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J&J Snack Foods Corp. (NASDAQ:JJSF)

F1Q09 (Qtr End 12/27/08) Earnings Call

January 23, 2009 11:00 AM ET

Executives

Gerald B. Shreiber - Chairman, President and Chief Executive Officer

Dennis G. Moore - Senior Vice President, Chief Financial Officer, Principal Accounting Officer, Secretary and Treasurer

Vincent A. Melchiorre - Chief Marketing Officer, President of Country Home Bakers Inc. and Executive Vice President of Food Group

Robert M. Radano - Senior Vice President and Chief Operating Officer

Analysts

Mitchell Pinheiro - Janney Montgomery Scott LLC

Operator

Good morning ladies and gentlemen and welcome to the J&J Snacks Foods First Quarter Earnings Conference Call. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded.

I'll now turn the call over to CEO, Jerry Shreiber. You may begin.

Gerald B. Shreiber

Good morning everybody and thank you for attending our quarterly conference call. I am Jerry Shreiber, and with me today is Dennis Moore, our Senior Vice President and Chief Financial Officer; Bob Radano, our Senior Vice President and COO; and Vince Melchiorre, our Executive Vice President in charge of Sales and Marketing.

I will begin with the obligatory statements and then I will go in to the comments on our quarter. The forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances that arise after the date hereof.

Results of operation; overall, we had a good quarter, a very good quarter. Net sales increased 8% for the quarter. For the quarter, our net earnings increased by 128% to $4.3 million or $0.23 a share from $1.9 million or $0.10 a share, a year ago.

Our EBITDA for the past 12 months was $77.6 million.

Food service. Sales to food service customers increased 9% for the quarter. SOFT PRETZEL sales were up 2% in the quarter but unit sales declined about 8%.

Italian Ice and frozen juice bar treats and dessert sales increased 1% for the quarter. CHURROS sales were up strong 33%, primarily due to continued expansion and sales to one customer.

Bakery sales, excluding HOM/ADE and DADDY RAY'S, were up 10% in the quarter. HOM/ADE biscuit and dumpling sales were up 7% in the quarter, and DADDY RAY'S fruit and fig bar sales were up 25%, as sales to the Dollar Store segments increased.

Retail supermarkets. Sales of products to retail supermarkets were down 6% for the quarter. SOFT PRETZEL sales were down 4%, although case volume was lower.

Sales of our frozen juice and Italian Ices were down 9%, on case volume declines of 9%.

ICEE and Frozen Beverages. ICEE, frozen beverages and related product sales were up 10% in the quarter. Dry fruit (ph) sales alone were up 4%.

The beverage dollar sales increase resulted from a change in program structure for our one customer, which resulted in both higher sales and higher cost of sales and operating expenses. Without the change in program structure, beverage sales would have been down 3%.

Gallon sales were down 5% in our base ICEE business in the quarter as we continued to be impacted by similar declines as other beverage companies.

Service revenue, managed service revenue for others was up 30% in the quarter. Sales of frozen carbonated beverage drink machines were down slightly about a $100,000 for the quarter.

Consolidated; our gross profit as a percentage of sales in the quarter, increased to 28.9% from 27% last year. This is significant and almost two points improvement.

We were impacted by over $2.5 million of higher commodity cost in the quarter, which we were able to offset with price increases implemented last year. Total operating expense as a percentage of sales was 1.3 percentage points lower in the quarter primarily due to lower fuel and transportation cost.

We increased our reserves to bad debts by $344,000 in light of customer delinquencies, the general economic environment.

Capital spending and cash flow; our cash and investment securities balance decreased $6.6 million in the quarter to $75.3 million. We bought back $12.5 million of our stock in the quarter. Most of that was a transaction between the company and its CEO, that's myself, who sold 400,000 shares representing about 9% of my holdings, which were sold for estate planning purposes.

The transaction was priced at a discount-to-market, took place in mid-November, and was accretive to the company.

