J & J Snack Foods Q2 2025 Earnings Report

J & J Snack Foods EPS Results

• Actual EPS: $0.35
• Consensus EPS: $0.69
• Beat/Miss: Missed by -$0.34
• One Year Ago EPS: $0.84

J & J Snack Foods Revenue Results

• Actual Revenue: $356.10 million
• Expected Revenue: $369.01 million
• Beat/Miss: Missed by -$12.91 million
• YoY Revenue Growth: -1.00%

J & J Snack Foods Announcement Details

• Quarter: Q2 2025
• Date: 5/6/2025
• Time: Before Market Opens
• Conference Call Date: Tuesday, May 6, 2025
• Conference Call Time: 10:00AM ET

J&J Snack Foods Corp. is a manufacturer and distributor of snack foods and beverages serving the foodservice and retail markets. The company produces soft pretzels, frozen and baked goods, churros, funnel cakes, dough products, frozen novelties, and frozen carbonated and non-carbonated beverages.

Its portfolio includes brands such as SUPERPRETZEL, ICEE, LUIGI’S Italian Ice, Dippin’ Dots, and various churro, pretzel, and concession-oriented product lines. These products are sold through venues including convenience stores, restaurants, schools, entertainment locations, supermarkets, and other institutional and retail channels.

Founded in 1971, J&J Snack Foods is based in Pennsauken, New Jersey. The company primarily serves customers in the United States and also distributes products in select international markets. Dan Fachner serves as chief executive officer, while founder Gerald B. Shreiber remains associated with the company’s leadership as chairman.

J & J Snack Foods Q2 2025 Earnings Call Transcript

Key Takeaways

• Q2 net sales declined 1% to $356.1M with gross margin down 320bps to 26.9% due to theater channel weakness, loss of churro LTO, and chocolate cost inflation, resulting in $26.2M adjusted EBITDA and $0.35 adjusted EPS.
• Frozen beverage sales fell by under 1% as volumes dropped 7% from underperforming movie releases and a weaker peso, but early Q3 volumes and industry forecasts point to a 30%+ box office rebound driving a margin recovery.
• Foodservice and retail showed mixed results, with churro volumes off 18.7% after last year’s LTO offset by new customer wins and pretzel share gains, while retail grew 1.8% led by a 14.7% frozen novelties surge from Dogsters and $1M in Dippin’ Dot Sundaes sales.
• Management expects H2 improvement from theatrical rebounds, selective price increases adding 80–100bps in Q3, expanded innovations like a refreshed Super Pretzel recipe, high-protein varieties and “better-for-you” novelties suited for GLP-1 and health trends.
• Financial position remains strong with $48.5M cash, no long-term debt and $213M revolver capacity, enabling $5M of share repurchases and setting the stage for margins to return to the low-30% range in the back half.

Presentation

[Operator]

Good day, and welcome to the J&J Snack Foods Fiscal 2025 Second Quarter Conference Call. As a reminder, this call may be recorded. I would now like to turn the call over to Norberto Aja, Investor Relations. Please go ahead.

[Norberto Aja, Head of Investor Relations at J&J Snack Foods]

Thank you, Operator, and good morning, everyone. Thank you for joining the J&J Snack Foods Fiscal 2025 Second 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. 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, or achievements expressed or implied by the forward-looking statements.

[Norberto Aja, Head of Investor Relations at J&J Snack Foods]

Factors and other items discussed in our annual report on Form 10-K for the year ended September 28th, 2024, and/or 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 the call today, May 6, 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 in our Investor Relations section of our website.

[Norberto Aja, Head of Investor Relations at J&J Snack Foods]

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, I would now like to turn the call over to Mr. Fachner. Please go ahead, Dan.

[Dan Fachner, CEO at J&J Snack Foods]

Thank you, Norberto. Good morning, everyone, and thank you for joining us today. While the quarter reflected some short-term pressures, our differentiated portfolio and core brands will stand out as we build momentum for the second half of fiscal 2025. We're energized by the opportunities we see ahead from new customer relationships, innovations, and improving operating efficiency. Total net sales for our fiscal second quarter declined 1% to $356.1 million as compared to the prior year quarter, which was primarily attributed to lower sales in our frozen beverage and food service segments, partly offset by growth in our retail business. This led to a 320 basis points decline in gross margin to 26.9%. Adjusted EBITDA in the quarter was $26.2 million, and adjusted EPS was $0.35 per share. Our second quarter performance was primarily impacted by three factors.

