Hello everyone and welcome to the pre-recorded discussion of Flowers Foods third quarter 2021 results. This is J.T. Rieck, SVP of Finance and Investor Relations. As a reminder, we released our third quarter results on November 11, 2021. Along with the transcript of these recorded remarks from our CEO and CFO, you can find the earnings release and related slide presentation in the investor section of our website. We will host a live Q&A session on Friday, November 12 at 8:30 A.M. Eastern. The details are posted in the investor section of flowersfoods.com. Before we get started, keep in mind that the information presented here may include 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. Providing remarks today are Ryals McMullian, President and CEO, and Steve Kinsey, our CFO. Ryals, I'll turn it over to you.
Thanks, J.T. It's a pleasure to welcome everyone to our third quarter call, and I'm happy to share our record third quarter results with you today. Flowers continues to perform exceptionally well in a dynamic and challenging environment. In fact, our performance has been so strong that we are increasing our 2021 guidance for the third consecutive quarter. When we provided our initial guidance back in February, we thought it reasonable to assume that a portion of the pandemic impact would wane throughout the year. However, we've been very pleased to see how well demand for our Branded Retail products has held up. In fact, sales of our top brands have continued to grow, even surpassing last year's record third quarter numbers. I'll address these trends in more detail a little bit later on the call.
As always, to provide some context to our results, I'll discuss the current business environment and the steps we're taking to succeed in it through the lens of our four strategic priorities: developing our team, focusing on our brands, prioritizing margins, and pursuing smart M&A. Starting with the team, I'd like to once again begin by expressing my appreciation to the entire Flowers team for their dedication to producing quality products for our consumers and faithfully serving our markets. The labor market remains challenging. Unemployment claims are declining and job openings are at record levels. Despite this difficult environment, our bakery teams are working tirelessly, and I'd like to commend them for their perseverance. Everyone on the production lines and in the shipping departments are pitching in wherever needed to get the job done.
We as a company are doing everything in our power to fill open positions and keep our bakeries running efficiently. To recognize the efforts of our frontline workers, I'm pleased to announce that we'll be awarding them with appreciation bonuses in the fourth quarter of this year. Our second strategic priority is focusing on our brands. We're increasing demand for our leading products by investing in marketing and advertising, innovation, and expanding penetration. These initiatives drove our market share to 18%, up 50 basis points year-over-year and up 100 basis points compared to the third quarter of 2019. Our top brands are leading the way, with Dave's Killer Bread gaining 50 basis points of market share, the most of any bread brand in the category, and Nature's Own and Canyon Bakehouse up 20 basis points and 10 basis points respectively.
Consumers continue to express their preference for differentiated branded products. That premiumization trend, which we've discussed previously, is not a recent phenomenon. According to IRI, market share of branded fresh packaged bread is up 480 basis points since 2017 and now stands at 80.6%. Over that same period, Flowers' share has expanded 210 basis points, substantially more than any competitor. The rate of branded share gains has increased during the pandemic, but we believe the underlying drivers of the gains, innovation and differentiation, appear sustainable. The impact of potential sustained inflation on this premiumization trend is unclear, but our aim is to continue growing our brands by introducing unique and delicious products and then marketing and distributing those products to reach a variety of consumers.
Our third strategic priority is margins, and third quarter results continue to demonstrate our success in that area. Our portfolio strategy has increased the percentage of higher margin Branded Retail sales, and our portfolio optimization work remains on track to reach our target savings of $30 million-$40 million this year, making the full value of this program over the last two years close to $60 million. We believe those initiatives have enabled us to minimize the pressure on EBITDA margins. Although margins are down slightly compared to last year's tough comparison, they are up 170 basis points over pre-pandemic levels. Many of our digital transformation initiatives, which are intended to improve data visibility and efficiencies while automating processes, are progressing from the design to the build phase.
Some of our key domains, such as e-commerce, autonomous planning, and Bakery of the Future, have progressed to the implementation phase, and we're excited about the benefits we expect these investments will bring. Our fourth priority is smart M&A. Deal flow is picking up, and as always, we are proactively exploring our options. Our steady free cash flow and strong balance sheet provide the flexibility to act when we have financial, commercial, and operational conviction. As always, we will maintain our disciplined approach. Now I'll turn it over to Steve to review the details of the quarter, and then I'll come back a little bit later to discuss our outlook for the current business environment. Steve?
Thank you, Ryals McMullian, and hello, everyone. I'd like to echo your comments on our incredible team and express my sincere thanks for their outstanding efforts. Now turning to the quarterly results. Because of the uniqueness of the year-over-year comparison due to the pandemic, in some circumstances, we will also provide comparisons to the pre-pandemic results in the third quarter of 2019. As Ryals McMullian mentioned, we are very pleased with our third quarter performance. Total sales increased 3.9% from the prior year period and 6.3% compared to the third quarter of 2019.
