Mama's Creations Inc

NASDAQ:MAMA

Earnings Call Transcript 2025-Q1

[Operator]

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to Mama's Creations First Quarter Fiscal 2025 Earnings Conference Call. [Operator Instructions] Following the presentation, the conference will be open for questions. This conference is being recorded today June 11, 2024, and the earnings press release accompanying this conference call was issued after the market close today.

On our call today is Mama's Creations' Chairman and CEO, Adam L. Michaels; and CFO, Anthony Gruber.

Before we get started, I'd read a disclaimer about forward-looking statements. This conference call may contain, in addition to historical information, forward-looking statements within the meanings of federal securities laws regarding Mama's Creations.

Forward-looking statements include, but are not limited to, statements that express the Company's intentions, beliefs, expectations, strategies, predictions or any other statements relating to its future earnings, activities, events or conditions. These statements are based on current expectations, estimates and projections about the Company's business base in part on assumptions made by Management.

These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may and are likely to differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors discussed from time-to-time in this report and in other documents, which the Company files with the U.S. Securities and Exchange Commission.

In addition, such statements could be affected by risks and uncertainties related to factors beyond the Company's control. Matters that may cause actual results to differ materially from those in the forward-looking statements include, among other factors, the loss of key management personnel, availability of capital and any major litigation regarding the Company.

In addition, throughout today's call, the Company may refer to adjusted EBITDA, a non-GAAP financial measure, which it believes better reflects the performance of the business on an ongoing basis. A reconciliation of adjusted EBITDA to its most directly comparable GAAP financial measure is included in today's earnings release, which is available on the Mama's Creations website under the Investors tab.

And finally, this conference call contains time-sensitive information that reflects management's best analysis only as of the date and time of this conference call. The Company does not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after the date of this conference call.

At this time, I'd like to turn the call over to Chairman and CEO, Adam L. Michaels. Adam, the floor is yours.

[Adam Michaels, executive]

Thank you, operator, and thank you to everyone for joining us today. I'd like to welcome you to our first quarter fiscal '25 financial results conference call. The first quarter was highlighted by a robust 29% revenue growth, a testament to the power of our renewed focus on driving purposeful and profitable sales growth, our fourth C.

Our goal to emerge as a leading one-stop shop deli solution on a national scale is grounded in a purposeful and patient strategic plan to capture what is a generational change in consumer preferences.

In the past 2 years, 93% of grocers have seen an increase in demand for fresh food driven by consumers facing busier lives and tighter budgets due to ongoing inflation. Away-from-home food inflation in April stood at 4.1%, continuing to significantly outpace at-home food inflation of only 1.1%.

If you look even closer to limited service restaurants where the deli competes more, you see it at nearly 5% over the last 12 months. This continues to perpetuate the sustained macro shift from out-of-home to in-home eating. Even relative to the high-growth perishables area of the store, deli continues to have the best year-on-year dollar and unit growth within the perishables category.

This has made deli prepared foods an attractive alternative to restaurants, requiring little to no preparation for what is, in our case, a high-quality meal made with simple ingredients your children can pronounce at an attractive price point. The deli prepared food space is one of the few areas of the grocery store, increasing not just dollars, but also in volume terms.

In April, deli prepared grew an eye-popping 6.0%, driving the 12-month average to 5.4%. What is even more impressive and a more important metric for us is that units grew 5.7% in April and 3% L52. This highlights that the deli is truly growing, not just driven by price, but by servings.

Research from Intel shows that 3 in 4 consumers use the quality of a grocer's fresh products as a yardstick for assessing the overall quality of a store, with 41% of those surveyed saying their local grocery store is known for a deli prepared food that boosts its reputation.

Grocery stores are taking notice, with 84% of grocers expanding their fresh deli department offerings in the past 2 years, addressing not only entrees, but the entire meal occasion, including sides. They're expanding both in terms of in-store footprint and product selection, leading to the rise of the grocerant, a play-on words for grocery stores that are effectively becoming restaurant competitors through a growing grab-and-go and prepared foods meal selection.

