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J&J Snack Foods Corp. (JJSF) Q1 2024 Earnings Call Transcript

J&J Snack Foods Corp. (JJSF)

Q1 2024 Earnings Conference Call

Company Participants

Norberto Aja - IR

Dan Fachner - President and CEO

Ken Plunk - CFO

Conference Call Participants

Andrew Wolf - CL King

Todd Brooks - The Benchmark Company

Connor Rattigan - Consumer Edge Research

Robert Dickerson - Jefferies

Presentation

Operator

Thank you for standing by, and welcome to J&J Snack Foods’ Fiscal 2024 First Quarter Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions].

I would now like to hand the call over to Norberto Aja, Investor Relations. Please go ahead.

Norberto Aja

Thank you, operator. And good morning, everyone. Thank you for joining J&J Snack Foods fiscal 2024 first quarter conference call. We will start in just a minute with the management's comments and your questions.

But before doing so, let me take a minute to read the Safe Harbor language. This call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. As such, all statements made on this call that do not relate to matters of historical facts should be considered forward-looking statements, including statements regarding management's plans, strategies, goals, expectations and objectives and our anticipated financial performance.

These statements are neither promises nor guarantees that involve known and unknown risks, uncertainties and other important factors that may cause results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

Factors discussed in our annual report on Form 10-K for the year-ended September 30, 2023, and there are other filings with the Securities and Exchange Commission, could cause actual results to differ materially from those indicated by the forward-looking statements made on this call today.

Any such forward-looking statements represent management's estimates as of the date of this call, February 6, 2024. While we may elect to update forward-looking statements at some point in the future, we disclaim any obligation to do so even if subsequent events cause expectations to change.

In addition, we may also reference certain non-GAAP measures on the call today, including adjusted EBITDA, operating income or earnings per share, all of which are reconciled to the nearest GAAP measure in the company's earnings press release, which can be found in our Investor Relations section of our website.

Joining me on the call today is Dan Fachner, our Chief Executive Officer, along with Ken Plunk, our Chief Financial Officer. Following management's prepared remarks, we will go ahead and open the call for a question-and-answer session.

With that, I would now like to turn the call over to Mr. Dan Fachner, J&J Snack Foods' Chief Executive Officer. Please go ahead, Dan.

Dan Fachner

Thank you, Norberto, and good morning, everyone. We appreciate you joining us this morning to discuss J&J Snack Foods fiscal 2024 first quarter results. I am pleased with our ability to successfully manage through a challenging consumer environment with many of our customers experiencing year-over-year declines in consumer traffic and consumption.

Our customers adapted to consumer trends by reducing inventories ahead of the holiday season, especially in product categories like pies, cookies and frozen novelties. I am proud of how the J&J team leveraged our iconic brands and incremental customer opportunities to maximize every sales opportunity in the first quarter. This resulted in a sales decline of just under 1%, largely in line with the trends in the overall industry.

While we experienced a 4.1% decline in sales across our Food Service segment, driven by softness in our bakery, we saw resilience in Retail and continued strong growth in Frozen Beverages as sales grew 1.6% and 8.5%, respectively. Our ongoing focus on gross margin expansion resulted in a 130 basis points improvement to 27.2%, driven by our strategy to grow higher margin core products as well as continued gains in overall productivity.

Importantly, the success of our strategic initiatives is becoming increasingly visible. Despite softer sales, we delivered a meaningful year-over-year improvement in the overall profitability of the business, including a 20.6% increase in adjusted operating income and a 19.2% increase in adjusted EBITDA.

I'd like to take a few minutes talking about our sales performance in the quarter. We have never been more confident in our ability to grow even as our industry faces a more challenging consumer environment. For J&J, it's about continuing to leverage innovation and cross-selling opportunities to expand placements of our core products and brands. Our business is gaining incremental opportunities and is well positioned as consumption trends improve.

