J&J Snack Looks Good To Go, Despite A Weak Quarter

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Feb 18, 2015

The holiday season has been pretty good for retailers, including food retailers. However, J&J Snack Foods (JJSF, Financial) has a different story. Its first-quarter results were not so impressive as it failed to meet the investors’ expectations. The numbers also missed on the Street’s estimates, sending its shares down. However, its future plans look interesting enough for investors. Let us take a look.

Winters are not so promising

Although revenue for the quarter surged 5% to $212.8 million over last year, it failed to meet the analysts’ estimates. Higher demand for its products, such as that of bakery products and pretzels, resulted in increased sales. Also, demand for beverages and machines increased.

One of the key reasons for the jump in the top line was the acquisition of Philly Swirl in May last year. This buyout contributed 1% to the total revenue. However, Philly Swirl’s Famous Water Ice business reported losses, mainly because of lower demand during this season and integration costs associated with the purchase.

Going by the segments, revenue from the food service segment surged 3%, over last year. Sales in this segment were driven by higher demand for education and food service customers. Furthermore, bakery sales rose 8% and soft pretzel sales were up by 4%. However, sales of churros fell 7% during the quarter.

Moving on to the retail supermarket segment, it surged 11% during the quarter, mainly because of the addition of the Philly Swirl business. The frozen beverage segment inched up by 5% and revenue from frozen juice bars and Italian ices rose 6%.

The bottom line of the food retailer was hit hard during the quarter. Margins contracted 72 basis points to 28.72%. Earnings were also down 9% to $0.60 per share, as compared to the previous year. The bottom line was affected by higher costs at the Icee frozen beverage business since it is a seasonally low period for this business. Additionally, factors such as soft volumes and higher costs in the food service business as well as increased advertising expenses related to the new Superpretzel Bavarian, resulted in lower earnings.

Some reasons to believe

There are a number of reasons to believe that J&J Snack Foods is doing well. First, it provides a wide variety of products, such as pretzels, bakery products, Icee frozen beverages and frozen juice bars, that attract customers and keep them hooked to the company.

Further, it plans to acquire smaller companies in the near future, which will help in expanding its business. This is not the first time that the retailer plans to expand its wings through acquisitions. This strategy has already helped the company strengthen its pretzel business.

Moreover, it has partnered with Mondelez International to launch Oreo Churros, which will help in attracting customers in the food service segment. In fact, it began shipping Oreo Churros in December, and there are many other licensing agreements that are expected to happen in the future. These deals will help the retailer grow.

My take

J&J Snack Foods is well-known for its impressive strategies to grow its business. Thus, the above mentioned initiatives should be fruitful, too, in the future. Although this quarter was affected by lower seasonal demand, the upcoming spring would help in generating more sales, especially for its Icee business. Thus, higher demand for pretzels, frozen beverages and juices should help J&J Snack Foods register good numbers. Investors should not ignore this retailer.