FLOWERS FOODS INC

Previous wording

The following discussion of the financial condition and results of operations of the company as of and for the twelve and twenty-eight weeks ended July 12, 2025 should be read in conjunction with the Form 10-K and Part II., Item 1A., Risk Factors, of the Form 10-Q for the quarterly period ended April 19, 2025. Any reference to sales refers to net sales inclusive of allowances and deductions against gross sales for variable consideration and consideration payable to customers.

Current wording

The following discussion of the financial condition and results of operations of the company as of and for the twelve and forty weeks ended October 4, 2025 should be read in conjunction with the Form 10-K and Part II., Item 1A., Risk Factors, of the Form 10-Q for the quarterly period ended April 19, 2025. Any reference to sales refers to net sales inclusive of allowances and deductions against gross sales for variable consideration and consideration payable to customers.

Previous wording

Business process improvement costs related to the transformation strategy initiatives In the second half of Fiscal 2020, we launched initiatives to transform our business, including an upgrade to our information system, as well as investments in e-commerce, autonomous planning, and our "bakery of the future" initiatives. Implementation of the ERP upgrade is anticipated to be completed in Fiscal 2026. The ERP upgrade is discussed in the “Transformation Strategy Initiatives” section below. The expensed portion of costs incurred related to these 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. 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 $30.0 million to $35.0 million for Fiscal 2025.

Current wording

Business process improvement costs related to the transformation strategy initiatives In the second half of Fiscal 2020, we launched initiatives to transform our business, including an upgrade to our information system, as well as investments in e-commerce, autonomous planning, and our "bakery of the future" initiatives. Implementation of the ERP upgrade is anticipated to be completed in Fiscal 2026. The ERP upgrade is discussed in the “Transformation Strategy Initiatives” section below. The expensed portion of costs incurred related to these 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. 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 2025.

Previous wording

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. The company incurred consulting costs associated with this review of $4.3 million and $2.9 million in the first and second quarters of Fiscal 2025, respectively, and these costs are included in the selling, distribution, and administrative expenses line item of the Condensed Consolidated Statements of Income. We anticipate this analysis to continue in subsequent quarters of Fiscal 2025.

Current wording

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 $4.5 million. The RIF charges are included in the restructuring charges line item of the Condensed Consolidated Statements of Income. Additionally, during the twelve and forty weeks ended October 4, 2025, the company incurred consulting costs associated with this review of $3.5 million and $10.7 million, respectively, and these costs are included in the selling, distribution, and administrative expenses line item of the Condensed Consolidated Statements of Income. We anticipate additional restructuring charges and related costs in subsequent quarters.

Previous wording

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. In the first and second quarters of Fiscal 2024, the company incurred $0.6 million and $6.8 million of RIF costs and made $0.2 million and $6.7 million of RIF payments, respectively. The company incurred final RIF charges totaling $0.6 million and made payments of $0.7 million in the first quarter of Fiscal 2025. The RIF charges are included in the restructuring charges line item of the Condensed Consolidated Statements of Income. The company also incurred consulting costs associated with implementing the restructuring program of $1.3 million and $1.6 million in the first and second quarters of Fiscal 2024, respectively, and these costs are included in the selling, distribution, and administrative expenses line item of the Condensed Consolidated Statements of Income.

Current wording

In April 2024, the company announced a cost savings program to improve operational performance, which included employee termination benefits associated with a RIF and other expense optimization initiatives. In the forty weeks ended October 5, 2024, the company incurred $7.4 million of RIF costs and made payments of $7.3 million. The company incurred final RIF charges totaling $0.6 million and made payments of $0.7 million in the first quarter of Fiscal 2025. The RIF charges are included in the restructuring charges line item of the Condensed Consolidated Statements of Income. The company also incurred consulting costs associated with implementing the restructuring program of $3.0 million in the forty weeks ended October 5, 2024 and these costs are included in the selling, distribution, and administrative expenses line item of the Condensed Consolidated Statements of Income.

Previous wording

In the first quarter of Fiscal 2024, we recognized an impairment loss of $4.0 million related to our investment in Base Culture, a Clearwater, Florida-based company with one manufacturing facility. This investment is being accounted for at cost, less any impairment, as we do not control, nor do we have the ability to significantly influence Base Culture. The company recorded impairment losses on this investment in previous years and the current carrying value is approximately $1.5 million. During the second quarter of Fiscal 2024, the company 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.

