J & J Snack Foods Corp.

Thank you for standing by and welcome to J&J snack foods fiscal 2024 first quarter conference call at this time all participants are on a listen the 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 1 1 To remove yourself from the queue. You may press star 1 1 again I would now like to hand the call over to Norberto Ajay 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 We will start in just a minute with the management's comments and your questions But before doing so, let me take a minute to read the safe harbor language This call contains forward-looking statements within the meaning of the private securities litigation reform act of 1995 As such all statements made on this call that do not relate to matters of historical facts should be considered forward-looking statements including statements regarding management plans strategies goals expectations and objectives and our anticipated financial performance These statements are neither promises nor guarantees that involve known and unknown risks Concerned tees and other important factors. They may cause results Performance or achievements to be materially different from any future results performance or achievements expressed or implied by the forward-looking statements Factors discussed their annual report on form 10k for the year-end of September 30th, 2023 And there were other filings with the Securities and Exchange Commission Could cause actual results differ materially from those indicated by the forward-looking statements made on this call today Any such forward-looking statements represents management estimates as the date of this call February 6 2024 While we may elect to update forward-looking statements at some point in the future We display many obligation to do so even if subsequent events caused expectations to change In addition, we may also reference certain non-gap measures on the call today including adjusted a bit dub 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 fashioner our chief executive officer along with Ken Plunk our chief financial officer Following management's prepared remarks. We will go ahead and open the call for a question and answer session With that I would now like to turn the call over to mr. Dan faster Jane J snack foods chief executive officer Please go ahead then

Thank You, Roberto and good morning everyone. We appreciate you joining us this morning to discuss Jane 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 -over-year declines in consumer traffic and consumption Our customers adapted to consumer trends by reducing inventories ahead of the holiday season especially in product categories like pies cookies and frozen novelties I am proud of how the J&J team Leveraged our iconic brands and incremental customer opportunities to maximize every sales opportunity in the first quarter This resulted in a sales decline of just under 1% Largely in line with the trends in the overall industry While we experienced a .1% decline in sales across our food service segment driven by softness in our bakery we saw resilience in retail and Continued strong growth in frozen beverages as sales grew 1.6 percent and 8.5 percent respectively Our ongoing focus on gross margin expansion Resulted in a hundred and thirty basis points improvement to twenty seven point two percent Driven by our strategy to grow higher margin core products as well as continued gains in overall productivity Importantly the success of our strategic initiatives is becoming increasingly visible Despite softer sales we delivered a meaningful -over-year improvement in the overall profitability of the business including a twenty point six percent increase in adjusted operating income and a nineteen point two percent increase in adjusted EBITDA I'd like to take a few minutes talking about our sales performance in the quarter We have never been more confident in our ability to grow Even as our industry faces a more challenging consumer environment for J&J It's about continuing to leverage innovation and cross-selling opportunities to expand placements of our core products and brands Our business is gaining incremental opportunities and is well positioned as consumption trends improved 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 twenty seven point four percent compared to the prior year Bavarian sticks a new product launched light and fiscal 2023 is now the number two bestseller 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's to name a few Moving to soft pretzels in our food service segment sales declined four percent Primarily driven by soft traffic trends in key channels however, the team did gain new business including the launch of a super pretzel filled jalapeno not nationwide with a major theater customer and incremental sales gains in pretzel bites and buns Also several not national fast casual chains are making pretzels a permanent part of their menu We continued to gain market share of this quarter compared to last year Let's talk about churros We continue to see strong momentum across the food service segment and remain excited about the growth opportunities the team successfully Secured an opportunity with subway to manage manufacture a foot long churro for all US locations This rollout began in the first quarter and is already exceeding expectations We also began rollout of churros with a major food district 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 filled churro That is driving new sales opportunities Our ola churros brand is also performing at or above expectations in the retail segment We expanded distribution at Wake Fern schnooks Giant Landover and grocer supply and are awaiting feedback from additional retailers Sales for dip and dots which is part of the food service segment were slightly positive for the quarter led by an approximate 3.5 percent 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 dot dip and dots and are moving quickly to activate new business Just this past quarter we completed the rollout of Peter Piper pizza Extended our agreement with Chuck E Cheese through 2027 and received a commitment from a convenience store customer for another 200 placements in addition we continue to expand across the theater channel with ongoing rollouts at Centimark commitments to install vending at 56 locations for Marcus theaters and Incremental tests at a third major theater chain moving to frozen beverages This segment posted an eight point five percent 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 amusement channel Mass-merchandise retailers and restaurants increased for the quarter The rollout of a new self-serve program for a major club customer is delivering strong results With over a hundred 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 C store channel strength Looking ahead we are excited about a major QS our opportunity entering a test phase in q2 Also, we received a commitment from our partners at Dave and Buster's to roll out across 150 locations by late April as previously mentioned frozen novelties declined in the quarter as key customers reduced orders and Inventory levels in this category this impacted our -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. I'm really excited about our dogsters as it delivered strong results Outpacing the growth of our largest competitors Dogsters also recently gained incremental shelf placements something we expect will continue as retailers reset later in 2024 We continue to see strong growth opportunities across our frozen novelty portfolio as we approach Season for spring and summer season Finally, I'd like to talk about our bakery business for the quarter bakery sales decreased .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 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 bakery and convenience From an operational perspective as we have mentioned on prior calls We continue to execute initiatives to enhance overall operations and a better support our growth opportunities Starting with our supply chain strategy we have now opened two of the three distribution centers Terrell, Texas and Woolwich, New Jersey These two new DC's 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're 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 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 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 embrace 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 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 in its vision and strategy 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

