J & J Snack Foods Corp (JJSF) 2009 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the J&J Snack Foods first quarter earnings conference call.

At this time, all participants are in a listen-only mode.

Later, we will conduct a question-and-answer session.

Please note that this conference is being recorded.

I'll now turn the call over to CEO, Gerry Schreiber.

You may begin.

Good morning, everybody, and thank you for attending our quarterly conference call.

I'm Gerry Schreiber, and with me today is Dennis Moore, our Senior Vice President and Chief Financial Officer; Bob Radano, our Senior Vice President and COO; and Vince Melchiorre, our Executive Vice President in charge of Sales and Marketing.

I will begin with the obligatory statements, and then I will go into the comments on our quarter.

The forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements.

You are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof.

We undertake no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances that arise after the date hereof.

Results of operations.

Overall, we had a good quarter, a very good quarter.

Net sales increased 8% for the quarter.

For the quarter, our net earnings increased by 128% to $4.3 million or $0.23 a share from $1.9 million or $0.10 a share a year ago.

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

Food service -- sales to food service customers increased 9% for the quarter.

Soft pretzel sales were up 2% in the quarter, but unit sales declined about 8%.

Italian Ice and frozen juice bar treats and dessert sales increased 1% for the quarter.

Churro sales were up strong, 33%, primarily due to continued expansion and sales to one customer.

Bakery sales, excluding Hom/Ade and Daddy Ray's, were up 10% in the quarter.

Hom/Ade biscuit and dumpling sales were up 7% in the quarter, and Daddy Ray's fruit and fig bar sales were up 25%, as sales to the Dollar Store segments increased.

Retail supermarkets.

Sales of products to retail supermarkets were down 6% for the quarter.

Soft pretzel sales were down 4%, although case volume was lower.

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

ICEE and frozen beverages.

ICEE frozen beverages and related product sales were up 10% in the quarter.

Beverage sales alone were up 4%.

The beverage dollar sales increase resulted from a change in program structure for one customer, which resulted in both higher sales and higher cost of sales and operating expenses.

Without the change in program structure, beverage sales would have been down 3%.

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

Service revenue, managed service revenue for others was up 30% in the quarter.

Sales of frozen carbonated beverage drink machines were down slightly, about $100,000 for the quarter.

Consolidated.

Our gross profit as a percentage of sales in the quarter increased to 28.9% from 27% last year.

This is significant and almost 2 points improvement.

We were impacted by over $2.5 million of higher commodity costs in the quarter, which we were able to offset with price increases implemented last year.

Total operating expense as a percentage of sales was 1.3 percentage points lower in the quarter, primarily due to lower fuel and transportation cost.

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

Capital spending and cash flow.

Our cash and investment securities balance decreased $6.6 million in the quarter to $75.3 million.

We bought back $12.5 million of our stock in the quarter.

Most of that was a transaction between the Company and its CEO -- that's myself -- who sold 400,000 shares, representing about 9% of my holdings, which were sold for estate planning purposes.

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

Our capital spending was $4.5 million in the quarter, and we estimate that capital spending for the year will be in the $22 million range.

A cash dividend of nine and three-quarter cents, or $0.0975 was declared by our Board of Directors and paid on January 7, 2009.

Our Board of Directors authorized a 1 million share buyback in February of 2008.

We have bought back and retired 586,000 shares through the end of December.

At the end of last quarter, we owned $19.9 million of AMPS or Auction Market Preferred Stock, all of which, I'm happy to say, has been redeemed or sold at par in January.

Let me repeat -- we have no more exposure at current with AMPS.

We've been paid at par, our carrying value, for the entire amount which we held, $45.2 million on the market for Auction Market Preferred Stock filled last February.

Additional commentary.

Beginning in December, we have experienced a significant slowdown in our rate of overall sales growth compared to the prior year.

Let me just repeat that statement for understanding.

The percentage of sales growth only appeared to have slowed, which we believe is primarily attributable to the general economic slowdown.

