J & J Snack Foods Corp.

Good day, and welcome to the J&J Snack Foods Fiscal 2024 Fourth Quarter Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. Instructions will be given at that time. As a reminder, this call may be recorded. I would like to turn the call over to Norberto Aja, Investor Relations. Please go ahead.

Thank you, Operator, and good morning, everyone. Thank you for joining the J&J Snack Foods fiscal 2024 fourth quarter conference call. Before getting started, 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. 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's plans, strategies, goals, expectations, and objectives, as well as her anticipated financial performance. These statements are neither promises or guarantees and involve 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. Risk factors and other items discussed in our annual report on Form 10-K for the year ended September 30th, 2023 and our other filings with the Securities and Exchange Commission could cause actual results to differ materially from those indicated by forward-looking statements made on the call today. Any such forward-looking statements represents management's estimates as of the date of the call today, November 14th, 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 cause expectations to change. In addition, we may also reference certain non-GAAP measures on the call today, including adjusted normalized sales, EBITDA, adjusted operating income, or adjusted 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, Chief Executive Officer, along with Ken Plunk, our Chief Financial Officer. Following management's prepared remarks, we will open the call for a question and answer session. With that, I would now like to turn the call over to Mr. Fashioner. Please go ahead, Dan.

Thank you, Roberto. Good morning, everyone, and thank you for joining us today. J&J Snack Foods achieved another year of top and bottom line growth in fiscal 2024. We not only achieved record annual sales and gross profit, but also set new highs for adjusted EBITDA. And we achieved our financial goals of improving gross margin rates, delivering improved supply chain metrics, and growing profits faster than sales. Adjusted EBITDA increased 10.2% in fiscal 2024. More importantly, these results were achieved during a dynamic consumer and economic environment that impacted traffic and spending in key channels including amusement, convenience, theaters, restaurant, and retail. Despite pressures on consumer spending, we continue to grow sales on a year-over-year basis led by incremental placements of core products, brands, product innovation, and new customer wins. I'm so proud of our employees who continue to execute a well-aligned long-term strategy that positions J&J for continued profitable growth. As we discussed our performance, it is important to remember that we had one less week of selling days in fiscal 2024 compared to fiscal 2023. This impacted fourth quarter sales by an estimated 33 million. We will refer to it as normalized sales in our discussions today to better explain what we feel is a more accurate apples to apples comparison. For the year, we grew sales 1% on a reported basis and 2.8% comparing results on a normalized basis. I'm especially proud of our double digit growth in adjusted EBITDA led by an 80 basis points improvement in gross margins to 30.9%, along with a 110 basis points improvement in adjusted EBITDA margins for the full year. Looking at our fourth quarter results, reported sales decreased 3.9%. However, on a normalized basis, sales increased 3.9%. Softer consumer trends, along with fewer selling days, impacted sales of our higher margin products during the quarter, including soft pretzels, churros, frozen beverages, frozen novelties, and Dippin' Dots. This resulted in a less favorable gross margin mix and created production inefficiencies as we adjusted inventory levels across our plants and distribution centers. As a result, Our gross margin decreased 110 basis points for the quarter to 31.8% compared to our record fourth quarter of fiscal 2023, while operating income and adjusted EBITDA decreased 4.5% and 4% respectively. Despite these challenges in the fourth quarter, we managed operating expenses well, improving by 110 basis points and achieving net earnings as a percentage of sales of 6.9%, consistent with the previous year. Ken will review financial performance for the fourth quarter and fiscal year in more detail in just a few minutes. I'd like to emphasize the importance of our strategy and how it aligns with our results over the last year. Our J&J team remains relentlessly focused on executing our strategy of growing core brands and creating cross-selling opportunities to drive incremental sales. Each quarter, we expanded new products and incremental placement even as consumer softness challenged sales in many of our key channels. This is a critical element of our strategy as it layers on growth during short-term periods of declining traffic and attendance. As consumer trends improve, we are well-positioned across our segments to continue driving growth and profitability. Let's review our three segments with a focus on the year's