[Dan Fachner, CEO at J&J Snack Foods]

First, theater channel weakness impacted beverage volumes in our frozen beverage segment and, to a lesser extent, our food service business. The frozen beverage segment was also impacted by foreign exchange headwinds. Second, food service sales declined primarily due to the loss of a limited-time offer churro volumes from a year ago. Third, we experienced continued input cost inflation, which was mostly related to chocolate in our bakery business. Despite challenges in the quarter, we're confident that the foundation of our business is strong. We expect earnings to improve in the second half, driven by projected theater industry rebound, as well as actions we're taking to capture additional price increases and to grow volume. I'd also like to thank our terrific team members for their effort and dedication to the company and our customers during this challenging quarter.

[Dan Fachner, CEO at J&J Snack Foods]

Our teams across the country and globe are leading initiatives that will help drive our long-term success. I'm very proud of our teams and their leadership, especially the way that they react to challenges with perseverance and grit. Before I discuss the outlook in more detail, I'll first address the second quarter by walking through our segment performance. Frozen beverage sales declined by less than 1%, with the decline primarily reflecting weakness in the theater channel due to underperforming movie releases, as well as unfavorable foreign exchange impacts from a weaker peso. North America box office sales in our fiscal Q2 declined an estimated 10% as compared to the prior year. Beverage sales declined 7.1%, with gallons down by a similar percentage. The beverage sales decline was partly offset by higher maintenance and machine revenue, which rose 4.2% and 17%, respectively.

[Dan Fachner, CEO at J&J Snack Foods]

The beverage volume loss compressed margins, given the relatively higher margin profile associated with beverage sales. Margins were also impacted by unfavorable foreign exchange effects from a weaker peso. While we were disappointed with the theater traffic in the second quarter, we have been pleased with the success of the Minecraft movie to date, which is evident in sharply improved U.S. beverage volume in early Q3. We are optimistic that a strong summer lineup that includes movie releases such as How to Train Your Dragon and Lilo & Stitch will provide tailwinds to the frozen beverage segment. Industry forecasts suggest that the North American box office sales in our fiscal third quarter could increase by 30% or more as compared to the prior year.

[Dan Fachner, CEO at J&J Snack Foods]

Moving on to our food service business, sales declined 1.7%, with the largest impact coming from the loss of the limited-time offer churro volumes with a major QSR last year, which drove churro sales down by 18.7%. This year, we successfully added new churro volumes, and while these additions have not fully offset the strong performance of last year's LTO, we remain encouraged by the compelling opportunity with churros. I want to reiterate that we view LTOs as a valuable platform to engage our customers and create opportunities for long-term menu items. Pretzel sales declined by 7.9%, with some of the decline driven by the theater channel weakness, as well as general market softness in the pretzel category within food service. Notably, our market share improved by 1.4 percentage points and by 4.4 percentage points within Bavarian pretzels as demand for that type pretzel continues to grow.

[Dan Fachner, CEO at J&J Snack Foods]

Bavarian pretzels remained a standout performer within the category, making it a key area of focus and a significant opportunity to leverage our leadership position in pretzels. I'm excited about the innovation and marketing behind our pretzel business, and we'll share more on that shortly. The segment was also pressured by continued chocolate cost inflation, namely in our bakery business. While we did take incremental pricing in the quarter across our portfolio, it did not fully offset cost inflation. We are continuing to implement price increases across the portfolio selectively during the third quarter. We will continue to be surgical as we implement price increases to protect volume for the long term. Frozen novelties continue to show strength, with sales up 4.1%. The growth mostly reflects the continued success of Dippin' Dots, reflecting the rollout to theaters and further penetration with other customers and channels.

[Dan Fachner, CEO at J&J Snack Foods]

We expect to drive improvement across food service in the second half of fiscal 2025 as we grow volume, increase pricing selectively, and bring innovation to the market. Retail sales grew 1.8% in the quarter, including a 14.7% growth in frozen novelties, led by the Dogsters brand, which added 2.7 percentage points of share growth in the quarter on continued unit growth. Additionally, the recent launch of Dippin' Dots Sundaes reached $1 million in sales during the quarter, while ACV climbed to 15%. The outstanding off-season performance of this product positions us well for summer as we continue to expand distribution and receive positive feedback from consumers. Regarding handhelds, sales declines reflect temporary capacity constraints caused by a fire-related outage at one of our facilities late last year. We are working to mitigate the constraints with supplemental capacity elsewhere.

