Quarterly Report for Quarter Ending March 28, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

Statements made in this Form 10-Q that are not historical or current facts are "forward-looking statements" made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These statements discuss goals, intentions and expectations as to future trends, plans, events, results of operations or financial condition, or state other information relating to us, based on our current beliefs as well as assumptions made by us and information currently available to us. Forward-looking statements generally will be accompanied by words such as "anticipate," "if," "may," "believe," "plan,", "goals," "estimate," "expect," "project," "continue," "forecast," "intend," "may," "could," "should," "will," and other similar expressions. Statements addressing our future operating performance and statements addressing events and developments that we expect or anticipate will occur are also considered as forward-looking statements. This includes, without limitation, our statements and expectations regarding any current or future recovery in our industry (or the industries of our customers), the success of new product innovations, and the future impact of our supply chain efficiency projects, including investments in additional production capacity and logistics and warehousing operations. Such forward-looking statements are inherently uncertain, and readers must recognize that actual results may differ materially from the expectations of management. We intend that such forward-looking statements be subject to the safe harbor provisions of the Securities Act and the Exchange Act.

We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak as of the date made. Any forward-looking statements represent management's best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties, and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. We disclaim any obligation to revise, update, add or to otherwise correct, any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.

Objective

This Management's Discussion and Analysis of Financial Condition and Results of Operations is intended to provide readers of our financial statements with a narrative form from the perspective of our management regarding our financial condition and results of operations, liquidity and certain other factors that may affect our future results. The following discussion should be read in conjunction with the consolidated financial statements and accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q and within the Company's Annual Report on Form 10-K filed for the fiscal year ended September 27, 2025.

Business Overview

The Company manufactures and sells snack foods and distributes frozen beverages which it markets nationally to the foodservice and retail supermarket industries. The Company's principal snack food products are soft pretzels, frozen novelties, churros and bakery products. We believe we are the largest manufacturer of soft pretzels in the United States. Other snack food products include donuts, churros, cookies, funnel cake and handheld products. The Company's principal frozen beverage products are the ICEE brand frozen carbonated beverage and the SLUSH PUPPIE brand frozen non-carbonated beverage.

The Company's Food Service and Frozen Beverage sales are made principally to foodservice customers including snack bar and food stand locations in leading chain, department, discount, warehouse club and convenience stores; malls and shopping centers; fast food and casual dining restaurants; stadiums and sports arenas; leisure and theme parks; movie theaters; independent retailers; and schools, colleges and other institutions. The Company's Retail Supermarket customers are primarily supermarket chains.

Business Trends and Strategy

Our products are generally sold for discretionary consumption. Our results are impacted by macroeconomic and demographic trends and changes in consumer behavior. The U.S. economy has experienced economic volatility and uncertainty in recent years, which has had, and we expect might continue to have, an impact on consumer behavior. Consumer spending may continue to be impacted by levels of discretionary income and the impact of that on the consumer's decisions making around their purchases. In addition, inflation continues to impact our business and fluctuating raw material input costs may continue to impact the cost of our products.

While overall packaging and raw material inflation appears to be moderating for fiscal 2026, uncertainty within the supply chain surrounding impacts from the US government's tariffs on imports, as well as rising fuel costs, could continue to be potential headwinds for the Company in fiscal 2026. Tariffs may increase the cost of certain raw materials and packaging that we use in our business, and our financial performance may be adversely impacted if we are unable to pass on the cost increases in the form of price increases to our customers. Additionally, the ultimate impact of tariffs may be difficult to predict as tariff rates and duration remain uncertain, which can make our planning process more challenging.

To help combat these potential headwinds, we continue to pursue operational improvements, as well as expand growth opportunities across our various channels and customers. Some recent examples of implementing these strategies include:

The above referenced Project Apollo is expected to generate at least $20 million of run-rate operating income for the initiatives that are expected to be implemented by the end of fiscal 2026. The initial focus of the project is the consolidation and optimization of our manufacturing network. During the fourth quarter of fiscal 2025, we announced the closure of two manufacturing facilities, our plant in Holly Ridge, North Carolina, and our plant in Atlanta, Georgia. In the first quarter of fiscal 2026, we announced the closure of a third manufacturing facility, our plant in Colton, California. During the second quarter of fiscal 2026, we made the decision to close a fourth facility, our manufacturing/distribution facility in New York, New York, which is expected to close in our third fiscal quarter.

Production from these facilities will either be consolidated into various other facilities across our network, or it will be discontinued. This consolidation was enabled by investments we have made in our plants to modernize and expand capacity for our core products, as well as our investments made to build out our three regional distribution centers. In connection with the closing of our four facilities, we recorded plant closure costs of approximately $24 million in the fourth quarter of fiscal 2025, and another $4.8 million and $10.9 million in the three and six months ended March 28, 2026, respectively. These costs primarily related to non-cash write-downs and write-offs related to inventory and property, plant and equipment, as well as severance and benefit costs and other exit and disposal activities.

