Alcanna Inc. (the “Company” or “Alcanna”) (TSX: CLIQ) today reported its results for the fourth quarter and year ended December 31, 2019.
ANALYST AND INVESTOR CONFERENCE CALL POSTPONED
In light of escalating developments concerning the global impact of the novel coronavirus (COVID-19), the Alcanna analyst and investor conference call originally scheduled for March 12, 2020 at 10:00 a.m. MT (12:00 p.m. ET) to discuss results for the three months and year ended December 31, 2019 has been postponed until further notice. The Company will be focusing on assessing its response to the situation for the protection of its employees and customers.
2019 FOURTH QUARTER COMMENTARY
For the year ended December 31, 2019 Alcanna achieved a 21.7% growth in total sales versus 2018. The fourth quarter sales increase was 21.5% over Q4 in 2018. Gross margin dollars for the year increased to $178.3 million – a 12.8% increase from 2018.
“Alcanna continued on course throughout 2019 with an aggressive strategy begun in 2018 to regain and grow market share in our core Alberta liquor business and to establish Nova Cannabis as a leader in the Canadian cannabis retail industry and we delivered on that strategy,” said James Burns Vice Chair and CEO. “Starting with only a few discount stores at the beginning of the year Alcanna ended 2019 as the largest discount banner in Alberta with 92 locations. Over the course of the year Alcanna opened 3 new large-format Wine and Beyond stores and essentially completed our two-year accelerated plan to renovate our Alberta liquor stores – ending the year with a refreshed network of stores better positioned to compete over the long term in an intensely competitive market. And finally, Alcanna began 2019 with five Nova Cannabis retail locations in Alberta and now have thirty opened, along with a highly successful entrance into the Ontario market with a store in Toronto. With all of this accomplished, the Company ends 2019 with our liquor CAPEX program largely behind us and in an excellent position to return to turning sales into bottom-line results.”
“In late 2019, the Company started to slowly but successfully recalibrate margins in the Alberta liquor banners to restore bottom line results. However, the positive results of this recalibration initiative on gross margin percentage were more than offset by the significant increase in robberies and thefts across the Alberta liquor retail industry, a decision made in the fourth quarter to slightly lower margins in our Liquor Depot banner to reduce the gap in pricing compared to the discount banners, and the higher than anticipated customer trade over from regular priced items to promotional items during the holiday season, which we attribute to the weak economic conditions and consumer and public confidence in Alberta. Alcanna has been working closely with law enforcement and the provincial government to address the increase in robberies and thefts throughout the Alberta liquor retail industry and anticipates a gradual reduction in these occurrences throughout 2020 as a result of strategies initiated in late 2019 and into 2020. We have adjusted our promotional, merchandising and buying strategies in early 2020 to address the changes in customer buying patterns and we are aiming at improving our gross margin percentages throughout 2020 as a result,” said Mr. Burns.
Fourth quarter and subsequent event highlights:
- As of today, Alcanna has 30 Nova Cannabis retail stores operating in Alberta, of which 12 opened in the fourth quarter of 2019, and another 7 opened in January 2020. Alcanna is poised to expand Nova Cannabis into Ontario now that the Ontario government has opened the licensing process and anticipates constructing and opening 10 to 20 new stores in Ontario in 2020 dependant on finding excellent locations, the pace at which the Ontario regulator can grant new licences, cannabis supply, and the competitive environment.
- Same-store sales in Canadian liquor increased by 4.6% and total liquor sales increased by 19.7% compared to Q4 2018.
- The third new Wine and Beyond store for 2019 opened in Red Deer, Alberta on November 21, 2019. We are ready to expand Wine and Beyond into Ontario if the Ontario government’s reform of liquor retail permits the private retailing of alcohol on a basis similar to Alberta, which would allow an appropriate return on capital.
- Alcanna made reductions to corporate overhead of approximately $1 million annually in the fourth quarter, which is in addition to the $2 million in annual savings made in the third quarter.
- The consolidation of the management of the Company’s liquor business is expected to provide further opportunities for overhead reduction in 2020.
|(In thousands of Canadian dollars
except per share amounts, unaudited)
|Three months ended December 31||Year ended December 31|
|Operating profit before amortization and provisions||12,420||1,561||32,059||1,846|
|Net loss from continuing operations||(14,290||)||(151,306||)||(32,574||)||(158,330||)|
|Basic and diluted loss per share from|
|from continuing operations||(0.35||)||(4.08||)||(0.83||)||(4.48||)|
|Operating profit before amortization and provisions||12,420||1,561||34,593||8,353|
|Net earnings (loss) from continuing operations||(14,290||)||873||(30,668||)||356|
|Basic and diluted loss per share from continuing operations||(0.35||)||0.02||(0.78||)||0.01|
On January 1, 2019, the Company adopted the new accounting standard, IFRS 16, Leases (“IFRS 16”) using the modified retrospective approach and has not restated comparatives for the 2018 reporting period, as permitted under the specific transitional provisions in the standard. The adoption of IFRS 16 has had a significant effect on the comparability of our reported results, including operating profit (loss) before amortization and provisions, which is disclosed in the audited consolidated financial statements for the year ended December 31, 2019 and 2018 and discussed further in the Company’s Management’s Discussion and Analysis for the three months and year ended December 31, 2019.