Current wording

In the third quarter of Fiscal 2024, the company recorded a charge of $2.3 million to fully impair certain ERP-related software 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. During the second quarter of Fiscal 2024, the company 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. In the first quarter of Fiscal 2024, we recognized an impairment loss of $4.0 million related to our investment in Base Culture, a Clearwater, Florida-based company with one manufacturing facility.

Previous wording

Legal settlements and related costs In the first and second quarters of Fiscal 2025, we reached agreements to settle certain distributor-related litigation for total settlement payments, inclusive of plaintiffs' attorney fees, of $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 required a phased repurchase of approximately 350 distribution territories in California and the company previously 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. The repurchases of the distribution rights commenced at the end of the first quarter of Fiscal 2024 and were 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 selling, distribution, and administrative expenses line item of the Condensed Consolidated Statements of Income.

Current wording

Legal settlements and related costs In the first and second quarters of Fiscal 2025, we reached agreements to settle certain distributor-related litigation for total settlement payments, inclusive of plaintiffs' attorney fees, of $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 required a phased repurchase of approximately 350 distribution territories in California and the company previously 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. The repurchases of the distribution rights commenced at the end of the first quarter of Fiscal 2024 and were 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 selling, distribution, and administrative expenses line item of the Condensed Consolidated Statements of Income. In the third quarter of Fiscal 2024, we reached agreements to settle certain distributor-related litigation in the aggregate amount of $0.8 million, inclusive of plaintiffs’ attorney fees.

Previous wording

Acquisition-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 approximately $848.6 million. The goodwill, identifiable intangible assets, taxes, and certain other assets and liabilities are still under review. The company funded the cash consideration and related acquisition fees and expenses with the net proceeds of the Notes (as defined below) offerings completed on February 14, 2025. We incurred acquisition-related costs of $13.8 million and $0.9 million in the first and second quarters of Fiscal 2025, respectively, and these costs are recorded in the selling, distribution, and administrative expenses line item of the Condensed Consolidated Statements of Income.

Current wording

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 approximately $848.6 million. The goodwill, identifiable intangible assets, taxes, and certain other assets and liabilities are still under review. The company funded the cash consideration and related acquisition fees and expenses with the net proceeds of the Notes (as defined below) offerings completed on February 14, 2025. We 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.

Previous wording

As discussed above, on February 21, 2025, the company completed the acquisition of Simple Mills expanding the company’s 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 offering premium better-for-you crackers, cookies, snack bars, and baking mixes. Built upon the belief that food has the power to spark impactful change, Simple Mills’ mission is to revolutionize the way food is made to positively impact people and the planet. The brand’s stunningly simple ingredients, pioneering use of nutrient-dense nut, seed, and vegetable flours, and exceptional taste have cultivated unmatched brand love and loyalty among natural and mainstream consumers alike. Simple Mills' products are produced by co-manufacturers and distributed via warehouse distribution, and are available nationwide across more than 30,000 natural and conventional stores.

Current wording

On February 21, 2025, the company completed the acquisition of Simple Mills expanding the company’s 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 offering premium better-for-you crackers, cookies, snack bars, and baking mixes. Built upon the belief that food has the power to spark impactful change, Simple Mills’ mission is to revolutionize the way food is made to positively impact people and the planet. Simple Mills' products are produced by co-manufacturers and distributed via warehouse distribution, and are available nationwide across more than 30,000 natural and conventional stores.

Previous wording

Nature’s Own is the best-selling loaf bread in the U.S., DKBis the #1 selling organic brand in the U.S., and Canyon Bakehouse is the #1 selling gluten-free bread brand in the U.S. (Source: Circana Total US MultiOutlet+ w/ Conv 12 Weeks Ended 7/13/25).

Current wording

Nature’s Own is the #1 selling loaf bread in the U.S., DKBis the #1 selling organic brand in the U.S., and Canyon Bakehouse is the #1 selling gluten-free bread brand in the U.S. (Source: Circana Total US MultiOutlet+ w/ Conv 12 Weeks Ended 10/5/25).