Our capital spending was $4.5 million in the quarter and we estimate that capital spending for the year will be in the $22 million range. A cash dividend of $0.0975 or 0.0975 was declared by our Board of Directors and paid on January 7th 2009. Our Board of Directors authorized a million share buyback in February of 2008. We have bought back and retired 500... maybe 6,000 shares till the end of December.

At the end of the last quarter, we owned $19.9 million of AMPS or auction market preferred stock, all of which I am happy to say, has been redeemed or sold at par in January. Let me repeat we have no more exposure at current with AMPS. We've been paid at par, our carrying value for the entire amount which we held, $45.2 million from the market for auction market preferred stock payout last February.

Additional commentary. Beginning in December, we have experienced a significant slowdown in our rate of overall sales growth compared to the prior year. Let me just repeat that statement for understanding. The percentage of sales growth only appeared to have slowed, which we believe is primarily attributable to the general economic slowdown.

Our sales growth of 8% this quarter resulted from a combination of unit volume increases and decreases, pricing initiatives and reduced trade spending in our retail supermarket segment.

In food service, SOFT PRETZELS had significant volume declines while frozen juice bar desserts and ices, CHURROS, DADDY RAY'S fruit and fig bars and other bakery items had flat to strong positive unique growth.

Unit sales of SOFT PRETZEL in our retail supermarket segment were down 19% in the quarter, although market share was maintained. Case sales of frozen ice and juices were down 9% in the quarter as we continued to reduce trade spending against these products to improve profitability.

Operating income in this segment improved by $0.9 million or $900,000 in the quarter, largely as a result of reduced trade spending. We are planning to institute a new advertising campaign beginning in the third quarter of this year to promote our soft pretzels.

Our ICEE and frozen beverage segment continues to experience challenging gallon sales in our base ICEE business. Our managed service revenue to others continues to grow. It was up 30% in this quarter, following a 24 % increase for last year. And I said it before, this is a well managed effort and this is a key component of our growth plans going forward.

Although commodity cost in general have recently fallen, we were nevertheless impacted by $2.5 million of higher cost this quarter compared to last year. We expect our investment income will be significantly lower over the short-term, even though our balance of investment securities and cash equivalent is higher than a year ago. We have invested in relatively safe investments since mid-September and we have lost the benefit from our holdings of higher yielding auction market preferred stock.

We continue to pursue acquisitions, albeit carefully to supplement our internal growth. Our estimated income tax rate increased to 41% for this year from 39% last year because of a very low tax benefit on higher than usual share-based compensation expense related to stock options and our stock purchase plan.

Additionally, we will have less tax advantage investment income this year. However at this point, we are estimating a tax rate of 39% from the full year.

We appeared to have firmed against the complex challenges that we experienced in 2008. And although we too are challenged by the general economic condition, I am confident in our company's ability to overcome these and continue to grow successfully.

Thank you for continued interest.

Are you guys there?

Operator

I am sorry Mr. Moore, do you want to go to questions?

Dennis G. Moore

Yes.

Gerald B. Shreiber

Yes.

Operator

Okay. I am sorry you wanted to begin the question and answer session?

Gerald B. Shreiber

That would be fine.

Question-and-Answer Session

Operator

Okay. At this time we'll begin the question-and-answer session. (operator instructions) Our first question is from Brian Raffin (ph). Please go ahead.

Unidentified Analyst

Good morning, Jerry.

Gerald Shreiber

Good morning.

Unidentified Analyst

A question for you. Give me a sense Jerry, when you talked about the last couple of years, you said that your cost structure had ramped up substantially. And that you, I think you'd made a comment that historically you'd always kind of budgeted for 2 or 3% cost increases. Where right now do you get a sense Jerry, where is your overall cost structure relative to commodity feed stocks, the fuel surcharges? Where is that level? Is it flattening, is it modestly declining? And give me a sense as to where do you think your pricing is, versus that cost structure? Are you ahead, behind, still looking at adding prices or are you going to stabilize for a while?

