Is it time to buy J&J Snack Foods stock? Let’s take a closer look at the company’s most recent quarter’s performance and future outlook.
Record quarter and new acquisition
J&J net sales reached a record $400.4 million in the fourth fiscal quarter, up 24% year-over-year and 28% above fourth-quarter 2019 levels. The new quarterly revenue record marks the fourth consecutive quarter of new revenue records for J&J. It was a strong sales year for the snack line.
Launched on all cylinders, J&J has enjoyed sales growth across its foodservice product lines. Overall food service sales grew 29% during the quarter, churro sales jumped 38%, carry-on items increased 44%, and soft pretzels delivered “strong growth” year-over-year. But the most notable number was J&J’s frozen novelties segment, which noted a whopping 228% increase for the quarter.
Thanks to the acquisition of world-renowned Dippin’ Dots, J&J more than tripled its revenue from frozen novelties during the fourth quarter. According to CEO Dan Fachner, the Dippin’ Dots brand “aligns perfectly” with J&J Snack Foods’ existing portfolio, business model, and financial goals.
Since purchasing Dippin’ Dots, Fachner and his team have pushed to grow the new ice cream brand. By targeting low-penetration markets, J&J introduced bean-sized ice cream to new movie theaters and catering venues. It’s working so far: Compared to 2019 levels, Dippin’ Dots sales grew 18% in the most recent quarter.
High sales and low profitability
Besides delving into new projects and setting revenue records, J&J faced its share of challenges in the fourth quarter. Increased supply chain costs and higher raw material prices due to inflation affected the ICEE maker’s bottom line, along with increased storage and fuel expenses.
As a result, J&J’s net profit of $17.3 million in the fourth quarter was down 8.3% from last year’s fourth quarter. Considering that sales grew 24% last quarter, it’s clear that net profit margin took a big hit. For the year, J&J’s net margin ended at less than half its pre-pandemic level.
Addressing margins during its fourth-quarter earnings call, Fachner felt confident that its efficiency improvement and cost-cutting initiatives will help “drive higher margins” to complement J&J’s record-breaking sales. Three rounds of price increases over the past 14 months have also helped support J&J’s margins. Given the current operating environment, Fachner said the team feels good about profitability.
The best is yet to come
Noting a strong start to the new year, Chief Financial Officer Ken Plank commented that J&J’s improved efficiencies and upcoming opportunities “will continue to support growth in fiscal 2023.” Based on his expectations of consumer demand, he feels the company is on a positive trajectory toward reaching pre-pandemic gross margin rates.
J&J remains focused on strong top-line revenue growth in 2023, while reducing supply chain and other costs to improve bottom line. With Dippin’ Dots as a catalyst for increasing profitability, Plunk is feeling good about the financial outlook for 2023.
Fachner cited “tremendous growth opportunities” in reference to J&J’s expansion strategy into new markets, while simultaneously growing existing customer businesses through improved relationships. Regardless of the company’s efforts, he believes higher margins will come naturally as inflation subsides.
As Fachner puts it, “While fiscal 2022 was a record year for revenue, the best is yet to come.” If J&J Snack Foods can continue to smash sales records while padding margins, watch this consumer staple stock to reflect the company’s all-time high sales performance.
Mika Angel has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.