J&J Snack Foods Corp. reported financial results for the first quarter ending December 24, 2022.
Dan Fachner, J&J Snack Foods president and CEO, commented in the announcement, “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% in the first quarter. Also, we recently launched the Hola! Churros brand and are seeing strong momentum, including over 30% 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 the first quarter, 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% this quarter versus 24.9% 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% to $351.3 million in Q1 of fiscal 2023, compared to Q1 of fiscal 2022.
Key highlights:
- Sales included approximately $13.4 million in revenue from Dippin’ Dots.
- Organic sales growth was driven by growth across all three business segments, led by core products including pretzels, churros, frozen novelties and frozen beverages.
- Food service sales exceeded Q1 ’22 by 12.5%.
- Retail segment sales exceeded Q1 ’22 by 0.9%.
- Frozen beverage segment sales exceeded Q1 ’22 sales by 9.2%.
Gross profit as a percentage of sales was 25.9% in Q1 ’23, comparing favorably to 24.9% 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%. Inflation trends are gradually improving for some raw materials since its 2022 fourth quarter, which it expects 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 throughout the balance of fiscal 2023.
Adjusted operating income was $11.2 million in the first quarter of fiscal 2023, compared to $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 its business segments. This led to net earnings in Q1 ’23 of $6.6 million, compared to $11.1 million in Q1 ’22. Effective tax rate was 26% in Q1 ’23.
Food services segment first quarter highlights
Q1 ’23 food service sales exceeded Q1 ’22 by $26.6 million, or an increase of 12.5%, including approximately $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% increase in frozen novelties largely due to the acquisition of Dippin’ Dots, a 32.2% increase in churros, a 27.5% increase in handheld sales, and a 3.6% and 1.0% increase in soft pretzels and bakery sales, respectively, compared to Q1 ‘22.
Sales of new products and expanded customer placement were approximately $3.6 million driven primarily by new bakery products and the Bavarian pretzel stick.
Q1 ’23 operating income decreased 29.0% to $6.4 million reflecting the significant increase in input, production and distribution costs.
Retail segment first-quarter highlights
Q1 ’23 retail sales increased 0.9% to $43.1 million, compared to Q1 ’22.
Handhelds sales grew by 126.6%, compared to Q1 ’22, frozen novelty sales grew by 0.9%. Soft pretzel sales decreased 10.6% and biscuit sales decreased 4.3%, versus the prior year period.
New product innovation contributed approximately $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% to $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 $70.0 million and beat Q1 ’22 sales by 9.2%.
Beverage sales grew 14.5%, or $4.9 million compared to Q1 ’22 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%, versus the prior year period reflecting healthy maintenance call volumes, while equipment sales decreased 10.7% due to the timing of customer installations between years.
Q1 ’23 operating income improved to $1.8 million, compared to a Q1 ’22 operating income of $0.9 million, as strong sales drove leverage across the business.