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 and fiscal cure For the quarter we did experience the cells slight sales decline compared to the prior year We're in line with overall industry trends and then stated we were executing our strategy Proving operational efficiency and profit margins and expanding growth opportunities across channels and customers This helped balance declines in consumer traffic and consumption that impacted many of our customers That sales for the quarter total of three hundred and forty eight point three million down point nine percent versus the prior year Food service our largest segment saw sales decrease four point one percent to two hundred twenty eight point six million primarily reflecting reduced inventories of pies and cookies Among certain customers during the holiday season as well as they decline in handheld sales Do you a contractual cost true of agreement? Bakery sales decreased six point four percent and handheld sales declined six point five percent in the quarter Although volume sales for our core food service handhelds did increase for the quarter These these declines were partially offset by our churros category Which grew eight point nine percent as we continue to drive growth at this high margin business Sales of soft pretzels and frozen anomalies declined four percent and three point three percent in the quarter Respectfully driven by the previously discussed consumer pressures This led to you on 24 food service type and operating income of six million or a decrease of five point eight percent versus the prior period This reflects all for sales and one-time costs associated with the opening of our New Jersey distribution center, which impacted distribution expenses Moving to our retail segment Q124 retail sales increased one point six percent to forty three point eight million compared to q1 of 23 handheld sales grew by ninety point five percent while soft pretzel sales increased twenty seven point four percent led by our continued expansion of super pretzel products into retail frozen all of these and biscuit sales declined twenty eight point four percent and eleven point one percent respectively Versus the prior year period this resulted in q1 24 retail segment operating income of point five million or a decrease of fifty nine point three percent versus 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 seventy five point nine million and beat q1 of 23 sales by eight point five percent Beverage sales grew eight point five percent or three point three million higher than q123 Led by solid performance across key channels including convenience museum parks mass merchants and restaurants machine service revenues increased three point one percent versus the prior year period Equipment sales increased Twenty six point eight percent driven by strong growth from the convenience in qsr channels Q1 24 operating income in the frozen beverage segment also improved three point two million a seventy five point seven percent increase compared to q123 Our focus on gross margin expansion through improved mix of core products more line pricing and cost of good efficiencies Clearly benefiting our results for the quarter gross profit totaled ninety four point six million a 4.1 percent increase compared to q1 of 23 this led to a gross margin of twenty seven point two percent favorably compared to twenty five point nine percent in q1 of 23 Despite the softer consumer environment in fiscal q124 We remain confident in our plans to improve profit margins and expect to achieve gross margin of thirty percent better for the full year Overall we experienced slight inflation for the court The cost of ingredients including flour oil dairy and eggs have declined however, this was offset by double-digit inflation in sugars sweeteners mixes chocolates and meats which continue to impact products such as frozen all of these and baked goods Looking at expenses total operating expenses increased three point four million or four point one percent representing twenty four point four percent of sales for the quarter compared to twenty three point two percent in q1 of 23 It is important to note that during the quarter. We incurred two point two million in one time expenses Reflecting 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 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 one-time transition costs Distribution cost were eleven point six percent of sales in the quarter Compared to twelve percent in the prior year period even with the previously mentioned one-time transition costs The -over-year improvement in distribution expenses already driven by more favorable inflationary environment and the benefits of our initiatives to improve logistics management Increase efficiency across our distribution network and supply chain Marketing and selling expenses were seven point nine percent of sales versus six point seven percent in the prior period driven primarily by incremental promotional marketing sport on core brands and new products Administrative expenses were five point two percent of sales in q124 compared to four point seven percent in q123 Tribute attributable to investments and incremental resources as well as hosting our national sales meeting for the first time since the pandemic This led to an operating income of nine point seven million or three point eight percent increase compared to nine point three million in q1 of 2023 Adjusted operating income was thirteen point five million or a twenty point six percent increase compared to q123 After the impact of income taxes of two point six million compared to two point three million She won a fiscal 23 net earnings increased nine point eight percent to seven point three million resulting in reported earnings per share of 37 cents Compared to thirty four cents in the prior period Prior your period Adjusted diluting earnings per share was 52 cents a share for the quarter compared to 42 cents in the prior year period Adjusted even dot increased nineteen point four percent to thirty point two million From twenty five point three million in the prior year period and our effective tax rate was twenty six point six percent in the first quarter 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 seven million in debt Our ability to improve cash flows are working capital initiatives and stronger profitability is generating more cash paid on debt raised dividends and continue investing in our business Our focus will continue to be on maintaining a healthy balance sheet In 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 approximately two hundred eight 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

