Lancaster Colony Corp
NASDAQ:LANC
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Lancaster Colony Corp
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Good morning. My name is Michelle, and I will be your conference call facilitator for today. At this time, I would like to welcome everyone to the Lancaster Colony Corporation Fiscal Year 2021 Second Quarter Conference Call.
Conducting today's call will be Dave Ciesinski, President and CEO; and Tom Pigott, CFO. All lines have been placed on mute to prevent any background noise. After the speakers, have completed their prepared remarks there will be a question and answer session. [Operator Instruction]
Now I would like to begin the conference call. Here is Dale Ganobsik, Vice President of Investor Relations for Lancaster Colony Corporation. Please go ahead.
Thank you, Michelle. Good morning, everyone, and thank you for joining us today for Lancaster Colony's fiscal year 2021 second quarter conference call. Our discussion this morning may include forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially and the company undertakes no obligation to update these statements based upon subsequent events. A detailed discussion of these risks and uncertainties is contained in the company's filings with the SEC.
Also note that the audio replay of this call will be archived and available at our company's website, lancastercolony.com later this afternoon.
For today's call, Dave Ciesinski, our President and CEO, will begin with the business update and highlights for the quarter. Tom Pigott, our CFO, will then provide an overview of the financial results. Dave will then share some comments regarding our current outlook and strategy.
At the conclusion of our prepared remarks, we'll be happy to respond to any of your questions. Once again, we appreciate your participation this morning.
I'll now turn the call over to Lancaster Colony's President and CEO, Dave Ciesinski. Dave?
Thanks, Dale, and good morning, everyone. It's a pleasure to be here with you today as we review our second quarter results for fiscal year 2021. I'd like to begin by extending a sincere and heartfelt thank you to the entire Lancaster Colony team for all their contributions and sacrifices during the past quarter. Despite the uncertainty and obstacles that the pandemic imposed upon our business, we are very pleased to report record sales and gross profit.
Throughout the pandemic, we've remained steadfast that our mission is fixed. First, to provide for the health, safety and welfare of our teammates. And second, to ensure that we continue to play our role in our country's vital food supply chain.
In our fiscal second quarter, which ended December 31, consolidated net sales grew 5.6% to a second quarter record $375 million. Net sales in the retail segment grew 19.5%, while net sales in our foodservice segment declined 9.7%. Excluding omni baking sales, consolidated net sales increased 7.3% and foodservice net sales declined 6.8%. Retail net sales benefited from higher demand as the impact of the pandemic drove higher at-home food consumption. The success of our licensing program also continued to drive retail sales growth with Olive Garden dressing, Chick-fil-A sauces and Buffalo Wild Wing sauces noted contributors.
Per IRI, key highlights for the quarter included the following. Sales of refrigerated cell dressings grew 12.3%, New York Bakery frozen garlic bread grew 16.9%, Branded Croutons advanced 21.9%, Sister Schubert's frozen dinner rolls increased 11.8% and Olive Garden dressings grew a very strong 61.3%. Chick-fil-A sauces in single bottle Buffalo Wild Wing sauces, which we introduced last spring, continued to perform very well, adding over 4 percentage points to our retail segment's Q2 sales growth.
The regional rollout of Chick-fil-A sauces continued as planned during the quarter as we expanded distribution beyond the state of Florida with the addition of retailers in Georgia, Alabama, Mississippi and Louisiana. IRI data for the four new states indicate that initial velocity is very strong. In Florida, where we introduced Chick-fil-A sauces to the retail market with a pilot test last March, recent IRI data shows that trial and repeat purchases are extremely favorable, with cumulative household penetration of 11.1% and a repeat rate of 50.6%.
In our foodservice segment, sales to national count QSR and pizza chain customers remained a source of strength and represented over 60% of our total foodservice sales in the quarter. Recent NPD Crest data shows that our revenue trends in QSR are pacing ahead of the QSR segment average. The same data indicates that our sales in the full-service segment are in line with the industry average.
