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Fire & Flower Continues Improved Retail Performance in Fourth Quarter and Fiscal 2022 Results

Mar 28, 2023 • 9:05 AM EDT
11 MIN READ  •  By Michael Berger
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TORONTO, March 28, 2023 /CNW/ – Fire & Flower Holdings Corp. (“Fire & Flower” or the “Company”) (TSX: FAF) (OTCQX: FFLWF), today announced its financial and operational results for the fourth quarter and fiscal year 2022 ended December 31, 2022.

“2022 was a turnaround year for Fire & Flower, represented by three consecutive quarters of same store sales and gross margin growth. We look to 2023 as a transformative year where we anticipate achieving positive Adjusted EBITDA during the first half of the fiscal year through a disciplined approach to our core retail business, driving top line revenue, gross profit dollars and reducing our overhead expenses. We are delivering higher gross margin percentages with increased retail foot traffic, consumer price credibility and using our advanced Hifyre data capabilities to ensure that we have the most in-demand products for our customers,” shared Stéphane Trudel, Chief Executive Officer of Fire & Flower.

“Since we announced our Get-to-Green initiative earlier in 2022 we have focused on reducing operating expenses, simplifying our operations, increasing utilization of assets, and improving our management of working capital.  We expect to generate annualized SG&A expense and lease savings of approximately $6.0 million in 2023 through various initiatives, including rationalizing overhead and administrative functions, subleasing underutilized properties, and the recent restructuring of our Pineapple Express delivery and logistics business to drive profitability across all segments.

“We continue to look towards consolidation in the industry and are actively pursuing opportunities that are fully accretive to our business with the long-term goal of achieving 10% market share through a high quality and profitable retail network. In addition, our strategic relationship with Alimentation Couche-Tard continues through our co-located store program that already has provided key learnings to inform future developments in Canada, the U.S. and Europe.”

Consolidated Financial Highlights

Quarter Ended

Year ended

(In thousands of Canadian
dollars, except per share
amounts)

31-Dec-22

(9 weeks)

29-Oct-22

(13 weeks)

29-Jan-22
(13 weeks)

31-Dec-22
(48 weeks)

29-Jan-22
(52 weeks)

Total Revenue

30,501

43,835

42,697

156,022

175,499

Gross Profit

7,424

11,823

13,705

41,112

62,094

Gross Profit Percentage

24.3 %

27.0 %

32.1 %

26.4 %

35.4 %

Adjusted EBITDA

(3,809)

(2,811)

(2,410)

(14,968)

5,120

Net loss

(29,945)

(28,085)

(19,449)

(89,493)

(63,588)

Basic loss per share

(0.66)

(0.62)

(0.54)

(2.07)

(1.89)

Financial & Operational Highlights for the Fourth Quarter and Fiscal Year 2022

  • Consolidated revenue of $156.0 million for the 48-week fiscal year 2022 and $30.5 million for the 9-week Q4 2022. The quarter-over-quarter decrease was driven by the short quarter which was 9 weeks compared to prior quarter which was 13 weeks.

  • Consolidated gross profit of $41.1 Million (26.4% of revenue) for the 48-week fiscal year 2022 and gross profit of $7.4 million (24.3% of revenue) for the 9-week fourth quarter of 2022.

  • Adjusted EBITDA of negative $15.0 million for the 48-week fiscal year 2022 and negative $3.8 million for the 9-week Q4 2022.  Adjusted EBITDA for the 9-week Q4 2022 was impacted by higher SG&A expenses including restructuring, integration costs and other one time charges.

  • Net loss of $89.5 Million for the 48-week fiscal year 2022 and net loss of $29.9 million for the 9-week Q4 2022, including restructuring and impairment charges of $45.7 million and $21.5 million million for the respective periods.

  • Cash balance of $12.4 million.