results and why we are confident in our ability to continue driving growth. In food service, reported sales grew 0.3% for the fiscal year and 2.4% on a normalized basis. This included growth of frozen novelties, churros, handhelds, and bakery on both the reported and normalized basis. We did experience consumer softness in key channels in the fourth quarter, but consider these challenges to be short-term in nature and do not expect that they will continue into fiscal 2025. Let me start with our frozen novelty business. Frozen novelty sales grew on both the reported and normalized basis for the year, despite channel performance in amusement and convenience, which are key sales venues for Dippin' Dots. Dippin' Dots sales grew low single digits on a normalized basis for the year as new theater locations were offset by declines in traffic and attendance in our core convenience and amusement channels. This was more pronounced in the fourth quarter after delivering stronger sales in the prior third quarter. As it relates to Dippin' Dots, we remain optimistic with our growth opportunities driven by added placements in theaters and indoor amusement, together with expectations that business will improve in our core channels. Dippin' Dots is currently in just under 900 theaters as of the end of fiscal 2024, and we expect to add another 120 locations in the first quarter and 180 locations in our fiscal second quarter. We will then have Dippin' Dots available in the four largest theater chains, AMC, Cinemark, Regal, and Marcus. And early feedback from some of our theater partners is that Dippin' Dots is exceeding the sales of other Frozen novelties. We are rolling out Dippin' Dots in all Dave & Buster's and main event locations. We expect this rollout to be completed within our fiscal first quarter across roughly 220 locations. We have significant opportunities in the dip and dodge business and will continue to expand placement and leverage innovation to add new flavors and packaging to drive growth. Taking a look at Churros, we continue to be confident in our long-term performance and growth opportunities. Sales growth for the full year was led by the addition of a major QSR customer launched earlier in the year. This business provides other opportunities for growth with this customer. Looking forward, we're excited about a new opportunity to launch churro fries with a leading national hamburger chain. This product was successfully introduced in a recent LTO and it exceeded expectations. We are working with the customer on next steps and new opportunities. We're also working on LTOs with two additional major QSR customers. There's a lot going on with our churro business that provides us with added confidence in our ability to continue to grow this business. Moving to bakery. We had a strong year in the bakery business, led by expanded growth of cookies with both current and new customers. Our bakery team has a well thought out plan to continue driving growth in 2025 that includes expanded production capacity, new products, and incremental contract manufacturing opportunities. Shifting to soft pretzels. Sales declined for the year, driven by softness in the convenience, theaters, restaurant, and amusement channels. This was pronounced throughout the entire market However, we continue to grow our market share within the industry. We remain well positioned for growth as consumer trends improve in these key channels. Recently, we gained incremental placements of Bavarian pretzel bites across all sectors of the food service industry. We will continue to drive incremental opportunities through new innovations like Brauhaus pretzels and Bavarian pretzel sticks and bites along with the expectations for improving channel performance of our core soft pretzel business. Moving to our retail segment, we grew reported sales 2.7% and normalized sales 4.4% for the fiscal year. This growth was driven primarily by continued expansion of our super pretzel Bavarian sticks and mini pretzel dogs, as a major customer continues to expand placements across their portfolio. We have talked about this business before as being a great example of where cross-selling and leveraging our great brands across customer channels creates incremental opportunities. We have invested marketing dollars and trade funds to drive this growth and will continue building this brand across retail in 2025. soft pretzel acv grew over three per point driven by expansion of super pretzel mini pretzel dogs and bavarian sticks our soft pretzel products are well positioned in the retail sector despite recent short-term softness in the fourth quarter looking forward we expect distribution expansion across our super pretzel and annie ann's brands and will enter the premium pretzel segment as we launch our Brow House brand into retail. Let's talk about frozen novelty sales in retail. For both the year and the quarter, sales declined on both the reported and normalized basis. This decline was primarily driven by softer sales in Luigi's in an overall declining Italianized category. Our marketing and sales teams are focused on improving Luigi's performance in 2025 through improved marketing programs, enhanced consumer