Q1 2024 J&J Snack Foods Corp Earnings Call

Norberto Aja: I would now like to hand the call over to Norberto Aja from Vestal Relations. Please, go ahead. 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 State Harbor Linguist.

Yeah.

Okay.

Thank you for standing by and welcome to J&J snack foods fiscal 'twenty 'twenty four 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 to ask a question. During the session you will need to press star one one.

Norberto Aja: This call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Ask us all statements made on this call that do not relate to matters of historical fact 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.

To remove yourself from the queue you May press star one one the game.

I would now like to hand, the call over to Alberto <unk> Investor Relations. Please go ahead.

Thank you operator, and good morning, everyone.

Thank you for joining J&J snack foods fiscal 2024 first quarter conference call.

It will start in just a minute with management's comments and your questions.

Norberto Aja: Concertantties 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 form of the statement. Factors discussed in their annual report on Form 10-K for the year ended September 30, 2023, and there were other filings with the Securities and Exchange Commission could cause actual results to defer materially from those indicated by the forward-looking statements made on this call today. Any such form of statement represents management's estimates as to the date of this call, February 6, 2024. While we may elect to update the form of the statements at some point in the future, we disclaim any obligation to do so, even if subsequent events cause expectations to change.

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 they do not relate to matters of historical facts.

Should be considered forward looking statements, including statements regarding management's players strategies goals expectations and objectives and our anticipated financial performance.

These statements are neither promises.

Guarantees that involves 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.

Dan Fassner: In addition, we may also reference certain non-GAAP measures from the call to action, including Shasta David Dock Operating Income or Earnings Per Share, all of which are reconciled to the nearest gap 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 Fassner, 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 to questions. With that, I would now like to turn the call over to Mr. Dan Foster of J & J Snack Foods, Chief Executive Officer. Please go ahead, Dan.

Factors discussed our annual report on Form 10-K for the year ended September 30th 2023.

There were other filings with 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 managements estimates after the date of this call February six 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 cost expectations.

Change.

In addition, we May also reference certain non-GAAP measures on the call today, including adjusted EBITDA.

Dan Fassner: 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.

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 Fashioner, our Chief Executive Officer, along with Ken <unk>, Our Chief Financial Officer.

Following managements 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 Fasher J&J snack foods Chief Executive Officer. Please go ahead Dan.

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.

Dan Fassner: While we experienced a 4.1% decline in sales across our food service segment driven by softness in our bakeries, 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 point 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.

Our customers adapted to consumer trends by reducing inventories ahead of the holiday season, especially.

Especially in product categories, like pies cookies and frozen novelties.

I'm proud of how the J&J team leveraged our iconic brands and incremental customer opportunities to maximize every sales opportunity in the first quarter.

While we experienced a four 1% decline in sales across our foodservice segment driven by softness in our bakery, we saw resilience in retail and continued strong growth in frozen beverages as sales grew one 6%.

Dan Fassner: 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 to talk 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 distribution 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 bestseller in the Superpresso retail product portfolio.

Eight 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 and 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 26% increase in adjusted operating income and <unk>.

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.

About continuing to leverage innovation and cross selling opportunities to expand placements of our core products and brands.

Dan Fassner: We also gained incremental items within our Superpresso portfolio across major retailers, including Publix, Stop and Shop, and Woodman's, to name a few, moving the soft pretzels into our food service site. However, sales declined 4%, primarily driven by soft traffic trends in key channels.

Our business is gaining incremental opportunities and is well positioned as consumption trends improve here.

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.

Dan Fassner: However, the team did gain new business, including the launch of a super pretzel-filled jalapeno knot 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 menus. We continued to gain market share this quarter compared to last year. Now, let's talk about churros.

But very instincts and 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 Publix stop and shop and Woodman to name a few.

Moving to soft pretzels in our foodservice segment sales declined 4%, primarily driven by soft traffic trends and key channels. However, the team did gained new business, including the launch of a super pretzel filled jalapeno not nationwide with a major theater customer.

Dan Fassner: 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 trail for all U.S. locations. This rollout began in the first quarter and is already exceeding expectations. We also began rolling out 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 fiber extensions, such as the recent launch of our chocolate-filled churro that is driving new sales opportunities. Our Olock Churros brand is also performing at or above expectations in the retail segment. We expanded distribution at Wakeburn, Schnook, Giant Landover, and Grocer's Supplies 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 at our top 30 customers.

And incremental sales gains and pretzel bites and bonds.

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 foodservice segment and remain excited about the growth opportunities. The team successfully secured an opportunity with subway demanded manufacturer a foot long true for all U S locations.

This rollout began in the first quarter and is already exceeding expectations.

We also began to rollout of Churros with a major food distributor 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 built that.

Dan Fassner: This was, however, offset by some softness in the franchisee part of the business. We continue to see growth opportunities for Dip n' 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 locations. In addition, we continue to expand across the theater channel with ongoing rollouts at Cinemark.com. Commitments to install vending at 56 locations for Marcus Theatres and incremental tests at a third major theatre chain, moving to frozen beverages.

That is driving new sales opportunities.

Our <unk> brand is also performing at or above expectations in the retail segment.

We expanded distribution at weight fern, chinooks giant landover, and grocers supply and are awaiting feedback from additional retailers.

Sales for <unk>, which is part of the foodservice segment were slightly positive for the quarter led by an approximate three 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 dip different dots and are moving quickly to activate new business. Just this past quarter, we completed the rollout of Peter Piper Pizza.

Dan Fassner: This segment posted an 8.5% increase in sales, led by the continued strength of IC. 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 Illusionist Channel, Mass Merchandise Retailers, and Restaurants increased for the quarter.

Extended our agreement with Chucky cheese through 2027 and received a commitment from a convenience store customer for another 200 placements in.

In addition, we continue to expand across the theater channel with ongoing Rollouts at Cinemark.

<unk> to installed vending at 56 locations for Marcus theatres and incremental tests at a third major theater chain.

Dan Fassner: 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 Trolls marketing campaign at major retail outlets, such as Target, as well as continued overall T-Store channel strength. Looking ahead, we are excited about a major QSR opportunity entering a test phase in Q2. Additionally, we received a commitment from our partners at Dave & Buster's to roll it 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.

Moving to frozen beverages.

This segment posted an eight 5% increase in sales led by the continued strength of ICEE.

Overall theater volume increase 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 <unk> channel.

<unk> merchandise retailers and restaurants increased for the quarter.

The rollout of our 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.

Dan Fassner: 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 Icy branded novelty and Dogsters continue to perform well.

We also had a positive impact from our trolls marketing campaign at major retail outlets such as target.

As well as continued overall C store channel strength.

Looking ahead, we are excited about our major <unk> opportunity entering a test phase in Q2.

Also we received a commitment from our partners at David Busters to rollout 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.

Dan Fassner: I'm really excited about our Dogsters as they delivered strong results, outpacing the growth of our largest competitors. Dogsters also recently gained incremental sales placement, something we expect will continue as retailers reset later in 2024. We continue to see strong growth opportunities across our pros and novelty portfolios as we approach peak season for spring and summer. 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.

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.

Additional grocery retailers.

Products like our ICEE branded novelty and doctors continue to perform well.

I'm really excited about our doctors as it delivered strong results outpacing the growth of our largest competitors.

Dan Fassner: Many of our largest customers experienced lower traffic and moved to tighter management of inventories 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. On the growth front, we recently secured new cookie opportunities with several customers, introduced cakeables and seasonal cookies across a handful of partners, and we are working on opportunities to launch pretzel croissants and super pretzel Bavarian buns into retail outlets across grocery, in-store bakeries, and convenience, from an operational perspective. As we have mentioned on prior calls, we continue to execute initiatives to enhance overall operations and to better support our growth opportunities.