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, please stand by while we compile the Q&A roster Thank you for standing by our first question Comes from the line of Andrew Wolf, Oseo King your question, please Andrew

Good morning. Thank you. I wanted to ask about this contractual Cost drew up with the handheld Product I guess was the second quarter in a row First is that kind of a norm? Is that a normal thing to do? Is that something that happens quarterly and because there's been such big swings and you know your cost the input cost that it's worth calling out or is Just what's the nature of that? like 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 Yeah, good morning. Yes. Thank

you.

Yeah. Good morning,

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

Yeah It's a larger amount. The reason we call it Andrew is because of the phenomenon of the last two years You know, so the cost in many areas, you know two years 18 months ago 20% That obviously drove 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 Profits for that area, but we should lap The significance of that probably in the next quarter We should be laughing at Andrew, but that's why that number has been as big as it's 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 commodity neutral basis. I realize it's real money, but you know

Yeah, it's It's over a million dollars Close to a million and a half Andrew

Got it. And

then I wanted

to ask lat to follow up on the situation with Costco and the churros Which at least according to the internet? You know Costco is discontinuing the churros and replacing them with With cookie chocolate chip cookie. She wanted to confirm is that Accurate and is that kind of going to be a firm, you know? Impact you guys across Costco 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 net net in the 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 They will offer different things periodically throughout time. They have a limited SKU within their locations And so they do a rotation That that churro 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 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. There's you know 20 to 21,000 Subways out there today And then and the product is being accepted really really well. So we're excited about the growth in the in the churro 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 to both.

