Q4 2023 Vital Farms Inc Earnings Call
Participants
Anna Kate Heller; IR; Vital Farms, Inc.
Russell Diez-Canseco; President, CEO; Vital Farms, Inc.
Kathryn McKeon; Chief Marketing Officer; Vital Farms, Inc.
Thilo Wrede; CFO; Vital Farms, Inc.
Brian Holland; Analyst; D.A. Davidson Companies
Adam Samuelson; Analyst; Goldman Sachs Group, Inc.
Matt Smith; Analyst; Stifel, Nicolaus & Company, Incorporated
Jacob Henry; Analyst; TD Cowen
Robert Dickerson; Analyst; Robert Dickerson LLC
Matthew McGinley; Analyst; Needham & Company LLC
Ben Klieve; Analyst; Ben Klieve with Lake Street Capital Markets
Presentation
Operator
Good day, and thank you for standing by, and welcome to the Vital Farms fourth quarter 2023 earnings conference call. (Operator Instructions) Again, please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today Anna Kate Heller, Investor Relations. Please go ahead.
Anna Kate Heller
Thank you. Good morning, and welcome to Vital Farms fourth quarter and fiscal year 2023 earnings conference call and webcast. I'm joined on today's call by Russell Diez-Canseco, President and Chief Executive Officer; Thilo Wrede, Chief Financial Officer, and , Chief Marketing Officer. By now, everyone should have access to the company's fourth quarter and fiscal year 2023 earnings press release issued this morning is available on the Investor Relations section of Biopharma's website at investors dot arraybiopharma.com.
In the course of this call, management may make forward-looking statements within the meaning of the federal securities laws. These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could cause actual results to differ materially from those described in a forward looking statements.
Please refer to today's press release and to the Company's annual report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC today and other filings with the SEC for a detailed discussion of the risks that could cause actual results differ materially from those expressed or implied in any forward-looking statements made today.
Please note that on today's call, management will refer to adjusted EBITDA and adjusted EBITDA margin, which are non-GAAP financial measures. While the company believes these non-GAAP financial measures provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Please refer to our earnings release for a reconciliation of adjusted EBITDA and adjusted EBITDA margin to their effectiveness comparable measure prepared in accordance with GAAP.
And now I would like to turn the call over to Russell Diez-Canseco, President and Chief Executive Officer of Vital Farms.
Russell Diez-Canseco
Thanks, Mickey. Good morning and thanks, everyone, for your time today. I'll start by sharing how Vital Farms continues to deliver on our commitments to stakeholders, including the commitments we made to our shareholders in September at our 2023 Analyst Day. Then I'll hand it over to our CMO, Kathryn McKeon, and to cover how Vital Farms continues to grow our purpose-driven brand and build trusted relationships with consumers. Thilo Wrede, our CFO will then provide more in-depth information on our fourth quarter and full year results as well as guidance for fiscal year 2024.
The headline today is that we had our strongest ever quarter for net revenue, and we're on track to meet the ambitious multiyear goals that we laid out at our Analyst Day, including our growth to $1 billion of net revenue by 2027. We also made significant progress toward our 2027 targets for 35% gross margin and 12% to 14% adjusted EBITDA margin.
We entered 2024 with strong momentum and a well-defined roadmap to reach the 2027 targets. Let's get into some of the details. Starting with net revenue. We had a record fourth quarter with $135.8 million of net revenue. That's the highest net revenue we've ever achieved in a single quarter and a 23.4% increase over the fourth quarter of 2022.
We delivered $13.9 million of adjusted EBITDA or 102.6% growth versus the fourth quarter of 2022. This record quarter was driven by a combination of strong consumer demand, increased distribution, expanded skews at existing customers and a diversified supply chain with over 300 family farms. We also benefited from a 53rd week of operations in the fourth quarter, which contributed about 7.7% of net revenue growth and 12.7% of adjusted EBITDA growth during the quarter.
As we discussed at our Analyst Day, we continue to focus on expanding distribution to new retailers and increasing skews at existing retailers. Both efforts paid off in the fourth quarter. Our distribution gains during 2023 were considerable. We added close to 2,000 new stores compared to the end of 2022, meaning that our products were available in approximately 24,000 retail locations across the United States at the end of 2023.