Previous wording

We acquired Simple Mills on February 21, 2025 with its brand of better-for-you snacks and baking mixes which contributed $85.7 million of sales through the second quarter of Fiscal 2025.

Current wording

We acquired Simple Mills on February 21, 2025 with its brand of better-for-you snacks and baking mixes which contributed $156.4 million of net sales through the third quarter of Fiscal 2025.

Previous wording

Our Branded Retail sales comprised 65.7% of total sales for the twenty-eight weeks ended July 12, 2025 as compared to 64.3% for the twenty-eight weeks ended July 13, 2024.

Current wording

Our Branded Retail sales comprised 65.9% of total sales for the forty weeks ended October 4, 2025 as compared to 64.2% for the forty weeks ended October 5, 2024.

Previous wording

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, supply chain disruptions, including the impacts of tariffs, increased labor costs, the conflict between Russia and Ukraine, and the conflict in the Middle East. Our results through the second quarter of Fiscal 2025 as compared to the prior year period were negatively impacted by increased weakness in the fresh packaged bread category, most notably for branded traditional loaf breads. However, sales attributed to the Simple Mills acquisition along with growth from sales of certain of our other more-premium, better-for-you branded organic and Keto products partially offset the overall sales decline. Additionally, the introduction of Wonder snack cakes in the first quarter of Fiscal 2025 drove higher branded retail cake sales as compared to the prior year period.

Current wording

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, supply chain disruptions, including the impacts of tariffs (including retaliatory tariffs) , increased labor costs, the conflict between Russia and Ukraine, and the conflict in the Middle East. Our results through the third quarter of Fiscal 2025 as compared to the prior year period were negatively impacted by continued weakness in the fresh packaged bread category, most notably for branded traditional loaf breads. The benefit of sales increases, mainly from the Simple Mills acquisition contribution and to a lesser extent sales improvement for DKB, Nature's Own Keto, and Wonder cake products, was more than offset by higher operating costs.

Previous wording

Supply chain and other disruptions could negatively impact production volumes, and the global and U.S. supply chain remains uncertain. Although the conflict between Russia and Ukraine and the conflict in the Middle East have not impacted our operations directly, and tariffs (including retaliatory tariffs) have not had a material impact on our operations, we are closely monitoring the impact on the broader economy including on the availability and price of commodities used in or for the production of our products. Disruptions in our operations related to factors including, but not limited to, the procurement of raw materials and packaging items, transport of our products, and workforce availability, could negatively impact our operations, results of operations, cash flows, and liquidity.

Current wording

Supply chain and other disruptions could negatively impact production volumes, and the global and U.S. supply chain remains uncertain. Although the conflict between Russia and Ukraine and the conflict in the Middle East have not impacted our operations directly, we are closely monitoring the impact on the broader economy including on the availability and price of commodities used in or for the production of our products. Tariffs (including retaliatory tariffs) have impacted our operations. Disruptions in our operations related to factors including, but not limited to, the procurement of raw materials and packaging items, transport of our products, and workforce availability, could negatively impact our operations, results of operations, cash flows, and liquidity.

Previous wording

Labor shortages and turnover could negatively impact our results. These and other factors, including, but not limited to, a competitive labor market and additional government regulations, may continue to adversely affect labor availability and labor costs. These challenges may negatively impact the efficiency of our production lines and our ability to operate at, or near, full capacity, and could result in increased labor costs, including additional overtime to meet demand, and higher wage rates to attract and retain workers. An overall labor shortage, lack of skilled labor, or increased turnover has and could continue to have a negative impact on the company’s operations, results of operations, liquidity, or cash flows.

Current wording

Labor shortages and turnover could negatively impact our results. These and other factors, including, but not limited to, a competitive labor market and additional government regulations, may continue to adversely affect labor availability and labor costs. These challenges may negatively impact the efficiency of our production lines and our ability to operate at, or near, full capacity, and could result in increased labor costs, including additional overtime to meet demand, and higher wage rates to attract and retain workers. An overall labor shortage, lack of skilled labor, or increased turnover has had and could continue to have a negative impact on the company’s operations, results of operations, liquidity, or cash flows.