There are many fragmented regional deli prepared food vendors today who focus on narrow niches within the space, creating increased work for the grocer buyer to manage trucks, orders, promotions, just to name a few. A one-stop shop national player is needed, and since we started our journey 20 short months ago, our approach has been highly appreciated and welcomed. The opportunity we are facing is clearly significant. We're in the right place, at the right time, with the right product portfolio.

The Mama's Creations products offerings are, in my opinion, second to none in variety, quality, and service. Grocers are recognizing that. Since I joined as CEO in September of 2022, we have refocused to address this incredible opportunity. We formed an initial 3C strategy to improve our costs, controls, and culture, areas that, in my opinion, required the most attention. We rebuilt and strengthened the foundations of our business and became brilliant at the basics.

We methodically addressed the biggest pain points across each of these areas and implemented key operational KPIs under the mantra of what gets measured gets improved. The first was cost. Our gross margins were 11.9% in Q2 of fiscal '23 with significant potential that needed to be unlocked. The path to our targeted high 20s gross margin profile took countless small improvements throughout the organization.

From step changes in freight and procurement efficiencies, to implementing processes to reduce labor overtime, our operations run much more efficiently today than ever before, being able to weather any commodity headwinds that may come our way. The improved margins and cash flow are being directly and immediately put back into further investments in CapEx, which will further drive down COGS even more, creating a virtuous cycle of higher and higher gross margins.

Second were our controls. I've been sharing with you over the past 12 months the successful implementation of our NetSuite ERP system, providing unparalleled visibility to our business, improving pricing, margin, inventory management, and so much more.

We also perfected accounts receivables management, which has drastically shrunk our working capital requirements. All contracts are now reviewed by Anthony and his team, driving consistency, and I'm not ashamed to say, more favorable terms for Mama's.

The third C was culture, where we implemented formalized processes and a company-wide culture committee, to ensure we're doing right by our employees at every level of the organization. Our focus on culture is driving more production efficiency, higher retention, and higher quality of our products because we're all pulling the wagon together.

To that end, I'm proud to announce we've recently nominated our first winners of the Love Awards, which stands for Living Our Values Everyday, recognizing employees who go above and beyond to imbue their work with Grandma-quality, no matter the position.

We'll be sharing these with our internal team next week, and I'm incredibly proud of not only our first slate of Love Award winners, but everyone at Mama's Creations for the culture they're helping to build. With the successful evolution of our finance, operations, and HR organizations underway, and financial results reflecting this, we have put in place the processes and culture to begin to accelerate growth.

At our Investor Day in East Rutherford in February, we announced the introduction of a fourth C, Catapult, representing the investments in sales leadership, trade promotion, and marketing that we are making to grow the business profitably at a faster rate.

Our 29% growth in the first quarter, after 17% growth in Q4, demonstrates, with some help from new stores, new items, and a little bit of trade rocket fuel, what type of growth is possible. Today, we have grown our sales leadership team, our first Catapult lever, to 5 dedicated employees, which is especially important as we enter the back-to-school reset window.

In addition, last year we launched a direct-to-consumer e-commerce website, and recently launched 9 new items on Amazon.com. With our national physical footprint, coupled with our always-on online presence, our Mama's Beef and Chicken products are now available 24/7, 365, to our consumers.

The second Catapult lever is trade promotion, seeking to accelerate the velocities of our existing SKUs by driving trial in larger baskets. Combo buys with complementary products, multi-buys of our family of products, and print and online circulars are just a few of the recent tactics we have used to deliver the growth you're seeing today. We are seeing tremendous results from these programs, such as a chicken combo buy at Stop & Shop during the much-coveted Memorial Day weekend window.

With the hiring of Nick Powers, our Head of Trade Strategy and Execution, we now have the discipline, formalized tracking, and a clearer plan for trade promotion. In time, we hope to grow our trade promotion spend as commodity inflation allows from low single-digit percentage of revenue today to over 10% in the long term, reinvesting our production efficiency gains above our targeted gross margin in the high 20s range into increased trade promotion, and therefore driving higher revenue growth in time. This is a high ROI activity for us, and we will be vigorously testing and learning.