In addition to plant consolidation, as part of the first phase of Project Apollo, we are expecting to optimally reposition production within our network, which we are expecting to generate additional freight savings in fiscal 2026 and beyond, and to streamline our corporate functions, which is expected to generate general and administrative expense savings in fiscal 2026 and beyond.

RESULTS OF OPERATIONS -Three and six months ended March 28, 2026

The following discussion provides a review of results for the three and six months ended March 28, 2026 as compared with the three and six months ended March 29, 2025.

Net Sales

Net sales decreased by $11.3 million, or 3.2%, to $344.8 million for the three months ended March 28, 2026. Net sales decreased by $30.1 million, or 4.2%, to $688.6 million for the six months ended March 28, 2026. The sales decrease was primarily driven by declines in our Food Service segment, most notably within our bakery portfolio, and the majority of which related to the anticipated sales reductions in our bakery business.

Gross Profit

Gross Profit increased by $3.6 million, or 3.8%, to $99.3 million for the three months ended March 28, 2026. As a percentage of sales, gross profit increased from 26.9% to 28.8%. The increase in gross profit as a percentage of sales was largely driven by the benefits of our previously announced plant closures as well as the favorable impact from mix improvements. These favorable tailwinds significantly offset the unfavorable impact of lower sales volumes in our Food Service segment, as well as the higher slotting fees and promotional spend within our Retail segment.

Gross Profit increased by $5.7 million, or 3.0%, to $195.3 million for the six months ended March 28, 2026. As a percentage of sales, gross profit increased from 26.4% to 28.4%. The increase in gross profit as a percentage of sales was largely driven by the benefits of our previously announced plant closures as well as the favorable impact from mix improvements. These favorable tailwinds significantly offset the unfavorable impact of lower sales volumes in our Food Service segment, as well as the higher slotting fees and promotional spend within our Retail segment.

Operating Expenses

Operating Expenses increased $7.8 million, or 8.7%, to $97.5 million for the three months ended March 28, 2026. As a percentage of sales, operating expenses increased from 25.2% to 28.3%. Operating expenses included $4.8 million of plant closure expenses, which increased operating expenses as a percentage of sales by approximately 140 bps.

The remaining increase in operating expenses was most notably driven by increases in selling and marketing expenses, and general and administrative expenses. As a percentage of sales, selling and marketing expenses increased from 8.0% to 8.7% and from $28.5 million to $30.1 million in the three months ended March 28, 2026, with the increase primarily attributable to increased commission costs on retail vending sales, increased spend on sponsorships, brand support and other promotional activities, and higher depreciation for customer equipment for growth.

As a percentage of sales, general and administrative expenses increased from 5.5% to 6.1% and from $19.8 million to $21.2 million in the three months ended March 28, 2026. The increase was most significantly driven by non-recurring restructuring and legal expenses.

As a percentage of sales, distribution expenses increased from 11.7% to 12.1%, but declined slightly from $41.8 million to $41.7 million in the three months ended March 28, 2026. An increase in expenses related to higher fuel costs was offset by the benefit of lower sales volumes in the quarter.

Operating Expenses increased $15.5 million, or 8.8%, to $192.9 million for the six months ended March 28, 2026. As a percentage of sales, operating expenses increased from 24.7% to 28.0%. Operating expenses included $10.9 million of plant closure expenses and a partly offsetting $0.8 million gain on insurance proceeds received for damage to property, plant, and equipment in the six months ended March 28, 2026. The net impact of these items increased operating expenses as a percentage of sales by approximately 150 bps.

The remaining increase in operating expenses was most notably driven by increases in selling and marketing expenses, and general and administrative expenses. As a percentage of sales, selling and marketing expenses increased from 8.0% to 8.9% and from $57.2 million to $61.6 million in the six months ended March 28, 2026, with the increase primarily attributable to increased commission costs on retail vending sales, increased spend on sponsorships, brand support and other promotional activities, and higher depreciation for customer equipment for growth.

As a percentage of sales, general and administrative expenses increased from 5.4% to 6.0% and from $38.7 million to $41.6 million in the six months ended March 28, 2026. The increase was most significantly driven by non-recurring restructuring and legal expenses.

As a percentage of sales, distribution expenses increased from 11.3% to 11.6%, but declined slightly from $81.4 million to $79.8 million in the six months ended March 28, 2026, with the decrease mostly attributable to the lower sales volumes during the period.

Other Income and Expense

Investment income increased slightly from $0.7 million to $0.8 million for the three months ended March 28, 2026, but decreased slightly from $1.7 million to $1.5 million for the six months ended March 28, 2026.