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

In food service, soft pretzels had significant volume declines, while frozen juice bar desserts and ices, churros, Daddy Ray's fruit and fig bars, and other bakery items had flat to strong positive unit growth.

Unit sales of soft pretzels in our retail supermarket segment were down 19% in the quarter, although marketshare was maintained.

Case sales of frozen ice and juices were down 9% in the quarter, as we continue to reduce trade spending against these products to improve profitability.

Operating income in this segment improved by $0.9 million, or $900,000 in the quarter, largely as a result of reduced trade spending.

We are planning to institute a new advertising campaign, beginning in the third quarter of this year, to promote our soft pretzels.

Our ICEE and frozen beverage segment continues to experience challenging gallon sales in our base ICEE business.

Our managed service revenue to others continues to grow.

It was up 30% in this quarter, following a 24% increase for last year.

And as I stated before, this is a well-managed effort and this is a key component of our growth plans going forward.

Although commodity costs in general have recently fallen, we were nevertheless impacted by $2.5 million of higher cost this quarter compared to last year.

We expect our investment income will be significantly lower over the short-term, even though our balance of investment securities and cash equivalent is higher than a year ago.

We have invested in relatively safe investments since mid-September, and we have lost the benefit from our holdings of higher yielding Auction Market Preferred Stock.

We've continued to pursue acquisitions, albeit carefully, to supplement our internal growth.

Our estimated income tax rate increased to 41% for this year from 39% last year because of a very low tax benefit on higher-than-usual shared-base compensation expense related to stock options in our stock purchase plan.

Additionally, we will have less tax advantage investment income this year.

However, at this point, we are estimating a tax rate of 39% for the full year.

We appear to have firmed against the complex challenges that we experienced in 2008.

And although we too are challenge by the general economic condition, I am confident in our Company's ability to overcome these and continue to grow successfully.

Thank you for your continued interest.

(multiple speakers) Are you guys there?

I'm sorry, Mr.

Moore, did you want to go to questions?

Yes.

(multiple speakers)

Okay, I'm sorry.

You wanted to begin the question-and-answer session?

That would be fine.

Okay.

(Operator Instructions).

Brian Rafn.

A question for you.

Give me a sense, Gerry, when you talked about the last couple of years, you said that your cost structure had ramped up substantially.

And that you -- I think you'd made a comment that historically, you'd always kind of budgeted for 2% or 3% cost increases.

Where right now do you get a sense, Gerry, where is your overall cost structure relative to commodity feedstocks, fuel surcharges -- where is that level?

Is it flattening?

Is it modestly declining?

And give me a sense as to where you think your pricing is, versus that cost structure.

Are you ahead?

Behind?

Still looking at adding prices or are you going to stabilize for awhile?

Well, let me just say this, that we watch our costs all the time and we're very sensitive to pricing and our partnership with our customers.

We sell niche items which have high nutritional value at popular prices.

And we've always been -- there's a salesman's hat that we all wear here; we've always been a little bit reluctant to take advantage or take full advantage of our pricing.

However, saying all that, we did have a price increase in the past year.

And to that extent, even though our commodity costs are still significantly higher than where they were two years ago, there has been a general decline in some of our major commodities.

And the fact that energy, fuel, has come down too has not hurt us.

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

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

Well, I don't quite know if I understand the question.

We're not planning any pricing increases as of right now.

Right.

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

It captured some, perhaps not all, all right?

But we're very set on anything in there which would impact unit volume.

Okay.

Go down your product line once, Gerry, and give a sense -- if you look at your Italian Ices, your LUIGI's or Mama Tish's; if you look at your Daddy Ray's, you look at biscuits and ICEE -- are there historically -- we haven't since, obviously, the early part of the 1980's, had a major long-term recession.

Are there products that you feel are more sensitive or more elastic to weaknesses in consumer spending versus -- and does that impact how you're going to advertise the weaker products or the stronger ones in '09?

Well, fortunately for us, most of our products are niches and they are popularly priced.

I wouldn't say that we're totally insulated from any kind of recession, but I think we will be impacted less.