Gerald Shreiber

Well, let me just see this that we watch our cost all the time. And we are very sensitive to our pricing and our partnership with our customers. We sell niche items, which are of high nutritional value, at popular prices. And we've always been -- there is a salesman's hat that we are all wearing here. We've always been a little bit reluctant to take advantage or take full advantage of our pricing.

However, saying all that, we did have a price increase in the past year. And to that extent even though our commodity costs are still significantly higher than where they were two years ago, these has been a general decline in some of our major commodities. And the fact that energy, fuel has come down too, has not hurt us.

So we appear to be, I won't say we're in good shape, but we're satisfied with the conditions laid out on the highway for us right now.

Unidentified Analyst

Would you say pricing has caught up to your cost structure Jerry, as far as your ability to pass on prices increases?

Gerald Shreiber

Well, I don't quite know if I understand the question. We're not planning any pricing increases as of right now.

Unidentified Analyst

Right. Well, I guess I would say historically, the price increases that you have put down, you are satisfied that they have captured some of the erosion from the standpoint of the levitation in cost structure?

Gerald Shreiber

It's captured some, perhaps not all. All right.

Unidentified Analyst

Okay.

Gerald Shreiber

But, we've probably spent between anything (ph) in there which would impact unit volume.

Unidentified Analyst

Okay. Go down your product line once Jerry, and do you get a sense if you look at your Italian Ices, your LUIGI'S or MAMA TISH'S, if you look at your DADDY RAY'S, if you look at biscuits and ICEE, are there historically, we haven't since obviously the early part of the 1980s had a major long-term recession. Are there products that you feel are more sensitive or more elastic to weaknesses in consumer spending versus... and does that impact how you are going to advertise the weaker products or the stronger ones in 09?

Gerald Shreiber

Well, fortunately for us most of our products are niches and they are properly priced. I wouldn't say that we're totally insulated from any kind of recession but I think where you will be impacted less.

We've expanded our business channels. We are in places that we weren't there years ago; colleges and now the new dollar discount stores and we seem to get featured space, not just backspace, we get featured space. In food service locations, we work for our customer partners to do whatever we can as far as helping them manage their business.

So hopefully, our business will continue to grow even in the light of a recession and let's then make no mistake. All we have to do is read the headlines when people are slashing jobs and plans, and that affects us a little bit because we feed the cafeterias there. And when people are... when there is... when attendance at some of the Hockey games and Basketball games our off by, take your pick; 10% or 30% in there, that affects us a little bit too.

But again, we have grown our business and a lot of growth of the business has come from little things that weren't there for four or five years ago. We've done a tremendous job with this fruit and fig bar company that Jerry Law (ph) has taken over two years ago and manage. We've doubled its sales.

Dan Fachner and his ICEE group have added some $35 million and managed service revenue for others, and this is the same infrastructure, the same people that we had on our ten fix (ph) and our own machines. HOM/ADE biscuits and dumplings, which is a business that we didn't own two years ago, is adding some 35, $36 million in sales and they are, very quietly, the number two brand retail biscuit in the country.

About a year and a half ago, we bought a company that had no pulse, little plants and the little product line called home food, and with it came a product called Dogsters and all of a sudden we're doing perhaps 4 or $5 million there, the Dogster line. We also have another product that is a special biscuit for... that is being sold through Trader Joe's and some other supermarkets and Petro, it's called Bluedog. So, we've added few niche companies and product lines over the years. I know I added. We've done a tremendous job out of preparing them for the marketplace.

Unidentified Analyst

Okay, on that the question in line Jerry, do you get a sense in 09 that you're focused on organic products or organic growth and developing your product line? Are you looking at more product gap? Are you looking at new product categories or is it more adding seasonings or adding flavorings, or playing different sizes? Give me a sense as to how your product development looks for 09?

Gerald Shreiber

We've have about a half a dozen things coming through the funnel and some of it has been coming through since spring time. We introduced them at shows. As you know with any new product... most new products, they take a long time. Most of them do not quite make it but we are planning to grow through some innovation. There is a couple of products that are clinically coming up this quarter and perhaps by acquisitions just like we did in the last seven years.