The third lever in Catapult is marketing. Lauren Sella, our innovative and tech-enabled Chief Marketing Officer, is driving strategic marketing activations, such as our radio features and our in-store advertising. In March, we gave away a year's supply of meatballs as part of our successful National Meatball Day, earning us incredible media mentions and inbound interest from consumers.

With over 10,000 entries, we tripled our email list. Quadrupled our Instagram followers for nearly no cost at all. Lauren's partnership with Dan and Scott during the Costco Roadshow last month created a multiplying effect, partnering with Instagram influencers to activate the events in the physical as well as virtual world.

Additionally, we have been partnering with our PR agency, resulting in numerous high ROI national and local consumer and trade-earned media placements. All-in-all, an incredible achievement from where we were a short 12 months ago. We are also enhancing our industry presence with a record attendance at trade conferences to put our products in front of buyers of both existing and new channels of business for us, like convenience and food service.

Yesterday, I came back from 3 days partnering with our amazing sales, marketing, and R&D team at the International Dairy Deli Bakery Association, IDDBA 2024 show, one of the most important trade shows in the industry. There, we took the opportunity to put our money, or shall I say meatballs and chicken breasts, where our mouth is, and bring to life our one-stop shop vision.

In Houston, we launched new pillars, including our first ever breakfast line, a dedicated entertaining platform, and new on-the-go solutions for our emerging convenience channel business. We provided samples of 3 new breakfast wraps, retail-ready chicken breasts in vacuum packs, meatball entertaining sleeves for incremental occasions, and on-the-go, individually packaged Gourmet Paninis. For what it's worth, while it's literally only been 3 hours since our event closed, I could tell you that there were no mama samples left to bring home.

Taken together, the goal of Catapult is to continue to drive up our average items carried, which stands at over 7 items today from below 5 when I started, accelerating the velocities of our existing items, and now opening up new doors to build broad-based national distribution.

With our new team and capabilities, we increased the likelihood of opening up entirely new channels, whether that's the convenience channel, e-commerce channel, or major retail customers, such as Walmart or Target. Opening these could be impactful to our growth trajectory, hence our strategic CapEx investments to prepare for whatever the future may hold.

We're investing mid-single-digit millions in CapEx this year, already paid for and funded from cash flow from operations, with the goal of improving automation at both of our production facilities, while concurrently building new in-house capabilities earlier in the value chain. These investments, paired with ongoing operational improvements, have the potential to offset commodity price inflation, fluctuations, and ultimately move our gross margin into the low 30% range over the long-term, while concurrently growing our trade promotion investments from low single-digit percentage of revenue today towards our long-term goal of 10%.

One example is our new X-ray machine technology, a replacement for the industry-standard metal detectors used in food facilities, to ensure we're truly meeting the highest standards in everything we do.

Costco, for example, has realized the superiority of this method, and has begun to require their food vendors to phase in X-ray machines, something we have wasted no time in doing.

My wife and I have 2 boys, and while I know they both love each other, an opportunity doesn't go by where competition and a little healthy debating is not happening. Our sales and operations team, like 2 brothers, continue to push themselves to stay ahead of one another.

Sales is doing their part, opening new doors, getting more items into existing doors, and deploying intentional high-ROI trade to accelerate velocities. In the background, our operations team is doing a great job doing their part. I've shared with you the automation and value chain enhancements that are already being implemented.

Ray and his team are also stretching their legs, adding new sales office space in Farmingdale, across the street from our existing factory, allowing every critical inch of our factory to be production-generating. Equally, in East Rutherford, Eric and his team are deep in negotiations to stretch their arms and expand into the third/third of space that we share a wall with. Taken together, we are intentionally, prudently, and cost-effectively expanding into spaces immediately that won't meaningfully disrupt daily operations, nor drive noticeable reductions in absorption.

