Flowers Foods, Inc. (FLO) Q4 2024 Earnings Report, Transcript and Summary

Good morning, and thank you for standing by. Welcome to the Flowers Foods Fourth Quarter and Full Year 2024 Results Conference Call. Please be advised that today's event is being recorded. I would now like to hand the conference over to your opening speaker today, J.T. Rieck, Executive Vice President of Finance and Investor Relations. Please go ahead.

Thank you, and good morning. I hope everyone had the opportunity to review our earnings release, listen to our prepared remarks and view the slide presentation, that were all posted earlier on our Investor Relations website. After today's Q&A session, we will also post an audio replay of this call. Please note, that in this Q&A session, we may make forward-looking statements about the company's performance. Although we believe these statements to be reasonable, they are subject to risks and uncertainties, that could cause actual results to differ materially. In addition to what you hear in these remarks, important factors relating to Flowers Foods business are fully detailed in our SEC filings. We also provide non-GAAP financial measures for which disclosure and reconciliations are provided in our earnings release and at the end of the slide presentation on our website. Joining me today are Ryals McMullian, Chairman and CEO; and Steve Kinsey, our CFO. Ryals, I'll turn it over to you.

Hey. Thanks, J.T. Good morning, everybody. Welcome to our fourth quarter and full year call. Our team accomplished a lot in 2024. We grew dollars and units in tracked channels across our branded bread portfolio, helped by innovation and strong market execution. And continued implementation of our portfolio strategy drove improved sales and margins in our away-from-home business, despite the impact of those deliberate business exits. Offsetting that performance has been persistent category weakness, which led to lower-than-expected sales results. The biggest headwind from both a revenue and a volume growth standpoint is significant weakness in the sweet baked goods category. However, we're implementing concrete initiatives to offset that weakness and believe our portfolio is very well positioned to capitalize on current and long-term trends. Looking forward into 2025, our financial guidance is cautious given the volatile environment. The potential for tariffs, commodities volatility, higher promotional activity and continued weak consumer demand influenced that cautious outlook. However, we are very optimistic that the strength of our brands, our successful history of innovation, and the innovation of Simple Mills to our brand portfolio will enable a strong longer-term performance. And with that opening, Gigi, we'll open it up for questions.

Thank you. [Operator Instructions] Our first question comes from the line of Steve Powers from Deutsche Bank.

Good morning.

Good morning, Steve.

You hear me okay?

Yeah, loud and clear.

Okay, great. Okay. Sorry. Hey, so can I first ask about Dave's? It's been good obviously for a long-time, but we've seen the -- a core bread in that franchise start to run negative in consumption data for, I guess, about the last 12 weeks. I think, it was down about almost 3% in the last four weeks. I'm quoting Nielsen data. So, can you talk about just kind of what you're seeing there and how you expect the DKB franchise to perform in 2025, both kind of core bread and then the entire lineup? Thanks.

Sure. Let me start with just the core bread, Steve, just so I'm clear on this. First of all, we've documented where our challenges are in the sweet baked goods category and a little bit in the soft variety white bread areas. DKB is not one of those challenges. DKB is a strong brand. It will continue to be a strong brand. There is a bit of noise in those numbers. We had a SKU [indiscernible] deletion of a couple of underperforming SKUs that affected it. If you're looking at fourth quarter, there's always some seasonal noise in there. The fourth quarter is typically fairly weak for sandwich bread. But nonetheless, we did still see very, very strong growth in some of our breakfast items, sandwich buns and rolls, and I'd add to that, we've got new products coming this year to replace those deleted SKUs, plus we're getting very significant space gains this year for Dave's, which is really important. One of those of note is in the mass channel in over 2,000 stores where DKB has been underpenetrated. And I guess the final thing I would mention from a household penetration standpoint, DKB hit a record this year, even higher than the pandemic year of 2020. So, all that points to continue consumer interest in Dave's. We'll, of course, continue to innovate with Dave's, and we're not worried about that at all. So hopefully, that helps give you some color. And then, of course, you add the snacks on top, the bars continue to do very well. We're really excited about the snack bite launch, which is underway as we speak. So, as you think about it more as a mega brand, we're even more confident.

