Release Date: July 16, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Goodfood Market Corp (GDDFF, Financial) achieved its sixth consecutive quarter of positive adjusted EBITDA, reaching a margin of 9.2% for $3.6 million.
- The company reported a significant improvement in adjusted free cash flow, generating $4.4 million this quarter and $8.7 million year to date.
- Gross margin reached a record 44% in the third quarter, a 300 basis-point improvement compared to the same quarter last year.
- Goodfood Market Corp (GDDFF) has reduced net leverage from 8.2 turns last year to 2.1 turns this quarter, decreasing the risk of its capital structure.
- The company has introduced new customer-centric initiatives, such as doubling the lineup of recipes on its value menu and launching 'Camp Goodfood' to enhance customer engagement and satisfaction.
Negative Points
- Net sales declined by 8% year-over-year to $38.6 million, driven by lower customer count and consumer spending softness.
- Active customers decreased to 105,000, influenced by early seasonality and lower customer acquisition.
- Despite improvements, the company faces challenging demand circumstances and expects to return to year-over-year organic growth only when macroeconomic headwinds abate.
- The value meals, while popular, have slightly lower margins compared to the average Goodfood box.
- Seasonality and macroeconomic challenges continue to impact customer activity, with potential further declines expected in the fourth quarter.
Q & A Highlights
Q: Your gross margin is at the highest level it's been in a long time at 44%, and your SG&A expenses are the lowest they've been in a while. How much more improvement is there from a gross margin expansion and SG&A reduction?
A: (Roslane Aouameur, CFO) We've shown an ability to grow gross margin contribution from inefficiencies, hitting a record level this quarter. We can still improve marginal gains on labor and shipping sides. However, we might use some of this gross margin to enhance customer value. On the SG&A side, we continue to look for efficiencies, especially in technology and productivity tools, but significant further improvements may be limited.
Q: Are your revenues declining in line with the industry, or are you losing market share?
A: (Roslane Aouameur, CFO) Based on available data, our sales decline is probably not as steep as the overall industry. It's more of a consumer spending situation rather than a market share issue.
Q: Can you provide details on your value meals, their traction, margins, and price differential compared to regular meals?
A: (Neil Cuggy, President, COO) We launched value meals in a small way six months ago and recently scaled up. They start at $8.99 per portion, which is a 30-40% discount to our classic plan. Feedback is very positive, and margins are attractive despite being slightly lower than our average box.
Q: Is there an opportunity for Goodfood to benefit from lower traffic in restaurants due to pressures on consumer discretionary spending?
A: (Jonathan Ferrari, CEO) Yes, we are creating alternatives for Canadians looking for more value versus dining out. We are partnering with restaurants to deliver recipes at a fraction of the cost and focusing on helping customers travel through food with our international menu and Camp Goodfood initiatives.
Q: Regarding the decline in active customers, was this largely a shift in the typical seasonal decline, or is there more to come in Q4?
A: (Roslane Aouameur, CFO) It's a bit of both. Some of the decline typically seen in June happened earlier in May due to weather. However, we still expect a relatively typical seasonal shift in patterns during the summer.
Q: Can you provide an update on your M&A pipeline and the type of companies you're looking for?
A: (Roslane Aouameur, CFO) The pipeline is robust, with interesting businesses and brands responding to inquiries. We are looking for direct-to-consumer businesses, strong brands, and potential partners in Canada and the US that align with our strategy.
Q: How do you see the evolution of gross margin and SG&A levels from here?
A: (Roslane Aouameur, CFO) We may use a few percentage points of our gross margin to enhance customer value. On the SG&A side, we continue to look for efficiencies, but significant further improvements may be limited.
Q: What are your thoughts on a potential shift in spending from restaurants to food at home, and how can Goodfood benefit from that?
A: (Jonathan Ferrari, CEO) We are focusing on creating value alternatives for Canadians versus dining out and helping customers travel through food with our international menu and Camp Goodfood initiatives.
Q: Can you provide more details on the traction and margins of your value meals?
A: (Neil Cuggy, President, COO) Value meals start at $8.99 per portion, with positive feedback and attractive margins despite being slightly lower than our average box.
Q: How do you see your market share evolving in the current economic backdrop?
A: (Roslane Aouameur, CFO) Our sales decline is probably not as steep as the overall industry, indicating that it's more of a consumer spending situation rather than a market share issue.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
