Q1 2021 John B Sanfilippo & Son Inc Earnings Call
This growth was primarily driven by the Fisher oven-roast never fried line, which continued to expand beyond the core Fisher geography and increased pound sales by 106% off on velocity and total points of distribution increased by 43% and 33% respectively versus last year.
Volume for a southern-style nuts brand at retail decreased by 2% in the quarter due to losing Distribution on some flavors at a key customer. This was partially offset by faith in the club Channel Palm volume for the total Trail and snack mix category decreased by 3% in the quarterly comparison in q1. The produce. Category wage increase 7% in dollar sales and was flat and pollen volume sales or to Valley Harvest our produce brand decreased 27% impound sales resulting in a pound, sir. Decline a six tenths of a point versus last year.
Was due to Lost distribution at a major major customer and the mass merchandiser sector within traditional grocery obviates was down 5% in dollars and declined 5.9% in pre-owned sales.
In closing we will continue to face volatility in our fiscal 2021 as a result of COVID-19 and the uncertainty of future local state and federal restrictions seem to mitigate and control the pandemic. However, I am confident. We have the people the processes the brands the expertise and the financial strength in place to be flexible and successfully navigate our company through these volatile times and to continue to grow our business success requires smart strategies and the right business model sustainable growth and we have them here at gbss. We will continue to maintain a competitive advantage to be differentiated and to be an Innovative and valuable partner management team and all are dedicated employees have a steadfast commitment to develop business plans that create shareholder value and provide relevant profitable value-added products and services.
Is to our customers and consumers. We appreciate your participation in the call, and thank you for your interest in our company. I will now turn the call back over to Mike. Thank you Jeffery off at this time. We will open the call to questions. Well, you know, would you please queue up the first question? Yes, sir. As a reminder to ask question. You will need to press star one on your telephone to withdraw your question, press the pound key and please stand by while the compile the Q&A roster.
Your first question is from the line of Chris Martinez from the cedar T & Company here Line is now open. Good morning. Thanks for taking my question from this quarter, Um, I was wanting to get the start off maybe uh, you know, just any notable changes from the beginning of the quarter to the end of the quarter and and maybe playing out in in early October and just across the three months on the segments. I know there's a lot of moving pieces between the brands and everything but you just maybe talk about that Cadence that you've seen how it unfolds with the last quarter and maybe work after that month at Christmas is Jeffrey. So if you look at the looking at byte channels consumer Channel, we can send you to continue to see growth there a shift in people eating out and cooking and and snacking at home so we can check to see that going into two through q1 and Q2 and I don't anticipate that's going to change with just the situation the countries in today. I think people are going to still be reluctant to go out to eat at home.
And looking to stay home and cook at home. And so I think we'll see strong growth in the consumer Channel both in snacking and especially in recipe nuts. The shift in e-commerce is also something that's that's continued from first quarter into second quarter.
Again, don't anticipate that to change either people have become accustomed to buying and shopping online and they like the convenience of it and the safety of it. And so I think you're going to continue to see e-commerce growth. That's why we're reallocating some of our investments in in marketing and sales support to the e-commerce channel the commercial ingredient Channel. Although we have seen some positive momentum their wage. It's still not where it was a year ago, and I don't anticipate that happening, you know, really till the next couple of quarters until we get a better handle on what's happening in the country of the positive side is we have seen some improvement. I think I'm seeing people feel a little bit more comfortable going back to restaurants and when they are open you're seeing some decent turnout there, but it is a challenge and so our teams in the Food Service channel are looking at other opportunities outside of just restaurants to to build distribution and they're focused heavily on that and then the contract manufacturing Channel really the largest customer that channel their biggest.
