PENNSAUKEN, NJ. — Ongoing inflationary pressures and the softening consumer environment weighed on first-quarter earnings at J&J Snack Foods. The Pennsauken-based company also felt the impact of a winter storm that affected most of the United States during two key selling weeks in December, especially in theaters and outdoor venues.
Net income at J&J Snack Foods in the first quarter ended Dec. 24, 2022, totaled $6.6 million, equal to 35¢ per share on the common stock, down 40% from $11.09 million, or 58¢ per share, in the same period a year ago. Net sales increased 10% to $351.34 million from $318.49 million.
Speaking during a Jan. 31 conference call with analysts, Daniel J. Fachner, president and chief executive officer of J&J Snack Foods, said the company has “hit the ground running” with the Dippin’ Dots business that it acquired last summer for $222 million. He said J&J Snack Foods already has gained placement for Dippin’ Dots 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% in the first quarter,” he said.
But Mr. Fachner also acknowledged that despite performing above expectations, Dippin’ Dots is a seasonal business and, as such, negatively impacted results by about $1 million in the first quarter.
“This business will drive most of its profitability in the second half of the year,” he said, adding that the company continues to work to integrate Dippin’ Dots into the J&J systems, processes, customer channels and operations.
Foodservice operating income at J&J Snack Foods fell 30% in the first quarter to $6.4 million from $9 million. Sales increased 12.5% to $238.3 million from $211.73 million. Within the foodservice division, sales of bakery products were $108.9 million, up 1% from the same quarter a year ago, while sales of churros climbed 32% to $25.76 million from $19.49 million. Sales of soft pretzels increased 3.5% to $52.22 million. Sales of handhelds, meanwhile, increased 27% to $23.57 million in the quarter.
“Q1 revenue was up 13%, even as we manage through the challenging winter weather events in December,” Mr. Fachner said. “This, combined with a weaker slate of movie releases, had some impact on our sales. Soft pretzel sales increased 4% this quarter. We see expanded growth opportunities throughout the year as … Pretzel Bites focused on the entertainment, theater, QSR and convenience channels. We also saw continued strong momentum in our churros business with sales increasing 32% as we introduced our new Hola! Churros brand to foodservice. The sales team expanded placement of churros with major distributors, large regional QSRs and fast casual restaurants. We are confident that there are still significant growth opportunities across QSR, fast casual, convenience channels and with major distributors, including a significant opportunity with a major QSR burger chain going into test in the first half of 2023. Hola! Churros will have a whole selling and marketing support plan throughout the year.”
Transitioning to its foodservice bakery business, Mr. Fachner said sales increased 1% driven by strong growth of handhelds and cookies with a major club customer. J&J Snack Foods also expanded business with a strategic convenience store customer.
“Looking forward, we see additional growth opportunities for our Icee cookies and our frozen cookie dough,” he said. “Our strategy to improve margins in the bakery business is working as we shift the mix to more profitable products and customers and rationalize less productive items in our portfolio. (We’re) very pleased with our bakery group. Lastly, we continue to forecast added gains in key items such as handhelds and funnel fries.”
In the retail supermarket segment in the first quarter, operating income was $1.11 million, down 78% from $4.98 million in the previous year’s first quarter. Sales increased narrowly to $43.07 million from $42.7 million. Within the retail supermarket segment, sales of soft pretzels slid 11% to $14.49 million. Sales of frozen novelties increased narrowly to $17.97 million from $17.8 million, while sales of biscuits eased 4% to $7.91 million from $8.27 million. Sales of handheld items rose 127% to $2.89 million from $1.28 million.
“Sales increased 1% for the quarter as the industry started to experience softness and macroeconomic spending for consumables,” Mr. Fachner said. “In our Soft Pretzel segment, we saw continued strength in our flagship SuperPretzel brand, driven by distribution gains and organic growth. However, overall pretzel sales declined 11% in the quarter, primarily in licensed and private brand products as we executed the planned SKU rationalization of lower-margin items. As the year progresses, our strong focus on SuperPretzel brands, including new SuperPretzel Pretzel Bite flavors, launch of SuperPretzel knots and super SuperPretzel Bavarian pretzel sticks, is expected to lead a full year revenue growth in the soft pretzel category.”
In the frozen beverages segment, J&J Snack posted operating income of $1.83 million, up 113% from $860,000 in the same period a year ago. Sales increased 9% to $69.97 million.
Mr. Fachner said J&J Snack Foods has committed to invest close to $100 million to add seven new production lines that will add capacity and drive efficiency to better automation.
“To date, we have opened two new frozen novelty lines and one additional churro line,” he said. “Over the next six months, we will activate three additional lines focused on expanded pretzel production.”Asked how much capacity the lines might unlock, Mr. Fachner explained: “I don't have the exact number to give you on the capacity, but it does allow us to grow our core products, right? So one of the things we really experienced was outgrowing our core, which is our churros and pretzels and frozen novelties and even our pretzel bar side of the business. And so we have addressed that to be able to have enough capacity to get our sales team back out there and really selling new lines and new opportunities. It does help on the margin side because we are becoming much more efficient in different areas, even making products like in our novelty side, making products where they’re sold as opposed to maybe making them in one part of the country and ship them across to another side. So there are margin improvements that we think that we can realize as we open these up.”