The Marzetti - Q1 2024

Transcript

Operator (participant)

Good morning. My name is Lauren, 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 2024 First Quarter Conference Call. Conducting today's call will be Dave Ciesinski, President and CEO, and Tom Pigott, CFO. All lines have been placed on mute to prevent any background noise. After the speakers have completed their prepared remarks, there will be a question-and-answer period. If you would like to ask a question during this time, simply press star one one on your telephone keypad, and questions will be taken in the order that they are received. If you would like to withdraw your question, press star one one again. Thank you. And now, to begin the conference call, here is Dale Ganobsik, Vice President of Corporate Finance and Investor Relations for Lancaster Colony Corporation.

Dale Ganobsik (VP of Corporate Finance and Head of Investor Relations)

Good morning, everyone, and thank you for joining us today for Lancaster Colony's Fiscal Year 2024 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 on 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. Dave?

Dave 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 2024. In our fiscal first quarter, which ended September 30th, consolidated net sales increased 8.5% to a first quarter record, $462 million, while gross profit increased 9.8% to $108.7 million. As a reminder, last year's first quarter sales were unfavorably impacted by an estimated $25 million in net sales that had shifted into the quarter ended June 30th, 2022, in advance of our ERP go live. The lower sales reduced last year's Q1 gross profit by an estimated $5 million.

In our retail segment, net sales growth of 8.5% was led by continued strong performance of our successful program for licensed sauces and dressings, and another solid quarter for our New York Bakery frozen garlic bread products. Excluding the impact of the sales shift that reduced retail sales in the prior quarter, retail segment sales volume, measured in pounds shipped, increased 1.4%. Circana retail scanner data showed our licensed sauce products continued to perform very well during the quarter, as Chick-fil-A sauces were up 17.6% to $41.4 million. Olive Garden dressings were up 9.6% to $39 million, and Buffalo Wild Wings sauces were up 25.9% to $20.8 million. Our category-leading New York Bakery and Sister Schubert's brands also increased their market share during the quarter.

New York Bakery's leading share of the frozen garlic bread category grew 400 basis points to 44.3%, while Sister Schubert's share of the frozen dinner roll category increased 80 basis points to 54.1%. I'm also happy to report that Chick-fil-A refrigerated salad dressings, which we launched nationally last May, are also performing well, with $10 million in retailer sales during the quarter. When combined with our Marzetti brand, our refrigerated dressing sales have grown to represent a category-leading share of 28.3%. In the food service segment, net sales grew 8.4% on increased demand from many of our national chain accounts, in addition to solid sales growth for our branded food service products.

Excluding the impact of the sales shift that reduced food service sales in the prior year quarter, food service segment sales volumes advanced 1.4%. We are pleased to report our Q1 gross profit increased $9.7 million or 9.8%. Our Q1 gross profit margin of 23.6% reflects a sequential improvement of 310 basis points over the prior quarter as we move past some of the temporary costs associated with strategic investments in increased capacity at our facility in Horse Cave, Kentucky, and our new ERP network. Our focus on supply chain productivity, value engineering, and revenue management remain core to further improving our financial performance. I'll now turn the call over to Tom Pigott, our CFO, for his commentary on our first quarter results.

Tom 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 8.5% to $461.6 million.

... Decomposing the revenue performance, revenue was favorably impacted by approximately 600 basis points from last year's sales shift. Higher net pricing contributed approximately 140 basis points of growth. The remainder was driven by volume. Consolidated gross profit increased by $9.7 million, or 9.8%, versus the prior year quarter, to $108.7 million. The gross profit growth was driven by the favorable impact of comping to the prior year shift in customer orders, which we estimate to have been an approximate $5 million tailwind, favorable pricing net of commodities performance, higher volumes, and the improved supply chain performance Dave mentioned. Commodity costs were consistent with the prior year. Selling general and administrative expenses increased 4.4%, or $2.2 million.

The increase reflects investments to support the growth of the business, as well as higher personnel costs. The investments to support the growth of the business included higher consumer spending and increased brokerage costs. Consumer spending increased to be more in line with historical levels versus a low comparative period, as our product supply position has improved. Expenditures for Project Ascent, our ERP initiatives, were down, partially offsetting these increases. Costs related to the project totaled $3.8 million in the current year quarter versus $9.2 million in the prior year quarter. Consolidated operating income increased to $7.5 million, or 15.2%, due to the gross profit improvement, partially offset by the higher SG&A expenses I mentioned. Our tax rate for the quarter was 23.7%.