Previous wording

Sales increased 1.5% for the twelve weeks ended July 12, 2025 compared to the same quarter in the prior year due to the acquisition contribution of 5.1%, partially offset by volume declines of 2.4% and negative price/mix of 1.2%. Branded Retail sales increased 5.0% with the acquisition contributing 7.8%, while sales in the Other sales category decreased 4.9%. Negative price/mix from competitive marketplace dynamics and softer volumes impacted both sales categories. The largest volume declines were in sales of branded traditional loaf breads.

Current wording

Sales increased 3.0% for the twelve weeks ended October 4, 2025 compared to the same quarter in the prior year due to the acquisition contribution of 5.9%, partially offset by volume declines of 0.6% and negative price/mix of 2.3%. Branded Retail sales increased 6.9% with the acquisition contributing 9.3%, while sales in the Other sales category decreased 3.8%. Negative price/mix from competitive marketplace dynamics impacted both sales categories. Branded Retail sales also experienced softer volumes most notably for traditional loaf breads.

Previous wording

Sales decreased 0.2% for the twenty-eight weeks ended July 12, 2025 compared to the same period in the prior year due to volume declines of 2.5% and negative price/mix of 0.7%, partially offset by the acquisition contribution of 3.0%. Branded Retail sales increased 2.0% due to the acquisition contribution of 4.8%, while sales in the Other sales category decreased 4.1%. Both sales categories experienced negative price/mix and softer volumes due to a challenging consumer environment.

Current wording

Sales increased 0.8% for the forty weeks ended October 4, 2025 compared to the same period in the prior year due to the acquisition contribution of 3.9%, partially offset by volume declines of 1.9% and negative price/mix of 1.2%. Branded Retail sales increased 3.4% due to the acquisition contribution of 6.1%, while sales in the Other sales category decreased 4.0%. Both sales categories experienced negative price/mix and softer volumes due to a challenging consumer environment.

Previous wording

For the twelve weeks ended July 12, 2025, income from operations was $93.4 million compared to $95.2 million in the prior year period. The decrease resulted mostly from greater outside purchases of product related to the Simple Mills acquisition and increased expenses for labor and rent. Lower distributor distribution fees and ingredient costs and the prior year restructuring charges partially offset the decrease quarter over quarter.

Current wording

For the twelve weeks ended October 4, 2025, income from operations was $66.5 million compared to $90.2 million in the prior year quarter. The decrease resulted mostly from greater outside purchases of product related to the Simple Mills acquisition, increased expenses for labor and rent, and the restructuring charges and related implementation costs. Lower distributor distribution fees and ingredient costs and the prior year plant closure costs partially offset the decrease.

Previous wording

Income from operations for the twenty-eight weeks ended July 12, 2025 was $178.5 million compared to $196.8 million in the prior year period. The decline mostly resulted from greater outside purchases of product due to the Simple Mills acquisition, increased workforce-related costs, higher rent expenses, and the current year acquisition-related costs. These higher costs were partially offset by lower distributor distribution fees and ingredient costs.

Current wording

Income from operations for the forty weeks ended October 4, 2025 was $245.1 million compared to $286.9 million in the prior year period. The decline mostly resulted from greater outside purchases of product due to the Simple Mills acquisition, increased workforce-related costs, higher rent expenses, 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.

Previous wording

Net income for the twelve weeks ended July 12, 2025 was $58.4 million compared to $67.0 million in the prior year quarter. The decrease quarter over quarter resulted primarily from reduced income from operations, as described above, combined with increased interest expense from funding the acquisition.

Current wording

Net income for the twelve weeks ended October 4, 2025 was $39.5 million compared to $65.0 million in the prior year quarter. The decrease quarter over quarter resulted primarily from reduced income from operations, as described above, and increased interest expense from funding the acquisition, partially offset by lower income tax expense.

Previous wording

Net income for the twenty-eight weeks ended July 12, 2025 was $111.4 million compared to $140.0 million in the prior year period. Lower income from operations, as described above, combined with increased interest expense from funding the acquisition primarily resulted in the decrease period over period.

Current wording

Net income for the forty weeks ended October 4, 2025 was $150.9 million compared to $205.0 million in the prior year period. Lower income from operations, as described above, combined with increased interest expense from funding the acquisition and a higher effective tax rate primarily resulted in the decrease.