Okay. That's very helpful. I appreciate it. And if I could, maybe a two-part follow-up, and then I'll pass it on. The first part is for Steve. I wonder, if you could better dissect the kind of the first-half/second-half dynamics that you called out in the prepared remarks. You cited some dynamics that will definitely help the early part of the year. At the same time, as you go forward, underlying comparisons ease, you've got Simple Mills rolling in, you've got the extra week. So, I would have expected maybe a little bit different cadence and maybe some color there. And then, Ryals, second part, you mentioned some external research on GLP-1 drugs and related consumer behavior. I'm just curious if you could elaborate on what that research is and kind of what you're seeing there and how you're going to address it. Thank you.

Sure. On the first half, primarily what we're looking at in the first half is, we'll begin to lap some of our new business, and have some of our pricing and some of our savings gains that we saw last year in the back half. There is some pricing that carries over in the back half on primarily private label and foodservice, but a lot of the branded pricing we do lap in the first half. And then, the other major item for the first half has to do with commodity cost and input. The way we take coverage, we are seeing some benefit in the first half of 2025, but given some of the firmness you've seen in the markets of late, right now, we're forecasting some continued inflation with regard to input cost in the back half.

Okay. Steve, to your question on GLP-1s, I mean it's a fascinating topic, right? And everybody is still trying to figure out, what the impact is, what the magnitude of the impact is, what the magnitude will be going forward, and if you -- we're scanning all the research like I'm sure, many of you are. Some of it's conflicting. So, it's hard to get a firm handle on it, but we do want to be cognizant of it. Some of the work that we mentioned in the prepared remarks is from some work we did with Circana. So, that's where that came from. But what I would say is that, if GLP-1s do become a major factor and affect overall food consumption, we think that we're very well positioned for that. You see where we're taking the portfolio. It's definitely starting to skew much more better for you, cleaning up labels, the dominance of DKB, having Canyon, and of course, adding Simple Mills to that mix too, because a lot of these people that are on, GLP-1s will be searching for items just like Simple Mills. So, with all those factors in mind, we're shaping our portfolio to meet -- to kind of meet that new consumer that is taking those medications.

Very good. Thank you. I'll pass it on.

Thank you. One moment for our next question. Our next question comes from the line of Bill Chappell from Truist Securities.

Thanks. Good morning.

Hey, Bill.

Just a little more just, I guess, color on your caution for the category and in terms of what you're seeing and I guess, it comes with do you think there's, you have pricing power or the consumers weakened? Is it just behavioral change, because obviously some more people are going back to work and maybe not having as many much bread at home? Are there any macros that drive that caution, or is this just trends you've been seeing and we came into the fourth quarter and you expect them to continue as we move to early next year?