<unk> 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 season.

Finally, I'd like to talk about our bakery business.

For the quarter bakery sales decreased six 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 a 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.

Dan Fassner: Starting with our supply chain strategy, we have now opened two of the three distribution centers in Terrell, Texas, and Woolwich, New Jersey. These two new DCs are exceeding expectations and will enable us to continue driving productivity improvements in our supply chain. We are scheduled to open the third DC in Glendale, Arizona, in the second quarter. In fact, I think we'll open it this week.

On the growth front, we recently secured new cookie opportunities with several customers introduce capable and seasonal cookies across a handful of partners and we are working on opportunities to launch pretzel croissant, and Super Pretzel, Bavarian bonds and their retail outlets across grocery in.

Store bakery and convenience.

From an operational perspective, as we have mentioned on prior calls we continue to execute initiatives to enhance overall operations and to better support our growth opportunities.

Dan Fassner: Moving to operations, the addition of six new production lines gives us the capacity and flexibility to grow core products such as pretzels, churros, and frozen novelties across new customers and channel opportunities. These lines also create production efficiencies and higher output and metrics through better automation, which improves product margins and profitability.

Starting with our supply chain strategy. We have now opened two of the three distribution centers, Terrell, Texas, and what which new Jersey.

These two new Dcs are exceeding expectations and will enable us to continue driving productivity improvements in our supply chain.

Dan Fassner: Our team is aligned and focused as we execute the five core strategies, grow and protect our brand, dominate core categories, cross-sell the portfolio, invest in our future, and embrace our culture. In closing, I want to thank our J & J employees for their unwavering commitment to establishing a winning culture and for their commitment to our partners and customers. The diverse nature of our business, along with the power of our brands and the channel diversity of our products, is something that we are confident will continue to serve us well in fiscal 2024 and beyond. Our company has never been more aligned with its vision and strategies, and we are excited about the opportunities ahead of us to deliver long-term value to our employees, partners, and shareholders. With that, I would now like to pass the call over to Ken to review our financial performance in more detail. Ken?

We are scheduled to open the third DC in Glendale, Arizona in the second quarter. In fact, I think we are opening it this week.

Shifting to operations. The addition of six new production lines gives us the capacity and flexibility to grow core products such as pretzels.

And frozen novelties across new customers and channel opportunities.

These lines also create production efficiencies and higher output metrics through better automation, which improved product margins and profitability.

Our team is aligned and focused as we execute the five core strategies grow and protect our brands dominate core categories cross sell the portfolio invest in our future and embraced our culture.

In closing I want to thank our J&J employees for their unwavering commitment to establishing a winning culture and to their commitment to our partners and customers.

Ken Plunk: Thank you, Dan. And good morning, everyone. As Dan just discussed, we are pleased with our team's ability to navigate a softer consumer environment in fiscal Q1. For the quarter, we did experience a slight sales decline compared to the prior year, but we're in line with overall industry trends, and Dan Slating. We were executing our strategy, improving operational efficiency and profit margins and expanding growth opportunities across channels and customers. This helped balance declines in consumer traffic and consumption that affected many of our companies. That sales for the quarter totaled $348.3 million, down 0.9% versus the prior year. Food Service, our largest segment, saw sales decrease 4.1% to $228.6 million, primarily reflecting reduced inventories of pies and cookies among certain customers during the holiday season, as well as a decline in handheld sales due to a contractual cost true of agreement. Bakery sales decreased 6.4%, and handheld sales declined 6.5% in the quarter.

The diverse nature of our business along with the power of our brands and the channel diversity of our products is something that we are confident we will continue to serve us well in fiscal 2024 and beyond.

Our company has never been more aligned that its vision and strategy and we are excited about the opportunities ahead of us to deliver long term value to our employees.

<unk> and shareholders.

With that I would now like to pass the call over to Ken to review, our financial performance in more detail Ken.

Thank you Dan and good morning, everyone as Dan just discussed we are pleased with our team's ability to navigate a softer consumer environment in fiscal Q1.

For the quarter, we did experience a sales slight sales decline compared to the prior year.

Line with overall industry trends.

As Dan stated, we're executing our strategy improving operational efficiency and profit margins and expanding global opportunities across channels and customers. This helped balance declines in consumer traffic and consumption that impacted many of our consumers.

Ken Plunk: Although volume sales for our Courses Service handheld did increase for the quarter, these declines were partially offset by our Trillos category, which grew 8.9% as we continue to drive growth in this high-margin business. Sales of tall pretzels and frozen omelettes declined 4% and 3.3% in the quarter, respectively, due to the reasons they previously discussed consumer pressure.

Net sales for the quarter totaled $348 3 million down 9% versus the prior year.

Foodservice, our largest segment <unk> sales decreased four 1% to $228 6 million, primarily reflecting reduced inventories at pies and cookies among certain customers during the holiday season, as well as a decline in handheld sales.

Ken Plunk: This led to a Q1-24 pre-service segment operating income of $6 million, or a decrease of 5.8% versus the prior period. This reflects lower sales and a one-time cost associated with the opening of our new Jersey Distribution Center, which impacted distribution. Moving to our retail segment, Q1'24 retail sales increased 1.6% to $43.8 million compared to Q1'23. Handheld sales grew by 90.5%, while soft pretzel sales increased 27.4%, led by our continued expansion of super pretzel products into retail. Both anomalies in biscuit cells declined 28.4% and 11.1%, respectively, versus the prior year period.

Due to a contractual cost true up agreement.

Bakery sales decreased six 4% and handheld sales declined six 5% in the quarter.

Although volume sales for our core foodservice handheld did increase for the quarter.

These declines were partially offset by our cheerios category, which grew eight 9% as we continue to drive growth in this high margin business sales of soft pretzels in frozen anomalies declined 4% and three 3% in the quarter, respectively, driven by the previously discussed consumer pressures.

This led to Q1 'twenty for foodservice segment operating income of $6 million or a decrease of five 8% versus the prior period.

This reflects softer sales and onetime costs associated with the opening of our New Jersey distribution center, which impacted distribution expenses.

Ken Plunk: This was voted in Q1. 24 Retail Segment Operating Income of $0.5 million, or a decrease of 59.3% versus the prior year period. J & J Snack Foods Corp. J & J Snack Foods Corp., and a one-time cost associated with the opening of the New Jersey Distribution Center. As it relates to our third segment, frozen beverages, sales were 75.9 million and beat Q1 sales by 8.5%. Beverage sales grew 8.5%, or $3.3 million higher than Q123, led by solid performance across key channels including convenience, amusement parks, mass merchants, and restaurants. Machine Service revenues increased 3.1% versus the prior year period. Equipment sales increased 26.8%, driven by strong growth from convenience in QSR channels.

Moving to our retail segment Q1, 'twenty four retail sales increased one 6% to $43 8 million compared to Q1 of 'twenty three.

<unk> sales grew about 95%, while soft pretzel sales increased 27, 4% led.

Led by our continued expansion of Super Pretzel products into retail.

Versus the prior year period.

This resulted in Q1.

24 retail segment operating income of $5 million or a decrease of 59, 3%.

First as the prior year period.

Driven by product mix lower gross margin.

And the one time costs associated with the opening of the New Jersey distribution Center.

As it relates to our third segment frozen beverages sales were $75 9 million in Q1 of 'twenty three sales by eight 5%.

Ken Plunk: Q1 2024 Operating Income in the frozen beverage segment also improved $3.2 million, a 75.7% increase compared to Q1 of 2023. Our focus on growth margin expansion through an improved mix of core products, more line pricing, because of their deficiencies, is clearly benefiting our results. For the quarter, gross profit totaled $94.6 million, a 4.1% increase compared to Q1 of 2023.