Segment Revenue

Quarter Ended

Year Ended

(In thousands of Canadian dollars, except
per share amounts)

31-Dec-22

(9 weeks)

29-Oct-22

(13 weeks)

29-Jan-22
(13 weeks)

31-Dec-22
(48 weeks)

29-Jan-22
(52 weeks)

Revenue

Retail

22,882

32,985

31,670

115,780

130,823

Wholesale and Logistics

5,878

7,869

6,969

30,670

30,336

Digital Platform

1,741

2,981

4,058

9,572

14,340

Total Revenue

30,501

43,835

42,697

156,022

175,499


Segment Adjusted EBITDA

Quarter Ended

Year Ended

(In thousands of Canadian dollars
audited)

31-Dec-22

(9 weeks)

29-Oct-22

(13 weeks)

29-Jan-22
(13 weeks)

31-Dec-22
(48 weeks)

29-Jan-22
(52 weeks)

Adjusted EBITDA

Retail

(1,905)

(2,779)

(2,077)

(11,913)

1,223

Wholesale and Logistics

(1,064)

(90)

1,010

(1,667)

4,725

Digital Platform

639

1,449

1,885

4,446

7,708

Corporate

(1,479)

(1,391)

(3,228)

(5,834)

(8,536)

Total Adjusted EBITDA

(3,809)

(2,811)

(2,410)

(14,968)

5,120


Retail

  • Retail revenue for the 48-week fiscal year 2022 was $115.8 million and $22.9 million for the 9-week Q4 2022. Decrease in Retail revenue quarter-over-quarter reflects the result of a shorter 9-week quarter compared to 13-week quarter for the comparable period.
  • Year-over-year same-store sales improved for Q4 2022 for three consecutive quarters to an increase of 3.9%, from decreases of 26%, 14%, and 4% respectively for Q1, Q2, and Q3 2022.
  • Retail gross profit for the 48-week fiscal year was $29.1 million (25.2% of revenue) and $5.8 million for the 9-week Q4 2022 (25.4% of revenue). The Retail segment continues to show improvement in both gross margin percentage and gross profit dollars when prorated and accounting for seasonality. The 25.4% margin represents consecutive quarterly improvement from 23.4% in Q2 2022 and 24.2% in Q3 2022.
  • Retail Adjusted EBITDA for the 48-week fiscal year was negative $11.9 million and Adjusted EBITDA for Retail for the 9-week Q4 2022 was negative $1.9 million, representing quarter-over-quarter improvements when prorated.
  • The Company had 92 stores open and in operation at the end of December 31, 2022, compared to 90 stores at the end of Q3 2022 and 102 stores at the end of Q4 2021.

Wholesale and Logistics

  • The current fiscal quarter and year results include the operations of Open Fields Distribution wholesale business in the province of Saskatchewan, the cross-docking service in the province of Manitoba which started in Q4, and Pineapple Express Delivery, which was acquired on January 21, 2022.
  • Wholesale and Logistics revenue for the 48-week fiscal year was $30.7 million and for the 9-week Q4 2022 $5.9 million.
  • Segment gross profit for the 48-week fiscal year was $3.5 million and $0.1 million for the 9-week Q4 2022.
  • Wholesale and Logistics Adjusted EBITDA was negative $1.7 million for the 48-week fiscal year 2022 and negative $1.1 million for the 9-week Q4 2022.
  • The year-over-year decline in segment gross profit and Adjusted EBITDA reflects increased cost of sales and a lower profitability of delivery, which the Company has addressed through a restructuring of Pineapple Express and a focus on profitable business segments.
  • Opening of the Open Fields Manitoba cross-docking facility on October 26, 2022 through receipt of its license from the Liquor, Gaming and Cannabis Authority of Manitoba. The total addressable Manitoba market is approximately the same size as the Saskatchewan market and Open Fields is leveraging its relationships with major cannabis licensed producers to extend service into this new market.

Hifyre™ Digital Platform

  • Digital segment revenue for the 48-week fiscal year 2022 was $9.6 million and $1.7 million for the 9-week Q4 2022.
  • Digital segment Adjusted EBITDA of $4.4 million in 48-week fiscal year 2022 and Adjusted EBITDA in the 9-week Q4 2022 of $0.6 million.
  • The sequential decrease in revenue and Adjusted EBITDA was primarily driven by a shorter quarter and timing of data revenue.
  • Hifyre continues to commercialize the Consumer Insights and Distribution modules to Hifyre IQ data analytics platform customers, driving additional incremental high margin revenue.