[Dan Fachner, CEO at J&J Snack Foods]

We expect our business interruption insurance to provide some mitigation to these impacts as we work through the details with our insurer. Overall, we are pleased with our retail business performance and continue to invest behind the brands accordingly. I'd like to share more about the recently announced enhancements to our flagship SUPERPRETZEL recipe and packaging for retail. In response to consumer feedback, we made small but meaningful recipe updates to give our SUPERPRETZEL a softer texture and a more robust Bavarian-style flavor. The new recipe positions the product well, given that Bavarian-style pretzels are some of the fastest-growing products in the pretzel category. We also refreshed the retail packaging, introduced an omnichannel marketing plan to support the launch, and will convert some of our top food service SKUs to the new recipe this summer, including the pretzels that consumers find at baseball games and amusement parks.

[Dan Fachner, CEO at J&J Snack Foods]

We're very excited about this update to the SUPERPRETZEL brand, and we know that consumers will be pleased with the new enhancements as well. The quarter was challenged in part due to weakness in the theater channel. Additionally, the recent decline in consumer sentiment amidst macro uncertainty may be influencing consumer demand. Although the consumer backdrop presents challenges, we believe our portfolio is relatively insulated during periods of economic uncertainty because our products are relatively affordable and tend to be viewed as treats by consumers. Recent data indicates that consumers rank cost of living and affordability among their top considerations when weighing purchase decisions. We also made progress on several market initiatives during the quarter. We've increased Dippin' Dots theater presence by over 30% since the end of fiscal 2024.

[Dan Fachner, CEO at J&J Snack Foods]

We are thrilled to announce that we recently added Urban Air, the ultimate indoor adventure park and family destination, as a new customer for Dippin' Dots. Our first shipments will commence soon, and we expect Urban Air to become the largest single customer for Dippin' Dots. As mentioned, the rollout of Dippin' Dots Sundaes has been successful and reached $1 million in sales during the quarter, with more growth coming as our distribution expands and we approach the peak selling season. We are testing a churro innovation with a QSR customer as part of their value menu, which could lead to meaningful volume. In fact, this is a great example of a limited-time offer fostering a potential permanent menu placement. We continue to bring innovation to the market across the portfolio, including whole grain SUPERPRETZEL varieties and other new Dippin' Dots products for retail.

[Dan Fachner, CEO at J&J Snack Foods]

As it relates to GLP-1 drugs, penetration appears to remain steady at around 8%-9%. It's unclear whether demand for our products has been affected by GLP-1-related diet preferences. However, we are actively innovating our portfolio to offer more products that are compatible with GLP-1 diets and, more broadly, better-for-you diet trends. For instance, we have been developing a high-protein pretzel with approximately 10 grams of protein to help meet the growing demand for protein-enriched products. We're also innovating some of our frozen novelties to add better-for-you attributes, such as by enhancing them with electrolytes, antioxidants, and probiotics. These are just a few of the innovations that are underway as we adapt our portfolio to meet consumers however and wherever they choose to snack.

[Dan Fachner, CEO at J&J Snack Foods]

In summary, while the quarter was more challenging than anticipated, we are optimistic that our results will improve as theater traffic rebounds, price realization improves, our retail brands continue growing in the peak season for frozen novelties, and new business initiatives and innovations take hold and help drive results. With that, I would now like to turn the call over to Shawn to review the financial results in greater detail. Shawn?

[Shawn Munsell, CFO at J&J Snack Foods]

Thank you, Dan, and good morning, everyone. Our second quarter revenue declined 1% to $356.1 million. Frozen beverage sales decreased less than 1%, food service sales decreased 1.7%, and retail sales grew 1.8%. Cost of goods sold increased 3.5% to $260.4 million, which generated gross profit of $95.7 million compared to $108.2 million in the year-ago period, while gross margin declined to 26.9% from 30.1%.

