Good day, and thank you for standing by. Welcome to the J&J Snack Foods fourth quarter 2025 conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, Reed Anderson with ICR. Please go ahead.

Thank you, operator, and good morning, everyone. Thank you for joining the J&J Snack Foods Fiscal 2025 Fourth Quarter Conference Call. Before getting started, let me take a minute to read the safe harbor language. This call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements made on this call that do not relate to matters of historical facts should be considered forward-looking statements, including statements regarding management's plans, strategies, goals, expectations, and objectives as well as our anticipated financial performance.

This includes, without limitation,

our expectations with respect to the success of our cost savings initiatives, and customer demand improvements in the sales channels in which we operate. These statements are neither promises nor guarantees and involve known and unknown risks, uncertainties, and other important factors that may cause results, performance, or achievements to be materially different from any future results, performance, achievements expressed or implied by the forward-looking statements. Risk factors and other items discussed in our annual report on Form 10-Ks and our other filings with the Securities and Exchange Commission could cause actual results to differ materially from those indicated by the forward-looking statements made on the call today. Any such forward-looking statements represent management's estimates as of the date of this call today, 11/17/2025. While we may elect to update forward-looking statements at some point in the future, we disclaim any obligation to do so even if subsequent events cause expectations to change. In addition, we may also reference certain non-GAAP measures on the call today, including adjusted EBITDA, adjusted operating income, or adjusted earnings per share. All of which are reconciled to the nearest GAAP measure on the company's earnings press release, which can be found on our Investor Relations website. Joining me on the call today is Dan Fachner, our Chief Executive Officer along with Shawn Munsell, our Chief Financial Officer. Following management's prepared remarks, we will open the call for a question and answer session. With that, now like to turn the call over to Mr. Fachner. Please go ahead, Dan.

Good morning. I am pleased with our fourth quarter results. Despite a challenging backdrop during the summer, we delivered adjusted EBITDA of $57.4 million on sales of $410.2 million, down 3.9% on sales versus the prior year. As anticipated, over half of the sales decline was associated with our frozen beverage business, as we lapped strong volumes from the Inside Out 2 movie last year. Pretzel sales in both retail and food service rose in the quarter, reflecting progress on key initiatives to drive growth through innovation. Pretzel growth helped to offset some declines in frozen novelties, that we are addressing through marketing, trade spend, and innovation. For the full year, adjusted EBITDA was $180.9 million while net sales increased 0.5% to $1.58 billion. Although 2025 was a more challenging year, I'm encouraged by our operational execution in the second half, which puts us in a strong position moving forward. Some bright spots for fiscal 2025 include we achieved record sales, and adjusted EBITDA in fiscal Q3. We modernized our flagship Super Pretzel product with a recipe enhancement, and fresh packaging. The effort to reinvigorate our pretzel business led to a 2.7% pretzel sales increase in 2025 driven by a strong second half performance with sales up 8% compared to the prior year. The rollout of Dippin' Dots to theaters was substantially completed with a presence now in almost 1,600 theaters. Dippin' Dots Sundays were launched at retail with great success, adding approximately $5 million to the top line. We optimized our frozen beverage distribution and service network, which reduced expenses by 2% in the fourth quarter. Now I'll talk through some initiatives underpinning our optimism for fiscal 2026. To start, we have initiated a business transformation program which we are calling Project Apollo. That will generate sustainable efficiencies and…