We continue to pursue growth opportunities with many of our national account customers on a range of new sauces, dressings and spreads. Separately, we're also pursuing opportunities in other market segments, including the home meal kit market where we've enjoyed some recent success.
Despite the higher manufacturing costs related to the impacts of COVID-19, gross profit grew 7% to a second quarter record $106.8 million. This was driven by the strength of our retail segment. As with prior quarters, we continue to follow protocols and guidelines provided by government health authorities. We also continue to make the necessary investments to promote safe operations at all of our plants and distribution centers.
I will now turn the call over to Tom Pigott, our CFO, for his commentary on our second quarter financial results. Tom?
Thanks, Dave. Overall, the results for the quarter exceeded our expectations. The stronger revenue growth in the Retail segment offset the higher costs we incurred due to the impact of COVID-19, allowing the company to drive improved bottom line performance.
Second quarter consolidated net sales increased 5.6% to $375 million. Excluding omni baking sales of $900,000 in the current year quarter and $6.3 million in the prior year quarter, consolidated net sales increased by 7.3%. As you recall, omni banking sales were attributed to a temporary agreement. The supply agreement ended on October 31, 2020, as planned.
Consolidated gross profit increased $7 million or 7% to $106.8 million, and margins expanded by 40 basis points. The growth was driven by higher sales and reduced trade spending in the retail segment. Items partially offsetting this favorability were higher manufacturing costs, including costs related to the impact of COVID-19 as well as increased commodity and distribution cost inflation.
The COVID-19 related items included about $4 million of incremental frontline worker pay and other hard costs of about $1 million for shift separations, expenditures for personal protective equipment and sick leave expenses. We also incurred incremental soft costs totaling an estimated
$3 million. These costs were driven by increased demand and mix changes related to COVID 19. More specifically, these expenses included increased overtime pay, higher internal freight and distribution costs, and utilization of some less efficient production lines to help meet demand.
We continue to make these investments to ensure the safe operation of our facilities while servicing the demand shifts across our business. Selling, general and administrative expenses increased $2.5 million or 5.5%, driven by higher spending for project ascent, partially offset by reduced spending on consumer promotions for the quarter. Consolidated operating income increased $4.5 million or 8.4% to $58.6 million. The key driver of the operating income growth for the quarter was a strong top line performance in the retail segment and the resulting gross profit improvement.
Our effective tax rate was 23.8% this quarter versus a tax rate of 21% in the second quarter of fiscal '20. We estimate the tax rate for the remainder of the fiscal year to be 24%. Second quarter diluted earnings per share increased $0.04 to $1.62. The increase was driven by the underlying performance of the business, offset by the investment we are making in project ascent, the increase in our effective tax rate and lower interest income on our cash holdings. The project ascent investment reduced EPS growth by $0.09 per share.
With regard to capital expenditures, second quarter payments for property additions totaled $15.1 million. For fiscal year '21, we're forecasting total capital expenditures between $105 million and $125 million. This investment includes the spend related to the recently approved expansion project at our Horse Cave, Kentucky facility. This expansion will allow us to meet the fast-growing demand for our dressing and sauce products. The total cost for the expansion is estimated at approximately $130 million with expenditures of approximately $30 million planned for this fiscal year.
In addition to investing in our business, we also returned funds to shareholders. Our quarterly cash dividend paid on December 31 was $0.75 a share, a 7% increase from the prior year amount. Our long-standing streak of annual dividend increases reached 58 years in December. Even with these investments we're making and increased dividend payments, our financial position remains very strong as we finished the quarter debt-free with $216 million of cash on the balance sheet.
So to wrap up my commentary, this quarter featured strong growth in our Retail segment and solid execution of our strategies across the business. We continue to monitor and adjust to the impacts of the COVID-19 outbreak while investing in the longer-term potential of the business.
I will now turn it back over to Dave for his closing remarks. Thank you.