Updates Subsequent to December 31, 2022

  • On March 15, 2023, the Company expanded its market presence in Winnipeg by opening a store in the Sports Hospitality Entertainment District (SHED) in downtown Winnipeg and bringing the total number of Fire & Flower stores in Manitoba to eight (8).
  • The Company has executed upon a reorganization of certain administrative functions across all departments and of the Pineapple Express business to eliminate significant selling, general and administrative expenses as part of ongoing cost efficiency measures and achieving positive Adjusted EBITDA in the first half of 2023.
  • Fire & Flower is actively evaluating retail consolidation opportunities which are accretive to the cash flow of the business.

Adjusted EBITDA

(in thousands of dollars)

9 Weeks Ended

13 Weeks Ended

48 Weeks Ended

52 Weeks Ended

December 31, 2022
($)

January 29, 2022
($)

December 31, 2022
($)

January 29, 2022
($)

Net loss– as reported

(29,945)

(19,461)

(89,493)

(63,592)

(Gain) loss on revaluation of derivative liability

(78)

(7,558)

(882)

8,545

Finance costs, net

1,009

1,505

5,340

7,245

Income taxes, net

(239)

1,330

1,656

2,452

Share-based compensation

124

468

2,074

3,174

Acquisition and strategic initiative professional fees

314

1,306

1,193

3,094

Depreciation & amortization

3,501

5,495

19,759

19,080

Restructuring, impairment and other costs, net

21,474

14,505

45,742

25,122

Foreign exchange gain

31

(357)

Adjusted EBITDA

(3,809)

(2,410)

(14,968)

5,120

Non-IFRS Measures – Adjusted EBITDA

“Adjusted EBITDA” is a Non-IFRS metric used by management that does not have any standardized meaning prescribed by IFRS and may not be fully comparable to similar measures presented by other companies. Management defines Adjusted EBITDA as the income (loss) for the period, as reported, before income taxes and other expense (income) items such as finance costs, finance income, gains and losses related to derivative liability revaluations and debt extinguishments, and adjusted for share-based compensation, depreciation and amortization, impairment expenses, restructuring charges and acquisitions, foreign exchange differences and strategic initiative professional fees. The Company believes this non-IFRS measure is a useful metric to evaluate its core operating performance and uses this measure to provide shareholders and others with supplemental measures of its operating performance. The Company also believes that securities analysts, investors and other interested parties, frequently use Adjusted EBITDA in the evaluation of companies, many of which present similar metrics when reporting their results. We caution readersthat Adjusted EBITDA should not be substituted for determining net income (loss) as an indicator of operating results, or as a substitute for cash flows from operating activities.  A reconciliation of net income (loss) to Adjusted EBITDA is presented above.

Adjusted EBITDA for the 48 week Fiscal year ended December 31, 2022 was negative $15.0 million.

Webcast & Conference Call

Fire & Flower will host a webcast and conference call with Stéphane Trudel, Chief Executive Officer, John Chou, Chief Financial Officer and Chris Bolivar, EVP Commercial and Growth at 8:30 a.m. EDT on March 28, 2022. The webcast will discuss Fire & Flower’s Fiscal 2022 fourth quarter financial and operational results and the Company’s plans for 2023.

Dial-In Information

Canada and United States dial-in number (Toll Free): 1 833 470 1428
International: +1 404 975 4839

Access code:  644072

Webcast Sign-Up
https://events.q4inc.com/attendee/933430860

Replay Information (Available until April 18, 2023)

Canada and United States (Toll Free): 1 866 813 9403
International: +1 929 458 6194

Replay Access Code: 163848

Upon completion of the live conference call, a replay of the conference call will be accessible on Fire & Flower’s website at https://investors.fireandflower.com/.

Fire & Flower’s financial statements and management discussion and analysis for the period are available on Fire & Flower’s SEDAR profile at www.sedar.com and on Fire & Flower’s website at https://investors.fireandflower.com.