Average sales grew eight 5% or $3 3 million higher than Q1 'twenty three.

Led by solid performance across key channels, including convenience leisure parks mass merchants in restaurants.

Machine service revenues increased three 1% versus the prior year period.

Equipment sales increased 26, 8% driven by strong growth from the convenience and CSR channels Q1, 'twenty for operating income in the frozen beverage segment.

Ken Plunk: This led to a gross margin of 27.2%, favorably compared to 25.9% in Q1 of 2023. Despite the softer consumer environment in Fiscal Q-124, we remain confident in our plans to improve profit margins and expect to achieve gross margins of 30% or better for the full year. Overall, we've experienced slight inflation for the Corp. The cost of ingredients including flour, oil, dairy, and eggs has declined.

Also improved $3 2 million, a 75, 7% increase compared to Q1 of 'twenty three.

Our focus on gross margin expansion through an improved mix of core products more align pricing and cost of goods efficiency is clearly benefiting our results.

For the quarter gross profit totaled $94 6 million, a four 1% increase compared to Q1 of 'twenty three.

Ken Plunk: However, this was offset by double-digit inflation in... Sugars, Sweeteners, Mixes, Chocolates, and Meats, which continue to impact products such as frozen olivies and baked goods. Looking at expenses, total operating expenses increased $3.4 million, or 4.1%, representing 24.4% of sales for the quarter, compared to 23.2% in Q1 of 2023. It is important to note that during the quarter, we incurred $2.2 million in on-time expenses.

This led to a gross margin of 27, 2%.

<unk> compared to 25, 9% in Q1 of 'twenty three.

Despite the softer consumer environment in fiscal Q1, 'twenty four we remain confident in our plans to improve profit margins and expect to achieve gross margin of 30% or better for the full year.

Overall, we experienced slight inflation for the quarter.

Ken Plunk: Striking Transition Costs Related to the October Opening of our Second Distribution Center in New Jersey. This was a planned cost of a distribution network strategy, and is expected to drive meaningful cost savings once we complete this initiative. Our third distribution center will open in Glendale, Arizona, in the second quarter, and we'll incur a similar one-time transition.

The cost of ingredients, including flour, all dairy and eggs have declined.

However, this was offset by double digit inflation in.

Sugar sweeteners mixes chocolate and knees, which continue to impact products, such as frozen novelties and baked goods.

Looking at expenses total operating expenses increased $3 4 million or four 1% representing 24, 4% of sales for the quarter compared to 23, 2% in Q1 and 23.

Ken Plunk: Distribution costs were 11.6% of sales in the quarter, compared to 12% in the prior year period, even with the previously mentioned one-time transition. The year-over-year improvement in distribution expense was largely driven by a more favorable inflationary environment and the benefits of our initiatives to improve logistics management and increased efficiency across a distribution network and supply chain. Marketing and selling centers were 7.9% of sales versus 6.7% in the prior period, driven primarily by incremental promotional marketing support on core brands and new products. Administrative expenses were 5.2% or so in Q1 of 24 compared to 4.7% in Q1 of 23, which is attributable to investments in incremental resources as well as hosting our national sales meeting for the first time since the pandemic.

It is important to note that during the quarter, we incurred $2 2 million in one time expenses.

Collecting transition costs related to the October opening of our second distribution center in New Jersey.

This was our plan calls for the distribution network strategy.

As expected to drive meaningful cost savings once we complete this initiative.

Our third distribution center will open in Glendale.

Arizona in the second quarter and will incur similar onetime transition costs.

Costs were 11, 6% of sales in the quarter compared to 12% in the prior year period, even with the previously mentioned onetime transition costs the.

The year over year improvement in distribution expense was largely driven by more favorable inflationary environment and the benefits of our initiatives to improve logistics management.

Ken Plunk: This led to an operating income of $9.7 million, or a 3.8% increase compared to $9.3 million in Q1 of 2023. Addressed an operating income of $13.5 million, or a 20.6% increase compared to Q1-23. After the impact of income taxes of $2.6 million compared to $2.3 million in Q1 of Fiscal 23, net earnings increased 9.8% to $7.3 million, resulting in reported earnings per share of $0.37 compared to $0.34 in the prior year period, adjusted earnings per share of $0.52 a share for the quarter compared to $0.42 in the prior year period. Suggested EBITDA increased 19.4% to $30.2 million from $25.3 million in the prior year period, and our effective tax rate was 26.6% in the first quarter.

And increase efficiency across our distribution network and supply chain.

Marketing and selling expenses were seven 9% of sales versus six 7% in the prior period, driven primarily by incremental promotional and marketing support on core brands and new products.

Administrative expenses were five 2% of sales in Q1 24 compared to four 7% in Q1 of 23.

Attributed attributable to investments in incremental resources as well as hosting our national sales meeting for the first time since the pandemic.

This led to an operating income of $9 7 million or three 8% increase compared to $9 3 million in Q1.

<unk> 2003.

Adjusted operating income was $13 5 million or a 26% increase compared to Q on Q3.

After the impact of income taxes of $2 6 million compared to $2 3 million Q1 of fiscal 'twenty three net earnings increased nine 8% to $7 3 million.

Ken Plunk: Looking at our liquidity position, we continue to have a healthy balance sheet and overall strong liquidity position with $50 million in cash and approximately $7 million in debt. Our ability to improve cash flow through working capital initiatives and stronger profitability is generating more cash to pay down debt, raise dividends, and continue investing in our business. Our focus will continue to be on maintaining a healthy balance sheet and a prudent, levered position, which enables us to continue investing in the growth of our business and returning value to our shareholders. In addition, we have ample availability under our revolver of approximately $7.5 million in additional borrowing capacity.

<unk> and reported earnings per share of <unk> 37.

Compared to 34 in the prior period.

Prior year period.

Adjusted Diluting earnings per share was <unk> 52.

Sure for the quarter compared to <unk> 42 in the prior year period.

Adjusted EBITDA increased 19, 4% to $30 2 million from $25 3 million in the prior year period.

And our effective tax rate was 26, 6% in the first quarter.

Looking at our liquidity position, we continue to have a healthy balance sheet and overall strong liquidity position with.

Operator: In summary, we are executing our strategy and remain confident in our plans to continue driving profitable growth and value for our shareholders. I would now like to turn the call over to the operator for questions and answers. Thank you. As a reminder, to ask a question, you will need to press star 1 1 on your telephone. To remove yourself from the question queue, you may press star 1 1 again.

With $50 million in cash and approximately $7 million in deaths.

Our ability to improve cash flow through working capital initiatives and stronger profitability is generating more cash to pay down debt raise dividends.

Continued investing in our business.

Our focus will continue to be on maintaining a healthy balance sheet.

And prudent leverage position, which enables us to continue investing in the growth of our business and returning value to our shareholders.

Operator: Please stand by while we compile the Q&A room at www.jagdale.com. Thanks for standing by. Our first question comes from the line of Andrew Wolf of Keogh King. Your question, please. Good morning, thank you. I wanted to ask about this contractual cost-through-optimization product. I guess it was the second quarter in a row. First, is that kind of a North?

In addition, we have ample availability under our revolver of approximately $208 million in additional borrowing capacity.

In summary, we are executing our strategy and remain confident in our plans to continue driving profitable growth and value to our shareholders.

I would now like to turn the call over to the operator for questions and answers. Thank you.

Okay. Thank.

Thank you as a reminder to ask a question you will need to press star one on your telephone to remove yourself from the question queue. You May Press Star one again, please standby, while we compile the Q&A roster.