Improved price mix drove the year-over-year increase, up 6.4%, more heavily weighted to price than mix. The primary factors were price increases to mitigate inflationary pressures and growth in our more profitable Branded Retail products. Partially offsetting the sales increase was a 2.5% volume decrease driven by declines in our retail volumes offset somewhat by increases in non-retail volume. Looking at sales by channel, Branded Retail sales increased $31.6 million compared to the prior year or 4.8% to $689.1 million. This increase was driven by price mix. Despite the difficult comparisons, Flowers Foods' fresh packaged bread sales gained 50 basis points of market share in tracked channels with sales of Nature's Own up 4%, Dave's Killer Bread up 14% and Canyon Bakehouse up 17%.
Compared to the third quarter of 2019, Branded Retail sales increased 17.6%, higher than comparable second quarter 2021 growth of 15.2% as our leading brands continued to benefit from pandemic-related demand increases and our initiatives to drive further growth. As Ryals mentioned, our total market share increased 100 basis points over pre-pandemic levels to 18%. Store branded retail sales decreased $11.5 million year-over-year or 8.5% to $124.6 million as consumers continued to express a preference for more differentiated branded products. The store branded category as a whole lost 160 basis points of market share, declining to 18.8%, a downward trend that has endured for more than five years.
Our consumer research clearly shows that the bread category is undergoing a premiumization process, shifting away from store brand, which Ryals spoke about earlier. The ability to manage that shift in demand highlights the flexibility of our bakery network. In addition to the store brand category trends, initiatives such as our portfolio strategy, which aims to shift more of our sales to higher margin branded products, and our initiative to increase the profitability of some of our underperforming accounts have also impacted sales. In situations where we are unable to attain satisfactory margins, we have walked away from some accounts. Compared to the 2019 third quarter, Flowers store branded sales declined 17.5%.
Non-retail and other sales increased $18.1 million or 9.2% year-over-year to $214.2 million as we lapped significant pandemic-induced declines in the prior period. Non-retail results benefited from improved price mix and volume increases. Non-retail and other sales overall remained below pre-pandemic levels, with sales down 6.8% compared to the 2019 third quarter. However, as non-retail sales continue their recovery, that business is coming back at higher margins than before due to the initiatives we've taken to improve the profitability of the business. In the quarter, gross margin as a percentage of sales, excluding depreciation and amortization, increased 20 basis points to 49.9%.
Gross margin comparisons benefited from higher sales and $1.9 million of startup costs in the year ago period related to the conversion of our Lynchburg, Virginia facility to an organic bakery. More favorable price mix mitigated rising commodity costs, partially offset by reduced outside purchases. Selling, distribution, and administrative expenses increased 240 basis points as a percentage of sales in the third quarter. Excluding the items affecting comparability detailed in the press release, adjusted SD&A expenses increased 40 basis points to 38.4% as higher logistics costs and increased marketing investment were partially offset by lower distributor distribution fees. GAAP diluted EPS for the quarter was $0.18 per share, compared to $0.21 in the prior year period.
Excluding the items affecting comparability detailed in the release, adjusted diluted EPS in the quarter was $0.30 per share, up $0.01 from the prior year period. Turning now to our balance sheet liquidity and cash flow. Year to date through the third quarter of fiscal 2021, cash flow from operating activities decreased by $49.2 million - $315.2 million, largely due to higher bonus payments in the first quarter this year and other changes in working capital. Capital expenditures increased $18.5 million - $86.7 million, and dividends paid increased $6.6 million - $131.5 million. Our financial position remains strong. At quarter end, net debt to trailing 12-month adjusted EBITDA stood at approximately 1.1x, down from 1.2x at the end of the second quarter.
At quarter end, we held approximately $308 million in cash and cash equivalents and had approximately $679 million of remaining availability on our credit facilities. Now turning to our adjusted outlook for 2021. We are forecasting sales to decline between 1%-2% versus 2020, an increase from our prior guidance of down 2%-3%. Relative to 2019 results, our guidance implies growth of 4.3%-5.3%. For earnings, we are raising our guidance range to adjusted EPS of $1.22-$1.26, compared to our prior guidance of $1.17-$1.22. In 2019, adjusted EPS of $0.96.
EPS guidance includes a $0.01 impact in the fourth quarter for appreciation bonuses to be paid to our frontline workers that Ryals mentioned earlier. Our updated guidance range is above our long-term financial targets of 1%-2% sales growth and 7%-9% EPS growth off the 2019 base, even with the $0.05 headwind from our digital ERP initiatives and no benefit from M&A. As a reminder, 2021 shifts back to 52 weeks, one fewer week than 2020. The additional week in 2020 contributed 1.8% to full year sales and approximately $0.02 to EPS. We continue to expect strong free cash flow generation, and our capital allocation priorities and philosophy remain consistent with our focus on maximizing return on invested capital and growing shareholder value.