So I got a team of tremendous individuals and managers that know our company style. That know my style. I mean, I spent a few minutes last night congratulating them on a good quarter, alright, and now I'll spend the next 90 days beating them to make sure they're ahead of this peak (ph).

Unidentified Analyst

Okay. Can you give a sense Jerry, on products that maybe similar. What's your, the customer traffic patterns? In another words are you seeing any shift in your product sales to warehouse clubs or the dollars stores away from supermarkets? Can you give any sense of how the traffic is in your different channels?

Gerald Shreiber

Well, we're getting... dollar stores and some of the economy stores, is a new segment to us, so those numbers are way up with us. That may be skewed because we weren't in there. But we continue to grow. Wal-Mart is a terrific customer and a terrific partner and the Costco and the other B.J.'s and Sam's, our business with them remains good.

There has been a little bit of traffic declines in some of the mass merchandisers, particularly the malls. Our school stock (ph) food service business, we still have the same attendees. However, they have budget restrictions in the end, perhaps they are not spending as much time and money and putting our products when they haven't have any people to do that.

Unidentified Analyst

Kind of stupid (ph).

Gerald Shreiber

But we are fighting through that. I can't take people and drop them off in a ball, alright. But I tend to have a lot of people getting in and around the mall and then go to a shopping center to find where else we could sell them.

Unidentified Analyst

Okay, okay. Give me little sense Jerry, if you're developing any or if you are having any requests from some of grocery stores relative to your development of private label products, and if private label or generics are having an impact on your branded products?

Gerald Shreiber

We've done private label for years. We look at private label as an opportunity for us to manage our product business segment better. And as a matter of fact, we will continue to look at private label opportunities as they occur.

Unidentified Analyst

You've been over the years Jerry, the master of buying distress assets and resuscitating these brands, are you seeing given obviously we've only been had the immense pressure since late September, October, but are you seeing the availability of more potential acquisition candidates free to look at?

Gerald Shreiber

Obviously when you buy something distressed and you bring it at and feed it in and then integrate it, it takes a lot of muscle and energy. And our company is still vibrant and healthy and growing. And a lot of what we're seeing also is if you, pardon the expression, is not... I mean, it may not be much there and I'd rather be careful and step on the side and not step on something that looks like sad and maybe it may be dog shit.

Unidentified Analyst

Okay.

Gerald Shreiber

And it's a wonderful fit for you Jerry and maybe its not. And no one have to clean my shoes. We've spent 37 years doing things here and growing and we've gotten in a little more suits. That doesn't mean we won't find something that... is looking for a good partner and something that we could do. Maybe we'll find something that's already doing well, we bring it in and so that I can... then we augment its growth and provide our resources to continuing its growth.

Unidentified Analyst

Okay. Give me a sense that, do you roll out of the auction rate preferred, given that we're in this kind of zero plus stable (ph) market. Where are you guys looking at placing cash, kind of give me your thoughts just what you are looking at for the cash and balance sheet?

Gerald Shreiber

Place? We possibly can. Most of it is what, tennis and tea Burroughs?

Dennis Moore

What we have now is in treasury... agency, money market funds. We put some money into CDs, some FDIC notes, back notes. We're looking for stuff that's a 100% safe right now.

Gerald Shreiber

And you don't have to worry about us. Dennis and I are not going it and relax go on red or black.

Can we move... can we get another.

Operator

Our next question is from Sarah Lester. Please go ahead.

Unidentified Analyst

Good morning.

Gerald Shreiber

Good morning, Sarah.

Unidentified Analyst

How are you?

Gerald Shreiber

We're fine. How are you?

Unidentified Analyst

Great. I wanted to ask you about the decline in SOFT PRETZEL volumes. Where is that coming from? Is there a particular end market that's especially weak or is it across the board?