Andrew Paul Wolf: Is that a normal thing that happens a quarter late? And because there's been such good swings and, www. AkshayJagdale.com, What's the nature of that?

Sure.

Thank you for standing by our first question.

Dan Fassner: How can we on the outside try to get a handle on how to model that and think about how that might occur going forward? And good morning. Yeah, thank you. Good morning, Andrew. How are you doing?

Comes from the line of Andrew Wolf of <unk>.

King Your question please Andrew.

Good morning.

I wanted to ask about this contractual cost true up with the handheld.

Andrew Paul Wolf: I'm doing great. It's a good question. It is a quarterly true-up. And, you know, we saw that as prices were, or costs were going up, and we're seeing that as costs are coming down. We do it quarterly. Ken, do you want to add anything to that?

I guess it was the second quarter in a row.

So first is that kind.

Kind of a knock.

Is that a normal thing that happens quarterly.

And because theres been such big swings in.

Your cost input cost that it's worth calling out.

Ken Plunk: Yeah, it's a larger amount. We even call that, Andrew, the phenomenon of the last few years.

R R.

Just what's the nature of that like how can we on the outside to try to get a handle on how to model that and think about how that might occur going forward.

Ken Plunk: You know, so the cost in many areas, you know, two years, 18 months ago, up 20%, and obviously, it's gone the opposite. And then, as those commodities have had deflation, we've been true-it-up quarterly, and it's had, you know, the opposite effect, which is us passing and reducing that cost to that customer, and therefore that has an impact on sales and on revenue, on profits for that area, The significance of that, probably in the next quarter, we should be wrapping that, Andrew, but that's why that number has been as big as it has been. Okay, and could you give us like the dollar amount so we can at least think about what earnings would be on a kind of a commodity-neutral basis? Realize it's real money. Akshay Jagdale, Chase West, Francesco Pellegrino, Gerald Shreiber, Dennis Moore, Gerald Shreiber, Yeah, it's over a million dollars.

And good morning.

Thank you good morning, Andrew how are you doing.

Good afternoon.

Doing great.

Good question it is a quarterly true up.

And we saw that as.

Prices were our costs were going up and we're seeing that as costs are coming down.

Do it quarterly Ken do you want to add anything to that yes.

It's a larger amount in the region and call it Andrew.

The phenomenon of.

The last few years.

<unk>.

Cost in many areas two years 18 months ago, 20%.

Obviously, you go the opposite and then as those commodities.

Had deflation, we then treated up quarterly and it's had.

The opposite in fact.

Which is passing and reducing that cost too.

Ken Plunk: Close to a million, close to a million and a half. Got it. And then I wanted to ask you to follow up on the situation with Costco and the churros. And, of course, according to the internet, Costco is discontinuing the churros and replacing them with cookies, chocolate chip cookies. I wanted to confirm that, accurate and that kind of going to be a firm, you know, and Pat, you guys for our talk, and, you know, what the timing of that would look like. And, you know, when you look at your relationship with Subway, is it, you know, where do you end up in a year's time? when those two events have matured. Rolled out, Yeah, Andrew, this is Dan. That is a great question. Yes, the account has rotated, and they've done that in the past.

To that customer and therefore that has an impact on sales in arm.

<unk> for that area, but we should lap.

The significance of that probably in the next quarter, we should be lapping that Andrew but that's why that number has been as big as its been.

Okay and could you give us like the dollar amount. So we can at least think about what earnings would be on a kind of a commodity neutral basis.

I realize it's real money, but.

Yes.

Yes.

It's over $1 million.

Close enough.

So $10 million of half Andrew.

Got it and then I wanted to ask what is it.

Follow up on the situation with Costco and the Churros, which at least according to the Internet.

Costco is discontinuing materials and replacing them with.

With cookie and chocolate chip Cookie I just wanted to confirm is that.

Dan Fassner: They will offer different things periodically throughout time. They have a limited SKU within their locations, and so they do a rotation. That strawberry has rotated off the menu at this point.

Accurate and is that kind of be kind of be a firm.

Impact you guys Cross Costco.

And what the timing of that would look like.

Dan Fassner: That happened towards the end of December, and we saw some of the impact there. In regards to our subway contract, we're really excited about that. It's a really good size opportunity for us, and it outweighs what we would potentially be losing at Costco. The subway outweighs it just by the sheer numbers of locations.

And.

When you look at your relationship with subway is it.

Where do you end up net net in a year's time.

When those two events have matured.

Rolled out.

Yes, Andrew this is Dan.

Yes.

The account has rotated and they've done that in the past they will offer different things periodically throughout time, they have a limited SKU within their locations and so they do a rotation.

Dan Fassner: There are 20,000 to 21,000 subways out there today, and the product is being accepted really, really well. We're excited about the growth in the current business. Thank you. Our next question comes from the line of Todd Brooks of The Benchmark. Please go ahead, Tom. Health Center. Good morning to you both.

Zero has rotated off the menu at this point.

That happened towards the end of December and we saw some of the impact there in regards to our subway contract, we're really excited about that.

It's a really good size opportunity for us.

And it outweighs, what we would potentially be losing at Costco. The subway outweighs that just by the sheer numbers of location Sears 'twenty to 'twenty 1000, subways out there today.

Todd Brooks: Good morning, Todd. I have a couple questions as well. I just want to ensure that when we look at the fourth quarter sales results, was there any operational friction there that cost us anything on the revenue line, either around the new RDC coming up during the quarter or maybe some of the new lines ramping to full productivity, or did the shortfall on the revenue side really just reflect softer end market demand? Yeah, no, Todd, it really did just reflect the overall market. And really, what we saw more than anything was inventories being tightened up across the board, not just with our customers but with distributors as well. In fact, we have some data that would show really strong sales, even during the month when you look at IRI or Turkana. But inventories certainly were narrowed down, and so you could make that assumption somewhere that somewhere down the line, those inventories will come back into play. It won't happen in a January period or a February period, but it might happen as we get closer to spring.

And the product is being accepted really really well. So we're excited about the growth in the <unk> business.

Thank you our next question.

Comes from the line of Todd Brooks of the Benchmark Company. Please go ahead Todd.

Hey, Thanks, Good morning to you. Thank you both.

Todd.

A couple of questions as well just wanted to insure.

If we look at the fourth quarter sales results was there any operational friction and there the cost the same thing on the revenue line out there around the new.

RTC coming up during the quarter or maybe some of the new lines ramping to.

To full productivity or.

The shortfall on the revenue side really just reflect.

Softer end market demand.

Yes, no got it really did just reflect the softer market in <unk>.

Dan Fassner: But the operational side did not affect sales going out. That's good to hear. And Dan, you brought up January and February. The data points to really kind of tough consumer traffic through the month of January here, and obviously, what's going on in California is not helping right now. How do you think about what you're hearing through the channel for just the slowdown in consumer traffic, whether they're digesting holiday spend, whether it's the Omicron lap from the prior year? There's a bunch of different cross-currents here, but what are you seeing in your end-customer channels in food service? Well, I think you, you know, I think you're probably reading probably the same data we're reading as It's hard to come off, quarter like we just came off and not be concerned or cautious about what the future looks like.

And really what we saw more than anything is inventories being tightened up across the board not just with our customers, but with distributors as well.

In fact, we have some.

Data that would show a really strong sales even during the month when you look at IRI are sarcoma.

But inventories certainly were narrow down and so you could you could somewhat to make that assumption that somewhere down the line those inventories will come back into play it won't happen in January period of our February period, but it might happen as we get closer to spring.

But but the operational side did not affect <unk>.

Sales going out in any way.

That's good to hear and Dan you brought up.

January February obviously the.

