Earnings Call Transcript - MZTI Q1 2025

Operator, Operator

Good morning. My name is Gerald and I will be your conference call facilitator today. At this time, I would like to welcome everyone to the Lancaster Colony Corporation Fiscal-Year 2025 First-Quarter Conference Call. Conducting today's call will be Dave Ciesinski, President and CEO; and Tom Pigott, CFO. Thank you. And now, to begin the conference call, here is Dale, Vice President of Corporate Finance and Investor Relations for Lancaster Colony Corporation. The floor is yours.

Dale Ganobsik, Vice President of Corporate Finance and Investor Relations

Good morning, everyone, and thank you for joining us today for Lancaster Colony's fiscal year 2025 first-quarter conference call. Our discussion this morning may include forward-looking statements, which are subject to the Safe-Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially, and the company undertakes no obligation to update these statements based upon subsequent events. A detailed discussion of these risks and uncertainties is contained in the company's filings with the SEC. Also note that the audio replay of this call will be archived and available at our company's website, lancastercolony.com later this afternoon. For today's call, Dave Ciesinski, our President and CEO, will begin with a business update and highlights for the quarter. Tom Pigott, our CFO, will then provide an overview of the financial results. Dave will then share some comments regarding our current strategy and outlook. At the conclusion of our prepared remarks, we'll be happy to respond to any of your questions. Once again, we appreciate your participation this morning. I'll now turn the call over to Lancaster Colony's President and CEO, Dave Ciesinski.

David Ciesinski, President and CEO

Thanks, Dale. And good morning, everyone. It's a pleasure to be here with you today as we review our first-quarter results for fiscal year 2025. In our fiscal first-quarter, which ended September 30, consolidated net sales increased 1.1% to a first-quarter record $467 million, while gross profit increased 1.9% to a record $111 million. In our Retail segment, net sales declined 1.1%. Excluding the perimeter of the store bakery lines we exited this past March, segment net sales increased 1.4% and volume measured in pounds shipped grew 1.9%. Our licensing program continued to remain an important source of growth for the segment, led by Subway sauces, which we launched this past spring. During our fiscal first-quarter, we were pleased to also begin the national launch for Texas Roadhouse Dinner Rolls. While it's early days for this proposition, we are highly encouraged by both the consumer excitement and the sales velocity for these great-tasting rolls. Given the magnitude of the demand for this item, we will be executing a phased expansion for this launch similar to the one we executed for Chick-fil-A sauce a few years ago. During the quarter, Circana scanner data showed that most of our brands continued to perform well. In the produce dressing category, our Marzetti brand grew sales 2.4% and increased market share by about 25 basis points. When combined with Chick-fil-A dressings, our sales in the category increased 2.6%, with market share up about 40 basis points. Sales of our Marzetti brand produce dips advanced 1.7%, with a market share gain of about 150 basis points. In the Frozen Dinner Roll category, sales of our category-leading Sister Schubert's brand advanced 5.3%. When combined with the new Texas Roadhouse Dinner Rolls, sales were up 17.9%, and our market share grew an impressive 420 basis points to 60%. In the Shelf-Stable Dressings category, sales of Olive Garden dressings were up 3.3%, adding 10 basis points of market share. In the shelf-stable sauces and condiments categories, sales for Chick-fil-A sauces grew 3.4%, while Buffalo Wild Wings sauces were up 5%. In the Foodservice segment, net sales grew 3.5% on increased demand from several national chain restaurant accounts, in addition to strong sales growth for our branded foodservice products. Foodservice segment volume measured in pounds shipped advanced 3.1% despite industry-wide slowing traffic trends. Despite the challenging external environment, we are pleased to report record first-quarter gross profit of $111 million and a sequential improvement of gross margin of 220 basis points compared to the fourth quarter. Gross profit margin increased 20 basis points when compared to last year's first quarter, as we benefited from higher sales volume and our ongoing cost-savings initiatives. Our focus on supply-chain productivity, value engineering, and revenue management remain core elements to further improve our financial performance. I'll now turn the call over to Tom Pigott, our CFO, for his commentary on our first-quarter results.

