Beyond Meat, Inc.
Q2 2020 Earnings Call Transcript

Published: 4 Aug 2020

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Beyond Meat Second Quarter 2020 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today’s conference maybe recorded. I would now like to introduce over to your speaker today, Lubi Kutua, VP of Investor Relations. You may begin.

[Lubi Kutua:]

Thank you. Good afternoon, and welcome to Beyond Meat’s second quarter 2020 earnings conference call and webcast. On today’s call are Ethan Brown, Founder, President and Chief Executive Officer; and Mark Nelson, Chief Financial Officer and Treasurer.

[Ethan Brown:]

Thank you, Lubi, and good afternoon, everyone. I'm pleased to discuss our second quarter financial results with you today as we achieved record net revenues of $113 million, our first ever quarter in excess of $100 million despite a challenging macroeconomic environment brought on by the global coronavirus pandemic. I am proud of our management team's ability to pivot so as to remain on our steep growth trajectory. Much of this activity involved quickly reorienting the business from a COVID-19 impacted food sector to retail grocery. Recall at the beginning of the year, the split between our retail and foodservice business was approximately 50/50. And as we report today, the balance was 88 retail, 12 foodservice in the second quarter of 2020. Adapting to such a dramatic change in mix over a short period of time was no small feat.

[Mark Nelson:]