[Shawn Munsell, CFO at J&J Snack Foods]

The softness in our frozen beverage business, primarily caused by lower beverage volumes and foreign exchange headwinds, contributed to approximately 60 basis points of gross margin compression, while the loss of churro and pretzel volumes in food service together contributed to approximately 190 basis points of gross margin compression. We continue to monitor the evolution of tariff policy. Changes in tariffs did not directly impact our input costs in the fiscal second quarter, but could impact future quarters. The tariffs currently in place could increase our input costs by $4 million-$6 million on an annualized basis, if not mitigated by pricing, alternate sourcing, or other strategies. We're actively seeking options to mitigate these impacts. Operating expenses totaled $89.7 million, or 25.2% of sales, as compared to 25.1% last year.

[Shawn Munsell, CFO at J&J Snack Foods]

Operating expenses decreased by less than a percent as compared to the prior year quarter, primarily due to one-time startup costs at our regional distribution centers last year. Marketing expenses were $28.5 million, or 8% of sales, up from 7.7% last year and increased 3.1% versus the prior year quarter. About half of the year-over-year increase was related to higher brand amortization expenses associated with a legacy churro brand that is being phased out for the Ola churro brand. Distribution costs were $41.8 million, or 11.7% of sales, down from 12.3% in the prior year. Distribution costs overall declined by 5.5%. The decline primarily reflects the impact of startup costs at our regional distribution centers last year. Adjusting for those impacts, distribution costs would have been approximately in line with last year as a percentage of sales.

[Shawn Munsell, CFO at J&J Snack Foods]

Distribution costs rose sequentially from the first quarter as we built inventory in advance of our peak season. Administrative expenses were $19.8 million, or 5.5% of sales, up from 5.1% in the prior year, mostly driven by higher compensation costs as well as higher non-recurring legal expenses. Operating income declined to $6 million from $17.9 million, while adjusted operating income was $8.9 million compared to $21.8 million last year. The effective tax rate was 27.2% for the quarter. Net earnings totaled $4.8 million compared to $13.3 million in the prior year quarter, and earnings per diluted share fell to $0.25 versus $0.69. Adjusted earnings per diluted share were $0.35 versus $0.84 in the prior year quarter. Adjusted EBITDA was $26.2 million versus $39.3 million in the prior year.

[Shawn Munsell, CFO at J&J Snack Foods]

We continue to have a healthy balance sheet and liquidity position with $48.5 million in cash and no long-term debt. We had approximately $213 million of borrowing capacity under our revolving credit agreement. We repurchased approximately 39,000 shares for $5 million at an average price of about $128 per share. In closing, we are encouraged that we will deliver a stronger second half driven by improving theater attendance, the impact of pricing actions, and exciting innovation across our portfolio. With a portfolio of great products and J&J Snack Foods is well-positioned to deliver value to both customers and shareholders in the quarters ahead. I would now like to turn the call over to the operator for Q&A. Operator?

[Operator]

Thank you. At this time, we will conduct the question-and-answer session.

[Operator]

As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of David Shakno of William Blair. Your line is now open.

[David Shakno, Equity Research Associate at William Blair]

Hey, good morning. You provided a helpful gross margin bridge in the press release, but I think there were 70-80 basis points not covered within that. Any color that could help us understand the balance of the decline there?

[Dan Fachner, CEO at J&J Snack Foods]

Yeah, sure. Good morning. Most of the remaining balance really just represents that chocolate cost inflation relative to the pricing offset. So that was about 60 basis points, and that covers most of the gap.

[David Shakno, Equity Research Associate at William Blair]

Got it. And then just one follow-up here.

[David Shakno, Equity Research Associate at William Blair]

Forgive me if I missed this in the prepared remarks, but you mentioned last quarter that you did not expect to get gross margins back to the low 30s until the second half of the year. Wanted to see if that is still the expectation or if you have had to recalibrate that a bit given the macro environment.

[Dan Fachner, CEO at J&J Snack Foods]

No, we still believe that is the expectation for us as we enter into the back half of the year. Got it. Great. That sounds good. I will pass it on.

[David Shakno, Equity Research Associate at William Blair]

Thank you.

[Operator]

Thank you. Our next question comes from the line of Todd Brooks of The Benchmark Company. Your line is now open. Hey, thanks for taking my questions.

[Todd Brooks, Equity Research Analyst at The Benchmark Company]

Dan, just following up on the expectation to get gross margin back to the low 30s, does that assume just the pricing that you've been able to capture to date, or does that assume some success with forward pricing activities?

