Welcome to the J & J Snack Foods First Quarter Earnings Call. My name is Richard and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Gerry Shreiber. Mr. Shreiber, you may begin.

Thank you, Richard. Good morning, everybody. And welcome to our first quarter conference call of J & J Snack Foods. I am Gerry Shreiber. I should be familiar with -- you should be familiar with my name and whatnot, as I have been in the same position now close to 50 years. Much to my pleasure, privilege.

Roughly. Yeah.

I -- let me begin with some commentary for the first quarter and I will begin with our forward-looking statements. Forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. You are cautioned not to place undue reliance on these statements, which reflect management’s analysis only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances that arise after the date hereof. Results of operations, net sales were $241 million for the quarter, a decrease of 15%. Sales continue to be challenged by the impacts of COVID-19, especially in our Food Service and Frozen Beverage business segments. Despite this environment, we are seeing gradual improvements in sales trends since quarter four 2020 where sales were 19% worse than last year. Our retail business responded well driving 33% growth. Operating income was $578,000 for the quarter, a decrease of $21.1 billion as declining sales pressured production efficiency and expense leverage. Now I’d like to review the results of each of our business segments and let me add just one comment. Our Food Service business, which represents about 70% of our total sale was significantly impacted during the past year because of sports and leisure cancellations and sales reductions, movie theaters and to a lesser extent schools. Food Service, sales from Food Service customers decreased 30% for the quarter and improving trend when compared to quarter four 2020 that declined 21% versus the prior year. Key customer venues and channels like theme parks, schools, restaurants, sports and leisure, and theaters continue to operate at limited capacity impacting Food Service sales. Soft pretzel sales decreased 35% and frozen juices and ices decreased 11%. Churro and funnel cake sales were down 30% and 49%, respectively. Sales of bakery products declined 8% as the virus impacted traffic, purchase choices and frequency in this part of our business.

Great. Thank you. Good morning. And thank you for joining us on our first quarter conference call. We are thrilled to have you listening in and we thank you for your interest in J & J Snack Foods. With us today in the room and in addition to myself and Ken Plunk who were announced earlier, we also have Marjorie Roshkoff, our Vice President and General Counsel; we have Bob Pape on the line, our Senior Vice President of Sales; and we have Bob Radano, our Senior Vice President and COO. I’d like to make just a few more additional comments before we open it up for questions. But as many of you know, we are living in some unprecedented times. Our lives have been impacted not to mention our business this past year. How we work? How we communicate? Our shopping habits. How we entertain ourselves and just simply how we stay connected with one another such as the Zoom calls we are all going through. I believe our company has done an excellent job working through the challenges. It’s been a consistent daily focus on the basics of our operating and our business. I have to tell you, I am so proud of our employees and their unwavering commitment to serve our customers each and every day. We continue to make progress despite the challenges of COVID-19. In this first quarter, traffic and key Food Service revenues that comprise of two-thirds of our sales continue to operate at substantially reduced or limited capacity. This was even more pronounced during the holiday season where many of these venues rely on seasonally higher traffic and sales. Consumers just simply stayed at home during this time. Our retail business though continues to thrive with another 33% growth this quarter. Unfortunately, that wasn’t quite enough to overcome the impact on our Food Service and Frozen Beverages, but we are just delighted with the way that group is performing.

And thank you. And our first question on line comes from Rob Dickerson. Please go ahead. Your line is open.

Hi. Great. Thank you so much.

Good morning, Rob.

Good morning.

Good morning, Rob.

Good morning. So, I guess, my first question was, I guess, around sort of cadence to the quarter. I think, last quarter you have had said, maybe the kind of, let’s say, first four weeks, it looks like sales were down approximately 25%, but maybe they improved a little bit in November, December given the total Q4 result. However, you are saying there was some pressure in the holidays -- during the holidays. So just curious if you could just provide some color, if you saw things maybe improve a little bit or maybe improve less than you had thought and kind of like where things stand now versus kind of where you thought they could have stood just a few months ago?