Gerald Shreiber

You know what Sarah and I don't want to speak for goods, but we've looked at that and it's pretty much almost across the board. If we want to start to pick places that are popular with the headlines now, the rust belt (ph) is down, why is the rust belt down, because there is issues there. Some of our school business is down because there's budget and issues there where it's not sold on the menu, it's a non-acquired item. Some of the traffic in the malls and the mass merchandisers are down.

Vince, what would you?

Vincent Melchiorre

I think Jerry, it's across the board. There are some geographic skews where it's worse than other places, but we've seen it in both segments, in retail and food service. So that's different.

Gerald Shreiber

So that's across the board Sarah.

Unidentified Analyst

Okay. I guess it's probably due to economic problems. Can you get that volume back or is it just a matter of waiting till the economy turns around a bit?

Unidentified Analyst

I think we can get some of this back. I think we just going to have to be more disciplined and we might have to, on the retail side, for a little, a little more trade spending, a little more consumer spending.

Gerald Shreiber

And you know what Sarah, it's not like what we're going through, this is Jerry again. This is a recession. And for sure, we are in a recession. However, this is United States of America. This is our country. This is the most powerful country in the world. So this will rebound. And we're not going to slice and dice and get ourselves down to, to worry about, to skinny ourselves up in there because we know we're going to come out of this recession. And our company has always been lean and mean to begin with.

So, we are confident that the nine months from now, to be a little conservative, a year from now, we will be out of the recession creating jobs, people will be back to work and we'll be selling more products.

Unidentified Analyst

Okay, great. Thank you.

Operator

(operator instructions). And our next question is from Mitchell Pinheiro. Please go ahead.

Gerald Shreiber

Hi Mitch.

Mitchell Pinheiro - Janney Montgomery Scott LLC

Hey, good morning. A couple of questions for you. I wanted to understand what you're seeing in terms of the state and your putting (ph) your cue about seeing the significant slowdown beginning in December. Is that... I mean, is that... are you trying to say that Q2 sales growth will be weaker than Q1, if these trends continue or?

Gerald Shreiber

Let me interject, the number I give it to Dennis. You... and you had good instincts 15, 16 years ago when you started following us. We've always been conservative. Dennis writes the MB&A and looks at it. Then he looks at things in there, and Oh my god, for December we were down such and such, and did the news in, we took it up.

So obviously, if you look at that statement, it says likes sales increase declined. So instead of running at an 8 to 10% increase, maybe we are running at, what Bob, 3 to 4%?

Robert Radano

We probably are (ph).

Gerald Shreiber

So, although that... I don't want to say it is the play on words in there but nor do I want anybody to take too much caution against that conservative statement. Last week Ice sales were up and I am not sure what the number is, but we were up some double digits overall.

Mitchell Pinheiro - Janney Montgomery Scott LLC

Okay. But... all right. So, you are seeing a slowdown?

Gerald Shreiber

Slowdown, the rate of sales increase.

Mitchell Pinheiro - Janney Montgomery Scott LLC

Right, right. So...

Gerald Shreiber

We have a 5% increase in the salary every year and then one year they got a 3% increase. Is that a 40% slick it out. Do you follow what I am saying?

Mitchell Pinheiro - Janney Montgomery Scott LLC

Yeah. But I was looking at directionally things are not as strong as they were in Q1.

Gerald Shreiber

Dennis?

Dennis Moore

Well, Mitch in the second quarter it's really, really tight.

Mitchell Pinheiro - Janney Montgomery Scott LLC

Right.

Dennis Moore

Part of the slow down in December might have been attributable to about the last year heavy buying and advance in price increases that took effect in January. So, it's kind of a large table. We wanted to put it out there that we're not expecting at this point at least 8% sales increase going forward.

Mitchell Pinheiro - Janney Montgomery Scott LLC

Okay that's helpful. What about when you look at... price increases are obviously important to offset commodity cost, inflation that you normally can't cover through operating efficiencies and things like that. So you're getting pricing but with the core SOFT PRETZELS being down 8%, how much of that, in food service, how much is that related to price elasticity? And what do you think could be related to just general economic weakness? That is less people on the stores or less people buying product because of budget concerns.