We've expanded our business channels.

We're in places that we weren't there years ago -- colleges and now the new Dollar Discount stores.

And we seem to get featured space -- not just backspace -- we get featured space in food service locations.

We work with our customer partners to do whatever we can as far as helping them manage their business.

So, hopefully, our business will continue to grow, even in the light of a recession.

And let's make no mistake -- all you have to do is read the headlines.

When people are slashing jobs at plants -- and that affects us a little bit, because we feed the cafeterias there -- and when people are -- when attendance at some of the hockey games and basketball games are off by -- take your pick -- 10% or 30% in there, that affects us a little bit too.

But again, we have grown our business and a lot of growth of businesses come from little things that weren't there four or five years ago.

We've done a tremendous job with this fruit and fig bar company that Jerry Law has taken over two years ago and managed.

We've doubled its sales.

Dan Fachner and his ICEE group have added some $35 million and managed service revenue for others.

And this is the same infrastructure, the same people that we had on our [10] fixing our own machines.

Hom/Ade biscuits and dumplings, which is a business that we didn't own two years ago, is adding some $35 million, $36 million in sales.

And they are, very quietly, the number two brand retail biscuit in the country.

About a year and a half ago, we bought a company that had no pulse -- a little plant and a little product line called Whole Fruit.

And with it came a product called Dogsters.

And all of a sudden, we're doing perhaps $4 million or $5 million there, the Dogster line.

We also have another product that is a special biscuit for -- that is being sold through Trader Joe's and some other supermarkets and PETCO.

It was called Blue Dog.

So, we've added a few niche companies and product lines over the years.

And not only added, we have done a tremendous job out of preparing them for the marketplace.

Okay.

On that questioning line, Gerry, do you get a sense in '09 that your focus on organic products or organic growth in developing your product line, are you looking at more product depth?

Are you looking at new product categories?

Or is it more adding seasonings or adding flavorings or playing different sizes -- well, give me a sense as to how your product development looks for '09.

Well, we have about a half a dozens things coming through the funnel.

And some of it has been coming through since springtime.

We introduced them at shows.

As you know, with any new product, most new products, they take a long time.

Most of them do not quite make it; but we're planning to grow through some innovation.

There's a couple of products that are coming out this quarter.

And perhaps by acquisitions, just like (technical difficulty) [these seven] years.

So I've got a team of tremendous individuals and managers that know our Company's style, that know my style.

I mean, I spent a few minutes last night congratulating them on a good quarter.

All right?

And now I'll spend the next 90 days beating them to make sure that they have this (multiple speakers).

Okay.

Can you give a sense, Gerry, on products that may be similar, what's your -- the customer traffic patterns?

In other words, are you seeing any shift in your product sales to warehouse clubs or the Dollar Stores, away from supermarkets?

Do you get any sense of how traffic is in your different channels?

Well, we're getting -- in Dollar Stores and some of the economy stores is a new segment to us.

So those numbers are way up with us.

That may be skewed because we weren't in there.

But we continue to grow.

Wal-Mart is a terrific customer and a terrific partner.

And Costco's and the other -- BJ's and Sam's, you know, our business with them remains good.

There has been a little bit of traffic declines in some of the mass merchandisers, particularly the malls.

Our school food service business, we still have the same attendees; however, they have budget restrictions in there, and perhaps they're not spending as much time and money in putting our products in there and having people to do that.

But we're fighting through that.

You know, I can't take people and drop them off in a mall.

All right?

But I can have our people getting in and around the mall and then go to a shopping center to find where else we can sell them.

Okay.

Give me a sense, Gerry, if you're developing any or if you're having any requests from some of the grocery stores relative to your development of private label products.

And if private label or generics are having an impact on your branded products.

We've done private label for years.

We look at private label as an opportunity for us to manage our product business segment better.

And as a matter of fact, we will continue to look at private label opportunities as they occur.

You've been, over the years, Gerry, the master of buying distressed assets and resuscitating these brands.

