Earnings Call Transcript
FLOWERS FOODS INC (FLO)
Earnings Call Transcript - FLO Q4 2024
Operator, Operator
Good morning, and thank you for standing by. Welcome to the Flowers Foods Fourth Quarter and Full Year 2024 Results Conference Call. Please be advised that today's event is being recorded. I would now like to hand the conference over to your opening speaker today, J.T. Rieck, Executive Vice President of Finance and Investor Relations.
J.T. Rieck, Executive Vice President of Finance and Investor Relations
Thank you, and good morning. I hope everyone had the opportunity to review our earnings release, listen to our prepared remarks and view the slide presentation, all posted earlier on our Investor Relations website. After today's Q&A session, we will also post an audio replay of this call. Please note that in this Q&A session, we may make forward-looking statements about the company's performance. Although we believe these statements to be reasonable, they are subject to risks and uncertainties, which could cause actual results to differ materially. Important factors relating to Flowers Foods' business are fully detailed in our SEC filings. We also provide non-GAAP financial measures for which disclosures and reconciliations are provided in our earnings release and at the end of the slide presentation on our website. Joining me today are Ryals McMullian, Chairman and CEO; and Steve Kinsey, our CFO. Ryals, I'll turn it over to you.
Ryals McMullian, Chairman and CEO
Hey. Thanks, J.T. Good morning, everybody. Welcome to our fourth quarter and full year call. Our team accomplished a lot in 2024. We grew dollars and units in tracked channels across our branded bread portfolio, helped by innovation and strong market execution. The continued implementation of our portfolio strategy drove improved sales and margins in our away-from-home business despite the impact of deliberate business exits. Offsetting that performance has been persistent category weakness, which led to lower-than-expected sales results. The biggest headwind from both a revenue and volume growth standpoint is significant weakness in the sweet baked goods category. However, we're implementing concrete initiatives to offset that weakness and believe our portfolio is very well positioned to capitalize on current and long-term trends. Looking forward into 2025, our financial guidance is cautious given the volatile environment. The potential for tariffs, commodities volatility, higher promotional activity, and continued weak consumer demand influenced that cautious outlook. However, we are very optimistic that the strength of our brands, our successful history of innovation, and the innovation of Simple Mills to our brand portfolio will enable strong longer-term performance. And with that opening, Gigi, we'll open it up for questions.
Operator, Operator
Thank you. Our first question comes from Steve Powers from Deutsche Bank.
Steve Powers, Analyst
Good morning.
Ryals McMullian, Chairman and CEO
Good morning, Steve.
Steve Powers, Analyst
You hear me okay?
Ryals McMullian, Chairman and CEO
Yeah, loud and clear.
Steve Powers, Analyst
Okay, great. Okay. Sorry. Hey, so can I first ask about Dave's? It's been good obviously for a long time, but we've seen the core bread in that franchise start to run negative in consumption data for the last 12 weeks. I think it was down about almost 3% in the last four weeks. I'm quoting Nielsen data. So, can you talk about just kind of what you're seeing there and how you expect the DKB franchise to perform in 2025, both kind of core bread and then the entire lineup? Thanks.
Ryals McMullian, Chairman and CEO
Sure. Let me start with just the core bread, Steve, just so I'm clear on this. First of all, we've documented where our challenges are in the sweet baked goods category and a little bit in the soft variety white bread areas. DKB is not one of those challenges. DKB is a strong brand. It will continue to be a strong brand. There is a bit of noise in those numbers. We had a SKU deletion of a couple of underperforming SKUs that affected it. If you're looking at the fourth quarter, there's always some seasonal noise in there. The fourth quarter is typically fairly weak for sandwich bread. But nonetheless, we did still see very, very strong growth in some of our breakfast items, sandwich buns, and rolls. I'd add to that, we've got new products coming this year to replace those deleted SKUs, plus we're getting very significant space gains this year for Dave's, which is really important. One of those of note is in the mass channel in over 2,000 stores where DKB has been underpenetrated. And I guess the final thing I would mention from a household penetration standpoint, DKB hit a record this year, even higher than the pandemic year of 2020. So, all that points to continued consumer interest in Dave's. We'll, of course, continue to innovate with Dave's, and we're not worried about that at all. So hopefully, that helps give you some color. And then, of course, you add the snacks on top; the bars continue to do very well. We're really excited about the snack bite launch, which is underway as we speak. So, as you think about it more as a mega brand, we're even more confident.