We estimate our tax rate for the remainder of fiscal 2024 to be 23%. First quarter diluted earnings per share increased $0.23, or 16.9%, to $1.59. The net impact of the reduction in Project Ascent expenses was favorable by $0.15. With regard to capital expenditures, our full-year payments for property additions totaled $18.3 million. For fiscal 2024, we are forecasting total capital expenditures of $70-$80 million. This forecast reflects a decline versus the prior year spending, with the Horse Cave expansion now substantially complete. In addition to investing in our business, we also returned funds to shareholders. Our quarterly cash dividend of $0.85 per share, paid on September 30th, represented a 6% increase from the prior year's amount. Our enduring streak of annual dividend increases stands at 60 years.

Our financial position remains strong, with a debt-free balance sheet and $73.7 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.

Dave 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 costs and grow margins, and three, expand our core with focused M&A and strategic licensing. In our fiscal second quarter, we anticipate retail sales will continue to benefit from our expanded licensing program, including incremental growth from new products, flavors, and sizes we introduced in fiscal 2023. In the food service segment, we anticipate continued volume growth from select customers in our mix of national chain restaurant accounts. Regarding inflation, while our input costs remain high, in total, we do not anticipate a significant impact from inflationary costs in the upcoming quarter versus the prior year period.

With respect to our ERP initiative, Project Ascent, following the successful completion of our final implementation wave in August, we are now devoting our attention to leveraging the capabilities of the new system to strengthen our execution and support our continued growth. 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 take any questions you might have.

Operator (participant)

At this time, I would like to remind everyone, in order to ask a question, please press star one, one on your telephone keypad. One moment for the first question. Your first question comes from Jim Salera of Stephens.

Jim Salera (Research Analyst)

Hi, guys. Good morning. Thanks for taking our question. I wanted to-

Dave Ciesinski (President and CEO)

Good morning, Jim.

Jim Salera (Research Analyst)

Yeah, I wanted to ask about your visibility into consumer restaurant traffic as we kind of exit 2023 and move into calendar 2024. Should we take the commentary around the select restaurant volume growth to mean that overall restaurants are kind of cautiously optimistic moving forward?

Dave Ciesinski (President and CEO)

You know, I think, Jim, the, we were talking about it more in the context of our, our relationships with our customers. What I would tell you is, if we look at some of the more recent traffic data, you know, what, what I would tell you is L52 traffic across all restaurants were flat. L12... you know, restaurants were down 100 basis points, and that was true, in the most recent four weeks as well. When you look at QSR traffic, it was growing modestly, and I think what we're seeing in the most recent period is that traffic is now closer to flat. Full service restaurants, you know, to include, even some of the quick casual concepts, are seeing their, their traffic under more pressure. I mean, that's sort of industry-wide.

When you bring it in and you look at our strategic relationships, you know, we're seeing our QSR customers on balance, sort of consistent with broader trends, performing in line with what I described. And then we have customers like Chick-fil-A, which are continuing to buck the trend and seeing their traffic remain even stronger. So as we sort of bring it in and we talk about how do we see things, I think we're gonna obviously experience what everybody else is in the industry. But I think our partnership with Chick-fil-A, and maybe a couple of others, provides us a little bit of a tailwind, just because of what they're seeing from a traffic perspective.

Jim Salera (Research Analyst)

Great. That's very helpful color. Maybe shifting to retail, can you just give us some context around what the promotional environment looks like? Have you seen retailers coming to you guys asking for maybe more discounting or, or more pricing competition across some of the other peer groups in your categories?

Dave Ciesinski (President and CEO)

So another great question. We're seeing two things. We are seeing requests for increased promotional support, but what I will tell you is it's not been manifested in the form of, "You need to reduce your prices because of deflation." I think what they're seeing in the marketplace is the same thing that we are, that our basket of goods, from an inflation perspective, has normalized, right? We're no longer seeing the inflation that we were before, but we're not seeing deflation to the point where it feels like they can squeeze us for a trade. We are seeing some of our peers start to increase, but I think what we're looking at more closely is what's going to happen with private label.

Jim Salera (Research Analyst)

Okay, great. That's all very helpful. I'll jump back in the queue.

Operator (participant)

One moment for our next question. Our next question comes from Connor Rattigan of Consumer Edge. Your line is now open.