Are you seeing -- given, obviously, we've only been -- we've had the immense pressure since late September, October -- but are you seeing the availability of more potential acquisition candidates for you to look at?

Obviously, when you buy something distressed and you bring it in and fit it in and then integrate it, it takes a lot of muscle and energy.

And our Company is still vibrant and healthy and growing, but a lot of what we're seeing also is, if you'll pardon the expression, is not -- you know, I mean, there may not be much there.

And I'd rather be careful and step on sod and not step on something that looks like sod and it may be dog (expletive) out there.

And it's a wonderful fit for you, Gerry, and maybe it's not; I don't want to have to clean my shoes.

We've spent 37 (technical difficulty) here and growing and we've gotten a little more astute, so -- that doesn't mean we won't find something that is looking for a good partner and something that we can do (technical difficulty).

Maybe we'll find something that's already doing well and we bring it in, and so that I could -- then we could augment its growth and provide our resources to continuing its growth.

Okay.

Give me a sense that you roll out of the auction rate preferreds, given that we're in this kind of zero-plus T-Bill market, where are you guys looking at placing cash?

Kind of give me your thoughts as to what you're looking at for the cash on the balance sheet.

-- place we possibly can.

Most of it is what, Dennis, in T-Bills?

Most of what we have now is in treasury -- agency money market bonds.

We've put some money into CDs, some FDIC notes, backed notes.

So we're looking for stuff that's 100% safe right now.

And you don't have to worry about us.

Dennis and I are not going to take it down to Atlantic City and put it on red or black.

Mike, can we hit (inaudible)?

Can we move on -- can we get another --?

Sarah Lester.

I wanted to ask you about the decline in soft pretzel volumes.

Where is that coming from?

Is there a particular end market that's especially weak?

Or is it across the board?

You know what, Sarah?

And I don't want to speak for Vince, but we've looked at that and it's pretty much almost across the board.

I mean, if we want to start to pick places that are popular with the headlines now, the Rust Belt is down.

Why is the Rust Belt down?

Because there's issues there.

Our -- some of our school business is down because there's budget and issues there; where it's not sold on the menu, it's an a la carte item.

Some of the traffic in the malls.

And the mass merchandisers are down.

Vince, what would you comment --?

[At any rate], Gerry, it's across the board.

There are some geographic SKUs where it's worse than other places, but we've seen it in both segments, in retail and food service.

So it's been across the boards here.

Okay.

I guess it's probably due to economic problems -- can you get that volume back?

Or is it just a matter of waiting until the economy turns around a bit?

I think we can get some of it back.

I mean, we're just going to have to be more disciplined and we might have to, on the retail side, a little more trade spending and a little more consumer spending.

And you know what, Sarah?

It's not like -- what we're going through -- this is Gerry again.

This is a recession and for sure, we're in a recession.

However, this is the United States of America.

This is our country.

This is the most powerful country in the world.

So this will rebound.

And we're not going to slice and dice and get ourselves down to -- you know, to worry about -- to skinny ourself up in there, because we know we're going to come out of this recession.

And our Company has always been lean and mean to begin with.

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

Okay, great.

Thank you.

(Operator Instructions).

Mitchell Pinheiro.

A couple questions for you.

I wanted to understand what you're seeing in terms of that statement you put in your 10-Q about seeing the significant slowdown beginning in December.

Is that -- I mean, is that -- are you trying to say that Q2 sales growth will be weaker than Q1 if these trends continue?

Or --?

Let me interject and then I'm going to give you to Dennis.

You -- I mean, you had good instincts 15, 16 years ago when you started following us.

We've always been conservative.

Dennis writes the MD&A and looks at it.

Then he looks at things in there.

And oh, my God, for December, we were down such and such and this.

And we've -- so, obviously if you look at that statement, it says our sales increase declined.

So instead of running at an 8% to 10% increase, maybe we're running at, what, Bob?

3% to 4%?

(inaudible).

So, although that's -- I don't want to say it is a play on words in there, but nor do I want anybody to take too much caution against that conservative statement.