Steve Powers, Analyst
Okay. That's very helpful. I appreciate it. And if I could, maybe a two-part follow-up, and then I'll pass it on. The first part is for Steve. I wonder if you could better dissect the kind of the first-half/second-half dynamics that you called out in the prepared remarks. You cited some dynamics that will definitely help the early part of the year. At the same time, as you go forward, underlying comparisons ease; you've got Simple Mills rolling in; you've got the extra week. So, I would have expected maybe a little bit different cadence and maybe some color there. And then, Ryals, second part, you mentioned some external research on GLP-1 drugs and related consumer behavior. I'm just curious if you could elaborate on what that research is and kind of what you're seeing there and how you're going to address it. Thank you.
Steve Kinsey, CFO
Sure. On the first half, primarily what we're looking at in the first half is we'll begin to lap some of our new business, and have some of our pricing and some of our savings gains that we saw last year in the back half. There is some pricing that carries over in the back half on primarily private label and foodservice, but a lot of the branded pricing we do lap in the first half. And then, the other major item for the first half has to do with commodity cost and input. The way we take coverage, we are seeing some benefit in the first half of 2025, but given some of the firmness you've seen in the markets of late, right now, we're forecasting some continued inflation with regard to input cost in the back half.
Ryals McMullian, Chairman and CEO
Okay. Steve, regarding your question on GLP-1s, it's a fascinating topic, and everyone is trying to understand its impact and how it might change in the future. We are reviewing all the research, which can sometimes be conflicting, making it challenging to get a clear understanding. However, we are keeping it in mind. Some of the data we referenced in our prepared remarks is from research we conducted with Circana. If GLP-1s do significantly influence overall food consumption, we believe we are well positioned for that shift. Our portfolio is increasingly focusing on healthier options, improving product labels, strengthening our DKB brand, incorporating Canyon, and adding Simple Mills to our offerings. Many consumers using GLP-1s will likely seek products like Simple Mills, so we're adjusting our portfolio to cater to this new consumer base.
Steve Powers, Analyst
Very good. Thank you. I'll pass it on.
Operator, Operator
Thank you. One moment for our next question. Our next question comes from the line of Bill Chappell from Truist Securities.
Bill Chappell, Analyst
Thanks. Good morning.
Ryals McMullian, Chairman and CEO
Hey, Bill.
Bill Chappell, Analyst
Just a little more just, I guess, color on your caution for the category and in terms of what you're seeing and I guess, it comes with do you think there's, you have pricing power or the consumers weakened? Is it just behavioral change because obviously some more people are going back to work and maybe not having as much bread at home? Are there any macros that drive that caution, or is this just trends you've been seeing and we came into the fourth quarter and you expect them to continue as we move to early next year?
Ryals McMullian, Chairman and CEO
Yes, Bill, it's primarily the latter. Overall, we're experiencing pressure on demand, particularly in our category, due to a consumer shift away from soft variety and white breads, which we are well-prepared for, as we mentioned in our prepared remarks. Soft variety and white bread have been weak throughout the year, not just in the fourth quarter. However, the investments we've made in innovation, such as keto, gluten-free, and organic products, along with our sandwich bun and roll business, especially under the Wonder brand, have more than offset that decline. If we exclude the cake segment from branded retail, we had positive growth in units and dollars for the year. Cake has been the main weakness in branded retail. We're seeing some of the trends from last year carry over into the early part of this year, although it's still early to make definitive conclusions. I feel confident that the quick-service restaurant (QSR) segment will start to recover, as we're hearing more positive feedback regarding that trend. Perhaps in the second half of this year, some volume will return to our foodservice business, enhancing overall volumes. From a branded retail perspective, we are optimistic about our branded buns and rolls, given the brands and innovations we possess. Regarding the cake business, the introduction of the Wonder brand is aimed at stabilizing that segment, which has struggled overall. The response to our Wonder snack lineup has been exceptionally positive, and if retailers support it, we expect it to have a favorable impact, especially since the launch is scheduled for week 17 and will not affect the first quarter. We are hopeful this initiative will help stabilize the challenging cake segment and significantly affect our overall outlook for the year. We're starting the year with a cautious perspective for several reasons. The promotional environment remains somewhat elevated; while it is not extreme, it is still higher than normal, and the lifts we're witnessing are not what we would typically expect for the overall category. Our promotional strategy has become more nuanced, but the overall category remains elevated. We are monitoring this situation closely. Essentially, the trends we discussed in last quarter's call continue, with no significant changes thus far. We're looking for possible improvements in consumer demand in the latter half of the year, which underpins our cautious outlook as we begin the year.