As we continue to improve and build on our 4Cs, I am incredibly proud of our team's accomplishments, and believe we are only at the beginning of our journey. In 2023, we built the foundation of a more resilient and flexible organization, and now, in 2024, we are focusing on purposeful and profitable growth to help create value for our shareholders.

With that, I'd now like to turn the call over to Anthony Gruber, our Chief Financial Officer, to walk through some key financial details from the first quarter of fiscal '25. Anthony?

[Anthony Gruber, executive]

Thank you, Adam. Revenue for the first quarter of fiscal 2025 increased 29% to $29.8 million, as compared to $23.1 million in the same year-ago quarter. This increase was largely attributable to enhanced distribution from strong club rotations and accelerated velocities from incremental trade promotions.

In addition, revenue benefited from healthy and measured volume gains driven by continued cross-selling of new products into the company's broad base of existing customers. Gross profit increased 17% to $7.5 million, or 25% of total revenue, in the first quarter of fiscal 2025, as compared to $6.4 million, or 27.6% of total revenue in the same year-ago quarter.

The change in gross margin was due to some earlier-than-traditional commodity price increases that pick up perennially in the warmer months, particularly chicken. We saw this coming and have been proactive in addressing this, accelerating our CapEx to improve labor efficiency and move away from third-party up-charges, requesting and receiving approvals for price increases with customers, and leveraging new suppliers to drive even further purchasing efficiencies.

These accepted price increases, when paired with our efficiency gains through recent CapEx investments to improve chicken processing capabilities, should offset much of this impact in the second quarter and should fully dissipate in the back half of the year.

Operating expenses totaled $5.8 million in the first quarter of fiscal 2025, as compared to $4.4 million in the same year-ago quarter. As a percentage of sales, operating expenses increased marginally in the first fiscal quarter of 2025 to 19.4% from 19.2% in the same year-ago quarter.

Operating expenses, as a percentage of sales, increased slightly due to the addition of several key hires brought new and differentiated capabilities to the organization, as well as increased non-cash expenses, including depreciation, amortization, and stock compensation expense.

Net income for the first quarter of fiscal 2025 totaled $0.6 million, or $0.01 per diluted share, as compared to net income of $1.4 million, or $0.04 per diluted share in the same year-ago quarter. First quarter net income totaled 1.9% of revenue, impacted by a one-time charge to operating expenses of $0.9 million, $0.5 million of which was non-cash stock compensation expense to rectify for certain options purported to be granted by the company in 2018 and 2019 during the term of the former management team. Excluding the one-time charge, net income totaled $1.5 million, or 4.9% of revenue.

Adjusted EBITDA, a non-GAAP measure, increased to $2.5 million for the first quarter of fiscal 2025, as compared to $2.5 million in the same year-ago quarter. Cash-in-cash equivalence, as of April 30, 2024, increased to $13 million, as compared to $11 million as of January 31, 2024. The increase in cash-in-cash equivalence was driven by $3.6 million in cash flow from operations in the first quarter of fiscal 2025.

As of April 30, 2024, total debt stood at $8.3 million. This cash forecast, coupled with our favorable commercial lines of credit, reduced debt, and a stronger balance sheet is preparing us well for whatever inorganic opportunities proactively or reactively come our way.

Looking ahead, we believe that our normalized gross margin profile, not including major commodity fluctuations, will continue to hover in the high 20% range. Our long-term goals, leveraging strategic CapEx investments, procurement efficiencies, and continuous operational improvements, would be targeting margins consistently maintained in the low 30% range. While right-sizing our trade promotions, investments from low single-digit percent of revenue today, closer to our goal of 10%.

Turning to adjusted EBITDA, our long-term goal is to achieve adjusted EBITDA margins in the teen's percentage range. This completes my prepared comments. Now, before we begin our question-and-answer session, I'd like to turn the call back to Adam for some closing remarks. Adam?