Thanks, Dan. And good morning, everyone. Before I discuss the results, I'd like to note that we no longer allocate all corporate expenses to segment results. Starting with the fourth quarter, as Dan indicated, we are pleased with our Q4 performance. This methodology change has been applied to our historical results, with some expenses now captured as unallocated corporate expense. We believe we are well positioned early in fiscal 2026. 1.1% to $259.3 million as volume softness more than offset price increases. Soft pretzel sales increased 3.6% marking consecutive quarters of year-over-year sales growth. Bavarian pretzel sales continue to lead the growth. Pretzel dollar share increased 1% in the quarter. Frozen novelties declined 5.1% driven primarily by transition between Luigi's and ICEE branded products. We expect volumes to normalize over time. Churro volume declines primarily reflect the wind down of last year's LTO, with a major QSR customer. Retail segment net sales declined 8.1% primarily driven by lower frozen novelty volumes, partly offset by higher pretzel volume. We are taking action to support our frozen novelty business with shopper marketing and trade spend. And we see improving trends in the recent four-week data. Dogsters continues to stand out of the portfolio with sales and units up in the quarter and we anticipate additional distribution in 2026. Handheld sales declines reflect the temporary capacity constraints from the fire at our North Carolina facility last year. Soft pretzel sales increased 9% continuing the momentum from the third quarter. Frozen Beverage segment sales declined 8.3% attributed to lower beverage volume in the quarter. Foreign exchange translation did not have a significant impact on segment results in Q4. Beverage volume declined primarily due to lower theater sales. As we lapped the success of the Inside Out 2 movie last year. Box office sales for…

Operator?

Star 11 on your telephone. And wait for your name to be announced. To withdraw your question, please press 11 again.

Our first question comes from Jon Andersen with William Blair.

Hey, good morning. Dan, Shawn. Thanks for the question.

Good morning, Jon.

Hey. I wanted to start by getting you to mention the portfolio optimization work that is going on. And that's one of the reasons why the closure of the three facilities, you know, you were able to do that while kind of moving production on production that you're going to keep. Can you talk about the impact of that portfolio optimization on sales both kind of in quarter but then how to think about that perhaps going forward as we look to kind of 2026 and what impact that might have on the top line. We'll start there.

Sure, Jon. Thank you. That's one of the things that we've been talking about for a while, especially as it relates to our bakery group of optimizing that portfolio. And then as you look at our plans and the consolidation that we've been working on with the plants, it just made sense that during this timing that we'd be able to optimize the portfolio that we have and be able to consolidate some of these plants. The total impact of that, if you think about our business growing in that mid-single-digit rate year over year, might be a one, one and a half percent impact on that overall sales. But we're, you know, we're kind of bullish. It's the play that we called a couple years ago as we continue to build efficiencies inside our system and put in some new plants or new lines within our plants. And then rebuild the distribution system now allows us to be able to go back and optimize. And we're really excited about that work that's being done.

Yep. And in terms of timing, Jon, you know, think about that as being kind of near that full run rate sometime in Q2.

Okay. Helpful. And maybe stepping back even a little bit more, but I know you don't provide specific guidance. But as we exit '25 and think about '26 at this point, there are quite a few moving parts, some of which should be tailwinds. And some of which might be a bit of a headwind, but headwinds for the right reason in terms of the portfolio work. Can you talk at all about just kind of the macro environment?

And you know, kind of try and combine that to the extension to can't can with some of the internal initiatives. To give us some sense of how you're thinking about '26, both from a maybe a top line perspective, but also a margin standpoint because with the transformation work that's happening, I think some of the pricing that you've been able to implement and may implement to offset commodity costs. There's a lot of different ways that we could go with this. So just want to get your any commentary you could provide forward-looking around that. Thank you. Yeah. The macro environment, if I started there first, we still think that there's a consumer sentiment that is cautious. Alright? And so, we're gonna continue to watch that, especially as it relates to our retail side of our business. But we're really, really feeling some good momentum as we exit '25 and enter into '26 with some of the great things that we have going on. The plant closure benefits that we already talked about, some tremendous innovation. The teams are doing a really, really good job with that. And we feel positive as we move into 2026 and some even early results in Q1. And we think the theater industry is bouncing back some. So we feel good about the overall business as we move into it. You know, we think back at '25 and know, we think of some of the challenges that we faced there. And you kind of you can kind of tally it up to just a few primary factors. We had that big churro LTO that we're not facing anymore. We had some unfavorable foreign exchange impact. We had the chocolate cost inflation. Most of that hit us in the first half of the year. But when you really look at the second half of the year, you know, the second half EBITDA was just shy of what we delivered the second half of '24. So for all those reasons and the Apollo that we're doing, we're really we're a little bullish on 2026 as we turn that page.

Yeah. That's helpful. You'll see those closure benefits relatively quickly in the P&L. We just announced the closure of that third facility. So consider by the time you get to the second quarter, we should be at or very near that full run rate.