Thanks, Tom. As we look ahead, Lancaster Colony will continue to leverage the combined strength of our team, our operating strategy and our balance sheet in support of the three simple pillars of our growth plan to accelerate core business growth, to simplify our supply chain to reduce our cost and grow our margins, and to identify and execute complementary M&A to grow our core.
In our fiscal third quarter, we expect net sales to benefit from continued growth from our licensing program and frozen and bread products. We remain very bullish regarding the future of Chick-fil-A sauces for our business. Shipments to retailers in Texas will start next week with distribution to 10 more states from Oklahoma to the Mid-Atlantic set to begin later this month.
We expect to reach national distribution of Chick-fil-A sauces by the end of the fiscal year. The impacts of COVID-19 will remain a headwind for our manufacturing cost in our fiscal third
quarter while commodities and trade expenses are projected to become increasingly inflationary. We expect our ongoing cost savings program and net new price realization efforts to help offset these higher costs.
Our ERP initiative, project ascent, is progressing as planned. Earlier this month, we successfully executed Wave Zero, a limited launch of SAP, which included one factory as well as our corporate-wide master data. Thanks to the creativity and perseverance of the project ascent team, we remain on track for the larger Wave 1 launch to commence early in fiscal 2022.
Specific to our supply chain strategy, as Tom mentioned, we are making a significant investment in production capacity to address the increasing demand for our dressing and sauce products. Here, again, thanks to the creativity and perseverance of the supply chain team, groundbreaking for this important project took place last month with a target completion time frame in the first quarter of fiscal year 2023.
In closing, I would once again like to thank the entire Lancaster Colony team for all that they have done and continue to do to fulfill our mission despite all of the unprecedented challenges imposed by the pandemic.
This concludes our prepared remarks for today, and we'd be happy to answer any questions you may have. Michelle, I'll turn it over to you.
[Operator Instructions] Your first question comes from Ryan Bell from Consumer Edge. Your line is open.
The robust growth that you're seeing in retail has been providing an offset to the trends they've seen in foodservice. Would you like to talk a little bit more about your assumptions for what foodservice will look like when it's returning to growth? And how do you think about the balancing act now between foodservice returning to growth and some of the wins coming out of the retail sales growth story as there's less at-home consumption?
Sure. Well, if I may, maybe I'd start with a little context just in terms of the trends that we're seeing in the broader category in our business for both retail and foodservice. Maybe I'll start with retail first. If you look at all edible categories for all outlets during the handful of, let's say, probably the last 4 months, they're averaging -- this would be our business and everybody else's in the universe out there, being up about 12.3%. If you look at our business, this is Lancaster Colony, for all of our outlets, we're averaging up about 19%. So this is consumption sort of pull-through the business.
What I would share with you is, in about 5 to 6 weeks, we're going to begin to lap the very first of the effects of the coronavirus from last year. Now if we pivot and we look at the Foodservice business, and in this case, instead of IRI, we look at NPD Crest data, what we're seeing is that the entire restaurant universe, where this is 71 or 72 of the largest chains are running in transaction totals down roughly 9% for that same period of time, QSRs are down in transactions more like 7.5%, mid-scale is down probably more like 35%, and casual is down more like 30%.
If you look at our business here again, as I shared in my commentary, we're outperforming the foodservice averages as well. Now your bigger question that you asked is, so how do we think about this from a forecasting perspective? And honestly, this is a pretty difficult exercise just because the uncertainty surrounding the pandemic. What we do know is we're going to begin to lap the impacts of COVID. And we can see on the calendar when that's going to be, like I said, that's probably about 6 weeks out, and it's going to be most severe in those first couple of weeks where we lap the stock up that took place in categories. And maybe you'll see it begin to sort of slow back down and normalize.
And the offset is true in food service. As far as sort of how we're predicting things, internally, we're trying a lot to the availability of the vaccine. Our inside planning hypothesis is as that vaccine becomes more widespread, as people are able to circulate more broadly, we will see restaurants, particularly in urban areas, open up more and people return to work and see traffic resume. It's really difficult for those of us inside the company to guess. We're seeing, just being transparent with you, we think that we're going to be living with the effects of the COVID pandemic, at least through the end of this calendar year, this fiscal year, excuse me, and into the early part of the next.