Some of the factors we considered when setting guidance included the timing and magnitude of demand reversion, as well as inflationary pressures. The operating environment remains stronger than our initial forecast. Our most profitable segment, Branded Retail, has largely maintained its increased percentage of total sales despite the partial recovery in our non-retail and other business. The back-to-school season, which we are monitoring closely thus far, has not driven significant changes in demand. Regarding inflation, there are three general buckets on which we are focused, commodities, logistics and freight, and labor. We are doing everything in our power to offset higher commodity costs. Looking ahead so we can proactively navigate this period successfully. Our hedging strategy, in which we attempt to lock in commodity prices six months-12 months out, provides visibility into future inflation, enables us to be proactive in offsetting potential cost increases.
We've noted that should commodity prices remain at current market levels, we would expect more meaningful inflation in 2022. So far, we've been successful in obtaining the higher prices necessary to offset inflation in the current year, and we remain optimistic that, combined with other internal actions, we should be able to use pricing to mitigate the impact of inflation into 2022 if necessary. Logistics and freight costs have increased as our contract carrier rates repriced. Our closed loop system stabilizes cost over the short term, but pricing over longer periods will adjust to market levels. On the bright side, the strong relationships we've developed with our carriers has allowed us to maintain adequate capacity despite driver shortages and other challenges. In addition to higher prices on our inputs, availability also became more of a focus.
Although sourcing items has been challenging, generally, we are not seeing significant supply chain disruptions. So far, we've been able to get what we need, and with the hard work of our procurement team, we expect to continue to do so going forward. Ryals McMullian addressed the labor situation earlier, but to date, we have been successfully navigating labor shortages and turnover and mitigating the financial impact. Although the comparative labor market continues to impact our operations and we expect this trend to continue, workforce-related costs are relatively unchanged as a % of sales quarter-over-quarter. In a moment, Ryals McMullian will share more color on the factors we are watching in 2021. Thank you, and now I'll turn it back to Ryals McMullan.
Thank you, Steve. As you've just heard, our financial performance remains above expectations. We're generating strong sales and margins and transforming our company to maintain our growth over the long term. In our conversations with the investment community, their primary concerns are inflation and the potential demand reversion as the pandemic recedes. Steve has covered inflation already and the confidence we have in our ability to mitigate it, but I'd like to reemphasize the importance of our brands in this environment. We believe the strength of our leading brands increases consumers' willingness to pay a bit more to enjoy the differentiated attributes of our products. So far, our pricing activities this year have not led to any meaningful declines in demand, and I believe the primary reason for that limited demand elasticity is the power of our brands.
We are continuing to invest in them to grow our market share and household penetration. Going forward, should the current inflationary environment hold, we believe further pricing combined with in-flight and future efficiency initiatives will mitigate those headwinds. Furthermore, it's important to bear in mind that inflation comes and goes, and while it might prove to be a headwind in the short term, over the long term, we're confident in the transformational strategies we have in place and our ability to meet or exceed our long-term targets. Newer products from our innovation function are helping to drive our performance. Dave's Killer Bread has been growing rapidly in breakfast and buns, and we've rolled out the popular Powerseed Thin-Sliced bread nationwide.
Canyon Bakehouse continues to gain market share, which is now almost 32% of the gluten-free category, helped by strong growth from new products, including multigrain bread, sub rolls, and Hawaiian bread. Nature's Own is growing with its Perfectly Crafted sub-brand, whose sales are now almost $150 million at retail. We're using those leading brands to increase our sales in under-penetrated markets like the Northeast. We hope you've seen our new ad campaigns for Dave's Killer Bread Amplified, and Nature's Own Perfectly Crafted Your Fancy Now. Those ads, along with other initiatives, are driving sales in the region. In the Northeast, we gained 110 basis points of share in the third quarter and 240 basis points over the last three years.
Our recent conversion of the Lynchburg bakery has provided the capacity necessary to meet that new demand. Now I'd like to go into a little bit more detail on the demand environment. As evidenced by our increased 2021 guidance, pandemic-related reversion has been less material than expected. In fact, the third quarter represented the first time our Branded Retail sales increased this year compared to elevated 2020 sales. We have seen some recovery in our non-retail business. Third quarter sales were down 7% compared to pre-pandemic levels versus the 15% decline we saw in the third quarter of 2020. Our store branded business has continued its multi-year decline, with the pandemic perhaps exacerbating that trend. It's difficult to predict how much reversion to expect going forward. It seems reasonable to assume some movement toward prior demand patterns as the economy reopens.
We believe certain factors, such as more flexible work from home policies, lower rates of travel, and consumers' demonstrated preference for differentiated branded products point to a sustainable benefit from eat-at-home demand. In the meantime, we're focused on what we can control. No matter the demand environment, our initiatives are designed to continue growing our top brands. In closing, I'm extremely proud of our year-to-date performance, and I'm quite optimistic about the initiatives we have in place to ensure our future success. Our best-in-class team, combined with our top brands, sound strategies for continuing to drive branded growth, investments in digital and other capabilities to enable our future success, and a pristine balance sheet that will allow us to take advantage of smart M&A opportunities, position us better than ever to deliver results in line with our long-term financial targets. Thank you very much for your time.
This concludes our prepared remarks. Take care.