J & J Snack Foods Corp.

Welcome to the J&J Snack Food Second Quarter Earnings Conference Call. My name is James, 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 Q&A session, if you have a question, please press star 1 on your phone. And also note this conference is being recorded. I'd now like to turn the call over to Dan Faschner. Dan, you may begin.

Thank you very much. Good morning, everyone. I'm Dan Faschner, president of J&J Snack Foods, and we're just so excited to talk to you today about our Q2 performance. While we all are continuing to see the impacts of COVID-19 on our business and personal lives, we are starting to see some real positive momentum in the business. The environment is changing as more venues are opening, capacity restraints are being lifted, more people are getting the vaccine, and overall consumer confidence is improving every month. Our J&J associates have worked so hard and I'm really so proud of them over the past last year to manage through unprecedented year and we are in great position to bounce back as traffic in our customers venues and retail outlets recover. Despite the challenges of this past year, our financial position remains strong and we continue to improve our liquidity even as profits are challenged. Joining me today In the room are Jerry Schreiber, founder, chairman, and CEO, Ken Plunk, senior vice president and CFO, Marjorie Roscoff, vice president and general counsel, Bob Rodano, and Bob Pate, senior vice president of sales. Let me take a few minutes to review our results. 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. Your caution not to place undue reliance on these forward-looking statements, which reflect management's 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. So results of operations, really excited about it. Net sales were 256.2 million for the quarter. a decrease of 6%. Sales improved throughout the quarter, led by venue openings, accessibility to COVID-19 vaccine, improving consumer confidence, and the spring season. Both our food service and frozen beverage businesses improved substantially during the quarter due to these improving consumer trends. Our retail business again continued to hold strong, growing at 17% in the quarter. Operating income was $7.2 million for the quarter, a decrease of $3.8 million compared to last year. Improved sales volume and a strong focus on cost efficiencies helped drive improved gross margins and profitability when compared to last year. Now I'd like to review the results of each of our business segments. Food service. Sales to food service customers decreased only 1% for the quarter. an improving trend when compared to Q1 2021 that had declined 13% versus the prior year. Traffic continues to improve as theaters are reopening, entertainment and amusement venues increase capacity, and strong growth across QSR and casual dining restaurants. Soft pretzel sales decreased 19%, and frozen juices and ices increased 12%. Churros Turo's sales were relatively flat for the quarter, and sales of bakery products declined 7%. Our handheld business had a strong sales quarter, exceeding last year by $12.5 million, or 168%. That was driven by a new product developed for one of our wholesale club customers, as we previously discussed. Operating income in our food service segment decreased $1.9 million in the quarter, driven by lower sales and product mix. Gross margins improved progressively over the quarter, driving a much improved profitability versus Q1. Retail supermarkets continue to do really well for us. Our retail business continues to perform well as sales increased 17% for the quarter. Those sales were led by our Super Pretzel brand with an increase of 28% in the quarter. Frozen Juice and Ice's sales were up 22%. and sales of biscuits declined 2%. Handheld sales declined 28% for the quarter. Operating income increased 2 million, or 47% in a quarter, driven by higher sales and operating income margins, near 15%, over 300 basis points better than last year. Frozen beverage. Sales of the frozen beverage business segment were down 32% in a quarter. Beverage-related sales were down 42%, driven primarily by a 40% decline in gallons as traffic in theaters, amusement parks, and retailers faced continued impacts from COVID-19. These trends are improving, though, compared to a 56% decline in gallons during our first quarter as consumers returned to our customer venues. Service revenue declined 16%. almost entirely from a cancellation of one of our key customers' preventative maintenance programs. Machine revenues decreased 36% due mainly from slower customer expansion and replacement during another COVID-19 impacted period. Our frozen beverage segment incurred an operating loss for the quarter of $5.2 million as the COVID-19 restrictions continued to pressure sales. While these sales challenges continue to impact gross margin mix and efficiency, margins improved steadily across the quarter, and operating and profits improved over $5 million when compared to Q1. Consolidated. Gross profit as a percentage of sales was 23.8% this quarter, down from 25.5 last year. Gross profit percentage decreased because of the previously mentioned COVID-19 sales pressure on our food service and frozen beverage segments. Total operating expense as a percentage of sales was 20.9% in the quarter, leveraging 60 basis points compared to last year's 21.5%. Total expenses were 4.8 million below last year, through diligent management of some variable expenses in our operations. Really proud of that accomplishment and what we were able to do. Net earnings for the quarter was $6.1 million, down from $7.3 million last year. Our capital spending and cash flow. Our cash and investment securities balance was $280 million as of March 27, 2021, an increase of $2 million from our September year-end. We continue to drive positive cash flow and our balance sheet and liquidity remains strong in this challenging COVID-19 environment. We continue to look for acquisitions and remain focused on the long-term growth and opportunities of our business. We spent 19 million in capital expenditures through six months and in March 27th, 2021, as we continue to invest in our plant efficiency and growing our business. We estimate our spending for the year to be about consistent with prior years. A cash dividend of 57.5 cents a share was declared by our board of directors and paid on April 13, 2021. We didn't buy back any shares of our stock during the quarter. Our investment income this year was $0.6 million, $1 million greater than prior year's second quarter due to improved market conditions. We are really encouraged by this quarter and look forward with great anticipation to the rest of the year. We want to thank you for your continued interest in J&J Snack Booth, and I will now open it up for any questions and answers. Thank you very much.

Thank you. We can begin our question and answer session. If you have a question, please press star 1 on your phone. If you wish to be removed from the question queue, you may press the pound sign or the hash key. There may be a slight delay before the question is announced. If you're using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star 1 on your phone. Our first question comes from Brian Bell.