And Shawn, on that, you mentioned the full run rate. Do you mean on the plant closures or on the kind of the

Yeah. That's right. So on the plant closure component, the $15 million, we should be very near that full annualized run rate come the second quarter. And then the rest of those savings, you know, think about that, you know, sort of layering in in the third and the fourth quarter for the balance of the year.

Excellent. Super helpful. Just one more question. You talked about maybe a little bit of a near-term or short mid-term adjustment to your capital allocation approach with a greater focus on share repurchase. Can you talk about, you know, just kind of ongoing how you how you kind of evaluate that? And what kind of acceleration or step up we might anticipate there to the extent that you can. Comment on it. Thank you.

Yeah. So, yeah, for sure. And, you know, we said in the prepared remarks that, you know, we're we intend to accelerate our stock buybacks here in the quarter when the window opens. Just for context, and I'm not you know, I'm not implying that this is the amount by which we're we're gonna execute. But, you know, we've got about $42 million remaining on the authorization that we implemented earlier this year. We did buy back about $3 million worth of stock in the quarter. But notably, we pulled back a little bit on that.

You know, there was some M&A in the pipeline, and we thought that it would be a prudent thing for us to do. But we'll be buying back some stock this quarter.

Oh, maybe I have to follow-up on that one. You just mentioned M&A in the pipeline. Can you comment at all on that? Should we be thinking about some near-term actions there?

I wouldn't go that far, Jon. We were looking at a couple different things that just caught our attention. And so at the period of time where we had the window open to be able to buy some stock back, we were just trying to take a conservative approach there. But I would not go as far as to see anything imminent on the M&A front.

Okay. Thanks. And looking forward to a strong '26 behind these initiatives. Thanks.

Great. Thank you. Yep. Thanks.

Our next question comes from Scott Marks with Jefferies.

Good morning, Scott.

Good morning.

Hey. Good morning, guys. Thanks so much for taking the questions. Wanted to ask first about this efficiency initiative. You mentioned Project Apollo, and then you mentioned kind of a second phase where you're looking at some more automation and efficiencies within the existing or remaining facilities. Just wondering if you can share some more color on that and how we should be thinking about the timeline for that, maybe expected benefits. Thanks.

Yeah. Sure. So the way I think about that is probably gonna be later '26, but, you know, more likely 2027. And I'd say that that's gonna be a combination of just, you know, automation and process improvement. You know, once we get the consolidation work behind us, you think about it as just making those plants more efficient. You've got some plants that are gonna be taking on, you know, new production. So for 2027, it's, you know, for '26, it's, you know, optimize the network. And then 2027, kind of optimize further within the four walls of each of those plants.

That's helpful. Appreciate that. And then, next question for me. You touched on some challenges in the frozen novelty business within retail. Wondering if you can kind of share any color on what's been happening there and how we should be thinking about the stabilization of some of those.

Yeah. We touched on that at the end of last quarter. That's just a segment where the consumer probably has hit the hardest. And really saw those, most of that impact in July. The teams have been working really hard at greater marketing and trade spend within that category, and we're starting to see it come back. And we think that will continue to come back over this next year. We're actually feel like we've corrected the things that we needed to correct and I'm really pleased. I met with that retail team this last week, and they're doing a nice job. And I think we'll see that come back over this year. But it is an area where I think, just a consumer sentiment where you'll see the biggest summertime. So if you challenges. So don't forget that, you know, it's frozen novelties. It's this July, it's hard to make those back up in the back half of the quarter. But the teams are working hard at getting the right trade spend as it relates to those.

And again, it was in the prepared remarks, but we've got a great pipeline of frozen novelty innovation planned for '26 that's right just around the corner. So we're excited about that. And, you know, going back to your prior question, Scott, I failed to mention that I didn't want to imply that, you know, sort of, like, all the additional automation is gonna be in 27. If you look at the closure of the Colton plant and the consolidation into a nearby plant in California, that was taking what was basically production through manual process and converting it to almost fully automated process at the plant that it's being shifted to.

Got it. Appreciate the follow-up there. I'll pass it on. Thank you.

Yep. Thanks. Thank you, Scott.

