Hostess Brands, Inc. (TWNK) Q1 2023 Earnings Call Transcript

Hostess Brands, Inc. (NASDAQ:TWNK) Q1 2023 Results Conference Call May 9, 2023 4:30 PM ET

Company Participants

Amit Sharma - VP, IR

Andy Callahan - President and CEO

Travis Leonard - CFO

Conference Call Participants

Ken Goldman - J.P. Morgan

Rob Dickerson - Jefferies

Pamela Kaufman - Morgan Stanley

Steve Powers - Deutsche Bank

Cody Ross - UBS

Operator

Greetings, ladies and gentlemen, and welcome to the Hostess Brands First Quarter of 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is my pleasure to introduce your host, Amit Sharma, Vice President of Investor Relations. You may begin, sir.

Amit Sharma

Good afternoon, and welcome to Hostess Brands First Quarter 2023 Earnings Conference Call. Joining me on today's call is Andy Callahan, Hostess Brands' President and CEO; and Travis Leonard, Chief Financial Officer. By now, everyone should have access to the earnings release for the period ended March 31, 2023, that was published at approximately 4:00 p.m. Eastern Time. The press release and investor presentation are available on Hostess' website at hostessbrands.com. This call is being webcast, and a replay will be available on our website.

During the course of this call, management will make a number of forward-looking statements, including expectations and assumptions regarding the company's future performance. Actual results may differ materially from these forward-looking statements, and we undertake no obligation to update or revise these forward-looking statements. A detailed list of these risks and uncertainties can be found in today's earnings release and in our SEC filings.

Management will make a number of references to non-GAAP financial measures that we believe will provide useful information to the investors. A full reconciliation of these non-GAAP measures to the most comparable GAAP measures is included in the earnings release. With that, I will turn the call over to Andy Callahan, our President and CEO.

Andy Callahan

Good afternoon. Today, I will begin with a few highlights of yet another quarter of strong performance. I will offer a few comments on our long-term growth drivers, and then Travis will provide a more detailed review of our quarterly financial results. We will close with a discussion of our full year outlook before opening up to questions. 2023 started strong as we delivered another quarter of net revenue and profit growth while lapping very strong year ago comparisons. We continue to execute at a high level. And as we look towards the remainder of the year, we are confident in reaffirming our revenue and above algo profit growth guide in 2023.

Now to a few highlights for the quarter. Net revenue increased by 4% as we lapped 25% growth in the year ago quarter. As expected, quarterly net revenue was driven by higher price mix, which offset lower volumes as we lapped strong volume growth in the year ago quarter. As a reminder, our year ago results benefited from our extremely strong supply chain execution in a dynamic environment. We are proud of the sustainability of our top line growth as we build a premier pure-play snacking company with a focused strategy, a proving go-to-market model, new advanced capabilities and consistent and disciplined execution.

Our Sweet Baked point-of-sale dollars increased 0.5% during the quarter and up 25.2% on a 2-year stacked basis. As expected, pricing was a large driver of Hostess growth during the quarter due to the carryover impact of last year's pricing actions. Long-term snacking trends, including for sweet indulgent snacks continue to increase as consumption behavior remains sticky, and consumers continue to adopt a balance sheet approach to their snacking choices.

Turning to the Voortman brand. Voortman POS increased 10% in the quarter, including 14% growth for the recently rebranded Voortman Zero Sugar segment. On a 2-year stack basis, Voortman's POS increased 39% as our leading position in the faster-growing zero sugar cookie subsegment continues to be fueled by our strong innovation and ongoing investments to drive brand awareness. Our continued focus on execution and discipline across the supply chain enabled quarterly adjusted EBITDA growth of nearly 4% during the first quarter and drove a 13.4% CAGR over the last 2 years.

Adjusted EPS also increased by nearly 4% in the quarter and an 18.3% CAGR over the last 2 years. The first quarter results were in line with our expectations, enabling us to reaffirm our full year top line and above all profit guidance for the year, and we remain well positioned to deliver even stronger volume growth in the second half of 2023. Underpinning my confidence in the second half 2023 growth are a few key points.