Bill Chappell, Analyst
Got it. As a follow-up, I'm trying to understand why there seems to be a shift away from white bread. It would appear to still be a low-cost option for lower-income consumers, and I'm not sure they would choose to switch from $1 a loaf private-label white bread to Dave's Killer Bread at $4. I'm trying to figure out if this shift is temporary or part of a broader trend, and what factors might be influencing this change.
Ryals McMullian, Chairman and CEO
Yes, we do. And that's what I'm trying to say. I think that it's more of a secular shift away from those categories. I think we've talked for several years now about the shift to more differentiated premium items. So, some of that obviously is coming to us in the terms of Perfectly Crafted and Dave's Killer Bread. Other parts of it are going to the perimeter of the store. Other parts are going to tortillas and flatbreads. So, consumers are looking for something different. Yes, there's still value and there's still value consumers that buy private label or Wonder or Nature's Own butter bread, but there strikes me that there's definitely been a shift in taste and preferences away from those mainline items. So, we've been ahead of this, as I mentioned, and with our keto lineup and everything else that I talked about, we're meeting that new consumer demand and so far offsetting the softness in those traditional categories.
Bill Chappell, Analyst
Got it. Great. Thanks for the color.
Operator, Operator
Thank you. One moment for our next question. Our next question comes from the line of Robert Dickerson from Jefferies.
Robert Dickerson, Analyst
Great. Thanks so much. A couple of quick questions. I guess, just first question, as we think through the year kind of cadence of the year, maybe this goes back to Mr. Powers' question as well. I mean, should we kind of be expecting some kind of, let's say, more category softness, right, in the first half of the year, maybe until you lap the category softness? So, if we're thinking about top-line and just organic volumes in general, I guess, combined with maybe some of the innovation that comes later in the year, then maybe we're a little softer top-line first half and then hopefully, there's a little bit of momentum as we get through the back half? Some simple first question.
Ryals McMullian, Chairman and CEO
Yeah. So, from a top-line standpoint, I think that's roughly correct. I don't really see any change in the consumer demand environment anytime soon overall, but we do have, as we mentioned, the Wonder launch will be right at the beginning of the second quarter. We actually have a lot of new business wins, significant business wins. Most of those come in after the end of the first quarter. So, I think as you think about cadence through the year in terms of our efforts to win new business, geographic expansion, new items, innovation, that's mostly at least a post-first-quarter item. And then, as I mentioned, QSR demand, that coming back would certainly be helpful for the foodservice side of things, but I'm not sure we see that until the second half either.
Robert Dickerson, Analyst
Sure. I understand your point. Ryals, regarding traditional white loaves and similar products, if we look back a decade, it’s interesting to consider how the bread aisle has changed. When I visit grocery stores now, there are so many varieties like 18, 27, or 32 grains, as well as country white, hardy white, and Hawaiian options. The choices have certainly expanded. While we are simplifying our offerings to some extent and introducing more premium or healthier options, the interpretation of "better" can vary. Is there a segment of the bread market, aside from Dave's, where there’s a chance to better compete, particularly with what we might classify as harder loaves? While you refer to them as soft loaves, it seems like there's more momentum on that front, which some perceive as more premium, even if the health benefits may not necessarily be superior. I hope that makes sense.
Ryals McMullian, Chairman and CEO
So, Robert, you're talking like more artisan crusty bread?
Robert Dickerson, Analyst
No, I'm talking about like if I go into a grocery store, I look at Arnold and Pepperidge Farm and they have like harder, more kind of solid country white, hardy white. I'm seeing people maybe purchase that a little bit more frequently relative to the softer loaf dynamic. So, I'm just bucketing the different subcategories differently.
Ryals McMullian, Chairman and CEO
Yeah. And I think that's a great example of where the market is shifting too. So, if you think about white breads, for example, and what we've done with Perfectly Crafted, so while the traditional loaf under Nature's Own has been weak, Perfectly Crafted was up 8.5% in units in the fourth quarter, which is typically weak quarter. So that's one example. And we have a white bread under Dave's as well. So that's giving the consumer a place to go that's more premium and more differentiated than those mainline items to your point.
