J&J Snack Foods Corp: Form 10-Q for the period ended Dec 27, 2025

Statements made in this Form 10-Q that are not historical or current facts are “forward-looking statements” made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements discuss goals, intentions and expectations as to future trends, plans, events, results of operations or financial condition, or state other information relating to us, based on our current beliefs as well as assumptions made by us and information currently available to us. Forward-looking statements generally will be accompanied by words such as "anticipate," "if," "may," "believe," "plan,", "goals," "estimate," "expect," "project," "continue," "forecast," "intend," "may," "could," "should," "will," and other similar expressions. Statements addressing our future operating performance and statements addressing events and developments that we expect or anticipate will occur are also considered forward-looking statements. This includes, without limitation, our statements and expectations regarding any current or future recovery in our industry (or the industries of our customers), the success of new product innovations, the impact of tariffs and other government regulations, and the future impact of our supply chain efficiency projects, including facility optimization projects and investments in additional production capacity and logistics and warehousing operations. Such forward-looking statements are inherently uncertain, and readers must recognize that actual results may differ materially from the expectations of management. We intend that such forward-looking statements be subject to the safe harbor provisions of the Securities Act and the Exchange Act.

We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak as of the date made. Any forward-looking statements represent our best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties, and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. We disclaim any obligation to revise, update, add or to otherwise correct, any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.

Objective

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide readers of our financial statements with a narrative form from the perspective of our management regarding our financial condition and results of operations, liquidity and certain other factors that may affect our future results. The following discussion should be read in conjunction with the consolidated financial statements and accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q and within the Company’s Annual Report on Form 10-K filed for the fiscal year ended September 27, 2025.

Business Overview

The Company manufactures snack foods and distributes frozen beverages which it markets nationally to the foodservice and retail supermarket industries. The Company’s principal snack food products are soft pretzels, frozen novelties, churros and bakery products. We believe we are the largest manufacturer of soft pretzels in the United States. Other snack food products include funnel cake and handheld products. The Company’s principal frozen beverage products are the ICEE brand frozen carbonated beverage and the SLUSH PUPPIE brand frozen non-carbonated beverage.

The Company’s Food Service and Frozen Beverages sales are made primarily to foodservice customers including snack bar and food stand locations in leading chain, department, discount, warehouse club and convenience stores; malls and shopping centers; fast food and casual dining restaurants; stadiums and sports arenas; leisure and theme parks; movie theatres; independent retailers; and schools, colleges and other institutions. The Company’s retail supermarket customers are primarily supermarket chains.

Business Trends and Strategy

Our products are generally sold for discretionary consumption. Our results are impacted by macroeconomic and demographic trends and changes in consumer behavior. The U.S. economy has experienced economic volatility and uncertainty in recent years, which has had, and we expect might continue to have, an impact on consumer behavior. Consumer spending may continue to be impacted by levels of discretionary income and the impact of that on the consumer’s decision making around their purchases. In addition, inflation continues to impact our business, and fluctuating raw material input costs may continue to impact the costs of our products.

While overall packaging and raw material inflation, inclusive of the cocoa market, appears to be moderating for fiscal 2026, uncertainty within the supply chain surrounding impacts from the U.S. government’s tariffs on imports could continue to be a potential headwind for the Company in fiscal 2026. Tariffs may increase the cost of certain raw materials and packaging that we use in our business, and our financial performance may be adversely impacted if we are unable to pass on the cost increases in the form of price increases to our customers. Additionally, the ultimate impact of tariffs may be difficult to predict as tariff rates and duration remain uncertain, which can make our planning process more challenging.

To help combat these potential headwinds, we continue to pursue operational improvements, as well as expand growth opportunities across our various channels and customers. Some recent examples of implementing these strategies include:

• Our recently completed strategic supply chain transformation in which we opened three regional distribution centers which is projected to drive cost reductions around warehousing and distribution.
• The recent addition of six new production lines which has significantly expanded our capacity and allowed us to meet growth opportunities across our core products such as pretzels, churros and frozen novelties.
• Implementation of a new ERP system in fiscal 2022 which has helped to create efficiencies and streamline internal processes.
• Many examples of successful cross-selling and leveraging our brands across customer channels, including our recent expansion of Dippin’ Dots brand into retail and further into the theater channel.
• Further expansion of our SuperPretzel brand across the retail market through the launch of Bavarian Sticks.
• Our fiscal year 2023 rollout of our new Hola! Churro brand.
• Our recently announced transformation program, “Project Apollo,” which is anticipated to generate sustainable efficiencies and cost savings across the enterprise.