Yeah, Bill, it's mostly the latter. So, sort of overall pressure on the demand environment, but I would add to that, specifically to our category, it's that consumer shift away from soft variety and white breads, which I think we're very well prepared for. We talked about it in the prepared remarks. I mean, soft variety and white bread were weak. I'm talking in terms of the whole year now, not just the fourth quarter. However, the investments that we've made in innovation around keto and gluten-free and organics and our sandwich bun and roll business, particularly under the national Wonder label were more than enough to offset that. So, if you take the cake piece out of branded retail, we were positive in units and dollars for the year. In branded retail, cake is really where the weakness has been. So, the outlook, we've seen some of those trends from last year spill over already into the little bit of this year, that we've already experienced, though it's obviously very early. I do have some confidence that QSR will start to recover. We're starting to see more positive comments around that. So, perhaps second half this year, some of that volume will come back to our foodservice business, helping overall volumes. But from a branded retail standpoint, we feel very good about where we are branded bun and roll wise with the brands that we have, the innovation we have. And then, with respect to the cake business, the introduction of the Wonder brand is -- I mean, the intention of that is to help stabilize that business. It has been weak, the category has been weak overall, as you all know. But the reception that we've gotten from our Wonder snack lineup has been tremendous, honestly. And if the retailers follow through with that, this will be more of a second quarter thing because it doesn't launch until week 17. So, I mean, we won't have any bearing on the first quarter, but we're very optimistic that, that will help stabilize that piece of the business and obviously, that has a profound effect on just given the weakness in the -- on the cake side of things. That has a profound effect on our outlook for the year. So, starting the year, definitely taking a cautious outlook for all the reasons that I just enumerated. The promotional environment has continued to be somewhat elevated. I wouldn't say it's ridiculous, but it is elevated, though what we're seeing in terms of lifts are not what one would normally expect speaking sort of total category. We've been much more nuanced in our promotional behavior, but the category overall has been somewhat elevated. So, we're keeping our eye on that too. Really, honestly, a continuation of the trends that we talked about on last quarter's call, there hasn't really been any marked change to that yet. Certainly looking to see if we see some improvement in consumer demand in the back half. So that overall is what's driving the cautious outlook at least to start the year.

Got it. And just I guess as a follow-up, I mean, I guess what I'm trying to understand is, why -- if you have ideas why there's a migration away from the white bread? It would seem that it's still a kind of a low-cost solution for lower-income consumers. Not sure, they would be trading up from $1 a loaf private-label white bread to Dave's Killer Bread at $4. I mean, so I'm just trying to understand if you think, there's -- this is a temporary or this is part of a trend and if you know the kind of the factors that are really driving that.

Yes, we do. And that's what I'm trying to say. I think that it's more of a secular shift away from those categories. I think it's -- we've talked for several years now about the shift to more differentiated premium items. So, some of that obviously is coming to us in the terms of Perfectly Crafted and Dave's Killer Bread. Other parts of it are going to the perimeter of the store. Other parts are going to tortillas and flatbreads. So, consumers are looking for something different. Yes, there's still value and there's still value consumer that buy private label or Wonder or Nature's Own butter bread, but there -- it strikes me that there's definitely been a shift in taste and preferences away from those main line items. So, we've been ahead of this, as I mentioned, and with our keto lineup and everything else that I talked about, we're meeting that new consumer demand and so far offsetting the softness in those traditional categories.

Got it. Great. Thanks for the color.

Thank you. One moment for our next question. Our next question comes from the line of Robert Dickerson from Jefferies.

Great. Thanks so much. A couple of quick questions. I guess, just first question, as we think through the year kind of cadence of the year, maybe this goes back to Mr. Powers' question as well, I mean, should we kind of be expecting some kind of, let's say, more category softness, right, in the first half of the year, maybe until you lap the category softness? So, if we're thinking about top-line and just organic volumes in general, I guess, combined with maybe some of the innovation that comes later in the year, then maybe we're a little softer top-line first half and then hopefully, there's a little bit of momentum as we get through the back half? Some simple first question.

Yeah. So, from a top-line standpoint, I think that's roughly correct. I don't really see any change in the consumer demand environment anytime soon, overall, but we do have, as we mentioned, the Wonder launch will be right at the beginning of the second quarter. We actually have a lot of new business wins, significant business wins. Most of those come in after the end of the first quarter. So, I think as you think about cadence through the year in terms of our efforts to win new business, geographic expansion, new items, innovation, that's mostly at least a post first quarter item. And then, as I mentioned, QSR demand, that coming back would certainly be helpful for the foodservice side of things, but I'm not sure we see that until the second half either.