The data points to really kind of tough consumer traffic.

Dan Fassner: We're still very confident in our long-term strategy and in what we're doing, and we're seeing that play out really well, and I think by the time that we close out the year, we'll have another strong year, but we're certainly cautious, and I think the consumer's cautious out there today. You know, a couple of things that I've read that are interesting that I think make a lot of sense to me.

Through the month of January here, and obviously, what's going on in California is not helping right now.

How do we think about.

What you are hearing through the channel for just the slowdown in consumer traffic, whether they are digesting holiday spend whether it's the omicron lab for the from the prior year. This a bunch of different cross currents here, but what are you. What are you seeing in your end customer channels in foodservice.

Dan Fassner: One, I do think we've pulled back on inventory, and so I believe that inventory will come back around. The second is just the price increases that we had at such a rapid rate caused what they call a food reference price, where people are shopping out there and they see a higher price, and they're waiting for that price to come back down and until water kind of seeks its own level, and you get used to that price. We may see a little bit of softness there. Overall, I think it's short-lived. I don't know that for sure, but I think it's temporary.

Well I think I think you're right and probably the same data we are reading as well, it's hard to come off quarter like we just came off and not be.

Concerned or cautious about what the future looks like.

Still very confident in our long term strategy and what we're doing and we're seeing that play out really well and I think by the time that we close up the year.

Another strong year, but what we are.

The cautious and I think the consumer is cautious out there today.

Full of things that I've read that are interesting.

Dan Fassner: I don't think that we can look at a January, February period of time and say, boy, that's what we're going to predict for the year. I feel really confident in the new business that we're generating and the play that the team is executing, and I feel very confident about our long-term plans. That's a great list. Sorry, go ahead.

That I think makes a lot of sense to me what I do think we pulled back on inventory and so I believe that inventory will come back around the second is just the <unk>.

Price increases that we had at such a rapid rate.

Caused what they call kind of like a food reference price that people are shopping out there and they see a higher price and they're waiting for that price to come back down.

Ken Plunk: Sorry, if I could just give a little bit more context. Akshay Jagdale, Chase West, Francesco Pellegrino, Gerald Shreiber, Dennis Moore, Gerald Shreiber, Akshay Jagdale, Chase West, Francesco Pellegrino, Gerald Shreiber, Dennis Moore, Gerald Shaw, Harold Shaw, We're weighing growth on top of a little over 10% growth a year ago Q1 and 3 So, you know, the foundation of what we're building growth on is on top of some really significant numbers, and a lot of that, you know, played out in the post-COVID supply chain. I don't know the story there, but... To be able to add two segments, to have positive growth on top of that, in the environment that we saw in the quarter, you know, we're actually pretty happy about it, even as we continue to look at opportunities. You know, continue to grow and sell year-over-year. Thanks, and one more, and I'll turn it back on the queue.

And until water kind of seeks its own level and you get used to that pricing.

We may see a little bit of a softness there.

Overall, I think it's short lift.

The play that the team is executing and I feel very confident about our long term place still.

Yes, that's great.

Sorry go ahead John.

Alright, if I can just give a bit more context on sales.

Because I went back and kind of look back at it and we felt we were then.

I had a stronger quarter than we did not really expecting some of the consumer softness, but when you look at the last two years.

Or lending growth on top of.

Well over 10% growth a year ago, Q1, and 32% growth two years ago Q1.

The foundation of what we're building growth on.

Todd Brooks: And as you're looking forward into 24, you made the comment in the release, you see building sales momentum for the balance of the fiscal year here. If we just put aside the consumer, the consumer is going to do what the consumer does. If you look at new customer wins, cross-sell success, and new product launches, what sort of growth rate did those three, if you're looking at the forward kind of pipeline, deliver? And then we can all adjust for what we think the macro is on the back end, as you're thinking.

On top of some really significant numbers and a lot of that played out in post COVID-19 supply chain and you kind of know the story there but.

To be able to have two segments had positive sales growth on top of that is the environment that we saw in the quarter.

We're actually pretty happy about it.

Even as we continue to look at opportunities.

Continuing to grow sales year over year.

Dan Fassner: Yeah, I don't know if we have a number to give you on that growth rate, Todd, but, you know, I just kind of want to remind you of some of the exciting things that the team is generating. I love the subway opportunity and the way that it's kicked off and how that's going. And it might even lend us some additional opportunities for us there that we're working on as we speak today. Like the way that the Olaturo in retail has kicked off, the Bavarian Stix moving up into the number two position of what we sell, and we see that as a little bit unlimited at this point. Like some of the things that the bakery's doing, you know; we've continued to narrow the bakery and rationalize some of the SKUs, but I like some of the things that they have going on right now with our Cakeables, which is a gourmet cookie, and our seasonal cookies, and we're working on Stix and Buns in that area. You know, we've talked about Icy and now rolling out Dave & Buster The club store conversion to self-serve is working out great, and we're going to accelerate the way that we implement that.

Great, Thanks, and one more and I'll jump back in queue.

Ken as Youre looking forward into 'twenty four you made the comment in the release you see building sales momentum for the balance of the fiscal year here.

If we just put aside the consumer the consumers going to do what the consumer does.

You look at kind of new customer wins cross sell success new product launches.

What sort of growth rate did those three if youre looking at the forward kind of pipeline to deliver and then we can all adjust for what we think the macro is on the backend as you're thinking about fiscal 'twenty four.

Yes, I don't know if we have a number to give you on that growth rate card, but I'll just kind of remind you of some of the exciting things that the team is generating loved.

Love the subway opportunity.

And the way that it has kicked off and how thats going in and might even lead to some additional opportunities for us there that we're working on as we speak today.

Like the way that the <unk> and retail has kicked off the Bavarian sticks moving up into the number two position of what we sell and we see that a little bit unlimited at this point like some of the things that the bakery is doing we've continued to.

Operator: And God's Growth and the theaters and convenience, and just see a lot of the right things happening that can really impact our margins. And again, you know, we talked about even on the operational side, the 3DC's opening, the one in Glendale actually opened yesterday, and so we're starting to see that take effect. The new line's doing well as we fill those up. I'm just really encouraged by what the future looks like. That's great. Thank you. Please stand by for our next question. The next question... comes from the line of David Shatner on William Blair. Your question, please. Hey, this is David Shreiber stepping in for Jon Andersen.

<unk> the bakery.

<unk> rationalized some of the Skus, but I like some of the things that they have going on right now with our capable which is a gourmet cookie and our seasonal cookies.

And working on.

Sticks and bonds in that area.

We've talked about ICEE.

Now rolling out the Dave <unk> Buster's, we got to <unk> that we're going to test this quarter that I am really really excited about that.

The club store conversion done self serve.

Is working out great and we're going to escalate the way that we install that dip in <unk> growth in the theaters and convenience.

And just just see a lot of the right things happening.

That can really impact our margins and again, we talked about even on the operational side.

<unk> opening the one in Glendale has actually opened yesterday.

David Mandel: Can you talk about price and volume a little bit? If I recall from the last call, you mentioned you were looking at some areas to take pricing in calendar 24, and then I just wanted to understand also how you're looking at volume for the balance of the year. Yeah, well, I can tell you volume for the quarter. Again, it can vary a little bit depending on the business you channel, but overall, volume is down 1% to 2%, depending on what area of business you're in.

And so we're starting to see that take effect, the new lines doing well as we build those up.

Just really encouraged by what the future looks like.

That's great. Thanks, Dan.

Thank you please standby for our next question.

Our next question.

Comes from the line of David Shack now of William Blair. Your question. Please.

Sure.