Thank you, Ethan and good afternoon everyone. We are extremely pleased with our second quarter financial results as we achieved record net revenues and solid underlying performance despite a difficult operating environment due to the COVID-19 pandemic. Even as we made meaningful tactical adjustments in response to the sudden shift in consumer behavior, we continue to push forward with our aggressive agenda to drive long-term growth and international expansion. I'd like to echo Ethan's acknowledgment of the hard work and relentless focus exhibited by each of our team members throughout the organization. We are grateful for their extraordinary efforts during this period of high uncertainty, without which our exceptional second quarter results would not have been possible. Now, turning to our financial performance. As Ethan indicated, net revenues in the quarter were $113.3 million, up 69% compared to the second quarter of last year. Growth in net revenues for the second for the second quarter of 2020 was primarily driven by an increase in volumes sold, partially offset by lower net price per pound as we implemented our strategy to offer more aggressive pricing and promotional programs amid temporary dislocations in the animal protein market. In aggregate, although our Q2 net price per pound of $5.69 was down only 3% year-over-year and 2% sequentially, this number was heavily influenced by the significant mix shift from foodservice towards retail sales channels that we experienced. As a reminder, our retail products generally have a higher net selling price per pound versus our foodservice products. Growth in volumes sold was driven by continued expansion in the number of distribution points, both domestically and abroad, as we grew our total global outlets from 94,000 at the end of Q1 to 112, 000 in Q2 or a 19% increase as well as higher sales velocities at existing retail outlets and to a lesser extent, contribution from new products. Taking a closer look at our distribution channels, retail net revenues increased 192%, while foodservice net revenues decreased 59% versus the second quarter of 2019. In retail, our recent expansion into club stores continues to drive exceptional growth along with strong distribution gains in international markets and increased sales velocities across the remainder of our retail footprint. In foodservice, while we were still able to grow our total distribution points, we saw a significant deterioration in demand due to COVID-19. As Ethan mentioned, within foodservice, independent or smaller chain regional restaurants generally fared worse than larger-chain QSR customers. Although we saw improvement in our foodservice business as the quarter progressed, demand remains weak relative to year-ago levels. Sales to international customers across retail and foodservice channels represented 15% of our net revenues during the quarter compared to 30% in the year-ago period. Gross profit during the quarter was $33.7 million or 29.7% of net revenues compared to $22.7 million or 33.8% of net revenues in the second quarter of 2019. Included in cost of goods sold during the quarter was $5.9 million of expenses related to product repacking activities due to COVID-19. As mentioned earlier, we experienced a sudden and significant shift in demand from our foodservice to our retail business, prompting our decision to convert a meaningful portion of our foodservice inventory into retail product items. To provide some context on what this undertaking entailed, these activities primarily involved costs associated with retrieving finished goods products from third-party storage facilities, transporting them to our own and our co-manufacturing partner's facilities for repacking, direct labor and holding fee costs associated with the physical repacking itself, installing new retail packaging as well as disposal of the original foodservice packaging and transportation back to our warehousing facilities. In addition, we incurred costs associated with the write-off of unrecoverable portions of the original inventory items. Following the rebalancing of our finished goods inventory through these efforts, we do not anticipate a need for further repacking activity going forward. Given the cumulative total of these repacking activities attributed to COVID-19, we determined that it was sufficiently material and appropriate to disclose our underlying operating results excluding the impact of these activities to facilitate a clear understanding and year-over-year comparability of our performance during the quarter. On that basis, our adjusted gross profit, which excludes $5.9 million of the repacking expenses, was $39.6 million or 34.9% of net revenues during the second quarter of 2020. As compared to our prior year gross margin of 33.8%, the 110 basis point increase on an adjusted basis was primarily driven by direct materials and packaging input cost savings, direct labor efficiencies, and an increase in the volume of products sold versus the prior year period, partially offset by incremental investments in trade promotional activities. Operating expenses totaled $41.8 million or 36.9% of net revenues in the second quarter of 2020 as compared to $20.6 million or 30.6% of net revenues in the year-ago period. In Q2 2020, operating expenses included $1.6 million in product donation costs associated with our COVID-19 frontline relief campaign. In addition, the year-over-year increase in operating expenses also reflect increased headcount to support the company's long-term growth, higher share-based compensation expense, increases in the company's marketing initiatives, continued investments in innovation, investments in our international expansion activities, and higher restructuring expenses. Net loss during the second quarter of 2020 was $10.2 million or $0.16 per common share as compared to net loss of $9.4 million or $0.24 per common share in the second quarter of last year. Adjusted net loss, which excludes $7.5 million in costs directly attributed to COVID-19, specifically, $5.9 million in product repackaging activities and $1.6 million in product donation costs as well as $1.5 million in early debt extinguishment costs associated with the company's refinanced credit facilities, was $1.2 or a loss of $0.02 per common share during the second quarter of 2020 compared to adjusted net income of $2.3 million or $0.05 per diluted common share in the prior year period, which excludes re-measurement of warrant liability costs. As I mentioned previously and reflecting the long-term mindset Ethan emphasized, we continued to invest in strategic initiatives to support our long-term growth even as we made short-term tactical adjustments in response to COVID-19. These long-term initiatives included investments in our international expansion efforts as well as new hires to enhance our capabilities in key areas and this spending represented roughly a $0.03 per share sequential reduction in EPS in the second quarter of 2020. Adjusted EBITDA was $11.7 million or 10.3% of net revenues in the second quarter of 2020 compared to adjusted EBITDA of $6.9 million or 10.2% of net revenues in the year ago period. We note that in Q2 2020, adjusted EBITDA also excludes the expenses defined earlier attributed to COVID-19 totaling $7.5 million, in addition to the customary add backs we have historically included in adjusted EBITDA. Now, looking at our balance sheet and cash flow highlights. The company's cash and cash equivalent balance was $222.3 balance and total debt outstanding was $50 million as of June 27th, 2020. We saw a significant increase in our inventory balance to $143 million versus $120.7 million at the end of Q1, driven by an increase in raw materials, specifically, our core pea protein inputs as partially offset by a reduction of our finished goods and work-in-progress inventory levels during the quarter. With respect to pea protein, given the nature of our contractual commitments, our volume deliveries are front-loaded during the year in anticipation of higher demand levels during the summer growing season. Given that we dialed back our production in response to COVID-19 and to reduce our existing finished good inventory levels, we have seen an increase in our pea protein stocks. However, as our pea protein raw materials have a shelf-life of approximately two years, we see minimal risk of obsolescence at this time. For the six months ended June 27, 2020, net cash used in operating activities was $44.3 million, compared to $22.4 million for the prior year period. The increase in cash used in operating activities was primarily due to working capital usage and more specifically, to our inventory investments as previously discussed. Capital expenditures totaled $26 million for the six months ended June 27, 2020, compared to $7.5 million for the prior year period. The increase in capital expenditures was primarily driven by continued investments in production equipment and facilities related to our capacity expansion initiatives. Finally, with respect to our 2020 outlook, as noted in today's press release, given the ongoing uncertainty regarding the ultimate duration, magnitude and effects of the COVID-19 pandemic on our business and those of our customers, our 2020 guidance remains suspended. We will periodically reevaluate our ability to provide clearer visibility into our near-term outlook. However, at this time, we do expect COVID-19 to continue to impact our business operating environment at least through the balance of the year. With that, I'll now turn the call back over to Ethan.