[Adam Michaels, executive]

Thank you, Anthony. Looking ahead, there's a compelling and growing opportunity in the deli space as grocery stores invest in grab-and-go offerings to inch into restaurant territory and inflation pushes consumers towards alternatives. In the past 20 months, we have built a team and company to become a clear, innovative, prepared foods leader in what is currently a fragmented market. We have several levers available to drive growth, from new SKUs and existing customers to new Tier 1 customers and continued investment in marketing and trade promotions to increase velocities of our existing in-store items.

We also believe that supported by our strong balance sheet, attractively priced M&A opportunities in the industry could enable us to become a consolidator in the fragmented prepared foods market and emerge as a leading one-stop shop deli solution on a national scale. The fun has only just begun and I look forward to speaking with you all in the year ahead.

With that, I'll turn it over to the operator to begin our question-and-answer session. Operator?

[Operator]

Thank you, sir. [Operator Instructions] Our first question comes from the line of Ryan Meyers with Lake Street Capital.

[Ryan Meyers, analyst]

First one for me, obviously really strong growth during the quarter. Just wondering if you can speak to how we should think about that for the remaining 3 quarters. Do you feel like that 29% year-over-year growth rate will moderate a little bit? I know on past calls, you've kind of commented a double-digit growth rate for 2025. Is that something we should expect or how should we think about that for the rest of the year?

[Adam Michaels, executive]

Yes. Really proud of the team on the effort. I think we had some strong success with a couple of promotions. I don't think it's going to be that high. I still will stand with double-digit growth. We'll continue. I think this is a little strong, but again, we'll look to, the sales team will continue to look for these higher ROI promotions. But yes, I don't think it will, I think we'll stick with our double-digit growth. Again, it's a function of how the economy's doing, which it's good. Unfortunately, inflation remains high, which is going to continue to push consumers to the grocery stores.

So I like the growth, as we mentioned, as I just mentioned, 6% growth last month in the deli space. And I think that will continue to grow. And I think we'll continue to gain share like we have in the past 6 quarters so that we've been doing this together.

[Ryan Meyers, analyst]

Okay. Got it. And then thinking about average items carried, I know that number is a little nuanced, including new customers, where that number could be a little bit lower. But if we exclude, let's say, new customers, what does that number look like for maybe legacy customers, just to try to get a good understanding of kind of tracking the progress of the cross-selling that you guys have been able to drive?

[Adam Michaels, executive]

Yes, no, and we've spoken about this, and I've spoken with a number of folks. It's a little hard, right? Because I'm trying to give you the most accurate view, which is the average items carried. It's interesting, my team and I did a little bit of work. If you took out even just 1 or 2 of the customers, their customers that have fewer items, we actually did some work. It's literally double-digits.

If you took out 1 customer that is strong and has fewer items carried, you actually get to almost 12, 11.9. So what you're seeing is absolutely, and happy to go into more detail offline, every single time getting tons and tons of new customers. What's really cool, and if you guys take a look, I'm really proud of this. When I first got here, when the first team, when we first got here, we were mostly a East Coast, right? A Northeast, you know, that's what I heard all the time, Northeast. Do you realize that actually now it's incredible growth? We grew over 60% on the West Coast last quarter, and that's Midwest and West Coast. Now nearly 45% of our business is West of the Mississippi. So what you're seeing is more and more getting new customers, which is incredible.

Hats off to Tony on the West Coast, getting a whole bunch of new independent customers, really growing strong West Coast, getting more items into those customers. Almost every major customer of ours are now have at least one of each of the Mama -- legacy MamaMancini's and the legacy T&L Creative Salads. They now have both. That's how well the team is doing getting new items in. So, I really love the healthiness, is that a word, of the health of the portfolio. Hopefully that's helpful.

[Ryan Meyers, analyst]

No, that's super helpful, and that's great to hear. That covers the questions I had.

[Operator]

Our next question comes from the line of Eric Des Lauriers with Craig-Hallum Capital Group.