Ken Plunk: Again, this kind of speaks to some of the things that we talked about, David, with the consumer. So, you know, if you just kind of look at that number again before we landed at negative 0.9, you can kind of get some ideas. Akshay Jagdale, Chase West, Francesco Pellegrino, Gerald Shreiber, Dennis Moore, Gerard Law. We took a price increase in Zip-a-Not-Dan in June, January, and December, as well as on the snack food side.

Hey, this is David Chang.

And then for John Andrew said.

Could you talk about price and volume a little bit higher.

Recall from the last call. You mentioned you were looking at some areas to take pricing in calendar 'twenty four and then I just wanted to understand also how youre looking at volumes for the balance of the year.

Yeah, well, what I can tell you volume for the quarter again, it can vary somewhat a little bit depending on the business and channel but.

Overall volume was down 1% to 2% depending on what area of the business Youre in.

Ken Plunk: You've got some commodities with deflation, you've got some with inflation, so we're kind of taking a surgical approach to that, David, and really looking case-by-case where we think we've got a place to, you know, increase prices but the market. You know, I have an opinion on that as well, in terms of pricing. So that's kind of what's been done and what's planned. As we look forward, I'm just going to echo what Dan said. You know, we're coming out of a quarter that makes us a bit cautious. We have data that we're looking at each and every week to get a sense of kind of where the consumer's at. Akshay Jagdale, Chase West, Francesco Pellegrino, Gerald Shreiber, Dennis Moore, Gerald Shreiber, If I was looking forward, there might be some slight improvement in volume, but I think we're still cautious about what.., what's out there in front of us.

Again, I think kind of speaks.

Some of the things that we talked about David with the consumer.

So can.

Just kind of look at that number against where we landed at negative <unk> nine you can kind of get some ideas.

The price benefit overall for the company.

As you look forward.

Take a price increase in January in our ICEE business.

We took a price increase in <unk> January to December, yes, as well and then on the snack food side.

You got a lot of.

You've got some commodities with deflation you've got some with inflation. So we're kind of taking a surgical approach to that David.

And really looking case by case, where we think we've got.

Are placed.

The increase price, but the market.

It has an opinion on that as well in terms of price points. So.

That's kind of what's been done and what's planned.

Ken Plunk: Sir, for that price increase on I.C. in January, should we think of that similar to, I think that price increase in the past couple years, each January for that has been mid-single digits or so, correct me if I'm wrong, should we be thinking of it roughly the same again? Probably not quite as high as the last few years, given where we were with inflation, but somewhere in that range. You know, mid-single digits, maybe a hair under that, probably David is the way to think about that.

As we look forward and why and I would just kind of echo what Dan said.

We're coming out of the quarter that makes us a bit cautious.

We have data that we're looking at each and every week to get a sense of kind of where the consumers at.

When you get into spring, we're hoping that that.

Kind of launches.

We're getting out and will benefit our business.

If I was looking forward there might be some slight improvement in <unk>.

I am but I think we're still cautious about what.

What's out there in front of us.

David Mandel: And then one other thing, if I can, you know, historically, second half gross margin does tend to be, I think, two to three hundredths higher than the first half. Just with one quarter down here for the fiscal year, are you still kind of expecting that, you know, cadence for the second half of fiscal 24? And then, regardless, can you just kind of outline some of the puts and takes there? I know you mentioned a little bit about the pricing question about commodities, but if you could just kind of outline that in general, that'd be great.

Sure for that price increase on ICEE in January should we think of that similar too.

I think that price increases the past couple of years each January yet for that it's been mid single digits or so correct me if I'm wrong I should we be thinking about it roughly the same again.

Probably not quite as high in the last two years, given where you are with inflation.

But somewhere in that.

Mid single digit maybe a hair under that Robert Davis.

A way to think about that.

Great.

And then one other thing if I can.

Ken Plunk: Yeah, yeah, we still feel really good about what we're doing as it relates to driving profit margins. We actually were very happy with the gross profit for this quarter, even with some of the challenges on the sales side that we exceeded our internal budget on that, you know. We saw bakery gross margins improve over 100 basis points, and strong marketing performance in IC and in food service. So we like what we're doing.

I know historically second half gross margin does tend to be I think two to 300 bps higher.

And then the first half.

Just with one quarter down here for the fiscal year.

Are you still kind of expecting that cadence for for the second half of fiscal 'twenty four and then regardless can you just kind of outline of the puts and takes there.

You mentioned a little bit.

Ken Plunk: I think the initiatives we mentioned are working. What we're focused on is mixing out better, and then doing the pour-in to get into Q2 and Q3 and Q4. Yeah, those will mix in much heavier I.C., much heavier Dippin' Dots, which are some of our hottest. Akshay Jagdale, Chase West, Francesco Pellegrino, Gerald Shreiber, Dennis Moore, Gerald Shaw, Got it.

On the pricing question about commodities.

But but if you could just kind of outline that in general that would be great.

Yes, yes, we still feel really good about what we're doing as it relates to driving profit margins, we actually were very happy with.

Gross profit for this quarter, even with some of the challenges on the sales side that we exceeded our internal budgets on that seller bakery gross margins improve.

Over 100 basis points.

Strong margin performance.

Yeah.

David Mandel: Great. That's all for me. I'll pass it on.

<unk>.

ICEE and into service. So we like what we're doing I think the initiatives. We mentioned are working what we're focused on is mixing out better.

Operator: Thank you, David. Thank you. Our next question... comes from the line of Connor Rattigan of Consumer Edge. Your question, please, Connor. Hey guys, I'm on it. Good morning, Goddard.

And then to your point as we get into Q2, particularly in three and four.

Yes, those will makes a much heavier ICEE matralia Devin Dodge mature some of our highest margin businesses and we expect that.

To generate those 30 plus percent gross margins that we did a year ago and so we see no reason to.

Connor Rattigan: Yeah, so I just wanted to touch on the top line a little bit, specifically on the food service cracker. So, first things first, I guess, was it more isolated to maybe a select channel or a customer, or was it maybe a more broad-based pullback? And also, was there any deflationary pricing involved in it? There really was no deflationary pricing involved in it at all.

Back off of kind of what we do.

Talk about which is getting above 30% for the year.

And we think what we've done in the first quarter is a good sign that we're moving in the right direction on that.

Got it great Thats, all for me and I'll pass it on thank.

Thank you David.

Thank you.

Our next question.

Dan Fassner: We talked about food service being affected and really being affected through our pies and cookies. And so if you look at it surgically, that had a pretty sizable impact on where we were off and saw that in inventory reduction as early as, you know, early December, late November. We started to see that. And that's real.

Comes from the line of Connor <unk> of consumer edge. Your question. Please Conor.

Hey, guys good morning.

Yes, so I just wanted to touch on the top line a little bit specifically on the foodservice pressure. So I guess first things first I guess, it's more isolated to maybe get electric channel or customer or was it maybe a more broad based pullback and also was there any deflationary pricing involved in there.

Dan Fassner: Again, I mentioned this earlier; we looked at some IRI and Shakana data, and our volume looks good through that. And so you know that these inventories were pulled back. And so we don't want to overcomplicate it.

There really was no deflationary pricing pricing involved in it at all.

We talked about foodservice.

Being affected in <unk>.

Really being affected through our pies and cookies and so.

Dan Fassner: We think that, you know, the consumer is cautious. As we've said already, but we really do feel like a good portion of this is inventory. Just to magnify that, you're kind of getting into a kind of particular product area. The pie we ate to climb was...

If you looked at it surgically that had a pretty sizable impact on where we were off and saw that and inventory reductions.

As as early as <unk>.

Early December late November started to see that.

And Thats real again I mentioned this earlier.