[Ethan Brown:]

Thank you, Mark. In closing, we are very proud of our results for the second quarter of 2020. And while we acknowledge the road ahead may present additional challenges and uncertainty due to the COVID-19 pandemic, we hope that we have conveyed the deep sense of optimism that pervades Beyond Meat. We are just scratching the surface of what we continue to view as an immense global opportunity. And I have every confidence in our team's ability to adapt to challenges and continue to push forward with our aggressive growth agenda. At this point, I'd like to turn the call over to the operator for your questions.

[Operator:]

Thank you. And our first question comes from Ken Goldman from JPMorgan. Your line is open. Please check that your line is not on mute sir. And we will move to a secondary line, Mr. Goldman again your line is open.

[Ken Goldman:]

Here we go. Can you hear me now?

[Ethan Brown:]

Yes, we can. Hi, Ken. How are you doing>

[Ken Goldman:]

Good. How are you? I'm not sure what happened there. Usually, it's my fault, but not this time. Your growth in the U.S., Ethan, it was a lot better than what scanner data might have suggested. Are there any maybe shipment timing issues we should be aware of that either boosted or affected your shipments during the quarter? Just thinking about how we should model the third quarter a little bit?

[Ethan Brown:]

Yeah. So we did have this tremendous growth in U.S. retail activity. And the thing that was most stunning to me was around this shift that the team was able to accomplish from roughly a 50/50 foodservice to retail distribution in the beginning of the year to this 88% retail, 12% foodservice and to move all the lines and the products over that way. Some of the things that really did help to drive this extraordinary result for the second quarter that may not be fully captured in data as Costco, for example. We've done tremendously well in that platform. I can't share their internal data, but it's something that we are very proud of here in terms of where we rank in terms of total frozen goods at Costco. So, it's elements like that, that aren't always captured in the data. But overall, it's this extremely strong set of trends that we continue to face. Across retail today, we're the number one selling refrigerated plant-based meat over the 12-week period ended 6/14, and we're seeing a 195% increase in domestic retail sales. That's really driven around increased velocity as well with 88% increase in retail velocity. And that's -- we're still in that really sweet spot that is so enviable in terms of where a brand wants to be. Household penetration, this really surprised me, it grew 40% from January through to June to reach about 5% of U.S. households. But even as more households were coming into the brand, on average, each household is also buying more, right? So, you get that -- those two trends coming together, you get an increase in frequency. We have about a 23% increase in purchase frequency as well. So, all of that drives this tremendous growth we saw and the increase in market share. I think it was about 550 basis points. So, overall, I felt very good about the performance in retail and the ability to pivot into that. I think the numbers represent that.

[Ken Goldman:]

So, that's all helpful. But let me circle back to the question, which is, is inventory at retail as far, as you know, at the levels that you want it to be or is there a potential for shipments to maybe trail consumption a little bit in the third quarter?

[Ethan Brown:]

No, I don't see that. I don't see that at all. I mean I think we're very comfortable where they. And again, I look to the uptake that we're seeing in Costco and in some of these Sam's and BJ's, et cetera, that are driving a lot of growth. So, no, we feel pretty comfortable where we are.