Thomas Pigott, CFO

Thanks, Dave. The results for the quarter reflect continued top-line growth and improved gross margin performance. First-quarter consolidated net sales increased by 1.1% to $466.6 million. Breaking down the revenue performance, higher volume and product mix contributed 380 basis points of core growth. This growth was offset by a lower net pricing impact of 140 basis points and by the exit of our perimeter of the store bakery product lines, which reduced revenue by 130 basis points. The lower level of net pricing was consistent across our two segments. In our retail segment, the lower net pricing reflected a higher level of promotional activity versus the prior year first quarter. This spending level is consistent with the second half of the last fiscal year when we activated additional programs to address consumer trends. In our Foodservice segment, the lower net pricing reflects the pass-through of lower commodity costs to our customers. Consolidated gross profit increased by $2.1 million or 1.9% versus the prior year quarter to $110.8 million, and gross margins expanded by 20 basis points. The gross profit growth was driven by higher volumes and our cost-savings initiatives. Pricing net of commodities was not a significant driver of performance as commodities were slightly deflationary and our pricing was as well. Selling, general and administrative expenses increased 5.8% or $3 million. The increase reflects investments in personnel and IT to support the growth of our business, as well as higher legal expenses. These increases were partially offset by the reduction in project assent costs, our successful SAP implementation project. Consolidated operating income decreased $911,000 or 1.6% as the gross profit improvement was offset by higher SG&A expenses. Our tax rate for the quarter was 22.8% versus 23.7% in the prior year quarter. We estimate our tax rate for the remainder of fiscal 2024 to be 23%. First-quarter diluted earnings per share increased $0.03 or 1.9% to $1.62, as the decline in operating income was more than offset by a return on invested cash and a lower tax rate. With regard to capital expenditures, our payments for property additions totaled $17.6 million. For fiscal 2025, we're forecasting total capital expenditures of between $70 million and $80 million. We continue to invest in both cost-saving projects and other manufacturing improvements. In addition to investing in our business, we also returned funds to shareholders. Our quarterly cash dividend of $0.90 per share paid on September 30 represented a 6% increase from the prior year's amount. Our enduring streak of annual dividend increases now stands at 61 years. Our financial position remains strong with a debt-free balance sheet and $135.1 million in cash. So, to wrap up my commentary, our first-quarter results reflected continued top-line increases, improved gross profit performance, and investments to support further growth. I'll now turn it back over to Dave for his closing remarks. Thank you.

David Ciesinski, President and CEO

Thanks, Tom. As we look ahead, Lancaster Colony will continue to leverage the combined strength of our team, our operating strategy, and our balance sheet in support of the three simple pillars of our growth plan; to one, accelerate core business growth; two, simplify our supply chain to reduce our cost and grow our margins; and three, expand our core with focused M&A and strategic licensing. Looking ahead to our fiscal second quarter and the remainder of our fiscal year, we anticipate retail segment sales will continue to benefit from our growing licensing program, driven by new product introductions such as Subway sauces and Texas Roadhouse Dinner Rolls. Our newly launched New York Bakery brand gluten-free garlic bread will also add to the retail segment sales. In the Foodservice segment, we anticipate continued volume gains from select customers in our mix of national chain accounts. We also believe external factors, including US economic performance and consumer behavior will likely continue to moderate foodservice industry demand overall. With respect to our input cost, we expect both commodities and inflation overall to be neutral for the remainder of the year. In closing, I'd like to thank the entire Lancaster Colony team for all their hard work this past quarter and their ongoing commitment to our business. This concludes our prepared remarks for today, and we'd be happy to answer any questions you might have. Operator?

Operator, Operator

Thank you. Our first question comes from Jim Salera.