The majority of our distribution gains in 2023 were from expansion in our mass channel and existing chains as well as regional retailers in the Northeast, California and the South. We also increased the average number of SKUs at existing retailers. Our average SKUs per store in the food channel was 2.7 for 2023 compared to 2.4 in 2022.
We're continuing with our expansion as we already have some key wins in January and February of 2024 that will add even more SKUs in existing stores throughout the year, including at several leading grocery retail. We believe these incremental wins set us up for continued growth at these retailers in 2024 and beyond, and we expect additional wins throughout the year.
We continue to see faster growth in sales of higher price point skews, particularly fueled by strong demand for our 18 count packs and Organichem positive trends in the organic category demonstrate the strong reputation and foundation of the Vital Farms brand. They also show that consumers are increasingly willing to pay a premium to make sustainable and ethical food choices.
Our expanded distribution increased skews at existing stores and growth in higher price points views enabled us to grow sales and unit volume, while the rest of the category was either flat or down as. Of the 24 weeks ended December 31, 2023, Vital Farms now has the number one branded SKU in the food channel based on dollar sales.
Looking specifically at the data in the tracked channels during the 13 weeks ended December 24, 2023, the ad category experienced a retail dollar decline of 31%, while Vital Farms grew retail dollar sales by 13% in the same time period. Additionally, the category saw unit volumes stay flat during the same timeframe, while Vital Farms unit volumes grew by about 1%. It is worth noting that due to the mix shift to 18 count packs our volume growth in tracked channels tends to be underreported.
Our dollar share is over 8% of the total category. Our resilient supply chain with over 300 family farms and our world-class washing and packing facility at a central station are big reasons why we are able to continually meet growing customer demand, our supply chain model and our ability to execute has also enabled us to successfully navigate potential disruptions like avian influenza without significantly impacting our commitments to customers and consumers.
We believe our strong close to 2023 sets us up for another important year on our progress to being a $1 billion company by 2027. We're making a number of investments to support that growth and an important one is our digital transformation, which will enable us to streamline and automate processes, achieve greater efficiency and control costs.
The centerpiece of this digital transformation is a new ERP system, which we believe will go live in summer of 2025 and enable us to take the next crucial step as a leader in ethical foods. We have a comprehensive ERP project plan and with the right external advisers and strong internal team, which will help us continue delivering for our stakeholders over the next year and well into the future.
I'm going to close where I started this section. Vital Farms set some really ambitious multiyear goals in 2023, including our growth to $1 billion in net revenue by 2027. We had a great close to 2023, and we're on track for another big year in 2024.
I'll now hand it over to our Chief Marketing Officer, Kathryn McKeon, to discuss how we were able to continue growing our brand and deepening relationships with consumers.
Kathryn McKeon
In QSR, Vital Farms continued to build trusted relationships with our consumers in 2023 we increased brand awareness, purchase frequency by rate and share flows, and we were able to do that while shifting our plans throughout the year to capitalize on changing market dynamics. We focused on the long-term growth of the brand as we always have and drove over 6 billion impressions through earned media in-store marketing and by extending our bullshit Free campaign across streaming television like HBO, social platforms, YouTube, podcasts and even billboards.
We did have a 10% lift in year over year. Brand awareness in 2023, fueled by continued investment in our bullshit free brand campaign and timely activations like our holiday campaign, which uniquely reinforced our relationships with family farms on streaming services like Paramount Plus and Peacock. We ended the year at 23% awareness and reinforced our position as a category leader on this key brand metric.
In 2023, we also deepen loyalty with our target consumer, improving purchase frequency by rate and share of wallet. And plainly, our already loyal consumers were even more loyal and spent more with the brand last year. This stands out in the context of the overall category. And we're thrilled, but not surprised that we continue to simultaneously deepen loyalty and increase awareness. We have another big year in store for 2024 as we continue building the Vital Farms brand by increasing awareness and deepening loyalty with our target group of consumers.
We will continue investing in our breakthrough through share pre brand campaign, tapping into cultural conversations that connect to our business, connecting with consumers through our high touch consumer engagement model and evolving our shopper marketing program. And we will continue grounding our brands and the authentic stories that come from our commitment to improve the lives of people, animals and the planet.