[Eric Des Lauriers, analyst]

Congrats on the very strong growth this quarter. My first question is a bit of a follow-up to what you were just discussing. So it sounds like a lot of your major customers now have both legacy MamaMancini's and legacy Olive Branch and Creative Salad products here. So obviously, over the past few quarters here, cross-selling into existing customers has been the biggest driver of growth. I'm wondering now, as you look forward, how to think about that sort of growth from existing doors versus growth from new doors and new channels. You highlighted some nice club rotations. You're still looking at a couple of big box retailers to get into here. Just wondering how to sort of categorize the growth outlook going forward?

[Adam Michaels, executive]

Yes, Eric. Look, I truly believe we are still in the early innings on this, on all 3 of the levers that we talk about. So getting more items into existing doors like I just spoke to about. I'm not, I mean, I truly believe we're just getting started. I mentioned we just came back, literally just last night, I came back from IDDBA. The items we showed, I was talking to someone yesterday, literally there are only 2 items in the entire show that was here 2 years ago.

Which we highlighted the paninis that we're putting together, the in-a-cup solutions. We have brand new Meals for One offerings. The new egg wraps and breakfast. I mean, these are whole entirely new occasions that we already have the products for. So yes, I am absolutely proud, and I think it's cool as can be, that our legacy businesses that we don't even think about anymore because we're one company, Mama's Creations.

They're already selling both items in. But there's literally, like I said, we're 7 today. We should be 27. And that's not even new innovation. That's just stuff that we already have. The second item with getting into new customers, which we speak about, already seeing it every day with new items that we got into. I'm really proud and excited for Art, guy that leads our C-Store sales. We got into a number of convenience channels already, and he's just getting started. Obviously, tons of the mass customers, which we're working towards. So that second piece around new customers, just getting started there.

And then the third and the biggest driver of our growth, the 29% growth that's after 17% growth that we had last quarter. Huge testament to our trade and our promotions. We got a couple of big end caps at a couple of club customers, and you see the results of that. You put a little bit of trade rocket fuel and we explode. That is exactly what we're seeing. So across all 3 pieces, I truly believe we're just getting started. We're I don't even know what the word saturation means, where we are right now.

[Eric Des Lauriers, analyst]

All right, that's very helpful and encouraging to hear. On the trade promotion, can you just talk about how commodity cost inflation and then seasonality impact your trade promotion spend levels? I mean, presumably on the cost inflation side, if we get a commodity cost spike that sort of limits the amount of surplus gross margin you have to reinvest. So maybe it's just that simple on the commodity cost side, but if you have anything to add there or on the seasonality of it, that'd be helpful.

[Adam Michaels, executive]

Yes, it is something that we look at all the time. So yes, I'm very bullish and I want to be focused on trade. We increased almost $100,000 of trade, but in my mind, not enough. I think we could have done even more in trade, but we were very intentional on looking at commodities. Commodities are tough. Chicken peaked at over 66% growth since the beginning of the year in commodity costs. So yes, while I do want to invest in trade, we have to do it at the right rate and we have to do it recognizing our overall gross margin profile.

Marketing, we spent over $200,000, additional marketing versus prior year. Again, I'm proud, went up about half a point, but not enough. R&D, up almost $50,000 of R&D from prior year, which I'm happy that we went up, but still not enough. So I think directly to your point, we track -- again, what gets measured gets improved. I track this every single day and we will spend when we can spend, but if we see some commodity headwinds that's why you see we immediately took price, accelerated our labor efficiencies, accelerated the equipment, because we have to weather some of those commodity pressures.

[Eric Des Lauriers, analyst]

That certainly makes sense to me. Just last one for me on some of those CapEx improvements. Just wondering, if you could give a sort of broad timing update on some of the major items here. I mean, feel free to kind of touch on whichever ones you like, but new freezer, grill line, spiral oven, and just kind of update on the timing, that would be great?

[Adam Michaels, executive]

Yes, so again, I know you're supposed to love all your children equally, but it is cool as can be to see what the team is doing to build or to add to our facilities. Anthony Morello and team are doing an awesome job in Farmingdale. So grills should be in, actually, this month. It's going to take a little bit of time to, of course, get them up and running. We're on track. Literally, the cranes were at our offices yesterday, putting the equipment on the roof. All that is on time. Love what we're doing. All the trimming and tumbling, Ray is doing an incredible job. All of that is already working. We have both lines working, double shifts. It's doing exactly what we asked them to do.

