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EXECUTING THE PLAN
VITL Rolling Revenue & Gross Margins, Offside Capital
We didn’t need the third quarter to be perfect.
Vital Farms just needed to demonstrate that the second quarter was in fact the trough for the business.
And it was.
The stock is now up 5% on the day because of the single biggest driver to its valuation, a driver most people thought would never recover.
Gross margins went from 6.6% last quarter to over 23% this quarter.
The volume of excess eggs fell 59%.
Inventory went down significantly.
Management is effectively implementing the plan I hoped they would put in place to fix the underlying collapse in profitability.
The supply problem we were worried about a month ago is being fixed.
And faster than I originally expected.
More than that,
They successfully grew the brand’s market share, volume, and household penetration.
If I thought the company was cheap at $8.30 when we bought…
At $9.50 it is still one of the easiest bargains of the year.
However,
The quarter wasn’t all good news.
Vital Farms still has to get through:
An excess egg inventory recovery
Overly aggressive capital expenditures hurting returns on capital
Return to steady free cash flow
If the price action today is any indication,
Markets have voted that the future of Vital Farms is on track to fix most (if not all) of these issues in the coming quarters and years.
After this quarter, we have a few things to consider.
Is the company still on track to our target valuation?
Has that price target changed since we initially looked into it?
What risks still stand to this investment and how we plan to navigate them.
Today, we answer all three.
Let’s get into it,
VITL Earnings Update: The thesis is on track.
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