Yeah. Okay. Fair enough. And then, Ryals, maybe just on, coming back to the conversation around traditional white loaf, et cetera, I mean, I do feel like if we go back like a decade, right, I don't know whether we think of some of your core competitors in bread and we think about kind of just like how the shelf looks, right, if I personally walk into a grocery store, now we have, 18, 27, 32 grains, right? We have country white, hardy white, Hawaiian. I mean, there's so many different options now in bread, right? I mean, we're kind of simplifying to an extent, right, like there's a little bit more premium, or, let's say, better for you. I mean, I could argue that it depends on how you're defining better, but whatever. Like, is there maybe just a part of the market where within bread, and let's ignore Dave's for a second, where you clearly could or should or maybe you do, right, have an opportunity to kind of more effectively compete, let's say, with the -- I guess, we could call it more harder loaf, right? I mean, you're calling it soft loaf, because it does feel like there's maybe a little bit more traction on that side and maybe that's just viewed as more premium even though maybe the health attributes aren't better. I don't know if that makes sense.

So, Robert, you're talking like more artisan crusty bread?

No, I'm talking about like if I go into grocery store, I look at Arnold and Pepperidge Farm and they have like harder, more kind of more solid country white, hardy white. I'm seeing people maybe purchase that a little bit more frequently relative to the softer loaf dynamic. So, I'm just bucketing the different subcategories differently.

Yeah. And I think that's a great example of where the market is shifting too. So, if you think about white breads, for example, and what we've done with perfect [Technical Difficulty] so while the traditional loaf under Nature's Own has been [Technical Difficulty] Perfectly Crafted was up 8.5% in units in the fourth quarter, which is typically weak quarter. So that's one example. And we have a white bread under Dave's as well. So that's giving the consumer a place to go that's more premium and more differentiated than those mainline items to your point.

And then, so, like, if we just think about the overall supply chain, like does it make sense to maybe just like gradually infill some of the shelf when certain brands with maybe, the examples you just gave? I don't know. I don't know, if there's a cap on the TAM, but it would seem like markets going that way, maybe it takes you a little while to get there, but it feels like you have the capability to kind of get there.

No, I think that's right. I mean it's -- as you say, it's an evolution over time. I mean, it's down, but make no mistake, there's still a lot of Nature's Own Honey Wheat sold. So, it's still -- from a volume standpoint, it's still a huge piece, same for butterbread and the other mainline Nature's Own items. But we're -- plants are pretty flexible, Rob, as you'll recall. So, as we move forward and the consumer preferences shift, we can run these items on the same lines we already have for Nature's Own. So, there's a lot of Perfectly Crafted [Technical Difficulty] made in the Miami bakery, for example, which we've had for 50 years, and it makes Nature's Own butter bread, but it also pumps out the Perfectly Crafted as well. Dave's is a little different, obviously with the organic and obviously gluten-free even more difficult, just given the segregation required. But yeah, our network is set up to be flexible in that regard as those preferences shift.

Yeah. Okay, perfect. Makes sense. And then just maybe one question for me on the Wonder snack launch. I mean, within the prepared remarks, right, I guess kind of the term or terminology around healthy consumption, better-for-you, et cetera, it does continue to pop up, kind of we're all aware around what's going on in the perimeter relative to the center of the store. I mean, I guess, one could argue it either way, maybe, a Wonder Cream Filled Confetti cake is more premium or maybe for somebody it's classified as better-for-you. But it seems like, maybe it's just a good opportunity to kind of take some of the capacity you already have, right, within sweet baked snacks and just try to shake it up a little bit, right? I mean, clearly, Wonder has very high consumer awareness. It's probably one of the highest within all of baked goods. So, like -- is the idea as you speak with the retailers, hey, here's a category that's clearly under a bit of pressure and it's been that way for some time and there haven't really been a lot of new entrants, right? So maybe this is something that could actually work as consumers want something new and trial, not necessarily because it's premium or better-for-you? That's all. Thank you.

