Flowers Foods, Inc.

Please note that in this Q&A session, we may make forward-looking statements about the company's performance. Although we believe these statements to be reasonable, they are subject to risks and uncertainties that could cause actual results to differ materially. In addition to what you hear in these remarks, important factors relating to Flowers Foods business are fully detailed in our SEC filings. We also provide non-GAAP financial measures for which disclosure and reconciliations are provided in our earnings release and at the end of the slide presentation on our website. Joining me today are Riles McMullen, Chairman and CEO, and Steve Kinsey, our CFO.

Riles, I'll turn it over to you. Thanks, JT. Good morning, everybody. Welcome to our fourth quarter and full year call. Our team accomplished a lot in 2024. We grew dollars and units and tracked channels across our branded bread portfolio, helped by innovation and strong market execution. And continued implementation of our portfolio strategy drove improved sales and margins in our away-from-home business, despite the impact of those deliberate business exits. Offsetting that performance has been persistent category weakness, which led to lower than expected sales results. The biggest headwind from both the revenue and a volume growth standpoint is significant weakness in the sweet baked goods category. However, we're implementing concrete initiatives to offset that weakness and believe our portfolio is very well positioned to capitalize on current and long-term trends. Looking forward into 2025, our financial guidance is cautious given the volatile environment, the potential for tariffs, commodities volatility, higher promotional activity, and continued weak consumer demand influence that cautious outlook. However, we are very optimistic that the strength of our brands, our successful history of innovation, and the innovation of Simple Mills to our brand portfolio will enable a strong longer-term performance. And with that opening, Gigi, we'll open it up for questions.

Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Steve Powers from Deutsche Bank. Good morning.

Morning, Steve. You hear me okay?

Yeah, loud and clear.

Okay, great.

Okay, sorry. Hey, so can I first ask about Dave's? You know, it's been good, obviously, for a long time, but we've seen the core bread in that franchise start to run negative in consumption data for, I guess, about the last 12 weeks. I think it was down about almost 3% in the last four weeks. I'm quoting Nielsen data. So can you talk about just kind of what you're seeing there and how you expect the DKB franchise to perform in 2025, both kind of core bread and then the entire lineup? Thanks.

Sure. Let me start with just the core bread, Steve, just so I'm clear on this. First of all, we've documented where our challenges are in the sweet baked goods category and a little bit in the soft variety white bread areas. DKB is not one of those challenges. DKB is a strong brand. It'll continue to be a strong brand. There is a bit of noise in those numbers. We had a skew rat deletion of a couple of underperforming skews that affected it. If you're looking at the fourth quarter, there's always some seasonal noise in there. The fourth quarter is typically fairly weak for sandwich bread. But nonetheless, we did still see very, very strong growth in some of our breakfast items, sandwich buns and rolls. And I'd add to that, we've got new products coming this year to replace those deleted skews. Plus, we're getting very significant space gains this year for Dave's, which is really important. One of those of note is in the Mass Channel and over 2,000 stores where DKB has been underpenetrated. And I guess the final thing I would mention, from a household penetration standpoint, DKB hit a record this year, even higher than the pandemic year of 2020. So all that points to continued consumer interest in Dave's. We'll, of course, continue to innovate with Dave's, and we're not worried about that at all. So hopefully that helps give you some color. And then, of course, you add the snacks on top. The bars continue to do very well. We're really excited about the snack bite launch, which is underway as we speak. So as you think about it more as a mega brand, we're even more confident.

That's very helpful. I appreciate it. And if I could, maybe a two-part follow-up, and then I'll pass it on. The first part is for Steve. I wonder if you could better dissect kind of the first half, second half dynamics that you called out in the prepared remarks. You cited some dynamics that will definitely help the early part of the year. At the same time, as you go forward, underlying comparisons ease. You've got simple mills rolling in. you've got the extra week. So I would have expected maybe a little bit different cadence, maybe some color there. And then Ryle's second part, you mentioned some external research on GLP-1 drugs and related consumer behavior. I'm just curious if you could elaborate on what that research is and kind of what you're seeing there and how you're going to address it. Thank you.