James Salera, Analyst

I wanted to maybe start by drilling down on foodservice, just given the outperformance there relative to expectations. And I think really relative to what we would consider a softer backdrop across QSR in general. Is that just because it's football season and chicken is popular around football season and that's kind of a lift? Or is it the national accounts that you guys are working with? I know there's some that have really prominent chicken and saucy related products promo in the channel right now. Just any color on what's driving that outperformance and kind of thoughts as we progress through the year.

David Ciesinski, President and CEO

Yes. No, we'd be happy to, Jim, and good morning. So, if you look, maybe we'll start externally and then we'll drill in on our company. During the period, if you look at it, full restaurant traffic was running in July off two points in August off two points. And by September, it had improved modestly to being off one point. QSR traffic finished the quarter off one point. And then, correspondingly, sales were modestly positive, low single-digit positive because of prior pricing. But then if you come in and you look at us, I would describe really our outperformance, modest outperformance relative to the external factors to a couple of things. One is, as you pointed out, our mix of national chain customers and the fact that we play heavily in chicken and sauces to an important part of that. And then, the other contributor is we do have a piece of our business we call Branded where we work with operators up-and-down the street and in colleges and secondary education and stuff like that. And that business performed well in the period also. As we look forward, our view is we're going to continue to see some consumer headwinds that are going to put modest downward pressure on traffic until we finally lap this. But we continue to believe that we're in a position based on our book of business and the innovation work we do to deliver low single-digit growth, volume metric growth.

James Salera, Analyst

Great. And maybe Dave, if I could ask like a higher-level question on the consumer. As we progress through or enter, I guess, calendar 2025, could you just give us some ideas around what you would see in the consumer that would have you be kind of incrementally positive about some of those consumption trends in the new year? Is it just getting past the election? Is it interest-rate cuts? Is it just anything that you think would yield kind of modestly positive improvements in the consumer?

David Ciesinski, President and CEO

Yes, to clarify, I don't see many positive indicators in the consumer environment. As we've discussed before, this situation traces back to a time of easy money, where consumers spent freely, but as interest rates increased and inflation took hold, they faced difficult choices. Over the past 16 to 18 months, wage growth has surpassed inflation, but achieving stability will take time. I don't expect a quick resolution. What I do believe is that as we begin to move beyond these declines, they won't continue to worsen uncontrollably. Consumers and households are currently managing their cash flow and will eventually reach a balance. However, I wouldn't characterize this as increased optimism or growth.

James Salera, Analyst

Okay. Great. Appreciate the color. I'll hop back in the queue.

Operator, Operator

Thank you for the question. Our next question comes from the line of Andrew Wolf with CL King. The floor is yours.

Andrew Wolf, Analyst

Great. Thank you. And good morning.

David Ciesinski, President and CEO

Good morning, Andrew.

Andrew Wolf, Analyst

Can you discuss the profitability differences we've seen for the second consecutive quarter, where foodservice has declined while retail has improved? Although foodservice volumes are better and there's been some pricing action, it seems like foodservice profitability has improved sequentially. Is there a persistent issue with your input costs, perhaps due to contracts that create delays, or is this an indication of a structural issue? Could you clarify this for us? Additionally, if you could provide insight on when you expect foodservice profitability to improve—whether it's tied to contracts or market conditions—that would be helpful.

Thomas Pigott, CFO

Sure. Yes. So, fair question. Foodservice operating income declined slightly this quarter, really despite the volume performance driven by some higher labor and benefits, some supply-chain investments we're making to improve performance, and some incremental outsourcing. We've invested in a new foodservice trade system. We had some higher customer programming costs. And overall, the cost-savings initiatives that we benefited from favored the retail segment a little bit more than the Foodservice segment this quarter. Overall, we have some nice plans to improve performance there. We do expect to get improved efficiencies going forward. Certainly, the outsourcing, we expect that will be reduced in the coming quarters and we have some network optimization in place. So, in total, we feel fine about foodservice operating income prospects. I think this quarter reflected some investments we're making as well as really the cost-savings that we experienced this particular quarter favored retail a little bit more. I don't know, Dave, if you want to add anything?