Look, I think -- yeah, I think you said it very well. I mean, Wonder is an iconic brand. It's got 98% awareness, so it's among the highest in food. And we've talked a lot about the fact that one of our competitive issues in the cake business is just the lack of a brand to go up against the larger players with. We're a bit disadvantaged from that standpoint. I mean, Tasty is a great brand, if you're from Philadelphia or the surrounding area, but if you're from Karro, Georgia, maybe not so much. But Wonder definitely resonates. I would also say that the quality is also a factor and we believe that our quality is superior and we've been told our retail partners that our quality superior. So, we think that gives us a nice competitive advantage as well.

And just quickly, could that product line be launched nationally, kind of relative to Tasty or is it probably more in the kind of a Tastykake regional play?

No, we can go national with Wonder: A, it's a national brand; and B, this is all warehouse distribution. So, we're not limited by the DSD now.

Super. All right. Awesome. Thank you. Appreciate it.

All right. Okay.

Thank you. One moment for our next question. Our next question comes from the line of Jim Salera from Stephens.

Yes, good morning. Thanks for taking the question. Ryals, appreciate the -- some of the detail on 2025. I wanted to maybe parse out some of the legacy business. If my back-of-the-envelope math is correct, if I take the midpoint, strip out the 53rd week in the Simply Good -- or I'm sorry, Simple Mills acquisition, that gets just shy of like 1% growth for the core 52-on-52-week legacy business. How should we think about the kind of the expectations for the components there? It seems like maybe foodservice still down modestly. The core bread offering maybe up a little bit and then sweet baked goods kind of a variable. So, could you just kind of give us a sense for the components of the legacy business for '25?

Yeah. I mean, I think you're thinking about it right, number one. But secondly, I'd say a lot of the -- that 1% growth will be mix-driven. And Ryals as pointed out, the performance of our premium brands continue to be really strong. So, we're forecasting good performance for 2025 from that perspective as well. We believe as Ryals said, Wonder cake should help from a cake perspective, but again, that doesn't really kick in until the second quarter, and we are expecting some recovery from a quick serve, foodservice during the year as well. So, when you look at kind of that 1% growth, a lot of that's going to be mix-driven from a pricing perspective. We've taken pretty substantial pricing over the past couple of years. There might be a pocket here or there or something very selective, but for the most part, it will be mix-driven.

Great. That's helpful. And then maybe a second question on some of the innovation and formatting. Ryals, in your prepared remarks, you mentioned having the opportunity to offer consumers smaller loaves that maybe make the product a little more accessible from an absolute price point perspective. And then, also they don't have to worry about spoilage and maybe throwing away the couple of extra slices. Can you just give us some details? Is that across the whole portfolio, or is that just with certain brands? Is there an opportunity, especially thinking about GLP-1 impact to kind of, yeah, expand that across the portfolio to make it more accessible and reduce the waste?

Yeah, I think it's a "we'll see" right now, Jim. We currently only have it under the Nature's Own brand for the small loaves. We are looking at it for Wonder as well. And then, of course, this is not exactly analogous, but DKB has had for a long time the thin slice, which is a much smaller loaf in that big super premium wide pan bread. And we do find that to lower price point, obviously, margins are still good for us and that's a consumer need that we're trying to meet. There are others out there. We're not always the first to market. We weren't the first to market with keto and yet we're number one in that sub-segment now. And there have been others that have been earlier to market with the small loaf, and we've been watching it. It's done well. It's obviously, a need for certain households and so we elected to meet that demand.

Great. And then maybe if I could sneak in just one last. Ryals, you mentioned very briefly in the beginning of the Q&A, just some uncertainty on tariff. Could you just give us maybe just high-level thoughts on what tariff exposure might be and just any impact that might have?

Yeah, Jim, this is Steve. I mean, I'm sure you assume this. Basically it's ingredient-driven. We have taken into consideration some estimates of the tariffs and that does flow through our guidance. We looked at ways to mitigate that the best we can. But the reality is, a lot of it's ingredient-driven and as you would expect, most of it's are Canadian or Mexican driven. But there is some -- in China, but the majority of it would be from those two countries.

Okay, great. Perfect. Thanks, guys. I'll pass along.

Thank you.

