 𝗪𝗮𝘁𝗰𝗵 𝗣𝗼𝗶𝗻𝘁𝘀 ➡️ Volume-driven revenue growth ➡️ Share repurchase activity ➡️ Capex discipline I plan to keep my position unchanged next week (after adding earlier this week) and will consider increasing it once there are clear signs of improvement. Cheers 🥂 D.A.D $SPX500 $NSDQ100 𝘋𝘪𝘴𝘤𝘭𝘢𝘪𝘮𝘦𝘳: 𝘛𝘩𝘪𝘴 𝘱𝘰𝘴𝘵 𝘳𝘦𝘧𝘭𝘦𝘤𝘵𝘴 𝘮𝘺 𝘱𝘦𝘳𝘴𝘰𝘯𝘢𝘭 𝘰𝘱𝘪𝘯𝘪𝘰𝘯𝘴 𝘢𝘯𝘥 𝘪𝘯𝘷𝘦𝘴𝘵𝘮𝘦𝘯𝘵 𝘥𝘦𝘤𝘪𝘴𝘪𝘰𝘯𝘴. 𝘐𝘵 𝘪𝘴 𝘯𝘰𝘵 𝘧𝘪𝘯𝘢𝘯𝘤𝘪𝘢𝘭 𝘢𝘥𝘷𝘪𝘤𝘦. 𝘐𝘯𝘷𝘦𝘴𝘵𝘪𝘯𝘨 𝘪𝘯𝘷𝘰𝘭𝘷𝘦𝘴 𝘳𝘪𝘴𝘬, 𝘢𝘯𝘥 𝘱𝘢𝘴𝘵 𝘱𝘦𝘳𝘧𝘰𝘳𝘮𝘢𝘯𝘤𝘦 𝘪𝘴 𝘯𝘰𝘵 𝘪𝘯𝘥𝘪𝘤𝘢𝘵𝘪𝘷𝘦 𝘰𝘧 𝘧𝘶𝘵𝘶𝘳𝘦 𝘳𝘦𝘴𝘶𝘭𝘵𝘴

Not investment advice. The author may have financial interests in the mentioned instruments.

3 Mentioned

VITL

Vital Farms Inc

SPX500

SPX500 Index (Non Expiry)

NSDQ100

NASDAQ100 Index (Non Expiry)

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