Robert Dickerson, Analyst
And then, so, like, if we just think about the overall supply chain, like does it make sense to maybe just like gradually infill some of the shelf when certain brands with maybe, the examples you just gave? I don't know. I don't know if there's a cap on the TAM, but it would seem like markets going that way, maybe it takes you a little while to get there, but it feels like you have the capability to kind of get there.
Ryals McMullian, Chairman and CEO
No, I think that's correct. It's an evolution over time. It has decreased, but there is still a significant amount of Nature's Own Honey Wheat being sold. From a volume perspective, it remains a substantial part, along with butterbread and other major Nature's Own items. Our plants are quite adaptable, as you may remember. As consumer preferences change, we can produce these items on the same lines that we already operate for Nature's Own. For instance, a lot of Perfectly Crafted bread is produced in the Miami bakery, which has been operational for 50 years; it makes Nature's Own butter bread but also produces Perfectly Crafted. The situation with Dave's is slightly different, particularly because of the organic component and the added complexity of gluten-free products, which require more segregation. However, our network is designed to be flexible to accommodate these shifting preferences.
Robert Dickerson, Analyst
Sure, I have a question regarding the launch of Wonder snacks. In your remarks, you mentioned themes like healthy consumption and better-for-you options, which are increasingly relevant as we see shifts along the perimeter of grocery stores. It could be argued that a Wonder Cream Filled Confetti cake might be seen as premium or even as a better-for-you option for some consumers. This seems like a great chance to utilize existing capacity in sweet baked snacks and innovate a bit. Wonder has strong brand recognition, likely among the highest in baked goods. As you engage with retailers, is the approach to highlight a category that has faced challenges and hasn't seen many new products? Consumers are clearly seeking something fresh and willing to try new offerings, not just because they are premium or healthier. That's all. Thank you.
Ryals McMullian, Chairman and CEO
I think you articulated that very well. Wonder is an iconic brand with 98% awareness, making it one of the most recognized in the food industry. We've discussed that a challenge in the cake business is the lack of a strong brand to compete against larger players, which puts us at a disadvantage. Tasty is a well-known brand in Philadelphia and nearby areas, but it may not be as recognized in places like Karro, Georgia. However, Wonder certainly makes an impact. Additionally, we believe that our quality is superior, and our retail partners have confirmed this as well. This gives us a substantial competitive advantage.
Robert Dickerson, Analyst
And just quickly, could that product line be launched nationally, kind of relative to Tasty or is it probably more in the kind of a Tastykake regional play?
Ryals McMullian, Chairman and CEO
No, we can go national with Wonder: A, it's a national brand; and B, this is all warehouse distribution. So, we're not limited by the DSD now.
Operator, Operator
Thank you. One moment for our next question. Our next question comes from the line of Jim Salera from Stephens.
Jim Salera, Analyst
Good morning. Thank you for taking my question. Ryals, I appreciate the details regarding 2025. I wanted to discuss some of the legacy business. If my calculations are accurate, taking the midpoint and accounting for the 53rd week in the Simple Mills acquisition, it indicates just under 1% growth for the core 52-week legacy business. How should we view the expectations for the different components? It seems that foodservice is still slightly down, the core bread offering may be slightly up, and sweet baked goods appear to be more variable. Could you provide some insight into the components of the legacy business for 2025?
Steve Kinsey, CFO
I think you're on the right track. A lot of the 1% growth will be driven by the product mix. As Ryals highlighted, our premium brands are performing very well. We anticipate strong performance for 2025 in that area. Additionally, Ryals mentioned that Wonder cake should contribute to our cake offerings, although its impact won't be felt until the second quarter. We also expect some recovery from quick-serve foodservice throughout the year. So, when considering the 1% growth, much of it will be influenced by pricing mix. We've implemented significant price increases over the last few years, with only a few selective exceptions, but overall, it will be mix-driven.
Jim Salera, Analyst
Great. That's helpful. And then maybe a second question on some of the innovation and formatting. Ryals, in your prepared remarks, you mentioned having the opportunity to offer consumers smaller loaves that maybe make the product a little more accessible from an absolute price point perspective. And then, also they don't have to worry about spoilage and maybe throwing away the couple of extra slices. Can you just give us some details? Is that across the whole portfolio, or is that just with certain brands? Is there an opportunity, especially thinking about GLP-1 impact to kind of expand that across the portfolio to make it more accessible and reduce the waste?