Connor Rattigan (VP and Senior Equity Research Analyst)

Hey, good morning. Thanks for the question.

Dave Ciesinski (President and CEO)

Hey, good morning, Connor.

Connor Rattigan (VP and Senior Equity Research Analyst)

Yeah. So, so obviously impressive volume growth for both businesses, even when adjusted for the pull forward. And, you know, I, I guess, just kind of as you look forward with compares kind of getting tougher, especially in retail, I guess just sort of what is, what is your visibility going forward on volume growth? I mean, I guess, should we sort of expect this sustained low single digit volume growth going forward for the rest of the year?

Dave Ciesinski (President and CEO)

You know, it's a great question because we're all watching the same macro information start to roll in for all the food and discretionary spending and, you know, in all outlet channels. You know, we still feel optimistic that we're in a position to deliver, you know, low single digit growth. And that's principally going to be coming in the form of volume, because we have a little bit of price in Q1, but you're gonna see the impact of that price sort of work itself out as we go forward. So, you know, where we see it right now, we continue to feel that we can deliver low single digit growth led by volume.

Connor Rattigan (VP and Senior Equity Research Analyst)

Awesome. Thanks, guys. And then also just to quickly follow up on Jim's question as well. You know, I mean, I guess there's been some concern that 2024 margins will just be I guess we'll call it flat to modestly up, right? I mean, I guess just trying to get a sense for sort of how you guys feel on margins sort of coming out of 1Q. I mean, it doesn't really sound like you've seen much relief on the cost front. I mean, I guess, do you guys feel like you're at a good place to really make progress on margins this year?

Tom Pigott (CFO)

Yeah, great question. So I think the year—you know, the overall outlook is consistent with what you said, flat to slightly up on margins. From you know, a tailwind standpoint, we've got a nice productivity program, we're kicking in our value engineering program, and so that should help us. But as, you know, and the commodity basket, has neutralized. You know, we're not seeing the inflation... Now, we're not seeing deflation yet when we look at the total basket. So the, you know, the key watch outs for us is, you know, we hit on already earlier in the call, is kind of the pressure to spend back. And, and that's a TBD for us overall.

I think overall, we've got a lot of initiatives to try to drive more margin growth, but we're cautious about our outlook, given kind of some of the macro trends we've hit on.

Connor Rattigan (VP and Senior Equity Research Analyst)

Got it. Makes sense. Thanks, guys.

Tom Pigott (CFO)

Thank you.

Dave Ciesinski (President and CEO)

Of course.

Operator (participant)

One moment for our next question. Our next question comes from Andrew Wolf of C.L. King. Your line is now open.

Andrew Wolf (SVP and Senior Equity Research Analyst)

Thank you. Good morning. I also-

Dave Ciesinski (President and CEO)

Hi, Andrew.

Andrew Wolf (SVP and Senior Equity Research Analyst)

Hi. I would like to follow up on pricing and promotional outlook. So maybe a different way to ask about it is if, you know, things are finally hitting normal. First, how is wage rate inflation, which I guess is the, I believe, is the second biggest factor cost, is that still normal? Just as we kinda think about regardless of pricing power, what's going on with your cost structure and, you know, any other input, energy or anything else, you know, in the cost structure, both controllable, you know, scaling up Horse Cave and perhaps not controllable, like, you know, input costs?

Tom Pigott (CFO)

... Yeah, so when you look at the other drivers, we, you know, from our perspective, we're still seeing higher than historic labor inflation, but not like we saw a couple years ago or a year ago. So that's moderated to low to mid-single digit. And then as we look at the rest of the basket, we're looking at similar rates of inflation impacting our P&L, and that's where our cost savings program kicks in. The only other one-off is the depreciation from the Horse Cave expansion, which just started to hit our P&L, and will continue to be amortized over the future years.

Andrew Wolf (SVP and Senior Equity Research Analyst)

Got it. So back to just sort of the normalization theme. So it sounds like your own spending, consumer spending, direct spending's normal or getting there. Just, you know, could you frame your pricing conversations with, you know, the retailers in particular, in that sense? I mean, can you go to them with your cost structure like you have in the past and said, "Yeah, commodity costs are flat, but we still got this," or are they kind of in no mood to hear that, given, you know, where the volume's been for the industry? And lastly, just kind of revisit your own view on promotion. You know, how promotional you wanna be, you know, with, you know, at, on the shelf with the retailers?