Right. Rob, your statement was really accurate. We did see a continual improvement as we came into the quarter, and October and November held up pretty strong, and then we got into the holiday season and some of our just key customers that we have that really count on that holiday time such as theaters or some of the mass merchandisers just did not perform, as well as they anticipated during that particular time. And of course, as you know, we also had another spike in COVID during these times as well and that didn’t help in anyway. But we are confident that shopper will come back as those locations open back up and we think that this quarter will continue to improve again.

All right. Great. Thanks. And then I guess secondly, I will admit, I was actually in a movie theater this past weekend. The family found…

Thank you.

…space at least -- yeah. And…

Thank you, Rob. Rob, did you buy an ICEE and a pretzel? That’s all I want to know.

Yeah. Actually, well, that was my question. Is there this big beverage kind of top off that’s in the store now? So it’s easier to actually order and you can buy these massive ICEE frozen drinks? And I was just thinking, okay, well, obviously, we have seen the news coming out of AMC the past couple of days in terms of financing. There’s still demand for movie theaters overall kind of longer term. But then, I think, is there any way that you can adjust the strategy in terms of your offerings, not just in some of these higher traffic areas, but just kind of overall, right, like, hopefully, movie theaters come back. Hopefully, traffic picks back up again. That’s the expectation kind of across the Board. But just we have been in this now long enough that I would assume as you sit down and think about kind of the go-forward strategy and what some of your product offerings could be. You have to ask yourself the question, is there a way to adjust the offering somehow or just the strategy somehow. So, I don’t know, maybe not. But I am just curious as you think about that, are there ways that you can either adjust the strategy, maybe you can do bolt-on acquisitions to kind of position you with a more diverse way or maybe it’s just a -- just sit it out basically and wait for the traffic to come back. So that’s…

Right.

I know there is lot of things.

No. You are kind of reading from our playbook, Rob. You are absolutely right. We are adjusting to look at other avenues outside of the theaters and are having some success with that. That’s not a -- it’s not a particularly quick fix, because there’s a period of time where you have got to sell and then install and test. But we have some really good tests going on in the ICEE business right now and that group and that sales group are really focused on other channels to grow our business within. And we think that we will have success doing that, and along the way, we believe these theaters will continue to open. But you are right we can’t sit back and wait for that. We have to go do something about it and that’s exactly what we are doing.

All right. Great. Thank you so much. I will pass it on.

Thank you.

And thank you. Our next question on line comes from Ryan Bell. Please go ahead.

Hi.

Good morning, Ryan.

Did you hear that?

No. Ryan, I didn’t quite understand the last section of your question. It faded out a little bit. Can you repeat that?

Sure. The last part that I was asking was, quarter-to-date how are the parts of your business doing? Is there maybe any number you could provide about the actual size of the improvement or how the decline is going quarter-to-date in terms of Food Service and the ICEE business?

Quarter-to-date meaning quarter two?

Yeah. Through January.

Yeah. Ken, do you want to touch on it?

Interesting question. I think probably the right answer to that, Ryan, is it’s about the same. If you think about Food Service was about 13% less than last year. That was an improvement versus Q4, where Q4 was 21% below last year. It’s so early in Q2. I think in terms of your -- the way to think about it in your modeling, I’d probably still think around that 13% to 15% below the base year until we start to see more widespread access to the vaccine and recovery of that. But it’s still a bit early just to kind of get into the entire quarter right now.

This is Gerry Shreiber. I have to comment. I assume a lot of you or maybe most of you are sports fans. But do you remember the year 1994, when suddenly all of baseball went on strike and it did not recover till two years later. We are not having quite that impact in there, but basically so many of our venues were completely shutdown. Now, they are opening up and we fully expect that we will be back to last year’s level over the next year or so.

Okay. That’s helpful. And would you may be able to provide some broad guidance or insights about the expectations for cost management throughout the balance of the year. I know that we are going to be lapping some significant declines last year where the closures are being felt more poignantly. So, is there any way we can think about the trajectory of gross margins throughout the year?