First, the volume impact of last year's multiple pricing actions, combined with the distortion caused by strong year-ago execution, which are muting growth this quarter will dissipate in the second half. Second, the positive impact of our strong innovation lineup, increased year-on-year advertising support, particularly in and merchandising will become more evident as we lap the majority of our pricing in Q3. Let's discuss these drivers in a little more detail. Our prolific and insight-driven innovation continues to be a driver of our sustained profitable growth.

Led by Baby Bundts, Family Packs, and Bouncers, we drove the most absolute innovation retail sales in the Sweet Baked Goods category in '22 with over 2x our fair share contribution. In the first quarter, we were once again the #1 innovator in the category for the last 52 weeks. We continue to advance our new product development capabilities to fully unlock the potential of our iconic brands and access to attractive snacking occasions to drive overall Hostess and category growth. Our 2023 innovation is headlined by Hostess Kazbars, which started shipping in late March. And wow, what a start.

With Kazbars, we have taken what Hostess does best, our iconic moist cake and transformed it into a multi-textured layered snack bar with 6 layers of gooey caramel or chocolate fudge and Candy Crunch wrapped in chocolate, a truly unique product in the broader $65 billion addressable snack market. Again, bringing what Hostess does best, high-quality cake to an indulgent bar form. Initial distribution and merchandising have been excellent with very strong customer support. And while it's too early to tell, the first few weeks of retail takeaway and consumer feedback has been very encouraging.

Kazbars is indeed an exciting innovation, but it's not alone in our lineup. In addition to Kazbars, in the first quarter, we introduced old-fashioned Donettes and chocolate Baby Bundts under the Hostess brand. Under the Voortman brand, we rebranded our sugar-free cookie and wafer products line to zero sugar as we work to broaden the appeal and interest of these great products to a wider consumer demographic. We also launched 2 flavors of 0 sugar mini wafers during the quarter. Additionally, we launched packaging innovation this quarter. All of our Voortman cookie packaging now includes an easy open and resale feature.

This new pull-tab open feature and reseal capability is sure to be a consumer delighter driving higher purchase intent and overall consumer satisfaction. We are continuing to support our innovation as well as our core through strategic marketing and advertising. Our high ROI 100% digital advertising is focused on digital video, social media, e-commerce and retail media, and it's highly effective and highly efficient at driving top of mind awareness, a key hurdle for consumers who currently do not buy Hostess products.

We continue to build our national advertising campaign to support our core icons as well as remind millennial parents of what they love most about Hostess and what makes us distinctive, are high-quality baked cakes and our great-tasting flavors. And lastly, I'm confident that our continued focus on growing our partnerships and servicing our customers as well as investing in our brands will drive our sustained growth over time while expanding the category. With this solid foundation, I continue to see us getting stronger year after year, and this is certainly true now as I look at our customer plans and initiatives for the remainder of the year.

As we look ahead, we expect a more historical cadence of merchandising activities with strong retailer support across all formats. We are also gaining additional permanent and temporary displays to drive multiple points of availability within stores, including at the front end, which is a key driver of our impulse-driven snacking portfolio. As we grow, we continue to focus on agility, efficiency, safety and quality. Our dedicated talented workforce continues to execute at high levels, driving significant improvements across the supply chain and advancing our productivity agenda. The build-out of our new bakery in Arkadelphia, Arkansas remains on track and is expected to come online in the fourth quarter.

We remain focused on growing the right way over the long term. We are making great progress on our corporate responsibility initiatives and look forward to sharing this progresswith the release of our annual corporate responsibility report in June. In addition, we continue to work with our national nonprofit partner NAMI, the National Alliance on Mental illness to support mental health programming and help eliminate the stigma associated with mental health in the workplace.

In support of Mental Health Awareness Month, just last week, we hosted an incredible session with NAMI and our employees to discuss ways to manage anxiety, highlighting a number of mental health resources both through our benefits program and our NAMI partners. At Hostess Brands, we will continue to care about each other as we inspire moments of joy by putting our hearts into everything we do. Attaining all of our key corporate responsibility goals is an important component of the strategic objectives of our executive team, and it has direct oversight from our Board of Directors.