Sure. The first half, primarily what we're looking at in the first half is We'll begin to lap some of our new business and lap some of our pricing and some of our savings gains that we saw last year in the back half. There is some pricing that carries over in the back half on primarily private label and food service, but a lot of the branded pricing we do lap in the first half. And then the other major item for the first half has to do with commodity costs and input. The way we take coverage, we are seeing... some benefit in the first half of 2025, but given some of the firmness you've seen in markets of late, right now we're forecasting some continued inflation with regard to input costs in the back half.

Okay. Steve, to your question on GLP-1s, I mean, it's a fascinating topic, right? And everybody's still trying to figure out what the impact is, what the magnitude of the impact is, what the magnitude will be. going forward. And if you, you know, we're scanning all the research, like I'm sure many of you are. Some of it's conflicting, so it's hard to get, you know, a firm handle on it. But we do want to be cognizant of it. Some of the work that we mentioned in the prepared remarks is from some work we did with CERCANA. So that's where that came from. But what I would say is that, you know, if GLP-1s do become a major factor and you know, affect overall food consumption, we think that we're very well positioned for that. You see where we're taking the portfolio. It's definitely, you know, starting to skew much more better for you. You know, cleaning up labels, you know, the dominance of DKB, you know, having Canyon. And of course, adding Simple Mills to that mix too. Because a lot of these people that are on GLP-1s will be searching for items just like Simple Mills. So, you know, with all those factors in mind, we're shaping our portfolio to meet that new consumer that is taking those medications.

Very good. Thank you. I'll pass it on.

Thank you. One moment for our next question. Our next question comes from the line of Bill Chappelle from Truist Securities.

Thanks. Good morning. Just a a little more just, I guess, color on your, your caution for the category and in terms of what you're seeing. And, and I guess it comes with, you know, do you think there's, you have pricing power or the consumer's weakened? Is it just behavioral change? Cause obviously some more people are going back to work and maybe not, uh, having as many, many, uh, much bread at home, you know, are there any macros that drive that caution or is this just trends you've been seeing and we came into the fourth quarter and you'd expect them to continue as we move to early next year?

Yeah, Bill, it's mostly the latter. So sort of overall pressure on the demand environment. But I would add to that, you know, specifically to our category, it's that consumer shift away from soft variety and white breads, which I think we're very well prepared for. We talked about it in the prepared remarks. I mean, soft variety and white bread were weak. I'm talking in terms of the whole year now, not just the fourth quarter. However, the investments that we've made in innovation around keto and gluten-free and organics and our sandwich bun and roll business, particularly under the national wonder label, were more than enough to offset that. So if you take If you take the cake piece out of branded retail, we were positive in units and dollars for the year in branded retail. Cake is really where the weakness has been. So the outlook, we've seen some of those trends from last year spill over already into the little bit of this year that we've already experienced, though it's obviously very early. I do have some confidence that QSR start to recover we're starting to see more positive comments around that so perhaps second half you know this year some of that you know volume will come back to our food service business you know helping helping overall volumes but you know from a branded retail standpoint we feel very good about where we are brandon bun and roll wise with the brands that we have the innovation we have and then with respect to the cake business The introduction of the Wonder brand is, I mean, the intention of that is to help stabilize that business. It has been weak. The category has been weak overall, as you all know. But the reception that we've gotten from our Wonder snack lineup has been tremendous, honestly. And if the retailers follow through with that, this will be more of a second quarter thing because it doesn't launch until week 17. So it won't have any bearing on the first quarter, but Um, we're very optimistic that that will help stabilize that piece of the, of the business that obviously that has, you know, a profound effect on just given the weakness in the, on the cake side of things that has a profound effect on your outlook for the year. So you're starting the year, definitely taking a cautious outlook for all the reasons that I just enumerated, you know, the promotional environment has, has continued to be somewhat elevated. Um, I wouldn't say it's ridiculous, but, um, it is, it is elevated though. What we're seeing in terms of lifts are not what one would normally expect, speaking sort of total category. We've been much more nuanced in our promotional behavior, but the category overall has been somewhat elevated. So we're keeping our eye on that too. Really, honestly, a continuation of the trends that we talked about on last quarter's call. There hasn't really been any marked change to that yet. certainly looking to see if we see some improvement in consumer demand in the back half. So that overall is what's driving the cautious outlook, at least to start the year.

