Canada: Goodfood’s Strong Growth Continues in Q2-2021

Montreal / CA. (gfc) Goodfood Market Corporation , a leading online grocery company in Canada, announced strong financial results for the second quarter ended February 28, 2021, further demonstrating its ability to generate superior growth and margins in the fast-growing online grocery and meal solutions markets.

«We are very proud to have reached two great milestones in Goodfood’s journey in disrupting the Canadian grocery industry. Not only have we reached CAD 100 million in revenues this quarter for the first time since inception, but we have also generated over CAD 30 million of gross profit, both records for Goodfood,» said Jonathan Ferrari, Chief Executive Officer of the Company. «The uptake of Goodfood’s grocery products also reached new heights with over 1.1 million grocery products sold in this quarter alone and we now have more than 750 products available to our members. The continued strength of our members’ interactions with our offering has led to increased basket sizes and order frequencies, and that, combined with our strong balance sheet, positions us ideally to further penetrate the online grocery market that is still in the early days of its digitization,» concluded Ferrari.

«As our consistent execution and investments in footprint, automation and technology continue, we are thrilled to report a fourth consecutive quarter of positive Adjusted Ebitda, which on a last-twelve-months basis reached a margin of 3.6 percent, and that despite encountering demand-driven challenges and costs as a result of a highly-popular grocery promotion week we ran during the quarter to grow customer awareness of our expanding line of grocery items,» said Neil Cuggy, President and Chief Operating Officer of Goodfood. «Our gross profit reached a record CAD 30.6 million as a result of unlocked scale efficiencies, increased penetration of our delivery capabilities, and lower credits and incentives as a percentage of revenues. As we continue to enhance our operations across the country, we remain focused on building the optimal footprint of centralized production facilities and satellite fulfilment centres to enable faster delivery times and continued penetration coast-to-coast. We are exceptionally well positioned to benefit from the growing shift to e-commerce grocery and to provide an increasing part of Canadians’ food baskets,» concluded Cuggy.

Financial highlights

Three-month periods ended February 28, 2021 and February 29, 2020

(In thousands of CAD, except per share and percentage information)
For the three-month periods ended February 28, 2021 February 29, 2020 ($) (%)
Revenues CAD 100,654 CAD 58,790 CAD 41,864 71%
Cost of goods sold 70,018 40,974 29,044 71%
Gross profit CAD 30,636 CAD 17,816 CAD 12,820 72%
Gross margin 30.4% 30.3% N/A 0.1 pp
Selling, general and administrative expenses CAD 31,644 CAD 21,222 CAD 10,422 49%
Depreciation and amortization 2,353 1,066 1,287 121%
Net finance costs 540 218 322 148%
Net loss before income taxes (3,901 ) (4,690 ) 789 17%
Deferred income tax expense (recovery) 129 (1,330 ) 1,459 110%
Net loss, being comprehensive loss CAD (4,030 ) CAD (3,360 ) CAD (670 ) 20%
Basic and diluted loss per share CAD (0.06 ) CAD (0.06 ) CAD 0.00 0%
  • During the second quarter ended February 28, 2021, revenues continued to be favourably driven by the expansion of our product offering and the same day delivery option which is now available in the two largest metropolitan Canadian cities. In addition, the average basket size and order frequency combined with a larger subscriber base also contributed to increased revenues. The decrease in incentives and credits as a percentage of revenues from 17.3 percent to 13.7 percent due to an efficient marketing strategy also contributed to the increase in revenues.
  • Gross profit and gross margin increased during the three-month period ended February 28, 2021 compared to the same period last year due primarily to a decrease in incentives and credits as a percentage of revenues, lower unit costs for shipping and packaging, delivery options at a lower cost and improved agreements with key suppliers. This was partially offset by additional expenses resulting from a marketing promotion on grocery items and by supplemental costs related to the
    Covid-19 pandemic for additional production employees and other production costs such as personal protection equipment and sanitizers.
  • The increase in selling, general and administrative expenses is primarily due to higher wages and salaries as the Company continues to grow and expand its operations and product offerings across Canada. However, selling, general and administrative expenses as a percentage of revenues decreased from 36.1 percent to 31.4 percent, primarily resulting from a controlled decrease in marketing spend as a percentage of revenues.
  • The increase in depreciation and amortization expense is mainly due to the recognition of right-of-use assets from new facility lease agreements and related additions of leasehold improvements.
  • The increase in net finance costs is mainly due to a higher level of indebtedness arising from the issuance of convertible debentures at the end of the second quarter of Fiscal 2020, as well as higher lease obligations from the recognition of new facility lease agreements.
  • During the three-month period ended February 28, 2021, the Company recorded a deferred income tax expense related to the conversion of convertible debentures into common shares compared to a deferred income tax recovery recorded during the same period last year at the issuance of the convertible debentures.
  • The increase in net loss year-over-year is explained primarily by the deferred tax recovery that was recorded in the second quarter of Fiscal 2020 in connection with the issuance of the convertible debentures.