David Ciesinski, President and CEO

No, Tom, you mentioned the system we implemented in the business. It operates on top of SAP and will help us manage trade. This is important for facilitating our growth and managing our expenses in that area of the business.

Andrew Wolf, Analyst

Got it. That's helpful. So, it's not a PNOC thing, it's more investment, the IT investment that I guess you have to allocate that more into this segment than the other one?

Thomas Pigott, CFO

No.

Andrew Wolf, Analyst

Yes. Okay. Good. When will that begin to show in sales productivity or improvement?

Thomas Pigott, CFO

Yes, I believe we will begin to see the advantages in the latter half of the fiscal year. We are confident that many of the initiatives are being implemented now. Throughout the year, we will continue to observe positive impacts both in manufacturing and on the system side.

Andrew Wolf, Analyst

Thank you. I have one more question regarding Texas Roadhouse rolls. It seems that you've achieved some impressive results, which suggests you were optimistic about this. Could you discuss how the current distribution and consumer engagement compare to your initial expectations? Specifically, is there any indication of repeat purchases at this stage? Also, I believe you mentioned plans for expansion. Could you provide insight into the near-term performance trends and what the launch might signify for the future?

David Ciesinski, President and CEO

Yes, that's a great question, and we're really excited about it. As you know, this item has a strong following in the restaurants. We tested it in three markets—Ohio, Indiana, and Kentucky—and it performed well there. However, it's challenging to predict how it will perform across all retailers. During the quarter, we expanded distribution to all Walmart locations, and we noticed significant growth in September when all stores carried it. Regarding repeat purchases, we only have about four weeks of data, so it's difficult to assess, but early signs indicate that we are seeing some buyers return. To put it in perspective, while we can't yet gauge its full potential, if we convert the current trial into repeat purchases, it might not reach the level of a Chick-fil-A, but it could compete with something like Buffalo Wild Wings. We're optimistic, as it’s a strong item with a solid brand and we can produce it in our factories. We mentioned that due to high demand, we have reassessed our regional rollout plan and added more labor in our factories, including another shift to meet this demand. These steps serve as evidence that it has exceeded our expectations in terms of performance. We are increasing labor and capacity, and the more challenging rollout across the rest of retail will begin in Q3 and Q4. This launch will contribute to this fiscal year, but we expect it to be an even bigger contributor in fiscal year 2026. This is a prime example of how our licensing strategy can extend beyond sauces to other iconic products that consumers want to enjoy regularly.

Andrew Wolf, Analyst

Well, good, good. That's good to hear. Thank you. Of course. Thank you.

Operator, Operator

Thank you for your question. Our next question comes from Brian Holland of D.A. Davidson. The floor is yours.

Brian Holland, Analyst

Thanks. Good morning, gentlemen.

David Ciesinski, President and CEO

Good morning, Brian.

Brian Holland, Analyst

First question, I'm trying to understand the downward pricing pressure in retail that has persisted for a few quarters, and you mentioned that one of the contributors is some of the new product launches supporting that. Assuming this trend continues as these launches gain traction in the coming months, while PNOC remains roughly neutral and you have some cost savings, how should we view the trajectory of gross margin for the remainder of fiscal 2025?

Thomas Pigott, CFO

Yes, we grew our gross margin by 20 basis points in the quarter, and we believe we can exceed that figure for the remainder of the year. Unlike last year, we don't have a significant PNOC tailwind, but we do have strong productivity initiatives, value engineering, factory automation, and SAP advantages that should contribute to improvements in gross margin for both retail and the overall company. On the downside, we're monitoring several factors. Last year, we increased our trade spending in the second half, which we continued as we noticed a slowdown in consumer trends, and this had a slight impact year-over-year in the first quarter. We anticipate that to level out in the second half, alleviating any margin pressures. We're also keeping an eye on potential consumer pullbacks; if they occur, we may need to increase spending, which is not currently planned. Additionally, the foodservice traffic Dave mentioned could impact factory absorption and volume if it slows down further. Overall, the increase in gross margin we saw this quarter met our expectations, and we anticipate further improvements as the year goes on.