That was very detailed and helpful. And when we're thinking about some of the incremental costs that you've been having to bear as a result of COVID, I think you said it was like $3 million in soft costs, $1 million in hard costs. As you're looking out to a point where a critical percentage of your employees do get vaccinated, what type of that -- what percentage of that cost or what the size of that cost that ends up getting removed on a permanent basis? And we've heard some firms providing financial incentives to their employees to get vaccinated. If you guys are doing that, would you be able to touch on the magnitude of that one-off cost?
Sure. Well, why don't we -- maybe there's two parts to the question. There's the what, and then the how we're going to address it. And for the what, why don't I turn it over to Tom and let Tom dimensionalize the COVID cost in the period. And then maybe I'll talk briefly about how we're thinking about it on a go-forward basis.
So Tom, I'll turn it over to you.
Yes. Thanks, Dave. So the components of the quarter, we had $4 million in Hero Pay and another $1 million in shift separations in the PPE. That's what we call the hard cost. And that's really -- I'll let Dave talk to the outlook on that, but those are really specific COVID costs. And then we have another $3 million in what we call our soft costs. And the way to think about those costs, those are really costs we're incurring because the network wasn't necessarily set up for this mix shift. So we're having to run more -- less efficient lines, more over time to keep up with it, the demand shift that we had. And in there, we've got increased overtime, unfavorable plant mix, transportation to move product around the network. So those -- that's -- so the total COVID impact is 5 hard, 3 soft.
So I'll stop there and then let Dave share about how we're thinking about the outlook.
Yes. Thanks, Tom. So you guys are probably aware of this, so bear with me. The vaccine is being driven the strategy really in two tiers: first is the availability, which is a function of what's happening at the federal level. And then each unique state is responsible for putting in place their implementation plan. So as we think about our 16 factories that operate in 9 states, it's likely to be somewhat different between what we see in California and what we might see in New Jersey, and where we have an important co-packer or what we might see in Ohio.
What I can share with you is we had an opportunity to talk to the governor yesterday here in Ohio Governor DeWine, and he walked us through how he's thinking through his implementation plans. And essentially, what he and his team have focused on are frontline health care workers in hospital settings. And then moving to nursing homes where we had tragically a number of deaths, just given the concentration of an older population here that have been resident nursing homes. So he's made it a priority work through those. And now what he's starting to expand out to our other frontline workers and teachers and then work down just straight across the range, age-related vaccines.
So I think the plan was he indicated to expand it to people that are 65 and above starting next week. So if you think about our employee population, given that it tends to be younger and healthier, whether it's in the state of Ohio or in other states, our view is we're probably still a ways down the line in terms of when we can expect to see it. What we have begun to do internally though, is we -- early on in the pandemic, engaged a pulmonologist and critical care physician. And along with this physician, we've developed a series of educational e-mails that we've been sending out to our employees to educate them about what is the vaccine, what are the side effects, why should we feel that it's safe for use, et cetera, et cetera. So we've begun that education process. And the second thing that we're in the process of doing is planning, how we can incentivize people to get the shot.
And we're leaning towards creating a financial incentive of sorts for our employees, rather than something that's punitive. We feel much better about just a positive financial incentive for their safety and well-being. And we're working through that, and we'll probably be announcing something I would guess in the next handful of months as we start to get line of sight to when we
would expect to see the vaccine. So if you sort of then come back, that brings me back to where I started and maybe in the earlier comments, that we think for all intents and purposes that we're going to have to be ready to deal with some of the challenging impacts of the pandemic without the vaccine through at least the third quarter and looking into the fourth quarter.
That was very helpful. And I think one last one for me. As you've commented on and as we've been seeing in the regional and state IRI data, the Chick-fil-A products are doing very well in retail. Can you think about how this has helped maybe facilitate conversations with other potential foodservice partnerships to bring products to retail?