In summary, I am pleased with our solid start to the year, enabling us to reaffirm our full year net revenue, EBITDA and EPS guidance while building on our track record of delivering strong results. We are executing on our strategic priorities to build a premier snacking company, and I believe we have the right consumer insights, the right innovation pipeline, the right brand building strategy and the best team to deliver long-term sustainable growth and shareholder value.

With that, let me turn it over to Travis to go through the quarterly financial results and our reaffirmed outlook in greater detail.

Travis Leonard

Thanks, Andy. I'm proud to speak to another quarter of solid financial results delivered by the Hostess Brands team. I will start with a review of our top line results. Organic net revenue for the first quarter increased 4% to $345.4 million, driven primarily by price mix as we benefited from the carryover impact of last year's pricing actions and favorable mix. Price/mix contributed 14.6% to the quarterly growth, while volume declined by 10.6% as we lacked strong volume growth in the year ago quarter.

Our net revenue growth rate was consistent across the portfolio as Sweet Baked goods, which accounts for nearly 90% of total net revenue, grew 4% during the quarter, while our cookie portfolio grew 3.6%. Switching to retail sales trends. Our Nielsen measured Sweet Baked goods point of sale increased by 0.5% for the 13-week period ending April 1, while our cookies POS increased by 10.1% in the period both lapping last year's strong growth. As Andy mentioned, on a 2-year stack basis, our Sweet Baked goods sales were up 25.2% in the quarter and Voortman growth was even stronger at 39.1%, driven by our continued momentum in the Zero Sugar subsegment.

In the 13 weeks ended April 1, 2023, our dollar share of the Sweet Baked goods category declined by 166 basis points to 20.3%, while Voortman share of the cookie category declined by 7 basis points to 2.2%. We remain committed to our sustainable growth strategies, which have enabled our ability to grow share over time. As you can see, our net revenue grew ahead of our retail takeaway this quarter due to growth in our nontrack channels as well as timing of shipments, which is expected to normalize over time. Our single-serve POS increased by 4.9% during the quarter, while our multipack offerings declined by 3%, as both lapped over 20% growth in the year ago period. Moving to the rest of the P&L.

Adjusted gross profit of $121.1 million increased by 4.6% in the quarter, driven by favorable price/mix and productivity benefits, which more than offset higher supply chain costs, including inflation. While inflation moderated sequentially from the fourth quarter, it remained elevated at 13.7% during the first quarter, adjusted gross margin of 35.1% improved by 20 basis points from the year ago period. Adjusted EBITDA increased by 3.9% to $80.4 million in the quarter, driven by higher gross profit. Adjusted EBITDA margin was essentially flat at 23.3% for the quarter.

Our adjusted operating expenses, including SG&A, increased by 8.7% to $58.6 million due to the planned increase in advertising and marketing and investments, higher depreciation and higher share-based compensation expense. Advertising and marketing spend increased by 16.3% in the quarter to support both our innovation and our core portfolio. Our effective tax rate, excluding discrete items, was 26.9%, consistent with the prior year quarter and largely in line with our 27% outlook for the full year. Adjusted net income of $38.2 million for the quarter remained relatively flat as compared to the prior year period as the contribution from higher EBITDA was offset by higher depreciation and share-based compensation.

Adjusted earnings per share of $0.28 increased by 3.7%, largely due to lower average shares outstanding. At the end of the quarter, we had cash and cash equivalents of $101.7 million and net debt of $881.6 million with a net debt leverage ratio of 3x. Our capital deployment strategy continues to include opportunistically returning cash to shareholders through share repurchases. During the quarter, we repurchased $13.7 million of shares under our previously announced $150 million share repurchase program. Our Board of Directors recently approved a new $150 million share repurchase authorization program, which replaced the existing program. Turning to our outlook for the year. Given our solid start to the year, we are reaffirming our top and bottom line guidance for the full year. We continue to expect net revenue growth of 4% to 6%, driven primarily by price mix with relatively flat volume for the full year.

