Ladies and gentlemen, thank you for standing by and welcome to the John B. Sanfilippo & Son, Incorporated fourth quarter and fiscal 2020 year-end operating results conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions].

Please be advised that today's conference may be being recorded. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Mr. Michael Valentine, Chief Financial Officer. Thank you. Please go ahead..

Thank you Jimmy. Good morning everyone and welcome to our 2020 fourth quarter and fiscal year earnings conference call. Thank you for joining us today. On the call with me today is Jeffrey Sanfilippo, our CEO and Jasper Sanfilippo, our COO. Before we start, we may make some forward-looking statements today.

These statements are based on our current expectations and they involve certain risks and uncertainties that are inherent in our business. The factors that could negatively impact results are explained in the various SEC filings that we have made including forms 10-K and on occasion forms 10-Q.

We encourage you to refer to these filings to learn more about these risks and uncertainties that are inherent in our business. I will start the call today by covering financial highlights for the 2020 fourth quarter and fiscal year.

The current fourth quarter net sales decreased by 5.8% to $204.2 million compared to net sales of $216.8 million for the fourth quarter of fiscal 2019. The decrease in net sales in the quarterly comparison was primarily due to a 3.3% decrease in our weighted average selling price per pound.

The decline in the weighted average selling price came from a shift in product mix from higher-priced almonds, pecans and walnuts to lower-priced trail and snack mixes and peanuts. Lower selling prices for cashews, which resulted from lower acquisition costs, also contributed to the decline in the weighted average selling price.

A 2.6% decline in sales volume, which is defined as pounds sold to customers, also contributed to the decline in net sales. Sales volume increased in the consumer distribution channel by 16.1%. The volume increase in the consumer channel was primarily driven by a 25.2% increase in private brand snack nut and trail mix sales with existing customers.

Approximately 59% of the total sales volume increase in the consumer distribution channel occurred in April, most of which we attribute to continued pantry loading in response to COVID-19. Sales volume declined by 43% in the commercial ingredients distribution channel primarily due to a 63.3% decline in sales volume to food service customers.

The decline in food service sales volume was due to stay at home orders, restaurant closures and a decline in air travel, again as a result of COVID-19. The decline in food service sales volume was offset in part by increased sales of peanut crushing stock to peanut oil processors.

Sales volume declined by 32.4% in the contract packaging distribution channel, primarily due to some lost business with one customer that increased its internal nut processing capacity and the unfavorable impact of lower convenience store foot traffic on another customer's business in this channel, again as a result of COVID-19.

Looking at sales volume for brands in our consumer channel, Fisher recipe nut volume increased by 3.4% and that was primarily due to higher online sales as consumers are cooking and baking more frequently and reducing their trips to physical stores.

The 43.3% decrease in sales volume for our Orchard Valley Harvest brand primarily came from temporary store closures at a major customer in the nonfood space and some lost distribution at another customer.

Fisher snack nut volume decreased by 1.6% and that was mainly due to a canceled promotion at a major customer in the home improvement space, but that was offset in large part by distribution gains in grocery stores for our Oven Roasted Never Fried product line.

Sales volume for Southern Style Nuts decreased by 3.8% as a result of some lost distribution at a major customer and lower promotional activity at other customers. These were offset in large part by increased sales in club stores and online sales.

We attribute the cancellation and lower promotional activity for Fisher snack nuts and Southern Style Nuts to a general unwillingness on the part of retailers to execute promotional activity as a result of COVID-19.

Fiscal 2020 net sales increased by 0.4% to $880.1 million, compared to fiscal 2019 net sales of $876.2 million while sales volume increased by 6.1%. A 5.3% decline in the weighted average selling price per pound offset nearly all the positive impact on net sales from the sales volume increase in the year comparison.

The majority of the sales volume increase was driven by growth in lower-priced trail and snack mixes and peanuts, which drove the decline in the weighted average selling price per pound.

Lower selling prices for products containing cashews and pecans, driven by lower commodity acquisition costs, also contributed to the decrease in the weighted average selling price per pound.

