J & J Snack Foods Corp.

Welcome to the J&J Snack Foods second quarter earnings conference call. My name is Richard, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. During the question and answer session, if you have a question, please press star, then 1 on your touch-tone phone. Please note that this conference is being recorded. I'll now turn the call over to Jerry Shreiber, president and CEO. Mr. Shreiber, you may begin.

Thank you. The forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements which reflect management analysis only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances that arise after the date hereof. Results of operations. Net sales decreased 2% for the quarter. Without sales from the acquisition of Icy Distributors in October 2019, and Bama Icy in February 2020, sales also decreased 2% for the quarter. Food service. Sales to food service customers decreased 2% for the quarter and decreased 1% for the six months. Our sales decrease for the quarter was due to decreased sales of soft pretzels, down 8%, churros, down 6%, Funnel Cake down 44% and handhelds down 7%. Bakery sales were up 6% and frozen juice and ice sales were up 6%. Sales to restaurant chains, which were heavily hit during this period, were down 15% this quarter while sales to schools were up. Operating income in our food service segment decreased 56% to $11 million from $24.8 million last year, primarily because of higher costs, product mix changes, and lower volume throughout the quarter and due to decreased production at quarter's end due to the effects of COVID-19 on demand. Retail supermarkets and grocery. Sales of products to retail supermarkets were up 10% for the quarter. Soft pretzel sales were up 14% for the quarter. Sales of frozen juice and Italian ices were up 8%. Handheld sales were up 26%. And bakery and biscuit sales were up 4%. Operating income in our retail supermarket segment increased in the quarter to $4.3 million from $3.0 million a year ago. Icy and frozen beverages. Frozen beverage and related product sales were down 6% in the quarter and beverage related sales were down 5%. Without the sales of Icy Distributors and Bama Icy, two acquisitions of about a year ago, overall sales were down 10% and beverage related sales were down 14%. Service revenue for others was up 9%. Machine revenue was $8.9 million, down from $13.2 million last year, as last year had a large installation project to one quick service restaurant chain. We had an operating loss in our frozen beverage segment of $1.3 million compared to $2.6 million operating income in last year's quarter. primarily due to relocation costs and expenses related to IC headquarters move to Tennessee of approximately $1.5 million this quarter and lower volume due to COVID-19. In February, we purchased the assets of Bama IC which does business in Alabama and Georgia with annual sales of approximately $3.5 million. With this purchase, more significantly, we now have distribution rights in the entire United States consolidated. Gross profit as a percentage of sales was 25.53% in the three months period this year.

This was down from 28.68% last year.