Ryals McMullian, Chairman and CEO
Yeah, I think it's a 'we'll see' right now, Jim. We currently only have it under the Nature's Own brand for the small loaves. We are looking at it for Wonder as well. And then, of course, this is not exactly analogous, but DKB has had for a long time the thin slice, which is a much smaller loaf in that big super premium wide pan bread. And we do find that to lower price point; obviously, margins are still good for us and that's a consumer need that we're trying to meet. There are others out there. We're not always the first to market. We weren't the first to market with keto and yet we're number one in that sub-segment now. There have been others that have been earlier to market with the small loaf, and we've been watching it. It's done well. It's obviously a need for certain households and so we elected to meet that demand.
Jim Salera, Analyst
Great. And then maybe if I could sneak in just one last. Ryals, you mentioned very briefly in the beginning of the Q&A just some uncertainty on tariff. Could you just give us maybe just high-level thoughts on what tariff exposure might be and just any impact that might have?
Steve Kinsey, CFO
Yeah, Jim, this is Steve. I mean, I'm sure you assume this. Basically, it's ingredient-driven. We have taken into consideration some estimates of the tariffs and that does flow through our guidance. We looked at ways to mitigate that the best we can. But the reality is, a lot of it's ingredient-driven and as you would expect, most of it's are Canadian or Mexican driven. But there is some in China, but the majority of it would be from those two countries.
Jim Salera, Analyst
Okay, great. Perfect. Thanks, guys. I'll pass along.
Ryals McMullian, Chairman and CEO
Thank you.
Operator, Operator
Thank you. One moment for our next question. Our next question comes from the line of Brian Holland from D.A. Davidson.
Brian Holland, Analyst
Yeah, thanks. Good morning. Maybe just following up on some of the earlier lines of questioning, I think Jim's point implied '25 guidance top-line excluding acquisitions, excluding 53rd week, we're looking at like 80 bps of growth at the midpoint, which I think on its face looks modest, but for the last three quarters, your sales have declined, volumes have gotten worse, category trends are softening as we move further softening. I'm talking about all packaged bakery as we move through Q1. So I guess maybe to the extent that you could sort of parse out because it strikes me that innovation is the incrementality of that and maybe some of the new business wins on the foodservice or in the non-retail business would be the primary drivers above and beyond, maybe a down category and just some natural share growth on your part. So maybe at its most simplistic, but do we have a bigger innovation wave in 2025 and 2024? And where does that fall, if you were to tier the drivers bridging from where the category as to where you're guiding for '25?
Ryals McMullian, Chairman and CEO
Yeah, Brian, so lots talk about there. So, several things. One, I think, I heard you say new business in the away-from-home. Most of the new business is on the retail side. So, we are picking up some private label board, getting a lot of brand concession for that as well. I mentioned at the outset of the call, part of that is some significant new space for DKB, which is going to be great for us. And so, there's a litany of others. Then, you also have the Wonder launch, as I mentioned, that's going to be second quarter it won't have any effect on the first quarter. So that's going to be a big part of it. And then, to answer your question on innovation, yes, we do have a higher innovation goal for this year than we did last year. So, it's a combination of all things. And all of that's intended. We're still saying, for the time being, we're not expecting any major positive changes in consumer demand. That's why we started the year cautiously. But all this stuff is meant to offset that. And then, of course, if consumer demand starts to improve, which we believe it eventually will, we're very well positioned to take advantage of that.
Brian Holland, Analyst
No, appreciate that. That's all helpful. Thank you. And then just quickly on Simple Mills, I think you put 2024 net sales last month at $240 million. Your guidance in '25 implies something a bit below that. I suppose that that's probably just less than full year contribution that explains the implied decline. But if I have that right, just a sense for kind of what you're assuming for that business on an apples-to-apples basis in 2025?
Steve Kinsey, CFO
For 2025, we expect it to be around 45 weeks if we maintain the closing schedule we have assumed. From a growth perspective, we're anticipating some modest growth for 2025.
Brian Holland, Analyst
So, if you say modest growth for 2025, I think the business has grown at like a mid-teens CAGR or something like that. Is there anything with respect to just integration, et cetera, that you might explain why the implied guide for that business would look more conservative than what the historical trend has been? Or is that just conservatism not dissimilar to the way you're trying to approach your core business?
