MOUNT LAUREL, NJ. — Despite healthy top-line growth, J&J Snack Foods Corp. cited cost pressures and category sales mix issues as contributing to a slide in earnings for the fiscal 2025 first quarter.
For the quarter ended Dec. 28, net income fell to $5.1 million, equal to 26¢ per diluted share on the common stock, from $7.3 million, or 37¢ per diluted share, a year earlier. Excluding amortization costs related to the April 2024 acquisition of the Thinsters cookie brand, adjusted earnings were 33¢ per diluted share. Analysts, on average, had forecast adjusted EPS of 62¢.
“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,” Daniel Fachner, president and chief executive officer of J&J Snack Foods, told analysts in a Feb. 4 conference call. “Although we delivered strong earnings improvement in 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 decline, along with the higher operating expenses, ultimately impacted our bottom line for the quarter.”
The unfavorable mix primarily involved two product segments, Fachner said.
“The first is the loss of some seasonal business within bakery, with a declining margin profile that we bid on but did not retain,” he said. “The second is attributed to lower (Hola) Churros volumes in foodservice as we lap 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 Churros customers in foodservice and believe this business will continue growing over time.”
First-quarter operating income fell to $6.2 million from $9.7 million in the prior-year period. J&J Snack Foods “realized price increases during the quarter” but wasn’t able to fully offset the net impact of higher input costs, according to Fachner.
“We experienced significant inflation in chocolates, eggs and proteins that was only partly offset by deflation, primarily in flour and dairy,” he said. “We have implemented additional pricing action in the second quarter for select categories that will further mitigate input cost inflation.”
At the top line, first-quarter net sales climbed 4.1% to $362.6 million from $348.3 million a year ago. J&J Snack Foods attributed the gain to volume growth and price increases. By segment, sales rose 4.5% year over year to $238.9 million for foodservice, 4% to $79 million for frozen beverages and 2.2% to $44.78 million for retail supermarkets.
Fachner said growth in foodservice was driven by innovation and strategic partnerships.
“We realized 4.5% sales growth across foodservice, led by a 4.8% increase in soft pretzels as convenience store sales rebounded,” he explained. “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. Churros sales declined 9.2%, reflecting the lapping of limited-time offer volume 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% and were 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.”
J&J Snack Foods expects investments in digital and shopper marketing to drive conversion across brands such as SuperPretzel, Luigi’s and Dogsters, while business-to-business marketing in foodservice will focus on soft pretzels, Churros and Funnel Cakes, Fachner said. J&J Snack Foods also expanded theater locations for Dippin’ Dots ice cream by 21% in the first quarter and in January launched Dippin’ Dots Sundaes in the retail channel.
“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,” Fachner said.
Mount Laurel, NJ-based J&J Snack Foods’ product roster includes SuperPretzel soft pretzels, Icee and Slush Puppy frozen beverages, Dippin’ Dots flash-frozen ice cream beads, Luigi’s Italian ices, Minute Maid frozen ices, Whole Fruit sorbet and frozen fruit bars, Hola Churros bite snacks, The Funnel Cake Factory funnel cakes, Philly Swirl frozen desserts and Dogsters ice cream treats for dogs, as well as bakery brands such as Daddy Ray’s, Country Home Bakers and Hill & Valley.
“Although the quarter presented some challenges that we’re navigating, we’re encouraged by some of the positives we’ve seen this quarter, particularly with the recovery in theater traffic given our presence in that channel,” chief financial officer Shawn Munsell said in the call. “Our top line continues to grow from a combination of price and volume growth. Our bakery business has experienced some challenges, but it does provide some contractual protection from input cost volatility. The Dippin’ Dots rollout to theaters is progressing smoothly, and new product launches are poised to drive further growth, positioning us well for the year ahead.”