Brian Holland, Analyst

I appreciate the color, Tom. And then, coming out of the quarter, looking at the scanner data, pretty nice acceleration in the business does not appear to be storm-related, seems to be focused on the breads and rolls products, which I don't think are necessarily just Texas Roadhouse, just given how recent that launches. So, Dave, maybe if you could just remind us some of the moving parts because I know that there are a few within that category and what might be helping sort of catalyze the acceleration in performance in breads and rolls that we're seeing maybe in the last two months or so and maybe how sustainable that is?

David Ciesinski, President and CEO

Yes, Brian, I think there was solid performance across our entire portfolio, including both licensing and our own brands in terms of consumption. As you mentioned, the comparison between the five-week and 13-week periods showed a slight improvement. Based on the strength of our ideas, we believe we will continue to perform well. Regarding the bakery segment, we did experience one challenge with New York Texas Toast, where we saw a decrease in volume during the 13-week period. This is partly because last year, a major private-label supplier serving Kroger and Walmart had supply issues, which allowed us to gain market share. Now that this supplier is back, we're losing some of that business, but overall, our New York Texas Toast brand remains strong, and we're excited about the distribution growth for our gluten-free item planned for the rest of the year. On Sister Schubert, we are seeing sales and pound growth recently. Last year, we reduced the weight of the rolls, which impacted volume figures in pounds compared to value and unit volume. We've moved past that adjustment, and the brand's fundamentals are solid. We expect strong performance during the upcoming Thanksgiving and Christmas holidays and are seeing increased distribution for items like our cinnamon rolls, contributing to that segment's strength. As for Texas Toast, the notable impact was felt primarily in the five-week period. We expanded distribution from a few states to nearly 4,000 Walmart stores, and the scanner data shows that the product is selling quickly. I anticipate some questions about whether this will affect Sister Schubert sales; however, so far, the impact appears to be mostly positive with minimal cannibalism, as we are attracting new consumers to the category. We also see potential for this brand to help us grow in western markets where Sister Schubert has not been as successful. We're optimistic about these developments.

Brian Holland, Analyst

I appreciate the insights. Regarding the balance between building the licensing pipeline and making acquisitions, I'm curious about the perspective on whether these approaches can coexist. Given the challenges in the foodservice industry, I theorize that this may encourage discussions with companies looking to diversify their revenue streams. Could you provide an update on the licensing pipeline and clarify if the downturn in foodservice traffic affects your thoughts on acquiring assets versus focusing on pipeline development, or if both approaches are feasible simultaneously?

David Ciesinski, President and CEO

Yes, I'll start by addressing the latter part of your question. We believe we can pursue both opportunities simultaneously. With SAP supporting us and our capacity expansion projects nearing completion, along with a strong balance sheet, we are well-positioned to consider acquisitions if the valuation is favorable. We are actively engaged in a mergers and acquisitions process, regularly evaluating potential opportunities. Ultimately, our decisions will be driven by financial metrics such as discounted cash flows, internal rates of return, and net present values, ensuring any acquisition would be beneficial for our business and enhance shareholder value. Regarding licensing, you know that over time we have gathered substantial evidence that licensing can successfully complement a restaurant's operations. Initially, there were concerns among some restaurant owners about potential cannibalization, but we have learned that licensing actually serves as an additional revenue stream and offers consumers more ways to connect with their brand. With this context, I can say that our conversations with both potential and current license partners have been more promising than I've seen in the past five years. This gives us great optimism to explore new markets where we haven't previously engaged. We are confident about this strategy, and importantly, we do not need to risk overpaying as we look to develop this segment. It is a valuable approach that allows us to focus on responsible spending of shareholder capital.

Brian Holland, Analyst

That's great. I'll leave it there. Thanks, Dave.

David Ciesinski, President and CEO

Thanks, Brian.