[Dan Fachner, CEO at J&J Snack Foods]

It does assume some of the pricing that we have as it continues to build through the remainder of this year. Also, do not forget, as we get into the back half of the year, you have the influence from our frozen beverage business and our Dippin' Dots business. Even as we said in the remarks, early indications if the theater business comes back, and as we look at early Q3 right now, those two pieces of business really start to drive that margin nicely as we get into the back half.

[Dan Fachner, CEO at J&J Snack Foods]

Where we're highlighting theater as such a driver, can you update us on, I think last we heard it was kind of 25% of frozen beverage and a slightly lower percentage in food service. Where are the percentages now as we start to look at the ebb and flows in theater attendance?

[Shawn Munsell, CFO at J&J Snack Foods]

Yeah, we're still in that same area, Todd. That hasn't changed a lot. It has a pretty sized impact on our frozen beverage business. It will begin to have a larger impact on our Dippin' Dots business as well. Of course, as this last quarter unfolded, we saw a dip on the food service pretzel side of our business. All three of those have a piece of it, but specifically to the icy side, it's about 25% of their business.

[Todd Brooks, Equity Research Analyst at The Benchmark Company]

Okay, great. A couple more quick ones. Oh, sorry, Shawn, go ahead.

[Shawn Munsell, CFO at J&J Snack Foods]

Yeah, I was just going to say, as it relates to getting back to 30% in the second half, and Dan touched on it. Remember, as we get into the second half, you get a much higher proportion of our business coming from frozen beverage retail, and retail is mostly frozen novelties as well as the Dippin' Dots business. In all of those, those are our higher margin businesses. Just using 2024 as a point of reference, our frozen beverage business grew sequentially from Q2 to Q3 by about 40%. You're up about 30% in retail and a much bigger increase in the Dippin' Dots business.

[Todd Brooks, Equity Research Analyst at The Benchmark Company]

Okay, great. Two more quick ones, if I may, Shawn, on the distribution line.

[Todd Brooks, Equity Research Analyst at The Benchmark Company]

With the volume, we should leverage that, I would expect, in the second half of the year, but that ability to get down to that 10% or slightly below level, is that tracking based on kind of what you're seeing and how the facilities are operating?

[Todd Brooks, Analyst at The Benchmark Company]

It is. It is. I would expect that we'd see something closer to 10%, near 10% in the third quarter, not terribly different from where we were last year.

[Todd Brooks, Equity Research Analyst at The Benchmark Company]

Okay, perfect. A final one, just if we're thinking about Q2 versus Q3, how does Easter impact the business? Is there any Easter shift impact with not just the holiday shifts, but later spring breaks and things like that that either you can size from what it costs the March quarter or just talk to as a driver for the upcoming quarter? Thanks.

[Dan Fachner, CEO at J&J Snack Foods]

Yeah, Todd, probably more impacted by weather during this time of year than we are by Easter break itself. Although there's plenty of vacations that get taken around Easter, and so it starts to kick in for many of our amusement parks, probably as you think about May, but more impacted even by Memorial Weekend than it is by Easter. We just get into that time of year now where you really want to cheer on the weather as we get into the more summer months and kids are out of school.

[Dan Fachner, CEO at J&J Snack Foods]

Okay, fair enough. Thank you both.

[Operator]

Thank you. Our next question comes from the line of Andrew Wolf of C.L. King. Your line is now open. Hi, good morning.

[Dan Fachner, CEO at J&J Snack Foods]

Good morning, Andrew.

[Andrew Wolf, Senior Equity Analyst at C.L. King]

So I wanted to hear a little more about your kind of top-line views.

[Dan Fachner, CEO at J&J Snack Foods]

Clearly, theater business is going to be a nice tailwind, at least in this quarter, for food servicing. In frozen beverages, as Todd got to, that's a big part of the business, but the majority of the business is rest of food service, amusement parks, and so on, and convenience stores.

[Andrew Wolf, Senior Equity Analyst at C.L. King]

Are you expecting that to be good enough from that 25% or so of the business, that 30% increase in traffic to theaters, to have the top-line turn up in those two segments?

[Andrew Wolf, Senior Equity Analyst at C.L. King]

Another way of saying it is what's going on with the end customers, sort of organically, how do you view the summer season for your food service customers and, I guess, convenience stores if you have a view on that as well?