Dave Ciesinski (President and CEO)

Sure. Got a couple of things there. I wanna make sure I got my notes straight, Andrew. You know, your first question was, how are we thinking about inflation and the need to pass on pricing? And maybe-

Andrew Wolf (SVP and Senior Equity Research Analyst)

Yeah

Dave Ciesinski (President and CEO)

... to build on Tom's point, what we're seeing as you look at our basket of commodities, they're essentially flattening out. We are seeing some modest inflation on labor that's a little bit higher, excuse me, than normal, but we feel like we're able to offset that with our productivity program. So if you put this together, we don't expect margin headwind per se, from inflation, be it the commodity basket or from things like labor. So then you sort of press it forward, and you think about the retailers. One, we don't think that there's a need for us to go and to talk about elevated pricing. And for reasons that I'll get into here in a second, we think that it could probably be disadvantageous.

Maybe the way that I would frame this is that I think our economy, or we think our economy right now is at a transition point, not an inflection point, but a transition point that's really being brought about by the end of the era of free money. I think all of us have been doing it long enough that we can remember back when interest rates were at normalized level. So I think what we're looking at, the context that we're framing this whole situation in, is this idea of the end of the era of free money. And what we're seeing then is manifest in the form of resumption of elevated interest rates on credit card debt and other things that people are buying on time.

The resumption of student loans, the end of emergency pandemic benefits such as child tax credits and enhanced SNAP benefits. When you put all of that together for consumers, this end of this era of free money, I think what we're finding is that families are sitting down, and they're reworking their sources and uses of cash, and they're having to make trade-offs. And I think what we're starting to see now is depending on where they sit in the economic strata, it's starting to bite some consumers and families before others. But I think all of them are starting to sit down and look at sources and uses.

For some of those families, they're saying, "Hey, I wanna work more hours to be able to cover the cost of, let's say, student loan resumption." In the case of others, they may be saying, "I wanna do that, and by the way, I also need to start to think about making choices and trade-offs," across everything that they're spending on, from experiences to food to discretionary items. Now, this brings us into your question on promo.

I think the way we're thinking about it is that in this environment, now it's a transition environment from where we are to where we're going, it's gonna be really imperative that for us, managing brands, every one of our brand leaders, our sales folks, need to be looking at their, their consumer value equation, the features, the benefits, the brand, right, over the cost to make sure that in this new environment that we're transitioning to, that we continue to bring a relevant value proposition. Because consumers are in the process. They're not talking about it, but they're doing this right now. And I think for everybody that plays in our space, we need to be stepping back and asking ourselves some of those fundamental questions.

And to the degree to which we see our value proposition is under pressure, then we'll think about using things like trade or, or marketing, or even things like, shopper marketing in store, or price pack architecture and things like that. But the way we're really thinking about this, we're trying to take maybe a little bit more of a strategic view because we don't, you know, don't really think this is gonna be a one year or a one quarter thing. I would submit that what we're working our way into, again, isn't an inflection point like 2007 and 2008. This is a transition point, where we just need to make sure that we're continuing to offer a relevant value proposition.

Andrew Wolf (SVP and Senior Equity Research Analyst)

Great. I guess that's really helpful. And would... You earlier, Dave, you mentioned private label. I assume that that's sort of the big unknown, not completely unknown, but the degree to which there's private label substitution, I would imagine, is a big driver of some of the responses?

Dave Ciesinski (President and CEO)

... Yeah. I think it's really a watch out. So if you look at some of the most recent data, what you're seeing is that the growth of share of private label is still somewhat modest, right? So you're not seeing a big run to private label. And I would go back to the fact that this transition away from free money is starting to bite consumers in certain, you know, demographic segments more than others, and they're making trade-offs. In some cases, they just may be going to shop in different outlets where they feel like they can get value. In some cases, they may start to look at things like private label. For us, as we think about our brands, you know, this is stuff that we've done.

You know, I—all of us that have been doing it a while, is I, I can remember brands like Ore-Ida, where we knew we had to have certain price gaps versus private label, because if we crept above those price gaps, our brand was under pressure, right? So that was then, this is now. We need to be doing the same thing on our brands, all of our brands, within the context of this environment, to make sure the value proposition is right in the absolute, but it's also right versus those other substitutes, whether it's private label or another brand.