About Fire & Flower

Fire & Flower is a leading, technology-powered, adult-use cannabis retailer with more than 90 corporate-owned stores in its network. The Company leverages its wholly-owned technology development subsidiary, Hifyre, to continually advance its proprietary retail operations model while also providing additional independent high-margin revenue streams. Fire & Flower guides consumers through the complex world of cannabis through education-focused, best-in-class retailing while the Hifyre digital retail and analytics platform empowers retailers to optimize their connections with consumers. The Company’s leadership team combines extensive experience in the technology, logistics, cannabis and retail industries.

Through the strategic investment of Alimentation Couche-Tard Inc. (owner of Circle K convenience stores), the Company has set its sights on global expansion as new cannabis markets emerge and is poised to expand into the United Stateswhen permitted through its strategic licensing agreement with Fire & Flower U.S. Holdings upon the occurrence of certain changes to the cannabis regulatory regime.

Fire & Flower is a multi-banner cannabis retail operator that owns and operates the Fire & Flower, Friendly Stranger, Happy Dayz and Firebird Delivery brands. Fire & Flower Holdings Corp. owns all issued and outstanding shares in Fire & Flower Inc. and Friendly Stranger Holdings Corp., licensed cannabis retailers that own and operate cannabis retail stores in the provinces of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, and the Yukon territory.

To learn more about Fire & Flower, visit https://www.fireandflower.com.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This news release contains certain forward-looking information within the meaning of applicable Canadian securities laws (“forward-looking statements”). All statements other than statements of present or historical fact are forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as “anticipate”, “achieve”, “could”, “believe”, “plan”, “intend”, “objective”, “continuous”, “ongoing”, “estimate”, “outlook”, “expect”, “project” and similar words, including negatives thereof, suggesting future outcomes or that certain events or conditions “may” or “will” occur.  These statements are only predictions.

Forward-looking statements are based on the opinions and estimates of management of Fire & Flower at the date the statements are made based on information then available to Fire & Flower.  Various factors and assumptions are applied in drawing conclusions or making the forecasts or projections set out in forward-looking statements.  Forward-looking statements are subject to and involve a number of known and unknown, variables, risks and uncertainties, many of which are beyond the control of Fire & Flower, which may cause Fire & Flower‘s actual performance and results to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements. Such factors, among other things,  include:  final regulatory and other approvals or consents;  fluctuations in general macroeconomic conditions; fluctuations in securities markets; the impact of the COVID-19 pandemic; the ability of the  Company to successfully achieve its business objectives, political and social uncertainties, demand for the Common Shares, market conditions, the timing and ability of the Company to achieve Positive Adjusted EBITDA, and the ability of the Company to obtain financing on acceptable terms.

No assurance can be given that the expectations reflected in forward-looking statements will prove to be correct.  Although the forward-looking statements contained in this news release are based upon what management of the Company believes, or believed at the time, to be reasonable assumptions, the Company cannot assure shareholders that actual results will be consistent with such forward-looking statements, as there may be other factors that cause results not to be as anticipated, estimated or intended. Readers should not place undue reliance on the forward-looking statements and information contained in this news release. Additional information regarding risks and uncertainties relating to the Company’s business are contained under the headings “Risk Factors” in the Company’s Annual Information Form dated March 28, 2023 and “Risks and Uncertainties” in the management discussion and analysis for the nine weeks ended December 31, 2022 filed on its issuer profile on SEDAR at www.sedar.com.  The forward-looking statements contained in this press release are made as of the date of this press release, and the Company does not undertake to update any forward-looking statements that are contained or referenced herein, except in accordance with applicable securities laws.

No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein.

SOURCE Fire & Flower Holdings Corp.

For further information: Investor Relations: investorrelations@fireandflower.com,1-833-680-4948; Media Relations: media@fireandflower.com, 780-784-8859

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Michael Berger

Michael Berger is Managing Partner of StoneBridge Partners, LLC and Founder of Technical420.com. Prior to entering the cannabis industry, Michael was an Equity Research Analyst at Raymond James Financial covering the Energy Sector. Michael has been featured in publications such as The Street, Bloomberg, US Money News, and hosts various cannabis events across North America.

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