Last week, I'd say sales were up and I'm not sure what the number is, but they were up (technical difficulty) [almost] double digits overall.

Okay.

But -- all right.

So you're seeing a slowdown --

Slowdown, a rate sales increase.

Right, right.

So --

A 5% increase in salary every year.

And then one year, they got a 3% increase.

Is that a 40% [slip] -- you know, do you follow what I'm saying?

Yes, but I'm just looking at directionally things are not as strong as they were in Q1.

Dennis?

Well, you know, (inaudible) and as far as the second quarter, it's really too early to say.

We had -- part of the slowdown in December might have been attributable to last year heavy buy-ins in advance of price increases that took effect in January.

So it's kind of hard to say.

But we wanted to put it out there that -- yes, we're not expecting, at this point at least, 8% sales increase going forward.

Okay.

All right, that's helpful.

What about when you look at -- price increases are obviously important to offset commodity costs, inflation that you normally can't cover through operating efficiencies and things like that.

So you're getting pricing.

But with the core soft pretzels being down 8%, how much of that -- in food service -- how much is that related to price elasticity?

And what do you think would be related to just general economic weakness?

There's less people in the stores or less people buying product because of budget concerns.

Hard to say.

There's a place that I go by occasionally in the mornings.

This is before I had my knee surgery -- and incidentally, I want to thank a couple of you have asked how's my knee doing?

I had surgery; it's -- it will be seven weeks.

And I am now walking slowly with a cane and without a cane.

But I had knee replacement surgery on December 4.

And for some of you who had emailed me and I was emailing back on December 4 and 5 while I was under some strong pain medicine, and I apologize if I didn't make any sense.

But anyhow, I noticed that we have less people in the parking lots.

If I go into a convenience store for whatever reason, all right, you don't see the tradesmen; you don't see the construction worker; you don't see the general repair guy; you don't see a bunch of the builders coming in and spending their $10, $15 and getting coffee and a paper and a pack of cigarettes and a couple donuts or a pretzel.

There's not as much activity with that.

I think one of the biggest parts of the recession, if you take the total housing market and all the jobs that it employs, and all the trickle-down, other businesses that it impacts, yes, it is having some effect on us there.

But I don't think it's because we have exhausted the price elasticity of our core products.

Generally speaking, whether it be soft pretzels or perhaps a churro or an ICEE, we're still a popular price or perhaps a most economical price -- the economical cost at a snack bar or food service stand.

Okay.

When it comes to -- you took an increase in some bad debt expense.

Where is that coming from?

It's just -- we're seeing a general slowdown in payments and there are several accounts that that could be an issue.

So we felt it was prudent to reserve against them.

We don't know what's going to happen.

But as things move along, there may be more.

So we may as well try and get out there in front of than behind.

And let me just add, I'd rather us be a little bit -- I don't want to use the word aggressive, but I'll use the word conservative.

And Dennis is maybe a little bit medieval in his requirements and restrictions.

So, nothing wrong in being slightly over-accrued.

Could you talk a little about, in the quarter, the breakdown between pricing and volume on your overall business?

And what you would expect in the remaining three quarters?

Well, I'd be real happy to get close to these percentages of increase in the remaining three quarters, but I certainly can't say that that's going to happen.

I think in some of our product segments, we had some increases, unit increases, and I'm really gratified about that.

Overall, there was kind of more of a challenge.

I would say it's roughly 50% pricing initiatives and 50% additional sales and volume.

And keep in mind, our Hom/Ade biscuit group with MARY B's and the dumplings is doing well.

Daddy Ray's fruit bars is doing exceedingly well.

That was a plant that had a single line when we bought it two years ago.

We've expanded it to its wall barriers now.

And I've got a proposal coming into me that Jerry Law wants to knock out some walls and build on an addition as big as the whole plant.

So, we've always invested, we're over-invested in our key product lines and our manufacturing efficiencies.

And we will continue to do so and we will selectively do so, even given these general economic times.

Okay.