Got it. And just, I guess, as a follow-up, I mean, it's what I'm trying to understand is why, you know, if you have ideas why there's a migration away from the white bread, it would seem that it's still a kind of a low-cost uh, solution for lower income consumers. You know, they're not sure what they would be trading up from a dollar loaf, you know, private label white bread to Dave's killer bread at $4. I mean, so I'm just trying to understand, you know, if you think there's, this is a temporary or this is part of a, a trend. And if you know that kind of the factors that are really driving that.

Yes, we, we do. And that's what I'm trying to say. I think, I think that it's more of a secular shift away from those categories. I think it's, You know, we've talked for several years now about the shift to more differentiated premium items. So, you know, some of that obviously is coming to us in the terms of Perfectly Crafted and Dave's Killer Bread. You know, other parts of it are going to the perimeter of the store. Other parts are going to tortillas and flatbreads. So consumers are looking for something different. Yes, there's still value and there's still value consumers that buy Private Label or Wonder or, you know, Nature's Own Butter Bread, but they're it strikes me that there's definitely been a shift in tastes and preferences away from those main line items. So we've been ahead of this, as I mentioned, and with our keto lineup and everything else that I talked about, we're meeting that new consumer demand and so far offsetting the softness in those traditional categories.

Got it. Great. Thanks for the color.

Thank you. One moment for our next question. Our next question comes from the line of Robert Dickerson from Jefferies.

Great, thanks so much. A couple quick questions. I guess just, you know, first question, you know, as we think through the year, kind of cadence of the year, maybe this goes back to Mr. Power's question as well. Should we kind of be expecting, you know, some kind of, let's say, more progress category softness right in the first half of the year, maybe until you lap the category softness. So if we're thinking about top line and just, you know, organic volumes in general, I guess, combined with maybe some of the innovation that comes later in the year, then maybe, you know, we're a little softer top line first half. And then hopefully there's a little bit of momentum as we get through the back half. That's some simple first questions. Sure.

Yeah, yeah. So from a top line standpoint, I think that's roughly correct. I don't really see any change in the consumer demand environment anytime soon overall. But we do have, as we mentioned, the wonder launch will be right at the beginning of the second quarter. We actually have a lot of new business wins, significant business wins. Most of those come in after the end of the first quarter. So I think as you think about cadence through the year in terms of you know, our efforts to, you know, to win new business, geographic expansion, you know, new items, innovation, that's mostly at least a post-first quarter item. And then, you know, as I mentioned, you know, QSR demand, that coming back would certainly be helpful for the service side of things, but I'm not sure we see that until the second half either.

Yeah, okay, fair enough. And then, Riles, maybe just on, you know, you know, coming back to, um, you know, the conversation around, you know, um, traditional white loaf, et cetera. I mean, I, I do feel like, right. I mean, if we go back like a decade, right. Um, I don't know whether we think of some of your core competitors in bread and we think about kind of just like how the shelf walks, right. If I personally walk into a grocery store, you know, now we have 18, 27, 32 grains, right. We have country, white, Hardy, white, uh, Hawaiian. I mean, there's so many different options now in bread, right? I mean, we're kind of simplifying to an extent, right? Like there's a little bit more premium, you know, or, you know, let's say better for you. I mean, I could argue that it depends on how you're defining better, but whatever. Like, is there, you know, maybe just a part of the market where within bread and let's, you know, ignore Dave for a second. where you clearly, you know, could or should or maybe you do, right, have an opportunity, you know, to kind of more effectively compete, let's say, with, you know, the, I guess we could call it more harder loaf, right? I mean, you're calling it soft loaf, because it does feel like there's maybe a little bit more traction on that side, and maybe that's just viewed as more premium, even though maybe the health attributes aren't better. I don't know if that makes sense.