Yeah. I mean, we pointed this out I think in the press release particularly around gross margin. Those margins get challenged when the biggest contributors to your sales declines are soft pretzels and ICEE beverages, both of which have some of the healthier gross margins. So when that mix changes, that has an impact on gross margin and until we see those businesses turn around, they will continue to have a similar mix impact. The other thing particularly as you look at Q1, Ryan, is again, as we think about the magnitude of the impact of COVID, obviously, the more that heightens, the more that impacts our labor force. And when it does that and people are concerned about coming to work, we have to often look at ways to manage that labor in a different way and sometimes that’s a little more expensive, whether that’s temp labor or overtime just because of the concerns the virus is creating.

Ryan, that certainly had an impact in our first quarter and it’s something that we are working really hard at the remainder of the year to get a better handle on. But just as Ken has said, the labor shortage as we are all aware of out there and then when COVID spikes again that increases. We are still certainly dealing with that issue and hope that some of those issues will go away as the vaccine gets more and more in place.

Yeah. And then the…

Thank you. I think…

… other thing I’d add, I mean, we spent $730,000 roughly on various health and safety matters around COVID. It actually heightened from mid-November at the end of December with the virus getting worse. So that’s what $0.035 per share impact on expenses. And if you were to take that $730,000 out of our expenses compared to last year, we are much closer to leveraging. So I am actually quite proud of the way we pull back on expenses as sales have come back. We actually took $6.6 million of expenses out in Q1, needed to take roughly $7 million out to stay leveraged with the prior year and so you look at that as kind of the COVID impact. I think a way to think forward is as long as the virus is in the state as that, we are going to continue to spend probably roughly $150,000 to $200,000 on all the health and safety matters. So that will be kind of a lingering impact on expenses until we kind of move past that.

Thanks.

Otherwise, we are always sharpening our pencil, Ryan. When you look at, the way business comes in, the way margins come in, Dan and I and the team have -- are talking about kind of every rock that we blow open to continue to get precise on where we can dial expenses back a bit more. But it gets complicated. When you have sales loss of that magnitude, to calibrate down still stay true to our long-term vision for the company and the unknown with the virus, dialing that perfectly is a challenge. But, so I’d say short-term for Q2, I expect us to get better expenses, but it’s going to be marginal and I think as we continue to figure out how to manage this in this COVID period.

Okay. Thanks for all the color. And I think one last one for me and I am thinking about capital allocation now, has anything changed? Maybe talk about acquisitions in Food Service versus in retail? And then maybe just a broader thought process about the M&A landscape now versus prior to COVID?

Yeah. That’s a great question, Ryan. We are working really hard at understanding capital allocation, probably, I think better than we ever have and we have put together a good group that is evaluating each one of our plants and where we can best invest in ourselves to get the right kind of return and the right kind of savings from it. And so we are going to continue to do that and have done some things this past quarter that, again I am really pleased with and I am pleased with this group that we have put together and the way that we go about looking at it. In regards to M&A, we are going to continue looking. We are looking today. We have had several conversations with different people. We are going to be careful about how we do it. But when we find the right one, we are going to be ready and prepared. That’s part of the advantage we have with the strong balance sheet and cash that we have is that we can be in a position to do that and yet we want to do it wisely. And so we are doing that and there’s been some opportunities brought to us and we are going to continue to look until we find the right one. It may cause us -- so the second half of your question, it may cause us to take another look at retail, where in the past maybe we didn’t look at that as strong and we might look at that even closer now with some of the opportunities that’s being brought to us. But, yeah, we are going to continue to be aggressive there.

But I might add, as part of the retail surge was due to the closures across the Board in the Food Service group. When you consider there was no sports, there’s no leisure, the amusement parks basically shut or slimmed down, movie theaters. So that was a major, major impact. Fortunately some of that spilled over because our brands, our franchises with SUPERPRETZEL and ICEE and whatnot are not only the leading brands, but the leading brands with significant barriers to entry against anything that maybe considered competing. We are going to continue to emphasize that and build on it.

Okay. Thanks for the questions. That’s it for me.

Thank you, Ryan.

Thanks, Ryan.

Thank you. Our next question on line comes from Jon Andersen. Please go ahead. Your line is open.

Hey, Jon.

Good morning, Jon.

Hey. Good morning, everybody, Gerry, and congratulations. Dan and Ken, it’s good to hear your voices on the call.

Yeah. Thanks, Jon.

Likewise, yours too.