Business is mainly convenience stores and we still have not seen a return to the traffic in convenience stores. So as a result we've seen continued declines in the in the contract packaging Channel. I can add to What Jeffrey said Chris in in respect the private label snack nuts. That was that growth rate was pretty steady throughout the quarter wage and respect to Food Service. We saw an improvement from a 43% year-over-year decline to about a finish up the quarter with about a 40% year-over-year decline so may progress there and then on contract packaging we also saw some improvement as we progress through the quarter, especially in respect to the customer Jeff referenced earlier.
Very helpful, and I appreciate that. It seems like things are starting to open up a little bit. So that should help especially on that contract but you know start to open up here wage. I guess just in in terms of your expectations around the holiday season and even normal maybe the potential gains in customers there, you know, just how how do you you know feels like given the strength that you've seen em with the consumer staying home. It should be a really good season. How are you changing? Maybe any go to market strategies there or any opportunity to again when customers their thanks am really strong position, especially on Fisher recipe where we have distribution with strong retailers across the country. We've got very competitive prices this year. We've got strong promotional activity on our sales and marketing gems are pursued. So I believe we're not very strong position to take advantage of that increase in in cooking at home with the current with the distribution in the setup we have eCommerce is another area where there's great authors.
Trinity's and so we've really got Our Brands both recipe and snack well positioned in e-commerce to take advantage of of a of a holiday Spike and I think you'll see some you will see travel. Obviously. I'm giving and Chrismas huge travel times, you know, I don't think it'll be where it was last year, but I think you'll see a pick up where it should have some positive impact in the Food Service Channel plus we we picked up some merchandising space at that one customer where we didn't have that last year. So
Okay.
It just thinking about I guess just around Orchard Valley, you know, it sounds like it's just that one. Non-food customer is is is the economy to start a thousand stores are starting to open it is are you seeing that change do you expect that to that brand new start to kind of rebound is the economy's open what it takes for that non-food customer to start to order again, So they are they are opening more stores. It's pretty pretty consistent. It's just a matter of getting that traffic to come back to the store. So so they are open. We've got the distribution as we had last month or so. I'm optimistic that you're going to start to see more traffic come through that non-food retailer where we've got the age distribution, especially this time of year for the holiday season great group and jet skis talk around just that peanuts and peanut butter Supply your shoes that you talked about. How much in sales is that was it was that I mean you mentioned it in the release. So I'm just wondering you know, how much of a pressure that was dead.
and a quarter
Yeah, I think our total peanut butter sales volume was down, you know roughly about a million pounds.
In the year in the quarterly comparison the optimism the good news is that the peanut Supply is coming back and we don't anticipate that change coming in the coming year. Yeah. Yeah. We're yeah, we're we're going to see the second largest crop in history. We believe so we feel pretty good about our units apply going forward wage. And and and I guess just you know, you spend some time talking about acquisition costs. How how do you see that playing out with the margin profile for the remainder year on the gross margin side, and then I can kind of get jump to the operating margin after them operating expenses after that thing.
Okay, so, you know as Jeff mentioned both almonds and walnuts are down pretty significantly year-over-year so that you know generally leads to improved gross profit margins. Um, the big challenges is to maintain the gross profit per pound in our pricing and when they get as low as they're getting that becomes difficult to do so you need, you know to be able to get those gross profit hours. You know, we're going to need some volume increases especially on those two nuts.
And Chris were the good things as we're able to hit price points that we haven't seen in quite a few years and and a lot of these heavy volume Commodities. And so that's exciting going into this holiday season, right might be offset that with the volume growth obviously kind of around that and what's driving the the the decline in the acquisition of the is it covered related or is it just the amount by to come on Market over? You know, this year is a combination of both. I mean, we've got some records record crops of almonds Walnut crop is huge this year pecan crop is extremely strong there have been some negative impact from Adam and perspective part of its trade situations part of it is just the lack of travel around the world, which is impact consumption as well.
And then just like the last question for me just around the operating.
Expenses obviously great job on on controlling that but how sustainable with that and and I guess as you start to reallocate, you know, you're spending how do you see that? Play out over the coming quarters.