The above referenced Project Apollo is expected to generate at least $20 million of run-rate operating income for the initiatives that are expected to be implemented by the end of fiscal 2026. The initial focus of the project is the consolidation and optimization of our manufacturing network. During the fourth quarter of fiscal 2025, we announced the closure of two manufacturing facilities, our plant in Holly Ridge, North Carolina, and our plant in Atlanta, Georgia. In the first quarter of fiscal 2026, we announced the closure of a third manufacturing facility, our plant in Colton, California.

Production from these facilities will either be consolidated into various other facilities across our network, or it will be discontinued as part of our ongoing sales portfolio optimization. This consolidation was enabled by the investments we have made in our plants to modernize and expand capacity for our core products, as well as our investments made to build out our three regional distribution centers. In connection with the closing of our three facilities, we recorded plant closure costs of approximately $24 million in the fourth quarter of fiscal 2025, and another $6.1 million in the first quarter of fiscal 2026. These costs primarily related to non-cash write-downs and write-offs related to inventory and to property, plant and equipment, as well as severance and benefit costs.

In addition to plant consolidation, as part of the first phase of Project Apollo, we are expecting to optimally reposition production within our network, which we are expecting to generate additional freight savings in fiscal 2026 and beyond, and to streamline our corporate functions, which is expected to generate general and administrative expense saving in fiscal 2026 and beyond.

RESULTS OF OPERATIONS – Three months ended December 27, 2025

The following discussion provides a review of results for the three months ended December 27, 2025 as compared with the three months ended December 28, 2024.

(in thousands)

Net Sales

Net sales decreased $18.8 million, or 5.2%, to $343.8 million for the three months ended December 27, 2025. The sales decrease was primarily driven by declines in our Food Service segment, most notably within our bakery portfolio, and the majority of which related to our previously disclosed sales portfolio optimization.

Gross Profit

Gross Profit increased by $2.1 million, or 2.2%, to $96.0 million for the three months ended December 27, 2025. As a percentage of sales, gross profit increased from 25.9% to 27.9%. The increase in gross profit as a percentage of sales was largely driven by the benefits of our previously announced plant closures as well as the favorable impact that resulted from our sales portfolio optimization. These favorable tailwinds significantly offset the unfavorable impact of lower sales volumes, as well as the impact of approximately $1 million associated with product disposal costs, and approximately $0.6 million in tariff-related costs, net of pricing offsets, all of which were primarily seen within the Food Service segment.

Operating Expenses

Operating Expenses increased $7.7 million, or 8.8%, to $95.4 million for the three months ended December 27, 2025. As a percentage of sales, operating expenses increased from 24.2% to 27.7%. Operating expenses included $6.1 million of plant closure expense and a partly offsetting $0.8 million gain on insurance proceeds received for damage to property, plant, and equipment in the three months ended December 27, 2025. The net impact of these items increased operating expenses as a percentage of sales by approximately 150 bps.

The remaining increase in operating expenses was most notably driven by an increase in selling and marketing expenses. As a percentage of sales, selling and marketing expenses increased from 7.9% to 9.2%, with the increase primarily attributable to increased commission costs on retail vending sales, increased spend on sponsorships, brand support and other promotional activities, and higher depreciation for customer equipment for growth.

As a percentage of sales, distribution expenses remained materially consistent in the three months ended December 27, 2025, increasing slightly from 10.9% to 11.1%, but declining from $39.6 million to $38.1 million. The overall decrease was primarily attributable to the lower sales volumes in the quarter.

As a percentage of sales, general and administrative expenses increased from 5.2% to 5.9% and from $18.9 million to $20.4 million in the three months ended December 27, 2025. The increase was most significantly driven by non-recurring restructuring and legal expenses.

Other Income and Expense

Investment income decreased $0.3 million or 31.3% to $0.7 million for the three months ended December 27, 2025 due to lower interest rates on foreign cash balances. Interest expense decreased by $0.1 million, or 34.4%, to $0.1 million for the three months ended December 27, 2025.

Income Tax Expense

Our effective tax rate was 27% for the three months ended December 27, 2025, as well as for the three months ended December 28, 2024.