As a reminder, given the seasonality of our business, volume and revenue in the second and third quarters tend to be higher than the first quarter. As the impact of 2022's pricing actions dissipate, we expect the benefits of our innovation and merchandising to become more pronounced during the second half of the year. We remain confident we will deliver above algo profit growth in 2023, and we continue to expect adjusted EBITDA of $315 million to $325 million and adjusted EPS of $1.08 to $1.13 per share. Our full year adjusted EBITDA and EPS outlook implies 7% to 10% adjusted EBITDA growth and 10% to 15% adjusted EPS growth, both above our long-term algo.

We continue to expect high single-digit inflation for the full year with greater headwinds in the first half. We are fully covered for our market-traded commodities for the first half and nearly 85% covered for the full year. We continue to expect relatively flat gross margin for the full year, which considers the impact of the Arkadelphia bakery start-up costs, of which approximately $5 million are one-time and are primarily expected to impact the back half of the year. We remain committed to fully recovering our gross margins over time as we leverage our productivity and revenue growth management initiatives.

As previously discussed, we are committed to supporting both our innovation and core with higher advertising and marketing investments, which we anticipate will continue to increase faster than our revenue growth. Including these advertising and marketing investments, we continue to expect our full year operating expenses to be relatively flat in 2023 as compared to 2022. We also continue to expect capital expenditures to remain elevated in 2023 in the range of $150 million to $170 million, including the investments in our new Arkadelphia bakery, which remains on track to begin production in the fourth quarter.

We expect to return to our track record of strong free cash flow generation in 2024 as our capital expenditures begin to normalize to historical levels. Given our strong operating cash flow and absent any M&A, we continue to anticipate our leverage ratio to be below 3x at the end of 2023. I am proud of our team's ability to continue to deliver attractive long-term growth as we build a premier pure-play snacking company. With that, I will turn it back to Andy for closing comments.

Andy Callahan

Thanks, Travis. Once again, I would like to close by thanking and congratulating the talented Hostess Brands team who put their hearts into everything they do and continue to execute at a high level. I'm confident of our team's ability to deliver another year of strong results with above outgo profits and continue our track record of generating sustained profitable growth and leading shareholder value. With that, we'll open it up to questions.

Question-and-Answer Session

Operator

[Operator Instructions] The first question comes from Ken Goldman of J.P. Morgan.

Ken Goldman

Andy, I think you mentioned at CAGNY that there would be an additional innovation over a launch of a product that you weren't ready to announce at that time. I've lost track a little bit of whether that has been announced or whether it's still to be announced. I wanted to follow up on that. And then my second question was you mentioned Kazbars. I think you said what a great start. Obviously, innovation is going quite well for you overall. I may have missed this also, but did you happen to mention Bouncers and how they're performing versus your expectations right now?

Andy Callahan

Let me get to your first one second, and then I'll talk about our lineup. I apologize. I don't remember exactly what I mentioned, but all of the innovation for the most part, we have for '23 is now out there. We have Old Fashioned-Donettes. We have Family Packs that we launched at the end of last year, continue to do extremely well. We've rebranded Voortman zero sugar and added the easy open and resell feature on cookies, which is the largest dissatisfier for our Voortman brand, which we expect to really for a unique product in that space, really be it the lighter. So expanding it and dissatisfied.

We also launched a chocolate Baby Bundts. So I feel really good about the lineup. I apologize what I was referring to, but I feel good about the lineup. Now, Bouncers, we talked a lot about last quarter and that we've had great acceptance in distribution, and we received a great response and good trial. And what we're seeing is it's specific to a need with especially millennial parents. And initially, we're seeing trial build ahead of the holiday season very well. It's highly incremental to our category. Our customers are seeing that well, and those who have tried repeat very good.

So the slope of the trial curve is a little narrower than maybe some of our other products because of its targeted, but we generally are very encouraged by it as our customers, mostly because of the incrementality and the repeat we're seeing from the initial trier. Now Kazbars, so we talked about that now Kazbars is off to an extremely strong start and it has broader and really intuitive appeal. So I think its shelf presence was very intuitive to consumers. And it's truly innovative when you think about bringing our cake quality, which I put up against anybody and put it in a form that consumers are really used to in the indulgent snack space, it's really has gotten off to an extremely strong start.