Sales volume increased by 13.7% in the consumer distribution channel and that volume increase was primarily driven by increased sales of trail mixes and snack nuts due to distribution gains with new and existing private brand customers as well as increased sales of Southern Style Nuts products.

Sales volume declined by 6.9% in the consumer ingredients distribution channel and by 13.8% in the contract packaging distribution channel for the same reasons I cited previously in the quarterly comparison. Gross profit decreased to $40.7 million in the fourth quarter of fiscal 2020 compared to $43.6 million in last year's fourth quarter.

Gross profit margin was 20% of net sales, compared to 20.1% of net sales in the prior fourth quarter.

The decline in gross profit was due primarily to the declines in food service and contract packaging sales volume, which were offset in part by gross profit generated from the increase in sales volume in the consumer distribution channel, lower commodity acquisition costs for cashews and reduced manufacturing spending per produced pound due to manufacturing efficiency gains.

The current quarter also included $1 million in COVID-19 related bonus expenses paid to our essential manufacturing employees and that ceased in the latter part of the current fourth quarter. Gross profit for fiscal 2020 increased to $175.8 million, compared to $158.3 million in fiscal 2019.

Gross profit margin increased to 20% of net sales from 18.1% of net sales for fiscal 2019. The increases in gross profit and gross profit margin were primarily due to increased sales volume in the consumer distribution channel, lower commodity acquisition costs for cashews and reduced spending per produced pound due to manufacturing efficiency gains.

Total operating expenses decreased by $2.1 million and total operating expenses as a percentage of net sales decreased to 12.3% from 12.5% in the quarterly comparison. The decrease in total operating expenses in the quarterly comparison was mainly attributable to declines in incentive compensation, consulting and travel expenses.

These decreases were offset in part by increases in product donations to food banks and higher recruiting expenses. Total operating expenses for fiscal 2020 decreased by $2.5 million and total operating expenses as a percentage of net sales decreased to 11% from 11.4% in fiscal 2019.

The decrease in total operating expenses came from declines in advertising, freight, legal and consulting expenses. A gain of $900,000 from an insurance recovery related to a fire in our Garysburg, North Carolina facility and that fire occurred in the second quarter of fiscal 2020 also contributed to the reduction in operating expenses.

These reductions were offset in part by increases in expenses for payroll related and incentive compensation, product donations to food banks and broker commissions.

Interest expense decreased to $500,000 for the fourth quarter of fiscal 2020 from $600,000 in last year's fourth quarter and interest expense for the current fiscal year decreased to $2 million from $3.1 million for fiscal 2019.

The decrease in the quarterly comparison resulted primarily from lower interest rates and the decrease in interest expense in the yearly comparison came from lower average debt levels and lower interest rates.

Net income of $10.3 million or $0.89 per share diluted for the fourth quarter of fiscal 2020, compared to $11.3 million or $0.98 per share diluted for the fourth quarter of fiscal 2019. Net income for fiscal 2020 was a record $54.1 million or $4.69 per share diluted, compared to net income of $39.5 million or $3.43 per share diluted for fiscal 2019.

Now taking a quick look at inventory. The total value of our inventories on hand at the end of the current fiscal year increased by $15 million or 9.6% compared to the total value of inventories at the end of fiscal 2019.

The increase in the total value of inventories was primarily due to higher quantities on hand for peanuts, cashews and almonds, as well as higher acquisition costs for peanuts and walnuts. These increases were partially offset by lower acquisition costs for pecans.

The weighted average cost per pound of our raw nut and dried fruit input stocks on hand at the end of the current fourth quarter fell by 7% compared to last year. This decline was due to an increase in the quantities of lower priced peanuts on hand compared to higher priced tree nuts.

Lower acquisition costs for cashews and pecans also led to the decline in the weighted average cost per pound of our raw nut and dried fruit input stocks. And now, I will turn the call over to Jeffrey Sanfilippo, our CEO, who will provide additional comments on our performance for the current quarter and fiscal year.

Jeffrey?.

Thank you Mike. Good morning everyone. After reporting record results for our third quarter of fiscal 2020, the company finished the year strong despite significant headwinds from the impact of COVID-19 and the dramatic shift in consumer behavior and consumption trends at the start of our fourth quarter.