Connor Rattigan: The majority of the decline in bakery year-over-year, and we mentioned cookies on top of that, but... You know, that's a product that, once it gets on display, you know, in retailers, has a shorter shelf life. And so as they approached me, you know, retailers and grocery stores concerns about traffic coming in during the holidays, they backed down on their orders. So that would be a big number in terms of year over year comparisons. Got it. So I guess it sounds like the imagery and deload you saw there on the eyes and whatnot should be more of a one-time headwind and nothing to persist, you know, throughout the balance of the year. Is that fair?

We looked at some IRI and Circon of data in and are our volume looks good through that.

So you know that these inventories were pulled back in and so we don't Wanna Overcomplicated, we think that.

The consumer is cautious.

As we've said already but we really do feel like a good portion of this is inventory related.

Yes, just <unk>.

Just to magnify youre kind of getting into kind of a particular product areas.

The pie decline was.

The majority of the decline in bakery year over year, and then we mentioned cookies on top of that.

Dan Fassner: I would believe that to be true. Certainly, we're going to come off a quarter and be cautious about that, right, and watch it really, really closely while we're looking at all the different data points that we can find. But yes, we do believe that. And remember, the pie business is really a one-time-a-year business, too. That doesn't stretch out for four quarters.

That's a product that once it gets on display and retailers as a shorter shelf life.

And so as they started to see.

Retailers and grocery stores.

<unk> about traffic coming into the holidays.

Connor Rattigan: Got it, got it. And then there's just one more for me that I'll squeeze in. So, pretty significant step up in marketing this quarter. I mean, can you maybe touch on some of your initiatives there and, I guess, maybe what we should expect for the balance of the year? And do you maybe see a need to spend some more or maybe do some more advertising sort of in light of the slowing traffic and consumption? Yeah, we I think we've talked about this before, Connor, we love what we're doing in terms of marketing. You know, Linwood Mallard and his marketing team have really done a great job with both our new products and with brands that we have of really investing and getting a lot out of those investments to And we believe that is a key to us continuing to build these brands and grow, and so, you know, we continue to invest accordingly. Just remember that a lot of us have suspended that.

Back down the orders and so that was a big number in terms of year over year comparison.

Got it so I guess it sounds like more the inventory Deload that you saw there on the pies and whatnot to be more of a onetime headwind and nothing to persist throughout the balance of the year is that fair.

We believe that to be true, but certainly we're going to come off a quarter I'd be cautious about that right and watch it really really closely and why we're looking at all the different data points that we can find but yes, we do believe that and remember our Pi business is really a one time a year business to that doesn't stretch out for four quarters.

Got it got it and then just one more for me then I'll squeeze in.

So a pretty significant step up in marketing in the quarter I mean could you maybe touch on some of your initiatives there and I guess, maybe what we should expect for the balance of the year and do you maybe see a dispense more or maybe do some more advertising sort of in licensed slowing traffic and consumption.

Ken Plunk: You know, it has impacts and benefits for the rest of the year and even beyond that. So it's not always just contained in a quarter-by-quarter kind of thing. Um, you know, it's also against one of our lowest sales bases. You know, when you look at Q1, Q2 will be much the same. You've got that kind of stand on whatever sales lead. So, that should level out as we get through the year and ultimately end the year, you know, probably in that low seven. 7.1, 7.2% sales rate. Akshay Jagdale, Chase West, Gerald Shreiber, Dennis Moore, Gerald Shreiber, Dennis Moore, Thank you.

Yes I.

I think we've talked about this before counter we love what we're doing in terms of marketing.

Lynn Lynn and his marketing team have really done a great job of both with our new products and with brands that we had a really investing and getting a lot of those investments to drive growth.

And we believe that is a key to us continuing to build these brands and grow and so we.

We continue to invest accordingly is remember a lot of those the spend of that.

It has impacts and benefits.

The rest of the year and even beyond that so it's not always just.

Contained in the quarter by quarter kind of thing.

It's also against one of our lowest sales basis.

Operator: Stand by for our next question. Our next question comes from the line of Robert Dickerson. Your line is open, Rob.

Ultimately in the year.

Rob Dickerson: Great, thanks so much, you guys. I guess just to kind of circle back to the, like, pies and the cookies situation relative to kind of what I'm hearing. Subway, um, trying to do some Akshay Jagdale, Chase West, Francesco Pellegrino, Gerald Shreiber, Dennis Moore, Gerald Shaw, Akshay Jagdale, Chase West, Gerald Shreiber, Dennis Moore, Gerard Law, Harry Fronjkm, J & J Snack Foods Corp. Yeah, Rob, that's a really good question. You know, we've talked about it several times I love the fact that we have the opportunity to get out there and advertise and market our branded products. And I think our team is doing that really, really well. Within our brands, like SuperPestle, we've been able to release some really good new products that are being really well accepted in the industry. And so I think we're seeing some nice lifts from that, like the Bavarian stick. It almost feels like a natural that we should have done it maybe, you know, prior to this, but everything is about timing.

Probably in that low seven to 740, <unk>, 2% of sales range.

Thanks for the color as always guys I appreciate it.

Sure.

Thank you.

Thanks standby for our next question.

Our next question.

Comes from the line of Robert Dickerson of Jefferies. Your line is open Robert.

Great. Thanks, so much.

Hey, guys.

I guess just to kind of circle back to the like the pies and their cookies situation relative to kind of what I'm hearing.

Round, maybe new distribution potential at subway and.

Turning to distribution kind of potential overall.

Maybe just provide some color as to kind of how you see the portfolio.

Performing for our recently performing maybe like a branded versus non branded basis right because I'm asking because I hear Super Pretzel is doing great right ICEE still doing pretty well.

So it almost sounds like there is maybe a little bit more momentum on the branded side versus the non branded side and usually that also provides some.

Positive mix margin mix.

Lift over time, so just any updated thoughts there would be great. Thanks.

Dan Fassner: And so I do like where our branded products are going, and I think we have some real opportunities. I think Ola Suru in retail still has some great opportunities. We're seeing our dogsters really grow at a nice pace.

Yes, Rob that's a really good question.

You know this we've talked about it several times I love branded products.

I Love. The fact that we have an opportunity to get out there and and advertise and market our branded products and I think our team is doing that really really well.

Dan Fassner: And so our branded products are growing well, and we'll continue to push our brands, as that's one of our core strategies in our organization. However, we do have some opportunities as well on the non-branded, like the opportunity we have with churros right now. That's our churro, and it's doing extremely well.

Within our brands like Super Pretzel, we've been able to release some really good new products that are being really well accepted out in the industry and so I think we're seeing some nice lifts from that like the Bavarian sticks.

Almost feels like a natural that we should have done it maybe prior to this but everything is about timing.

Dan Fassner: And if we continue to be a good supplier, we think there are more opportunities other than just the churro side of that business that we're going to continue to look at. So I think we have some nice growth going that way, too. It's a balancing act, always, right?

So I do like where our branded products are going and think we have some real opportunities I think all Arturo and retail still has some great opportunities, we're seeing our dog sitters.

Dan Fassner: And so we're going to push the brands because we love them. And there's an opportunity to get behind them and advertise them and do some of the right things. But we're also going to seek out those opportunities that make really good sense for us as an organization around non-branded. All right, great. Another quick one.

And so our branded products are growing well and we will continue to.

Bush our brands as that's one of our core strategies and our organization. However, we do have some opportunities as well on the non branded like the opportunity we have churros right now.

Rob Dickerson: I guess just, you know, very specifically in your retail supermarket business. When I look at the operating margin... Akshay Jagdale, Chase West, Gerald Shreiber, Dennis Moore, Gerard Law, Harry Fronjkm, J & J Snack Foods Corp. You know, like if you're kind of doing well in that business and a decent amount of that business, clearly, is branding. You know, like, maybe, like, what is the operating margin?