Interest expense increased by $0.2 million to $0.3 million and by $0.1 million to $0.4 million for the three months and six months ended March 28, 2026, respectively, due to the increase in the Company's average outstanding borrowings on the Amended Credit Agreement for the three and six- month periods ended March 28, 2026, as compared to the prior year periods.

Income Tax Expense

Our effective tax rate remained materially consistent, increasing slightly from 27.2% to 28.1% and from 27.2% to 27.7% for the three and six months ended March 28, 2026, respectively.

Net Earnings

Net earnings decreased by $3.1 million, or 65.2%, for the three months ended March 28, 2026, due to the aforementioned items.

Net earnings decreased by $7.4 million, or 74.3%, for the six months ended March 28, 2026, due to the aforementioned items.

There are many factors which can impact our net earnings from year to year and in the long run, among which are the supply and cost of raw materials and labor, insurance costs, factors impacting sales as noted above, the continuing consolidation of our customers, our ability to manage our manufacturing, marketing and distribution activities, our ability to make and integrate acquisitions and changes in tax laws and interest rates.

Business Segment Discussion

We operate in three segments: Food Service, Retail Supermarket, and Frozen Beverages. The following table is a summary of sales and operating income, which is how we measure segment profit.

Food Service Segment Results

Sales to food service customers decreased $11.4 million, or 5.0%, to $214.7 million for the three months ended March 28, 2026. The largest driver of the decrease was the sales of bakery products, which decreased by 16.1%, with the decrease largely attributable to the anticipated sales reductions in our bakery business, as well as a decline in cookie sales to a large customer that was working through elevated inventory levels. Additionally, sales of handhelds decreased by 15.3%, with the decrease attributable to lower comparative volumes on our core handhelds, as well as contractual pricing true-ups on the lower costing of certain raw material ingredients. Somewhat offsetting these decreases were strong pretzel sales to foodservice customers, which increased 13.4%, with the increase largely attributable to volume increases seen within the category on our key brands, a continuation of the trend seen in the second half of our fiscal 2025, and the first quarter of our fiscal 2026.

Sales of new products in the first twelve months since their introduction were minimal for the three months ended March 28, 2026. Low-single digit net pricing increases were more than offset by the net volume declines, primarily attributable to the anticipated sales reductions in our bakery business.

Operating income in our Food Service segment increased $3.4 million, or 45.4%, to $10.9 million for the three months ended March 28, 2026, which reflected the efficiencies and benefits of the optimization of our manufacturing footprint as well as mix improvements across the portfolio.

Sales to food service customers decreased $31.1 million, or 6.7%, to $433.8 million for the six months ended March 28, 2026. The largest driver of the decrease were the sales of bakery products, which decreased by 16.4%, with the decrease largely attributable to the anticipated sales reductions in our bakery business. Additionally, sales of handhelds decreased by 18.9%, with the decrease attributable to lower comparative volumes on our core handhelds, as well as contractual pricing true-ups on the lower costing of certain raw material ingredients. Somewhat offsetting these decreases were soft pretzel sales to foodservice customers, which increased by 10.1%, with the increase largely attributable to volume increases seen within the category on our key brands, a continuation of the trend seen in the second half of our fiscal 2025.

Sales of new products in the first twelve months since their introduction were minimal for the six months ended March 28, 2026. Low-single digit net pricing increases were more than offset by the net volume declines, primarily attributable to the anticipated sales reductions in our bakery business.

Operating income in our Food Service segment increased $4.7 million, or 28.7% to $21.0 million for the six months ended March 28, 2026, which reflected the efficiencies and benefits of the optimization of our manufacturing footprint seen within gross profit, as well as mix improvements across the portfolio.

Retail Supermarket Segment Results

Sales of products to retail customers decreased $2.2 million, or 4.1%, to $51.6 million for the three months ended March 28, 2026. The net decrease was primarily attributable to the comparative increased slotting fees and promotional spend, primarily within the frozen novelties category, combined with some slight volume decreases in the frozen novelties categories, offset somewhat by handheld volume increases. Sales of new products in retail supermarkets were minimal in the three months ended March 28, 2026. Sales in the quarter were minimally negatively impacted by net pricing, with a portion of the decrease also attributable to slight net volume decreases across the retail portfolio.

Operating income in our Retail Supermarkets segment decreased $3.9 million in the three months ended March 28, 2026, primarily driven by the impact of the higher comparative slotting fees and promotional spend within the frozen novelties category, along with the impact of product mix on gross profit.

Sales of products to retail customers decreased $1.1 million, or 1.1%, to $97.5 million for the six months ended March 28, 2026, with the net decrease primarily attributable to the increased slotting fees and promotional spend in our second fiscal quarter, offset by continued strong handheld sales volumes throughout the period. Sales of new products in retail supermarkets were approximately $0.5 million in the six months ended March 28, 2026. Sales in the six-month period benefited minimally from the impact of the prior fiscal year's price increases, with the increase offset by slight net volume decreases across the retail portfolio.