Andrew Wolf (SVP and Senior Equity Research Analyst)

Great. Thank you. Appreciate it.

Dave Ciesinski (President and CEO)

Of course.

Operator (participant)

One moment for our next question. Your next question comes from Todd Brooks of The Benchmark Company. Your line is open.

Todd Brooks (Senior Analyst and Managing Director)

Hey, thanks. Good morning, gentlemen.

Dave Ciesinski (President and CEO)

Morning, Todd.

Tom Pigott (CFO)

Morning, Todd.

Todd Brooks (Senior Analyst and Managing Director)

Wanna dig in on the licensed branded product a little bit. First, I was wondering if you had at your fingertips the Arby's number for Q1. You talked about the other three key brands.

Dave Ciesinski (President and CEO)

Give me a second here. Dale, if you get it before I do, feel free.

Dale Ganobsik (VP of Corporate Finance and Head of Investor Relations)

Yep. Yeah. So for the quarter, Todd, it was about $3 million.

Todd Brooks (Senior Analyst and Managing Director)

Okay, great. Thanks, Dale. My follow-up and why I needed that data point, what I don't think I maybe understood about the business I wanted to explore is: is there a certain seasonality to demand for these products between the September quarter and the June quarter? Because I know we saw it last year, but I thought some of that may have been around Horse Cave and just ramping into the new facility. But again, we've seen a sequential downtick of about, by my estimate, almost $7 million here in the September quarter. Can we talk about seasonality for those products? And then I've got a follow-up along that same line of questioning.

Dave Ciesinski (President and CEO)

You know, my intuition is that this really is an aseasonal business. You know, a seasonal business, you know, Sister Schubert's a great example of a highly seasonal business, where we're gonna see a spike over Thanksgiving and Christmas and another spike over Easter. We're going to see, you know, if we were talking about gravy in the old days, that would be a business with a big seasonal spike. With most of our sauces, I think you're gonna see that it's more level loaded across periods. I think what you're likely to see that may be driving periods where it's higher and periods when it's lower, a couple of things. One, when we launch the items, a lot of time, we get a lot of elevated display in caps that'll drive a spike.

So when we lap that, it could come across as something that's, you know, unique, that's going on. But really, it's we're just lapping a period of launch, and now it's just selling off of the shelf. I do think that you're—you may see brands like Buffalo Wild Wings, that you see more focus on around March Madness and football than you will in others, like, you know, barbecue items. I think it'll move maybe more consistent with that. Olive Garden dressing, I wouldn't expect that to be terribly seasonal. You know, it's a year-round business. There's a little bit of a spike on salads after the first of the year when everybody decides to go on a diet. But again, that's a little bit of a one-off there that I would point to.

Todd Brooks (Senior Analyst and Managing Director)

Okay, great. And then my follow-up is, can you, Dave or Tom or Dale, snapshot for us, if we look at the licensed branded product portfolio entering the end of this year versus the end of the last calendar year in 2022, can we review how much broader the offerings are? Whether it's pack size, flavors, but also distribution, if Horse Cave allowed you to open up different channels of distribution, and then maybe we can segue into a discussion of growth outlook for these products across full fiscal 2024.

Dave Ciesinski (President and CEO)

Sure. So why don't I try to do it? I think when you look at the business overall, you know, the change that we're talking about in Q1 for all of our licensing was about $26 million, about 30, 30% of growth. So we continue to feel pretty good about the growth from the proposition, overall. Now, bringing it into some of the specific products, I'll try to work on that for you off the top of my head here. So, I think if you go back into the spring period of last year, we launched a, actually, it would have been fall of last year.

We launched a 24-ounce size for Chick-fil-A, and then on the heels of that, we came out with the barbecue and the sweet and spicy Sriracha that really started to go more broadly in distribution, not in the fall, but in the spring. In the spring for Chick-fil-A, we also launched the salad dressings and produce that we talked about, four flavors of those. And I mentioned on the call there that we did, for this quarter, $10 million of retailer sales on those items. As you go around on Buffalo Wild Wings, if my memory serves me, we launched two items, two incremental new flavors there. On Olive Garden, we launched a Caesar, which is, we're very pleased with how it's doing in the marketplace.