Thats Arturo and it's doing extremely well.

If we continue to be a good supplier. We think there is more opportunities other than just the gyro side of that business that we're going to continue to look at.

So I think we have some nice growth going back way too.

It's a balancing act always right and so we're going to push the brands because we love them.

And there is an opportunity to get behind them in advertisement and do some of the right things, but we're also going to seek out those opportunities that makes really good sense for us as an organization around non branded.

Alright, great.

Another quick one I guess, just very specifically in your retail supermarket business.

Ken Plunk: If we think forward, you know, longer term, for two, three years, what do you have? Is that like a business that, you know, we do think can kind of get to that high single-digit or low double-digit operating margin? Just trying to gauge kind of where we are today and then kind of, you know, what could come later. Yeah, Rob, thanks. Great question.

Just when I look at the op margin.

Kind of feels a little while.

Uh huh.

And clearly there could be some one off true up dynamic maybe in that segment.

I'm just trying to gauge.

Like if you kind of doing well in that.

Business.

Decent amount of that business clearly is branded.

Rob Dickerson: Let me just try it a little bit more clearly on the Retail Operating Income, so included in that number is roughly 1.3 million of the. In fact, they're losing margin because of higher sales and handheld and lower in frozen olives. Again, we've got data that says in many of those frozen novelty areas, like Luigi's, the consumer bought more at point sale, but our customer ordered less. And we think that is... Somewhat tie-in to this, inventory leveling that many are doing. Akshay Jagdale, Chase West, Francesco Pellegrino, Gerald Shreiber, Dennis Moore, Gerald Shaw, I think if we ended T3-T4, it would be moving up closer than this thing would be in the digit range.

Like maybe.

Why is the operating margin so low now and then.

If you think forward.

Longer term two or three years what have you.

Is that like a business.

Do you think can kind of get to that.

High single digit or low double digit op margin just trying to gauge kind of where we are today and then kind of what could come later.

Yeah, Rob Thanks.

Great question, let me just provide a little bit more clarity on that.

Retail operating income so included in that number is roughly $1 3 million.

Of that one time distribution expense, so youre thinking about kind of adjusting that out as a one timer.

And that starts to change that picture a little bit operating income would have grown I think roughly 8% alright fine.

Factor that in.

It was a bit of a mix impact on gross margin because of higher sales.

Handheld is lower.

Ken Plunk: I certainly expect it to improve and get up into that range once we finalize some of these things. All right, great. And then, maybe, one last question.

Frozen novelties.

Again, we've got data that says Amanda is frozen novelty areas likely to engage the consumer in Baltimore at point of sale, but our customer or less and we think that is somewhat tied into this.

Rob Dickerson: The more theoretical, you know, clearly, you're seeing today just, you know, being a little bit more cautious, right? Consumers seem to be a little bit more cautious. Oh, my company's saying that, right? We consistently hear the term value. The Ultimate Parody Site-Limited Company, LLC.

Inventory levels.

That many are doing.

After the supply chain challenges.

We mentioned that in a couple of areas.

So we think that'll work its way out.

Yes, we think we can get that retail business.

Rob Dickerson: Although they're past QUARTERS, I just wanted to point this out. You know, you guys are, you know, about to enter, so probably two, three months left. But you are, you know, about to enter kind of, you know, that seasonal uplift in the business. So when we think about, you know, kind of the cost of thought process as we get through the year, and then we also just think about price points, right? Some could argue that, you know, having an icy drink is mandatory, right?

I think if we ended Q3 Q4, it was closer to mid single digit range.

Currently expected.

Crude and get up into that range once we cycle some of these things.

Alright, Super and then maybe one last question.

But a more theoretical.

Clearly you are seeing today, just being a little bit more cautious right.

<unk> seems to be a little bit more cautious clearly not the only company, saying that right. We consistently hear the term value seeking thrown around a lot over the past couple of quarters.

Rob Dickerson: The need state, some others might argue it's more of a want state, maybe it's a little more discretionary. So I'm just curious, you know, where you sit today, if we're thinking about, like, you know, May, really June, right, the opening of all the amusement parks, like it's time, we're all out and about, it's time to go. Are there areas where, you know, on these varied channels where you can promote a little bit more? I don't know, like maybe put up a little bit more signage or, you know, just try to kind of push the consumer, basically, Good night, everybody. Good night. Good night.

I know you guys are kind of you know.

About to enter probably two or three months left.

But you are about to enter kind of that seasonal uplift on the business.

So when we think about.

Kind of the.

Cautious thought process as we get through the year.

And then we also just thinking about price points right.

Like some could argue that having an ICEE drink is mandatory to need state. Some others might argue it's more of a launch date, maybe with some of our more discretionary. So I'm just curious where you sit today, if we're thinking about like.

Dan Fassner: Yeah, Rob, absolutely. There are ways for us to do that. IT does that really well.

Dan Fassner: In fact, the team led by Steve Avery, even as recently as last week, has been revisiting all those ways that we can energize sales as we get to the core months, right? And signage is a big part of that. Our flavor rotations are a big part of that. Getting out in front of the customer and talking about promotional items or BOGOs or something along those lines.

<unk> really June opening of all amusement parks like it's time, where we're all out and about time to go.

Are there areas where.

In these very channels, where you can promote a little bit more I don't know like maybe put a little bit more signage or just try to kind of push the consumer.

Dan Fassner: And so the teams are already engaged in doing that, and we're proactive to make sure that as we get into that peak selling season, we're going to be able to get everything that we can. And I loved your thought about IC being a need rather than an impulse item.

Basically into consumption.

Thanks, a lot.

Yes, Rob absolutely there are ways for us to do that ICEE does that really well in fact.

The team led by Steve Avery, even as soon as last week have been revisiting all of those ways that we can energize sales as we get to the core months, alright, and signage is a big part of that our flavor rotations becomes a big part of that.

Dan Fassner: I hope we can spread that across the country, yeah, I like it all right, thank you so much. All right, thank you. I would now like to turn the conference back to President and CEO Dan Fashner for closing remarks.

Getting out in front of the customer and.

Talking about promotional items, our bogo is or something along that lines and so the teams are already engaged in doing that.

Dan Fassner: Great, thank you. As we turn to 2024, we remain confident in our strategy to continue growing sales and profits. The J & J team is executing across all facets of the business, and we continue to secure incremental growth opportunities across the customers and channels that we serve. This positions us well for continued growth as the overall consumer environment improves.

And we're proactive.

Make sure that as we get into that peak selling season.

We're going to be able to get everything that we can.

And I loved your thought about ICEE being a need a rather than an impulse item I hope, we can spread that across the country.

I liked it alright. Thank you so much alright. Thank you.

Dan Fassner: We look forward to updating you on our progress throughout fiscal 2024. In the interim, should you have any questions or wish to speak to us, please contact our investor relations firm, JCIR, at 212-835-8500. Thank you very much. Have a good afternoon. This concludes today's conference call. Thank you for participating. You may now disconnect.

Thank you I would now like to turn the conference back to President and CEO, Dan Fastener for closing remarks, Sir.

Thank you as we turned to 2024, we remain confident in our strategy to continue growing sales and profits. The J&J team is executing across all facets of the business and we continue to secure incremental growth opportunities across the customers and channels that we serve.

This positions us well for continued growth as the overall consumer environment improves.

Look forward to updating you on our progress throughout fiscal 2024 in the interim should you have any questions or wish to speak to US. Please contact our investor relations firm <unk> at 212358500. Thank you very much have a good afternoon.

This concludes today's conference call. Thank you for participating you may now disconnect.

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