We are also making two shifts that will help us accelerate progress toward our bold brand awareness scores. We are recalibrating our pricing and promotion strategy to drive trial and reach new consumers. And we're deepening our consumer insights expertise, which will help us better target consumers with the right media and messaging. Thank you for your continued confidence in Vital Farms and for your time today. With that, I will pass it over to Thilo.
Thilo Wrede
Hello, everyone, and thank you for joining us today. I will review our financial results for the fourth quarter and fiscal year ended December 31, 2023. I will then provide details on our guidance for fiscal year 2024. As a reminder, in 2023, our results benefited from a 53rd week of operations in the fourth quarter compared to the standard 52-week fiscal year end 2022 and '24.
As you have already heard on this call, the fourth quarter was strong with a record net revenue of $135.8 million. That is an increase of 23.4% compared to the prior year period. This was driven by shipment volume growth of 11.6% and higher price mix.
Volume growth was driven by an increase at both new and existing retail customers. The extra week in the fourth quarter of 2023 contributed $8.5 million to net revenue or 7.7% to growth, excluding the extra week in fourth quarter of 2023. Net revenue increased 15.7%.
Gross profit for the fourth quarter of 2023 was $45.2 million or 33.3% of net revenue compared to $33.3 million or 30.3% of net revenue for the fourth quarter of 2022. Gross profit dollars benefited mainly from higher sales to 300 basis point gross margin expansion was driven by price increases across our entire Charlotte portfolio in January 2023, and moderate promotional environments and moderating commodity and logistics costs, which were partially offset by higher packaging and labor costs.
SG&A expenses for the fourth quarter of 2023 were $28.8 million or 21.2% of net revenue compared to $22.0 million or 20.0% of net revenue in the fourth quarter last year. The increase in SG&A was driven by higher marketing expense accompanied by an increased employee related costs as we added headcount to support our continued growth.
Shipping and distribution expenses in the fourth quarter were $7.3 million or 5.4% of net revenue compared to $7.8 million or 7.1% of net revenue in the fourth quarter of 2022. The decrease in shipping and distribution expenses was driven by a decline in line haul rates and internal efficiencies as we continue to grow our shipment volume.
Net income for the fourth quarter of 2023 was $7.2 million, or $0.17 per diluted share compared to $1.9 million or $0.04 per diluted share for the fourth quarter of 2022. Adjusted EBITDA for the fourth quarter of 2023 was $13.9 million or 10.2% of net revenue compared to $6.9 million or 6.2% of net revenue for the fourth quarter of 2022.
The extra week in the fourth quarter of 2023 contributed $900,000. Now turning to our fiscal 2023 results. Net revenue for the year was $471.9 million, service at 30.3% increase compared to fiscal 2022, driven by volume gains of 13.9% and higher prices and better mix across the Charlotte portfolio. The volume growth was primarily driven by increases at both new and existing customers. The extra week in fiscal year 2023 contributed $8.5 million of net revenue or 2.3% of growth.
Excluding the extra week net revenues increased 28.0% in fiscal 2023, excluding both the extra week in fiscal '23 and the impact of avian influenza in the first quarter of '23. Net revenue increased 25.9% in fiscal '23. Gross profit for the year was $162.3 million or 34.4% of net revenue compared to $109.4 million or 30.2% of net revenue in fiscal '22.
The change in gross profit was primarily driven by higher sales. Our gross margin benefited from increased pricing across the company's portfolio, partially offset by headwinds that included higher input costs, including commodity impacts across the shelling business as well as higher packaging costs.
SG&A expenses for the year were $101.7 million or 21.6% of net revenue compared to $77.2 million or 21.3% of net revenue in fiscal 2022. The increase in full-year SG&A was driven by increased marketing spending to support the initiatives Catherine talked about a minute ago, excluding marketing spend, SG&A as a percent of net sales declined by more than a point demonstrating the scale leverage we are achieving.
Shipping and distribution expenses for the year were $27.3 million or 5.8% of net revenue compared to $30.1 million or 8.3% of net revenue in fiscal year 2022. The decrease in costs was driven by favorable freight rate and internal operating efficiencies, partially offset by higher sales volumes. Net income for the year was $25.6 million or $0.59 per diluted share compared to $1.2 million or $0.03 per diluted share in fiscal year 2022.