So, Rob, are you talking like more artisan crusty bread?

No, I'm talking about like if I go to the grocery store, I look at Arnold and Pepperidge Farm and they have like, you know, harder, more, you know, kind of more solid country white, hearty white. I'm seeing people maybe purchase that a little bit more frequently relative to the softer loaf dynamic. So I'm just I'm just bucketing the different subcategories differently.

Yeah. And I think that's a great example of. where the market is shifting to. So if you think about white breads, for example, and what we've done with Perfectly Crafted. So while the traditional loaf under Nature's Own has been perfectly crafted was up 8.5% in units in the fourth quarter, which is typically a weak quarter. So that's one example. And we have a white bread under Dave's as well. So that's giving the consumer a place to go that's more premium and more differentiated than those mainline items to your point.

And then, so like, if we just think about the overall supply chain, like, does it make sense to maybe just like gradually infill some of the, you know, shelf on certain brands with maybe the examples you just gave? I don't know. I don't know if there's a cap on the TAM, but it would seem like, you know, markets go in that way. Maybe it takes you a little while to get there, but it feels like you have the, you know, the capability to kind of get there.

Yeah. No, I think that's right. I mean, it's, it's, it's, as you say, it's an evolution over time. I mean, You know, it's down, but make no mistake, there's still a lot of NatureZone honey wheat sold. So it's still, you know, from a volume standpoint, it's still a huge piece. Same for, you know, Butterbread and the other mainline NatureZone items. But, you know, plants are pretty flexible, Rob, as you'll recall. So, you know, as we move forward and the consumer preferences shift, you know, we can run these items on the same lines we already have for NatureZone. So, you know, there's a lot of perfectly current. Made in the Miami bakery, for example, which we've had for 50 years. And it makes nature's own butter bread, but it also pumps out the perfectly crafted as well. Dave's is a little different, obviously, with the organic, and obviously gluten-free is even more different just given the segregation required. But yeah, our network is set up to be flexible in that regard as those preferences shift.

Yeah. Yeah. Okay. Okay. Perfect. Makes sense. Um, and then just maybe one question for me on the, um, on the wonder snack launch. Um, I mean, you know, within the prepared remarks, right. I guess kind of the term or terminology around, you know, healthy consumption, better for you, et cetera, you know, does continue to pop up kind of, we're all aware around, you know, what's going on in the perimeter relative to the center of the store. you know, I mean, I guess one could argue it either way. Maybe, you know, a wonder cream filled confetti cake is more premium or maybe for somebody it's classified as better for you. But it, it seems like, you know, maybe it's just a good opportunity to kind of take some of the capacity you already have, right. Within sweet bake snacks and just try to, shake it up a little bit, right? I mean, clearly Wunder has very high consumer awareness. It's probably one of the highest within all of baked goods. So is the idea as you speak with the retailers, hey, here's a category that's clearly under a bit of pressure and it's been that way for some time and there haven't really been a lot of new entrants, right? So maybe this is something that could actually work as consumers want something new, you know, and trial, not necessarily because it's premium or better for you. That's all.

Thank you.

Yeah.

Yeah. I think you said it. I think you said it very well. I mean, wonder is an iconic brand. It's got 98% awareness. So it's among the highest in, in food. And, you know, we've, we've talked a lot about the fact that one of our, our competitive issues in the cake business is just the lack of a, of a brand to go up against the larger players with. We're a bit disadvantaged from that standpoint. I mean, Tasty's a great brand if you're from Philadelphia or the surrounding area, but if you're from Cairo, Georgia, maybe not so much. But Wonder definitely resonates. I would also say that quality is also a factor, and we believe that our quality is superior, and we've been told by our retail partners that our quality is superior. So we think that gives us a nice competitive advantage as well.