Gerald Shreiber

I'll just say Mitch, there's a place that I go by occasionally in the mornings. This is before I had my knee surgery. And incidentally I want to thank a couple of you have asked how is my knee doing, I had a surgery. It will be seven weeks and I am now walking slowly with a cane or without a cane but I had a knee replacement surgery on December 4 and for some of you who had emailed me and I was emailing back on December 4 and 5, while I was under some strong pain medicine and I apologize if I didn't make any sense.

But anyhow I noticed that we have less people in the parking lots, if I go in to a convenient store for whatever reason, alright. You don't see the tradesmen, you don't see the construction worker, you don't see the general repair guy, you don't see a bunch of the builders coming in and spending their 10, 15 bucks and getting coffee and a paper and a pack of cigarettes and a couple of donuts or a pretzel.

There's not as much activity with that. I think one of the biggest parts of the recession if you take the total housing market and all the jobs that it employs and all the trickled-down other businesses that it impacts, yes it is having some effect on us there.

But I don't think it's because we have exhausted the price elasticity of our core products. Generally speaking, that would be SOFT PRETZELS or perhaps a CHURRO or an ICEE, we're still a popular price or perhaps the most economical price, the economical cost at a snack bar or a food service stand.

Mitchell Pinheiro - Janney Montgomery Scott LLC

Okay. When comes to... you took an increase in some bad debt expense. Where is that coming from?

Dennis Moore

We're seeing a general slowdown in payments and there are several accounts that could be an issue. So we thought that it was prudent to reserving at them as you do on a liquid asset but as things move along there may be more so we may as well frank it out there and in front of and stand and look behind.

Gerald Shreiber

And let me just add that I'd rather, us be a little bit... I won't use the word aggressive, but I'll use the word conservative and Dennis's may be a little bit medieval in his requirements and we stretch him so, nothing wrong in being slightly over accrued.

Mitchell Pinheiro - Janney Montgomery Scott LLC

Could you talk a little about in the quarter, the breakdown between pricing and volume on your overall business and what you would expect in the remaining three quarters?

Gerald Shreiber

Well, I'd be real happy to get close to these percentages of increase and the remaining three quarters but I certainly can't say that that's going to happen. I think in some of our product segments we had some increases, unit increases, and I am really gratified about that. Overall, it was kind of more of a challenge. I would say it's roughly 50% pricing initiatives and 50% additional sales and volume. And keep in mind, our HOM/ADE biscuit group with Mary B's (ph) and the dumplings is doing well. DADDY RAY'S fruit bars is doing exceedingly well.

That was a plant that had a single line when we bought it two years ago. We've expanded it to its wall barriers now and I've got a proposal coming in to me, that Jerry Law wants to knock out some walls and build on an addition as big as whole plant.

So, we've always invested... or over invested in our key products lines, in our manufacturing efficiencies and we will continue to do so and we will selectively do so even given these general economic times.

Mitchell Pinheiro - Janney Montgomery Scott LLC

Okay. Last question is just on the margins; obviously the rate of increase in commodities is slowing, and obviously pricing, so you are getting... approving on the gross margin side. You've always been pretty lean in the remainder of your business so I know you are very efficient. So, are we at the point where we could see this year margins returning to historical levels? Or let's say near double-digit, may be 9% kind of area? Or are there any other factors that we need to be aware of?

Gerald Shreiber

Mitch we're in a, let's say challenging economic environment. We're doing a relatively good job against, what I would rather say, really a lot of challenges, may be a perfect storm of challenges. This time a year ago, we were lamenting commodities, we had the energy problems, we have the general slowdown. I don't know if we're going to get through the numbers you just suggested in the near term.

Mitchell Pinheiro - Janney Montgomery Scott LLC

Likely.

Gerald Shreiber

But certainly is to the core of ours.