Adjusted EBITDA for the year was $48.3 million or 10.2% of net revenue compared to $16.2 million or 4.5% of net revenue in fiscal 2022. The growth in adjusted EBITDA and meaningful improvement in our adjusted EBITDA margin reflects the growing scale of our business and we believe puts us on the right path to deliver our long-term targets. This marks the first full fiscal year since our IPO with double digit adjusted EBITDA margin, demonstrating the benefits of our growing scale. And this is an achievement we are very proud of. The extra week in fiscal year 2023 contributed $0.9 million to adjusted EBITDA.
A quick update on our capital structure. As of December 31, 2023, we had total cash, cash equivalents and marketable securities of $116.8 million. We have no debt outstanding and in fiscal 2023, we generated $39 million of free cash flow. And lastly, I will note that our capital expenditures for the year came in at $11.5 million, which is near the bottom of our previously guided range and well below our initial guidance for the year.
In the fourth quarter, we delayed CapEx spend for our new ag processing facility that was previously expected in Q4. This meant has been shifted to 2024 compared to our initial CapEx guidance for the year. We also adjusted the timing of the previously mentioned digital transformation to ensure that we are fully set up for success.
Now looking ahead for the full fiscal year 2024, we are guiding to net revenue of at least $552 million for at least 17% growth and adjusted EBITDA of at least $57 million for at least 18% growth couple of call-outs on our net revenue cadence. It is worth noting that in the first quarter of 2023, we had a volume benefit from Avian Influenza lapping this benefit in the first quarter of 2024 will be a headwind of 11 points of net revenue growth and eight points of volume growth.
On the other hand, in the second quarter of 2023, demand was lower as order patterns from retailers were out of sync, which we expect will be a tailwind of three points from that revenue growth in the second quarter of 2024. In addition, due to an industry-wide shortage of eggs in the first half of 2023, we reduced our trade spending, which we now need to lap creating another point of net revenue growth headwind in the first half of 2024.
Additionally, in the fourth quarter of 2024, we will face a headwind from the extra week and 2023 as we are operating a standard 52-week calendar this year. Note that in 2024, we expect a normalized promotional cadence that may add one more housekeeping item to the revenue guidance. We regularly review our product portfolio and in the process decided to discontinue for skews of E & tub butter at the end of 2023 in order to concentrate our focus on strict butter.
Combined, these skews generated $2.6 million of net sales for us in 2023 we anticipate that increased sick by ourselves in 2024 will more than offset the rationalization. And we expect growth in our body butter category compared to 2023.
Next let me touch on our adjusted EBITDA guidance. Within our adjusted EBITDA guidance. We expect marketing spend to be up a few million dollars compared to 2023, as we are increasing spend on the we're going to focus media tactics. We expect more of the marketing spend to occur in the second half of the year and higher adjusted EBITDA margin in the first half of the year. Additionally, the cost to produce X remains higher than it was just a few years ago. And our operating plan assumes this will remain the case in the near term, we don't expect any contribution to net sales growth from price mix improvements.
We increased prices for organic shell eggs by low double digits at the beginning of January 2024, while keeping the price of conventional mix constant and supporting them with the previously mentioned higher trade spend, we anticipate benefits from lower feed costs, mostly offset by higher butter costs, packaging costs, trade spend, labor costs and shipping rates.
Lastly, on guidance, we expect fiscal year 2024 capital expenditures in the range of $35 million to $45 million. Note that this includes $11 million of timing shift from the CapEx spend that was initially planned in 2023. We continue to evaluate our capital allocation priorities and if necessary, we'll provide updates on future earnings calls.
Overall, 2023 was a strong year for Vital Farms as we navigated some challenging industry dynamics and still delivered a record year for the business was healthy growth and profitability. We are excited to carry this momentum into 2024 builds on our double digit EBITDA margin, and we are focused on increasing retail penetration to raise brand awareness and deliver our products to more and more households.
Thank you for your time and interest in Vital Farms. We appreciate the confidence that you've placed in us with your investment. And with that, we would gladly take your quest.
Question and Answer Session
Operator
(Operator Instructions) Brian Holland, D.A. Davidson.
Brian Holland
Good morning. I wanted to ask about the fundamental drivers of the acceleration we're seeing in the scanner data quarter to date, I think I have it up about 40% year on year. Wondering if you could comment with respect to, again, fundamental drivers versus maybe on-shelf availability for sort of the commoditized peer set in the category?
