Softer consumer conditions cause J&J Snack earnings to decline.
The deteriorating consumer environment and ongoing inflationary pressures had a negative impact on J&J Snack Foods’ first-quarter profitability. During two crucial weeks of December sales, the Pennsauken-based company was also impacted by a winter storm that hit most of the country, particularly in theaters and outdoor venues.
For J&J Snack Foods, net income for the first quarter ending December 24, 2022, was $6.6 million, or 35¢ per share on common stock. This represents a 40% decrease from $11.09 million, or 58¢ per share, for the same time the previous year. From $318.49 million to $351.34 million, net sales grew by 10%.
Daniel J. Fachner, president and chief executive officer of J&J Snack Foods, stated that the company had “hit the ground running” with the Dippin’ Dots business, which it acquired last summer for $222 million, during a conference call with analysts on January 31. He stated that the second-biggest chain of movie theaters in the country, Regal Theaters, had already placed J&J Snack Foods’ Dippin’ Dots.
“During the first quarter, we actually saw a 14% increase in unit sales in our Dippin’ Dots business,” he stated.
Mr. Fachner did concede, however, that Dippin’ Dots is a seasonal business and as such, its performance in the first quarter was adversely affected by approximately $1 million, even if it exceeded forecasts.
“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.”
J&J Snack reported operating income of $1.83 million in the frozen beverages division, an increase of 113% over the $860,000 recorded during the same time last year. Sales reached $69.97 million, up 9%.
According to Mr. Fachner, J&J Snack Foods has promised to invest over $100 million to build seven new production lines, increasing capacity and improving automation efficiency.
He stated, “We have added one more churro line and two new frozen novelty lines to date.” “We will activate three additional lines focused on expanded pretzel production over the next six months.”
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.”