Thank you. One moment for our next question. Our next question comes from the line of Brian Holland from D.A. Davidson.

Yeah, thanks. Good morning. Maybe just following up on some of the earlier lines of questioning, I think Jim's point implied '25 guidance top-line excluding acquisitions, excluding 53rd week, we're looking at like 80 bps of growth at the midpoint, which I think on its face looks modest, but for the last three quarters, your sales have declined, volumes have gotten worse, category trends are softening as we move further softening. I'm talking about all packaged bakery as we move through Q1. So I guess maybe to the extent that you could sort of parse out because it strikes me that innovation is the incrementality of that and maybe some of the new business wins on the foodservice or in the non-retail business would be the primary drivers above and beyond, maybe a down category and just some natural share growth on your part. So maybe at its most simplistic, but do we have a bigger innovation wave in 2025 and 2024? And where does that fall, if you were to tier the drivers bridging from where the category as to where you're guiding for '25?

Yeah, Brian, so lots talk about there. So, several things. One, I think, I heard you say new business in the away-from-home. Most of the new business is on the retail side. So, we are picking up some private label board, getting a lot of brand concession for that as well. I mentioned at the outside -- outset of the call, part of that is some significant new space for DKB, which is going to be great for us. And so, there's a litany of others. Then, you also have the Wonder launch, as I mentioned, that's going to be second quarter, it won't have any effect on the first quarter. So that's going to be a big part of it. And then, to answer your question on innovation, yes, we do have a higher innovation goal for this year than we did last year. So, it's a combination of all things. And all of that's intended. We're still saying, for the time being, we're not expecting any major positive changes in consumer demand. That's why we started the year cautious. But all this stuff is met to offset that. And then, of course, if consumer demand starts to improve, which we believe it eventually will, we're very well positioned to take advantage of that.

No, appreciate that. That's all helpful. Thank you. And then just quickly on Simple Mills, I think you put 2024 net sales last month at $240 million. Your guidance in '25 implies something a bit below that. I suppose that that's probably just less than full year contribution that explains the implied decline. But if I have that right, just a sense for kind of what you're assuming for that business on an apples-to-apples basis in 2025?

Yeah. I mean, for 2025, obviously, it's roughly 45 weeks, if we stay on the closing schedule that we're -- that we've assumed here. And then, from an overall growth perspective, we are assuming some modest growth for 2025.

So, if you say modest growth for 2025, I think the business has grown at like a mid-teens CAGR or something like that. Is there anything with respect to just integration, et cetera, that you might explain why the implied guide for that business would look more conservative than what the historical trend has been? Or is that just conservatism not dissimilar to the way you're trying to approach your core business?

Yeah, let me comment, and Steve can add on to this. First of all, it's a little tricky for us because we haven't closed yet. So, we're assuming a certain number of weeks in this contribution. So, we've kind of given a range to give ourselves a little bit of breathing room there just because we haven't closed yet. We do expect it to be soon, but as of today, we haven't closed. The second thing I would say is that we're very, very bullish on this business. We wouldn't pay the premium that we did if we weren't. But we do need to get them -- we need to get them integrated and we can't do a lot of that, obviously, pre-closing for regulatory reasons. But once we get in there and we decide how we're going to work together and the things that we can bring to them to accelerate their distribution gains, their innovation pipeline, et cetera, it will take a few months for us to get there. So, I think it will come into much clearer focus, though I know it's probably frustrating for your modeling efforts, it will come into clearer focus after we get closed.

And Brian, I don't know if you had a chance to look at the deck yet, but on Slide 7, we do call out that we're assuming a full year pro forma contribution of roughly $258 million to $266 million from a top-line perspective. So that should be able to help you from a modeling perspective.

Okay. Thank you. That is helpful. And then, if I could sneak in one more? Just any thoughts, Ryals, about how the promotional landscape might evolve as commodities become a headwind for the category into 2025? I think historically, an inflationary environment upstream has tended to be beneficial for Flowers, just given kind of your hedging strategy vis-a-vis the balance of the category. So, maybe just any thoughts there?