Russell Diez-Canseco
Hey, Brian, good morning that. Yes, you notice that we've certainly enjoyed seeing that trend. And I think there are a couple of things that I'd point to I wouldn't point to just one thing. And the first is I think we had a really great of sort of supply chain execution in January which can occasionally be a troubled period of time, just given weather disruptions and other things, we managed to thread the needle, I think, really well, and that might have been worth a couple of hundred basis points of growth versus last year.
But I think fundamentally what we're seeing is that perhaps we've gotten past some of the initial consumer reaction to the inflation that we all saw at the shelf last year for a variety of brands and combined with the fact that we've returned to a more typical promotional cadence and we didn't yet have a read on how successful those promotions would be when we when we created our guidance and we made our plans.
So we've seen that strong growth from that. But the one thing I would call out a little bit of a cautionary note because, as you know, that's part of what I do and is that when we look at the timing of the spike we had a year ago in 2023 from avian influenza. The first couple of weeks of January had a smaller impact than we saw in the back half of January and then into February. So it may also be a question of what we're lapping.
Brian Holland
Appreciate the color. And then I also am looking at the K of foodservice grew about, I think 160% year on year. It's about $28 million, more than 5% of your business out. Just kind of looking for an update on the trajectory of that business, the runway ahead, how sustainable that is? And then just understanding whether there's any margin considerations alongside that.
Russell Diez-Canseco
Yes. Thanks for that, Brian. We continue on the same trajectory and path that we have had for foodservice for a few years now under the strategic leadership of people who leads our sales team and the thought process there is we want to partner with the right of restaurant concepts that are kind of have brands that are committed to sourcing ethical food premium ingredients for an elevated menu and with whom we likely have a consumer overlap.
And that continues to be a terrific, steady source of growth. We want to grow in the right places and frankly, we're not going to compromise on choosing the right partners in order to accelerate growth. So my headline for all that will be we expect to continue to grow that business. We don't expect it to be dilutive to margins. But I wouldn't see that as as a way to kind of hit the gas as it were in our growth. It's more of us the steady execution of the plan we've been running through for the last few years.
Brian Holland
Great. Thanks. I'll leave it there. Congrats. Thanks, Brent.
Operator
Adam Samuelson with Goldman Sachs.
Adam Samuelson
Yes, thank you, and good morning, everyone. So I guess the first question, Tom, would love to just get a bit better color on cost and margin outlook. As we think about the outlook for the sales growth and the EBITDA adjusted EBITDA that you've laid out, I mean high teens revenue growth, EBITDA margins essentially flat year on year, and I know increase in trade from trade spend is a part of that.
But how how do we think about scope for for operating leverage in the business versus reinvestment on moving forward along. Similarly, in the K, there was an allusion to increase payments for your contract for your contract growers as they were starting up and rising kind of inflation for their construction costs. Can you just elaborate a little bit on how the contract rates may have stepped up and what the implications of that are for cash margins.
Russell Diez-Canseco
Great. Thanks, Adam. Great. The great questions. As always about let me start with the conversation about farmers and then Taylor will take the rest and as you know, we've always considered a steady pipeline of the right farmers to be critical to our long-term growth strategy, and that hasn't changed. We continue to enjoy strong relationships with excellent farmers and to continue to attract and the right number of prospects as we continue to grow.
But the reality is that if we look at the experience of our farmers over the last few years, they haven't been immune to the inflationary forces that have affected so many other parts of the supply chain. The one piece that we've observed having more of a lingering effect is it related to construction costs. So we continue to see elevated construction costs for new newborn builds for new farmers in part driven by cost of construction and in part driven by continued elevated interest rates on the loan that they take to do that construction.
So the way we thought about it was in order to make sure that this continues to be a strong financial, a financial arrangement for the farmer. And we want to continue to make sure that the farmer wins at the end of the game. We made the decision to help offset some of those what we believe to be short term elevations in construction and interest rate costs on the front end so that we can continue to attract great farmers and they can continue to see our sort of long-term contract terms as attractive as they always are. So that's the thought process there.
Thilo Wrede
And then Adam, on the on the broader cost picture, I think you alluded to it on the prepared remarks and we are seeing on corn because soybean meal and corn costs are decreasing year over year. So we do get a benefit from that on. But from a gross margin perspective, that's offset by the return of more normal trade spending and by some labor inflation.