Previous wording

During the twenty-eight weeks ended July 12, 2025, we generated net cash flows from operations of $266.5 million, paid $791.9 million of the total consideration of approximately $848.6 million for the Simple Mills acquisition, invested $56.4 million in capital expenditures, and increased our indebtedness by $734.9 million primarily to fund the acquisition. Additionally, we paid $104.8 million in dividends to our shareholders. On February 5, 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"). On February 14, 2025, we 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"). On April 14, 2025, we amended the accounts receivable repurchase facility (the "repurchase facility") to, among other things, extend the scheduled facility expiration date to April 14, 2027.

Current wording

During the forty weeks ended October 4, 2025, we generated net cash flows from operations of $320.8 million, paid $791.9 million of the total consideration of approximately $848.6 million for the Simple Mills acquisition, invested $80.3 million in capital expenditures, and increased our indebtedness by $764.9 million primarily to fund the acquisition. Additionally, we paid $157.0 million in dividends to our shareholders. On February 5, 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"). On February 14, 2025, we 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"). On April 14, 2025, we amended the accounts receivable repurchase facility (the "repurchase facility") to, among other things, extend the scheduled facility expiration date to April 14, 2027.

Previous wording

During the twenty-eight weeks ended July 13, 2024, we generated net cash flows from operations of $168.4 million, invested $61.3 million in capital expenditures, and increased our indebtedness by $20.0 million. Also, in the prior year period, we paid $101.9 million in dividends to our shareholders and repurchased $22.7 million of company stock.

Current wording

During the forty weeks ended October 5, 2024, we generated net cash flows from operations of $282.4 million, invested $86.6 million in capital expenditures, and increased our indebtedness by $5.0 million. Also, in the prior year period, we paid $152.5 million in dividends to our shareholders and repurchased $22.7 million of company stock.

Previous wording

Our ERP initiative includes upgrading our information system platform and is expected to improve data management and efficiencies while automating many of our processes. We completed the initial planning and road mapping phase of the ERP upgrade at the end of Fiscal 2020. In the first quarter of Fiscal 2021, we transitioned into the design phase and engaged a leading, global consulting firm to assist us in designing and implementing the upgrade of our ERP platform and to serve as the system integrator for the project. We transitioned into the build phase at the beginning of Fiscal 2022 and during the second quarter of Fiscal 2023, we began deploying the ERP upgrade. The deployment is anticipated to be completed in Fiscal 2026. We currently estimate total costs for the upgrade of our

Current wording

Our ERP initiative includes upgrading our information system platform and is expected to improve data management and efficiencies while automating many of our processes. We completed the initial planning and road mapping phase of the ERP upgrade at the end of Fiscal 2020. In the first quarter of Fiscal 2021, we transitioned into the design phase and engaged a leading, global consulting firm to assist us in designing and implementing the upgrade of our ERP platform and to serve as the system integrator for the project. We transitioned into the build phase at the beginning of Fiscal 2022 and during the second quarter of Fiscal 2023, we began deploying the ERP upgrade. The deployment is anticipated to be completed in Fiscal 2026. We currently estimate total costs for the upgrade of our ERP system will be approximately $350 million (of which approximately 34% has been or is anticipated to be capitalized). As of October 4, 2025, we have incurred costs related to the project of approximately $254 million.

Previous wording

Results of operations, expressed as a percentage of sales and the dollar and percentage change from period to period, for the twelve and twenty-eight weeks ended July 12, 2025 and July 13, 2024 are set forth in the tables below (dollars in thousands):

Current wording

Results of operations, expressed as a percentage of sales and the dollar and percentage change from period to period, for the twelve and forty weeks ended October 4, 2025 and October 5, 2024 are set forth in the tables below (dollars in thousands):

Previous wording

Branded Retail sales increased 5.0% quarter over quarter due to the acquisition contribution, partially offset by volume declines from continued weakness in the fresh packaged bread category and unfavorable price/mix. The largest volume declines were in branded traditional loaf products. Growth in more-premium branded products such as DKBorganic and Nature's Own Keto, as well as increased volume in branded cake from the Wonder cake introduction in the first quarter of Fiscal 2025 partially offset the volume decline. Additionally, to address changes in consumer preferences, we introduced two varieties of Nature's Ownsmall loaves in the second quarter of Fiscal 2024 and expanded our varieties in the current year.