Ryals McMullian, Chairman and CEO
Let me share some thoughts, and Steve can follow up. First, it is a bit complicated for us since we haven't finalized the deal yet. We're working with an estimated number of weeks for this contribution, so we've provided a range to give ourselves some flexibility, as we are still waiting to close. We expect this to happen soon, but as of now, it remains open. Secondly, I want to emphasize that we are very optimistic about this business, which is evident from the premium we agreed to pay. However, we need to focus on integrating them, and we are limited in what we can do before closing due to regulatory constraints. Once we finalize the deal and outline our collaborative efforts to enhance their distribution and innovation capabilities, it will take a few months to see the results. I understand this may be frustrating for your predictions, but things will become clearer once we close the deal.
Steve Kinsey, CFO
And Brian, I don't know if you had a chance to look at the deck yet, but on Slide 7, we do call out that we're assuming a full year pro forma contribution of roughly $258 million to $266 million from a top-line perspective. So that should be able to help you from a modeling perspective.
Brian Holland, Analyst
Okay. Thank you. That is helpful. And then, if I could sneak in one more? Just any thoughts, Ryals, about how the promotional landscape might evolve as commodities become a headwind for the category into 2025? I think historically, an inflationary environment upstream has tended to be beneficial for Flowers, just given kind of your hedging strategy vis-a-vis the balance of the category. So, maybe just any thoughts there?
Ryals McMullian, Chairman and CEO
On the promotional environment, you mean?
Brian Holland, Analyst
I think we're observing a more competitive environment. You've mentioned that this competition is below pre-COVID levels, but commodities have provided some support. If the situation changes and we consider that smaller independents may not have the same hedging or forward-buying capabilities as a company like Flowers, they would likely need to adapt more rapidly. Historically, this has often been advantageous for Flowers. I'm interested in your perspective on this.
Ryals McMullian, Chairman and CEO
Yeah, I would think about it exactly the same way, though it'd be just pure speculation to figure out exactly when that might happen and what they might do and when. Yeah, you're right, historically, it has overall been a benefit. And I mentioned a while ago, we've been watching the promotional environment very carefully. No surprise, I mean, for us, the base units have been a little bit weak. But our promotional cadence has delivered some pretty nice incremental units. On the other hand, we have seen more broadly across the category deeper, perhaps more aggressive promotions and our analysis shows that those are not delivering from an incremental standpoint. So certainly, my hope is that that stabilizes and pulls back. But in the meantime, we're going to continue with the same strategy we have. I mean, we have the number one brands. We don't have to promote as deeply because of the strength of those brands and we'll continue utilizing that strategy.
Brian Holland, Analyst
Great. Thanks. I'll leave it there.
Operator, Operator
Thank you. One moment for our next question. Our next question comes from the line of Mitchell Pinheiro from Sturdivant & Company.
Mitchell Pinheiro, Analyst
Hey, good morning. Most of my questions have been asked, but I do have just a couple of things. Regarding guidance as the Flower standalone, earnings per share is flat to down versus '24, but you have perhaps a modest increase on the top-line. So, is that gross margin or is that SD&A decline or pressure on earnings?
Steve Kinsey, CFO
I think you'll see more pressure within SD&A.
Mitchell Pinheiro, Analyst
And is that workforce related? I mean, is that related to California transition or just general, workforce-related pressures?
Steve Kinsey, CFO
I think you'll continue to see some of the pressures we talked about on Q4. You'll continue to see workforce, continue to see an increase in overall lease or rent expense. So, it really is related to the truck leases and rentals for California, and then you'll continue to see your cold storage expense increase as well. So, there's several factors within SD&A forecasted to be up year-over-year. I think from a gross margin perspective, well, we're not really guiding, but I think overall we should be okay '24 to '25.
Ryals McMullian, Chairman and CEO
Yeah, Mitch, as well, just remember that as we move through the first quarter of this year, Steve already mentioned the lap of the pricing, but we will also start to lap the savings initiative that we launched last year, that $46 million that we saved in '24.
Mitchell Pinheiro, Analyst
Okay. You mentioned in the prepared remarks that the transition in California is expected to lead to better results. Can you clarify that? Are you suggesting that the company-owned model will be more efficient compared to the traditional independent model?
Ryals McMullian, Chairman and CEO
I believe it comes down to control. With our IDP model, we have limited control since they operate as independent business owners. In contrast, with the transition in California where we're regaining control over distribution, service days, and execution, we have greater ability to manage our business with an employee model. As you know, this transition in California was necessary; it wasn't exactly our choice. We'll see how it plays out. Overall, it is somewhat more costly to implement a company-owned model compared to IDPs, mainly due to the truck expenses we incur. However, we hope to more than compensate for that cost through increased control leading to enhanced sales growth. This is particularly important for increasing service days, especially Sundays, which can be inconsistent with the IDP model.