Last question is just on the margins.

Obviously, the rate of increase in commodities is slowing.

And obviously, you have pricing, so you're getting approved on the gross margin side.

You've always been pretty lean in the remainder of your business, very efficient.

So, are we at the point where we could see, this year, margins returning to historical levels?

Or, let's say near double-digit, maybe 9% kind of area?

Or are there other factors that we need to be aware of?

Mitch, we're in a -- I'd say challenging economic environment.

We're doing a relatively good job against what was really a lot of challenges, maybe a perfect storm of challenges.

This time a year ago, we were lamenting commodities; we had the energy problems; we had the general slowdown.

I don't know if we're going to get to the numbers you're suggested in the near-term, but it certainly is a goal of ours.

In terms of your spending, I mean, I did hear you say that you're going to have an advertising campaign in the third quarter for soft pretzels.

If I recall last year, you sort of backed off that prior campaign, that Internet integrated marketing campaign.

So you benefited last year.

Are you sort of spending back to those 2007 levels on marketing?

Well, not spend to those levels, though we're spending very, very wisely.

This is something that has been researched and we're trying to bring this [next-spend] program that is going to really be for the household, for the mom, for the kids in there.

Viral is good, but evidently we don't know how to do viral; so we'll let the virile be for -- I'm serious.

But it's interesting.

And I approved it, so I stand guilty of it.

But we had a couple of agencies just a couple of years ago and they were all viral, viral, viral.

And we chose something that -- sometimes when you look at something narrow focus, it sounds good, it seems good, but obviously, the campaign was a little bit disappointing.

So we're going to try and have something much more mainstream.

And Vince has had a couple of things that he has been considering and looking at and seeing.

And we think we're ready to go sometime in quarter 3.

Okay.

Well, actually, I did have one more question.

Your pet food business -- did I hear you correctly that Dogsters were the $4 million to $5 million sales run rate?

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

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

I mean --

Dogsters was in the hundreds of thousands.

Blue Dog was, what?

I don't know what the exact amount.

But I think it's -- what I'm really saying is that's a niche.

Both of them came along like a J&J way.

You know, Jerry Law took advantage of something he saw out there and a product line that we were using up some reusable dough, and the Dogsters came along on something that we bought with Whole Fruit, and was almost a kind of throw-in.

There's a major player in this segment, somebody called -- is that Nestle's or Unilever, Vince?

And somebody is doing $20 million with it.

We went out on a small, small budget and we're gradually but slowly building up a business and a franchise.

Okay.

Yes.

Thank you very much.

Brian Rafn.

Yes, Gerry, just a follow-up.

You mentioned that you were knocking the walls out, if I got it correctly, on the Daddy Ray's plant.

Is that (multiple speakers) -- what's that?

I said I have a plan before me --

Got a plan, right.

Okay.

Is that marketed, Gerry?

Is that a national distribution?

Or is that a kind of a regional brand?

It's national.

It's national, but it's something that you would see up at the front of the store like milk and Tide, but it's national distribution and it's a niche.

It's a fig and fruit bar.

And we are real, real good producers, and we're looking for ways that we can improve and expand the marketing and the sales.

Does that brand, Gerry, have the ability to expand or extend flavors and varieties?

Or is that -- you pretty full up?

Well, we expand -- we have varieties of flavors and we're doing a little private label.

That brand's doubled in two years and very quietly.

It's very quietly; hopefully, we're going to maybe double over the next three years too.

Okay.

There was a pushback the last couple of years on the nutritional content, vending machines with schools and cafeterias.

Is that -- has that kind of gone away?

Or is that still a focus of these school districts?

It is.

And that has impacted us in our cookie business and to some degree in some of our juice bar sales too.

One of the reasons -- we've taken a variety of Whole Fruit, which is no sugars in, no -- you know, 100% natural, and that's been a product that we introduced to schools this past July at the BB -- the School Food Service Show, the National School Food Service Show.

It took -- it was a little bit slow in getting started, till you get the product out and samples to people, but we're hopeful that that will help our juice bar sales in schools.