Current wording

Branded Retail sales increased 6.9% quarter over quarter due to the acquisition contribution, partially offset by volume declines and unfavorable price/mix. Volumes were negatively impacted by continued weakness in the fresh packaged bread category, and, to a lesser extent, increased hurricane-driven demand in the prior year quarter. The largest volume declines were in branded traditional loaf products. Growth in more-premium branded products, such as DKBorganic and Nature's Own Keto, as well as improvement in cake sales from the addition of Wonder cake, introduced in the first quarter of Fiscal 2025, partially offset the volume decline. Additionally, to address changes in consumer preferences, we introduced two varieties of Nature's Ownsmall loaves in the second quarter of Fiscal 2024 and expanded our varieties in the current year. Price/mix was negatively impacted by shifts in mix resulting from cake comprising a larger percentage of our Branded Retail sales and the addition of smaller loaf sizes.

Previous wording

We continue to invest in more-premium and better-for-you products, like the recently introduced DKBsandwich rolls and Nature's Own Keto buns, and the Simple Mills acquisition increases our investment in the better-for-you category. Simple Mills' branded snack items, combined with the DKBorganic snack bars and bites, further diversifies our category exposure beyond fresh packaged breads and buns. The nationwide roll out of DKBsnack bites is in progress during Fiscal 2025.

Current wording

We continue to invest in more-premium and better-for-you products, like the more recently introduced DKBsandwich rolls and Nature's Own Keto buns and multi-grain loaf, and the Simple Mills acquisition has increased our investment in the better-for-you category. Additionally, Simple Mills' branded snack items, combined with the DKBorganic snack bars and bites, further diversifies our category exposure beyond fresh packaged breads and buns. The nationwide roll out of DKBsnack bites is in progress during Fiscal 2025.

Previous wording

Sales in the Other category decreased 4.9% due to softer volumes in store branded retail sales and to a lesser extent non-retail sales from executing our non-retail margin optimization strategies. Store branded retail sales declined primarily due to lower loaf and cake volumes and negative price/mix. Our non-retail sales experienced softer volumes in all categories except contract manufacturing. This weakness was partially offset by favorable price/mix from optimizing our foodservice business subsequent to the first quarter of Fiscal 2024.

Current wording

Sales in the Other category decreased 3.8% due to unfavorable price/mix, partially offset by increased volume for non-retail items. Store branded retail sales declined primarily due to lower cake volumes and negative price/mix. Our non-retail sales experienced unfavorable price/mix, impacted by foodservice comprising a smaller portion of our non-retail sales and increased contract manufacturing sales. Non-retail sales volumes increased due to growth in contract manufacturing and vending, net of foodservice volume declines.

Previous wording

Materials, supplies, labor and other production costs as a percent of sales increased quarter over quarter primarily due to increased outside purchases of product (sales with no associated ingredient costs) and lower production volumes, partially offset by lower ingredient and workforce-related costs. Outside purchases of product are included in the Other line item in the table above and largely relate to purchases of Simple Mills products, all of which are co-manufactured, and we expect this trend to continue. The decrease in ingredient costs was primarily due to increased outside purchases of product and lower pricing for commodities, particularly flour. Higher costs for other ingredients such as cocoa and eggs and lower sales price/mix partially offset the decrease. Workforce-related costs decreased as a percent of sales due to a greater portion of our products being co-manufactured as well as lower incentive compensation costs. We expect the impact of lower production volumes to continue to negatively impact our operations.

Current wording

Materials, supplies, labor and other production costs as a percent of sales increased quarter over quarter primarily due to increased outside purchases of product (sales with no associated ingredient costs) and lower sales price/mix combined with lower production volumes. Lower ingredient and workforce-related 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. We expect this trend of elevated outside purchases of product to continue. The decrease in ingredient costs as a percent of sales was due to increased outside purchases of product. Lower pricing for commodities, particularly flour, also contributed to the decrease, partially offset by higher costs for other ingredients such as cocoa and eggs and the impact of tariffs and lower sales price/mix. Workforce-related costs decreased as a percent of sales due to a greater portion of our products being co-manufactured as well as lower incentive compensation costs. We expect the impact of lower production volumes to continue to negatively impact our operations.