Mitchell Pinheiro, Analyst
Thank you. I have one more question. I may be repeating something already asked, but regarding the small loaves you are offering, you've considered this in the past, but it didn’t seem feasible for several reasons. Have you addressed any of the low-margin challenges, or do you have the right margin mix, or could this still negatively impact your margins?
Ryals McMullian, Chairman and CEO
It's not a significant margin issue, Mitch. Firstly, it's not substantial enough at this point to have a major impact. To address your question, it is somewhat lower than the mainline items because we're not currently set up to produce small loaves efficiently. There are complexities in the plants. However, if we begin to see success with this product, we would make the necessary adjustments in the plants to address that, which would greatly improve the margin profile. I'm not particularly concerned about it right now. This situation is more about testing and learning for us. If it performs well and continues to do so, we have additional SKUs planned to support it. If it gains traction, then we'll invest in the supply chain as needed.
Mitchell Pinheiro, Analyst
Okay. All right. That's all I have. Thank you for your time.
Operator, Operator
Thank you. One moment for our next question. Our next question comes from the line of Max Gumport from BNP Paribas.
Max Gumport, Analyst
Hey, thanks for the question. Just turning back to the commentary on promotions. So, you're clearly of the mind that the promo intensity we're seeing is not the solution to volume pressure in the bread category, and that sounds like a prudent approach to be taking given the lack of lifts that we're seeing. It's not clear though that your competitors are of the same mindset and stepping away from promotion. So, how would you think about navigating through an environment, if you have large competitors that continue to promote through the year, even if a bit irrationally? Thanks.
Ryals McMullian, Chairman and CEO
I understand that we cannot control the actions of our competitors. However, if you compare our market share performance to those competitors, you will see a significant difference. Our performance has been much stronger, and we are not engaging in deep promotions. In fact, our overall price per unit increased by about a cent in the fourth quarter, which is typically a quarter with higher promotional activity due to seasonality, yet our market share performance improved. I think that summarizes my perspective on the matter.
Max Gumport, Analyst
Okay. And then turning back to the expansion of Wonder into sweet baked snack. So, I mean, clearly, you noted that one of the biggest headwinds you're facing right now is that weakness in the sweet baked goods category. And you're planning to address that head-on with the introduction of Wonder snack cake. I guess, I'm just wondering, why that's the right strategy? I mean, to me, it would seem you can choose the categories that you play in. And so, I'm wondering, why you're choosing to get bigger in the category that's one of the weakest in US packaged feed right now and potentially due to structural issues at play. So just curious, why snack cakes and not another category that maybe has better growth tailwinds behind it.
Ryals McMullian, Chairman and CEO
I would say that we're in the sweet baked goods sector, which presents some challenges that we need to tackle. This has been evident for several years, impacting us operationally and now affecting our revenue. We believe that Wonder can integrate more effectively into the sweet baked goods market compared to others.
Max Gumport, Analyst
Okay. And then, I'll throw in a third question as well. Just could you provide a bit more color on the Circana research that you're citing, particularly with regard to the comment about how you're seeing or Circana is seeing households on GLP-1 drugs start to revert even more fully back to center store items? Curious are there center store items in particular that they're reverting to? Did they give you any reasons for why that counterintuitive shift is occurring? Thanks very much.
Ryals McMullian, Chairman and CEO
Certainly. The research we are referencing is just one of many available, and some of these findings can even conflict with one another. However, we have observed that when people begin the medication and then stop, they tend to return to purchase even more than they did previously. It's important to note that this is just a single point of data, and I want to emphasize that we don't have a full understanding of this issue yet, nor do we know the long-term effects. Regardless of the outcome, our focus is on positioning our portfolio to succeed in any market conditions.
Max Gumport, Analyst
Okay. Thanks very much.
Operator, Operator
Thank you. At this time, I would now like to turn the conference back over to Ryals McMullian, Chairman and CEO, for closing remarks.
Ryals McMullian, Chairman and CEO
Thanks, Gigi. I want to thank everybody for taking time today and joining us for questions. Thanks very much for your interest in our company. And as always, we look forward to speaking with you again next quarter. Take care.
Operator, Operator
This concludes today's conference call. Thank you for participating. You may now disconnect.