Good morning, Todd

a Couple questions as well. Just want to ensure If we look at the fourth quarter sales results Was there any operational friction in there that cost us anything on the revenue line out there around the new? RDC coming up during the quarter or maybe some of the new lines ramping to to full productivity or Did the shortfall on the revenue side really just reflect? softer and market demand

Yeah, I know Todd it really did just reflect the the softer market in 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 really strong sales even during the month when you look at IRI or circana but inventories Certainly were narrowed down and so you can you could somewhere make that assumption 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 But but the operational side did not affect sales going out in any way

That's good. That's good to hear and Dan you brought up January February obviously 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 we 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 for the from the prior year There's a bunch of different cross currents here. But what do you what are you seeing in your end customer channels and food service?

Well, I think you you know, I think you're reading probably the same data. We're reading as well. It's hard to come off quarter like we just come off and not be Concerned or cautious about what the future looks like We're still very competent in our long-term strategy and and what we're doing and we're seeing that play out really well And I think by the time that we close up a year We'll have a another strong year, but but we're certainly cautious and I think the consumer is cautious out there today You know a couple of things that I've read that are interesting That 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 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 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-lived. I don't know that for sure, but I think it's short-lived I don't think that we can look at a January February period time and and say boy That's what we're gonna 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 place

Sorry Sales Because I went back and kind of look back at it and you know, we thought we were gonna Have a bit stronger quarter than we did not really expecting some of the consumer Softness, but when you look at the last two years We're laying growth on top of a little over 10% growth a year ago q1 and 32% growth two years ago q1 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 post-cova and supply chain and you kind of know the story there but To be able to have two segments have positive sales 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 to you know, continue to grow sales year over year

Great thanks and one more and I'll jump back in queue Dan 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 consumers going to do what the consumer does If you look at kind of new customer wins cross-sell success new product launches What's 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 about fiscal 24

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 remind you of some of the exciting things that the team is generating Love the subway opportunity and in the way that it's kicked off and how that's going and and Might even lend us some additional opportunities for us there that we're working on as we speak today Like the way that the old laturo and retail has kicked off The Bavarian sticks moving up into the number two position of what we sell We see that a little bit unlimited at this point like some of the things that the bakery is doing, you know, we've continued to narrow the bakery and Rationalize some of the SK use but I like some of the things that they have going on right now with our cake of bowls Which is a gourmet cookie and our seasonal cookies and and working on sticks and buns in that area You know, we've talked about I see and and now rolling out the Dave and Buster's we got a QSR that we're gonna test this quarter that I'm really really excited about the club store conversion to self-serve Is working out great and we're gonna escalate the way that we install that -and-dots growth and the theaters and convenience and Just just see a lot of the right things happening That can really impact our margins and again, you know talked about even on the operational side That the three DC's opening the one in Glendale is actually opened yesterday And so we're starting to see that take effect the new lines doing well as we fill those up Just just really encouraged by what the future looks like

That's great. Thanks,

Dan Thank you, please stand by for our next question Next question Comes from the line of David Chackno of William Blair your question, please Hey,

this is David check no stepping in for John Anderson Could 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 want to understand also how you're looking at volumes for the balance of the year

Yeah, well 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 one to two percent depending on what area of business you're in Again, I think kind of speaks to some of the things that we talked about David with the with the consumer So, you know, you just kind of look at that number against where we landed at negative point nine Kind of get some idea of the price benefit overall for the company You know as you look forward, you know, we did take a price increase in January in our icy business We took a price increase in dip and not stand I think we did

in

January December Yes as well and then on the snack food side You got a lot of you know, you got some commodities with deflation. You got some of 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 to increase price, but the market You know has an opinion on that as well in terms of price point. So That's kind of what's been done and what's planned As we look forward on volume, I would just kind of echo what Dan said You know, we're coming out of a quarter that makes us a bit cautious You know, we have data that we're looking at each and every week to get a sense of kind of where the consumers at You know when you get into spring we're hoping that that kind of launches people getting out and will benefit our business but You know if I was looking forward, you know, 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