[Ken Goldman:]

Okay. I’ll let it go there. Thanks so much.

[Ethan Brown:]

Sure.

[Operator:]

Thank you. Our next question comes from Robert Moskow from Credit Suisse. Your line is open.

[Robert Moskow:]

Hi thank you. The retail sales growth was phenomenal. It was better than I thought it would be. But the foodservice decline was also bigger than I expected, down 60%. Most of the restaurant chains that are reporting numbers are reporting better results than that. And in particular, the QSRs are reporting better results and maybe even better exit rates. So, I guess, I'm a little surprised to see it kind of lagging the restaurant sector. And I wanted to know, are you seeing anything within those chains that those chains that indicates that maybe consumers are just buying their old favorites during this timeframe. They're going to trusted products. Is trial a little bit lower than normal just because of the pandemic? And then when do we think we can get it back to normal again?

[Ethan Brown:]

Sure. So no, very, very good set of questions. And so our story in foodservice is really around the split in our customers between QSRs and then the smaller independents. And so as you'd expect, the larger QSRs, some of them are doing quite well, particularly those with drive-thru. But it's the smaller regional chains that don't have drive-thru or the mom-and-pops that are struggling so much. And if you look at our overall distribution, our mix of large strategics to others is really about 30% strategic and then about 70% smaller accounts. And so that was in the fourth quarter of 2019. So, we had a lot of exposure to those smaller accounts. Now, as that sector has become more destabilized, we have -- the shift has occurred, where we're now about 42% strategic and about 58% smaller accounts. So that revenue change that's occurring is predominantly being driven by that decline in the smaller account business that we've done so well in. Independent accounts fell about 60%, while strategics declined for us about roughly 40%. So it's a dynamic that is particularly hard hitting for small business owners, and we certainly are experiencing that as they struggle to keep their stores open under these closer conditions. So we do expect, and we're seeing some decent signs, that we have reason to be hopeful in terms of general uptick month-over-month in foodservice. But it's too early to tell when there'll be a full resumption of sales in the category.

[Robert Moskow:]

I guess the follow-up there, Ethan is, are your sales at these customers weaker than their overall sales, like are you keeping track?

[Ethan Brown:]

No. Yeah. No. And in fact, we do have some data just around the plant-based sector. So we actually, in this -- in the NPD data, which is the broadline data set, which includes large quick-serve restaurants and generally deals with the cash and carry and smaller accounts, our sales are actually up in that smaller category, 35% year-over-year versus, I think, it's about a 20%, 23% decline in the overall category. So no, we're not seeing that we are facing a disproportionate level of deterioration relative to other products in those restaurants. It has to do with restaurants being open or closed because of the conditions that they're under.

[Robert Moskow:]

Okay. Thank you.

[Operator:]

Thank you. Our next question comes from Ben Theurer from Barclays. Your line is open.

[Ben Theurer:]

Hey, good afternoon Ethan and Mark. Thank you very much for taking my question. I wanted to shift a little gears into the international market actually. If you could talk a little bit about the dynamic there, similar along the lines within your exposure on foodservice, and if you could share maybe a little bit of the breakdown large box versus the smaller independent QSRs, if that's similar as it is in the U.S.? And then on the international retail piece, which clearly gained contraction during the quarter, but if you could elaborate a little bit on the more recent strategic initiatives and maybe new outlets you've been winning within retail on the international side?

[Ethan Brown:]