Previous wording

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. We use eggs in several of our products and have and could continue to be adversely impacted from increased costs and/or reduced availability of supply as a result of the avian influenza that has been detected in egg-laying flocks. 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.

Current wording

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. We use eggs in several of our products and have been, and could continue to be, adversely impacted from increased costs and/or reduced availability of supply as a result of the avian 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.

Previous wording

Workforce-related costs increased as a percent of sales quarter over quarter primarily due to a shift from distributor distribution fees as the company converted to an employee-based model in California and wage inflation on lower sales price/mix, partially offset by lower incentive compensation costs. Distributor distribution fees decreased as a percent of sales primarily due to a smaller portion of our sales being made through IDPs mostly due to the California conversion and the addition of Simple Mills' sales, which are warehouse-delivered. The California conversion was completed early in the second quarter of Fiscal 2025. The increase in the Other line item in the table above mostly relates to increased vehicle rent expenses related to the California conversion, partially offset by lower legal expenses.

Current wording

Workforce-related costs increased as a percent of sales quarter over quarter primarily due to a shift away from distributor distribution fees as the company converted to an employee-based model in California and wage inflation on lower sales price/mix. Reduced incentive compensation costs partially offset the increase. Distributor distribution fees decreased as a percent of sales primarily due to a smaller portion of our sales being made through IDPs mostly due to the California conversion and the addition of Simple Mills' sales which are warehouse-delivered. The California conversion was completed early in the second quarter of Fiscal 2025. The increase in the Other line item in the table above mostly relates to increased rent expenses, higher legal expenses, and the restructuring-related implementation and acquisition and integration-related costs incurred in the current year quarter.

Previous wording

Depreciation and amortization expense for the second quarter of Fiscal 2025 increased in dollars and as a percent of sales primarily due to amortization expense associated with the intangible assets acquired in the Simple Mills acquisition and we expect this increase to continue for the remainder of Fiscal 2025.

Current wording

Depreciation and amortization expense for the third quarter of Fiscal 2025 increased in dollars and as a percent of sales due to amortization expense associated with the intangible assets acquired in the Simple Mills acquisition and we expect this increase to continue for the remainder of Fiscal 2025.

Previous wording

Income from operations for the twelve weeks ended July 12, 2025 decreased as a percent of sales compared to the prior year quarter primarily due to greater outside purchases of product, higher workforce-related and rent costs, and lower production volumes. Lower distributor distribution fees and ingredient costs along with benefits from optimizing our foodservice business and the prior year restructuring charges partially offset the decrease.

Current wording

Income from operations for the twelve weeks ended October 4, 2025 decreased as a percent of sales compared to the prior year quarter primarily due to higher materials, supplies, labor, and other production costs and the restructuring charges incurred in the current year quarter, partially offset by the prior year plant closure costs.

Previous wording

The effective tax rate for the twelve weeks ended July 12, 2025 was 25.6% compared to 25.9% in the prior year quarter. The decrease in the rate quarter over quarter was primarily due to unfavorable discrete items related to state income taxes in the prior year quarter. For both periods presented, the primary differences in the effective rate were state income taxes.

Current wording

The effective tax rate for the twelve weeks ended October 4, 2025 was 24.2% compared to 24.0% in the prior year quarter. The increase in the rate quarter over quarter was primarily due to unfavorable discrete items related to state income taxes. For both periods presented, the primary differences in the effective rate and statutory were state income taxes.

Previous wording

Sales decreased slightly period over period due to softer volumes and negative price/mix in both sales categories, partially offset by the Simple Mills acquisition contribution. Weakness in the fresh packaged bread category contributed to the volume declines. Negative price/mix for Branded Retail sales and store branded retail sales was partially offset by improved price/mix for our foodservice business from executing our portfolio optimization strategies beginning in the second quarter of the prior year. To remain competitive in a promotional environment, we increased our differentiated products promotional activity period over period.

Current wording

Sales increased period over period due to the Simple Mills acquisition contribution partially offset by softer volumes and negative price/mix in both sales categories. Volume declines were largely driven by weakness in the fresh packaged bread category, and, to a lesser extent, in the away-from-home market. 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. To remain competitive in a challenging environment, we increased our promotional activity period over period, targeting differentiated products.