Sure for that price increase on IC in January Should we think of that similar to I? Think that price increases the past couple years each January for that has 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 as the last two years given where we were when inflation But somewhere in that, you know mid single digit maybe a hair under that probably David is the way to think about that

Great And then one other thing if I can I know historically second half gross margins. Those tend to be I think two to three hundred bits higher Then then the first half just with one quarter down here for the fiscal year You still kind of expecting that you know cadence for 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 you mentioned a little bit on the on the pricing question about commodities But but if you could just kind of outline that in general, that'd be great

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 sell side that we exceeded our internal budgets on that You know, we saw our bakery gross margins improve over a hundred basis points strong margin performance you know in IC and in food 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 and then to your point as we get into q2 and stickling three and four You know those will mix in much heavier. I see much heavier dip and dots which are some of our highest margin businesses and we expect that to Generate, you know those 30 plus percent gross margins that we did a year ago and so we see no reason to back off of kind of what we've Talked about which is getting above 30 for the year And we think we'll done in the first quarter is a good sign that we're moving in the right direction on that

Got it great that's all for me. I'll pass it on.

Thank you, David Thank you Next question Comes from the line of Connor Rattigan of consumer edge your question, please Connor Hey guys, good morning.

Good morning Connor Yeah, so I just wanted to touch on the top line a little bit specifically on the the food service pressure So I guess first things first I guess was this more isolated to maybe a select channel or customer or was it maybe a more broad-based pullback? And also was there any deflationary pricing involved in there?

There really was no deflationary Pricing involved in it at all. We talked about you know food service being affected and I'm really being affected through our pies and cookies and so, you know If you if you looked at it surgically that had a pretty sizable impact on where we were off And saw that in inventory reductions is as early as you know Early December late November started to see that And and that's real again. I mentioned this earlier We we looked at some IRI and Sukhana data and and our our volume looks good through that And so, you know that these inventories were pulled back and and so we don't want to over complicate it 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 is inventory related Just

to magnify, you know, you're trying to get into kind of particular product areas the pie decline was Majority of the decline in bakery year over year and then we mentioned cookies on top of that You know, that's a product that once it gets on display, you know in retailers as a shorter shelf life And so as they started to see, you know retailers and grocery stores Concerns about traffic coming in during the holidays that back they back down their orders And so that was a big number in terms of -over-year comparison

So I guess it sounds like more the inventory and deload you saw there on the pies 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?

I wouldn't believe that to be true But certainly we're gonna come off a quarter and 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 pies business is really a one-time a year business That doesn't stretch out for four quarters Got

it got it and then just one more for me that I'll squeeze in So 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 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 talked about this before Connor we love what we're doing in terms of marketing You know when when when my learn his marketing team have really done a great job of both with our new products and with Brands that we had of really investing and getting a lot out of those investments to grab growth 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 a lot of those the spend of that You know has impacts and benefits to you know, the rest of the year and even beyond that so it's not always just a Contained in in a quarter by quarter kind of thing You know, it's also against our low one of our lowest sales bases, you know when you look at q1 Q2 will be much the same you got that kind of spend all over sales base So that should level its way out as we get through the year and ultimately in the year You know probably in that low seven to seven point one seven point two percent sales range

Thanks for the color as always guys appreciate it up at night thank you

Connor Thank you Please stand by for our next question Our next question comes from the line of Robert Dickerson of Jeffries 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 the cookies situation relative to kind of what I'm hearing You know around maybe new distribution potential at Subway and Kind of new distribution kind of potential overall Like maybe just provide some color is kind of how you see the portfolio Performing or recently performing maybe like a branded versus non branded basis Right because I'm asking because they you know here super pretzels doing great, right? Icy still doing pretty well So it almost sounds like there's 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 Uplift over time so just any updated thoughts there would be great.