We announced the launch of Texas Roadhouse on the last call, but obviously, that's not into the marketplace. We don't expect that to be out until later in this fiscal year, as we had showcased for you. So you add all that together, what's that? Maybe seven or eight SKUs that we brought. Probably the hardest driver of those SKUs is the 24-ounce, where we're seeing very nice growth. You know, loyal consumers are trading up to the larger size, but all of them are contributing in some measure. So hopefully that kind of gives you an idea of what we're doing in terms of growth we brought to the marketplace phase between the fall and the spring.

In terms of capacity, yeah, I would say at this point, we have, you know, enough capacity to continue to facilitate the growth of both our own brands and bottles and licenses. So we have no limitations there. You know, we are limiting the number of shifts that we're using in some of these facilities, so, or in Horse Cave. So if we saw an opportunity really to go, we would be able to add more shifts to sell.

Tom Pigott (CFO)

Todd, just a bit, you know, so-

Todd Brooks (Senior Analyst and Managing Director)

Oh, sorry. Go ahead, Tom.

Tom Pigott (CFO)

Yeah, yeah. I mean, overall, you know, we feel really good about the platform. If you go back to 2022, we generated 28% growth in terms of net sales. We generated around 30% in 2023, and we expect to continue to drive strong growth behind this platform, enabled by all those new items that Dave mentioned, as well as the Horse Cave capacity expansion.

Dave Ciesinski (President and CEO)

Yeah, as the base gets bigger, obviously, the size of the period-on-period growth numbers will get smaller. We're not gonna continue to grow at those sort of rates now that this is growing into a material piece of business for us.

Todd Brooks (Senior Analyst and Managing Director)

So with capacity still in Horse Cave, opportunities around channels that you may have deferred before, club, maybe, especially with some of the larger pack sizes, where do we stand on that? And there was some work kind of pre-pandemic on the drug and dollar channels. Don't know where we are now for kind of reopening and revisiting those opportunities. I think you had really good success in drug with the core, Olive Garden SKU, if I remember correctly. So I was just wondering about-

Dave Ciesinski (President and CEO)

Yeah

Todd Brooks (Senior Analyst and Managing Director)

... distribution expansion as a source of growth.

Dave Ciesinski (President and CEO)

Sure. It continues to be an opportunity, but one of the unique features of a licensed partnership is that our partners are able to weigh in and talk about what channels they want their products in and what channels they don't. So we don't always have the same degree of latitude that we might like. What I can point to, you know, more recently is, you know, Olive Garden has, you know, we're building distribution in the drug channel, and it's continuing to perform well.

Tom Pigott (CFO)

Dollar.

Dave Ciesinski (President and CEO)

In dollar as well. Buffalo Wild Wings, we're taking into club. We're gonna have some rotations going on this fall that we're excited about, with Costco and some of the others. So this is very much an active and ongoing discussion, but maybe the nuance here, Todd, is that, you know, we have to bring our partners along in these discussions, and each of them has maybe different feelings about which channels they want their brand in. It's maybe the easiest way to describe it. But this also becomes an area where our sales team and our marketing team works to, you know, educate. These are restaurant operators. They're smart, sophisticated people, but, you know, they're really not in the CPG space. So part of the idea of the partnership is we work with them to bring them along.

Can't push them, but we work with them to bring them along.

Todd Brooks (Senior Analyst and Managing Director)

Perfect. Very helpful. Thanks, guys.

Dave Ciesinski (President and CEO)

Of course.

Tom Pigott (CFO)

Thanks, Todd.

Operator (participant)

One moment for our next question. Your next question comes from Alton Stump of Loop Capital. Your line is open. Alton, your line is open. All right.

Dave Ciesinski (President and CEO)

Alton might be having a technical difficulty.

Tom Pigott (CFO)

Yeah.

Dave Ciesinski (President and CEO)

We could certainly bring him back if you'd like to go to the next caller, operator.

Tom Pigott (CFO)

See if there's anyone else who wanna ask, ask a second round here, Lauren.

Operator (participant)

Sure. As a reminder, to ask a question, please press star one, one on your phone.

Tom Pigott (CFO)

Like we're set.

Operator (participant)

All right. If there are no further questions, we will now turn the call back to Mr. Ciesinski for his concluding comments.

Dave Ciesinski (President and CEO)

Thank you, and thank you, everybody, for joining us this morning. We know it's a busy time with lots of companies reporting, so thank you for joining us, and we look forward to talking to you, in February, when we report our second quarter results. Have a great rest of the day.

Operator (participant)

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.