Now it's too early to tell. We're not in the repeat phase. Customers are as enthusiastic as we are. And what we're starting to see is also dual merchandising of Kazbars and Bouncers. So I think having them both out there is really good spot. We did mention Bouncers in the prepared remarks because it has meaningfully contributed to our continued track record in '22, we delivered the leading innovation, and it was more than twice our fair share. We expect that to continue. I already talked about our full pipeline and we measure vitality over time.

We'll continue to be on our vitality targets. I expect all our innovation. We're not going to be perfect, but we're going to hit them more than the competition and more than many, given our insights, our brands, and our capabilities.

Ken Goldman

So that -- just very quickly, that vitality target, I think you said toward the high end of 15% to 17% this year previously. Is that still on target?

Andy Callahan

Yes.

Operator

The next question comes from Rob Dickerson of Jefferies.

Rob Dickerson

Great. Thanks so much. I just had a quick question on the top-line guidance. It's still reiterated 4% to 6% for the year, mostly price mix. But I think you then you had a comment that said you'd expect volumes to be essentially flat for the year. So just to kind of think through, I guess, kind of that price/mix cadence as we get into Q2 and then especially in Q4.

Like is there an expectation that maybe like pricing could still be up double digit in Q2 and then kind of goes flat in the back half? And then volumes go up nicely once we kind of hit Q4? Because if you did the quick math, it's not that hard to get to the high end of your guide just on pricing with flat volumes.

Andy Callahan

Yes. So if you go back -- so I feel good about our -- the line of sight to the underlying drivers of growth. And we've been pretty good about that with our models. -- headlines and you're right on the numbers. So the headline on the pricing specifically is, if you recall, we have multiple pricing that we're lapping here in '22. The highest price mix will be in Q1, which we've just seen, and that tapers off as we move through Q3, and it's all gone by Q4, and it dissipates through Q3. If you remember, our last pricing action in the year was flowing through the market in '22 in Q3.

So the impact of the top line of price mix pretty much moves away in the back half, and then volume rises to the top as you'll start seeing, as Travis mentioned in his prepared remarks, the benefit of our innovation, our advertising step up our merchandising plans, which I feel really good about. We have line of sight to, will drive top-line growth due to more revenue growth versus price mix. Q2 is a transition period admittedly, given we're still looking at some of the distortion and a lot of the timing, which is sometimes uncertain when we do this with when customers plans and planograms, some of the merchandise.

That was always the case in Q2, but I feel good about reaffirming exactly what you said and what we mentioned in our prepared remarks. Does that help, Rob?

Rob Dickerson

No. Yeah. Perfect answer. And then just quickly and broadly, as you think about kind of your plans for promotional spend, trade marketing. It sounds like, clearly, as you get through the back half of the year, especially kind of in the back quarter back-to-school period, it sounds like there could be some kind of forthcoming incremental brand support coming. I'm just curious, do you view that as a little bit more kind of push in terms of marketing? Or is there some incremental promotional and trade spend kind of allocated for the back half of the year? That's it. Thanks a lot.

Andy Callahan

So advertising spend consumer support, which is 100% digital. We measure the ROI, we adapted all the time. You will see elevated primarily in Q2 and Q3, which are higher category-driven periods. You'll see support for Kazbars coming in, in June, which we expect to help as we start really seeing us lapping some things, but also across our core business. Related to merchandising, you can expect we're not -- we expect that the higher price points that we're at. We don't expect to necessarily -- we're not going back to historical, but the cadence will go back to historical level. And that includes some of those traditional holidays you mentioned.

So I would expect the cadence of our merchandising to more with historical. They weren't always like last year. And the line of sight that I see with customers, I feel good about the support that we're getting, especially given the incrementality we're driving the innovation they're driving the partnerships we have with them. So I feel good about that. One last thing. Also within our merchandising plans, we talked about our e-commerce continues. We continue to focus on our e-commerce, and we continue to focus on availability within the store.