So I love what we're doing there. Eric and his team in East Rutherford, the stripping machine, if you guys wan to have fun, anything going to the newest Sylvester Stallone movie spud, I will tell you, you come watch the stripping machine, and it is incredible to see what that team's doing. We have this cool palletizer and a wrapping machine. So what you're seeing is on track, on budget, exactly what we said we're going to do, we're doing.

And what that's doing is that's freeing up people, that's allowing people to be redeployed on other parts of growth. So I feel great on where we are with the CapEx. And like we said, almost a year ago, by the end of next quarter, we're going to be all ready to go, driving incredible efficiency and speed and agility for our customers, which will put us in a perfect position for whatever our sales team throws at us.

[Operator]

Our next question comes from the line of George Kelly with ROTH Capital Partners.

[George Kelly, analyst]

I will start with gross margin. I was curious, if you could walk through your expectations again for Q2 and the back half. And then I'm curious, I know you're anticipating an expansion in gross margin versus Q1. How much of that is driven by your pricing?

[Adam Michaels, executive]

Yes, so going back to front. So another thing that I feel great about in Q1, almost 70% of our growth was actually volume driven versus price. We put the pricing in, you can't just call the customer and the next day they change the price on the shelf. So we're getting all of that pricing in Q1, and actually everything is done now, but obviously it bled into Q2. But that's all taken care of. So you don't see all that pricing in Q1, but you will see most of it in Q2.

I think we're going to be in a good position after that pricing. Again, prices go up in the, commodity prices go up in the summertime and then trail down. So I think we'll be in a good place. It was wonderful that everything that we asked to go in went in, because we do it in partnership with our customers.

Directly to your point on the gross margin, without a doubt, we're going to be in great shape in the back half of the year. All the CapEx will be in place. We'll be running everything. Commodity prices will come down. I think Q2 is going to, I hope it could be a little better, but again, the numbers are really high. I would expect it to be the same, if not a little better in Q2, but the team's doing an incredible job accelerating the CapEx, accelerating the efficiencies. The pricing is all in and we feel really good about Q2 and feel great about the back half.

[George Kelly, analyst]

And then second question from me, you mentioned in your prepared remarks and just in one of the Q&A answers that you gave, just talking about major retail customers, and I think you called it out, Walmart and Target in your prepared remarks. I'm curious, how close are you to winning those kinds of big flagship partners? And any kind of help you can give with timing or what the discussions are like that would be appreciated?

[Adam Michaels, executive]

Yes, so first of all, yes, they're the biggest ones, but I love that we talk about the big 6, talk about big players that we're still not in, such as HEB and Harris Teeter, Meyer, others. So I try not to focus on just 1 or 2, but look at some of the biggest customers that we're not in. We're having great conversations. We're getting conversations with all of them. They've all eaten our products. We have multiple conversations with them.

The big time is back-to-school. So we actually should be hearing in the next month or so. And then we should expect to see it in the sort of August, September timeframe. We should see it in stores. So I feel really good. Again, the expansion of the product offerings that we have, the fact that we'll have full capacity starting in August with our chicken, which everything we make, it's pretty impressive. I don't know what the retailers are doing with it, but it's selling really well. So I feel great that we're going to be in good shape with new customers. And again, continue to go after the existing customers with more and more items.

[Operator]

And our next question comes from the line of Anthony Vendetti with Maxim Group.

[Anthony Vendetti, analyst]

So Adam, you're introducing a lot of new products and expanding into breakfast with the breakfast wraps. Is that the initial foray into breakfast or are you looking to build out that category? And maybe more just talk about the new products in general, whether it's in that category or other categories in any other expansion opportunities that we should look for.

[Adam Michaels, executive]

Yes, Anthony. I think there are a couple of things that we think about as a leadership team when we're putting our portfolio together. So the first one is incrementality, right? So I don't know if we need a blueberry-flavored meatball. The idea that the team around us got together and we said, look, we're not selling in breakfast. That's a huge incremental opportunity for us. So that's one lens that we use to think about our innovation.