Sure, sure. So all very good questions. Let me just tackle one around international foodservice. So the breakout there is really about roughly 30%, 35% strategics and then -- and the balance being these other smaller accounts. So again, similar distribution to what I just talked about. But we are very optimistic about the growth of both retail and foodservice internationally. And that optimism is stemming from some considerable proof points. We've done well with Starbucks in China. They have over 3,000 stores there in good, good campaign what they call, the good, good campaign. And they're promoting our products now as permanent items, not as an LTO. So we feel really good about that. And we're always looking at pricing in these international markets. As you know, we've set a goal to have production up and running in China by the end of the year. And we do plan to accomplish that and with that be able to bring lower pricing into that market. We got a great test with KFC, Pizza Hut, and Taco Bell in China. So, I was extremely pleased to see that. And I think we can expect some more activity there, although I can't make any promises or provide details. We're also beginning to work with local Chinese QSRs, which is a new set of business for us and something that we're going to, I think, continue to see growth around. And I know that people are familiar with our work with Sinodis, which is a distributor that we use in China and that makes our product accessible to casual dining and to hotels, et cetera. So, as well as extending into retail such as Metro and Citi Super and Costco, et cetera, in China. So very, very significant growth and activity for us in China. We have a small team now in Shanghai, led by a very capable leader out of Yum! China and so a lot of expectation there. If you look at -- in Europe -- we also see good growth in the European market. We've got a lot of -- I know your question was more on the foodservice side, but we did pick up a lot of wins in retail in Europe. And while I can't -- we don't have SPINS data or data or things like that, what I can talk about a little bit is the fact that stores are introducing our products, let's say, a year ago, six months ago, three months ago, are already starting to expand whether it's in number of stores or pick up additional items. So, our retail sales internationally continue to rise significantly. I think we're up 167%. So, things like Metro Germany began and then expanded into other EU countries and, of course, in China. As I just mentioned, Costco Spain had really good success and expanded into the U.K., France, and Ireland. Sobeys in Canada continue to add new items, Loblaws, et cetera. So, you're seeing all of these examples of where they're having great success with products coming off-the-shelf with Beyond on -- serving them very well and wanting to expand, examples in Sweden and Denmark, et cetera. So, we have a lot of -- we've put a lot of emphasis on two things this quarter. One is to effect this pivot from foodservice to retail. And I just want to commend the team on this. It's not a small exercise when it's physical goods to make a change like that over a quarter. And so you have to put yourself in the shoes of the men and women that are working for us in our facilities, where we had 50% of our infrastructure set up for a sector that essentially disappeared. We were then able to transition those lines directly over to retail as well as repack all of those products in a very, very short period of time. So that was the first real point of focus. Second was the pandemic is not equally distributed across the globe. Some economies are recovering more quickly, right? And so we went to China with expectation that the recovery there was going to be quicker. That was correct. And we are doing well there as a result. Parts of Europe, the same. So, we'll continue to find growth where it exists, and we'll continue to pivot our company to take advantage of that even at the expense of incurring some near-term costs. We're at such a point in our growth today that it's very important that we continue to gain market share. So, that's been our primary focus. I hope that captured some of your questions. Happy to take a follow-on.

[Ben Theurer:]

No, you actually captured all of it, including my follow-on, so I'll leave it here, and thanks very much and congrats on the results.

[Ethan Brown:]

Okay, Okay, great. Thank you very much. Appreciate it.

[Operator:]

Thank you. Our next question comes from Alexia Howard from Bernstein. Your line is open.

[Alexia Howard:]

Good evening, everyone. Hi, there. So, can you hear me up there.

[Ethan Brown:]

Hi, there. How are you?

[Alexia Howard:]

Good.

[Ethan Brown:]

How are you doing?

[Alexia Howard:]

Perfect. I am good. So can I ask about the share trends in -- particularly on the fresh side, obviously, you've had a major competitor come into the market. And as I look at the share trend coming down and the sales growth slowing, I guess my question is, I know you can't give us guidance for the third quarter, but how -- can you give us any pointers about how we should think about that in the third quarter as that dynamic plays out? Obviously, there's still rapid growth elsewhere as we've seen in the gap between measured channel data on what you reported this time, but I'm just wondering whether there's any sort of heads up that we need to be we need to be aware of as those share trends balance out? Thank you.