The adoption of IFRS 16 results in a significant increase in operating profit before amortization and provisions in 2019 which may not provide for a meaningful comparison to 2018 given that the comparatives for 2018 have not been restated. For the year ended December 31, 2019, the adoption of IFRS 16 resulted in the recognition of depreciation expense related to right-of-use-assets of $18.1 million, lease liability interest charge of $19.2 million a reduction to rent expense of $35.9 million and a lease remeasurement expense of $0.3 million. For the three-month period ended December 31, 2019, the adoption of IFRS 16 resulted in the recognition of depreciation expense related to right-of-use-assets of $4.6 million, lease liability interest charge of $5.1 million, a reduction to rent expense of $9.6 million, and a lease remeasurement expense of $1.7 million.
Sales in Q4 2019 were positively impacted compared to the same period in the prior year by:
- The acquisition of twelve (12) new stores in Q1 2019 operating as Ace Liquor and twenty-eight (28) new stores on June 25, 2019 operating as Solo Liquor.
- Operating five (5) retail cannabis stores that opened in Q4 2018, four (4) that opened in Q2 2019, one (1) that opened in Q3 2019 and twelve (12) that opened in Q4 2019.
- Opening two (2) new Wine and Beyond stores in Q2 2019, one (1) convenience format store in Q2 2019, two (2) new convenience format stores in Q3 2019, one (1) new Wine and Beyond store in Q4 2019 one (1) convenience format store in Q4 2019.
- These increases were offset by the closure of seven (7) convenience-format stores and five (5) discount banner stores since September 30, 2018 along with a reduction in Canadian wholesale sales as the Company has stopped extending credit terms and delivery services to licensee/wholesale customers in October 2019 as this business offering required high investment in capital assets and people, with low return.
Net loss from continuing operations during the fourth quarter of 2019 compared to fourth quarter of 2018 decreased primarily as a result of the goodwill impairment recorded in 2018.
ABOUT ALCANNA INC.
Alcanna is one of the largest private sector retailers of alcohol in North America and the largest in Canada by number of stores – operating 255 locations in Alberta, British Columbia and Alaska. The Company also operates 31 cannabis retail stores under the “Nova Cannabis” brand, with 30 locations in the Province of Alberta and one in the Province of Ontario. With revenues in excess of $800 million per year, Alcanna processes over 20 million individual retail transactions of beverage alcohol and cannabis.
Alcanna’s common shares and convertible subordinated debentures trade on the Toronto Stock Exchange under the symbols “CLIQ” and “CLIQ.DB”, respectively.
This news release contains forward-looking statements or information (collectively “forward-looking statements”) within the meaning of applicable securities legislation. Forward-looking statements are typically identified by words such as “continue”, “anticipate”, “will”, “should”, “plan”, “intention”, and similar words suggesting future events or future performance. All statements and information other than statements of historical fact contained in this news release are forward-looking statements. In particular, this news release contains forward-looking statements pertaining to implementing the Company’s strategy and objectives related to the growth of its liquor and cannabis brands; its strategy to reduce thefts and robberies in its liquor stores; changes in buying strategies to meet changing consumer demands; the potential expansion of Nova Cannabis and Wine and Beyond into Ontario; and the impact of changes to the management of its liquor division on overhead reduction.
With respect to forward-looking statements contained in this news release, the Company has made assumptions regarding, among other things: the ability of management to execute the Company’s strategic plan and growth strategy, including its capital allocation strategy and specifically its ability significantly grow its cannabis retail store locations and enhance profitability of its liquor business.
Although the Company believes that the expectations reflected in the forward-looking statements, and the assumptions on which such forward-looking statements are made, are reasonable, there can be no assurance that such expectations and assumptions will prove to be correct. Readers should not place undue reliance on forward-looking statements included in this news release. Forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties that may cause actual performance and financial results to differ materially from any estimates, forecasts or projections. These risks and uncertainties include, among other things, the risk that we will be unable to execute our strategic plan and growth strategy, including the capital allocation and retail cannabis strategy, as planned without significant adverse impacts from various factors beyond our control; dependence on suppliers; potential delays or changes in plans with respect to capital expenditures and the availability of capital on acceptable terms; risks inherent in the liquor retail and cannabis industries; competition for, among other things, customers, supply, capital and skilled personnel; changes in labour costs and markets; incorrect assessments of the value of acquisitions; general economic and political conditions in Canada (including Alberta), Alaska and globally; industry conditions, including changes in government regulations; fluctuations in foreign exchange or interest rates; unanticipated operating events; failure to obtain regulatory and third‐party consents and approvals when required; changes in tax and other laws that affect us and our security holders; the potential failure of counterparties to honour their contractual obligations; stock market volatility; and the other factors described in the Company’s public filings (including the Annual Information Form) available at www.sedar.com. Readers are cautioned that this list of risk factors should not be construed as exhaustive.
The forward-looking statements contained in this news release are made as of the date hereof. Except as expressly required by applicable securities legislation, Alcanna does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in this news release are expressly qualified by this cautionary statement.
For Further Information
Executive Vice President and Chief Financial Officer
1 Adjusted operating profit before amortization and provisions, adjusted net loss and adjusted basic and diluted (loss) earnings per share are non-IFRS measures that do not have any standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other issuers. For more information on non-IFRS measures, see the ‘Non-IFRS Financial Measures’ in our Management’s Discussion and Analysis (“MD&A”) for the three months and year ended December 31, 2019, which is available on the Company’s website (www.alcanna.ca/investors) and on the SEDAR website (www.sedar.com).
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