The most important one and what I feel great about is our customers trust us and they come to us and they actually ask us for, hey, do you have this? And we're thinking about that. So the origins of our breakfast wrap actually was a customer directly coming to us and say, hey, we'd like a breakfast offering. We trust you. You're already in our store and do great work, great quality, great service. Could you help us out with this? And that's what honestly got us into the breakfast category.

[Anthony Vendetti, analyst]

Interesting, okay. Like I said, it looks like that is your initial foray into breakfast. Do you see yourself expanding that category? Like you said, it's a large category. Or is this more of a one-off from a customer and you're going to go back to your original more lunch/dinner 30?

[Adam Michaels, executive]

So definitely, we don't do anything one-off. So everything that we do, we're always thinking 2 or 3 steps ahead on where we're going with it. The way I look at it, and again, hopefully it's consistent and almost is getting boring for you guys, is we are a deli company. If it is in the deli, we want to sell it. We want to provide it. What's amazing in these breakfast shops we do, we already have the ingredients. The other thing is I started my career in operations. I will forever be an efficiency guy. So this was wonderful to us because we already had the ingredients. We don't have to add anything more to our shelves or add any new labels or anything.

So the way we look at innovation is incrementality and how do you build on stuff that we already have. So let's see how it goes, but we will continue to be that one-stop shop for the deli. If the consumers are looking for it, if the customers are looking for it, and it's something that's already in our pipeline, our portfolio of sorts, we're excited to do it.

[Anthony Vendetti, analyst]

Okay. And then lastly on the efficiency, and you touched on this, it seems like all your new automated machines are being installed on schedule. Is there anything that has to slow down during this installation or is it relatively seamless? And then are there any other new efficiencies that you've identified that are in the planning stage for the remainder of calendar year '24?

[Adam Michaels, executive]

Yes, so again, another thing that I'm really proud of and I give all the credit to the ops team is I don't know if you guys have ever seen the video of the people changing the tires on the car while it's driving. It's a cool YouTube video, if you haven't seen it. That's what it feels like in our facility. So we are not slowing down at all, and the team is doing a great job compartmentalizing certain parts of the rooms so we can build, and then on a Sunday night, magically the wall breaks down and now we have a perfect facility.

So definitely do not see any slowing down at all. There's always stuff that we're looking at. Anthony Gruber makes sure that it's within our budget. We laid out with the Board a CapEx plan, and we're staying within that plan. So as things come up, we go to Anthony. We could afford it. Remember, 100% of everything we're investing in, all paid for from cash flow from operations. We're not taking out any debt on this. So the more money we make, the more things we can buy.

But yes, absolutely, we got this cool new depositor that we're investigating. Again, it will drive massive efficiency. This one's really cool because it's sauce and other things. It's not just the fact that it's more efficient from a people perspective, and there's a huge ROI there, but what's happening is because it's manual today on how we put the sauce in, we're always over putting extra sauce into the bag so to make sure that we're doing everything properly. The machines obviously do it to the microgram or whatever the number is. That's going to save us money too.

So when we start things, we get a great ROI thinking on a labor perspective, and then we magically realize the raw material efficiency that we get on top of that, like the icing on the cake. So that just happened actually a month or 2 ago, and Eric's already working with Anthony to purchase that depositor. Great, thanks so much for the update. Adam, I will turn it back over to you in the queue.

[Operator]

Great. Thank you. And this concludes our question-and-answer session. I'll now hand the call back to Chairman and CEO, Adam L. Michaels for his closing remarks.

[Adam Michaels, executive]

Thank you, operator, and thank you again to each of you for joining us on today's earnings conference call. We look forward to continuing to update you on our progress as we strive to deliver to our fellow shareholders and execute upon our vision of becoming a national one-stop shop deli solution provider. Thank you.

[Operator]

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may now disconnect your lines at this time and have a wonderful day.