As far as the other nutritional requirements and restrictions, there's no question, we have been impacted, as have others been by the school requirements.

And part of what the schools are going through now with their budget prices and their shortfalls and flapjacking revenue comes from the fact that they're not able to sell as many items on a la carte.

(multiple speakers) If they don't change -- if they do change, we expect to be back in there.

Okay.

Can you talk, Gerry, about from the standpoint of average ticket, are you guys seeing -- you talked about the weakness in pretzels.

In the stadium arena, the sports venue, are you seeing the average consumer drawing in some of that average ticket from the standpoint of concessions?

Or is that still a fairly strong area?

Well, I can only talk about the past year.

We had a good year in baseball.

We had what was another consistent year in football, both collegiate and the NFL.

Basketball season and the hockey season crowds, there appears to be our case volume may -- has declined so far this year.

Maybe that will pick back up.

Beyond that, the traffic patterns in the malls and the traffic patterns with the mass merchandisers impact us.

Nobody is going to go to a -- one of the mass merchandisers particularly for an ICEE, although we hope that they do, or particularly for a pretzel.

But if they are there, we have good space, featured space in there.

We have terrific partners, business partners, that we work with -- the Target's and the Wal-Mart's.

So, if they are there, perhaps we will get our fair share of the 1-in-15 or the 1-in-20 that gets near the snack bar.

Okay.

Give me a sense -- maybe a question for Dennis -- what are you seeing as far as wage and salary pressures, Dennis?

You know, insurance costs, and then kind of give me a sense in the areas where you have plans, what's your employee turnover or retention?

This (technical difficulty) --

I don't know if you can hear you, Dennis.

Our medical costs actually jumped very significantly in the first quarter.

However, we are self-insured, so that can -- might just be an aberration from several high claimants.

Plus my knee -- my knee.

And Gerry's knee as well.

My knee, my knee.

I'm walking around with a tainted knee.

But our -- but we would expect that our rate of increase for our health insurance costs probably be higher than what it's been over the past several years.

In terms of our other liability insurance costs, again, we are primarily self-insured and we would expect our costs to be, at this point at least, same or lower than they've been, as we've improved greatly in our management of our corporate compensation costs.

In terms of wage pressures, we give what we believe are fair increases.

And we're not seeing turnover because of not paying people enough or by cutting salaries or any of that.

Okay.

Dennis, what is your in-field installation of units on ICEE and SLUSH PUPPIE?

Well, SLUSH PUPPIE is -- we do not make those installations direct.

They add distributors.

So we don't really have a good sense of that number.

It probably has not been increasing, though, at any significant rate.

And in terms of our ICEE, the installations are probably -- we're replacing machines.

We're always looking at new customers, but nothing significant has happened at this point through the first quarter of the year.

But the managed service has grown and that's (multiple speakers) --

Right.

But you're talking -- you're referring to installations of --

Right.

Yes.

Just one more question for you guys after a superb job.

We've had, to some degree, a pretty decent run on the movie and cinema side coming out of Hollywood.

Are you guys getting any sense, with more blockbuster pictures over the Christmas season and into the first of the year, are you getting any sense of better distribution through the movie and cinema channel?

Well, we're almost everywhere.

We're in most of them right now.

What we will get a better sense and we don't have any numbers yet, is as these movies come out -- I understand there's a -- I'm looking forward to seeing some as soon as -- but they're just coming out -- December and now in January, that it will result in higher attendees, and of course, more consumer spending at these events.

Right.

Superb job.

We're there.

Thanks also.

Thank you.

Right.

I hope your knee gets better, Gerry.

Thanks.

Thank you.

It's better.

I've turned the corner.

Next?

And at this time, we have no further questions.

All right.

I want to thank everybody for dialing in on the conference call.

I look forward to talking to everybody again three months from now.

And I hope to have equally as good news to report.

Thank you, ladies and gentlemen.

This concludes today's conference.

Thank you for participating.

You may all disconnect.