[Dan Fachner, CEO at J&J Snack Foods]

Right. As we've talked about, it's a tough quarter, for sure, with consumer confidence and sentiment struggling, right?

[Dan Fachner, CEO at J&J Snack Foods]

We know there's an impact from that on our business. What we really tried to highlight is that we view it as three real buckets that were headwinds in the quarter that start to go away as we look into the third and fourth quarter. That theater business, as we've talked about, and there's also conversation about, is that theater industry dying? Every time we see a good movie, like we did with Minecraft, we see that business just jump up and do really, really good things for us. If you look at the theater business, as you get into the third quarter, especially the one that we're in right now, it looks to be really, really strong and then levels off a little bit in June and then looks to be a nice fourth quarter for us as well.

[Dan Fachner, CEO at J&J Snack Foods]

We do not have that churro piece of business, that headwind that we are up against. That was a great LTO, and it spurred some other LTOs and may even spur a permanent menu item on a big QSR chain that we are really excited about that will happen in 2026. As we mitigate the input cost, especially around chocolate as we get into the back half of the year, we think all of those headwinds are kind of behind us. You are looking squarely at what does consumer confidence look like? That is a tough one to try to understand. We believe and we have great confidence in what we are doing and the new pieces of business that we are bringing on and the new innovation, even as we talk about the pretzel innovation with new packaging and a new recipe, we are really encouraged by that.

[Dan Fachner, CEO at J&J Snack Foods]

We think, I guess I would say we're optimistic about the back half of this year, and I think it's going to be really strong. It might end up slightly below last year's sales, but we still are hopeful that back half of the year can do really good things for us. All right. I wanted to ask about kind of price realization as part of, obviously, it's getting better, but I think you did say you want to be selective with price increases. I can understand this is not the time to be just throwing out unaudited. I'm sure you're going to get audited on a lot of this stuff by your regular customers.

[Andrew Wolf, Senior Equity Analyst at C.L. King]

Where do you feel, I mean, do you feel you're going to get your price realization in the impacted categories of chocolates and eggs and anything else that really has real inflation in it?

[Dan Fachner, CEO at J&J Snack Foods]

We do. We think we're catching up to that really nicely. The teams have done a nice job getting out there and getting the pricing. It may have come a little slower than we anticipated, but it also came with some directions from me that I don't want to lose volume or customers while we're passing this needed price increase along. That's going to continue to build even as we get into the third quarter. We feel confident that the team has gone out there and got that. We've been careful not to turn the wheel too quickly as to lose some volume along the way.

[Dan Fachner, CEO at J&J Snack Foods]

It's a delicate balance, but we're feeling good about where we're going to be there. Shawn, do you want to add a couple of percentage points to that, or?

[Shawn Munsell, CFO at J&J Snack Foods]

Yeah, yeah. I'd say that just to help quantify, we expect it will pick up, call it another 80 basis points, maybe a full percentage point here in the third quarter. Like Dan said, we're being surgical about it and ensuring that we're not losing volume. That's part of what slowed the pace in the first quarter. I'm sorry, in the second quarter. Yeah, no, that's understandable.

[Andrew Wolf, Senior Equity Analyst at C.L. King]

Thanks for the quantification. I guess my last one is on the Dippin' Dots Sundaes. That's the only retail product, if I understand that.

[Dan Fachner, CEO at J&J Snack Foods]

That's doing okay. It is the only retail product to date.

[Dan Fachner, CEO at J&J Snack Foods]

We're working on another one that some of the teams are out there already talking to customers about that we're really excited about. As we round out into 2026, we believe we'll have a couple of those Dippin' Dots items out in the field. We're so happy with the success of the Sundae so far, and it's early, right? Even as we see April, April sales really jumped out at us. We're excited about that in over 8,000 locations, and consumer sentiment has been really strong about that product. If we can back it up with this next new innovation that we have, I think we'll continue to see great things from it.

[Andrew Wolf, Senior Equity Analyst at C.L. King]

Got it. That's it for me. Thank you. Thank you. Thanks. Thank you.

[Operator]

As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. Our next question comes from the line of Scott Marks of Jefferies. Your line is now open.

[Scott Marks, Analyst at Jefferies]

Hey, good morning, guys. Thanks so much for taking our questions. Good morning, Scott. Good morning. First thing I wanted to ask about just the pretzel category. You mentioned pressure on the pretzel category from the theater traffic, but you also mentioned just other general category weakness. I was just wondering if you can kind of speak to that and give us some insight into where exactly that's stemming from and what the drivers are.