And then below the gross profit line, we are anticipating some increase in freight rates. The jury is out on that one. We hope to get some SG&A leverage, but there's reinvestment and marketing spend. And so that is why why we're giving the guidance that we're giving for the time being.
And you also asked about cash flow. So CapEx, we're giving guidance of $35 million to $45 million of CapEx. We're anticipating So continued on strong operating cash flow generations. But compared to prior years, we will we will start putting more money into CapEx. As we've talked in the past, we're getting started with the new facility this year and Russell had mentioned at the beginning that we are going into we are starting now this digital transformation that will also require CapEx spending.
Adam Samuelson
Okay. That's all. That's all very helpful. And just on the on that CapEx point. So you said $10 million was spend budgeted for '23 that that's slipping into '24. Can you just Tony, how much of the rest is the ERP spending and how much would be kind of Egg Central Station three at this point?
Thilo Wrede
Yes, the new facility and the ERP spend just about half of what we are budgeting CapEx for that. And then there's the regular ongoing CapEx plus some additional automation that we want to put into ECS.
Adam Samuelson
All right. That's all super helpful. I'll pass it on. Thank you.
Operator
Matt Smith, Stifel.
Matt Smith
Hi, good morning to ask a question. There was a comment in the prepared remarks about a pricing and promotional recalibration. Could you expand on that? Is that a recalibration and consideration too, how you have viewed your promotional events in the past? Or is that more indicating that 2024, the recalibration is getting back to a normal cadence of promotional spending.
Thilo Wrede
It's really about that are if you'll recall last year, because of the high demand from AI. and therefore, the the empty shelves that we saw, especially at the beginning of the year, we've talked repeatedly about in last year that in the first half of first half of the year, we were able to really meaningfully reduce our trade spend.
And so both their prepared remarks we'll open remarks were supposed to indicate to us that this year we are back to regular promotional spend throughout the year, focused on generating trial and getting new households into the brand from its not a recalibration of how we think about promotional spend of all it's more a '23 was an outlier for us. We're getting back to how we would have done it otherwise.
Matt Smith
Thank you. And a follow-up relating to the butter business. There was a significant decline in sales. I believe revenue was down over 30%, even including the benefit of a 53rd week. You indicated butter sales are expected to grow even though you are rationalizing some SKUs, was there something unique in the fourth quarter related to that rationalization that weighed on the top line and I can leave it there. Thanks. So much.
Russell Diez-Canseco
Thank you. Yes, I'll talk a little bit about how that business has evolved. You've heard me talk in prior calls about how we started that butter business years ago. With aspirations to grow it to $20 million at the time. That was about the size of the ag business as we have expanded that butter business beyond $20 million, what we found is that it is increasingly hard to find the right farms that meet our very high standards. And so that has affected our ability to grow that business.
The demand is there, but we're unwilling to procure butter and work with co-packers that we don't love. And so what we had to do is actually rethink our supply chain for butter and in essence, really transform it. And that transformation started in Q4, and we should be complete by the end of Q1. But in the in the transition, we've had some real strong product shortages that have limited our ability to fill orders. So we're expecting to see strong growth in the back half of the year. But for right now, we're a bit challenged on the supply side.
Operator
Thank you.
Rob Moskow with TD Cowen.
Jacob Henry
Hey, thanks for the question. This is Jacob Henry on for Rob Moskow. I saw a slide in your presentation on legislation changes in several states on laws around cage ag. So I'm just curious, are you noticing any change in conversation with with retailers in these states, maybe maybe a greater willingness to allocate more shelf space, ethically sourced eggs?
Russell Diez-Canseco
Yes, thanks for that question. I think it's a great one I think what we've seen historically and what we continue to see is that when these type of legislations go into effect, there is sometimes a temporary disruption or dislocation in the in the ag market as well as as some retailers need to adjust their forecasts for various items within their set. And that can sometimes create a short term, but probably temporary benefit for anybody whose product meets those new standards.
So we're not seeing a substantial change in the interest of retailers to add our products to their shelves. And I think that what we are seeing potentially Stash from a short term perspective is occasionally some elevated retail pricing for commodity or cage cage-free eggs that generally will smooth out in the months after and the transition to that new regulation.
Jacob Henry
Great. Thank you. I'll leave it there.