Navigating through a challenging landscape in the fourth quarter of fiscal 2020, the company still ended the year by breaking records in gross profit which increased by $17.5 million or 11.1% to $175.8 million. Net income reached a record $54.1 million, as Mike mentioned and earnings per share reached a record $4.69.

Our five production facilities, our essential businesses have stayed open through the pandemic to sustain the food supply chain. I am so proud of the hard work, dedication and leadership of our team members throughout the company. They showed up to provide essential goods for our customers.

They showed up to service our consumers and they showed up to support their families and to support each other.

A special thank you to our manufacturing teams who come to work every day and continue to stay focused on operational efficiencies in production to reduce spending per produced pound while at the same time providing best-in-class service levels for our customers and consumers.

Our strong financial position allowed us to pay cash dividends for the ninth year in a row. We paid $68.7 million during fiscal 2020 to our stockholders. And we are paying bonuses to each of our exceptional associates throughout the organization who worked together this past year. These are truly extraordinary times for all of us.

The pandemic had positive and negative impacts upon our results for the fourth quarter of fiscal 2020. We saw strong evidence of a shift in consumer preferences to shop in smaller store formats like grocery stores and via the Internet. Based on IRi Total U.S.

- Multi Outlet market data, consumers are also doing much more cooking and baking at home with the entire baking aisle category sales increasing by 49%. Internet-based sales for our brands increased by 365% led by strong increases in our market-leading Fisher recipe nut line.

On the other hand, closures for restaurants and other food service establishments throughout the country negatively impacted our food service business. However, we were encouraged by significant improvement in food service business as some re-openings occurred in the fourth quarter.

In April, our food service sales volume declined by 90% compared to April of 2019, while in June our food service sales volume declined by 34% compared to June of 2019. In snack nuts and snack and trail mixes, we saw a significant shift to lower priced private-label products from national branded products.

Based on changes in our item mix, we also saw consumer preferences shift from single-serve grab-and-go items to larger pack sizes such as 32 ounce jars and stand up bags. The shift to larger pack sizes allowed us to capture significant efficiencies in manufacturing and distribution.

We believe we are well-positioned to take advantage of these dramatic changes in consumer preferences in respect to product line diversity and manufacturing capabilities.

In recognition of these changes, we also bolstered our marketing and innovation leadership by adding individuals from major consumer product companies who have significant experience in managing brands in a changing environment.

The company's long term objective to drive profitable growth includes three pillars, to continue to grow Fisher, Orchard Valley Harvest, Squirrel brand and Southern Style Nuts into leading nut brands by focusing on consumer insights in the snack, recipe, trail snack mix and produce categories, two, provide integrated nut solutions to grow private brand businesses in each distribution channel and three, expand our offerings into alternative distribution channels.

With new resources added to sales, marketing, innovation and research and development, JBSS will execute on our strategic plan to grow our branded business by reaching new consumers via product and packaging innovation, expanding distribution across current and alternative channels and focusing on new ways consumers are purchasing food with an emphasis on e-commerce.

Turning to year-end sales review by business channel. In the consumer channel, net sales increased by 7.9% in dollars and 13.7% in sales volume in fiscal 2020 compared to fiscal 2019. Sales volume increase, as Mike mentioned, was driven by increases in trail mixes and snack nuts with new and existing private brand customers.

There are significant opportunities in fiscal 2021 to grow our consumer sales with both private brands and with our strong branded portfolio, especially in e-commerce, grocery and club, where we expect those segments to continue to benefit from shifts in consumer buying.

Net sales in the commercial ingredient distribution channel decreased by 16% in dollars and 6.9% in sales volume compared to fiscal 2019. Mike talked about the decrease in sales volume due to decreases in food service from restaurant closures, the decline in air travel and the various nationwide stay at home orders as a result of COVID-19.

But prior to the start of statewide lockdowns and travel restrictions, our food service business was on track for strong growth. Our commercial ingredient sales and marketing teams have done a great job building customer relationships and expanding distribution.