Here are a few insights into the performance of our core brands and products during the first quarter. In our Retail segment, sales of our soft pretzel products increased 27.4% compared to the prior year. Bavarian sticks, a new product launched late in fiscal 2023 is now the number two best seller in the super pretzel retail product portfolio.

We also gained incremental items within our Super Pretzel portfolio across major retailers, including Public, Stop & Shop and Woodman's to name a few.

Moving to soft pretzels in our Food Service segment. Sales declined 4%, primarily driven by soft traffic trends in key channels. However, the team did gain new business, including the launch of a super pretzel field Helapenonot nationwide with a major theater customer and incremental sales gains in Pretzel bites and buns. Also, several national fast casual chains are making pretzels a permanent part of their menu. We continued to gain market share this quarter compared to last year.

Let's talk about churros. We continue to see strong momentum across the Food Service segment and remain excited about the growth opportunities. The team successfully secured an opportunity with Subway to manufacture a foot long churro for all U.S. locations. This rollout began in the first quarter and is already exceeding expectations. We also began to roll out up churros with a major food distributor in September of 2023, and they have recently doubled their original order given the strong momentum.

Finally, we are leveraging innovation with flavor extensions such as the recent launch of our Chocolate build churro that is driving new sales opportunities. Our HOLA! CHURROS brand is also performing at or above expectations in the Retail segment. We expanded distribution at Wakefern, Schunk, Giant Landover and grocery supply and are awaiting feedback from additional retailers.

Sales for Dippin’ Dots, which is part of the Food Service segment, were slightly positive for the quarter, led by an approximate 3.5% increase in sales of our top 30 customers. This was, however, offset by some softness in the franchisee part of the business. We continue to see growth opportunities for Dippin’ Dots and are moving quickly to activate new business. Just this past quarter, we completed the rollout of Peter Piper Pizza extended our agreement with Chuck E. Cheese through 2027 and received a commitment from a convenience store customer for another 200 placements.

In addition, we continue to expand across the theater channel with ongoing rollouts at Cinemark, commitments to install vending at 56 locations for Marcus Theatres and incremental tests at a third major theater chain.

Moving to Frozen Beverages. This segment posted an 8.5% increase in sales, led by the continued strength of ICEE. Overall, theater volume increased for the quarter compared to the prior year, but was below expectations due to lower performing movie releases and softer traffic.

Sales in Mexico, the amusement channel, mass merchandise retailers and restaurants increased for the quarter. The rollout of a new self-serve program for a major club customer is delivering strong results with over 100 locations converted to date with plans to continue rolling out locations in the second quarter.

We also had a positive impact from our churros marketing campaign at major retail outlets such as Target as well as continued overall C-store channel strength. Looking ahead, we are excited about a major QSR opportunity entering a test phase in Q2. Also, we received a commitment from our partners at Dave & Buster's to roll out across 150 locations by late April.

As previously mentioned, frozen novelties declined in the quarter as key customers reduced orders and inventory levels in this category. This impacted our year-over-year sales growth for most of our key brands, but we continue to grow faster than the market in many areas. In fact, our Luigi's Italian Ice brand gained market share compared to top competitors during the quarter, and our team secured incremental retail shelf placements at additional grocery retailers.

Products like our ICEE branded novelty and Dogsters continue to perform well. I'm really excited about our Dogsters as it delivered strong results, outpacing the growth of our largest competitors. Dogsters also recently gained incremental shelf placements something we expect will continue as retailers reset later in 2024. We continue to see strong growth opportunities across our frozen novelty portfolio as we approach peak season for spring and summer seasons.

Finally, I'd like to talk about our bakery business. For the quarter, bakery sales decreased 6.4%, driven entirely by the impact of reduced customer orders for pies and cookies during the holiday season. Many of our largest customers experienced lower traffic and moved the tighter management of inventory to manage through softer consumption trends.

Looking ahead, we are focused on product innovation that drives more profitable sales while we continue rationalizing lower-performing SKUs. This strategy is helping us improve bakery gross margins while identifying new selling opportunities. ...

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