Russell Diez-Canseco
Thank you.
Operator
Robert Dickerson, Jefferies.
Robert Dickerson
For our group going forward for more than one in a row. It has gone up. I guess two questions, one on long-term sales growth and other on kind of go-forward CapEx for the first one, you know, when we think about kind of the long-term goal of reaching $1 billion in net revenue, it to me, it does seem like you've kind of given you the awards revenues could be at least in '24 that there is maybe an implied tick-up in the growth rate.
I mean, it's not monumental but it's not is there like as you grow or you get bigger, you know that you're implying that your sales growth would kind of naturally decelerate still be high, but decelerate right that happens in companies that sometimes just get a little bit bigger. And you're not really saying that, right? You're saying that basically over the next call it, four years and we could still grow at least 20% a year kind of once we get past this fiscal '24, that has some puts and takes some puts and takes.
So I'm just curious, Russell, what are those kind of core drivers that give you kind of the conviction that you have, the growth rate we're seeing now we'll be consistent and I'm not sure for if a piece of that just is essentially like West westward market expansions because I know through your Investor Day you've spoke you spoke to kind of increase. You think really about increased distribution and SKUs in store. But just kind of curious as the update post Investor Day, very certain of how you feel about that strategy if we looked out three years.
Russell Diez-Canseco
Thanks, Rob. And I feel it certainly at least as strongly convicted today, as I did last September, about the trajectory of our sales growth and the potential for our brand to have a right to win in more and more households.
And so the I think our confidence in our ability to maintain, as you said, that 20% plus growth give or take, given the given the puts and takes of any given year is rooted in our continued ability to do the right analysis to identify the right households and develop meaningful strategies for reaching them, ability to continue to expand our capacity, our supply chain and get well out in front of our growth needs.
So that's never a bottleneck, and we continue to invest in the resources needed to tell a very compelling fact-based base SALES story to our retail partners. We create value for consumers and retailers. And I think that's always going to be in fashion in a sense. The good news is Kathryn McKenzie here. And so she can bring even more detail to that conversation, Kathryn of mining.
Kathryn McKeon
But we have grown households year over year and continue to do that are growing loyalty at the same time, which is them. It is certainly an accomplishment. And as we look at the long-term growth of the brand are thinking about how to bring in the right households and how to grow the household penetration. And that will be a key driver to this long-term growth you're asking about.
So the three drivers of that and they go hand-in-hand, the right marketing, the right messaging, as Asaf alluded to, it's strong distribution and direct, right promotion this year we are firing on all cylinders there and bringing those all three together, if they were to happen very much in harmony and in the network further than our path to see that we know how to accomplish those things individually and make them work together to grow our households. So I'm feeling really confident in our ability to grow households, grow sales with both new households and deepen loyalty to hit those numbers.
Robert Dickerson
Great. And then just a question on kind of go-forward CapEx and the commentary around ERPI. just quick a quick clarification in versus just I thought I heard, and does that program start to kick off in '25 or that, you know, we are kind of a process you're working on as you get through '24 and part of '25 such that, that ERP implementation program would be finished and '25? I just didn't hear that.
Russell Diez-Canseco
Yes, I know so Cielo can answer more substantially about the timing of the cash flows. But you mentioned timing and when it starts and I wanted to just share a little bit of background the proposal to do a digital transformation came across my desk almost two years ago.
And we've invested a lot of time as we do with everything we do in very intentionally putting together the right team internally, the right outside support and having the right plan to make sure that we execute excellently. And because this is so critical to the management of our business and to enabling expansion beyond day, I'll let Taylor speak about the investment process and time line.
Thilo Wrede
Yeah, on the timing. Rob, we've kicked off the and the digital transformation from the timing of the go live somewhere next year. So we're giving ourselves 18 months to do it. And majority of the CapEx spend is happening this year. It's pretty much correlated with some was just ongoing work through it found any peaks or valleys there.
And so majority of the CapEx spend for the digital transformation as this year onto some additional spend next year and then summer next year, work on life, we're throwing the switch. And while we're doing that, we're improving our processes, we're improving our data availability. So there are a lot of benefits that we anticipate to get out of this.
Robert Dickerson
Right, super.And then because they're there for me, doesn't sound as if you're calling out any P&L impact from that spend the solid CapEx that I just asked because normally we do see some SG&A impact as you get through the process.