Operator, Operator

Thank you for the question. Our next question comes from the line of Alton Stump with Loop Capital. The floor is yours.

Alton Stump, Analyst

Great. Thank you. Good morning. I just wanted to ask first off on the QSR side of things, there's obviously been a lot of talk about how the pricing that has driven comparable sales the last couple of years is certainly drying up. But because of that, we're hearing a lot of news that there's going to be an increased focus on driving volume, especially through new products as we move into calendar year 2025? And one, are you hearing that as well from your customers? And two, could that be a potential driver from your major accounts if we do see more of a focus on traffic versus pricing over the course of next year?

David Ciesinski, President and CEO

Yes. Alton, that's a terrific question and the answer is yes. For a lot of customers as they look to drive traffic into stores, lever one is they focus on value, and lever two, they focus on hero items that they can advertise. We're finding that the inbound calls to develop hero items has increased for us. So, we have a lot of work that's in flight right now to develop sauces in particular that we can place on nuggets and strips and all sorts of different chicken items. So, I do think that even in the midst of challenging industry headwinds, we have in our business a bit of an offset because of our culinary abilities and the ability to scale those to some of the biggest restaurant chains in the country. So, we won't defy gravity. We're going to still be held to some of the same macro trends as everybody else, but I think it allows us to demonstrate a level of, let's call it, relative outperformance usually.

Alton Stump, Analyst

That makes sense, David. And then, I guess just on the licensing side, I think probably the most impressive number that you gave with all these new things going on, which are certainly very interesting and exciting, but what's the fact that Olive Garden, which I think has been in place since 2012, was up over 3% for the quarter. How much of the role as you're talking to whether it is existing and/or potential licensing business, not only are we driving great growth short-term for some of these new brands we have signed on, but we have a brand like Olive Garden that has been in place for well over a decade with our license business, but yet it is still growing. How much does that play into the attractiveness you think of potential partners to sign up with you?

David Ciesinski, President and CEO

I believe that's certainly the case, and you made a great point. Initially, there were concerns that launching the item might lead to cannibalization of our restaurant sales, but we’ve moved past that. There were also questions about what the next steps would be after the launch. However, I want to acknowledge the efforts of the Olive Garden team. We consistently collaborate with their marketing team, the Head of Supply Chain who manages this project, and the Head of Menu Development, as we explore new product ideas. Initially, we focused on menu items, but now we are excited to introduce dressings that aren't typically served in their restaurants, like Caesar and others we've recently launched. I firmly believe there are many opportunities for us to grow together with Olive Garden. They serve as an example that many others look to.

Alton Stump, Analyst

Sure. No, makes sense. Thanks so much. I'll hop back in the queue.

David Ciesinski, President and CEO

Of course.

Thomas Pigott, CFO

Thanks, Alton.

Alton Stump, Analyst

Thanks.

Operator, Operator

Thank you for your question. Our next question comes from the line of Todd Brooks from The Benchmark Company. The floor is yours.

Todd Brooks, Analyst

Hey, thanks. Good morning, everyone.

Thomas Pigott, CFO

Good morning.

David Ciesinski, President and CEO

Good morning, Todd.

Todd Brooks, Analyst

I wanted to follow up on the foodservice side, Dave, if we could. Clearly, there were strong trends in the quarter compared to what we are observing in the industry. You mentioned last quarter about some limited-time offers that were deferred from your fiscal fourth quarter to the fiscal first quarter. So, is there an excess of limited-time offers in this quarter? Or as you look ahead with your restaurant partners, do you anticipate keeping this level of limited-time offer activity, suggesting we shouldn't expect a decline in the volumes we saw in this quarter?

Thomas Pigott, CFO

Yes, to address your question directly, we anticipate maintaining low single-digit growth even amidst this challenging business environment. Part of this growth will stem from customers like Domino's, who are emphasizing value and performing exceptionally well. Additionally, we have clients like Chick-fil-A, which, despite facing some traffic challenges, are still investing in new store openings and introducing a variety of new items. At this moment, Todd, we don’t see any indications that would suggest a need to adjust our outlook on low single-digit growth. If the economic situation were more favorable, we might consider discussing mid single-digit growth, but we believe it is sensible to aim for low single-digit growth for now.