Got a few questions. I will start with just the sales cadence. I know it’s been asked a couple of times, but I will come at it from a different angle I guess. As you look to the balance of fiscal 2021, we have had two quarters now both the fourth quarter of 2020 and the first quarter of 2021, where we have seen some sequential improvement in the downtrend has gotten more moderate. As you look forward through the balance of the year, do you expect that trend to kind of continue at the same kind of pace? Kind of where do you or where do you expect maybe the kind of end the fiscal year coming out of the year? Any kind of color you can help us with there? I know it’s a very difficult question and in some ways an unfair question, but just looking for your impressions right now of how the next two or three quarters go with respect to sales trends?

Jon, it’s a great question and I am glad you asked it. Our sales have continued to grow even during this COVID time as a percentage against prior years and we did that during this quarter as well. And I would expect, at this point, that you will see similar to where we are at right now on a go-forward basis. We have a lot of really good things going on underneath that I believe will continue to grow and boost up those sales. And then if we can get a lift from COVID, which is that great crystal ball, but if we can get a lift from that, that vaccination and some of the locations, our Food Service, both on the ICEE and the J & J side open back up, we might even beat where we are at today. But we feel good about it, I mean, we always feel good about where we are at right now and what we think the rest of the year could look like.

Okay.

Yeah. I would -- I am sorry, Jon. I would second that. I think we are very optimistic on improvements. And I think part of it, Jon, is customers and consumers are figuring out as best they can how to survive and manage and entertain themselves in this environment. So I think part of what we all see is people figuring out whether it’s the mask wearing or the shells or whatever and people fighting for business. You see people gradually getting better and better and better at managing within that environment. So even if the virus doesn’t respond quickly, I still think that people are going to continue to do that, because I think they are tired of staying at home and they are trying to figure out ways to do that. And you still got schools that you still got schools at a little over 50% who are still studying from home. But that is better than it was a few weeks ago. So more kids are going to school. But still a number relative is still not even 50%.

And there really is that pent-up demand for people to get out and they are learning how to do that. And we saw that even down at Universal Studios over the holidays, where they had to shut the doors down because they maxed out their people three or four different days during that time of the year. So, there is that pent-up demand and people are learning how to do it and we think that will get better throughout the year.

Makes sense. You mentioned, Dan, earlier some of the things you are doing to maybe reorient the portfolio and take advantage of some opportunities, given the kind of the backdrop. ICEE being one of them and finding new use occasions for ICEE. Can you talk a little bit more about that specifically what you are doing there? And then also more broadly, I mean, some of the new product activity that you are seeing and excited about. There’s the handheld product, which sounds like it’s performing quite well as one example. But just talk a little bit about some of the repositioning you are doing and maybe some new product activity or whitespace that you are going after in channels like health care or other areas you might be focused on.

Yeah. I’d be happy to do that. So, a few different angles there. First I just want to reiterate how proud we are of the retail group that again had sales increase of 33%. And one of the really promise -- promising things about that as you kind of recalibrate a little bit, is that our SUPERPRETZEL brand increased 41% in the quarter in the retail side. So that was just good to see, as well as our frozen juice and ice is up 52%. So we are doing some things within those areas that are growing to continue to see that growth -- continue to grow I guess. And then on the ICEE side, when you ask about that, so certainly we have concerns about how long would this take for the theater group to open back up. We have had lots of conversations with them. We believe that it will open back up but it’s going to be slow and we believe there’s a pent-up demand just like Ryan saying earlier that he went this weekend. I think there’s people who want to get out there and see the movies. We just don’t know how quickly that will happen and so we really have tried to shift and put our focus on new sales and new channels. One of the areas that we believe is a natural for ICEE that is in my opinion a little bit underdeveloped is the whole fast casual, or QSR side and so our guys are out there knocking on doors each and every day and we have some tests in place that we hope that will come through. We have a lot of really good things going on on that side. We are making sure that we are redeploying any equipment that…

Yeah. I think really, I mean, we’ve been working on the data that we are now receiving to be able to pinpoint where our biggest opportunities are. And as a result, in the healthcare segment for instance, we are now targeting the places that we know through our new information that, we have the highest degree of success or volume that we can secure. And we have already had products that are tailored to that business and also a healthcare setting depending on what it is a hospital. There are multiple opportunities within those hospitals to sell our products. So we feel very comfortable about that. Our health care business grew by 10% last year and we think that that could continue to grow.