I feel really good about the distribution we’re gaining, especially with permanent features on our single-serve business, which we talked previous on previous calls as an initiative, [indiscernible] and our really talented sales team are doing a nice job there. So all of that adds up to more to historical merchandising and both merchandising and advertising help driving growth.

Operator

The next question comes from Pamela Kaufman of Morgan Stanley.

Pamela Kaufman

Can you talk about what you're observing across channels? What do you attribute the slower growth in multipacks versus single serve to -- that you highlighted in your slides? And then I guess just looking within the POS data, it seems that you've seen relatively stronger growth within the convenience store channel versus grocery and mass. So any color you can share on what you're seeing would be helpful.

Andy Callahan

Yes. I think the headline on that underpinning all of our call -- our call is the confidence in our long-term growth plans across multipack and single-serve and the strength of the consumer. They've come into indulgent snacking, the trends around indulgent snacking and the number of snacks consumers today have been going on for years that continues to go. During COVID, it stepped up, and I don't expect it to step down. I expect it to grow at a good pace coming out of that. Related to specific channels as well as multipack and single serve. Unfortunately, the distortion that we talked about did not impact every business equally.

So some of the channels, we benefited higher than others, and that's also true in multipack was impacted a little bit more than our single serve. So I think the distortion is not coming through as you double-click what you did Pam at the same level. Now put that in perspective, you also see that in the stack numbers. Now we have specific initiatives on single serve that don't know as come up in the TDPs I just mentioned on Rob's -- Rob asked. So I feel good about that continued strength in store and our ability to continue to expand points of availability for our single-store business, which is very strong.

We lead in the category and it's a high-impulse category. So that's a good position to be. And our two-year stack to multipack is 23.7%. And last year, in Q1, it was up 27%. So we're kind of lapping that. So I think that's most of the answer. Feel good about the underlying strength of both businesses. Obviously, single-serve is a very strong point within our portfolio.

Pamela Kaufman

And then I guess, can you just comment on what you're observing from the competitive landscape within the category. Obviously, you have a large competitor that has been gaining market share over recent months. And on a two-year basis, your share is still up, but has kind of come back down over the last -- relative to last year. So how are you thinking about the competitive landscape and where your market share can shake out over the coming quarters?

Andy Callahan

Yes. So I believe, related to getting out of the distortion, we expect that to happen in the back half. Now our models and our forecasts have been pretty good for forecasting the Hostess Brands business. It's a little bit more difficult to forecast the category, mostly because we access consumption within the $65 billion snacking business. So we can grow that availability and then it's difficult to forecast share. Now with that being said, you're exactly right. If you go to our prepared investor deck that we posted, you'll see if you look at '21 to '22, we gained almost 2 share points.

We were up 1.8 share points or so. And we’re giving some of that back because of just the timing of that. What I’m confident in Pam, as we move to the back half, we don’t forecast share because of the reasons I just mentioned. But I’m confident that given our strategies, which are basically category-growing strategies, I expect us to continue to do what we have done for the previous five years as we move up, which is continue to grow and I would expect, given our track record, given our strategies and given what we’re invested in, that would likely result in us growing share and driving a disproportionate amount of category growth over time. And I think we’ll start getting back to normal cadence as we move to the back half.

Operator

The next question comes from Steve Powers of Deutsche Bank.

Steve Powers

And then maybe this builds on what you were just talking about with some of the year-over-year distortion. But I noticed just from looking through the Q that sales to your largest customer appear to be down high single digits year over year and up only about 4% sequentially if I did the math right. And it's just -- it's a pretty stark deviation from the trends we have been seeing. So I just wanted to see if there's any additional color you could offer about that dynamic and how that's expected to trend through the year.

Andy Callahan

Yeah. I feel great about our largest customers and all of our customers. You're seeing an anomaly because in certain channels, -- we had some businesses that was reset that's a little bit showing that. If you look at our retail business across all of our largest channels, our programs are really good, and we're actually experiencing growth. And I would expect to see that continue as we move forward of the year. I expect really good support across all of our channels.