Six-month periods ended February 28, 2021 and February 29, 2020

(In thousands of CAD, except per share and percentage information)
For the six-month periods ended February 28, 2021 February 29, 2020 ($) (%)
Revenues CAD 192,081 CAD 115,081 CAD 77,000 67%
Cost of goods sold 131,872 81,046 50,826 63%
Gross profit CAD 60,209 CAD 34,035 CAD 26,174 77%
Gross margin 31.3% 29.6% N/A 1.7 pp
Selling, general and administrative expenses CAD 60,860 CAD 41,503 CAD 19,357 47%
Depreciation and amortization 4,447 2,059 2,388 116%
Net finance costs 1,215 315 900 286%
Net loss before income taxes (6,313 ) (9,842 ) 3,529 36%
Deferred income tax expense (recovery) 342 (1,330 ) 1,672 126%
Net loss, being comprehensive loss CAD (6,655 ) CAD (8,512 ) CAD 1,857 22%
Basic and diluted loss per share CAD (0.10 ) CAD (0.15 ) CAD 0.05 33%
  • The Company’s continued focus on its strategy to become Canada’s leading online grocer by increasing its product offering and flexibility for members through same day delivery impacted positively the average basket size and order frequency which, combined with a larger subscriber base, resulted in increased revenues. The decrease in incentives and credits as a percentage of revenues from 19 percent to 12.4 percent due to an efficient marketing strategy and low level of quality issues also contributed to the increase in revenues.
  • The increase in gross profit and gross margin primarily resulted from a decrease in incentives and credits as a percentage of revenues, lower unit costs for shipping and packaging explained by an increased density among the delivery zones, the expansion of our delivery capabilities and improved purchasing power with key suppliers. This was partially offset by additional expenses associated with a marketing promotion on grocery items as well as supplemental costs incurred directly related to the
    Covid-19 pandemic for additional production employees and other production costs such as personal protection equipment and sanitizers.
  • The increase in selling, general and administrative expenses is primarily due to higher wages and salaries resulting from the expansion of the management team and related administrative functions needed to support the Company’s growth and increase its product offering. However, selling, general and administrative expenses as a percentage of revenues decreased from 36.1 percent to 31.7 percent, primarily resulting from a controlled decrease in marketing spend as a percentage of revenues.
  • The increase in depreciation and amortization expense is mainly due to the recognition of right-of-use assets from new facility lease agreements and related additions of leasehold improvements.
  • The increase in net finance costs primarily related to interest expense resulting from a higher level of indebtedness in Fiscal 2021 due to the issuance of convertible debentures in February 2020, as well as higher lease obligations from the recognition of new facility lease agreements.
  • The deferred income tax expense relates to the reversal of recognized deferred tax assets relating to tax losses recorded in the second quarter of Fiscal 2020 resulting from the conversion of convertible debentures into common shares in the second quarter of Fiscal 2021. At the issuance of the convertible debentures, an income tax recovery of CAD 1.3 million was recorded. During the six-month period ended February 28, 2021, CAD 0.3 million was reversed upon conversion of certain convertible debentures.
  • The decrease in net loss is explained principally by higher revenues and gross profit, slightly offset by higher wages and salaries to support the growth of the business.

Adjusted Ebitda margin (1)

The reconciliation of net loss to Ebitda (1), adjusted Ebitda (1) and adjusted Ebitda margin (1) is as follows:

(In thousands of CAD, except percentage information)
Three-Month Six-Month
For the periods ended February 28, 2021 February 29, 2020 February 28, 2021 February 29, 2020
Net loss CAD (4,030 ) CAD (3,360 ) CAD (6,655 ) CAD (8,512 )
Net finance costs 540 218 1,215 315
Depreciation and amortization 2,353 1,066 4,447 2,059
Deferred income tax expense (recovery) 129 (1,330 ) 342 (1,330 )
Ebitda (1) CAD (1,008 ) CAD (3,406 ) CAD (651 ) CAD (7,468 )
Share-based payments 1,404 485 2,401 896
Restructuring costs 139 139
Adjusted Ebitda (1) CAD 535 CAD (2,921 ) CAD 1,889 CAD (6,572 )
Revenues CAD 100,654 CAD 58,790 CAD 192,081 CAD 115,081
Adjusted Ebitda margin (1) (%) 0.5% (5.0% ) 1.0% (5.7% )