On the promotional environment, you mean?

Yeah. How you -- right. I mean, I think we're seeing an increasingly competitive -- we have seen an increasingly competitive environment. I know, you've talked about that being below pre-COVID levels, but commodities have been a bit of a tailwind to help support that. If it goes the other way, if you assume that a lot of the smaller independents don't have the same hedging or forward-buying practices that somebody like Flowers might have that they would have to correct more quickly to account for that. And again, historically, I think that's been a net benefit for Flowers. Just curious how you think about that?

Yeah, I would think about it exactly the same way, though it'd be just pure speculation to figure out exactly when that might happen and what they might do and when. Yeah, you're right, historically, it has overall been a benefit. And I mentioned a while ago, we've been watching the promotional environment very carefully. No surprise, I mean, for us, I mean, the base units have been a little bit weak. But our promotional cadence has delivered some pretty nice incremental units. On the other hand, we have seen more broadly across the category deeper, perhaps more aggressive promotions and our analysis shows that those are not delivering from an incremental standpoint. So certainly, my hope is that, that stabilizes and pulls back. But in the meantime, we're going to continue with the same strategy we have. I mean, we have the number one brands. We don't have to promote as deeply because of the strength of those brands and we'll continue utilizing that strategy.

Great. Thanks. I'll leave it there.

Thank you. One moment for our next question. Our next question comes from the line of Mitchell Pinheiro from Sturdivant & Company.

Hey, good morning. Most of my questions have been asked, but I do have just a couple of things. Regarding guidance as the Flower standalone, earnings per share is flat to down versus '24, but you have perhaps a modest increase on the top-line. So, is that gross margin or is that SD&A decline -- or pressure on earnings?

I think you'll see more pressure within SD&A.

And is that workforce related? I mean, is that related to California transition or just general, workforce-related pressures?

I think you'll continue to see some of the pressures we talked about on Q4. You'll continue to see workforce, continue to see an increase in overall lease or rent expense. So, it really is related to the truck leases and rentals for California, and then you'll continue to see, your cold storage expense increase as well. So, there's several factors within SD&A forecasted to be up year-over-year. I think from a gross margin perspective, well, we're not really guide, but I think overall, we should be okay '24 to '25.

Yeah, Mitch as well, just remember that as we move through the first quarter of this year, Steve already mentioned the lap of the pricing, but we will also start to lap the savings initiative that we launched last year, that $46 million that we saved in '24.

Okay. And then, you had a comment, I guess, in the prepared remarks talking about the California transition going to drive some improved results. What are you trying to say there? Is that -- I mean, because that's going to be a company-owned model versus your traditional independent model. Is that saying that you could be more efficient with a company-driven model?

Yeah. I think -- I would think of it in terms of control. Obviously, with our IDP model, we have very limited control there, because they are independent business owners as you know. Whereas with the transition in California kind of taking back control over distribution, days of service, display execution, we have a lot more ability to drive our business ourselves with an employee model there. Now Mitch, as you know, we were forced to do that in California. This wasn't necessarily by choice. So, we'll see how it goes. On balance, as we've mentioned, it is a little bit more expensive to use a company-owned model than it is IDPs, primarily due to the truck expense that's on our books. But our aim is to more than offset that via that control with enhanced sales growth, primarily -- honestly, if nothing else, increase days of service. We all know how important Sunday service is and that can be somewhat uneven with an IDP model.

Okay. All right. Thank you. And then just one other thing. And I forget maybe someone else asked this already, but the small loaves that you're putting out, you've always -- you've thought about it before, but it sort of didn't quite make sense in years past for a variety of reasons. Is -- have you solved any of the small low margin issues or is that something that you got the right margin mix there or is it a -- could it be a margin drag for you?