And just quickly, could that product line be launched nationally, you know, kind of relative to Tasty, or is it probably more in kind of a Tasty Cake regional play?

No, we can go national with Wonder. A, it's a national brand, and B, this is all warehouse distribution. So we're not limited by the DSD now.

Super, super. All right, awesome. Thank you. Appreciate it.

Thank you. One moment for our next question. Our next question comes from the line of Jim Solera from Stevens.

Good morning. Thanks for taking that question. I appreciate some of the detail on 2025. I wanted to maybe parse out some of the legacy business. If my back of the envelope map is correct, if I take the midpoint, strip out the 53rd week and the Simply Good, or I'm sorry, Simple Mills acquisition, that gets... just shy of like 1% growth for the, you know, core 52 on 52 week legacy business. How can we think about, you know, the kind of expectations for the components there? It seems like, you know, maybe food service still down modestly, you know, the core bread offering maybe up a little bit and then sweet baked goods kind of a variable. So can you just kind of give us a sense for, you know, the components of the legacy business for 25?

Yeah. I mean, I think you're thinking about it right, number one. But secondly, I'd say a lot of that 1% growth will be mix-driven. And as Ronald pointed out, the performance of our premium brands continue to be really strong. So we're forecasting good performance for 2025 from that perspective as well. We believe, as Ronald said, Wonder Cake should help from a cake perspective. But again, that doesn't really kick in until the second quarter. And we are... expecting some recovery from uh you know quick serve food service uh during the year as well so so when you look at kind of that one percent growth a lot of that's going to be mixed driven you know from a pricing perspective you know we've taken pretty substantial pricing over the past couple years um you know there might be a pocket here or there or something very selective but for the most part um you know it will be you know mixed driven okay that's helpful and then

Maybe a second question on some of the innovation and formatting. Roz, in your prepared remarks, you mentioned having the opportunity to offer consumers smaller loaves that maybe make the product a little more accessible from an absolute price point perspective, and then also they don't have to worry about spoilage and maybe throwing away the couple extra slices. Can you just give us some detail of that across the whole portfolio, or is that just with certain brands?

there an opportunity especially thinking about you know gop1 impact to kind of yeah expand that across the portfolio to you know make it more accessible and reduce the weight yeah i i think it's a we'll see right now jim um we currently only have it under the nature zone brand um for the small lows um we are looking at it for wonder as well um And then, of course, this is not exactly analogous, but DKB has had for a long time the thin slice, which is a much smaller loaf than that big super premium wide pan bread. And we do find that it's a lower price point, obviously. Margins are still good for us, and that's a consumer need that we're trying to meet. There are others out there. We're not always the first to market. We weren't the first to market with keto, and yet we're number one in that subsegment now. Um, and there have been others that have been, you know, um, uh, earlier to market with the small loaf and we've been, we've been watching it. It's done well. It's obviously a need for certain households. And, um, so we elected to, uh, to meet that demand.

And then maybe if I could sneak in just one last – well, you mentioned very briefly in the beginning of the Q&A just some uncertainty on tariff. Can you just give us maybe just high-level thoughts on what tariff exposure might be and just any impact that that might have?

Yeah, Jim, this is Steve. I mean, I'm sure you'll assume this, but basically it's ingredient-driven. You know, we have taken into consideration some estimates of the tariffs, and that does flow through our guidance. You know, we looked at ways to mitigate that the best we can, but the reality is, you know, a lot of it's ingredient-driven, and as you would expect, most of it's Canadian or Mexican-driven.

There is some in China, but the majority of it would be from those two countries. Okay, great. Perfect. Thanks, guys. I'll pass it on.