Net Earnings

Net earnings decreased by $4.3 million, or 82.8%, to $0.9 million for the three months ended December 27, 2025, due to the aforementioned items.

There are many factors which can impact our net earnings from year to year and in the long run, among which are the supply and cost of raw materials and labor, insurance costs, factors impacting sales as noted above, the continuing consolidation of our customers, our ability to manage our manufacturing, marketing and distribution activities, our ability to make and integrate acquisitions and changes in tax laws and interest rates.

Business Segment Discussion

We operate in three segments: Food Service, Retail Supermarket, and Frozen Beverages. The following table is a summary of sales and operating income, which is how we measure segment profit.

(in thousands)

(in thousands)

25

Food Service Segment Results

(in thousands)

Sales to food service customers decreased $19.7 million, or 8.3%, to $219.2 million for the three months ended December 27, 2025. The largest driver of the decrease were sales of bakery products, which decreased by $18.2 million, or 16.8%, with the decrease largely attributable to the impact of the sales portfolio optimization aspect of our Project Apollo initiative on some of our lower-margin bakery SKUs. Additionally, sales of handhelds decreased $5.3 million, or 22.3%, with the decrease attributable to lower comparative volumes on our core handhelds, as well as contractual pricing true-ups on the lower costing of certain raw material ingredients. Slightly offsetting these decreases were soft pretzels sales to food service customers, which increased $3.6 million, or 6.9%, with the increase largely attributable to volume increases seen within the category on our key brands, a continuation of the trend seen in the second half of our fiscal 2025.

Sales of new products in the first twelve months since their introduction were minimal in the three months ended December 27, 2025. Low-mid single-digit net pricing increases were more than offset by the net volume declines, primarily attributable to the sales portfolio optimization aspect of our Project Apollo initiative.

Operating income in our Food Service segment increased $1.3 million, or 14.6%, to $10.1 million, for the three months ended December 27, 2025, which reflected the efficiencies and benefits of the optimization of our manufacturing footprint seen within gross profit, offset by the unfavorable impact of some of the volume declines that were mostly attributable to the sales portfolio optimization aspect of Project Apollo.

Retail Supermarket Segment Results

(in thousands)

Sales of products to retail customers increased $1.2 million, or 2.6%, to $45.9 million for the three months ended December 27, 2025, with the increase largely driven by a $1.8 million, or 35% increase in handheld sales. The increase in handheld sales was primarily attributable to a significant increase in comparative volumes as prior year volumes were negatively impacted by the fire at our Holly Ridge location and the resulting delays in production during the prior year quarter. Sales of new products in retail supermarkets were approximately $0.5 million in the three months ended December 27, 2025. Low-mid single-digit net price increases drove the increase in retail supermarket sales in the quarter as sales volumes in the quarter across the segment were materially flat, with net volume decreases across other product categories materially offsetting the handheld volume increases.

Operating income in our Retail Supermarkets segment was $1.2 million in both the three months ended December 27, 2025 and the three months ended December 28, 2024.

Frozen Beverages Segment Results

(in thousands)

Frozen beverage and related product sales decreased $0.3 million, or 0.3%, in the three months ended December 27, 2025. Beverage sales increased 0.5% to $44.9 million in the three months ended December 27, 2025, with the slight increase driven by pricing increases, a favorable sales mix and some foreign exchange related tailwinds, mostly offset by a 6% decrease in gallon sales over that period. Service revenue decreased 4.9% to $22.5 million, and machine revenue (primarily sales of frozen beverage machines) increased 6.7% to $10.7 million driven by strong growth from a convenience customer.

Operating income in our Frozen Beverage segment decreased $0.6 million in the quarter to $4.0 million as lower beverage sales volumes negatively impacted leverage across the business.

Liquidity and Capital Resources

Although there are many factors that could impact our operating cash flow, most notably net earnings, we believe that our future operating cash flow, along with our borrowing capacity, our current cash and cash equivalent balances is sufficient to satisfy our cash requirements over the next twelve months and beyond, as well as to fund future growth and expansion.

(in thousands)

• The increase in depreciation of fixed assets was primarily due to prior year purchases of property, plant and equipment.
• Cash flows associated with changes in assets and liabilities, generated approximately $14.0 million of cash in the three months ended December 27, 2025 compared with $11.3 million in the three months ended December 28, 2024. The net inflow in the three months ended December 27, 2025 was driven primarily by decreases in accounts receivable of $22.9 million and inventory of $1.9 million, offset partially by a decrease in accounts payable, accrued liabilities, and prepaid expenses of $10.8 million. In the prior year period, the net inflow was driven primarily by a decrease in accounts receivable of $25.0 million and inventory of $3.2 million, offset partially by a decrease in accounts payable, accrued liabilities, and prepaid expenses of $16.9 million.