Yes. No, it's a great question, and it's true. I think not only has the Chick-fil-A proposition catalyzed incremental conversations, but I would ladder back to the fact that if you look at Olive Garden, which is a 5-plus year overnight success, in the most recent period, it was up actually 61%, which is eye-popping for a very big business. But I think you put the success of an Olive Garden proposition together with Buffalo Wild Wings and Chick-fil-A, what we're seeing is that, with passing days, more and more of our foodservice partners are reaching out just to have early discussions about the suitability of a license program.
And what I'm particularly proud of in these cases is that these are not a zero-sum game that when we restructure these appropriately, it's a big win for our foodservice partners in terms of building branding and awareness. It's also an important source of incremental revenue as they're seeing the traffic in their core business impacted. And obviously, it's a chance for us to grow with them. So they're just a great proposition, and we're just trying to be deliberate. As we get the calls, we sit down in good faith with the new partners and just trying to decide, is it truly going to be a good long-term fit for everybody or not?
Your next question will come from Brian Holland from D.A. Davidson & Company. Your line is open.
So just curious, you provided a few metrics there on Chick-fil-A penetration repeat. Just curious, whether you want to go that way or look at it from a velocity standpoint, can you give us any context for how Chick-fil-A is performing versus its relevant competitors in some of those markets? Where do you sort of -- maybe whether it's in top quartile or whatever versus your peers?
Sure. No, happy to, Brian. And maybe starting with our penetration and repeat rate. This is early. So the most comprehensive source of data that we have is in Florida, where we look at that data, it's performing at and ahead of our own Olive Garden business, which has been sort of a benchmark that we've been tracking all along. So that gives us comfort that it's most certainly in line with our expectations, maybe with some room beyond that as well. But given that we're so early in this, we're a little bit hesitant to get out over our skis and really to commit to more, right?
Velocity is another way to look at it. The velocity of the item has been really strong. It's been up there in the top of the condiments and sauces category, the top quartile. The only reason why we're a little bit hesitant on looking at just velocity is that we want to be careful that we're not overestimating the novelty effect of this. When somebody buys it once, they love it, I'll bet they don't come back, right? That's why we're looking at trial, we're looking at repeat and we're looking at velocity. But we can triangulate on all three of those metrics, and it's all very favorable across the board.
That's helpful. And then if I could move to the Horse Cave facility. That sounds like -- that feels like a substantial investment that's not something that's done for $25 million of revenue or something like that. I'm wondering what -- I mean, can you give us any perspective as to the revenue opportunity that could come out of that facility and how you're thinking about it? I think you said it comes online in 2023 is the expectation?
Correct. Yes. So first things first. Essentially, it's going to double the number of square footage or number of square feet that we have at that facility. Now that's not the only facility -- testing facility we have, but it's our largest. It's our flagship. And it's essentially going to double that. What I would point to also, Brian, is that this particular build isn't just going to include bottling lines, but it's going to include kitchens and then capacity for both foodservice and retail. If you remember, about a year ago, before the onset of the pandemic, we had announced plans for an expansion at Horse Cave, a little bit smaller project just to keep up with the growth of Chick-fil-A, right, particularly kitchen capacity and then [indiscernible] capacity, those are the cuts, if you at the restaurant, you get Chick-fil-A sauce with polynesian sauce, one of the other ones.
And so that was in flight. We backed away from that. Then we rescoped the project to include that, plus bottling capacity. So it's a substantial investment. It's our biggest in terms of dollars that we've made, but I would prefer not to necessarily try to extrapolate for you how far the future it's going to take us. We feel like it will comfortably provide capacity based on our growth for probably the next 4 to 5 years [Indiscernible] with the co-factors that we have in place.
Understood. You mentioned meal kits, Dave, briefly in your prepared remarks. For guidance, what are you doing there in that space?