Todd Brooks, Analyst

Okay, fair enough. Thank you. If I look at the retail operating margin, we're inflecting higher here. I think we're seeing kind of some of the best margins that we've seen since pre-pandemic for this segment. What's driving that? Is it mix within the business? And can you remind us or maybe discuss what the licensed branded products, as that kind of revenue mix on those products mix is higher, is that what's dragging the retail segment margins up?

David Ciesinski, President and CEO

Maybe I'll start first and just say, our strategy on licensing is that the items need to be at or better than our line average. So, when we enter into these agreements and we look at them, we sort of lay a target out there that we need to get to that. And so, really, it's not necessarily that. Tom, I'll let you add some of the activity.

Thomas Pigott, CFO

Yes. Within the retail segment, I think there's a couple of things that are helping. One, the broader cost-savings initiatives programs, the value engineering, factory automation, SAP benefits have been skewing more to retail. We also, from a margin standpoint, we've exited a few businesses over the years that were not as profitable, and that's helping the margins as well. So, it's a combination of some of the portfolio choices and the overall supply chain efforts that we're making to improve those margins that have helped retail.

David Ciesinski, President and CEO

Yes. And Tom, it would be fair to add in this one too that the pricing in this business lagged a little bit versus foodservice where mark-to-market, quarter-by-quarter.

Thomas Pigott, CFO

Sure.

David Ciesinski, President and CEO

And so, once pricing did, in fact, catch up on that business, we saw the margins return. And then, as cost in areas have moderated unlike foodservice where you give it back, the cost sticks. So, that's been a modest contributor to this overall margin improvement as well.

Todd Brooks, Analyst

Okay, great. My final one. Just I know we kind of touched on the acquisition pipeline on the brand side, but you've talked about a second leg where maybe the next use of capital is for an acquired facility that keeps you from maybe necessarily building something greenfield or really helps to optimize the current production footprint. Anything to update us on that front as far as the targets or progress that you've made there? Thanks.

Thomas Pigott, CFO

Yes. Todd, what I would say is we're working on both fronts. I think on the factory side, we broadly see ourselves well-positioned to continue to grow on both with our existing customers and new customers. While we're seeing some current softness in foodservice traffic, we don't see that as a longer-term trend. And we think we're well-positioned with our sauce portfolio to continue to expand and grow. So, we're definitely working both ends of the equation for retail, looking at some of the brands that fit into our core competencies. And Dave said, we have an active screening effort. And then, certainly on the network side, we think there's probably an opportunity out there for us there as well.

David Ciesinski, President and CEO

Maybe I'll just add to that point that we're just trying to constantly balance the long-term and the short-term. One of the things that we've done over the last handful of years working together is we've laid out a longer-term strategy in terms of the categories we want to be in, the margins we want to achieve, and the growth rates we want to deliver. And we've had to go back at points in time and invest in capabilities or prune pieces of the portfolio. And Tom pointed to plants, in particular, we do feel like there's an opportunity for us just to continue to strengthen our manufacturing network to improve our delivered cost and our service to our customers and set the business up long-term. So, this is very much, I think in keeping with our priority to think long-term, execute short-term, and continue to balance between the two.

Todd Brooks, Analyst

Okay, great. Thank you.

Operator, Operator

Thank you for your question. Our next question comes from Robert Dickerson from Jefferies. Please go ahead.

Robert Dickerson, Analyst

Thank you very much. I have a couple of quick clarifying questions. I believe you mentioned that QSR traffic increased during the quarter. Was that information regarding the overall industry or specifically for your customers? Additionally, you mentioned increased demand from some national chains. I am trying to understand if your volume performance is primarily due to the new items and success with those customers or if your weighted foodservice customer base was performing relatively better compared to the industry. That’s my first question.