and product positioning, and incremental customer opportunities. Our Dogsters brand continues to perform well, growing almost 20% in the quarter and adding over four points of ACV expansion We can continue to see opportunities to build this brand, leveraging the growing demand for pet products. We remain confident in this category and are really excited about bringing a new Dippin' Dots retail product to the market in fiscal 2025. Also, we continue to grow our handheld business and retail. Sales for the year grew over 58% on both a reported and normalized basis. This is a strong business for us, led by growth and incremental placements with a major mass merchant. Finally, let's discuss our frozen beverage segment. Sales increased 1.9% on a reported basis and 3% on a normalized basis for the year. The IC team grew this business despite volume declines in our theater and convenience channels throughout most of the year. On a reported basis, frozen beverage sales increased 2.4% for the year, even lapping an extra week in fiscal 2023. Theaters, a significant part of the IC business, was down 5% compared to the prior year, as the actor strike impacted the volume and quality of movie releases. We did, however, see improvements in the theater channel in Q4. especially in July and September, as stronger releases hit the market. In talking with our largest theater customers, the industry expects significant improvements starting in our first quarter with a slate of franchise films and titles such as Wicked, Gladiator 2, and Sonic the Hedgehog 3. We see solid trends in the movie theater channel throughout fiscal 2025, with an improving movie slate and continuing strong concession consumption. Repair and maintenance and equipment sales increased on both the reported and normalized basis for the year. We continue to grow both of these categories led by expanded placements of ISEE machines and incremental service business across our customer portfolio. We're excited about the prospects for ISEE. And as the theater business comes back, we are confident IC sales will as well. In short, our strategies to leverage innovation and cross-selling opportunities to expand placements of our core products and brands continue to deliver positive results. I'd like to take a moment to emphasize the impact of our operational investments over the past few years. Enhancements to our manufacturing and distribution capabilities are leading to notable improvements in key efficiency metrics. Our supply chain initiatives, anchored by the three new RDCs, are working as planned, adding new capacity and creating efficiencies in how we move products to our customers. We now operate out of the nine cold storage facilities, simplifying logistics management across our network. Today, 90% of our sales orders are shipped from the new distribution network versus under 30% a year ago, with the average length of haul decreasing by over 30% and on-time performance improving to over 80% versus 63% a year ago. Line haul cost per pound decreased 14% compared to the same quarter last year in our snack food business. Shifting to operations. The combination of new lines and increased capacity in collaboration with new distribution centers has streamlined operations, leading to reduction in waste and overtime. This optimization has allowed us to enhance our service to customers more effectively than ever before. Notably, fill rates have improved to 98.7%. I also wanted to mention that we are far along on our CFO search and will be in a position to confirm a new hire shortly. As you know, our current CFO, Ken Plunk, will be retiring at the end of this calendar year. In summary, we are pleased with the progress we are making to optimize sales across all customer channels and improve our operational efficiencies. Our diverse portfolio of products and brands and our continued focus on innovation provides considerable growth opportunities across our customer base. Additionally, our strong balance sheet and liquidity, along with our experienced leadership team, reinforce our confidence in generating long-term value for our employees, partners, and shareholders. I'm incredibly proud of our senior team and employees who consistently carry out their jobs with dedication and skill. Their commitment to our goals has led to strong results that reflect their hard work and collaboration. It's truly inspiring to see how each team member contributes to our success, driving innovation and operational excellence. Together, we are building a strong foundation for future growth and success. As we enter fiscal 2025, We are optimistic about the growth potential of our core products and the success of our new product launches and client partnerships. We expect performance trends to improve in our core channels like convenience, theaters, amusements, and restaurants as consumer confidence and spending improves in fiscal 2025. With a stronger film lineup ahead, we believe there will be significant growth opportunities for Diffendots and Icy, and we anticipate improved sales across our other products as well. With that, I would now like to pass the call over to Ken to review our financial performance in more detail. Ken?