It's a great question. So a number of the different meal kit companies have sauces or different protein builds. And the other thing that they're offering are salad and various sorts, and we've been working on both proprietary sauces for their protein builds, but also just proprietary or our own branded salad dressings for their meal kits.
Got it. Last one for me. So Dave, perhaps the widest divergence, I think, of a thing is between the CPG industry and the investment community is the subject of pricing, right? We're -- I believe the market is often skeptical companies can sufficiently pass on higher cost when they need to pull that lever. So as we watch the commodities market today and contemplate whether food can manage an inflationary basket, I guess the backdrop really of like anything we've ever seen, would love to get your big picture perspective on how food companies like yourself are going to try to manage that and maybe level of confidence that you can get it through what you need?
Yes. Well, Brian, I would say for the industry, it's an executional imperative. If you look at it right now, I think we're in for a period of sustained inflation. It remains to be seen how strong that inflation is, but we're seeing it across our entire basket of commodities. We're seeing in soybeans, we're seeing in weed, we're seeing it into other segments as well. We've seen inflation in the transportation space and packaging. And as you guys on the call can all appreciate, there's been so much money pumped into the economy that we feel like it's just inevitable that we're going to see inflation, which brings me back to the fact that for us at Lancaster Colony, and for that matter, our other peer companies, we're going to need to figure out how we can pull together the insights and just fire playing appropriately pass on these costs because we need to -- I don't believe there's a path for us in the sector to cut cost to prosperity.
Cost discipline needs to be an important part of what we do, but I think it becomes problematic if you can at least just pass on the inflation that you see.
[Operator Instructions] Your next question comes from Todd Brooks from CL King & Associates. Your line is open.
If we could maybe start on the gross margin side and the strong performance that you saw in the quarter. You've highlighted a lot of different puts and takes. So you've talked about the inflationary sides of the business. We've had a mix change in real growth in retail. There's obviously the undertones of continued cost saves and your net price realization gains. Can we walk through the puts and takes that drove the gross margin performance in the quarter?
Of course. Tom, why don't I turn that one over you and let you take that.
Sure. So as I mentioned, the quarter exceeded our expectations. And I think, obviously, the key driver for us, as you compare it to Q1's performance, we had stronger growth in the retail segment, and that really enabled us to drive better gross profit performance. The -- we also -- I would say second on the list were the trade reductions that we did in the face of higher demand. We did ladder back the trade spending, and that helped margins -- that helped the revenue growth in the retail segment as well as the margins.
Commodities and the cost savings programs weren't as big a driver this quarter. Certainly, we do expect commodity inflation to accelerate. And as we get into a post COVID environment, you could expect to see a bigger impact of our cost savings programs. But -- and certainly, the COVID costs I've outlined for you. So those were the key items. The things that we're keenly focused in on, as Dave mentioned, we do expect going forward, more commodity inflation going forward. So we're certainly going to have to look at different ways to offset that as you get into the second half. And we've got a good effort in terms of identifying opportunities and then executing against them.
That's great. That's helpful. And then secondly, with the growth that you're seeing with existing programs, I just wanted to spend a few minutes talking strategically about how you're managing that growth. Are there opportunities that you're not necessarily delaying, but maybe not pursuing as aggressively either with additional foodservice partners or maybe with some of the newer distribution channels like Drug and Dollar, as you're managing the strong growth that you've got with the new product rollouts in retail?
Tom, I'll take maybe a first shot at that. It's a good question. As we've seen the strong demand and you look at Olive Garden as a case in point, right. Mature business, great brand, seeing 61% growth in consumption and sales in the period. What that is forcing us to do, obviously, is continue to work hard just to make sure that we have available capacity. The way that we're managing that is by pulling back on trade promotions in various categories. As Tom mentioned in his comments, we also made the choice to pull back on some of our advertising. Internally, we felt that it didn't make sense to advertise the prior extinguishers when we're in the middle of the sale. People are buying the fire extinguishers. We don't need to advertise them. And it's a compounding problem. The more we advertise those things, and if we don't need service requirements for our customers, we incur penalties, right? So it's sort of a double whammy.