Thanks Yeah, Rob, that's a really good question You know, you know this we've talked about it several times. I love branded products, right? 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 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, you know prior to this but everything is about timing And so I do like where our branded products are going and think we have some real opportunities I think a lot true and retail still have some great opportunities. We're seeing our dogsters Really grow at a nice pace and so our branded products are growing well and will 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 on the non branded Like the opportunity we have with churros right now That's our true and it's doing extremely well And if we continue to be a good supplier We think there's more opportunities other than just the true side of that business that we're gonna continue to look at So I think we have some nice growth going that way too It's a balancing act always right and so we're gonna push the brands because we love them And there's an opportunity to get behind them and advertise them and 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. I guess just you know, very specifically in your retail supermarket business Just when I look at the op margin, I just kind of feels a little well And you know clearly there could be some one-off true up dynamic maybe in that segment I'm just trying to gauge you know, like if you're kind of doing well in that in that business and Decent amount of that business clearly is branded You know like maybe like why is the operating margin kind of solo now and then You know if we think forward, you know by a longer term for two three years, what have you You know, is that like a business that you know, we we do think can kind of get to that I don't know high single digit or a low double digit op margin Just trying to gauge kind of where we are today and then kind of you know, what could come later Right.

Yeah Great question. Let me just try a little bit more clarity on Retail operating income so included in that number is roughly 1.3 million of That one time distribution expense. So you're thinking about kind of adjusting that out as a one-timer that starts to Change that picture a little bit operating income would have grown. I think roughly 8%

Right.

You factor that in There was a bit of a mix Impact on loose margin because of higher sales and handheld and lower in in frozen novelties Again, we've got data that says in me those frozen all of the areas like Luigi's the consumer bought more at corn cell But our customer ordered less and we think that is somewhat tied into this inventory leveling That many are doing Kind of after the supply chain challenges and you know, we mentioned that in a couple areas So we think that'll work its way out Yeah, we think we can get that retail business. I Think if we ended q3 q4 was moving up closer than that single digit range Certainly expected to improve and get up into that range once we cycle some of these things

All right, super and then maybe one last question The more theoretical, you know clearly, you know, you're staying today just you know being a little bit more cautious, right? Consumer seems to be a little bit more cautious Clearly not the only company saying that right we consistently hear the term value-seeking, you know Throwing around a lot over the past couple quarters You know you guys are you know about to enter so probably two three months left But you are starts, you know about to enter kind of you know that seasonal uplift on the business so when we think about You know kind of the you know, the cautious thought process as we get through the year And then we also just think about price points, right? Like some could argue that you know, having an icy drink is mandatory. It's a need state Some others might argue it's more of a a want statement. It's a little more discretionary So I'm just curious, you know where you sit today and we're thinking about like, you know, May really June, right? Opening of all amusement parks like it's time where we're all out and about time to go Is are there areas where you know in in these varied channels where you can promote a little bit more? I don't know like maybe put a little bit more signage or you know, just try to kind of push the consumer Basically into consumption and that's it. Thanks a lot

Yeah, Rob, absolutely. There are ways for us to do that. I see does that really well in fact the team led by Steve Avery even as soon as last week have 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 becomes a big part of that Getting out in front of the customer and and Talking about promotional items or BOGOs or something along that lines 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 That we're going to be able to get everything that we can And and I loved your thought about icy being in need rather than an impulse item I hope we can spread that across the country

Yeah, I like it. All right. Thank you so

much.

All right. Thank you

Thank you, I would now like to turn the conference back to president and CEO Dan Fashtner for closing remarks, sir

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 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 two one two eight three five eight five zero zero. Thank you very much Have a good afternoon

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