Press 11 on your touch tone phone. Our next question comes from the line of Todd Brooks with The Benchmark Company.

Hey. Good morning, Todd.

Good to talk.

To you about.

Few questions kind of feeding off some of the things that we've heard earlier.

Shawn, can we talk about I think we were talking about the consolidation or the rationalization of some of the bakery products and dinging a revenue algorithm by maybe 100 to 150 basis points?

In fiscal twenty six. Can you walk us through, like, where does the algorithm stand now for a baseline level? Does still start in that mid single digit place and we back off to

Yeah. Yeah. That's right. Yeah. That's exactly right, Todd.

Okay. Great. And then the rationalization in Bakery, when like, how does that fall during the year? When should we see kind of the biggest drag from the 100 to 150 basis

Yes. You'll start seeing it in the second quarter.

Okay. Great.

Secondly, Dan, you've ripped through a list of exciting commercial opportunities for fiscal twenty twenty six. Can you maybe drill down a little bit on the two or three you think are the biggest needle movers and maybe status and timing.

Yeah. We're really pleased just in total with pipeline that we have going through. Through the system. And have some some really nice opportunities. You know, we have the LTO with a with the churros with a big customer that ran an LTO last year, and it's a perfect fit with this customer that we know is gonna is gonna do well. And we have anticipations that it does so well that maybe it sticks also. So really excited about that particular one. On the frozen beverage side, we're in the midst of rolling out a large c store. In the in the Southwest that has the potential to continue to grow as their you know, that they're striving to be the third largest c store in the country. Also have talked a few times about a test that we have with the QSR in the frozen beverage in the West Coast. Just continues to do really, really well. We're in the third phase of testing now kind of bringing that to an end and having live conversations about how we might roll that out in this year. So really encouraged by the things that we have going on. You know, the last thing I touched on was just that handheld that we were up against with the fire last year in August. And now are just about as we hit the second quarter should have that capacity caught up and see the benefits from that in 2026 as well. Teams are doing a great job. Lot of really good opportunities, and pipeline is as strong as I've seen in a while.

Okay. Great. Thanks. And the final one for me. Shawn, is there a way to kind of frame up And and I ask about kind of gross margin potential for the business. But obviously, you've identified savings from Apollo one. You've identified a framework for what Apollo two will consist of for maybe a plant efficiency and automation standpoint kind of post Apollo maybe. Can can you talk to what you think the the gross margin potential for the business is? Thanks.

Yeah, I'd say that we're still committed improving the gross margin. Getting up above 30% on an annualized basis, toward the mid thirties, let's call it. And you can do the math and see that, you know, that you know, just that the $15 million of plant consolidation savings, you know, all that's gonna roll through your gross margin. Obviously, there's some OpEx savings associated with this leg of Apollo, but, you know, that's that's not gonna get you all the way there. Obviously, but it's gonna help to close the gap. And I would think that we're just gonna keep kind of chunking away at that over the next few years. You know, through, you know, through Project Apollo and, you know, growing the business. The one thing we didn't talk about is the extent to which we can continue to grow the top line as we have historically. And start seeing some leveraging impacts as we, you know, both at the at the plant level and with respect to OpEx.

Okay. And just a follow-up on that. Thoughts on CapEx in '26 based on the work that you're doing?

I would say about in line with fiscal twenty five, but we're working to trim that.

Okay. Perfect. Thank you both.

Yep. Thank you, Todd.

That concludes today's question and answer session. I'd like to turn the call back to Dan Fachner for closing remarks.

Thank you, operator. In closing, I want to emphasize that while fiscal twenty twenty five presented its challenges, we built significant momentum in early fiscal twenty twenty six through our strategic initiatives and operational improvements. Our innovation pipeline is robust and should drive sustainable growth in key categories while Project Apollo enables meaningful efficiency improvements. With a strong balance sheet, including $106 million in cash and no debt, we're well positioned to invest in growth opportunities, while returning capital to shareholders through share repurchases. Thank you for your continued support, and we look forward to updating you on our progress throughout fiscal twenty twenty six. Thank you very much.

This concludes today's conference call.

Thank you for participating. You may now disconnect.