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For the three and six-month periods ended February 28, 2021, adjusted Ebitda margin (1) improved by 5.5 percentage points and 6.7 percentage points, respectively, compared to the corresponding periods in 2020. For the three and six-month periods ended February 28, 2021, the increase in adjusted Ebitda margin (1) resulted in part from an improvement in gross margin, driven by a larger revenue base, a decrease in incentives and credits as a percentage of revenues as well as lower unit costs for shipping and packaging. In addition, the increase in our revenue base accelerated the operating leverage effect as selling, general and administrative expenses as a percentage of revenues decreased compared to the corresponding period in 2020 and is primarily explained by a controlled decrease of marketing spend as a percentage of revenues. The improvement in adjusted Ebitda margin (1) in the three and six-month periods ended February 28, 2021, was partially offset by additional expenses resulting from the launch of new product offerings, a marketing promotion on grocery items, and higher wages and salaries as the Company continues to grow its national footprint as well as additional costs incurred due to Covid-19.

Liquidity and capital resources

Net cash flows provided by operating activities increased by CAD 9.3 million to CAD 5.4 million for the second quarter ended February 28, 2021 compared to the same period last year, primarily due to favourable variance in change in non-cash operating working capital mainly explained by an increase in accounts payable and accrued liabilities and deferred revenues resulting from the timing of cash payments or receipts and partly offset by an increase in inventory resulting from the growth of the business, the opening of new facilities and the expansion of product offerings. The Company had a cash balance of CAD 163.0 million as at February 28, 2021.

Covid-19 impact and measures

The World Health Organization declared Covid-19 a global pandemic on March 11, 2020, and the outbreak has had an impact on Goodfood’s overall business and operations. As the Company is deemed an essential service in Canada, Goodfood has continued to operate without interruption.

Starting in the second half of Fiscal 2020, Goodfood experienced several positive impacts on its financial results related to the Covid-19 pandemic such as increased subscriber growth, number of orders and average order values, which positively impacted revenue and continued in the first half of Fiscal 2021, with the second wave of the Covid-19 pandemic across Canada. The Company incurred direct Covid-19 incremental costs of approximately CAD 0.7 million and CAD 1.6 million for the three and six-month periods ended February 28, 2021, respectively, consisting of additional production costs and temporary agency premiums.

The Company continues to follow precautionary measures at its facilities in addition to its already rigorous food safety standards to safeguard the health and safety of its employees as well as ensuring the quality of its products to its customers.

Financial Outlook

The online grocery industry is among the fastest growing industries in the world. As a result, Goodfood believes there are significant opportunities to rapidly grow its subscriber base and basket sizes by investing in highly targeted marketing campaigns, capacity expansion through additional facilities and investments in automation, increasing its product offering and in continuing to expand its national platform.

Goodfood’s strategy involves delaying in part short-term profitability in order to invest in generating long-term shareholder value creation, and also to continue improving its cost structure to achieve long-term margin and profitability goals. Growing Goodfood’s subscriber base and data, market share, scale and product offering will allow the Company to deliver greater value to its customers while attaining high returns on invested capital. As the Company grows its subscriber base, it is confident that it will achieve economies of scale and additional efficiencies which will lead to improvements in profitability while maintaining an unrivalled customer experience.

The Covid-19 pandemic has had an impact on Goodfood’s overall business and operations and has resulted in different levels of restrictions by government authorities. As an essential service in Canada, Goodfood has been operating throughout the pandemic and implemented increased safety protocols at its facilities to ensure the safety of its employees. The Company experienced an acceleration of growth in demand. Pressure on supply chains, inventory levels and increased operational costs or disruptions and labour shortages could increase depending on the duration and severity of the pandemic as well as any changes to Goodfood’s industry regulatory framework. The magnitude, duration, and severity of the Covid-19 pandemic are difficult to predict and could affect the significant estimates and judgements used in the preparation of the Company’s interim condensed consolidated financial statements.

As a result of the Covid-19 pandemic, the number of employees working remotely has increased significantly, which has also increased demands on information technology resources and systems and increased the risk of phishing and other cybersecurity attacks.

Objectives are based upon assumptions and are subject to risks and uncertainties, many of which are beyond our control. These risks and uncertainties could cause actual results to differ materially from objectives. See the “Forward-Looking Statements” and “Business Risk” sections of the MD&A for the second quarter ended February 28, 2021.