David Ciesinski, President and CEO

Thank you for the question, Rob. We didn't actually claim that traffic is growing. What we observed is that overall restaurant traffic showed a slight improvement during the period compared to previous levels. It increased by 200 basis points, but is currently down by 100 basis points. This represents a relative improvement, especially in the QSR sector. However, we still notice a 100 basis point decline in industry-wide traffic. When considering our unique customers and business mix, we seem to be performing in line with or slightly better than the industry. Some customers, like Taco Bell and Domino's, may be performing better, while others are lagging. Overall, our performance is at or slightly above the industry average for our accounts. A significant factor driving our volume outperformance is the custom culinary work we are doing with concepts that feature sauces for chicken. This is a key contributor to our business. We currently have items available and a pipeline of new products that restaurant concepts plan to launch throughout the year. Our strategy is focused on our book of business and this ongoing activity related to limited-time offers, providing us comfort that we can sustain low single-digit growth.

Robert Dickerson, Analyst

Okay, great. Can you give an example of some of the customers and new sauces you're delivering? Is it similar to the pimento chicken sandwich at Chick-fil-A?

David Ciesinski, President and CEO

Well, that's not one of ours, but that is a great item. If you're watching football these days, you see a lot of chicken items being featured. There's a possibility that we might be supporting some of those folks. If you go back, Rob, over the years, we were really a salad dressing company first and a sauce company second. However, over the last five years, we've transformed into a sauce company first and a salad dressing company second. This shift, particularly with the growth of chicken and its need for sauces, has significantly contributed to the success of our foodservice business.

Robert Dickerson, Analyst

Yes, that's correct. You're indicating low single-digit volume growth for the year. Volume comparisons seem to suggest that they should become a bit easier for the rest of the year. You mentioned the retail advantages from licensing programs and gains with foodservice customers. As we look ahead to the rest of the year, particularly comparing Q2 and Q4 to Q1, if we assume that traffic conditions remain stable from this point on, does that suggest that overall volumes could potentially pick up slightly? Perhaps not significantly, but maybe show a bit of sequential improvement compared to Q1? That's all. Thank you.

David Ciesinski, President and CEO

Yes. I would love to tell you, yes, Rob. I think what I would point to is the mix of the volume may evolve a little bit. I think we have a really strong stack of new items in retail. So, you're going to see the retail part of the business start to deliver stronger numbers as we go through two, three and into four. The foodservice business, it remains to be seen what happens externally. But I would say consistent low single-digit growth and expect more of that coming from retail than in foodservice than we've seen in the last couple of periods is how we'll get there.

Robert Dickerson, Analyst

All right. Super.

David Ciesinski, President and CEO

Maybe I'll mention the new item stack that we have in there.

Robert Dickerson, Analyst

Sure.

David Ciesinski, President and CEO

We are excited to continue our partnership with Texas Roadhouse and are launching a variety of dips with Buffalo Wild Wings into retail, including a rotation at Costco. We also have a significant number of new items to introduce soon with Chick-fil-A, which we look forward to sharing with you. Additionally, we have other activities lined up with Olive Garden and others. Overall, we believe the collection of new items we have is even stronger than what we had for fiscal year 2024, providing us with some reassurance as we anticipate low single-digit growth while countering some broader trends.

Robert Dickerson, Analyst

Okay, very helpful. Thank you so much.

David Ciesinski, President and CEO

Of course. Thank you.

Thomas Pigott, CFO

Thanks, Rob.

Operator, Operator

Thank you for your question. There are no further questions. We will now turn the call back to Mr. Ciesinski for his concluding comments.

David Ciesinski, President and CEO

Thank you, operator. And thank you everybody for participating in our call this morning. We look forward to sharing our fiscal 2025 second-quarter results with you in early February. In the meantime, we look forward to seeing you on the road and hope you have a great rest of the day. Bye now.

Operator, Operator

Thank you. At this time, that does conclude our session. You may now disconnect.