Adam Jackson
Fire & Flower Holdings Corp. (TSX: FAF) (OTCQX: FFLWD) posted mixed results as it faced industry-wide headwinds during the second quarter ended July 30.
The company found some buoyancy during the period with its tech services, such as its delivery and member program.
For the key metric of same-store sales, Fire & Flower reported revenue fell 5% to C$30.4 million from C$31.8 million in the same period last year. At the same time, same-store sales rose 2.7% over the prior quarter due to the recent launch of the Spark Perks Member Pricing program, the company said, despite shuttering nine retail stores.
Fire & Flower posted total revenue of C$40.7 million for the second quarter, down 6% from C$43.3 million in the same period last year. The company attributed the downtick to “increasing competition from new licenses issued and pricing pressures in the cannabis retail market.”
Net loss for the the second quarter was C$12.6 million, versus a net income of C$19.5 million in the same period last year. The company recording a per-share net loss of 48 cents versus per-share earnings of 18 cents in the same quarter last year, according to SEDAR filings.
“Fire & Flower remains focused on the transformation of our business and strategic opportunities with a goal to deliver positive adjusted EBITDA and free cash flow,” CEO Stéphane Trudel said.
“We are focusing on near-term initiatives such as the Spark Perks Member Pricing program and opportunities to generate additional consolidated gross profit dollars as competitive pressures and license expansion outpacing market growth create challenging market conditions across the industry.”
Fire & Flower’s gross profit was C$9.7 million, representing 24% of revenue for the second quarter versus C$16.2 million, or 37% of revenue, in the same quarter last year.
Adjusted EBITDA was a loss of C$6 million. The company had C$18.6 million worth of cash and cash equivalents, down C$1.3 million since the end of the last fiscal year.
Digital revenue fell to C$1.9 million in the second quarter versus C$3.7 million in the same quarter of the prior year, with gross profit margin was 89.5% for the quarter. Segment adjusted EBITDA fell to C$600,000 in the second quarter, versus C$3.3 million in the prior year comparative period.
Fire & Flower said that the year-over-year decline in digital revenue and adjusted EBITDA for the segment is primarily due to a “delay in renewals of data subscription agreements and reduced project-based data and analytics work in the current fiscal quarter” as the company prioritized new-product development for launch in the third quarter.
“Subsequent to quarter end, substantial renewal of data subscription agreements are anticipated to be completed through more favorable economics for data subscription customers, stabilizing monthly recurring revenues in future quarters,” the release said.
The company also is investing in:
- The Hifyre cannabis consumer technology platform
- Integration of the wholesale and logistics segment
Taking Stock From Last Period
Following the first quarter, Cantor analyst Pablo Zuanic dropped his rating on Fire & Flower to Neutral from Overweight and lowered his 12-month price target to C$2.60 from C$9.50, published April 26, on reduced estimates and increased operational risks.
“Our recent surveys show that Fire & Flower stores (factoring-in its Spark membership offers) are now pricing in line with High Tide’s stores (Nasdaq: HITI), below Nova Cannabis, and well-below the OCS online store,” Zuanic said. “While we believe this makes sense, we think competitive dynamics have forced Fire & Flower to take more draconian measures on the pricing front than management may have initially envisaged.
“The transition (likely increased sales but lower margins) generates uncertainty and makes us wonder about the company’s ability to make meaningful improvements to cash burn; we think this is also reflected by the company’s decision to delay its Nasdaq listing.”
Zuanic added, “That said, we appreciate Fire & Flower’s asset-light strategy, prudent brick & mortar growth plans, its inroads in tech services and delivery, and the strategic benefits of the partnership with Circle-K (ATD.TO/NC). However, given heightened competitive challenges and further potential shareholder dilution down the road, we now prefer to rate the stock Neutral.”
