PENNSAUKEN, NJ. — When the pandemic hit, food manufacturers doing business at restaurants, theme parks, stadiums and movie theaters took a hit. J&J Snack Foods Corp., which generates more than 60% of its total sales through foodservice channels, felt the force of lost revenue streams more than most.
Two years later the company is identifying ways to bounce back, including raising prices and cutting costs.
Net income at J&J Snack Foods in the first quarter ended Dec. 25, 2021, totaled $11.09 million, equal to 58¢ per share on the common stock, up sharply from $1.78 million, or 9¢ per share, in the same period a year ago. Net sales increased 32% to $318.49 million from $241 million.
The top-line results represent the highest fiscal first-quarter revenue in the company’s 50-year history.
Foodservice operating income at J&J Snack Foods rose 46% in the first quarter to $9 million from $6.79 million. Sales increased 32% to $211.73 million from $160.43 million. Within the foodservice division, sales of bakery products were $107.83 million, up 21% from the same quarter a year ago, while sales of churros surged 69% to $19.49 million from $11.54 million. Sales of soft pretzels increased 54% to $50.42 million. Sales of handhelds, meanwhile, increased 5% to $18.5 million in the quarter.
“We are excited about what foodservice is doing and the growth that it’s having,” Daniel Fachner, president and chief executive officer, said during a Feb. 1 conference call with analysts. “I do think there’s a little bit of pent-up demand that’s going on out there. But I also think that our products are a product that people are now starting to search out. And you know what’s exciting to me probably more than anything is I’m seeing some great growth on our core products. It’s not just new things that we’re introducing, but it’s really some of our core products like the pretzels and the churros that are really having some strong improvement over the quarter. And that’s encouraging as we get deeper into the year. So I really am encouraged by what we’re seeing and anticipate for us to be able to continue to have growth in that category or segment.”
In the retail supermarket segment in the first quarter, operating income was $4.98 million, up 6% from $4.72 million in the previous year’s first quarter. Sales increased 9% to $42.7 million from $39.09 million. Within the retail supermarket segment, sales of soft pretzels rose 17% to $16.19 million. Sales of frozen novelties increased 16% to $17.8 million, while sales of biscuits rose 8% to $8.27 million. Sales of handheld items dropped 54% to $1.28 million.
“Growth was driven by a 17% rise in soft pretzel sales, helped by our increasingly popular filled pretzel bites,” Mr. Fachner said. “Frozen novelties are also continuing to perform well, posting a 16% year-over-year increase. We continue to gain placements and new selling opportunities at major grocery retailers through products like Luigi’s flavored ice, Whole Fruit bars, Dogsters and Icee branded novelties. The retail segment continues to reflect sustained consumer at-home consumption. Given the increase in remote work and evolving consumer preferences, we believe these trends will continue to benefit our retail business going forward.”
In the frozen beverages segment, J&J Snack posted operating income of $860,000, which compared with a loss of $10.33 million in the same period a year ago. Sales increased 54% to $64.06 million.
“Our business is now starting to produce results consistent with pre-COVID sales as the theater industry continues to improve and consumers enjoy travel and outdoor activities,” Mr. Fachner said. “Our sales for the quarter exceeded the same period last year by 54% and were 6% above a very strong Q1 2019.”
Mr. Fachner said J&J Snack experienced double-digit levels of inflation across a number of areas in the first quarter, including an 11% spike in ingredient costs and 10.5% increase in distribution expenses compared with the same period in fiscal 2021. To help offset the short-term challenges of the inflation he said J&J Snack has identified a number of opportunities to reduce expenses, including procurement, R&D, production and distribution. J&J Snack has four new production lines scheduled to be activated in fiscal 2022 that will leverage automation to improve efficiencies, he said.
Another area of focus for J&J Snack involves price increases across nearly all its categories. Mr. Fachner said the company expects the price increase initiatives to improve gross profit margins progressively over the second quarter of fiscal 2022 and into the back half of the year.
The company also plans to continue building and evolving its brands.
“We have over 10 iconic brands that are leaders in their respective segments,” Mr. Fachner said. “And in some cases, these brands even define the segment. So there are a number of significant opportunities to leverage these brands and grow organically.“Within foodservice, we are very bullish on churros and expect to launch a new branded churros product to target major foodservice customers in fiscal 2022. We are also expanding our powerful SuperPretzel and Bavarian Pretzel brands with individually wrapped salted pretzels and filled pretzels. In the retail segment, we are leaning on the super brands, including SuperPretzel, Luigi’s and Dogsters to both create and grow market share through new products, flavor extensions and improved packaging. Finally, in our frozen beverage segment, we remain focused on expanding our Icee brand and have recently introduced Icee products into QSRs and fast casual dining. As previously reported, we have seen great success on this front in places like Krystal Restaurants and Golden Corral. We have a good pipeline with customers testing the Icee products, and I am pleased to report that our customers are already seeing marked upticks in beverage consumption.”