Let's talk about advertising. So from a marketing perspective as I mentioned, we're going to shift more resources towards e-commerce digital marketing and and it really expanding our reach any Commerce. But also there's opportunities, you know from a brand building in in launching new Innovative items. I've talked in the past about our our club store strategy and how that's is important to the company. We have not been too successful as as I'd hoped up until now but we've got, you know new members of of a talented team in place that are really laser-focused on Andre Romancing rebuilding our Branch are positioning our engagement with consumers. So you're going to see a lot more investment go towards our Brands and and where we we Market them.
Right now I'll talk a little bit about compensation Chris the few things driving that you know first or incentive compensation expenses down a bit compared to last year phone number last year. We got off to a great start and we're generating a lot of Eva Improvement. So we were according for a higher bonus expenses and the first half of last year then we had your the other area where we've seen a decline in compensation related expenses is with medical insurance expense and I'm sure you've read about this, you know wage employees are not going to the doctor as much as they typically do and you know, so that's being reflected in that line. And then it the last one Consulting. We actually had a big project last year in the first quarter to you know, retune our strategic plan. We also had some Consulting expensive wage.
Position that did not occur and that's what drove that favorable comparison this quarter. And and I apologize just one more time just seems to be a notable increase in advertising around nuts. And and I've got this question from a number of investors or something. Are you seeing that as well just kind of give them the stronger Demand with the stay-at-home, you know, I am seeing that kind of level increase maybe from some of the customers in terms of you know, trying to go out and Market more actually you're seeing that from a combination of places one that trade associations are doing a great job and increasing the investment they're making and marketing and and expanding demand for the Almond industry that pecan industry the Walnut industry really all have stepped up to to promote the consumption of nuts and the usage of nuts. The brands are stepping up as well. We've seen that recently and as as we are as well, so I think it's just a it's a combination birth.
People looking at the opportunities and the stay-at-home in the snacking at home demand change and so they're pursuing that but also just the fact that we've got such large crops.
Coming on we've got to find, you know valuable homes for for for such huge supplies so that so you're seeing that investment as well. And can you just talk a little bit about the competitive environment and I'll I'll get back into you obviously private brand is extremely strong. We've seen a shift in in private bank growth really across almost every channel or category. And so I am seeing that growth the the brands so competitive competition on the private Brands supply-side, but the brands are stepping up as well investing a lot more in the categories and we've seen in quite a while. And so you're seeing you know, as as we've talked all these lost some distribution in our official recipe customer base due to some competitive pricing and competitive offers, but it's but at the same time it's like fighting time for the business. There's so many opportunities across multiple channels as we follow these shifts and demand around the country.
Thank you very much for your time today. And you're looking at you, too. Thanks, Chris.
Your next question is from Jim call of Capital Management. Your line is not open.
Was this the first quarter where the consumer distribution was ever 75% of your sales? Yeah. I think it was Tim. Yeah, I was I was going to mention that I didn't I don't have a final record believe it's probably the highest percent of of the total business ever over 75% I would agree with you. It's good touch.
It was a challenging quarter, but you had near record sales and near-record earnings. It appears that you should have excess capacity in each of your divisions. Is that the case?
Recover that Jasper. Yes in this is Jasper. I would say on the consumer piece particularly with the growth that we've seen we do get a little challenged on capacity but come January 4th at capacity that opens up again just due to the nature of our business. Obviously, we're looking at capex to continue to support the consumer growth. We certainly have capacity to handle additional food service with us as typically those pack Styles or a bit different. So I would say overall for sure on food service, but we're making adjustments to continue to add capacity on our consumer side.
Terrific. Thank you. Hey, thanks Tim, Tim.
Once again to ask a question, you believe the press star one on your telephone.
At this time, I would like to turn it back to the to Mister Mike for any further comment.
Thank you point them. Again. Thank you everyone for your interest in jbss. This concludes the call for our first quarter of fiscal 2021 operating results. Have a good day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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