Steve Powers

And then again, maybe building a little bit on some of the -- some of what you're talking about with Rob, but I think your comments on the quarter and the comments in the year were both helpful and clear. But I guess I'm trying to marry that a little bit against the POS data that we're seeing for the total company that's dipped a bit negative here as we get early through the second quarter. So I guess, is it fair to think of the second quarter as a likely low point in year-over-year growth for the company with improvement in the second half? Or is there a reason why reported sales will hold up better and more balanced through the year?

Andy Callahan

Yeah. I think -- well, certainly, Q2 is kind of a transition quarter. And I think what you're going to see is beginning in Q2, maybe look a little bit more like Q1 as we get out of distortion in the pricing and the back half of Q2 a little bit moving to the green shoots that we're talking about. I have good confidence that that will transition through as we go through. So there is a really high level of pricing lap that we're decelerating as we move into the back half. And there's that execution on our innovation and stuff. So we'll see that momentum go through the quarter. And the two-year stacks will kind of demonstrate that as we move through.

Steve Powers

So the exit rate on 2Q is kind of really the key point for you where --

Andy Callahan

Yeah. Okay. I think that as you look at the end of the quarter.

Steve Powers

Thanks very much.

Andy Callahan

Yep. And that’s all contemplated in our forecast.

Operator

The next question comes from Cody Ross of UBS.

Cody Ross

Just a quick clarification question. I think you mentioned that there was a timing of shipments that was a benefit in the quarter. A, is that correct? And then b, can you elaborate here how much of a benefit was it? Was it in sweet baked goods or cookies? And do you expect it to come out later this year? And then I have a follow-up.

Andy Callahan

Yes. So we did. There was a -- in what we're referring to as you could see the -- if you just map and some of you like to map the POS data versus the -- what we communicated in our net sales data, and there was a gap there. So we want to address that. There's a couple of things going on here. We do have nontracked channel business that doesn't necessarily ship as programmatic as some of our other programs think about. We have some export business.

We got other things in different places. So that's a factor that is a little bit more choppy. We definitely have the timing of some inventory, which isn't as huge of a deal for our business, but sometimes it does impact it, especially when we have Easter going from quarter to quarter. So we just wanted to highlight some of those factors as we come out of Q1. Now they're all -- yes, so there may be some minor impact to some other things in early in Q2 and other things, but we feel really good about our full-year guide.

Cody Ross

And just to be clear, this will come out of 2Q. You said the beginning part.

Andy Callahan

Over time, they all even out. So for the most part, that's usually the case given our shelf life and given our shelf life, and therefore, they're usually tied close to each other. That's not always true for some of the non track things that could -- there could be a little bit longer time since they're more programmatic. They're not as programmatic.

Cody Ross

Great. And then I just want to talk a little bit about your gross margin expectations. I think part of the prepared remarks, you mentioned flat gross margin for the year. You had -- you were up 20 basis points in the first quarter, but there will be a $5 million headwind related to Arkadelphia in the back half. However, my back of the envelope math suggests that, that still may be conservative. What is tempering your expectations on gross margin for the year? And then more philosophically, as we speak, how do you think about gross margin going forward? Because you're roughly at where you were pre-COVID, you're above it. Can gross margin continue to expand and do you think there's a ceiling in the near future?

Travis Leonard

Hey. Let me take your last -- this is Travis Leonard. Thanks for the question. Let me take your last question first and talk a little bit philosophically how we think about our margins. And let me set our margins in a little bit of context, I think it will be helpful. Since 2019, our gross margin compression has been one of the lowest among our peers. And then if you look at over the last two years, our gross margin compression has been less than 200 basis points.

So we're growing our business and maintaining our margins in an unprecedented inflationary environment relative to our peers pretty darn well. Now as we think about our margins, and you've heard Andy and I talk about this several times, we are focused on driving long-term sustainable growth. And we think about that as we think about kind of margin implications of some of the decisions that we make, we start with the consumer first, and we work back and make sure that we're giving the right value proposition.

So when we have 20% inflation in Q4 and 18.5% in Q3 of last year and 20% in Q2 of last year, we will absolutely press our business, and we did that, and we believe we've got all the price in the marketplace as we've talked to earlier. Now when we think about managing our margins and driving fuel for investments, we talked about and we think about it from a margin management toolkit. Pricing is one of them, which we do execute when we have inflation 20%, 13.7%, as you saw this quarter.