Thank you. One moment for our next question. Our next question comes in line of Brian Holland from DA Davidson.

Yeah, thanks. Good morning. Maybe just following up on some of the earlier lines of questioning, you know, I think Jim's point implied 25 guidance top line excluding acquisitions, excluding 53rd week. We're looking at like $80. bips of growth at the midpoint, which I think on its face looks modest. But for the last three quarters, your sales have declined. Volumes have gotten worse. Category trends are further softening. I'm talking about all package bakeries as we move through Q1. So I guess it may be to the extent that you could sort of parse out, because it strikes me that innovation is the incrementality of that and maybe some of the new business wins on the food service or in the you know non-retail business would be the primary drivers above and beyond you know maybe a down category and just some natural share growth on your part um so maybe more at its most simplistic Do we have a bigger innovation wave in 2025 and 2024? And where does that fall if you were to tier the drivers, you know, bridging from where the category is to where you're guiding for 2025?

Yeah, Brian, so lots to talk about there. So several things. One, I think I heard you say new business in the away from home. Most of the new business is on the retail side. So, yeah. We are picking up some private label, but we're getting a lot of brand concession for that as well. I mentioned at the outset of the call, part of that is some significant new space for DKB, which is going to be great for us. And there's a litany of others. Then you also have the Wonder Watch. As I mentioned, that's going to be second quarter. It won't have any effect on the first quarter. So that's going to be a big part of it. And then to answer your question on innovation, yes, we do have a higher innovation goal for this year than we did last year. So it's a combination of all those things. And all of that's intended. We're still saying, for the time being, we're not expecting any major positive changes in consumer demand. That's why we started the year cautious. But all this stuff is meant to offset that. And then, of course, if consumer demand starts to improve, which we believe it eventually will, we're very well positioned to take advantage of that.

Yeah, no, appreciate that. That's all helpful. Thank you. And then just quickly on simple mills, I think you put 2024 net sales last month at 240 million. Your guidance in 25 implies something a bit below that. I suppose that that's probably just less than four-year contribution as explains the implied decline. But if I have that right, just a sense for kind of what you're assuming for that business on an apple-to-apples basis in 2025?

Yeah, I mean, for 2025, obviously, it's roughly 45 weeks if we stay on the closing schedule that we've assumed here.

And then from an overall growth perspective, we are assuming some modest growth for 2025.

So if you say modest growth for 2025, I think the business has grown at like a mid-teens CAGR or something like that. Is there anything with respect to just, you know, integration, et cetera, that you might explain why the implied guide for that business would look more conservative than what the historical trend has been? Or is that just conservatism? not dissimilar to the way you're trying to approach your core business.

Yeah, let me comment, and Steve can add on to this. First of all, it's a little tricky for us because we haven't closed yet. So we're assuming a certain number of weeks in this contribution, so we've kind of given a range to give ourselves a little bit of breathing room there just because we haven't closed yet. We do expect it to be soon, but as of today, we haven't closed. The second thing I would say is is that we're very, very bullish on this business. We wouldn't have paid the premium that we did if we weren't. But we do need to get them integrated. And we can't do a lot of that, obviously, pre-closing for regulatory reasons. But once we get in there and we decide how we're going to work together and the things that we can bring to them to accelerate their distribution gains, their innovation pipeline, etc., it'll take a few months for us to get there. So I think it'll come into much clearer focus, though I know it's probably frustrating for your modeling efforts. It'll come into clearer focus after we get closed.

Yeah, and Brian, I don't know if you had a chance to look at the deck yet, but on slide seven, we do call out that we're assuming a four-year pro forma contribution of roughly $258 to $266 million from a top-line perspective. So that should be able to help you from a modeling perspective.

