J & J Snack Foods Corp.

Good day, and welcome to the J&J Snack Foods Fiscal 2025 First Quarter Conference Call. As a reminder, this call may be recorded. I would now like to turn the call over to Nuberto Aja, Investor Relations. Please go ahead.

Thank you, Operator, and good morning, everyone. Thank you for joining the J&J Snack Foods Fiscal 2025 First 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 Security Litigation Reform Act of 1995. 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, 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-end of September 28, 2024, and there are 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 represent management's estimates as of the date of the call today, February 4th, 2025. 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 EBITDA, adjusted operating income, or adjusted earnings per share, all of which are reconciled to the nearest GAAP measure and 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 Faschner, our chief executive officer, along with Sean Munsell, 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. Faschner. Please go ahead, Dan.

Thank you, Roberto. Good morning, everyone, and thank you for joining us today to discuss our fiscal Q1 results. Starting with a quick review of our first quarter results, we delivered solid top-line growth of 4.1% to $362.6 million, driven by a combination of volume increases and pricing. However, our performance was impacted by a less than favorable sales mix. along with the input cost inflation that was not fully covered with price increases. And although we delivered strong earnings improvement in the frozen beverages, foreign exchange headwinds associated with the peso limited the improvement. Overall, gross margin declined to 25.9% from 27.2% compared to the prior year. The gross profit declined, along with the higher operating expenses, ultimately impacted our bottom line for the quarter. The unfavorable mixed impact during the quarter primarily reflects two items. The first is the loss of some seasonal business within bakery with a declining margin profile that we bid on but did not retain. The second is attributed to lower churro volumes in food service as we lapped the benefit from a limited time offer with a quick serve restaurant last year. Although we were able to grow volume elsewhere in the portfolio to help compensate for these losses, the mix was less favorable. Our cookie volume is up meaningfully versus the prior year, and we've recently invested in new capacity to augment our capabilities. We also added new churro customers in food service and believe this business will continue growing over time. Regarding pricing, while we realized price increases during the quarter, we were not able to fully offset the net impact of the higher input costs. We experienced significant inflation in chocolates, eggs, and proteins that was only partly offset by deflation primarily in flour and dairy. We have implemented additional pricing action in the second quarter for select categories that will further mitigate input cost inflation. We also had some nice wins across the portfolio that helped to support our results during the quarter. Our frozen beverage business achieved record first quarter results on a rebound in theater traffic as the movie lineup recovered from last year. We achieved record results despite an unfavorable year-over-year weakening of the peso that impacted our frozen beverage performance in Mexico. We also delivered strong results in frozen novelties across the portfolio, led by the growth in Dogsters and Dippin' Dots. Food service pretzels recovered in the quarter, mainly from a rebound in the convenience store channel and elsewhere. While we're not satisfied with our results, we view the underlying challenges as temporary. As I mentioned, we have implemented incremental pricing that has taken effect early in the second quarter. And as always, we continue to pursue volume growth and mix improvement across the portfolio. Encouragingly, frozen beverages and snacks showed sequential improvement during the quarter, supporting confidence in our recovery trajectory. We remain disciplined and focused on the business principles that have driven long-term success and shareholder value. To that end, I am pleased to announce that our board has approved a new $50 million stock repurchase authorization. This decision reflects our confidence in J&J's long-term value and our financial flexibility. With a strong balance sheet and ample liquidity, we are well equipped to execute this plan opportunistically while continuing to invest in organic and inorganic growth opportunities. We remain disciplined and thoughtful in deploying capital, ensuring that any investments we make deliver sustainable value for our shareholders. Let me now briefly review highlights from each of our three business segments. Starting with food service, this segment continues to grow, driven by innovation and strategic partnerships. despite some unfavorable changes to the sales mix. We realized 4.5% sales growth across food service, led by a 4.8% increase in soft pretzels as convenience store sales rebounded. Frozen novelties increased an impressive 9.8%, which included 8.4% sales growth in Dippin' Dots, driven by the theater and our new vending channels. Turo sales declined 9.2%, reflecting the lapping of a limited time offer volumes that I referenced earlier. Bakery sales growth of 6.6% largely reflects price increases to offset input cost inflation. As for retail, we saw opportunities and challenges that led to a 2.2% increase in sales. Frozen novelty sales increased meaningfully. led primarily by volume gains in Luigi's and Dogsters, which outpaced declines elsewhere in the retail portfolio. The soft pretzel sales decline of 7.4% was partly attributed to an ordering system issue with a large customer that temporarily suppressed volumes. Resolution of this issue in late December positions us for improvement in Q2. Frozen beverage sales increased 4%, driven by an impressive 10% volume increase. The boost in volume was attributed to 45% growth in theater channels compared to the prior year, thanks to strong content releases in November and December. In addition to volume growth, machine revenue increased by 13%, offsetting a 3.7% drop in maintenance revenue. As it relates to our end markets, the outlook for the 2025 North America box office is strong, with growth projected at over 10% year-over-year, driven by a recovery from last year's strike. The industry has demonstrated remarkable resilience, and we remain optimistic about its long-term recovery and growth trajectory. We're seeing a continuation of growth in overall consumer spending on leisure, entertainment, and experiential categories, which are outpacing traditional retail channels. Leisure and entertainment segments, in particular, are performing better now than they did pre-pandemic as consumers prioritize memorable experiences. These trends provide a strong tailwind for our business as we look to align with these evolving preferences. As we've demonstrated, our growing presence in the theater and entertainment channels, especially through IC and Dippin' Dots, positions us well to take advantage of these trends. With regard to our operations and logistics, our supply chain initiatives, driven by the addition of three new RDCs, are delivering as planned by increasing capacity, and improving the efficiency of how we move products to customers. With operations now spanning nine cold storage facilities, we have simplified logistics management across our network and lowered our inventory levels without compromising service. Currently, over 94% of our sales orders are shipped from the new distribution network, compared to under 30% a year ago. This has resulted in more than a 12% reduction in average haul length, improved on-time performance, and decreased line haul costs 13% per pound in our snack food business compared to the same quarter last year. Moving to the marketing front, we're investing heavily in digital and shopper marketing to drive conversion across key brands like Super Pretzel, Luigi's, and dogsters. In food service in particular, we're maintaining strong business-to-business marketing efforts focused on soft pretzels, churros, and funnel cakes with direct-to-operator engagements driving leads. I want to highlight progress against a couple of our growth initiatives. We have made great progress on the rollout of Dippin' Dots to the theater channel. We increased our presence by 186 locations or about 21% in the first quarter. We're also excited about the recently launched Dippin' Dots Sundays for Retail, which represents a great entry into the retail channel for this iconic brand. The new Sundays hit the shelves in January with a large retailer and will reach other retailers throughout the quarter. As it relates to capital deployment, Our strong balance sheet and strong liquidity position provide us with the flexibility to pursue strategic opportunities, including M&A, that align with our long-term growth objectives. We remain disciplined and thoughtful in deploying capital, ensuring that any investments we make deliver sustainable value for our shareholders. In summary, while Q1 presented challenges, We believe they are short-term in nature and remain confident in our ability to leverage the strength of our diversified product portfolio and iconic brands. Looking ahead, we remain focused on driving incremental placements, fostering innovation, and expanding partnerships, which will position us well for sustained growth and value creation. I'd like to thank all the team members at J&J for their discipline and dedication to our long-term success. Thank you for your continued support. I'd now like to hand the call over to Sean.