Operating income in our Retail Supermarkets segment decreased $3.9 million, or 83.5%, to $0.8 million in the six months ended March 28, 2026, primarily driven by the impacts noted in the section above related to the three months ended March 28, 2026.

Frozen Beverages Segment Results

Frozen beverage and related product sales increased $2.3 million, or 3.1%, in the three months ended March 28, 2026. Beverage sales increased 12.6% to $46.7 million, with the increase driven by a strong performance in our theater channel, combined with pricing increases, a favorable sales mix and some foreign exchange related tailwinds. Gallon sales increased approximately 2% for the three months ended March 28, 2026. Service revenue decreased 13.2% to $21.0 million due to weakness in demand related to customer decisions to insource their maintenance, as well as slower restaurant traffic. Machine revenue (primarily sales of frozen beverage machines) increased 3.6% to $10.0 million driven by strong growth from a convenience customer.

Operating income in our Frozen Beverage segment increased $2.1 million in the quarter to $4.6 million, as strong beverage sales positively impacted leverage across the business.

Frozen beverage and related product sales increased $2.1 million, or 1.3% in the six months ended March 28, 2026. Beverage sales increased 6.3% to $91.6 million with the increase driven by strong performance in our theater channel, combined with pricing increases, a favorable sales mix and some foreign exchange related tailwinds. Gallon sales decreased approximately 2% for the six months ended March 28, 2026. Service revenue decreased 9.1% to $43.5 million due to weakness in demand related to customer decisions to insource their maintenance, as well as slower restaurant traffic. Machine revenue (primarily sales of frozen beverage machines) increased 5.2% to $20.7 million, primarily driven by strong growth from a convenience customer.

Operating income in our Frozen Beverage segment increased $1.5 million in the six months ended March 28, 2026 to $8.7 million, primarily due to the factors noted above in the fiscal second quarter, as strong beverage sales positively impacted leverage across the business.

Liquidity and Capital Resources

Although there are many factors that could impact our operating cash flow, most notably net earnings, we believe that our future operating cash flow, along with our borrowing capacity, our current cash and cash equivalent balances and our investment securities is sufficient to satisfy our cash requirements over the next twelve months and beyond, as well as to fund future growth and expansion.

Liquidity

As of March 28, 2026, we had $59.7 million of Cash and Cash Equivalents.

In December 2021, the Company entered into an amended and restated loan agreement (the "Credit Agreement") with our existing banks which provided for up to a $50 million revolving credit facility repayable in December 2026.

On June 21, 2022, the Company entered into an amendment to the Credit Agreement, the "Amended Credit Agreement" which provided for an incremental increase of $175 million in available borrowings. The Amended Credit Agreement also includes an option to increase the size of the revolving credit facility by up to an amount not to exceed in the aggregate the greater of $225 million or, $50 million plus the Consolidated EBITDA of the Borrowers, subject to the satisfaction of certain terms and conditions.

Interest accrues, at the Company's election at (i) the SOFR Rate (as defined in the Credit Agreement), plus an applicable margin, based upon the Consolidated Net Leverage Ratio, as defined in the Credit Agreement, or (ii) the Alternate Base Rate (a rate based on the higher of (a) the prime rate announced from time-to-time by the Administrative Agent, (b) the Federal Reserve System's federal funds rate, plus 0.50% or (c) the Daily SOFR Rate, plus an applicable margin). The Alternate Base Rate is defined in the Credit Agreement.

The Credit Agreement requires the Company to comply with various affirmative and negative covenants, including without limitation (i) covenants to maintain a minimum specified interest coverage ratio and maximum specified net leverage ratio, and (ii) subject to certain exceptions, covenants that prevent or restrict the Company's ability to pay dividends, engage in certain mergers or acquisitions, make certain investments or loans, incur future indebtedness, alter its capital structure or line of business, prepay subordinated indebtedness, engage in certain transactions with affiliates, or amend its organizational documents. As of March 28, 2026, the Company is in compliance with all financial covenants of the Credit Agreement.

As of March 28, 2026, $29.0 million was outstanding under the Amended Credit Agreement with a weighted average interest rate of 6.75%. Given that the Amended Credit Agreement is set to expire in December 2026, these borrowings have been classified as Current Portion of Long-Term Debt on the Company's Balance Sheet. As of March 28, 2026, the amount available under the Amended Credit Agreement was $181.2 million, after giving effect to the outstanding letters of credit.

Critical Accounting Policies, Judgments and Estimates

There have been no material changes to our critical accounting policies, judgments and estimates from the information provided in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies, Judgments and Estimates, in our Annual Report on Form 10-K for the year ended September 27, 2025, as filed with the SEC on November 26, 2025.