(in thousands)

• Purchases of property, plant and equipment include spending for production growth, in addition to acquiring new equipment, infrastructure replacements, and upgrades to maintain competitive standing and position us for future opportunities. The slight decrease over prior year period was primarily due to the timing of spend.

(in thousands)

• In the three months ended December 27, 2025, the Company repurchased 458,467 shares of common stock of the Company at an average price of $91.61 per share on the open market, pursuant to the share repurchase program. As of the date of the repurchase, the repurchased shares were retired and returned to the status of authorized but unissued shares of common stock.
• Borrowings under credit facility and repayment of borrowings under credit facility relate to the Company’s cash draws and repayments made to primarily fund working capital needs and represent the net paydown of borrowings.
• The increase in payment of cash dividends from prior year period was due to the increase in our quarterly dividend during fiscal 2025, offset somewhat by the reduction in shares outstanding.

Liquidity

As of December 27, 2025, we had $66.8 million of Cash and Cash Equivalents.

In December 2021, the Company entered into an amended and restated loan agreement (the “Credit Agreement”) with our existing banks which provided for up to a $50 million revolving credit facility repayable in December 2026.

On June 21, 2022, the Company entered into an amendment to the Credit Agreement, the “Amended Credit Agreement” which provided for an incremental increase of $175 million in available borrowings. The Amended Credit Agreement also includes an option to increase the size of the revolving credit facility by up to an amount not to exceed in the aggregate the greater of $225 million or, $50 million plus the Consolidated EBITDA of the Borrowers, subject to the satisfaction of certain terms and conditions.

Interest accrues, at the Company’s election at (i) the SOFR Rate (as defined in the Credit Agreement), plus an applicable margin, based upon the Consolidated Net Leverage Ratio, as defined in the Credit Agreement, or (ii) the Alternate Base Rate (a rate based on the higher of (a) the prime rate announced from time-to-time by the Administrative Agent, (b) the Federal Reserve System’s federal funds rate, plus 0.50% or (c) the Daily BSBY Rate, plus an applicable margin). The Alternate Base Rate is defined in the Credit Agreement.

The Credit Agreement requires the Company to comply with various affirmative and negative covenants, including without limitation (i) covenants to maintain a minimum specified interest coverage ratio and maximum specified net leverage ratio, and (ii) subject to certain exceptions, covenants that prevent or restrict the Company’s ability to pay dividends, engage in certain mergers or acquisitions, make certain investments or loans, incur future indebtedness, alter its capital structure or line of business, prepay subordinated indebtedness, engage in certain transactions with affiliates, or amend its organizational documents. As of December 27, 2025, the Company is in compliance with all financial covenants of the Credit Agreement.

As of December 27, 2025, and as of September 27, 2025, there was no outstanding balance under the Amended Credit Agreement. As of December 27, 2025, and as of September 27, 2025, the amount available under the Amended Credit Agreement was $210.2 million, after giving effect to the outstanding letters of credit.

Critical Accounting Policies, Judgments and Estimates

There have been no material changes to our critical accounting policies, judgments and estimates from the information provided in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies, Judgments and Estimates, in our Annual Report on Form 10-K for the year ended September 27, 2025, as filed with the SEC on November 26, 2025.

There has been no material change in the Company’s assessment of its sensitivity to market risk since its presentation set forth, in item 7a. “Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report on Form 10-K for the year ended September 27, 2025, as filed with the SEC on November 26, 2025.

The Chief Executive Officer and the Chief Financial Officer of the Company (its principal executive officer and principal financial officer, respectively) have concluded, based on their evaluation as of December 27, 2025, that the Company’s disclosure controls and procedures (as defined in Rule 13a-15(f) under the Exchange Act) are effective to ensure that information required to be disclosed by the Company in the reports filed or submitted by it under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There has been no change in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) of the Exchange Act) during the quarter ended December 27, 2025, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

For information on risk factors, please refer to “Risk Factors” in Part I, Item 1A of the Company’s Form 10-K for the fiscal year ended September 27, 2025. The risks identified in that report have not changed in any material respect.