J+J Snack Foods: Fiscal Q1-2023 Revenue Increases 10 percent

Pennsauken / NJ. (jj) J+J Snack Foods Corporation reported financial results for the first quarter ended December 24, 2022. President and CEO Dan Fachner: «We are pleased to report the seventh consecutive quarter of double-digit top-line growth and remain confident in our plans to continue growing sales. We are investing in our brands, accelerating cross selling opportunities with our customers and across our channels, expanding our production capacity and building a strong pipeline of product innovation.»

«We have hit the ground running with our Dippin’ Dots business, having already gained placement at Regal Theaters, the second largest movie theater chain in the United States. In fact, we increased unit sales in our Dippin’ Dots business over 14 percent in the first quarter. Also, we recently launched the Hola! Churros brand and are seeing strong momentum, including over 30 percent sales growth in the first quarter. This positions us well to grow our churros business, including the introduction of new products and entry into new channels. While our industry experienced some declines in traffic and volume in Q1-2023, we are well positioned to manage through these economic challenges, and expect to continue growing our top line.»

«As we make meaningful progress on our strategic priorities and initiatives to improve operating efficiency and effectiveness, ongoing inflationary pressures and the softening consumer environment impacted our year over year bottom-line results. Our actions to improve gross margins helped us deliver 25.9 percent this quarter versus 24.9 percent in the prior year period. However, we continue to manage through cost pressures on the expense side, most notably distribution expenses. We expect to see improvement in expenses as we cycle through these high inflationary periods later in the year. Also, Dippin Dots is a very seasonal business and, as expected, negatively impacts our results in the first quarter. This business will drive the majority of its profitability in the second half of the year.»

«More than ever, our teams are focused on effectively managing through these dynamic market conditions while serving our customers and partners. We have taken aggressive measures to offset these various challenges and to position the company for long-term success. In addition to the sales strategies mentioned above, we are focused on improving operational efficiencies and capacity through initiatives like adding seven new, more automated production lines. To date we have opened two new frozen novelty lines and one additional churros line. Over the next six months, we will activate three additional lines focused on expanded pretzel production capacity. Also, we’ve implemented a new ERP system, outsourced our shipping logistics, and are building a more geographically optimized distribution network. In addition, we have now fully implemented various price increases across our portfolio, which we expect will continue to drive improved gross margins.»

«In closing, our momentum remains strong as our core brands and new products continue to resonate with consumers, and we are confident that our strategy is working and that we will see the benefit of our various initiatives through out the balance of fiscal 2023.»

Total Company First Quarter Highlights

Net sales increased 10.3 percent to USD 351.3 million in Q1 of fiscal 2023, compared to Q1 of fiscal 2022. Key highlights include:

  • Sales included approximately USD 13.4 million in revenue from Dippin’ Dots which we report in our frozen novelty category.
  • Organic sales growth was driven by growth across all three business segments, led by our core products including pretzels, churros, frozen novelties and frozen beverages.
  • Food Service sales exceeded Q1-2022 by 12.5 percent.
  • Retail segment sales exceeded Q1-2022 by 0.9 percent.
  • Frozen Beverage segment sales exceeded Q1-2022 sales by 9.2 percent.

Gross profit as a percentage of sales was 25.9 percent in Q1-2023, comparing favorably to 24.9 percent in Q1 ‘22. Key ingredients including flour, oils, eggs, meats, sugar and dairy continue to experience inflationary pressures compared to the same quarter last year, up approximately 20 percent. Inflation trends are gradually improving for some raw materials since our 2022 fourth quarter, which we expect will benefit margins in future months. Three pricing actions implemented in fiscal 2022 along with improved mix helped to partially offset these headwinds and are expected to provide additional benefits through out the balance of fiscal 2023.

Total operating expenses of USD 81.5 million represented 23.2 percent of sales for the quarter, compared to 20.3 percent in Q1-2022, reflecting ongoing inflationary pressures across distribution and administrative costs. Distribution costs represented 12.0 percent of sales in the quarter, versus 10.5 percent in the prior year period, but improved sequentially compared to Q4 2022. We expect our various strategic and operational initiatives to improve logistics management and increase efficiency across our distribution network and supply chain allowing us to reduce costs and drive significant savings over the coming quarters and years.

Marketing and selling expenses represented 6.7 percent of sales, versus 6.6 percent in Q1-2022, and 6.4 percent in Q4-2022. Administrative expenses were 4.7 percent of sales in Q1-2023, compared to 3.3 percent in Q1-2022 and 4.3 percent in Q4-2022 driven mostly by the expected seasonal impact of Dippin’ Dots.

Adjusted operating income was USD 11.2 million in the first quarter of fiscal 2023, compared to USD 14.6 million in the prior year period, with the decrease driven by the ongoing inflationary pressures, somewhat offset by revenue growth across all three of our business segments. This led to net earnings in Q1-2023 of USD 6.6 million, compared to USD 11.1 million in Q1-2022. Our effective tax rate was 26 percent in Q1-2023.

Food Services Segment First Quarter Highlights

  • Q1-2023 food service sales exceeded Q1-2022 by USD 26.6 million, or an increase of 12.5 percent, including approximately USD 13.4 million in sales from Dippin’ Dots.
  • Outdoor venues, including stadiums and amusement parks, restaurants and strategic accounts continued to experience revenue growth, including 157.4 percent increase in frozen novelties largely due to the acquisition of Dippin’ Dots, a 32.2 percent increase in churros, a 27.5 percent increase in handheld sales, and a 3.6 percent and 1.0 percent increase in soft pretzels and bakery sales, respectively, compared to Q1 ‘22.
  • Sales of new products and expanded customer placement were approximately USD 3.6 million driven primarily by new bakery products and the Bavarian pretzel stick.
  • Q1-2023 operating income decreased 29.0 percent to USD 6.4 million reflecting the significant increase in input, production and distribution costs.

Retail Segment First Quarter Highlights

  • Q1-2023 retail sales increased 0.9 percent to USD 43.1 million, compared to Q1-2022.
  • Handhelds sales grew by 126.6 percent, compared to Q1-2022, frozen novelty sales grew by 0.9 percent. Soft pretzel sales decreased 10.6 percent and biscuit sales decreased 4.3 percent, versus the prior year period.
  • New product innovation contributed approximately USD 1.3 million in the quarter driven by the new Luigi’s gelato product and additional placement of Dogsters items at major grocery retailers.
  • Operating income decreased 77.7 percent to USD 1.1 million, versus the prior year period driven by higher cost of goods sold and distribution related expenses.

Frozen Beverages Segment First Quarter Highlights

  • Frozen beverage segment sales were USD 70.0 million and beat Q1-2022 sales by 9.2 percent.
  • Beverage sales grew 14.5 percent, or USD 4.9 million compared to Q1-2022 led by consumption trends in travel, sporting events, concerts, and amusement venues. Sales were strong even as volume at Theaters declined in the quarter due to lower performing releases and weather impacts during the Christmas holiday season.
  • Machine repair and maintenance service revenues increased 8.3 percent, versus the prior year period reflecting healthy maintenance call volumes, while equipment sales decreased 10.7 percent due to the timing of customer installations between years.
  • Q1-2023 operating income improved to USD 1.8 million, compared to a Q1-2022 operating income of USD 0.9 million, as strong sales drove leverage across the business.
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