Thilo Wrede
Yes, there is the vast majority of this is CapEx there. Now we can go into a phone call. We can get into the accounting details. There are some that will account is OpEx. But for practical purposes, assume this is all CapEx.
Robert Dickerson
Okay, great. Thanks a lot. That's not extra.
Operator
Thank you.
Matthew McGinley, Needham.
Matthew McGinley
You sort of a follow-up on the margin. It's more of a long-term one of the targets we outlined for 2027 more linear. But how should we think about where you'll be at this year with margins being relatively flat at 10% versus your plan to get to that 12% to 14% over the next few years.
Does that leverage in the model come more from gross margin or from operating expense? And as you're on that path to $1 billion, do you see most of that on leverage when you get closer to that billion dollar mark for. Do you see leverage all along the way on where kind of this year is more of an anomaly, you know, the puts and takes where the margins are relatively flat?
Thilo Wrede
Yes, I don't think it's going to be exactly linear. There's going to be quarters and years that might be a bit heavy on investment and some years later. I think with the digital transformation, for example, once once we are live, we can think about, hey, with all the data that we are not getting, what other capabilities can we build, for example, where can we invest in running the business even better?
I think the guidance for this year, it's early days from we talked about anticipating increases in freight rates, for example, we'll see how that will play out on. We are the years to get from where we are, but we're guiding this year in terms of EBITDA to get to the 12% to 14%. It's a it's a pretty clear path for us, but we want to make sure that as we are as we are giving you guidance on how to think about the modeling that we're not getting out of our skis on that.
Matthew McGinley
Okay. Appreciate that. And then you had a really outstanding year for operating cash flow generation and most of that was driven by the increase in profitability this year. Your implied profit dollars won't grow at the same rate, obviously that the big margin increase you had and obviously won't have the same impact on cash flows. I am wondering if the operating cash flow this year may be difficult to sustain that same?
Well, as you did last year, if you have a more normal investment in working capital.
Thilo Wrede
And I think where we had a benefit on, Matt last year was that a lot of the growth came from came from pricing. And when you think about what drove what drove our revenue growth last year, it was about half volume, half was price mix. Price is obviously a very nice way to drive cash flow from this year, the growth will be pretty much entirely volume-driven.
And so the on the makeup of where the growth is coming from, it's a bit more expensive, if you want. And so with that, we are probably getting a bit less of an operating cash flow benefit than we did last year. But we've continued to be on very cash generating and being able to fund operations entirely with the cash that the business generate.
Matthew McGinley
Okay. Thank you very much.
Operator
Ben Klieve with Lake Street Capital Markets.
Ben Klieve
Thanks for taking my questions. Congratulations on a great end of the year here. I just have one question here to follow up on the foodservice conversation, just 6% of revenues, $25 million, $30 million revenue business out of foodservice on.
I'm wondering how if you can characterize kind of how much of that revenue is really from restaurant that you have kind of characterized as those that uniquely fit your brand versus just kind of more general pull on from from restaurants that may just be aware of your of your product from from the broadliners that you guys have a relationship with the vast majority of that $25 million or $30 million are you guys seeing some pull of that just because of the success of your brands outside of your internal efforts on sales and marketing?
Russell Diez-Canseco
I think that's a great question. And I actually don't have an exact split to share with you on this call, although we can probably do a little bit of research and come up with an estimate what I would say is that not unlike the grocery business in 2023, we did experience some sales acceleration due to avian influenza.
And I'm I'm confident that we got some trial from some restaurants over the short run that may or may not have become enduring. And there's a conversion rate, not unlike what we see in household. And I'm really excited about that the strategy we've discussed and really partnering with great brands, and we should probably do a better job of helping you understand how big that opportunity is.
Ben Klieve
No. I mean that's very helpful. I appreciate that color, Russell, on more to talk about this. That's a good place to leave it. Congratulations again, I'll hop back in the queue.
Russell Diez-Canseco
Thanks, Ben.
Operator
Thank you and I'm currently showing no further questions at this time. I hand the call back over to Anna Kate Heller for closing remarks.
Kathryn McKeon
Thanks, everyone, for your support of Vital Farms and have a great day.
Operator
This concludes today's conference call. Thank you for your participation. You may now disconnect.