We have since reallocated and repositioned some resources to pursue alternative channels to follow changing demands for our products. In the contract packaging channel, net sales decreased by 20.7% in dollars and 13.8% in sales volume.

This channel for JBSS has seen declines in sales volume over the past few years and we have reallocated some resources from contract packaging to focus on other priorities. This channel was particularly impacted in a negative way by COVID-19 as trips to convenience stores declined significantly for a key customer in this channel.

Turning to category updates. I will share some brand results and category results for the quarter. As always, market information I will be referring to is IRi reported data and for today it is for the period ending June 21, 2020. When I refer to Q4, I am referring to 13 weeks of the quarter ending June 21.

References to changes in volume on price are versus the corresponding period one year ago. We look at the category and IRi Total U.S. definition which includes food, drug, mass, Walmart, military and other outlets, unless otherwise specified. And when we discuss pricing, we are referring to average price per pound.

Breakouts of the recipe, snack and produce categories are based on our custom definitions developed in conjunction with IRi. And the term velocity refers to the sales per point of distribution. As has been mentioned COVID-19 had positive and negative impacts upon our results for the fourth quarter.

We saw strong evidence of a shift in consumer preferences to shop in smaller store formats like grocery and online. First let's review some category dynamics. The total nut category increased in both sales dollars and pound volume by 5% in the fourth quarter.

This was in line with the growth rate we saw in Q3 and ahead of the category growth rate in the first half of our fiscal year. Overall, prices for the quarter were flat versus the prior year. Now I will cover each category in a little more depth, starting with recipe nuts. Based on IRi Total U.S.

- Multi Outlet market data, consumers are doing much more cooking and baking at home with the entire baking aisle category sales increasing by 49%. The impact of the pandemic is significant when it comes to people preparing more meals at home. This change in consumer behavior is driving strong recipe nut category growth.

In Q4, the category increased 28% in dollars and 24% in pound volume. Despite strong category growth, our overall Fisher brand continues to be challenged by decline in on-shelf placement with a key retailer. Our Fisher recipe nuts decreased 6% in dollar sales and 10% in pound sales for the quarter versus last year.

As a result, Fisher share in the category decreased 5.6 pound share points versus last year. The decline in pound volume at retail was due to lost distribution at a major customer in the mass merchandiser sector, which was offset in a large part by pound volume growth in grocery. In traditional grocery, which IRi calls the U.S.

food channel, Fisher recipe increased 44% in pound volume behind the COVID-based trend referenced above where consumers shifted their spend to grocery. Fisher continues to be the branded share leader in the recipe category when using a broader multi-outlet definition or within the U.S. food channel. Now let me turn to the snack category.

In Q4, the snack category increased 6% in dollar sales and 9% in pound sales. Fisher snack increased 27% in dollar sales and 21% in pound volume in Q4 driven by 19% increase in total points of distribution.

This growth was primarily driven by the Fisher Oven Roast Never Fried line, as we continue to expand beyond the core Fisher geography and increased pound sales by 109%. Pound velocity and total points of distribution increased by 31% and 60%, respectively, versus last year.

Pound volume for our Southern Style Nuts brand at retail increased by 7% in the quarter due to a distribution gain with a new customer, while pound volume for the total trail and snack mix category decreased by 3% in the quarterly comparison. In Q4, the produce nut category increased 3% in dollar sales and decreased 3% in pound volume sales.

Orchard Valley Harvest, our produce nut brand, decreased 30% in pound sales resulting in a pound share declined of 0.5 points versus last year. The volume decline was due to some lost distribution at one key customer. Within traditional grocery, OVH was flat in dollars and declined 1% in pound sales.

In closing, fiscal 2020 was a strong year, especially considering the dynamic changes we have all experienced since March. This success is possible because we have talented people across our organization and we invest in them to do what matters most to drive results.

We are executing our growth strategies, implementing continuous improvement projects throughout the organization to optimize our cost structure and we continue to invest in our people, brands and processes to better serve our customers and consumers and create value for our shareholders.

We will continue to face challenges in our fiscal 2021 as a result of the COVID-19 pandemic continues. Our company continues to follow recommendations made by state and federal regulators and health agencies to ensure the safety and health of our employees.

We know there is uncertainty about future local and federal restrictions aimed to mitigate and control the pandemic. As these restrictions were loosened during the fourth quarter of fiscal 2020, we saw a gradual increase in demand from our food service, restaurant, convenience store and nonessential retail customers.

While we realize this is a fluid situation, we believe the company is in a very strong position to respond to changes quickly and continue to grow our business.

The management team and all our dedicated employees have a steadfast commitment to develop business opportunities that create shareholder value and provide relevant, profitable, innovative products and services to our customers and consumers across all our channels.

We appreciate your participation in the call and thank you for your interest in our company. I will now turn the call back over to Mike..

Okay. Thank you Jeffrey. At this time, we will open the call to questions.

Jimmy, can you please queue up the first question?.

[Operator Instructions]. Our first question comes from Chris McGinnis with Sidoti & Company. Your line is now open..

Good morning. Thanks for taking my questions and nice quarter in such a tough environment..

Good morning Chris..

Morning. I was wondering if you can maybe just talk around trends and I think probably around the consumer but also related to food service? I guess you provided a little color on food service progress in the quarter.

But can you also many give us an update up to since the quarter ended but also how the consumer trended through that quarter and maybe where you are exiting at on the demand side? Thank you..

Hi Chris. This is Jeffrey. So since April really, we have seen continued dramatic shift in consumer behavior. If you just look at some numbers since April, the grocery channel has actually grown 22% since April. We see growth in the dollar store channel. That channel was up 24.5% since April.

E-commerce, though, is where you are seeing the most dramatic growth. It's up over 82% since April. Consumers that never bought online have purchased product online. They have gotten used to the technology. They like the convenience of buying online, having it delivered to their homes or easily picking up at a local retailer.

And so we expect to continue to see growth in e-commerce. And that's why I mentioned on the call, we are reprioritizing or reallocating additional resources to e-commerce to take advantage and follow consumption where it's going. We see strong growth in the club channel as well.

And a lot of markets like the club channel, for example, somewhere we are not very well developed. And so we have a key focus on building a strong platform in the club channel to follow consumer growth in that channel.

Food service, as I mentioned, we saw some positive reductions in declines, I guess you would say, in June as a result of some of the re-openings of states and restaurants. We just watch it. We monitor it very closely.

I will say that June and July, or actually July, we saw a little bit more positive growth rebounding from some of the state closures and some volume pickup in the food service channel.

We do expect, with the fluid situation with the pandemic, that it is just difficult to say what will happen, but we are optimistic that as things settle down, we will see some of that growth rebound in food service..

Great. I appreciate it. And I guess just thinking about, how are you taking advantage of that, especially the significant increase in the e-commerce? Are you changing branding? Are you thinking of marketing? Can you just maybe dig in a little bit about taking advantage of that? Thanks..

Sure. So we actually had a really strong position going into the pandemic. We have spent a lot of time this past year on building a strong e-commerce platform, both for our brands on Amazon and at walmart.com. So we were prepared and in a good position to take advantage of the spike as consumers started to buy online.

We are reallocating marketing investments towards more social media, moving away from some of the typical FSIs and other radio advertising that we were doing in the past and reallocating some of those resources to e-commerce. It's a different way to approach consumers but it's the right thing to do..

Great. And I guess just a couple of wins and losses throughout the portfolio.

Can you just talk maybe a little bit about your customer base and the health you are seeing and I guess any changes longer term that you think about where the brands are going and where they will be sold through?.

Sure. And so as I have mentioned on previous calls, we have a very low ACV on a lot of our brands. And so there is so much opportunity to expand organically through just our current brand distribution. So we are laser-focused on that. As I mentioned, the grocery channel is growing dramatically as a result of the pandemic.

And so our sales and marketing teams and innovation and R&D are really focused on building our branded distribution in grocery because we just see the increase in growth there. And so we are focused on expanding our distribution, expanding our ACV and also looking at the category in a different way.

I mentioned that we are seeing less of the multi-pack, single-serve format as consumers look to buy larger size formats. So we are adapting quickly to those consumer changes as well and changing some of our pack sizes, both on our brands and in private brand as well..

Okay. And I guess just on that last point, obviously you have had really good success with that product relative over last year too.

Do you see trends as states are starting to open? Have you seen any change of those maybe picking back up lately? Or no?.

It's hard to say because we don't have a. really good gauge on exactly how many restaurants are open, what the restrictions are on those restaurants or service outlets. So it's really difficult number to pan.

So we just don't have good, accurate information on what percent are open and when they are what percent of people are allowed to come into the restaurants. But we are optimistic. People will regain confidence in going out when things settle down and hopefully we have some solutions for the current situation with the pandemic.

But we just believe it's going to take some time for customers to get confident to go back on a regular basis. But we are optimistic..

And Chris, this is Mike. As we noted in the release, April in food service was down 90% on sales volume and then improved to negative 34%.

And I just want to stress that the 34% is probably not the best run rate to pick because there was some inventory replenishment going on but certainly we feel like going forward, the significant declines that we saw in both April and May should not be the kind of decline percentages we see going forward..

Sure. I appreciate that..

And Chris, I will also say that, yes, I also want to mention that our food service team has done a great job diversifying, focusing on where consumers are shopping or what the needs are in the food service channel. And just the enormous growth in meal kits and obviously aren't traveling as much and so they are looking at different snacking options.

But the team has done a great job finding opportunities to still supply customers within the food service and commercial ingredient channel with food products, whether it's meal kits, food banks that are so desperate for products now. The team is really responding. So we didn't know restaurants might not be coming back in full force.

This team has really focused on looking at other opportunities to continue to grow that channel..

And I guess just maybe a bigger picture, just around the industry itself. Can you maybe just talk about the competitive landscape and what's happening and maybe is it environment or opportunity for you to go out and get more share as you think about the industry? Thanks..

Sure. So it's a dynamic time. I am sure all companies are reacting and challenge with shifts in not only consumption but the timing. When we saw the huge pantry load in March and April, it would have been very difficult for a lot of companies to meet those demands.

Because of our investments in our capabilities, our manufacturing and production and operations, we were able to meet those increased demands that were just dramatic for any business.

And I have to believe that some of our competitors who didn't have such a large infrastructure may not have made some of those investments would have been more challenged than JBSS. But the competitive landscape, we haven't seen dramatic changes at this point. We still have the same private brand competitors. We saw the same branded competitors.

People, I think, are shifting some of their marketing focus as we are. So we expect competitive landscape not to change too dramatically..

Okay. And I appreciate that. And I guess just two more questions and I will jump in the queue.

But can you maybe just talk around maybe new product introductions you have lined up? And has that changed, given kind of the environment?.

Yes. So I talked a little about, it's really, right now some of it's pack size going from multi-packs and small single-serves to larger size pack. Not a dramatic innovation but it's something that is a change in some of the packaging in the product portfolio. We launched our chickpea chip which is our first entry into non-nut snacking last year.

And we have seen some positive growth in the places where we have distribution. So you should continue to see us focused on that product line. It's kind of the stepchild we don't talk about it a lot because it's such a small brand at this point and small launch. But we see opportunities in that nut snacking portfolio. We continue to look at nut butters.

We are still continuing to do test on the nut butter program. And we continue to look at other really indulgent snacks with our Squirrel brand and some other products that we are looking at as well..

Great. And the I guess, maybe Mike this might be more for you.

But just us in terms of thinking about the impact of the changing nut prices throughout the year, how much of a headwind is that in terms of the next 12 months? And then in the same line of questioning, just around maybe the margin profile for the next year in terms of the changes to the mix of different things happening within the portfolio? Thank you..

I would actually characterize what's coming our way as a tailwind. We are seeing just about every tree nut go down pretty significantly year-over-year with much larger crops. And that includes almonds, walnuts, cashews and even pecans and pistachios.