Great. That’s terrific color. Thanks both of you. Last question I have is, with the COVID impacting earnings over the last year or so that your dividend has gone flat after a long history of growth. So I am just wondering do you think the Board -- is the board -- is management and the board at a point where they will feel comfortable raising the dividend again? Will it be a year, will it be sooner? Do you have any thoughts on the dividend and when we could see hikes again?

Yeah. Jon, I think that’s a fair question. We had lots of conversation about it when we kept it at $0.575. And in a lot of ways, we are proud to even keep it at that number as opposed to lowering it in some ways. There was discussion about whether we should continue to increase it and I am sure that there will be more discussion around that. I don’t know that we have drawn any line in the sand that that’s where it’s going to stay. Is the potential for that to happen an increase? Yes. Can I predict exactly what the Board will think on that? No. But I do know there will be lots of discussion around it and if that’s -- if we end up thinking that’s the right thing for us to do as a company, that’s what we will do. We are continuing to build cash and so that’s certainly a way to use some of that.

But would it be fair to say and I don’t know, Gerry might have a thought on this too, that as your business recovers from COVID, as earnings recover, that your dividend policy, which has been to you know increase the dividend consistently year-to-year, that policy is still intact?

Yeah. I will let Gerry comment on that.

Nothing is certain, of course. But we first started our dividends about 10 years or 11 years ago and we increased it every year for nine straight years and I would use that as a benchmark for the future. We believe we are going to recapture the sales lost and we believe that in accordance with that our earnings will grow. So you guys are smart. You guys have been following us. You know that we generally do what we say we are going to do. So I would put that in your models and it’s not for certain, but it’s something that you can relax with.

Okay. And I kind of lied, I have one more question if I could squeeze it in.

Go ahead.

I think there’s been some inflation in commodity -- certain input costs, maybe certain ag inputs, maybe distribution. How -- what are you seeing and how are you thinking about that? And is pricing going to be necessary, if so, are you in a position to get pricing that kind of thing?

I will touch on the pricing and then I will let Ken touch on the commodity pricing. In regards to the pricing, we are watching it really closely and what we can and can’t do with the customers. And of course, we are in this COVID environment. So in some cases you can take some price, in some cases it’s really difficult. It’s never an easy thing. We are taking some pricing on the ICEE side of our business and feel that we can do that. We are evaluating it really closely on the J & J side and we will continue to work on it. And then, again, we are watching commodities closely. We put together a group to do that and I know Ken just reviewed that. And Ken, I will let you just touch on that.

Yeah. I mean, I am sure you are seeing the same thing, Jon. And to Dan’s point, it’s something you have to monitor very closely and really look at kind of, I would say, consistency and it is up for a month and then back down. So it’s something we monitor over time, and yeah, there’s areas where we are seeing those increases. We are also trying to look forward out, even the next quarter. And depending on kind of the trend of how that plays out. We will have to step back and decide what’s the right thing to do in terms of passing that on, but we have got teams and resources that that’s what they do every day. So, I would just say, yeah, there’s some increases, we are monitoring it closely and I think we are going to have to kind of make a call on it based on what we think is going to be the more longer term trends in some of that.

Okay. Thanks so much for all the time and we will talk soon. Good luck, guys.

Thank you, Jon.

Thanks, Jon.

Thank you. Our next question on the line comes from Todd Brooks. Please go ahead.

Good morning, Todd.

Hey. Good morning, every -- good morning, everybody. Great to talk to you. Appreciate it.

Good morning.

Likewise.

This is Gerry. You are talking with? Oh, CL…

I am with CL King & Associates. Yes.

You are researching some much closely and I want to congratulate you on not only understanding our business, but developing some of the storylines too.

