J&J SNACK FOODS CORP Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Financial Performance: Fiscal 2024 had record sales, gross profit, and adjusted EBITDA (up 10.2%). Fourth quarter reported sales down 3.9% but up 3.9% normalized. Gross margin decreased 110 basis points in Q4 to 31.8%.
• Strategies: Leveraging innovation and cross-selling to expand product placements. Operational investments improved efficiency metrics, with new RDCs and supply chain initiatives reducing linehaul costs and improving on-time performance.
• Segment Details: Foodservice faced declines in some categories but new product placements with QSR customers. Retail saw growth in certain areas but pressure on discretionary spending. Frozen Beverage benefited from theater channel improvement in Q4.

Segment Performance

• Foodservice: Reported sales grew 0.3% for fiscal year and 2.4% on normalized basis. Churo and soft pretzel sales declined, but bakery (+3.5%) and handhelds (+8.4%) grew. Normalized sales increased ~4.6%. New product placements and customer additions contributed ~$8M.
• Retail: Reported sales grew 2.7% reported and 4.4% normalized. Driven by SUPERPRETZEL expansion. Soft pretzel ACV grew, and Browhouse brand to launch in retail. Frozen novelty sales declined, but handhelds (+14.9%) and biscuit sales were flat.
• Frozen Beverage: Sales increased 1.9% reported and 3% normalized. Theater channel improved in Q4, repair/maintenance and equipment sales grew. ICEE sales expected to rebound with improving theater business.

Guidance

• Fiscal 2025: Expect performance trends to improve in core channels as consumer confidence and spending improve. Anticipate gross margin to improve in 2025, aiming for mid-30s long term. Distribution expenses expected to leverage better as sales improve. Top line expected to grow in low to mid-single digits, driven by improved channels and product expansion.

Risks

• Consumer Spending: Soft consumer spending and economic uncertainties impacting key channels like amusement, convenience, theaters, restaurants, and retail.
• Supply Chain and Production: Production inefficiencies and inventory adjustments due to softer consumer demand and less favorable sales mix.
• Inflation: Net mid-single-digit inflation in raw materials (cocoa, chocolate, sugar) driving consideration of further price increases to manage gross margins.

Question and Answer

Q: Traffic pressure and 2025 confidence A: Dan Fachner discussed theater and convenience sectors expected to bounce back with new movie releases, and consumer resilience post-election to drive 2025 performance.

Q: Margin component and mix headwind A: Ken Plunk explained loss of key selling week and sales mix change impacting margin, with core products in soft channels contributing to the headwind.

Q: Margin framework for 2025 A: Ken Plunk expected gross margin to improve to low 31% range in 2025, with focus on procurement, operational efficiency, and distribution.

Q: Top line normalized growth for 2025 A: Dan Fachner anticipated low to mid-single-digit normalized growth in 2025, driven by improved channels and product expansion.

Q: Channel dynamics and consumer spending A: Dan Fachner discussed marketing efforts to entice consumers back to convenience stores and other channels, leveraging promotional activities and industry improvements.