Mitchell Pinheiro - Janney Montgomery Scott LLC

In terms of your spending I mean I didn't hear you say that you are going to have an advertising campaign in the third quarter for SOFT PRETZELS. As I recall last year, you sort of backed off that prior campaign, that internet integrated marketing campaign, so you benefited last year. Are you sort of spending back to those 2007 levels on marketing?

Gerald Shreiber

Not spend to those levels and we're spending very, very wisely. This is something that has been researched and we're trying to bring this next spend program that has going to really before the household, for the mom, for the kids in there. Vital is good but evidently we don't know how to do Vital. So we'll let the vital before... I am serious but it's interesting and I have proved it, so I stand....you don't see it but we had a couple of agencies just a couple of years ago and they all were vital, vital, vital.

And we chose something that sometimes if you look at something narrow focus it, it sounds good, it seems good but obviously the campaign was a little bit disappointing. So we're going to try and have something much more mainstream and Vince just had couple of things that he has been considering and looking at and seeing and we think we're ready to go sometime in quarter three.

Mitchell Pinheiro - Janney Montgomery Scott LLC

Okay well actually, I did have one more question. Your pet food business, did I hear you correctly that Dogsters have a $4 to $5 million sales run rate?

Gerald Shreiber

When I said pet food, which includes Blue Dog and Dogsters, is over a $4 million run rate, somewhere between $4 and $5 million.

Mitchell Pinheiro - Janney Montgomery Scott LLC

And if I recall a year ago that was in a hundreds of thousands, wasn't it?

Gerald Shreiber

Dogsters was in the hundreds of thousands. Blue Dog was more. I don't what the exact amount is. But I think it's... what I am really saying is that's a niche. Both of them came along like a J&J way. Jerry Law took advantage of something you saw out there and a product line that we were using up some reusable dough and the Dogsters came along on something that we bought with the whole fruit and was almost a kind of bowing (ph).

There is a major player in the segment. Somebody called, is that Nestle is it Unilever Vince. And somebody's doing 20 million bucks with it. We went out on a small, small budget and will gradually but slowly building up a business and a franchise.

Mitchell Pinheiro - Janney Montgomery Scott LLC

Okay, thank you very much

Gerald Shreiber

Thank you, Mitch.

Operator

And we have a question from Bryan Raffin. (ph) Please go ahead.

Unidentified Analyst

Yeah Jerry, just a follow-up. You mentioned that you were knocking the walls or if I got it correctly on the DADDY RAY'S plant... what's that?

Gerald Shreiber

I though I had a plan before maybe...

Unidentified Analyst

You have a plan, alright. Okay. Is that marketed...Jerry, is that a national distribution or is that a kind of a regional brand?

Gerald Shreiber

It's national. It's national, but it's something that you would see up in the front of the store like milk and Tide. But its national distribution and it's a niche. It's a fig and fruit bar and we are real-real good producers and we are looking for ways that we can improve and expand the marketing and the sales.

Unidentified Analyst

Does that brand, Jerry, have the ability to expand or extend flavors and varieties or is that pretty fallout?

Gerald Shreiber

Well, we expand...we have varieties of flavors. And we're doing a little private label. Our frames doubled in two years and very quietly, it's very quietly hopefully we want to maybe double it over the next three years too.

Unidentified Analyst

Okay. There was a pushback last couple of years on the nutritional content, wending machines with schools and cafeterias, is that kind of gone away or is that still a focus of these school districts?

Gerald Shreiber

It is. And it has impacted us in our cookie business and to some degree in some of our juice bar sales too. One of the reasons we've taken a variety of WHOLE FRUIT, which no sugars in, no... a 100% natural and that's been a product that we introduced to schools this past July in the mini shot, (ph) the school food service show, the national school food service show.

It took, it was a little bit slow in getting started till you get the product out and samples to people but we are hopeful that that will help our juice bar sales in schools. As far as the other nutritional requirements and restrictions there's no question. We have been impacted as some others, didn't by the school requirements. And part of the... what the schools are gone through now with their budget crisis and their shortfalls and slap jack and revenue comes from the fact that they are not able to sell as any items when are required.