Oh! Gerry, I appreciate that. Thank you for that. Few questions this morning if I could. One, I was pleasantly surprised by the sequential improvement in the Food Service segment. And you did speak about some of the Food Service end customers in what’s traditionally a strong holiday period seeing a drop off in December as COVID flared. And I am wondering if we can look at Food Service and talk about the growth or the sequential improvement that you saw. Is this a sign that you are gaining market share with your existing customers or is it more a function of what Bob was kind of highlighting as far as new verticals, new customer doors being opened or a combination of both?

Yeah. I think it’s a good combination of both, Todd, and we -- I think we are seeing. I know we are seeing some good new customers come on and you highlighted it. It was encouraging to see us at 13% as opposed to 20%, 21% before. And so we are hopeful with that pieces of the business that it’s coming back maybe quicker than what might the ICEE side be coming back, because it’s not as heavily related into the theater groups. And so, yeah, we are seeing an uptick in the business that we are doing business in and we are also gaining some ground in other areas.

And Dan, just to follow up there, where you are seeing market share gains with existing customers, is there any function of survivor bias that you are seeing in your industry or maybe smaller players are falling by the wayside or couldn’t keep the service levels as high as they traditionally seen and you guys are swooping in and grabbing that share?

You know what I think that’s keeping up with the demand as the mix change is a challenge for everybody. I do like to think that our company might be stronger on that than others. We were fortunate -- and I am just going to highlight this one more time, we are fortunate that the business has been run so carefully in the past that we have a strong balance sheet that we didn’t have to cut so deep that we are not able to keep up with the demands that are out there. And so I think that does play to our advantage, Todd.

Okay. Great. Second question I had is, since we have all last gotten together on an earnings call, we have obviously had the announcement and approval to vaccines, the pace that they are giving in arms, we can all debate that. But once you got some color and your customers got some color around the certainty of vaccines and the approval, how -- was there any change in your discussions with your customers as far as, okay, we don’t know if this is going to be six months or eight months but this is what we want you to be ready to do. Did you see a change in kind of customer behavior and their ability to look forward planning-wise once the vaccines were released?

Sure. Yeah. Sure. We did. And again, fortunate that we didn’t have to cut so deep that we couldn’t have these salespeople out in front of customers and they have been really good at doing that and getting in front of the customers and having strong conversations. And sure as the vaccine starts to get announced and people start to see some hope that gives everybody some encouragement, which is exactly why we are -- where we are at today. We want to be careful that we don’t make steps that prevent us from being able to gain that market share that we are doing today and in the future, and so, yeah, we are encouraged by it.

Okay. Great. And then two questions on ICEE to wrap up my queries for the day. One, if we can talk about the -- you called out a loss of a service customer in the quarter and that that was the majority of the decline in revenues year-over-year on the repair and maintenance side. Is that a -- is it just a periodic loss where you lost a business for this one quarter or was this customer where that loss will carry forward now and we need to…

Yeah. We probably…

… account for that -- go ahead, sorry.

We -- no. I am sorry. I interrupted you. But I will just repeat it. I will just go forward anyhow. We probably didn’t define that well enough. It was really the loss of a preventative maintenance program with a customer. So as we go through this COVID time, on our service side of the ICEE business, some of our service is preventative maintenance contracts that we have. And one of the ways that customers have saved some costs during this time is to cut back on that preventative maintenance. Now at some point I think that will tick back up, and I also think that at some point they will potentially get more service work because of the non-service business or PM maintenance.

Yeah.

And Dan, just to follow up there. Sorry, go ahead, Ken.

I was just -- Todd, just to add. In the predominant impact of that was in the Florida region for this customer. So, it’s not nationwide. It’s really in the Florida region they have made those decisions, not a national impact.

But…

And these preventive maintenance contracts, are they annual contracts, so all that impact hit here in the December quarter?

They are typically a quarterly preventative maintenance program, right? And one of our major customers have shifted to a biannual preventative maintenance program.

Okay.

And then we also have…

And then…

We have some preventative maintenance that we do through the theater groups and one of the larger theater groups are shut down at this point.

Okay. And then…

Yeah. This is Gerry.

Hey, Gerry.

This will fall -- and that might fall out, if we are providing service to a customer on a non-contractual basis, they are going to pay an hourly rate plus the time. Basically when we enter into a service agreement, it’s to meet their needs so that they can project with their cash flows and whatnot.