So we have churned sales in terms of promotion activities and marketing. Obviously, we mentioned in earlier calls, how we're working with co-packers. And so as we sort of round our
way out of COVID and we see things start to normalize, we would expect to resume levels of marketing spend, put back in place profitable promotion strategies. But one of the other things we can start to do is get more aggressive with just expansion into other channels, which we've just tapped the brakes on a little bit as well because we just didn't want to get ourselves in a situation where because of our own actions, we're driving service issues, disappointing our customers and incurring penalties and fines for that poor service.
That's great. And then a final question, if I may. If you think about the trial that a lot of your brands and retail saw during pantry loading and then just the elevated demand that we've seen during the pandemic, if you -- you talk about, okay, we're pulling back on some trade promotions and advertising. But what does your data show as far as new-to-brand customers? How were you able to activate them? How have they been from a repeat standpoint? And as we're thinking about lapping some of the tougher compares during pantry load, how important are these new customers that you've been able to retain in being able to successfully lap that?
Yes, it's a great question. And what I will tell you is our retail team has narrowed their marketing focus on that problem specifically to take those new triers and to get them to try again and to try again. And so far, we've seen a fair amount of success doing that. So we've taken and focused a lot on the tools in retail that will allow us to do specifically that and we're optimistic that we're going to be able to hang on to some of those consumers.
What we're going to see, and this is industry-wide, is sort of a -- maybe, let's call it, a regression to the mean, where people begin to go back to their normal patterns in terms of that when they eat away from home and what they're eating at home. And we know inevitably, we're going to see the number of occasions in the home start to revert back to the mean. Our hope in that process is, even though the number of occasions go down, we can hold on to a disproportionate share of those new triers in those occasions.
Okay. Great. I got to have one more final one.
Yes. Just to add, as Dave mentioned, as we get further into the year, we do expect to restore spending in both the trade line and the consumer line to try to continue to maintain those customers in the full.
Okay. Great. And just a final, when I look at the segment operating margins for the retail, north of 27% in the quarter. A tremendous result. Can we talk -- how much is kind of mix with the
licensed products working in versus this lower promotional level that we're seeing? Because like you said, they're buying fire extinguishers anyway?
Right. So Tom, why don't I let you take a shot at that?
Sure. Yes. So the mix was that certainly the overall growth in the [indiscernible] performance was the key driver of that margin expansion. The trade spending, was secondary to that. So those were your key items. And as we said before, the licensing program, which was a good part of the growth in the retail segment achieved, those products are at or above the overall margins of the segment. So that's going to be the key driver. And as we progress into the back half, as Dave mentioned, as we expanded Chick-fil-A sauce, we expect that to be -- continue to be a tailwind for us as we start to hit the more difficult comps towards the end of Q3 and in Q4.
Yes. And that may be just a point where it's hiding again as we think about sort of our outlook across Q3 and into Q4, as we begin to lap the impacts of COVID, that's going to create a natural headwind in our retail business. But at the same time that that's happening, as you heard in my comments, we're shipping into Texas tomorrow or not tomorrow, but this week, excuse me. And then next week, we're going to begin shipping into a handful of more states. I think it's 10 more states in the Mid-Atlantic, Oklahoma and sort of going sweeping back towards the east. We're going to stay in that posture until we build out distribution and then around the fourth -- beginning of the fourth quarter, begin to expand through the remainder of the United States, up in the Northeast then the Far West.
It's those activities that we think, as we lap the effects of COVID in retail, is going to allow us to continue to outperform.
I have no further questions in queue. I now turn the call over to Mr. Ciesinski for closing remarks.
All right. Michelle, thank you, and thank you, everyone, for participating this morning. We look forward to sharing our third quarter results with you in early May. Have a great rest of the day.
Thank you, everyone. This will conclude today's conference call. You may now disconnect.