[Ethan Brown:]

Sure. No, thank you. So just on the main point, I mean we continue to grow faster than the category by a large measure, continue to lead the category in terms of the top four selling items in grocery. So I think we feel really good about that. In this economy in general and free enterprise economy, would be incredibly unusual to not have competitors come in at $1.5 trillion opportunity. So like I think I've said over the last several quarters and before, we have no surprise at this. And we continue to compete extremely well as the numbers that I've shared indicate. So I think if someone were to try to build the case that Beyond is somehow suffering as well as competition, the numbers just don't support it in any shape or form. We see no overall decline in Beyond Meat sales across the chains or maybe an exception one or two small chains. But overall, extremely strong, continued growth, continued increases across both new and natural channels and all retailers. And I think this really speaks to the strength of our brand. It's a very competitive environment. We have large incumbents coming in. We have upstarts as well that are making noise in the media and coming into the market, but we continue to outperform and lead the sector in growth and grow, as I mentioned, more quickly than the sector. So competition is a natural part of being in business, and we feel really good about how we're doing against competitors surrounding the market. I think the numbers bear that out.

[Alexia Howard:]

Great. Thank you very much. In the interest of time, I’ll hop on. Thank you.

[Ethan Brown:]

Thank you so much

[Operator:]

Thank you. Our next question comes from Rupesh Parikh from Oppenheimer. Your line is open.

[Rupesh Parikh:]

Good afternoon, and thanks for taking my questions. I had two related questions on the U.S. retail segment. So in the club channel, as you look at Costco, BJ's, Sam's Club, do those outlets plan to keep your product year round? And then also, as you look at the Cookout Classic, I think you debuted as some of the discounters, is that more -- it sounds like that's more temporary. So is that more just a Q2 benefit? Or do you see that benefit in future quarters as well?

[Ethan Brown:]

Yes. So as you know, Costco will move things in and out, but we have no, in any way, indication from them. I just had a good call with their CEO other day that they're not anything, but just absolutely thrilled with our performance. So I had to guess, and this is not anything that I've been told, but if I'd to guess, you'll see more of Beyond and Costco rather than less, Sam's, BJ's, et cetera, we just -- we're doing extremely well in those formats. On the value packs, that is something that I personally am very proud of and care a lot about, it’s part of this five-year goal that we set about 18, 19 months ago to be able to under price animal protein in at least one category. And I think we're well on our way to that and hopefully be able to do it in more than one category in terms of beef, pork, and poultry. And something really interesting happened, right, over this quarter. So, we saw an opportunity with beef prices being much higher than they typically have been in recent years. And we have a product in the two pack that is about 2x that of beef prices. Within a single quarter, we'll be able to bring that price delta down to 20% premium, right? And this is -- think how small our company is. We're talking about we just registered our first quarter of over $100 million in sales. And again, we're getting help from the beef industry because of the higher prices, but more than 20% of the cost of conventional beef patties. So, you can see -- I think, very clearly that we're going to be able to underprice animal protein within that three and a half year window that we set for ourselves. And the value pack speaks to that Now, we've sold probably about 70,000 cases of that product in great distribution, Walmart, Target, Kroger, Harris Teeter, Publix, Wegmans, et cetera, Stop & Shop. But we weren't able to get that to the market until about the last two or three weeks of the quarter. But even so, that led to about a 16 points of our year-over-year domestic retail growth. So, it's a very promising start. I wouldn't say it's a short-term item. I mean, it is -- that particular item is a limited time offer, but that idea is one that will have long-standing year Beyond Meat. We will make this product accessible to people at the price points that they can afford, and the Cookout Classic pack is a step in that direction. So, very pleased with its initial introduction and its initial sales and expect to see it continue to grow.

[Rupesh Parikh:]

Great. Thank you.

[Operator:]

Thank you. Our next question comes from Michael Lavery from Piper Sandler. Your line is open.

[Michael Lavery:]

Good afternoon. Thank you. If you look at the international sales and just see what looks like a sharper deceleration in foodservice than in the U.S., and it's a little hard to know the number of outlets just with Canada shifting, I think, into the international segment from how you've shown the totals before, but is there -- if we look at the number of outlets, it looks like a sharp acceleration of maybe 300%, but on the declines, obviously, on the sales. Clearly, there's some pressure from closures and COVID, but I guess, is there a different dynamic we should expect in terms of sales per store? And then also maybe some of those authorized but haven't shipped in product yet.