Okay. Great. And then the final question on ICEE and thanks for letting me get four in here. As you have been obviously COVID impacted in that business and running it in a tough volume environment? I guess have you found efficiencies or ways to run the business where, as you think about what it takes from a revenue base to rebound back to kind of breakeven? Is it still in that kind of mid-$60 million range or what are you thinking for breakeven in the Frozen Beverage business?

Yeah. I don’t know if we have it defined quite like that. I will tell you we are continuing to find efficiencies and create reductions wherever we can in that piece of business. We are heavily focused on it. Ken and I sat down with that group last week and went through the numbers with a fine-toothed comb, and we are going to continue to do that. We are operational people. I would just say this, I am really proud of our operational people because they are working hard at reducing every spot that they can and I think they are doing a nice job with it. It’s hard to keep up with the sales decline on that side and so we are continuing to watch that very, very closely. I don’t know if we have defined the exact dollar amount though, which it is the breakeven and when we do I hope that I can lower it, right, so.

Yeah.

Yeah. And we really looked at that from a P&L standpoint across the business. I mean it’s not just ICEE isolated thing. I mean, we have got to look at the way our business model is structured. How do we kind of leverage expenses and manage those to an efficient level across the Board. And I would just go back to the point I made, while we are continuing to kind of dig into everything we can. We did bring expenses down just under $7 million and that included an incremental $730,000 of COVID expenses. So, the team responded and as long as sales stay where they are at, we have got to continue to work that muscle. But I am actually quite proud of some of the responses I have seen.

Okay. Great. Thank you all and I look forward to getting to the backside of this pandemic.

Yeah. As we do -- as do we, Todd. Thank you.

And thank you. Our last question online comes from Robert Costello. Please go ahead. Your line is open.

Hello.

Hi, Bob. This is Gerry. How you been?

Good. Good. I have a couple of questions on the manufacturing facilities. Your -- one of your big C store customers is building down in Florida. Are we any closer to servicing them with on the bakery side?

We are…

We are not. We are servicing them up here in the Northeast for all their bakery needs plus pretzels, plus Frozen Beverages. We are in constant communication with the group in that southeast region in here and we are looking forward to continuing those discussions. And basically what do we do we grow our sales. We have been growing across . So we expect that area to fall in line over the next few years.

Right. On the number of facilities, you talked about rationalizing your costs and you have got 18 warehouse in your annual report and 177 on the frozen foods -- to the Frozen Beverage side. Going forward, is that number expected to go down as you do this evaluations or do you think it’s going to stay pretty much the same?

Stay same.

I think it’s pretty much the same as it is today, Bob. You know that we shutdown a plant up in the Chicago area earlier in 2020 and we have consolidated much of that into the plants that we are making today. So we are still making the same products that we were making before, but in the plants that we have now. I would not see that changing much in the near future.

Right. One other question. On your retail customers, is there any closures or any that you can highlight or you just not name, but in general with -- I was driving to work today and one pizza chain announced bankruptcy. Is there anything out there that we have to be aware of with regards to the customers’ financial situation?

Nothing’s been out there what you would be aware of already. We feel pretty comfortable with the customers and who we have talked to. And if there was one channel that we have our biggest concern about that would be the theaters. And you are probably reading the same thing I am. AMC got some additional funding and I know their CEO was announcing last night that they believe that they are good through 2021. And so that would have been our biggest concern and it feels like that’s cleaning up.

Right. Last question, on the bakery side, I saw the pricing went up, like, on the doughnuts about 11%, 10% in the last three months to six months. Is that something you feel comfortable going for with higher commodity costs, you still have flexibility if the costs go up?

Yeah. As Gerry’s saying and I agree with that, yeah, that’s typically the retailer who makes that decision, not us, and so I can’t really speak for them. We talked to commodities earlier and we are watching that really closely and we will continue to do that. But what you are referring to there was not our decision. That was the retailers.

All right. Thanks again.

Thank you.

You are welcome.

And we have no further questions at this time.

Thank you very much, Richard. And thank you, everybody, for joining our call today. We really appreciate your interest in our company and look forward to getting back together with you in another three months.

Take care, everybody.

And thank you, ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect.