FLO 10-K & 10-Q changes, risk factors and insider trading
Flowers Foods Inc. · NYSE · Food And Kindred Products · CIK 1128928 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
New heading “Loss of one or more of our independent contract manufacturers could adversely affect our business.”
New heading “Changes in tariffs and other trade disruptions may impact our business, results of operations and financial condition, depending on future developments, which are highly uncertain and are difficult to predict.”
Removed heading “Simple Mills Acquisition Risks”
Removed heading “The market price for our common stock following the closing of the Simple Mills Acquisition may be affected by factors different from those that historically have affected or currently affect our common stock.”
Removed heading “We may not consummate the Simple Mills Acquisition on the terms currently contemplated or at all.”
Removed heading “Failure to complete the Simple Mills Acquisition could negatively impact our stock price and have a material adverse effect on our results of operations, cash flows and financial position.”
Removed heading “Our business relationships may be subject to disruption due to uncertainty associated with the Simple Mills Acquisition, which could have a material adverse effect on the results of operations, cash flows and financial position of us pending and following the closing of the Simple Mills Acquisition.”
Largest changes
“The extent to which recently announced tariffs (including retaliatory tariffs) and other trade disruptions (such as embargoes, sanctions and export controls) may impact our business, results of operations and financial condition will depend on future developments, which are highly uncertain and are difficult to predict. Such tariffs, trade disruptions and future developments may impact the consumer, our workforce and operations, as well as the workforce, operations and financial prospects of our customers, vendors and suppliers. …”see in full comparison
“Changes in tariffs and other trade disruptions may impact our business, results of operations and financial condition, depending on future developments, which are highly uncertain and are difficult to predict.”see in full comparison
“Our business relationships may be subject to disruption due to uncertainty associated with the Simple Mills Acquisition, which could have a material adverse effect on the results of operations, cash flows and financial position of us pending and following the closing of the Simple Mills Acquisition.”see in full comparison
“The market price for our common stock following the closing of the Simple Mills Acquisition may be affected by factors different from those that historically have affected or currently affect our common stock.”see in full comparison
“Failure to complete the Simple Mills Acquisition could negatively impact our stock price and have a material adverse effect on our results of operations, cash flows and financial position.”see in full comparison
“Loss of one or more of our independent contract manufacturers could adversely affect our business.”see in full comparison
Full comparison: every changed paragraph (28)
A material negative change in our relationship with the independent distributor partners could negatively affect our business. Such changes could result from litigation or one or more adverse rulings by courts or regulatory or governmental bodies in any of the jurisdictions in which we operate regarding our independent distributorship model, including actions or decisions that could affect the independent contractor classifications of the independent distributor partners, or an adverse judgment against the company for actions taken by the independent distributor partners. These changes could also result from regulatory developments based on the manner in which the U.S. Department of Labor applies the Fair Labor Standards Act. In addition, as a result of California distributor-related litigation, we began convertingconverted our independent distributor partners distribution model in California to an employment model in Fiscal 2024 and anticipate completing the conversion early in the second quarter of Fiscal 2025.model. Any of these developments could materially and/or negatively affect our financial condition, results of operations and cash flows.
We have recently experienced labor shortages at some of our bakeries. A number of factors may adversely affect the labor force available to us, including high employment levels, federal unemployment subsidies and benefits offered, and other government regulations, which include laws and regulations related to workers’ health and safety, wage and hour practices, and immigration. A labor shortage or increased turnover rates within our employee base could lead to increased costs, such as increased overtime to meet demand and increased wage rates to attract and retain employees, and could negatively affect our ability to efficiently operate our bakeries and bread lines or otherwise operate at full capacity. An overall labor shortage, lack of skilled labor, increased turnover or labor inflation could have a material adverse impact on the company’s operations, results of operations, liquidity or cash flows.
We rely on the success of our well-recognized brand names and we intend to maintain our strong brand recognition by continuing to devote resources to advertising, marketing and other brand building efforts. Brand value could diminish significantly due to several factors, including consumer perception that we have acted in an irresponsible manner, adverse publicity about our products (whether or not valid), our failure to maintain the quality of our products, the failure of our products to deliver consistently positive consumer experiences, or the products becoming unavailable to consumers. The growing use of social and digital media platforms by consumers and third parties increases the speed and extent that information or misinformation and opinions can be shared. Brand recognition and loyalty can be impacted by the effectiveness of our advertising campaigns, marketing programs and sponsorships, as well as our use of social media. In addition, failure to comply with local or other laws and regulations could also hurt our reputation. Our marketing investments may not prove successful in maintaining or increasing our market share. If we are not able to successfully maintain our brand recognition or were to suffer damage to our reputation or loss of consumer confidence in our products for any of these reasons, our revenues and profitability could be adversely affected. Additionally, a company determination that any brand is no longer expected to contribute to the company's future results or to be utilized in a limited capacity could lead to an impairment or material impairment of an intangible asset, resulting in an impairment or an acceleration of amortization due to a reduction in the useful life, and could adversely affect our business, financial condition or results of operations.
We employ various operating strategies to maintain our position as one of the nation’s leading producers and marketers of bakery products available to customers through multiple channels of distribution. In particular, these operating strategies include, among other things, (i) the integration of acquisitions or the acquisition or disposition of assets at presently targeted values, (ii) the deployment of new systems and technology, and (iii) an enhanced organizational structure. Our focus on our long-term goals of being consumer-focused and committed to growing our most profitable brands is dependent on our success in achieving our strategic priorities: (i) develop our team; (ii) focus on brands; (iii) prioritize margins; and (iv) pursue smart M&A. These and related demands on our resources may divert the organization’s attention from other business issues. Our success is partly dependent upon properly executing, and realizing cost savings or other benefits from, these often-complex initiatives. Any delay in, or failure to implement, our strategic initiatives could adversely affect our ability to grow margins. If we are unsuccessful in implementing or executing one or more of our business strategies, our business could be adversely affected.
From time to time, we undertake acquisitions, divestitures, joint ventures and co-investments. The success of any acquisition, divestiture or joint venture depends on the company’s ability to identify opportunities that help us meet our strategic objectives, consummate a transaction on favorable contractual terms, and achieve expected returns and other financial benefits. In particular, this risk arises in the context of the pending Simple Mills Acquisition, which is expected to close in the first quarter of Fiscal 2025.
Our ability to make, move and sell products is critical to our success. Damage or disruption to our manufacturing or distribution capabilities, or the manufacturing or distribution capabilities of our suppliers, due to weather, including any potential effects of climate change, natural disaster, fire or explosion, terrorism, pandemics, inferior product or ingredient supply, labor strikes or work stoppages, or adverse outcomes in litigation involving our independent distributor model, could impair our ability to make, move or sell our products. Moreover, terrorist activity, armed conflict or political instability, including any escalation of hostility arising out of the conflict between Russia and the Ukraine and the conflictcurrent instability in the Middle East, or natural disasters that may occur within or outside the U.S. may disrupt manufacturing, labor, and other business operations. Failure to take adequate steps to mitigate the likelihood or potential impact of such events and disruption to our manufacturing or distribution capabilities, or to effectively manage such events if they occur, could adversely affect our business, financial conditions and results of operations.
Loss of one or more of our independent contract manufacturers could adversely affect our business.
We periodically enter into arrangements with independent contract manufacturers, or co-manufacturers, of products. In some cases, a co-manufacturer may produce all of our requirements for a particular product or brand. Our future ability to enter into co-manufacturing arrangements is not guaranteed. If we lose or need to change one or more co-manufacturers or fail to retain co-manufacturers for newly acquired or developed products or brands, production of our products may be delayed or postponed and/or the availability of some of our products may be reduced or eliminated, which could adversely affect our business, financial condition or results of operations.
Changes in tariffs and other trade disruptions may impact our business, results of operations and financial condition, depending on future developments, which are highly uncertain and are difficult to predict.
The extent to which recently announced tariffs (including retaliatory tariffs) and other trade disruptions (such as embargoes, sanctions and export controls) may impact our business, results of operations and financial condition will depend on future developments, which are highly uncertain and are difficult to predict. Such tariffs, trade disruptions and future developments may impact the consumer, our workforce and operations, as well as the workforce, operations and financial prospects of our customers, vendors and suppliers. There is considerable uncertainty regarding the extent to which tariffs and/or other trade disruptions (such as embargoes, sanctions and export controls) will be enacted and the duration for which enacted tariffs and/or other trade disruptions will be in place and such developments could adversely impact our production costs, customer demand and our relationships with customers and suppliers. Some of the impacts our business may experience as a result of tariffs and other trade disruptions include, but are not limited to, increases of the costs of the ingredients, packaging and other materials necessary to produce, distribute and sell our products, and an unfavorable shift in sales mix away from our Branded Retail products, due to a change in consumer buying patterns as a result of increased prices in the economy as a whole. In addition, our compliance with any such newly enacted tariffs and/or other trade disruptions could increase our cost of doing business, restrict our ability to operate our business or execute our strategies, and could result in fines and penalties or reputational harm if we are found to not be in full compliance. Any of these events could exacerbate the other risks and uncertainties described herein, or in other reports filed with the SEC from time to time, and could materially adversely affect our business, results of operations and financial condition.
In addition, our IT systems (including those provided to us by third parties), and the IT systems of our third-party business partners, may be vulnerable to damage or interruption from circumstances beyond our control, including fire, natural disasters, systems failures, security breaches or intrusions (including theft of customer, consumer or other confidential data), and cyber incidents. Cyber-attacks and other cyber incidents are occurring more frequently in the United States and are becoming more sophisticated with a wide range of expertise and motives. Such cyber-attacks and cyber incidents can take many forms, including extortion, denial of service, employee or personnel failures, or social engineering through phishing, ransomware or malware. Cybersecurity threat actors also may attempt to exploit vulnerabilities through software including software that is commonly used by companies in cloud-based services and bundled software. In addition, the risk of cyber-attacks has increased in connection with the military conflict between Russia and Ukraine, the conflictcurrent instability in the Middle East, and the resulting geopolitical conflicts. In light of those and other geopolitical events, nation-state actors or their supporters may launch retaliatory cyber-attacks, and may attempt to cause supply chain and other third-party service provider disruptions, or take other geopolitically motivated retaliatory actions that may disrupt our business operations, result in data compromise, or both. These circumstances increase the likelihood of cyber-attacks and/or security breaches. In addition, the rapid evolution and increased adoption of artificial intelligence (“AI”) and machine learning technologies may intensify our cybersecurity risks and make it more difficult to anticipate and implement protective measures to recognize, detect, and prevent the occurrence of any of the cyber events described above. Further, the technology and techniques used in cyberattackscyber-attacks are constantly evolving and the pace and extent of that evolution may accelerate with the use of emerging technologies including AI and machine learning.
Raw materials, such as flour, sweeteners, shortening, yeast, water, and eggs, which are used in our bakery products, are subject to price fluctuations. The cost of these inputs may fluctuate widely due to foreign and domestic government policies and regulations (including tariffs), inflation, weather conditions, domestic and international demand, availability due to supply chain conditions, livestock disease (for example, avian influenza) or other unforeseen circumstances. The global economy has been negatively impacted by the military conflict between Russia and Ukraine and the conflictcurrent instability in the Middle East. Both conflicts are fast-moving and uncertain. Global grain markets have exhibited increased volatility as sanctions have been imposed on Russia by the United States, the United Kingdom, the European Union, and others in response to Russia’s invasion of Ukraine. Furthermore, the conflictcurrent instability in the Middle East may impact oil production capacity, oil prices, and cause disruptions in global supply chains and shipping routes. While we do not expect our operations to be directly impacted by thesethis conflictsconflict and instability at this time, changes in global grain and commodity flows and increased supply chain costs could impact the markets in which we operate, which may in turn negatively impact our business, results of operations, supply chain and financial condition. Any substantial change in the prices or availability of raw materials may have an adverse impact on our profitability. We enter into forward purchase agreements and other derivative financial instruments from time to time to manage the impact of such volatility in raw materials prices; however, these strategies may not be adequate to overcome increases in market prices or availability. Our failure to enter into hedging or fixed price arrangements or any decrease in the availability or increase in the cost of these agreements and instruments could increase the price of these raw materials and significantly affect our earnings.
We may be required to recall certain of our products should they be mislabeled, contaminated, spoiled, tampered with or damaged. We may become involved in lawsuits and legal proceedings alleging that the consumption of any of our products causes or caused injury, illness or death. Any such product removal, damaged product or an adverse result in any litigation related to such a product removal or damaged product could have a material adverse effect on our operating and financial results in future periods, depending on the costs of the product removal from the market, the destruction of product inventory, diversion of management time and attention, contractual and other claims made by customers that we supply, loss of key customers, competitive reaction and consumer attitudes. Even if a product liability, consumer fraud or other claim is unsuccessful or without merit, the negative publicity surrounding such assertions regarding our products could adversely affect our reputation and brand image. We also could be adversely affected if our customers or consumers in our principal markets lose confidence in the safety and quality of our products.
Even if a product liability, consumer fraud or other claim is unsuccessful or without merit, the negative publicity surrounding such assertions regarding our products could adversely affect our reputation and brand image. We also could be adversely affected if our customers or consumers in our principal markets lose confidence in the safety and quality of our products.
Additionally, as concerns about climate change and other environmental issues continue to increase, we may be required to comply with new laws and regulations which may result in increased/not yet identified compliance costs, the scale of which is to be evaluated. We continue to evaluate the possible impact of such new laws and regulations, including those mentioned in the following sentence. In October 2023, California passed new laws that mandate the disclosure of GHG emissions, climate-related financial risks and measures adopted to reduce and adapt to such risks. These California laws require initial disclosures in 2026.regulations.
Simple Mills Acquisition Risks
The market price for our common stock following the closing of the Simple Mills Acquisition may be affected by factors different from those that historically have affected or currently affect our common stock.
Our future financial position may differ from our financial position before the completion of the Simple Mills Acquisition, and the results of operations of the combined company may be affected by some factors that are different from those currently affecting our results of operations. Accordingly, the market price and performance of our common stock is likely to be different from the performance of our common stock in the absence of the Simple Mills Acquisition. In addition, general fluctuations in stock markets could have a material adverse effect on the market for, or liquidity of, our common stock, regardless of our actual operating performance.
We may not consummate the Simple Mills Acquisition on the terms currently contemplated or at all.
We may not consummate the Simple Mills Acquisition, which is subject to the satisfaction of customary closing conditions. Certain of the conditions to completion of the Simple Mills Acquisition are not within our control, and we cannot predict when, or if, these conditions will be satisfied. If any of these conditions are not satisfied or waived prior to the outside date, it is possible that the Simple Mills Acquisition may be terminated. In addition, satisfying the conditions to and completion of the Simple Mills Acquisition may take longer, and could cost more than we currently expect. There can be no assurance that such conditions will be satisfied or that the Simple Mills Acquisition will be consummated on the terms currently contemplated or at all.
Failure to complete the Simple Mills Acquisition could negatively impact our stock price and have a material adverse effect on our results of operations, cash flows and financial position.
If the Simple Mills Acquisition is not completed for any reason, including as a result of failure to obtain all requisite regulatory approvals, we may be materially adversely affected and, without realizing any of the benefits of having completed the acquisition, we would be subject to a number of risks, including the following:
we may experience negative reactions from the financial markets, including negative impacts on our stock price;
we may experience negative reactions from our customers, distributors, suppliers, vendors and joint venture partners;
we will still be required to pay certain significant costs relating to the acquisition, such as legal, accounting and financial advisor fees; and matters relating to the acquisition (including integration planning) require substantial commitments of time and resources by our management, which may have resulted in the distraction of our management from ongoing business operations and pursuing other opportunities that could have been beneficial to us.
If the Simple Mills Acquisition is not completed, the risks described above may materialize and they may have a material adverse effect on our results of operations, cash flows, financial position and stock price.
Our business relationships may be subject to disruption due to uncertainty associated with the Simple Mills Acquisition, which could have a material adverse effect on the results of operations, cash flows and financial position of us pending and following the closing of the Simple Mills Acquisition.
Parties with which we do business may experience uncertainty associated with the Simple Mills Acquisition, including with respect to current or future business relationships with us following the closing of the Simple Mills Acquisition. Our business relationships may be subject to disruption as customers, distributors, suppliers, vendors and joint venture partners may attempt to delay or defer entering into new business relationships with us, negotiate changes in existing business relationships with us or consider entering into business relationships with parties other than us following the Simple Mills Acquisition. These disruptions could have a material and adverse effect on the results of operations, cash flows and financial position of us, regardless of whether the Simple Mills Acquisition is completed, as well as a material and adverse effect on our ability to realize the expected benefits of the Simple Mills Acquisition.
Management's Discussion & Analysis (MD&A)
Largest changes
Workforce-related costs increased as a percent of sales year over year primarily due to a shift away from distributor distributionsee in full comparisonfees,feeshigher employee compensation costs,and wageinflation,inflationandonalowercompetitivesaleslaborprice/mix.market.TheBenefitsbenefitsfrom ourof cost savingsinitiativesprograms and reduced incentive compensation costs partially offset theoverall increase in workforce-related costs.increase. Distributor distribution fees decreased as a percent of sales primarilydue tofrom a smaller portion of our sales being made throughindependentIDPsdistributormostlypartners ("IDP" or "IDPs"). We anticipate a continued shiftresulting fromdistributor distribution fees to workforce-related costs and other territory-related costs, such as vehicle rent expense, among others, asthe companycompletes a phased repurchase of the California distribution rights and convertsconverting to an employee-based model inthatCaliforniastate.and due to distributing Simple Mills' products via a warehouse-delivery system. TherepurchasesCaliforniabeganconversionat the end of the first quarter of Fiscal 2024 and are anticipated to bewas completed early in the second quarter of Fiscal 2025. Thedecreaseincrease in the Other line itemmostly reflectsin the$133.7tablemillionabovedecreasemostlyinrelateslegaltosettlementshigher acquisition andrelatedintegration-relatedcostsexpenses,and,greatertorestructuring-relatedaimplementationmuch lesser extent, reduced marketing investmentscosts, andlowerincreasedtransportation and consulting costs. These items were partially offset by highervehicle rent expensesandassociatedincreasedwithamortizationtheofCaliforniacloud-based applications.conversion. See the “Matters Affecting Comparability” section above for a discussion oflegalthesettlementsacquisition andrelatedintegration-relatedcostsexpenses andproject-relatedrestructuring-relatedconsultingimplementation costs.Additionally, see Note 24, Commitments and Contingencies, of Notes to Consolidated Financial Statements of this Form 10-K for additional information regarding legal settlements.
“Business Combinations. The company’s acquisitions of businesses are accounted for in accordance with ASC 805, “Business Combinations.” The company recognizes the identifiable assets acquired, the liabilities assumed, and any noncontrolling interests in an acquired business at their fair values as of the date of acquisition. Goodwill is measured as the excess of the consideration transferred, also measured at fair value, over the net of the acquisition date fair values of the identifiable assets acquired and liabilities assumed. …”see in full comparison
“In connection with acquisitions, the company has acquired trademarks, customer lists, non-compete agreements, and distributor relationships a portion of which are amortizable. The company evaluates these assets whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The undiscounted future cash flows of each intangible asset are compared to the carrying amount, and if less than the carrying value, the intangible asset is written down to the extent the carrying amount exceeds the fair value. …”see in full comparison
“In considering the level of uncertainty regarding the potential for goodwill impairment, management has concluded that any such impairment would, in most cases, likely be the result of adverse changes in more than one assumption. Management considers the assumptions used to be its best estimates across a range of possible outcomes based on available evidence at the time of the assessment. …”see in full comparison
“Restructuring charges and related implementation costs. During the first quarter of Fiscal 2025, we began a review of our cost-to-serve focused on improving efficiencies and identifying cost reduction opportunities. Based on this review, we announced a restructuring program in the third quarter of Fiscal 2025 and incurred costs for employee termination benefits related to a reduction-in-force ("RIF") of $5.5 million and made payments of $4.8 million during Fiscal 2025. The RIF charges are included in the restructuring charges line item of the Consolidated Statements of Income. …”see in full comparison
“Our annual evaluation of goodwill impairment requires management judgment and the use of estimates and assumptions to determine the fair value of our reporting unit. Fair value is estimated using standard valuation methodologies incorporating market participant considerations and management’s assumptions on revenue, revenue growth rates, operating margins, discount rates, and EBITDA. Our estimates can significantly affect the outcome of the test. We perform the fair value assessment using the income and market approach. …”see in full comparison
Full comparison: every changed paragraph (121)
Liquidity, capital resources and financial position — an analysis ofanalyzes cash flow, contractual obligations, and certain other matters affecting the company’s financial position.
The company operates on a 52-53 week fiscal year ending the Saturday nearest December 31. Fiscal 20242025 consisted of 53 weeks and Fiscal 2023 each2024 consisted of 52 weeks. Fiscal 20252026 will consist of 5352 weeks. Furthermore, comparative results from quarter to quarter are impacted by the company's fiscal reporting calendar. Internal financial results and key performance indicators are reported on a weekly basis to ensure the same number of Saturdays and Sundays in comparable months to allow for consistent four-week progression analysis. This results in our first quarter consisting of sixteen weeks while the remaining three quarters have twelve weeks (except in cases where there is an extra week every five or six years in the fourth quarter). Accordingly, interim results may not be indicative of subsequent interim period results, or comparable to prior or subsequent interim period results, due to differences in the lengths of the interim periods.
Restructuring charges and related implementation costs. During the first quarter of Fiscal 2025, we began a review of our cost-to-serve focused on improving efficiencies and identifying cost reduction opportunities. Based on this review, we announced a restructuring program in the third quarter of Fiscal 2025 and incurred costs for employee termination benefits related to a reduction-in-force ("RIF") of $5.5 million and made payments of $4.8 million during Fiscal 2025. The RIF charges are included in the restructuring charges line item of the Consolidated Statements of Income. In the fourth quarter of Fiscal 2025, we began a comprehensive review of our brands, operations, and financial strategy. Although this review is in the early stages, as discussed in the Impairment of intangible assets section below, it resulted in the impairment of two regional brands in the fourth quarter of Fiscal 2025. This aligns with our strategy to optimize our brand portfolio and invest in our national brands and key product categories. Additionally, during Fiscal 2025, the company incurred $19.5 million of consulting costs to implement these transformative programs and these costs are included in the selling, distribution, and administrative expenses line item of the Consolidated Statements of Income. We anticipate additional restructuring charges and related costs in subsequent quarters.
Restructuring charges. In April 2024, the company announced a cost savings program to improve operational performance, which included employee termination benefits associated with a reduction-in-force ("RIF") and other expense optimization initiatives. During Fiscal 2024, the company incurred RIF costs of $7.4 million and made payments of $7.3 million. The company incurred final RIF charges of $0.6 million and made the final payments of $0.7 million in the first quarter of Fiscal 2025. The company also incurred consulting costs associated with implementing the restructuring program in Fiscal 2024 and these costswhich are included in the selling, distribution, and administrative expenses line item of the Consolidated Statements of Income.
In February 2023, to improve operational effectiveness, increase profitable sales, and better meet customer requirements, the company announced a restructuring of plant operation responsibilities from the sales function to the supply chain function. Employee termination benefits and other cash charges were primarily for the voluntary employee separation incentive plan (the "VSIP") and employee relocation costs. During Fiscal 2023, we recorded VSIP-related charges of $5.2 million and made VSIP-related payments of $3.8 million. Additionally, we recorded and paid RIF charges of $0.9 million and relocation costs of $1.0 million in Fiscal 2023. These costs are recorded in the restructuring charges line item of the Consolidated Statements of Income. In the first quarter of Fiscal 2024, we paid the remaining VSIP payments of $1.4 million.
Plant closure costs and impairment of assets. On JulyFebruary 18,12, 2024,2025, the company announced the closure of its BatonBailey Rouge,Street LouisianaBakery bakery.located in Atlanta, Georgia. The bakery produced bread and bun products and ceased production on SeptemberApril 19,16, 2024.2025. This bakery closure is part of our strategy to optimize capacity within our supply chain. TheClosure facilitycosts continuesincluded toequipment beasset usedimpairment ascharges aand distributionequipment center.relocation Thecosts companyof recognized$6.1 million and severance costs of $1.1$1.3 million and assetwere impairmentrecognized andin equipmentthe relocationfirst chargesquarter of $2.4Fiscal million2025. inIn the second quarter of Fiscal 2024. Additionally, in Fiscal 2024,2025, the company recorded charges totaling $2.7 million to fully impair certain ERP-related software and other equipment, and recognized a recovery of $1.3 million related toclassified the sale of equipment that had been previously written off in Fiscal 2022 as part of the Phoenix, Arizona bakery closure. In Fiscal 2024, the company also recorded an asset impairment charge of $1.4 million to write off certain cake distribution territories classified as held for sale that the company no longer intends to sell.sale. These costs and the costs below are included as a separate line item of the Consolidated Statements of Income.
On July 18, 2024, the company announced the closure of its Baton Rouge, Louisiana bakery. The bakery produced bun products and ceased production on September 19, 2024. This bakery closure is part of our strategy to optimize capacity within our supply chain. The facility continues to be used as a distribution center. The company recognized severance costs of $1.1 million and asset impairment and equipment relocation charges of $2.4 million in Fiscal 2024. Additionally, in Fiscal 2024, the company recorded charges totaling $2.7 million to fully impair certain ERP-related software and other equipment, and recognized a recovery of $1.3 million related to the sale of equipment that had been previously written off in Fiscal 2022 as part of the Phoenix, Arizona bakery closure. In Fiscal 2024, the company also recorded asset impairment charges of $1.4 million to write off certain cake distribution territories classified as held for sale that the company no longer intends to sell and $4.0 million related to its investment in an unconsolidated affiliate, Base Culture.
Impairment of intangible assets. In the fourth quarter of Fiscal 2025, concurrent with the company's annual planning process, the company performed an assessment of its finite-lived brands and determined two of its regional brands were impaired based on their current and expected future performance. As a result of this assessment, the company recorded an impairment charge of $136.0 million. The company intends to continue to use these two trademarks for the foreseeable future but on a more limited basis, including eliminating certain stock-keeping-units, as it intends to focus on growing its national brands. These costs are included as a separate line item of the Consolidated Statements of Income.
During the second quarter of Fiscal 2022, we invested $9.0 million in Base Culture, a Clearwater, Florida-based company with one manufacturing facility. We made an additional investment of $2.0 million in the second quarter of Fiscal 2023. Base Culture's product offerings include better-for-you, gluten-free, and grain-free sliced breads and baked goods that are all-natural, 100% Paleo-certified, kosher-certified, dairy-free, soy-free, and non-GMO verified. These investments are being accounted for at cost, less any impairment, as we do not control, nor do we have the ability to significantly influence Base Culture. In the fourth quarter of Fiscal 2023, we recognized an impairment loss of $5.5 million on this investment and recognized an additional impairment of $4.0 million in Fiscal 2024.
During the third and fourth quarters of Fiscal 2023, the company entered into agreements to sell a warehouse and a closed bakery, respectively, both of which were classified as held for sale, and recorded impairment charges totaling $1.8 million. The company completed the sale of the impaired warehouse at the end of the third quarter of Fiscal 2023 and completed the sale of the closed bakery in the first quarter of Fiscal 2024.
Acquisition-relatedAcquisition and integration-related costs. On JanuaryFebruary 7,21, 2025, the company enteredcompleted intothe an Agreement and Planacquisition of Merger to acquire Simple Mills, maker of a premium brand of better-for-you crackers, cookies, snack bars, and baking mixes.mixes, The acquisition is expected to expand the company’s exposure to the better-for-you snacking segment and diversify its category exposure. Thefor total cashconsideration purchase price isof approximately $795$848.6 million. The goodwill, taxes, and certain other assets and liabilities are still under review. The company intendsfunded tothe usecash consideration and related acquisition fees and expenses with the net proceeds of the seniorNotes notes(as offeringdefined below) offerings completed on February 14, 2025,2025. togetherWe withincurred cash on hand, to fund the cash consideration for the Simple Mills Acquisitionacquisition and relatedintegration-related fees and expensescosts as further discusseddetailed in the Capitaltable Structure section below. The transaction is subject to customary regulatoryabove and other approvals and closing conditions and is anticipated to close in the first quarter of Fiscal 2025. In Fiscal 2024, we incurred acquisition-relatedthese costs of $2.0 million. These costs and the acquisition costs discussed below are recorded in the selling, distribution, and administrative expenses line item of the Consolidated Statements of Income.
Loss on inferior ingredients. In Fiscal 2025, the company recognized $2.7 million of identifiable and measurable costs associated with product losses. These product losses resulted from inferior coconut sugar and cashew flour used in certain of Simple Mills' products due to tiny fragments of metal present in the ingredients and from the presence of gluten in certain of Canyon Bakehouse's gluten-free products. We are not currently able to estimate any future anticipated losses and we continue to seek recovery of all losses through appropriate means. These costs are included as a separate line item of the Consolidated Statements of Income.
On February 17, 2023, the company completed the acquisition of Papa Pita for total consideration of $274.8 million, inclusive of a net working capital purchase price adjustment. We funded the purchase price with cash on hand and from our existing credit facilities. Papa Pita is a manufacturer and distributor of bagels, tortillas, breads, buns, English muffins, and flat breads with one production facility in West Jordan, Utah. Prior to the acquisition, Papa Pita co-manufactured certain products for us. Papa Pita has direct-store-delivery distribution in the western U.S., expanding our geographic reach. We incurred additional acquisition-related costs of $3.7 million in Fiscal 2023.
Legal settlements and related costs. In the thirdfirst and fourthsecond quarters of Fiscal 2024,2025, we reached agreements to settle certain distributor-related litigation infor thetotal aggregatesettlement amount of $2.2 million,payments, inclusive of plaintiffs’plaintiffs' attorney fees. Additionally, in the fourth quarterfees, of Fiscal 2024, we reached an agreement to settle certain non-distributor-related litigation in the amount of $1.6$2.1 million. In the third quarter of Fiscal 2023, we reached an agreement to settle certain distributor-related litigation for a settlement payment, inclusive of plaintiffs’ attorney fees, of $55.0 million which was paid in the second quarter of Fiscal 2024. The settlement also requiresrequired a phased repurchase of approximately 350 distribution territories in California and the company estimatespreviously estimated this cost, along with the cost to repurchase approximately 50 other California distribution territories that are not part of the settlement, to be approximately $80.2 million. Additional costs of $2.3 million were recognized to fully impair held and used distribution rights classified as intangible assets. The repurchases of the distribution rights commenced at the end of the first quarter of Fiscal 2024 and are anticipated to bewere completed early in the second quarter of Fiscal 2025 for a total cost of $79.0 million. The company recognized an adjustment to the repurchase liability of $1.2 million in the first quarter of Fiscal 2025.
In the third and fourth quarters of Fiscal 2024, we reached agreements to settle certain distributor-related litigation in the aggregate amount of $2.2 million, inclusive of plaintiffs’ attorney fees. Additionally, in the fourth quarter of Fiscal 2024, we reached an agreement to settle certain non-distributor-related litigation in the amount of $1.6 million.
All amounts related to legal settlements and related costs are recorded in the selling, distribution, and administrative expenses line item of the Consolidated Statements of Income.Income Asand there were no amounts accrued as of DecemberJanuary 28,3, 2024, $20.7 million of settlements were accrued (inclusive of obligations for the repurchase of distribution territories) and all payments are anticipated to be completed by the end of the second quarter of Fiscal 2025. The remaining reserve for the related distributor notes receivable was $2.4 million at December 28, 2024.2026.
We are the second-largest producer and marketer of packaged bakery foods in the U.S. with Fiscal 20242025 sales of $5.1$5.3 billion. We operate in the highly competitive fresh bakery market.market and the acquisition of Simple Mills, completed on February 21, 2025, expands our presence in the better-for-you snacking category. Our product offerings include a wide range of fresh breads, buns, rolls, snack items,items (bars, cakes, cookies, and crackers), bagels, English muffins, tortillas and tortillas,baking mixes, as well as frozen breads and rolls, which we produce at 4544 plants in 19 states. Our products are sold under leading brands such as Nature’s Own, DKB, Canyon Bakehouse, Tastykake,Simple Mrs.Mills, Freshley’s,Wonder, and Wonder.Tastykake. See Item 1., Business, of this Form 10-K for additional information regarding our customers and brands, business strategies, strengths and core competencies, and competition and risks.
We continue to monitor the impact of a variety of factors on our business, including the impact of the inflationary economic environment on our costs and the buying patterns of our consumers, supply chain disruptions, including any impact from the impositionimpacts of tariffs,tariffs (including retaliatory tariffs), increased labor shortages,costs, the conflict between Russia and Ukraine, and the conflictcurrent instability in the Middle East, as further discussed in Item 1., Business, of this Form 10-K.
Sales increased 3.0% in Fiscal 2025 compared to Fiscal 2024 due to the acquisition contribution (excluding the 53rd week) of 4.1% and the benefit of the additional week of 1.7%, partially offset by volume declines of 2.0% and negative price/mix of 0.8%. Branded Retail sales increased 6.2% due to the acquisition contribution (excluding the 53rd week) of 6.4%. Sales in the Other sales category decreased 2.7%. Both sales categories experienced negative price/mix and softer volumes due to a challenging consumer environment which was partially offset by the benefit of the additional week. Weakness in both the fresh packaged bread and cake categories negatively impacted our sales.
Income from operations for Fiscal 2025 was $174.0 million compared to $348.3 million in Fiscal 2024. The decrease resulted primarily from the impairment of intangible assets of $136.0 million, greater outside purchases of product due to the Simple Mills acquisition, increased workforce-related costs, higher rent expenses, and greater restructuring-related implementation costs and acquisition and integration-related costs. These higher costs were partially offset by lower distributor distribution fees and ingredient costs.
Sales increased 0.2% in Fiscal 2024 compared to Fiscal 2023. Price/mix contributed 1.8% to the sales growth and the Papa Pita acquisition contributed 0.1% (cycled on February 17, 2024), partially offset by volume declines of 1.7%. Branded Retail sales decreased 0.1% and Other sales increased 0.8%. The benefits from optimizing our foodservice business were mostly offset by overall softness in the fresh packaged bread and cake categories, volume declines from exiting certain lower margin non-retail business, and consumer trade down to store branded products. Inflationary pressure on consumer spending and shifts in consumer behavior and preferences have negatively impacted the fresh packaged bread and cake categories. Sales of our leading brands, Nature's Own, DKB, and Canyon Bakehouse, continued to increase year over year.
Income from operations for Fiscal 2024 was $348.3 million compared to $172.9 million in Fiscal 2023. The improvement resulted primarily from the decrease in legal settlements and related costs of $133.7 million, moderating ingredient costs and, to a lesser extent, benefits from our savings initiatives, optimizing our foodservice business and lower distributor distribution fees. These factors were partially offset by the impact of decreased production volumes and higher workforce-related and rent expenses in the current year.
Net income was $248.1$83.8 million for Fiscal 20242025 compared to $123.4$248.1 million in the prior year. The increasedecrease year over year resulted primarily from significant growth inlower income from operations, as described above, partiallyincreased offsetinterest byexpense from funding the acquisition, and a higher effective tax rate.
In Fiscal 2024,2025, we generated net cash flows from operations of $412.7$446.2 million, paid $791.9 million of the total consideration of approximately $848.6 million for the Simple Mills acquisition, and invested $132.1$127.1 million in capital expenditures (inclusive of $6.0$3.4 million for the ongoing ERP upgrade). Additionally, we madeincreased stockour repurchasesindebtedness ofby $22.7$739.9 million and paid $203.0$209.3 million in dividends to our shareholders. Our cash and cash equivalents balance as of DecemberJanuary 28,3, 20242026 was $5.0$12.1 million. In Fiscal 2024,2025, we entered into a $500.0 million five-year senior unsecured revolving credit facility (the "new credit facility") which refinanced and replaced our existing credit facility (the "previous credit facility"). We also issued $500.0 million aggregate principal amount of 5.750% Senior Notes (the "2035 Notes") and $300.0 million aggregate principal amount of 6.200% Senior Notes (the "2055 Notes"). Furthermore, we amended the two-year $200.0 million tradeaccounts receivable repurchase facility (the "repurchase facility") toto, among other things, extend the scheduled facility expiration date to April 14, 2026.2027.
In Fiscal 2023,2024, we generated net cash flows from operations of $349.4 million, paid $274.8$412.7 million for the Papa Pita acquisition, inclusive of the net working capital purchase price adjustment, and invested $129.1$132.1 million in capital expenditures (inclusive of $27.8$6.0 million for the ongoing ERP upgrade). Additionally, we made $45.8$22.7 million in stock repurchases and paid $195.2$203.0 million in dividends to our shareholders in Fiscal 2023.2024.
Derivative Financial Instruments. The company’s cost of certain raw materials is highly correlated to underlying commodities markets. Raw materials, such as our baking ingredients, experience price fluctuations. If actual market conditions become significantly different than those anticipated, raw material prices could increase significantly, adversely affecting our results of operations. We enter into forward purchase agreements and other derivative financial instruments qualifying for hedge accounting to manage the impact of volatility in raw material prices. The company measures the fair value of its derivative portfolio using fair value as the price that would be received to sell an asset or paid to transfer a liability in the principal market for that asset or liability. When quoted market prices for identical assets or liabilities are not available, the company bases fair value on internally developed models that use current market observable inputs, such as exchange-quoted futures prices and yield curves. Refer to Item 7A., Quantitative and Qualitative Disclosures About Market Risk, of this Form 10-K for additional information about our derivative financial instruments, including sensitivity analyses of the company’s potential exposure to commodity price risk and interest rate risk.
Business Combinations. The company’s acquisitions of businesses are accounted for in accordance with ASC 805, “Business Combinations.” The company recognizes the identifiable assets acquired, the liabilities assumed, and any noncontrolling interests in an acquired business at their fair values as of the date of acquisition. Goodwill is measured as the excess of the consideration transferred, also measured at fair value, over the net of the acquisition date fair values of the identifiable assets acquired and liabilities assumed. The acquisition method of accounting requires us to make significant estimates and assumptions regarding the fair values of the elements of a business combination as of the date of acquisition, including the fair values of identifiable intangible assets, property, plant, and equipment, deferred tax asset valuation allowances, liabilities including those related to debt, pensions and other postretirement plans, uncertain tax positions, contingent consideration, and contingencies. This method also requires us to refine these estimates over a measurement period not to exceed one year to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. If we are required to adjust provisional amounts that we have recorded for the fair values of assets and liabilities in connection with acquisitions, these adjustments could have a material impact on our financial condition and results of operations.
Significant estimates and assumptions in estimating the fair value of customer relationships, trademarks, non-compete agreements, distributor relationships, and other identifiable intangible assets include future cash flows that the company expects to generate from the acquired assets, discount rate, customer attrition rate, and long-term revenue growth projections. Projecting discounted future cash flows requires the company to make significant estimates regarding projected revenues, projected earnings before interest, taxes, depreciation, and amortization margins, discount rates, royalty rate and customer attrition rates. If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop these values, the company could record impairment charges. In addition, the company has estimated the economic lives of certain acquired assets and these lives are used to calculate depreciation on property, plant, and equipment and amortization expense on definite-lived intangible assets. If the estimates of the economic lives change, depreciation or amortization expenses could be increased or decreased, or the acquired asset could become impaired.
For leases acquired in a business combination, the company measures the lease liability at the present value of the remaining lease payments, as if the acquired lease were a new lease of the company at the acquisition date. When the implicit rate in the acquired lease is not readily determinable, the company calculates the lease liabilities using discount rates based upon the company’s applicable incremental borrowing rate. An assessment of the certainty associated with the exercise of any lease renewal, termination, and purchase options included in the acquired lease contracts is also performed. The company measures the right-of-use asset at the same amount as the lease liability as adjusted to reflect favorable or unfavorable terms of the lease when compared with market terms.
Impairment of Long-Lived, Intangible, and Other Assets. Assumptions and estimates used in the evaluation of potential impairment can result in adjustments affecting the carrying values of long-lived, intangible, and other assets and the recognition of impairment expense in the company’s consolidated financial statements. The company evaluates its long-lived assets (property, plant and equipment), definite-lived intangible assets, and other assets (including right-of-use lease assets, notes receivable, and equity) for impairment whenever indicators of impairment exist, or when it commits to sell the asset. If the sum of the undiscounted expected future cash flows from a long-lived asset or definite-lived intangible asset group is less than the carrying value of that asset group, an asset impairment charge is recognized. Key assumptions and estimates used in the projection of expected future cash flows generally include price levels, sales growth, profit margins and asset life. Future adverse changes, such as decisions to discontinue or significantly reduce the use of certain brands, in market conditions or poor operating results of these underlying assets could result in losses or an inability to recover the carrying value of the asset that may not be reflected in the asset’s current carrying value, thereby possibly requiring impairment charges in the future. The amount of an impairment charge, if any, is calculated as the excess of the asset’s carrying value over its fair value, generally represented by the discounted future cash flows from that asset or, in the case of assets the company evaluates for sale, estimated sale proceeds less costs to sell. The company takes into consideration historical data and experience together with all other relevant information available when estimating the fair values of its assets. However, fair values that could be realized in actual transactions may differ from the estimates used to evaluate impairment. In addition, changes in the assumptions and estimates may result in a different conclusion regarding impairment. Impairment charges recorded in Fiscal 2025 and Fiscal 2024 are discussed above in the “Matters Affecting Comparability” section.
Valuation of Long-Lived Assets, Goodwill and Other Intangible Assets. The company records an impairment charge to property, plant and equipment, goodwill and intangible assets in accordance with applicable accounting standards when, based on certain indicators of impairment, it believes such assets have experienced a decline in value that is other than temporary. Future adverse changes, including decisions to discontinue or significantly reduce certain brands, in market conditions or poor operating results of these underlying assets could result in losses or an inability to recover the carrying value of the asset that may not be reflected in the asset’s current carrying value, thereby possibly requiring impairment charges in the future. Impairment charges recorded in Fiscal 2024 and Fiscal 2023 are discussed above in the “Matters Affecting Comparability” section.
Impairment of Goodwill. The company evaluatesassesses goodwill for impairment annually during the recoverabilityfourth of the carrying value of its goodwill on an annual basisquarter, or atfrom atime to time when eventswarranted occur that indicateby the carryingfacts valueand circumstances surrounding individual reporting units or the company as a whole. The company completed its most recent annual goodwill impairment testing during the fourth quarter of theFiscal 2025 and analyzed certain qualitative and quantitative factors in determining whether a goodwill mayimpairment be impaired.existed. Flowers has concluded it has two operating segments and two reporting units, legacy Flowers Foods and Simple Mills. As Simple Mills shares similar economic characteristics with legacy Flowers Foods, we aggregate Simple Mills and legacy Flowers Foods as one operating segment andfor the purpose of determining our one reportingreportable unit.segment. We have elected not to perform the qualitative approach, but instead perform a quantitative analysis by comparing the fair value of each of the reporting unitunits with which the goodwill is associated to the carrying amount of the respective reporting unit. If the fair value is less than the carrying value, the goodwill is written down to the extent the carrying amount exceeds the fair value.
When performing a quantitative analysis, the company estimates the fair value of its reporting units using a weighted average of the income and market approaches. Under the income approach, the company uses a discounted cash flow model based on projections of future years’ operating results and associated cash flows. The company’s assessments reflected a number of significant management assumptions and estimates including the: (a) weighted average cost of capital; (b) forecasted sales growth rates; (c) forecasted EBITDA margins; and (d) market multiples (not applicable to the income approach). Changes in these assumptions could materially impact the company’s conclusions. Based on its assessments, the company concluded that there was no impairment of goodwill for either of its reporting units.
The company’s assessments, whether qualitative or quantitative, incorporate management’s expectations for the future, including forecasted growth rates and/or margin improvements. Therefore, should there be changes in the relevant facts and circumstances and/or expectations, management’s conclusions regarding goodwill impairment may change as well.
In considering the level of uncertainty regarding the potential for goodwill impairment, management has concluded that any such impairment would, in most cases, likely be the result of adverse changes in more than one assumption. Management considers the assumptions used to be its best estimates across a range of possible outcomes based on available evidence at the time of the assessment. Other than in the Simple Mills reporting unit there is no specific singular event or single change in circumstances management has identified that it believes could reasonably result in a change to the expected future results in the legacy Flowers Foods reporting unit that would be significant enough to result in goodwill impairment. In the case of Simple Mills, the lower differential between the fair value and carrying value of the reporting unit is due to the acquisition (in February 2025), at which time the majority of assets and liabilities acquired were recorded at fair value. In management’s opinion, a change of such magnitude would more likely be the result of changes to some combination of the factors identified above, a general deterioration in competitive position, significant unexpected changes in customer preferences, an inability to pass through significant raw material cost increases, and other such items as identified in “Item 1A. Risk Factors” in this Annual Report on Form 10-K.
Although no reporting units failed the annual impairment test, in management’s opinion, the goodwill balance of the Simple Mills reporting unit is at risk of impairment in the near term if the reporting unit’s operation does not perform in line with management’s expectations, or if there is a negative change in the long-term financial outlook for the reporting unit or in other factors such as the particular discount rates used. Total goodwill associated with the Simple Mills reporting units was $367.9 million at January 3, 2026.
Our annual evaluation of goodwill impairment requires management judgment and the use of estimates and assumptions to determine the fair value of our reporting unit. Fair value is estimated using standard valuation methodologies incorporating market participant considerations and management’s assumptions on revenue, revenue growth rates, operating margins, discount rates, and EBITDA. Our estimates can significantly affect the outcome of the test. We perform the fair value assessment using the income and market approach. Changes in our forecasted operating results and other assumptions could materially affect these estimates. This test is performed in the fourth quarter of each fiscal year unless circumstances require this analysis to be completed sooner. The income approach is tested using a sensitivity analysis to changes in the discount rate and yield a sufficient buffer to significant variances in our estimates. The estimated fair value of our reporting unit exceeded its carrying value in excess of $3.3 billion in Fiscal 2024. A 1% decrease in the discount rate would increase the fair value of the reporting unit by $1.1 billion and a 1% increase in the discount rate would decrease the fair value by $0.8 billion. Based on management’s evaluation, no impairment charges relating to goodwill were recorded for Fiscal 2024 or Fiscal 2023.
In connection with acquisitions, the company has acquired trademarks, customer lists, non-compete agreements, and distributor relationships a portion of which are amortizable. The company evaluates these assets whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The undiscounted future cash flows of each intangible asset are compared to the carrying amount, and if less than the carrying value, the intangible asset is written down to the extent the carrying amount exceeds the fair value. The fair value is computed using the same approach described above for goodwill and includes the same risks and estimates. The fair value of the trademarks could be less than our carrying value if any of our four material assumptions in our fair value analysis: (a) weighted average cost of capital; (b) long-term sales growth rates; (c) forecasted operating margins; and (d) market multiples do not meet our expectations, thereby requiring us to record an asset impairment. We use the multi-period excess earnings and relief from royalty methods to value these intangibles. The method used for impairment testing purposes is consistent with the valuation method employed at acquisition of the intangible asset. In Fiscal 2023, we recorded a $2.3 million charge to fully impair held and used distribution rights classified as intangibles assets. This was in conjunction with costs related to a California legal settlement. No impairment charges related to amortizing intangible assets were recorded in Fiscal 2024.
As of December 28, 2024, the company also owns trademarks acquired through acquisitions with a total carrying value of $127.1 million that are indefinite-lived intangible assets not subject to amortization. The company evaluates the recoverability of intangible assets not subject to amortization by comparing the fair value to the carrying value on an annual basis or at a time when events occur that indicate the carrying value may be impaired. In addition, the assets are evaluated to determine whether events and circumstances continue to support an indefinite life. The fair value is compared to the carrying value of the intangible asset, and if less than the carrying value, the intangible asset is written down to fair value. There are certain inherent risks included in our expectations about the performance of acquired trademarks and brands. If we are unable to implement our growth strategies for these acquired intangible assets as expected, it could adversely impact the carrying value of the brands. The fair value of the trademarks could be less than our carrying value if any of our four material assumptions in our fair value analysis: (a) weighted average cost of capital; (b) long-term sales growth rates; (c) forecasted operating margins; and (d) market multiples do not meet our expectations, thereby requiring us to record an asset impairment.
Our income tax expense, deferred tax assets and liabilities, and reserve for uncertain tax benefits reflect our best assessment of future taxes to be paid in the jurisdictions in which we operate. The company records a valuation allowance to reduce its deferred tax assets if we believe it is more likely than not that some or all of the deferred assets will not be realized. While the company considers future taxable income and ongoing prudent and feasible tax strategies in assessing the need for a valuation allowance, when and if these estimates and assumptions change in the future,change, the company has and may be required in the future to adjust its valuation allowance, which could result in a charge to, or an increase in, income in the period such determination is made.
In Fiscal 2025,2026, the company does not expect to make any cash contributions to Plan No. 2 and expects to pay $0.2 million in nonqualified pension benefits from corporate assets.assets to its nonqualified plan.
We grant performance stock awards that separately have a market and performance condition. The expense computed for the total shareholder return shares (“TSR”) is fixed and recognized on a straight-line basis over the vesting period. The expense computed for the return on invested capital (“ROIC”) shares can change depending on the expected attainment of performance condition goals. The expense for the ROIC shares can be within a range of 0% to 125% of the target for awards granted in Fiscal 2023 and earlier and 0% to 150% for awards granted subsequent to Fiscal 2023. There is a possibility that this expense component will change in subsequent quarters depending on how the company performs relative to the ROIC target. Additionally, there are time-based stock awards that generally vest over a period of three years.years using the straight-line attribution method. See Note 20,19, Stock-Based Compensation, of Notes to Consolidated Financial Statements of this Form 10-K for additional information. In early Fiscal 2025,2026, the company granted stock awards to certain employees. The company expects stock-based compensation expense for Fiscal 20252026 will be approximately $4.0 million to $6.0 million higher than Fiscal 2024.2025. This estimate is inclusive of an additional $2.4$2.5 million to $3.0 million of expense anticipated to be recognized in the first quarter of Fiscal 20252026 due to the payout for the Fiscal 20232024 grant currently trending at 150% of target since the grant date at 125% of target.date. Additionally, the company anticipates a shortfall of approximately $2.0$5.0 million to $4.0$7.0 million on the vesting of stock-based compensation awards that will vest in Fiscal 2025.2026.
Sales increased year over year due to the Simple Mills acquisition contribution and the benefit of the extra week in Fiscal 2025 partially offset by softer volumes and negative price/mix in both sales categories. Weakness in the fresh packaged bread category, particularly for traditional loaf breads, and, to a lesser extent, in the away-from-home market largely resulted in the volume declines. Lower store branded sales also contributed to the volume declines. The overall negative price/mix was partially offset by improvements in our foodservice price/mix from executing our portfolio optimization strategies beginning in the second quarter of the prior year. Additionally, we implemented price increases on certain branded retail products in the fourth quarter of Fiscal 2025. Due to the challenging consumer environment, our promotional activity increased year over year, targeting differentiated products.
We anticipate our Fiscal 2026 sales will be lower than Fiscal 2025 due to the additional week in Fiscal 2025 and continued weakness in the fresh packaged bread category. The sales benefit from the Simple Mills acquisition contribution (acquired on February 21, 2025), growth in more differentiated products, including Simple Mills' products, and the benefit of price increases implemented in the fourth quarter of Fiscal 2025 are anticipated to partially offset the sales decrease.
Sales increased year over year mainly due to improved price/mix for our non-retail business resulting from executing our optimization strategies and to a much lesser extent the Papa Pita acquisition contribution mostly offset by volume declines, most notably in the Other sales category. Volume decreases in the Other sales category resulted from the company strategically exiting certain foodservice business in the latter half of Fiscal 2023 and declines in vending volumes, net of increased volume for store branded retail products. The Branded Retail sales category also experienced volume declines from lower branded retail cake volumes, partially offset by volume growth in branded bread products. Our mix of Branded Retail sales to total sales was 63.9% for Fiscal 2024 as compared to 64.1% for Fiscal 2023. Year over year, our promotional activity increased in response to inflationary pressure on consumer spending.
We anticipate our Fiscal 2025 sales will increase from optimizing our non-retail business, new product innovation, and the additional week in Fiscal 2025. However, category headwinds and changes in consumer buying patterns and promotional activity could partially offset that improvement.
Branded Retail sales increased 6.2% compared to the prior year due to the Simple Mills acquisition contribution and the benefit of the additional week, partially offset by volume declines and unfavorable price/mix. Volumes were negatively impacted by weakness in the fresh packaged bread category with the largest declines in sales of traditional loaf products. Volume growth in organic, Keto, and cake items partially offset the decrease. The company introduced Wonder cake in the first quarter of Fiscal 2025. Other recent product introductions include Nature's Own protein loaf, small loaves, and Keto buns and multi-grain loaf as well as, DKB sandwich rolls and snack bites, and Wonder bagels and English muffins. Price/mix was unfavorable primarily due to increased targeted promotional activity and, to a lesser extent, a shift in mix to greater branded retail cake sales and the addition of smaller loaf sizes.
The Simple Mills acquisition has increased our investment in the better-for-you category and their branded snack items, combined with the DKB organic snack bars and bites, further diversifies our exposure beyond the fresh packaged breads and buns category. The DKB snack bites were rolled out nationally during Fiscal 2025, and at the end of Fiscal 2025, we introduced three varieties of DKB organic breakfast bars and expanded our line of protein bars, snack bars, and snack bites.
Branded Retail sales decreased 0.1% year over year due to softer volumes, partially offset by favorable price/mix and the acquisition contribution. Improved price/mix resulted from greater sales of our more differentiated branded products, such as organic and Keto. Decreases in branded cake volumes were partially offset by volume growth in branded bread products. Declines in branded cake resulted from overall category softness, market share declines, and targeted sales rationalization. Higher branded bread volumes were due to increases in organic products, traditional buns and rolls, and Keto products, partially offset by softness in traditional loaf breads. Inflationary pressure on consumer spending contributed to lower volumes.
Sales of our leading brands, Nature's Own, DKB, and Canyon Bakehouse, increased year over year. Sales of Nature's Own benefited from growth in Keto bread (introduced in Fiscal 2023), Keto buns (introduced in Fiscal 2024), and traditional buns and rolls, but experienced volume declines for traditional loaf breads. DKB benefitted from efficient market execution and growth from more recently introduced products, such as rolls and snack bars. Consistent with our strategy to grow our business beyond the traditional bread category, the company plans to launch the national rollout of DKB snack bites in Fiscal 2025. Canyon Bakehouse's sales increased on higher volumes as we resolved production capacity constraints that impacted prior year results.
Sales in the Other category decreased 2.7% due to softer volumes for both store branded retail and non-retail sales and unfavorable price/mix, partially offset by the benefit of the additional week. Store branded retail sales decreased due to softer volumes, most notably for cake items, and to a lesser extent negative price/mix, net of the benefit of the additional week. Our non-retail sales experienced softer volumes for foodservice and institutional sales, partly offset by growth in contract manufacturing. Foodservice price/mix improved from optimization of that business subsequent to the first quarter of Fiscal 2024, but was offset by negative price mix for other non-retail sales.
Sales in the Other category increased 0.8% primarily from optimizing our foodservice business, increased store branded retail sales on higher volume, and the acquisition contribution, partially offset by volume declines for our non-retail sales. Store branded retail sales increased year over year from volume growth in store branded traditional loaf breads and gluten-free bread, net of negative price/mix. Store branded retail sales as a percent of our total sales was relatively unchanged from the prior year. Non-retail sales increased year over year due to positive price/mix and to a much lesser extent the acquisition contribution, partially offset by volume declines. Foodservice drove most of the volume decrease as we exited certain lower margin business in the second half of Fiscal 2023. Declines in vending, institutional, and thrift store sales also contributed to lower volumes.
The increase in materials, supplies, labor and other production costs as a percent of sales year over year primarily resulted from greater outside purchases of product (sales with no associated ingredient costs) and lower sales price/mix, partially offset by lower ingredient costs. Lower production volumes also contributed to the increase and we expect this trend to continue due to weakness in the fresh packaged bread category. Outside purchases of product, which are included in the Other line item in the table above, largely relate to purchases of Simple Mills products, all of which are co-manufactured, and to a lesser extent certain DKB and other products. We expect a continued increase in outside purchases of product due to anticipated growth in sales of Simple Mills' products combined with the acquisition impact. Ingredient costs decreased as a percent of sales due to higher outside purchases of product and lower pricing for commodities, mainly flour and organic ingredients. The benefit was partially offset by higher costs for other ingredients such as cocoa and eggs, the impact of tariffs, and lower sales price/mix. Tariffs are expected to impact our costs more in Fiscal 2026 due to the timing of implementation in Fiscal 2025. We continue to monitor all trade agreements and impacts that might affect the costs of our raw materials.
Materials, supplies, labor and other production costs as a percent of sales decreased year over year due to moderating ingredient and packaging costs, improved sales price/mix, and decreased product returns. Lower production volumes and higher workforce-related costs partially offset the overall improvement. The decrease in ingredient and packaging costs was mostly attributed to lower pricing for commodities such as flour, fats and oils, and eggs, and packaging items including bags and corrugated containers. Higher costs for sweeteners partially offset the lower ingredient costs. Wage inflation, higher employee compensation costs, and lower production volumes drove the increase in workforce-related costs as a percent of sales. We expect the impact of lower production volumes and the competitive labor market to continue to negatively impact our operations. The increase in the Other line item mostly reflects the impact of lower production volumes, increased outside purchases of product (sales with no associated ingredient costs), and higher bakery maintenance costs.
Prices of ingredient and packaging materials fluctuate due to various factors including, but not limited to, government policy and regulation (including tariffs), weather conditions, domestic and international demand, availability due to supply conditions, including livestock disease, or other unforeseen circumstances, and we monitor these markets closely. Ingredient and packaging costs experienced less volatility in bothFiscal 2025 as compared to Fiscal 2024 and 2023 but are anticipated to be lessremain volatile in Fiscal 2025.2026. We use eggs in several of our products and have been, and could becontinue to be, adversely impacted fromby increased costs and/or reduced availability of supply as a result of the avian influenza that has been detected in egg-laying flocks.influenza. We enter into forward purchase agreements and other financial instruments to manage the impact of volatility in certain raw material prices. Any decrease in the availability of these agreements and instruments could increase the cost of these raw materials and significantly affect our earnings.
Workforce-related costs increased as a percent of sales year over year primarily due to a shift away from distributor distribution fees,fees higher employee compensation costs,and wage inflation,inflation andon alower competitivesales laborprice/mix. market.The Benefitsbenefits from ourof cost savings initiativesprograms and reduced incentive compensation costs partially offset the overall increase in workforce-related costs.increase. Distributor distribution fees decreased as a percent of sales primarily due tofrom a smaller portion of our sales being made through independentIDPs distributormostly partners ("IDP" or "IDPs"). We anticipate a continued shiftresulting from distributor distribution fees to workforce-related costs and other territory-related costs, such as vehicle rent expense, among others, as the company completes a phased repurchase of the California distribution rights and convertsconverting to an employee-based model in thatCalifornia state.and due to distributing Simple Mills' products via a warehouse-delivery system. The repurchasesCalifornia beganconversion at the end of the first quarter of Fiscal 2024 and are anticipated to bewas completed early in the second quarter of Fiscal 2025. The decreaseincrease in the Other line item mostly reflectsin the $133.7table millionabove decreasemostly inrelates legalto settlementshigher acquisition and relatedintegration-related costsexpenses, and,greater torestructuring-related aimplementation much lesser extent, reduced marketing investmentscosts, and lowerincreased transportation and consulting costs. These items were partially offset by highervehicle rent expenses andassociated increasedwith amortizationthe ofCalifornia cloud-based applications.conversion. See the “Matters Affecting Comparability” section above for a discussion of legalthe settlementsacquisition and relatedintegration-related costsexpenses and project-relatedrestructuring-related consultingimplementation costs. Additionally, see Note 24, Commitments and Contingencies, of Notes to Consolidated Financial Statements of this Form 10-K for additional information regarding legal settlements.
Restructuring Charges andCharges, Plant Closure Costs and Impairment of AssetsAssets, Impairment of Intangible Assets, and Loss on Inferior Ingredients
Depreciation and amortization expense increased in dollars and as a percent of sales comparedyear to the priorover year primarily due to amortization expense associated with the ERPfinite-lived intangible assets being placed in serviceacquired in the secondSimple quarterMills of Fiscal 2023 and, to a lesser extent, other capital projects being placed in service and the Papa Pita assets acquired midway through the first quarter of Fiscal 2023, net of assets becoming fully depreciated.acquisition.
Income from operations increased in dollars anddecreased as a percent of sales compared to the prior year primarily due to significantlythe lowerimpairment of intangible assets and, to a lesser extent, unfavorable sales price/mix, greater outside purchases of product, higher selling, distribution, and administrative costs, as described above, moderating input costs, and improvedlower salesproduction price/mix,volumes. Lower ingredient costs partially offset bythe lower production volumes, increased bakery workforce-related costs, and greater depreciation expense.decrease.
Net interest expense increased in dollars and as a percent of sales as compared to the prior year primarily due to lowerthe interestissuance incomeof yearthe overNotes year(as duedefined below) on February 14, 2025 to decreasesfund inthe distributorSimple notesMills receivableacquisition outstanding.and related fees and expenses. The company anticipates interest expense will be significantly higherincrease in Fiscal 2026 as compared to Fiscal 2025 due to the issuanceNotes issued in the first quarter of the 2035 Notes and 2055 Notes (each as defined below) on February 14,Fiscal 2025.
What changed in the latest 10-Q
Risk Factors
Refer to Part I, Item 1A., Risk Factors, in the Form 10-K, to which there have been no material changes, for information regarding factors that could affect the company’s results of operations, financial condition and liquidity. Additional risks and uncertainties not presently known to us or that we currently deem to be immaterial also may affect us. The occurrence of any of these known or unknown risks could have a material adverse ultimate impact on our business, financial condition, or results of operations.
Largest changes
Refer to Part I, Item 1A., Risk Factors, in the Formsee in full comparison10-K10-K, to which there have been no material changes, for information regarding factors that could affect the company’s results of operations, financial condition and liquidity. Additional risks and uncertainties not presently known to us or that we currently deem to be immaterial also may affect us. The occurrence of any of these known or unknown risks could have a material adverse ultimate impact on our business, financial condition, or results of operations.
Full comparison: every changed paragraph (1)
Refer to Part I, Item 1A., Risk Factors, in the Form 10-K10-K, to which there have been no material changes, for information regarding factors that could affect the company’s results of operations, financial condition and liquidity. Additional risks and uncertainties not presently known to us or that we currently deem to be immaterial also may affect us. The occurrence of any of these known or unknown risks could have a material adverse ultimate impact on our business, financial condition, or results of operations.
Management's Discussion & Analysis (MD&A)
New heading “Recovery on Inferior Ingredients”
New heading “Depreciation and Amortization Expense”
New heading “Income from Operations”
New heading “Interest Expense, Net”
New heading “Income Tax Expense”
New heading “Comprehensive Income”
New heading “Sales (dollars in thousands)”
New heading “Branded Retail Sales”
New heading “Materials, Supplies, Labor and Other Production Costs (exclusive of depreciation and amortization shown separately; as a percent of sales)”
New heading “Selling, Distribution and Administrative Expenses (as a percent of sales)”
Largest changes
“Materials, Supplies, Labor and Other Production Costs (exclusive of depreciation and amortization shown separately; as a percent of sales)”see in full comparison
“Materials, supplies, labor and other production costs as a percent of sales increased primarily due to increased outside purchases of product (sales with no associated ingredient costs) combined with the impact of lower production volumes. Workforce-related costs increased as a percent of sales due to the impact of lower production volumes and higher incentive compensation costs. Lower ingredient costs as a percent of sales partially offset the increase. …”see in full comparison
“Branded Retail sales increased modestly period over period due to the Simple Mills acquisition contribution and favorable price/mix, mostly offset by volume declines. Volumes were impacted by intense marketplace competition and the challenging consumer environment resulting in significant declines in market share. Contraction of the fresh packaged bread category has continued driven by changes in consumer preferences and inflationary pressure on consumer spending. We experienced the largest volume declines for branded traditional loaf products. …”see in full comparison
“Selling, Distribution and Administrative Expenses (as a percent of sales)”see in full comparison
Salessee in full comparisonincreaseddecreased quarter over quarter due tothe Simple Mills acquisition contribution (cycled on February 21, 2026) of 2.3% and favorable price/mix for the Branded Retail category, partially offset bylower volumes for both sales categories and negative price/mix for the Other category, net of favorable price/mix for the Branded Retail category.WePrice/mixbeganbenefitedimplementingfrom price increases we implemented starting in the fourth quarter of the prior year to offset input costinflation.inflationBrandedasRetailwellvolumesaswereSimpleimpactedMills'bycomprisingtheachallenginglargerconsumerpercentageenvironmentofand marketplace competition.sales. Our promotional activity increased quarter over quarter, as a result of targeting more differentiated and premium-priced items which aligns with changing consumer preferences.
“Workforce-related costs increased as a percent of sales primarily due to a shift away from distributor distribution fees and higher incentive compensation costs, partially offset by benefits of cost savings programs we have implemented. Distributor distribution fees decreased as a percent of sales primarily due to a smaller portion of our sales being made through IDPs due to Simple Mills' sales which are warehouse-delivered and from converting to an employee-based model in California. The California conversion was completed early in the second quarter of Fiscal 2025. …”see in full comparison
Full comparison: every changed paragraph (83)
The following discussion of the financial condition and results of operations of the company as of and for the sixteentwelve and twenty-eight weeks ended AprilJuly 25,18, 2026 should be read in conjunction with the Form 10-K. Any reference to sales refers to net sales inclusive of allowances and deductions against gross sales for variable consideration and consideration payable to customers.
Results of operations — analyzes the company’s consolidated results of operations for the two comparative periodperiods presented in our Condensed Consolidated Financial Statements.
Additionally, detailed below are expense (recovery) items affecting comparability that will provide greater context while reading this discussion. For more information regarding these items, see the reference to the Notes to Condensed Consolidated Financial Statements of this Form 10-Q as indicated in the table:
Business process improvement costs The upgrade of our ERP system, which is part of our transformation strategy initiatives, is being deployed through a phased approach and is anticipated to be completed in Fiscal 2027. We currently estimate total costs for the ERP upgrade will be approximately $325 million (of which approximately 42% has been or is anticipated to be capitalized). As of AprilJuly 25,18, 2026, we have incurred costs related to the project of approximately $272$275 million. We currently expect costs (a portion of which may be expensed as incurred, capitalized, recognized as a cloud computing arrangement, or recognized as a prepaid service contract) related to the upgrade of our ERP system to be approximately $25.0 million to $30.0 million for Fiscal 2026. The expensed portion of costs incurred related to these initiatives for the sixteen weeks ended April 25, 2026 and April 19, 2025,initiatives, which was primarily consulting costs, are detailed in the table above and are reflected in the selling, distribution, and administrative expenses line item of the Condensed Consolidated Statements of Income. Costs from previously capitalized, cloud computing arrangements, or prepaid service contracts are recognized in operating costs and are not included in the business process improvement costs above.
Restructuring charges and related implementation costs During the first quarter of Fiscal 2025, we began a review of our cost-to-serve focused on improving efficiencies and identifying cost reduction opportunities. Based on this review, we announced a restructuring program in the third quarter of Fiscal 2025 and incurred costs for employee termination benefits related to a reduction-in-force ("RIF") of $5.5 million and made payments of $4.8 million during Fiscal 2025. In the fourth quarter of Fiscal 2025, we expanded the scope to include a comprehensive review of our brands, operations, and financial strategy. Although this review is ongoing, it resulted in the impairment of two regional brands in the fourth quarter of Fiscal 2025. This aligns with our strategy to optimize our brand portfolio and invest in our national brands and key product categories.
This aligns with our strategy to optimize our brand portfolio and invest in our national brands and key product categories. In the first quarter of Fiscal 2026, we incurred additional RIF-related costs of $1.7 million and we made RIF payments of $0.8 million.million and $1.3 million in the first and second quarters of Fiscal 2026, respectively. The RIF charges are included in the restructuring charges line item of the Condensed Consolidated Statements of Income. The company incurred consulting costs associated with these restructuring activities ofas $8.2detailed million and $4.3 million duringin the sixteentable weeks ended April 25, 2026 and April 19, 2025, respectively,above and these costs are included in the selling, distribution, and administrative expenses line item of the Condensed Consolidated Statements of Income. This review is ongoing and we anticipate additional restructuring charges and related implementation costs in subsequent quarters.
Subsequent to the second quarter of Fiscal 2026, we began implementing a reorganization effort to improve efficiency, simplify our operating structure, and better align resources with our highest-priority growth opportunities. Our focus is to create a more agile organization, reduce complexity, and better meet our customers' needs. We anticipate incurring costs of approximately $6.0 million which are largely related to severance. This review is ongoing and we anticipate additional restructuring charges and related implementation costs in subsequent quarters.
As of July 18, 2026, the company had $102.2 million of spare parts and supplies which are maintained primarily to support our manufacturing operations. Subsequent to the end of the second quarter of Fiscal 2026, the company commenced a detailed review of its spare parts and supplies. The review includes consideration of, among other factors, the usability of individual parts, whether the equipment supported by such parts remains in service, historical and expected future usage, and other indicators of obsolescence. Based on information currently available, it is reasonably possible that the review could result in a material change to the carrying value of our spare parts and supplies, however, we are not able to reasonably estimate the amount with any certainty at this time. The review is ongoing and is expected to be completed by the end of Fiscal 2026.
Recovery on inferior ingredients In the fourth quarter of Fiscal 2025, the company recognized $2.7 million of identifiable and measurable costs associated with product losses. These product losses resulted from inferior coconut sugar and cashew flour used in certain of Simple Mills' products due to tiny fragments of metal present in the ingredients, and from the presence of gluten in certain of Canyon Bakehouse's gluten-free products. During the second quarter of Fiscal 2026, the company received a partial reimbursement of $2.0 million related to Simple Mills' loss. We continue to seek recovery of all losses through appropriate means. The recovery is included as a separate line item of the Condensed Consolidated Statements of Income.
Legal settlements and related costs In the first quarter of Fiscal 2026, we reached agreements to settle certain distributor-related litigation and non-distributor-related litigation for total settlement payments, inclusive of plaintiffs' attorney fees, of $11.0 million and $3.4 million, respectively. In the first quarterand second quarters of Fiscal 2025, we reached an agreementagreements to settle certain distributor-related litigation for total settlement payments, inclusive of plaintiffs' attorney fees, of $1.9$2.1 million. Additionally, in the first quarter of Fiscal 2025, the company recognized a reduction of $1.2 million to the territory repurchase liability associated with a legal settlement originally recorded in Fiscal 2023. All of these amounts are recorded in the selling, distribution, and administrative expenses line item of the Condensed Consolidated Statements of Income.
Simple Mills acquisition and integration-related costs On February 21, 2025, the company completed the acquisition of Simple Mills, maker of a premium brand of better-for-you crackers, cookies, snack bars, and baking mixes, for total consideration of $846.2 million. The acquisition expandsexpanded our presence in the better-for-you snacking category, diversifying our category exposure, and enhancing the company's growth and margin prospects. Founded in 2012, Simple Mills is a market-leading natural brand and its products are made with simple ingredients, pioneered from using nutrient-dense nut, seed, and vegetable flours, attracting natural and mainstream consumers alike. Simple Mills' products are produced by co-manufacturers and distributed via warehouse distribution, and are available nationwide. The company funded the cash consideration and the related acquisition fees and expenses with the net proceeds of the 2035 notes and 2055 notes offerings completed on February 14, 2025. During the sixteen weeks ended April 25, 2026 and April 19, 2025, weWe incurred acquisition and integration-related costs as detailed in the table above and these costs are recorded in the selling, distribution, and administrative expenses line item of the Condensed Consolidated Statements of Income.
We continue to monitor a variety of factors on our business, including the impact of the inflationary economic environment on our costs and the buying patterns of our consumers, shifts in consumer preferencespreferences, basedand onthe healthcurrent trends,promotional environment of the fresh packaged bread category. Other factors include supply chain disruptions, including the impacts of tariffs on our costs (including retaliatory tariffs), increased labor costs, the conflict between Russia and Ukraine, and the conflicts in the Middle East. Our results for the first quarterhalf of Fiscal 2026 as compared to the prior year period were negatively impacted by volume-driven sales declines, partially offset by the benefit of sales increases attributed to the Simple Mills acquisition and price increases we have implemented. Volume declines resulted from increased market share contraction due to a highly competitive and volatile marketplace and continued weakness in the fresh packaged bread category, most notably for branded traditional loaf breads, and market share contraction due to a competitive marketplace. The benefit of sales increases attributed to the Simple Mills acquisition, sales improvement for more differentiated products, such as organic, Keto, and gluten-free, growth in Wonder cake products (introduced in the first quarter of Fiscal 2025), and price increases we have implemented was more than offset by volume declines for other product categories and higher operating costs.breads.
Sales decreased 4.0% for the twelve weeks ended July 18, 2026 compared to the same quarter in the prior year due to volume declines of 5.8%, partially offset by positive price/mix of 1.8%. Branded Retail sales decreased 3.8% from volume declines of 7.6%, net of positive price/mix of 3.8%. Branded Retail sales were negatively impacted by increased marketplace competition and the challenging consumer environment which resulted in significant market share losses. Sales in the Other sales category decreased 4.4% on volume declines of 3.4%, partly due to discontinued business, and unfavorable price/mix of 1.0%.
Sales increaseddecreased 1.1%1.2% for the sixteentwenty-eight weeks ended AprilJuly 25,18, 2026 compared to the same quarterperiod in the prior year due to volume declines of 4.4%, partially offset by the acquisition contribution (cycled on February 21, 2026) of 2.3%1.3% and positive price/mix of 2.1%,1.9%. partiallyBranded Retail sales increased 0.1% with the acquisition contributing 2.0% and positive price/mix contributing 3.9%, mostly offset by volume declines of 3.3%.5.8%. BrandedTraditional Retailloaf salesbreads increased 3.4% withexperienced the acquisition contributing 3.6% and positive price/mix contributing 4.0%, somewhat offset bylargest volume declines of 4.2% largely from weakness in sales of traditional loaf breads.declines. Sales in the Other sales category decreased 3.1%3.6% due to declines in store branded retail sales, partially offset by increased non-retail sales. SofterMarketplace volumes impacted both sales categories due to a competitive marketplacevolatility and a challenging consumer environment.environment negatively impacted volumes for both sales categories.
For the sixteentwelve weeks ended AprilJuly 25,18, 2026, income from operations was $79.8$68.1 million compared to $85.1$93.4 million in the prior year quarter. The decrease resulted mostly from sales declines combined with higher incentive compensation expense, greater marketing investments, increased logistics costs, and greater outside purchases of product related to the Simple Mills products, higher legal settlements, increased employee compensation expense, and greater restructuring charges and related implementation costs.Mills. These increases were partially offset by lower acquisition and integration costs, the prior year plant closure costs, and lower ingredient costs and distributor distribution fees.
Income from operations for the twenty-eight weeks ended July 18, 2026 was $147.9 million compared to $178.5 million in the prior year period. Sales declines, higher outside purchases of product, increased legal settlements, increased incentive compensation expense, and greater restructuring charges and related implementation costs resulted in the decrease. Lower acquisition and integration costs, the prior year plant closure costs, and lower ingredient costs and distributor distribution fees partially offset the overall decrease.
Net income for the sixteentwelve weeks ended AprilJuly 25,18, 2026 was $42.1$40.7 million compared to $53.0$58.4 million in the prior year quarter. The decrease quarter over quarter resulted primarily from lower income from operations, as described above, increased interest expense, and a significantly higher effective tax rate primarily due to shortfalls related to vesting of stock incentive awards.above.
For the twenty-eight weeks ended July 18, 2026, net income was $82.7 million compared to $111.4 million in the prior year period. The decrease resulted primarily from lower income from operations, as described above, increased interest expense, and a higher effective tax rate primarily due to shortfalls related to vesting of stock incentive awards.
During the sixteentwenty-eight weeks ended AprilJuly 25,18, 2026, we generated net cash flows from operations of $107.9$241.5 million, invested $20.6$44.5 million in capital expenditures, and decreased our indebtedness by $32.0$70.0 million. Additionally, we paid $54.4$81.0 million in dividends to our shareholders. On April 6, 2026, we entered into a $400.0 million senior unsecured delayed draw term loan credit facility (the "term loan facility") which provides us with a prepayable financing structure. The proceeds from the facility will be used to finance the repayment in full of the 2026 notes. Additionally, on April 6, 2026, we amended the $500.0 million senior unsecured revolving credit facility (the "credit facility") to, among other things, extend the covenant holiday currently in effect to October 9, 2027 and add an additional tier to the pricing grid. On April 14, 2026, we amended the accounts receivable repurchase facility (the "repurchase facility") to, among other things, extend the scheduled facility expiration date from April 14, 2027 to April 16, 2029. On May 21, 2026, our Board of Directors reset the dividend to an annual rate of $0.50 per share.
During the sixteentwenty-eight weeks ended AprilJuly 19,12, 2025, we generated net cash flows from operations of $135.6$266.5 million, paid $791.9 million of the total consideration of $846.2 million for the Simple Mills acquisition, invested $25.6$56.4 million in capital expenditures, and increased our indebtedness by $776.6$734.9 million primarily to fund the acquisition. Also, in the prior year period, we paid $52.3$104.8 million in dividends to our shareholders.
Results of operations, expressed as a percentage of sales and the dollar and percentage change from period to period, for the sixteentwelve and twenty-eight weeks ended AprilJuly 25,18, 2026 and AprilJuly 19,12, 2025 are set forth in the tables below (dollars in thousands):
NM - not meaningful.
SIXTEENTWELVE WEEKS ENDED APRILJULY 25,18, 2026 COMPARED TO SIXTEENTWELVE WEEKS ENDED APRILJULY 19,12, 2025
Sales increaseddecreased quarter over quarter due to the Simple Mills acquisition contribution (cycled on February 21, 2026) of 2.3% and favorable price/mix for the Branded Retail category, partially offset by lower volumes for both sales categories and negative price/mix for the Other category, net of favorable price/mix for the Branded Retail category. WePrice/mix beganbenefited implementingfrom price increases we implemented starting in the fourth quarter of the prior year to offset input cost inflation.inflation Brandedas Retailwell volumesas wereSimple impactedMills' bycomprising thea challenginglarger consumerpercentage environmentof and marketplace competition.sales. Our promotional activity increased quarter over quarter, as a result of targeting more differentiated and premium-priced items which aligns with changing consumer preferences.
We anticipate our Fiscal 2026 sales will be lower than Fiscal 2025 due to the additional week in Fiscal 2025 and continued weakness in the fresh packaged bread category. The sales benefit from the Simple Mills acquisition contribution (acquired on February 21, 2025), growth in more differentiated products, including Simple Mills' products, and the benefit of price increases implemented in the fourth quarter of Fiscal 2025 are anticipated to partially offset the sales decrease.
Branded Retail sales increaseddecreased 3.4%3.8% quarter over quarter due to thesignificant Simplevolume Mills acquisition contribution and favorable price/mix,declines, partially offset by volumepositive declines.price/mix. Volumes were negatively impacted by significant market share declines from increased marketplace competition and continued weakness in the fresh packaged bread category driven by changes in consumer preferences,preferences and inflationary pressure on consumer spending, and a competitive marketplace.spending. The largest volume declines were in branded traditional loaf products and branded organic products. Growth in sales of Simple Mills,Mills cookies, Wonder cake (introducedand nearbreakfast the end of the first quarter of Fiscal 2025),breads and Nature's Own Keto protein products partially offset the volume decline. To address changes in consumer preferences, we introduced additional varieties of Nature's Own small loaves and a Keto multi-grain loaf subsequent to the first quarter of Fiscal 2025 and a Keto protein loaf in the first quarter of Fiscal 2026. Other more recently introduced products include DKB sandwich rolls and sourdough loaf. Additionally, Simple Mills continues to innovate, introducing a number of new products and pack sizes. Price/mix benefitted from Simple Mills products comprising a larger percentage of our Branded Retail sales and positive pricing actions.
To reinvigorate Nature's Own, we transformed these products to include fewer, simpler ingredients and launched a marketing campaign during the second quarter promoting the brand's more consumer-relevant qualities and new packaging. We also introduced a Keto protein loaf in the first quarter of Fiscal 2026 and Keto protein buns in the second quarter of Fiscal 2026 to address changes in consumer preferences. Other more recently introduced products include Canyon Bakehouse gluten-free sourdough loaf, DKB mini bagels and sourdough loaf, and additional Wonder cake items. Additionally, Simple Mills continues to innovate, introducing a number of new products and pack sizes.
Sales in the Other category decreased 3.1%4.4% due to unfavorablevolume price/mix and decreased volumedeclines for store-branded retail products,products partiallyand offsetunfavorable by improved non-retail sales.price/mix. Store branded retail sales declined primarily due to volume losses partly from discontinued business resulting in lower cake and traditional loaf volumes, and negative price/mix.business. Our non-retail sales increasedwere primarilyrelatively dueconsistent towith the prior year quarter as volume growth in vending, partiallywas offset by unfavorable price/mix from foodservice comprising a smaller portion of our non-retail sales.mix.
(Certain costs in the table above have been reclassified from amounts previously reported to conform to the current period presentation.)
Materials, supplies, labor and other production costs as a percent of sales increased quarter over quarter primarily due to increasedsignificantly lower production volumes which contributed to higher workforce-related costs, and greater outside purchases of product (sales with no associated ingredient costs) combined with lower production volumes.. Lower ingredient costs as a percent of sales and positive sales price/mix partially offset the increase. Outside purchases of product are included in the Other line item in the table above, the majority of which relate to purchases of Simple Mills products, all of which are co-manufactured. The decrease in ingredientIngredient costs decreased as a percent of sales was due to increasedgreater outside purchases of productproduct, aspositive wellsales asprice/mix, and lower pricing for commodities, particularly flour, sweeteners and eggs. Higher costs for other ingredients, such as oils and cocoa, and the impact of tariffstariffs, and increased scrap partially offset the decrease. We expect the impact of lower production volumes to continue to negatively impact our operations.
(Certain costs in the table above have been reclassified from amounts previously reported to conform to the current period presentation.)
Workforce-related costs increased as a percent of sales quarter over quarter primarily due to ahigher shiftincentive awaycompensation from distributor distribution feescosts and higherwage employeeinflation compensationon costs,lower sales, partially offset by benefits offrom cost savingssaving programs implemented subsequent to the first quarter of the prior year.initiatives. Distributor distribution fees decreased as a percent of sales primarily due to a smaller portion of our sales being made through IDPs partly due to Simple Mills' salessales, which are warehouse-deliveredwarehouse-delivered, andcomprising convertinga tolarger an employee-based model in California. The California conversion was completed early in the second quarterportion of Fiscalour 2025.total sales. The increase in the Other line item in the table above mostly relates to greater marketing investments, higher legallogistics settlementscosts, and expenses and greaterincreased restructuring-related implementation costs,costs partially(as offset by higher acquisition and integration-related costsdiscussed in the priormatters yearaffecting quarter.comparability Thesection companyabove). anticipatesWe increasedlaunched a marketing investmentscampaign infor Nature's Own during the second and third quartersquarter of Fiscal 2026 to promote the launch ofhighlight a more consumer-relevant Nature's Own brand with fewer, simpler ingredients and new packaging. The company anticipates elevated marketing expenses for the remainder of Fiscal 2026 to continue promoting the Nature's Own brand. Rising fuel costs on lower sales volumes primarily resulted in higher logistics costs as a percent of sales.
Recovery on Inferior Ingredients
Refer to the discussion in the “Matters Affecting Comparability” section above regarding this item.
Depreciation and Amortization Expense
Depreciation and amortization expense for the second quarter of Fiscal 2026 decreased in dollars as compared to the prior year quarter primarily due to lower amortization expense resulting from certain intangible assets being written off in the fourth quarter of Fiscal 2025.
Income from Operations
Income from operations for the twelve weeks ended July 18, 2026 decreased in dollars and as a percent of sales compared to the prior year quarter primarily due to the impact of sales declines on operating costs.
Interest Expense, Net
Net interest expense decreased in dollars as compared to the prior year quarter primarily due to lower debt outstanding period over period.
Income Tax Expense
The effective tax rate for the twelve weeks ended July 18, 2026 was 25.1% compared to 25.6% in the prior year quarter. The decrease in the rate quarter over quarter was primarily due to favorable discrete items related to state income taxes in the current year quarter. For both periods presented, the primary differences in the effective rate and statutory rate were state income taxes.
Comprehensive Income
Comprehensive income decreased primarily due to the decrease in net income quarter over quarter.
TWENTY-EIGHT WEEKS ENDED JULY 18, 2026 COMPARED TO TWENTY-EIGHT WEEKS ENDED JULY 12, 2025
Sales (dollars in thousands)
(The table above presents certain sales by category that have been reclassified from amounts previously reported to conform to the current period presentation.)
The change in sales was generally attributable to the following:
Sales decreased period over period due to lower volumes for both sales categories and negative price/mix for the Other category, partially offset by the Simple Mills acquisition contribution (cycled on February 21, 2026) of 1.3% and favorable price/mix for the Branded Retail category. Price/mix benefited from price increases we started implementing in the fourth quarter of the prior year and from Simple Mills sales comprising a larger percentage of our consolidated sales. Our promotional activity increased period over period, as a result of targeting more differentiated and premium-priced items which aligns with changing consumer preferences.
We anticipate our Fiscal 2026 sales will be lower than Fiscal 2025 sales due to the additional week in Fiscal 2025 and continued weakness in the fresh packaged bread category. The sales benefit from the Simple Mills acquisition contribution (acquired on February 21, 2025), growth in more differentiated products, including Simple Mills' products, and the benefit of price increases implemented in the fourth quarter of Fiscal 2025 are anticipated to partially offset the sales decrease.
Branded Retail Sales
Branded Retail sales increased modestly period over period due to the Simple Mills acquisition contribution and favorable price/mix, mostly offset by volume declines. Volumes were impacted by intense marketplace competition and the challenging consumer environment resulting in significant declines in market share. Contraction of the fresh packaged bread category has continued driven by changes in consumer preferences and inflationary pressure on consumer spending. We experienced the largest volume declines for branded traditional loaf products. Growth in Simple Mills, Wonder cake and breakfast bread, and Nature's Own Keto products partially offset the volume decline. Price/mix benefitted from Simple Mills products comprising a larger percentage of our Branded Retail sales and from positive pricing actions.
To address changes in consumer preferences, we reformulated the Nature's Own products to include fewer, simpler ingredients and introduced additional varieties of small loaves, a Keto multi-grain loaf, and Keto protein loaf and bun products. Other more recently introduced products include DKB sandwich rolls, sourdough loaf products, and mini bagels as well as innovation for Simple Mills with new products and pack sizes.
Other Sales
Sales in the Other category decreased 3.6% due to unfavorable price/mix and decreased volume for store-branded retail products, partially offset by improved volume for non-retail sales. Store branded retail sales declined primarily due to discontinued business. Our non-retail sales increased primarily due to growth in vending.
Materials, Supplies, Labor and Other Production Costs (exclusive of depreciation and amortization shown separately; as a percent of sales)
(Certain costs in the table above have been reclassified from amounts previously reported to conform to the current period presentation.)
Materials, supplies, labor and other production costs as a percent of sales increased primarily due to increased outside purchases of product (sales with no associated ingredient costs) combined with the impact of lower production volumes. Workforce-related costs increased as a percent of sales due to the impact of lower production volumes and higher incentive compensation costs. Lower ingredient costs as a percent of sales partially offset the increase. Outside purchases of product are included in the Other line item in the table above, the majority of which relate to purchases of Simple Mills products, all of which are co-manufactured. The decrease in ingredient costs as a percent of sales was due to increased outside purchases of product and positive sales price/mix as well as lower pricing for commodities, particularly flour, sweeteners and eggs. Increased costs for other ingredients, such as oils and cocoa, the impact of tariffs, and increased scrap partially offset the decrease. We expect the impact of lower production volumes to continue to negatively impact our operations.
Selling, Distribution and Administrative Expenses (as a percent of sales)
(Certain costs in the table above have been reclassified from amounts previously reported to conform to the current period presentation.)
FLO insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 1 Form 4 filing (1 insider, 1 trade date, 5,000 shares, about $37.5K) and open-market sales in 0 filings. Net open-market shares: 5,000 (purchases minus sales); net value about $37.5K.Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
| Trade date | Insider | Transaction | Shares | Price | Value |
|---|---|---|---|---|---|
| 2026-06-15 | Courtney H Mark |
Grant/award | 25,980 | — | — |
| 2026-06-08 | Scaglione Diego Anthony |
Open-market purchase | 5,000 | $7.51 | $37.5K |
| 2026-06-04 | Chubb Thomas Caldecot Iii |
Option exercise | 3,710 | — | — |
| 2026-05-29 | Chubb Thomas Caldecot Iii |
Option exercise | 9,350 | — | — |
| 2026-05-29 | Lewis Margaret G |
Option exercise | 9,350 | — | — |
| 2026-05-29 | Spainhour Sterling A Jr. |
Option exercise | 7,900 | — | — |
| 2026-05-29 | Mcfadden William Jameson |
Option exercise | 9,350 | — | — |
| 2026-05-29 | Deese George E |
Option exercise | 9,350 | — | — |
| 2026-05-29 | Casey Edward J. Jr. |
Option exercise | 9,350 | — | — |
Well-known investors holding FLO (13F)
| Investor | Quarter | Shares | Reported value | % of their 13F | Change vs prior quarter |
|---|---|---|---|---|---|
| AQR Capital Management (Cliff Asness) | 2026-06-30 | 7,163,993 | $56.6M | 0.02% | Added 65% |
| Gotham Asset Management (Joel Greenblatt) | 2026-06-30 | 6,650,995 | $52.5M | 0.12% | Added 1295% |
| Millennium Management (Israel Englander) | 2026-06-30 | 4,026,802 | $32.8M | — | Sold out |
| Point72 Asset Management (Steve Cohen) | 2026-06-30 | 2,995,501 | $24.4M | — | Sold out |
| Two Sigma Investments | 2026-06-30 | 2,420,213 | $19.1M | 0.01% | Added 179% |
| Citadel Advisors (Ken Griffin) | 2026-06-30 | 1,158,186 | $9.1M | 0.01% | Reduced 51% |
| Renaissance Technologies | 2026-06-30 | 741,302 | $5.9M | 0.01% | Reduced 51% |
| Bridgewater Associates | 2026-06-30 | 362,451 | $2.9M | 0.01% | Added 118% |