[Management View]
J&J Snack Foods reported record net sales of $454.3 million for the fiscal third quarter ended June 28, 2025, a 3.3% increase. Adjusted EBITDA reached $72 million, up 1.6%, and adjusted EPS was $2, compared to $1.98 last year. Key strategic priorities included pricing actions, product innovation, and operational discipline.

[Outlook]
Management remains cautious due to consumer backdrop, tariff-related risks, and projections for box office sales to be down in Q4. Future plans include capacity restoration, pricing initiatives, and a transformation program to drive cost savings and upgrade financial systems.

[Financial Performance]
Net sales increased 3.3% YoY to $454.3 million. Adjusted EBITDA rose 1.6% to $72 million. Adjusted EPS was $2, up from $1.98 last year. Gross margin declined to 33% from 33.6% due to unfavorable product mix and foreign exchange impacts.

[Q&A Highlights]
Question 1: You noted a pullback in promotional activity across the frozen novelties business. Can you speak to what informed that decision? Also, what are the plans to outsource handheld capacity later this year?
Answer: We realized mid-quarter that our marketing efforts were insufficient and have course-corrected for the future. Regarding the fire, we decided to shut down the affected plant and shifted production to another plant, which can now meet future needs.

Question 2: Can you discuss your cost structure, specifically around marketing and distribution? Any optimization opportunities going forward?
Answer: Marketing spend increased due to summer promotions for frozen beverages and Dippin' Dots. Distribution costs improved due to freight optimization and lower fuel expenses, with savings from RDC conversions contributing $1.2 million to $1.3 million.

Question 3: How do we think about handheld volumes for fiscal 2026 compared to 2025? Also, what is the potential impact of new programs with QSR chains and frozen beverage rollouts?
Answer: We expect a 10%-20% lift in handheld production for 2026. The churro test with a QSR chain could be meaningful, with better-than-anticipated results. Frozen beverage tests are also promising, with potential significant impact over the next several years.

[Sentiment Analysis]
Analysts were cautiously optimistic, focusing on capacity restoration and new product initiatives. Management maintained a confident tone, emphasizing strategic innovations and operational improvements.

[Quarterly Comparison]
| Metric | Q3 2025 | Q3 2024 | Change |
|----------------------------|---------------|---------------|---------------|
| Net Sales | $454.3 million| $439.7 million| +3.3% |
| Adjusted EBITDA | $72 million | $70.9 million | +1.6% |
| Adjusted EPS | $2 | $1.98 | +1% |
| Gross Margin | 33% | 33.6% | -0.6% |
| Food Service Sales | +4.8% | N/A | N/A |
| Retail Sales | -7.1% | N/A | N/A |
| Frozen Beverage Sales | +6.1% | N/A | N/A |

[Risks and Concerns]
Tariffs could increase costs by up to $8 million annually. Retail segment weakness, particularly in frozen novelty and handheld products, remains a concern. Gross margin pressure due to unfavorable foreign exchange and product mix in the frozen beverage segment.

[Final Takeaway]
J&J Snack Foods delivered record financial results in Q3 2025, driven by strategic pricing actions and product innovation. Despite challenges such as unfavorable weather and foreign exchange headwinds, the company demonstrated resilience and operational discipline. Looking ahead, management remains cautious but optimistic about capacity restoration, new product initiatives, and cost-saving programs. Investors should monitor the impact of tariffs and retail segment performance in the coming quarters.