Previous wording

We anticipate our Fiscal 2025 sales to increase compared to Fiscal 2024 sales due to the acquisition contribution, optimization of our non-retail business, new product innovation, and the additional week in Fiscal 2025. However, category headwinds, changes in consumer buying patterns, and increases in promotional activity could partially offset that improvement.

Current wording

We anticipate our Fiscal 2025 sales to increase compared to Fiscal 2024 due to the acquisition contribution, optimization of our non-retail business, new product innovation, and the additional week in Fiscal 2025. However, category headwinds, changes in consumer buying patterns, and increases in promotional activity could partially offset that improvement.

Previous wording

Branded Retail sales increased 2.0% compared to the prior year period due to the acquisition contribution, partially offset by volume declines and unfavorable price/mix resulting from increased targeted promotional activity. Continued weakness in the fresh packaged bread category negatively impacted volumes year over year with the largest declines in sales of branded traditional loaf products. Volume growth in branded organic, branded Keto, and branded retail cake sales partially offset the decrease.

Current wording

Branded Retail sales increased 3.4% compared to the prior year period due to the acquisition contribution, partially offset by volume declines and unfavorable price/mix. Continued weakness in the fresh packaged bread category negatively impacted volumes year over year 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 more recently introduced products include Nature's Ownsmall loaves and Keto buns, DKBsandwich rolls, 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.

Previous wording

We continue to invest in more-premium and better-for-you products, and the Simple Mills acquisition increases our investment in the better-for-you category. Simple Mills' branded snack items, combined with the DKBorganic snack bars and bites, further diversifies our category exposure beyond fresh packaged breads and buns. The nationwide roll out of DKBsnack bites is expected to progress throughout Fiscal 2025.

Current wording

The Simple Mills acquisition has increased our investment in the better-for-you category and their branded snack items, combined with the DKBorganic snack bars and bites, further diversifies our category exposure beyond fresh packaged breads and buns. The nationwide roll out of DKBsnack bites is expected to progress throughout Fiscal 2025.

Previous wording

Sales in the Other category decreased 4.1% due to softer volumes for both store branded retail and non-retail sales and from executing our non-retail margin optimization strategies. Store branded retail sales declined due to volume decreases, most notably for cake and loaf items, and negative price/mix. Our non-retail sales experienced softer volumes in all categories except contract manufacturing. This softness was partially offset by favorable price/mix from optimizing our foodservice business subsequent to the first quarter of Fiscal 2024.

Current wording

Sales in the Other category decreased 4.0% due to softer volumes for both store branded retail and non-retail sales and unfavorable price/mix. Store branded retail sales declined due to volume decreases, most notably for cake and loaf items, and negative price/mix. 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 store branded retail and other non-retail sales.

Previous wording

The increase in materials, supplies, labor and other production costs as a percent of sales period over period primarily resulted from greater outside purchases of product (sales with no associated ingredient costs), partially offset by lower ingredient costs. Lower production volumes also contributed to the increase and we expect this to continue due to weakness in the fresh packaged bread category. Outside purchases of product are included in the Other line item in the table above and 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 greater outside purchases of product to continue due to the Simple Mills acquisition. The decrease in ingredient costs resulted from lower pricing for commodities such as flour, fats, and oils and increased outside purchases of product. This was partially offset by higher costs for other ingredients such as cocoa, eggs, and sweeteners and lower sales price/mix.

Current wording

The increase in materials, supplies, labor and other production costs as a percent of sales period over period 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 the Simple Mills acquisition. Ingredient costs decreased as a percent of sales due to higher outside purchases of product and lower pricing for commodities such as flour, fats, and oils. The benefit was partially offset by higher costs for other ingredients such as cocoa and eggs, lower sales price/mix and the impact of tariffs.

Previous wording

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. We use eggs in several of our products and have and could continue to be adversely impacted from increased costs and/or reduced availability of supply as a result of the avian influenza that has been detected in egg-laying flocks. 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.

Current wording

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. We use eggs in several of our products and have and could continue to be adversely impacted from increased costs and/or reduced availability of supply as a result of the avian 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.