And then on the peanut side, we are coming off of one of the worst quality crop years that I can recall in my 30-year history. And we incurred quite an additional amount of processing costs to remediate those quality issues that were inherent in the crop. But we shouldn't have to deal with that next year.

So really across the board on the major nut types, I would characterize it as a big tailwind for us..

Okay. Thanks.

And then maybe just on the margin profile as you look about the changing mix? I think it obviously wouldn't decline from the other two segments consumer if you take advantage of that? As you just see that mix, maybe is that margin profile sustainable over the next 12 months?.

Well, sure. As our business continues to shift from contract packaging to consumer, that's certainly going to have a favorable impact. Also, just as food service rebounds, that will help the margin story too..

Great. Well, thanks for taking my questions. Good luck in Q1..

Thanks Chris..

Thank you. [Operator Instructions]. Our next question comes from [indiscernible] with Capital Management. Your line is now open..

Good morning. Thank you for taking my questions..

Morning..

Morning..

All right.

So in the press release, you said that the business was especially hit hard due to some temporary store closures, especially with the Orchard Valley Harvest brand and decreased promotional activity, at least in the physical stores? Are the stores reopening and will the marketing start to ramp back up?.

Yes. This is Jeffrey. So Joey, yes, they are starting to reopen, not 100%. And again, I think they are restricting the amount of consumers that can enter the store just for safety purposes. But I will say that they have started to reopen. So we are seeing that distribution pipeline refill again..

Okay. Awesome. And so I know that you guys mentioned the home improvement store that canceled promotion for the recent quarter.

At least that specific home improvement store, will that hold similar promotions in the future? Or are you guys more focused on the online sales?.

It's a combination. Obviously, we want to make sure that we have product available where consumers are shopping, whether they are going to a home improvement store or sitting at home and at their computer shopping online. I will tell you, there has been a shift in retailer dynamics as far as how they are promoting.

They are really being careful on running huge promotions as they used to because they want to make sure they keep the essential items on their shelves. They don't want to have a lot of set up in their retail stores just to mitigate the amount of people that are working in their stores.

So we have seen dramatic shifts in the type of ways retailers are promoting. That's why you saw the shift in some of the promotional activity because retailers are looking at different ways to promote product without having to put a lot of people on the floor, building shipper displays and setting up promotions..

. Okay. All right.

So I guess jumping off of that, then should we expect more online sales to continue to grow within the rest of the year? Or do you think it will decrease as more physical stores open?.

No. I think that's one things that's going to stick from this pandemic is the result of online shopping. Consumers that have never shopped online are now comfortable with doing it and you won't lose those consumers. I think you won't see the dramatic increase in growth in e-commerce. But I think you are going to continue to see growth there.

Just I believe that people have gotten accustomed to the simplicity of it, the convenience and the safety of shopping online. And the click and pick where you are shopping online, but then you swing by and pick up the product is becoming more important and more popular now as well..

And Joey, this is Mike. I would also add that what we are selling online compared to these nonfood retailers that are reopening are really two independent things. They are not necessarily competing with each other.

So we believe that as more foot traffic goes through the apparel space and the home improvement space where we have some distribution, that actually should be an incremental win for us..

Okay. Awesome. And if I can sneak just one more question in there. It's a little bit of speculation. But I know that you guys have a much increased inventory level. And I know that a lot of your competitors are kind of struggled with that huge increase in demand in April. So I know that the holiday season is coming upon us in a few months.

Do you guys think that you will be able to gain some market share or something with your increased capacity?.

Well, I don't know if our inventory levels necessarily put us in a position to do that. But certainly, if we look at more on the packaging capabilities and machinery and equipment and all that, we have some really good capacity and capabilities there to take advantage of that..

All right. Perfect. That's all my questions. Thank you so much..

Thanks Joey..

Thank you. And I am showing no further questions in the queue at this time. I would like to turn the call back to Michael Valentine for any closing remarks..

Okay. Thank you Jimmy. Again, thanks everyone for your interest in JBSS. This concludes the call for our fourth quarter and fiscal year 2020 operating results..

Ladies and gentlemen, thank you for your participation on today's conference. This does conclude your program and you may now disconnect..