[Ethan Brown:]

So, this is on the international front or in general?

[Michael Lavery:]

On international. I mean, I guess, anywhere in particular, but -- I mean, anywhere in general, but in particular, it looks like on international, the outlet growth is far ahead of what you are seeing on the sales side. And I just want to understand how to reconcile that?

[Ethan Brown:]

Yes. Yes, absolutely. So, we did have that disproportionate foodservice to retail distribution internationally. And obviously, COVID has dramatically impacted the foodservice sector. So, I would say that really is a driving factor behind that. That said, we've really been able to make up some ground on the retail side internationally, and that was our focus as the foodservice sector started to decline. But it really did -- it comes down to that. We had a very disproportionate percentage of our sales going into foodservice internationally as we started international growth. We expect that to normalize a little bit as we continue to pick up retail and as the international foodservice sector comes back into a healthy mix. I think the mix now is about 43% foodservice, 57% retail, roughly. But that reflects a pretty significant decline. In 2019, we're about 84% foodservice. So those numbers, I think, tell the story.

[Michael Lavery:]

I guess, I just want to maybe look at it – maybe ask the same thing a little bit differently. The -- I think it says 47,000 outlets, retail and foodservice internationally. 1Q, obviously, may have had a little bit of tail end of the quarter pressure on foodservice from COVID. All the way back to a year, the numbers are so small. It's a little bit tricky. But if you look at the 3Q to 2Q progression, that number, international outlets is up almost 300%, but the sales declined in foodservice around 40%, where on the U.S. side, it's more like 14%. A little bit of a weird sequential comparison, not from the previous quarter, but I guess I'm just trying to make sure I understand the outlet number correctly. Are a lot of those ones that maybe have been authorized, like, say, Starbucks China or something where you're not -- it's going to be a phasing launch that are not having those sales yet? Is that part of how to reconcile that gap?

[Ethan Brown:]

Yes. Yeah, it's two things. One is the general instability in the foodservice sector. And then two, a lot of these wins are extremely new, right? They're nascent. So you'll start to see them materialize. So the Starbucks is a terrific example. I doubt those are -- that's registering much right now, but it's at 3,000 stores then it will.

[Michael Lavery:]

Okay. That's helpful. And just a quick follow-up on the frozen value launch. Have you found any change from consumer perception? Having had the refrigerated launch initially, does this -- does it confuse the consumer any? Do you have any sense of how that response has gone? It sounds like the sales are really good. Is it incremental consumers? Is it the same one who knows it from the refrigerated case? Do you have a read on any of that?

[Ethan Brown:]

Yeah, it's too early for us to tell, but we haven't seen any significant decline at all. In fact, our 2 Pack sales continue to increase in general. So it doesn't seem to be harming those. I think we tried -- at one point, we're going to put it in a sleeve, put the product in a sleeve to mimic the exact appearance that frozen beef patties have in the frozen meat section. And so I think it's our hope that consumers will think about the two products in the same way they would think about fresh beef patties and frozen patties. So we can get back to maybe the next quarter if there's any observations around particular consumer trends, but we're very much hoping to mimic the same sense that you get from the fresh beef versus frozen.

[Michael Lavery:]

Okay, perfect. Thank you very much.

[Operator:]

Thank you. And we'll take our last caller from Bryan Spillane from Bank of America. Your line is open.

[Bryan Spillane:]

Hey, good afternoon everyone.

[Ethan Brown:]

Hey, Bryan. Hi there.

[Bryan Spillane:]

Ethan, just a question, I guess, in the U.S. as we're thinking about just the dynamic between retail and foodservice, I guess two -- just two questions related to it. One is in parts of the country, just where you've seen restaurants reopening has that at all had any impact on retail growth? And then second, I guess, this was a pretty -- this is obviously very unanticipated, right, in terms of the pivot to retail. And look, I guess my question is just how incremental can this be over time, right? Now, you've got a much bigger retail business than you had anticipated a year ago. As foodservice begins to come back, do you expect that these retail gains are going to be sort of sticky? And essentially, you've accelerated the retail growth while you're still building the foodservice business. So, you may end up being further ahead on your curve than you originally thought?