It's not a major margin drag, Mitch. First of all, it's not big enough yet really to have that big of an effect. But to answer your question, it is a little bit lower than the mainline items, just due to the fact that we're not really set-up to just produce a small loaf. There's some complexities in the plants. However, if we start to find success with this, we would go and make the necessary changes in the plants to fix that, and that would go a long way to helping the margin profile. I'm not really worried about it right now. This is really more of a test-and-learn circumstance for us. But if it -- it's doing well, if it continues to do well, we've got more SKUs coming out to help support it. If it really takes off, then we'll make the necessary investments on the supply chain side.

Okay. All right. That's all I have. Thank you for your time.

Thank you. One moment for our next question. Our next question comes from the line of Max Gumport from BNP Paribas.

Hey, thanks for the question. Just turning back to the commentary on promotions. So, you're clearly of the mind that the promo intensity we're seeing is not the solution to volume pressure in the bread category, and that sounds like a prudent approach to be taking given the lack of lifts that we're seeing. It's not clear though that your competitors are of the same mindset and stepping away from promotion. So, how would you think about navigating through an environment, if you have large competitors that continue to promote through the year, even if a bit irrationally? Thanks.

Yeah, right. Can't control what they do, understand that. But I think simply put, if you look at our market share performance relative to some of the competitors that you're talking about, I think you'll find your answer there. Our performance has been much better and we don't promote nearly as deeply. I think our overall price per unit was down maybe $0.01 in the fourth quarter, $0.01 -- up $0.01 in the fourth quarter, sorry, in the fourth quarter. So that -- and that typically tends to be a higher promotional quarter just given the seasonality and yet our market share performance was better. So, I would leave it at that.

Okay. And then turning back to the expansion of Wonder into sweet baked snack. So, I mean, clearly, you noted that one of the biggest headwinds you're facing right now is that weakness in the sweet baked goods category. And you're planning to address that head-on with the introduction of Wonder snack cake. I guess, I'm just wondering, why that's the right strategy. I mean, to me, it would seem you can choose the categories that you play in. And so, I'm wondering, why you're choosing to get bigger in the category that's one of the weakest in US packaged feed right now and potentially due to structural issues at play. So just curious, why snack cakes and not another category that maybe has better growth tailwinds behind it.

You mean with the use of the Wonder brand?

Exactly. Why expands Wonder into snack cakes now? Why is snack cakes the right category? Why not think about a different category that isn't under a whole lot of top-line pressure?

Right, well, I would put it this way. We're in the sweet baked goods business and it's a headwind and it needs addressing. I think that's very clear. And we've documented it for a number of years that it's been a headwind from us first operationally and now from a top-line standpoint. And we think that Wonder translates much more easily into the -- and seamlessly into the sweet baked goods category than it might others.

Okay. And then, I'll throw in a third question as well. Just could you provide a bit more color on the Circana research that you're citing, particularly with regard to the comment about how you're seeing or Circana is seeing households on GLP-1 drugs start to revert even more fully back to center store items? Curious are there center store items in particular that they're reverting too? Did they give you any reasons for why that counterintuitive shift is occurring? Thanks very much.

Yeah, sure. I mean -- and look, I mean the research that we're citing is, as I said earlier, one of many. I think some of these even tend to conflict with each other. But yes, we have seen some data that shows that people start that medication and when they stop, they come back and they buy more than they did before. But I think it's one point in time. It's one data point. I would caution everyone on that. I don't think I've been very clear that I don't think anyone has gotten this completely figured out yet or knows what the long-term implications of it are. I think the important thing to note is that regardless of the outcome, we're positioning our portfolio to be successful in any environment.

Okay. Thanks very much.

Thank you. At this time, I would now like to turn the conference back over to Ryals McMullian, Chairman and CEO, for closing remarks.

Thanks, Gigi. I want to thank everybody for taking time today and joining us for questions. Thanks very much for your interest in our company. And as always, we look forward to speaking with you again next quarter. Take care.

This concludes today's conference call. Thank you for participating. You may now disconnect.