• Revenue: Increased 4.1% to $362.6 million.
• Gross Margin: Declined to 25.9% from 27.2% in the prior year.
• Food Service Revenue: Grew 4.5%.
• Retail Revenue: Increased 2.2%.
• Frozen Beverage Revenue: Increased 4% with a 10% volume increase.
• Operating Income: Declined to $6.2 million from $9.7 million.
• Net Earnings: $5.1 million compared to $7.3 million in the prior year.
• Earnings Per Diluted Share: $0.26 versus $0.37 in the prior year period.
• Adjusted Earnings Per Diluted Share: $0.33 versus $0.52 in the prior year quarter.
• Adjusted EBITDA: Declined to $25.3 million from $30.2 million.
• Free Cash Flow: Generated approximately $16 million.
• Cash and Liquidity: $74 million in cash and no long-term debt.
• Stock Repurchase Authorization: New $50 million authorization approved.

• Warning! GuruFocus has detected 3 Warning Sign with JJSF.

Release Date: February 04, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• J&J Snack Foods Corp (NASDAQ:JJSF) achieved a 4.1% increase in revenue to $362.6 million, marking a Q1 record.
• The Frozen Beverage segment delivered record first-quarter results, driven by a 10% volume increase and a rebound in theater traffic.
• The company saw a 9.8% increase in frozen novelties, with significant growth in Dippin' Dots and Dogsters.
• J&J Snack Foods Corp (NASDAQ:JJSF) announced a new $50 million stock repurchase authorization, reflecting confidence in long-term value.
• The company has implemented additional pricing actions in Q2 to mitigate input cost inflation, showing proactive management.

Negative Points

• Gross margin declined to 25.9% from 27.2% due to unfavorable sales mix and input cost inflation not fully offset by price increases.
• The company experienced a decline in churros sales by 9.2%, attributed to the loss of a limited-time offer with a quick-serve restaurant.
• Foreign exchange headwinds, particularly a weaker peso, negatively impacted the Frozen Beverage performance in Mexico.
• Operating income for the quarter declined to $6.2 million from $9.7 million, reflecting near-term pressures on profitability.
• The company faced challenges in the bakery segment, losing some seasonal business with a declining margin profile.

Q & A Highlights

Q: Can you provide a breakdown of the gross margin decline year-over-year, specifically regarding commodity, foreign exchange, and mix impacts? A: Shawn Munsell, CFO, explained that about 80 basis points of the decline were due to the gap in pricing relative to input costs, with the rest attributed to mix changes, particularly in the bakery business. The foreign exchange impact, mainly due to the peso's weakening, was nearly $1 million.

Q: How do you plan to mitigate the commodity pressures, and what is the outlook for gross margins for the full year? A: Shawn Munsell stated that recent price increases, mostly implemented in January and February, would help cover a significant portion of the gross margin contraction. Although not fully offsetting ingredient cost inflation, these actions are expected to close about 80 basis points of the gap experienced in Q1.

Q: Are there any concerns about consumer response to price increases, and how are you managing potential volume impacts? A: CEO Dan Fachner noted that while they are monitoring consumer reactions closely, the price increases are necessary due to industry-wide cost pressures. They have been selective in implementing these increases and continue to focus on growing volume across the organization.

Q: What factors contributed to the gross margin contraction over the past two quarters, and how are you addressing them? A: Shawn Munsell clarified that the contraction was not due to visibility issues but rather the time required to implement price increases. Dan Fachner added that contractual and timing lags also played a role, but they expect these issues to be resolved moving into the second quarter.

Q: Can you provide more details on the recovery in the convenience store channel and what's driving growth there? A: Dan Fachner highlighted the growth in their pretzel business within the convenience store channel, driven by a strong team that has secured new business over the past six months, leading to a recovery in this segment.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.