Okay, thank you. That is helpful. And then, if I could seek in one more, just any thoughts, Riles, about how the promotional landscape might evolve as commodities become a headwind for the category into 2025? I think historically, an inflationary environment upstream has tended to be beneficial for flowers, just given kind of your hedging strategy vis-a-vis the balance of the category. So maybe just any thoughts there. On the promotional environment, you mean? Yeah, right. I mean, I think we're seeing an increasingly competitive, we have seen an increasingly competitive environment I know you've talked about that being below pre-COVID levels, but commodities have been a bit of a tailwind to help support that. If it goes the other way, if you assume that a lot of the smaller independents don't have the same hedging or forward-buying practices that somebody like Flowers might have, that they would have to correct more quickly to account for that. Again, historically, I think that's been a net benefit for Flowers. Just curious how you think about that.

Yeah, I would think about it exactly the same way, though it'd be just pure speculation to figure out exactly when that might happen and what they might do and when. Yeah, you're right. Historically, it has overall been a benefit. I mentioned a while ago, we've been watching the promotional environment very carefully. No surprise, for us, the base units have been a little bit weaker. But, you know, our promotional cadence has delivered, you know, some pretty nice incremental units. On the other hand, you know, we have seen more broadly across the category, you know, deeper, perhaps more aggressive promotions. And, you know, our analysis shows that those are not delivering from an incremental standpoint. So, you know, certainly my hope is that, you know, that stabilizes and pulls back. But in the meantime, you know, we're going to continue with the same strategy we have. I mean, we're You know, we have the number one brands. We don't have to promote as deeply because of the strength of those brands. And we'll continue utilizing that strategy.

Great. Thanks. We'll leave it there.

Thank you. One moment for our next question. Our next question comes from the line of Mitchell Pinheiro from Sturdivant and Company.

Hey, good morning. Hi. Most of my questions have been asked, but I do have just a couple things. Regarding guidance as the flower standalone, earnings per share is flat to down versus 24, but you have perhaps a modest increase on the top line. So is that gross margin or is that SD&A margin? decline or pressure on earnings.

I think you'll see more pressure within SDNA.

And is that workforce related? I mean, is that related to California transition or just general workforce related pressures?

I think you'll continue to see some of the pressures we talked about on Q4. You'll continue to see workforce. You'll continue to see an increase in overall lease or rent expense. So it really is related to the truck leases and rentals for California. And then you'll continue to see cold storage expense increase as well. So there's several factors within SD&A forecasted to be up year over year. I think from a gross margin perspective, We're not really God, but I think overall we should be okay, 24 to 25. Yeah.

Mitch as well, just remember that as we move through the first quarter of this year, Steve already mentioned the laugh of the pricing, but we will also start to laugh the savings initiative that we launched last year, that $46 million that we saved in 24. Okay.

And then you had a – A comment, I guess, in the prepared remarks talking about the California transition going to drive some improved results. What are you trying to say there? Is that, I mean, because that's going to be a company-owned model versus your traditional, you know, independent model. Is that saying that you could be more efficient as a, with a company-driven model?

Yeah, I think I would think of it in terms of control. Obviously, with our IDP model, we have very limited control there because they're independent business owners, as you know. Whereas with the transition in California, kind of taking back control over distribution, days of service, display execution, we have a lot more ability to drive our business ourselves with an employee model there. Now, Mitch, as you know, we were We were forced to do that in California. This wasn't necessarily by choice. So we'll see how it goes. On balance, as we've mentioned, it is a little bit more expensive to use a company-owned model than it is IDPs, primarily due to the truck expense that's on our books. But our aim is to more than offset that. via that control with enhanced sales growth. Primarily, honestly, if nothing else, increased days of service. We all know how important Sunday service is, and that can be somewhat uneven with an IDP model.