But when we think about recovering our margins over time, which, by the way, we are absolutely committed to, we will leverage our productivity initiatives and revenue growth management initiatives within our toolkit. That's what's going to drive that margin recovery over time and allow us to fuel our continued investments in A&M and innovation. But we will not make short-term margin decisions at the expense of long-term sustainable growth. So that's how we think about our -- that's our philosophy around margins.

Now specifically, as it relates to this year, we feel very -- we feel that our gross margin guide is a responsible guy. As I stated in my prepared remarks, there's high single-digit inflation. We expect high single-digit inflation. You saw 13.7% in Q1. And by the way, as I said as well, we are starting a new bakery. So we're starting a new bakery, which is inclusive of $5 million of onetime cost that will be in the back half. So we feel that the gross margin flat is a very response guide at this time.

Operator

Thank you. The next question comes from Bill Chappel of Truist.

Unidentified Analyst

Hey, guys. This is Donald on for Bill. Just had a quick question on innovation. Could you give some color on the margin contribution from Kazbars and any competition, if any, pace in that area? Thank you.

Andy Callahan

I'm sorry. What was the first one, the margin cut -- was that margin contribution?

Unidentified Analyst

Yeah. Margin contributions from Kazbars and your new innovation.

Andy Callahan

New innovations in total. So it's too early -- well, first of all, our philosophy on innovation, I think what you're getting to is there's a little bit of upfront cost to launch them. Because you have a little start-up cost, sometimes you invest disproportionately in trial and some other things. But we always have a Travis and I always have a philosophy there as we drive growth through innovation that all of our innovation will get to our average margin or better within our portfolio, and we have line of sight to that, usually not always right away, but over time.

So that was the first part of that question. And then related to Kazbars specifically, you were asking -- I'm sorry, can you ask that again, Donald, where we are sourcing volume or --

Unidentified Analyst

Yes. No, I was just asking if there was any competition faced in that area, particularly pertaining to Kazbars.

Andy Callahan

Competition, yes. Well, one of the things that is -- I really feel good about case. First of all, it hats off to Sherry and Pete, that's a call out to our R&D leads and there's all team underneath them, who produce these innovations and bring them to life. We do cake, I believe, and I'll put them up against anybody better than anybody. You can compare it. There's a lot of people that try but we do it for living. We spend a lot of time making sure that the quality of it over shelf life is really good. So I feel hats off to that team.

But specifically, we're bringing cake to a bar form in the $65 billion addressable market that consumers are used to the form. They want indulgence and great tasting and they universally love cake. And we're able to bring them together that when they try it, they really like it. We had it at a recent investor conference and to be honest with you, the response back has been universally accepted given the layers and everything. So it taps into that broader space around -- especially around afternoon indulgence where consumers are just looking for it.

And given the fact that it's in a form that they're really used to and we're able to add cake to it is really unique. And so that's it's going to source volume from. And that's why a lot of what we do when we consistently think about our business, we think of it more broadly. That's why we get the share question sometimes. We live in a pool where consumers are willing to -- they may make purchase decisions in the category, but we're really going to drive it sustainably over time is how they use it once it's in the house or what's going to cause them to.

So we actually -- consumers make choices across multiple categories when it comes to snacking. It's not like some other categories where it's fairly binary across brands. So we feel really good about our ability to take this, put it in a form in an indulgent format that consumers really respond to and tap into that broader market.

Operator

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. I would now like to turn the call back over to Andy Callahan for posing remarks.

Andy Callahan

Great. Thank you so much, and thanks, everyone, for the confidence you’ve placed in our team as we continue to execute our plan, and we will put our hearts and souls and to inspire more moments of joy for all of our stakeholders. So thanks a lot. Appreciate your interest. We will see you next quarter, and we’ll keep working hard for everybody.

Operator

Thank you, sir. Ladies and gentlemen, this concludes today's conference. Thank you for attending, and you may now disconnect your lines.