[Ethan Brown:]

Look, it's a great question and set up for an answer that I think is very sincere, which is absolutely. I think that you're seeing a maturing of our brand, not in the sense of slowing down, but in the positive sense in that we're starting to get recognition within mainstream consumers in America. An example yesterday that ad that we released, I think, is extremely well-received -- has been very well received, the household penetration numbers, the increasing buying rates per household. All these things I don't think are temporary. And so what we know is that we're going to be back in foodservice. We'll be back in, I think, in a big way when it gets back up and started again. And I don't expect that we'll give back all of the retail. So, yes, I'm very optimistic that we'll be able to continue the growth in retail that this has allowed. It's been an enormous trial program for us, and that was one of the reasons that I wanted to get the two -- the value pack out. We had an opportunity for consumers to go to the store, to seek out our products and enjoy them. And when you do try them, you tend to like them as our repeat rates suggest. And so -- and we're not stopping here. We have eight items in retail. The incumbent that in the meat set, which we don't pay that much attention to, but this is an example, has 23 SKUs, right? So, there's a huge opportunity to proliferate across the category, and you look at the meat industry and the diversity there of cuts and products. So, we have a lot of room to grow in the existing doors that we're in. And then you take just an example, we're launching new products. I mean it's -- the pandemic is a very serious thing, but we're not going to stop innovating. So, we have our breakfast sausage patties are launching in over 2,000 Walmart stores, 20 Super Target stores in September. We're expanding distribution of these sausage products in the Publix for both the sausage SKUs, breakfast sausage. We're doing really well, by the way, with that product in Whole Foods. It's one of the top five ranked breakfast SKUs for the eight weeks ending 6/20. So, really good progress in new products that we're launching. With this Beyond Meatballs that are coming out, great acceptance, looking for early shipment in September, retailers like Whole Foods and Kroger, et cetera. So, we'll continue to see a great pickup of our retail items. So, my hope is that we'll take the momentum that we've been able to achieve by shifting dramatically from this 50/50 split to what is today 88/12, which is remarkable. And then take back the foodservice losses that we had and turn those into very significant gains. The partnerships we have, we haven't talked about much on this call, but if you look at KFC here in Los Angeles, a 50-store launch, Los Angeles, Southern California, San Diego, et cetera, here, we had to rush the second weekend as a family to go get the nuggets because we were aware that they were running out. And they, in fact, ran out within two weeks here in Los Angeles. It was scheduled for a month. So, we're continuing to see when we do these launches really good results and we have great partners. I mean look what Dunkin' just did, Dave Hoffman has been -- we keep close touch on these things and share with me that the wrap they're doing is that they introduced recently is doing really well. So whether it's Pizza Hut or all these different brands we're so fortunate to be involved in, they're not going to just go away, right? We're building long-term relationships and trying to be of service of them during a very difficult period. The expectation that we'll be able to serve them as the economy gets back to normal here, which it will. We've been through these things before as a country and as a globe, and things will be back to normal. And I expect to see Beyond Meat growing really strongly throughout the next several quarters.

[Bryan Spillane:]

Thanks, Ethan.

[Operator:]

Thank you. And that does conclude our question-and-answer session for today's conference. And I I'd like to turn the conference back over to Ethan Brown for any closing remarks.

[Ethan Brown:]

Just wanted to thank folks for calling in, and I think the main message is to be safe and take care of one another. It's a difficult period. And it's time to just be a little extra careful with everybody. And let's just try to get through this. I'm very hopeful that we're going to emerge from this stronger as an economy and country and looking forward to that, and wishing you all well as we continue to manage the pandemic. Take care. Thanks.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone, have a wonderful day.