All right, thank you. And then just one other thing, and I forget maybe someone else asked this already, but the small loaves that you're putting out, you've always, you've thought about it before, but it's sort of, didn't quite make sense in in in years past for a variety of reasons is have you solved any of the small loaf margin issues or um you know is that something that that you you know you got the right margin mix there or is it a could it be a margin drag for you

it's not a major margin drag. Mitch, first of all, it's not big enough yet really to have that big of an effect. But to answer your question, it is a little bit lower than the mainline items just due to the fact that we're not really set up to just produce a small load. There's some complexities in the plants. However, if we start to find success with this, we would go and make the necessary changes in the plants to fix that. And that would That would go a long way to helping the margin profile. I'm not really worried about it right now. This is really more of a test and learn circumstance for us. But if it's doing well, if it continues to do well, we've got more SKUs coming out to help support it. If it really takes off, then we'll make the necessary investments on the supply chain side.

Okay. All right. That's all I have. Thank you for your time.

Thank you. One moment for our next question. Our next question comes from the line of Max Gumpur from BNP Paribas.

Hey, thanks for the question. Just turning back to the commentary on promotions, you're clearly of the mind that the promo intensity we're seeing is not the solution to volume pressure in the bread category, and that sounds like a prudent approach to be taking, given the lack of lifts that we're seeing. It's not clear, though, that your competitors are of the same mindset and stepping away from promotion. So how would you think about navigating through an environment if you have large competitors that continue to promote through the year, even if a bit irrationally?

Thanks. Yeah, right. Can't control what they do. Understand that. But I think, simply put, if you look at our market share performance relative to some of the competitors that you're talking about, I think you'll find your answer there. our performance has been much better and we don't promote nearly as deeply. I think our overall price per unit was down maybe a penny in the fourth quarter. One penny. Up one penny in the fourth quarter, sorry. In the fourth quarter. And that typically tends to be a higher promotional quarter just given the seasonality. And yet our market share performance was better. So I would leave it at that.

Okay. And then Turning back to the expansion of Wunder into sweet baked snacks. So, I mean, clearly you noted that one of the biggest headwinds you're facing right now is that weakness in the sweet baked goods category. And you're planning to address that head on with the introduction of Wunder snack cakes. I guess I'm just wondering why that's the right strategy. I mean, to me, it would seem you can choose the categories that you play in. And so I'm wondering why you're choosing to get bigger in a category that's on the weakest in the U.S. package right now and potentially due to structural issues. So just curious, you know, why snack cakes and not another category that maybe has better growth tailwinds behind it? You mean with the use of the Wonder brand? Exactly. Why expand Wonder into snack cakes now? Why is snack cakes the right category? Why not think about a different category that isn't under Wonder? a whole lot of top line pressure. Right.

Well, I would put it this way. We're in the sweet baked goods business, and it's a headwind, and it needs addressing. I think that's very clear. And we've documented it for a number of years that it's been a headwind from us, first operationally and now from a top line standpoint. And we think that wonder translates much more easily and seamlessly into the sweet baked goods category than it might others.

And then I'll throw in a third question as well. Just could you provide a bit more color on the Cercana research that you're citing, particularly with regard to the comment about how you're seeing or Cercana is seeing households on GLP-1 drugs start to revert even more fully back to center store items. Curious, you know, are there center store items in particular that they're reverting to? Did they give you any Any reasons for why that, you know, counterintuitive shift is occurring? Thanks very much.

Yeah, sure. I mean, and look, I mean, the research that we're citing is, as I said earlier, you know, one of many. I think, you know, some of these even tend to conflict with each other. But yes, we have seen some data that shows that, you know, people start that medication and when they stop, they come back and they buy more than they did before. But I think, you know, it's one point in time. It's one data point. I would caution everyone on that. I don't think I've been very clear that I don't think anyone has gotten this completely figured out yet or knows what the long-term implications of it are. I think the important thing to note is that regardless of the outcome, we're positioning our portfolio to be successful in any environment.

Okay. Thanks very much.

Thank you. At this time, I would now like to turn the conference back over to Riles McMullen, Chairman and CEO, for closing remarks.

Thanks, Gigi. I want to thank everybody for taking time today and joining us for questions. Thanks very much for your interest in our company. And as always, we look forward to speaking with you again next quarter. Take care.

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