Unidentified Analyst

Okay.

Gerald Shreiber

So people change. If they do change, we expect to be back in there.

Unidentified Analyst

Okay. Can you talk Jerry, about the... from the standpoint of average ticket are you guys seeing ... you talked about the weakness in pretzels. In the stadium, arena, the sports venue, are you seeing the average consumer drawing in some of that average ticket from the standpoint of concessions or is that still a fairly strong area?

Gerald Shreiber

Well, I can only talk about the past few years, good year in baseball. We had, what was another consistent year in football, both Collegiate and the NFL. Basketball season and hockey season crowds, there appears to be our case volume. They... has declined so far this year. Maybe that will pick back up.

Beyond that the traffic patterns in the malls and the traffic patterns with the mass merchandisers impact us. Nobody wants to go to a ... one of the mass merchandiser particularly for an ICEE. Although, we hope that they do and particularly for a pretzel. But if they are there, we have good space, decent space in here. We have terrific partners, business partners that we work with in targets the Wal-Mart. So, if they are there perhaps we will get our fair share of the one in fifteen or the one in twenty that gets near the snack bar.

Unidentified Analyst

Okay, okay. Give me a sense, may be a question for Dennis, what are you seeing as far as wage and salary pressures Dennis, insurance cost? And then, kind of give me a sense in the areas where you have plants, what's your employee turnover or retention?

Dennis Moore

Sure.

Gerald Shreiber

I don't know if he could hear you, Dennis.

Dennis Moore

Our medical costs actually jumped very significantly in the first quarter. However, we are self insured so that can... might just be an aberration from several high claimants.

Gerald Shreiber

Those might be, might be.

Dennis Moore

Very well.

Gerald Shreiber

I am walking around with a titanium knee.

Dennis Moore

But, we would expect that our rate of increase for...the health insurance cost probably be higher than what it's been over the past several years. In terms of our other liability insurance cost, again, we are primarily self insured and we would expect our costs to be, at this point at least same or lower than they've been, as we've improved greatly in our management of our corporate compensation cost.

In terms of wage pressures, we give what we believe are fare increases and we are not seeing turnover because of not paying people enough or by cutting salaries during the event.

Unidentified Analyst

Okay, okay. Dennis, what is your infield installation of units on ICEE and SLUSH PUPPIE?

Gerald Shreiber

45.

Dennis Moore

Now, SLUSH PUPPIE is we do not make those installations directly. We are distributors. So, we don't really have a good sense of that number. Part of we have not been increasing though at any significant rate. And in terms of our ICEE the installations are probably; we're replacing machines, we're always looking at new customers but nothing significant has happened at this point through this, through the first quarter of the year.

Vincent Melchiorre

But the managed service has grown in the period.

Dennis Moore

Right, you were trying the installations of.

Unidentified Analyst

Right, yeah. And just one more question for you guys after a superb job. We've had to some degree a pretty decent run on the movie and cinema set coming out of Hollywood, are you guys getting any sense with more blockbuster pictures over the Christmas season and into the first of the year. Are you getting any sense of better distribution through the movie and cinema channel?

Gerald Shreiber

Well, of all those everywhere were most of them right now. When we will get a better sense and we don't have any numbers yet, and as these movies come out, I understand as I'm looking forward to seeing summer soon. But they are just coming out. December and now in January, but it will result in higher attendees and of course more consumer spending at these events.

Unidentified Analyst

All right. Superb job.

Gerald Shreiber

Thank you.

Unidentified Analyst

All right, hope your knee gets better, Jerry. Thanks.

Gerald Shreiber

I have turned a corner. Next.

Operator

And at this time, we have no further questions.

Gerald Shreiber

All right, I want thank everybody for dialing in on the conference call. I look forward to talking to everybody again three months from now and I hope to have equally as good news to report.

Operator

Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating. You may all disconnect.

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