[Dan Fachner, CEO at J&J Snack Foods]

Yeah, the category did show some weakness in the quarter, and it's something that we're trying to address, even as we talked about some new packaging and formulation of our product that will begin in the retail side to be a little bit more like a Bavarian-style pretzel, which we see some real growth in the category. What's interesting is our market share grew, but the category's down. When you look inside the pretzel business, you see that the Bavarian-style pretzel is growing, and we're going to attack that really strong. Teams have done a really nice job. We did some great market research across the country to ensure that consumers like the new product and like the new packaging. You're seeing that out in the stores right now. We feel like that will bring some emphasis back to it.

[Dan Fachner, CEO at J&J Snack Foods]

We're still bullish on the pretzel category, but whenever you see a category down, even if you're growing inside it, it draws attention. I think there's also a chance that also within that, that's where we're seeing some of that consumer confidence. It might be an area that some of the places just aren't as busy, and we're not getting the pull-through on the pretzel category. Yeah. We talked to one of our QSR customers where we did see some year-over-year weakness in 2Q, and it was interesting. They did cite some of the traffic within their stores, but part of that they did attribute to the weather that we had in the quarter. Certainly not pinning it all on weather, but it seems like, at least for some of our customers, that was having an effect.

[Scott Marks, Analyst at Jefferies]

Got it.

[Dan Fachner, CEO at J&J Snack Foods]

I know there has been a lot of discussion about the theater channel, but I do not think I heard as much about the convenience channel. I am just wondering if you can kind of speak to trends throughout the quarter and maybe what you have seen as we have kind of progressed into April and here into May. The convenience channel has been off for about 18 months or so now, maybe even longer than that. It continues to be down, even as you talk to that industry. We are doing some good things within the channel. We are continuing to grow. Some of those equipment sales that you saw out of the frozen beverage side are going into the convenience channel. We are still pushing hard at it and seeing some growth, but the total channel has been off for us. I think in the quarter, it was down something like 7%.

[Dan Fachner, CEO at J&J Snack Foods]

Yeah. From a gallons perspective in the frozen beverage business.

[Scott Marks, Analyst at Jefferies]

Got it. Last one for me, as we think about maybe some of the regulatory changes around artificial ingredients from some of the health departments here in the U.S., just wondering if you can kind of help us understand maybe your exposure to that and maybe how you're working on reformulations to try to get around some of those changes.

[Dan Fachner, CEO at J&J Snack Foods]

Yeah, really proud of the teams. They've been right on top of this and doing a really good job. The first really one that we're focused on is the dye number three, red dye number three, and that is now out of all of our products. We're watching it closely. We're continuing to read up on it. We've got a team focused on what we need to do to make sure we stay within regulation.

[Dan Fachner, CEO at J&J Snack Foods]

We feel like we'll be way ahead of that as laws get passed in different states and things like that.

[Scott Marks, Analyst at Jefferies]

Got it. Thanks so much. I'll pass it on.

[Dan Fachner, CEO at J&J Snack Foods]

Thank you, Scott.

[Operator]

Thank you. I am showing no further questions at this time. I would now like to turn it back to Dan for closing remarks.

[Dan Fachner, CEO at J&J Snack Foods]

Thank you very much. In closing, we are encouraged that we deliver a stronger second half driven by improving theater attendance, the impact of our pricing actions, and exciting innovation across our portfolio. With a portfolio of great products J&J is well-positioned to deliver value to both customers and shareholders in the quarter, and we feel strong about that. We look forward to sharing our third quarter results, and in the meantime, invite you to contact our investor relations team at JCIR at 212-835-8500 with any questions.

[Dan Fachner, CEO at J&J Snack Foods]

Thank you, and have a great day.

[Operator]

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Participants

Executives

• Dan Fachner, CEO

Analysts

• Norberto Aja, Head of Investor Relations at J&J Snack Foods
• Shawn Munsell, CFO at J&J Snack Foods
• David Shakno, Equity Research Associate at William Blair
• Todd Brooks, Equity Research Analyst at The Benchmark Company
• Todd Brooks, Analyst at The Benchmark Company
• Andrew Wolf, Senior Equity Analyst at C.L. King
• Scott Marks, Analyst at Jefferies