Goodfood Market: Revenue up 62 percent in Q1-2021

Montreal / CA. (gfc) Goodfood Market Corporation , a leading online grocery company in Canada, announced strong financial results for the first quarter ended November 30, 2020, highlighting its continued ability to achieve strong growth while enhancing its profitability. Summary:

  • Revenues reached CAD 91.4 million in the first quarter of Fiscal 2021, an increase of CAD 35.1 million, or 62 percent compared to the same period last year
  • Gross margin for the quarter reached 32.3 percent, an improvement of 3.5 percentage points, and gross profit was CAD 29.6 million, an increase of CAD 13.4 million, or 82 percent year-over-year
  • Goodfood reported positive Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (Ebitda) with a 1.5 percent margin in the first quarter, representing an improvement of 8.0 percentage points year-over-year
  • Net loss was CAD 2.6 million, an improvement of CAD 2.5 million compared to the same period in Fiscal 2020, resulting in net loss per share of CAD 0.04
  • Quarterly cash flow from operating activities was CAD 2.1 million, an improvement of
    CAD 0.7 million compared to the same period last year, and Goodfood ended the quarter with a strong cash balance of CAD 104.1 million
  • Active subscribers reached 306,000 as at November 30, 2020, an increase of 76,000, or 33 percent, compared to November 30, 2019
«We are thrilled that Fiscal 2021 has started with strong momentum highlighted by revenue growth of over 60 percent and the addition of 26,000 net new subscribers . We continue to further expand our product offering, which now stands at well over 500 products, and roll out initiatives such as same-day delivery to enhance customer value,» said Jonathan Ferrari, Chief Executive Officer of Goodfood. «Our ability to generate strong growth on a larger base of members and revenues combined with these initiatives has enabled bigger basket sizes and stronger order frequency which in turn has led to stronger margin levels and positive Adjusted Ebitda . As Canadians continue to adopt online grocery at an accelerating pace, we will continue to invest in technology and our fulfilment centre ecosystem in order to cement Goodfood’s leading role in digitizing Canada’s grocery industry,» concluded Ferrari.

«We are very pleased to report consistent expansion in gross margin which is now among the best in the Canadian grocery industry on the back of our consistently solid execution and investments in technology and automation. The strong performance of key metrics comes as a result of a sustained investment in and enhancement of our operations coupled with our ability to grow Goodfood’s topline. This allows us to unlock scale efficiencies and demonstrate clear operating leverage despite investing significantly in our product offering and incurring incremental costs related to Covid-19 safety measures,» said Neil Cuggy, President and Chief Operating Officer of Goodfood. «As we continue to build and optimize our footprint across the country, we remain focused on growing our penetration in online grocery coast-to-coast to build the long-term scale to achieve our growth and profitability goals. With our healthy capital position and our continued investments in new capabilities and automation, we are exceptionally well positioned to benefit from the growing online grocery trends and to fulfill an increasing part of Canadians’ grocery baskets,” concluded Cuggy.

Financial highlights

Results of operations – three-month periods ended November 30, 2020 and 2019

The following table sets forth the components of the Company’s interim condensed consolidated statements of loss and comprehensive loss (in thousands of CAD, except per share and percentage information):

For the three-month periods ended November 30 … 2020 2019 (CAD) (%) (2)
Revenues CAD 91,427 CAD 56,291 CAD 35,136 62 %
Cost of goods sold 61,854 40,072 (21,782 ) 54 %
Gross profit CAD 29,573 CAD 16,219 CAD 13,354 82 %
Gross margin 32.3 % 28.8 % N/A 3.5 pp
Selling, general and administrative expenses CAD 29,216 CAD 20,281 CAD (8,935 ) 44 %
Depreciation and amortization 2,094 993 (1,101 ) 111 %
Net finance costs 675 97 (578 ) 596 %
Net loss before income taxes (2,412 ) (5,152 ) 2,740 53 %
Deferred income tax expense 213 213
Net loss, being comprehensive loss CAD (2,625 ) CAD (5,152 ) CAD 2,527 49 %
Basic loss per share CAD (0.04 ) CAD (0.09 ) CAD 0.05 56 %
Diluted loss per share CAD (0.04 ) CAD (0.09 ) CAD 0.05 56 %
  • 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 (3) base, resulted in increased revenues. The decrease in incentives and credits as a percentage of revenues from 20.9 percent to 10.8 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 packaging and shipping explained by an increased density among the delivery zones, the expansion of our delivery capabilities and improved purchasing power with key suppliers. This was offset by 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 as the Company continues to grow and expand its operations and product offerings across Canada. Selling, general and administrative expenses as a percentage of revenues decreased from 36.0 percent to 32.0 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 in the second quarter of Fiscal 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 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 first quarter of Fiscal 2021.
  • 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.

(1) A positive variance represents an increase in net income or a decrease in net loss and a negative variance represents a decrease in net income or an increase in net loss.
(2) Percentage change is presented in absolute values.

Net Loss, Ebitda, Adjusted Ebitda and Adjusted Ebitda Margin

(In thousands of Canadian Dollars, except percentage information)

For the three-month periods ended November 30 … 2020 2019
Net loss CAD (2,625 ) CAD (5,152 )
Net finance costs 675 97
Depreciation and amortization 2,094 993
Deferred income tax expense 213
Ebitda CAD 357 CAD (4,062 )
Share-based payments 997 411
Adjusted Ebitda CAD 1,354 CAD (3,651 )
Revenues CAD 91,427 CAD 56,291
Adjusted Ebitda margin (%) 1.5 % (6.5 %)

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For the three-month period ended November 30, 2020, adjusted Ebitda margin improved by 8.0 percentage points, compared to the corresponding period in 2019. The increase in adjusted Ebitda margin resulted primarily from an improvement in gross margin of 3.5 percentage points driven by a larger revenue base, a decrease in incentives and credits as a percentage of revenues from 20.9 percent to 10.8 percent, and lower unit costs for packaging and shipping. 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 from 36.0 percent to 32.0 percent, primarily explained by a decrease of marketing spend as a percentage of revenues. The improvement in adjusted Ebitda margin was partially offset by additional expenses resulting from the launch of new product offerings, 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 0.7 million to CAD 2.1 million for the quarter ended November 30, 2020 compared to the same period last year, primarily due to the improvement of net loss, 2020, offset by an unfavorable variance in change in non-cash operating working capital mainly explained by an increase in inventory resulting from the growth of the business, the opening of new facilities and the expansion of product offerings.
As at November 30, 2020, the Company had CAD 104.1 million in cash and cash equivalents.

Covid-19 impact and measures

The global pandemic 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.

In the first quarter of Fiscal 2021, Goodfood continued to experience positive impacts on its financial results related to the second wave of the Covid-19 pandemic across Canada, such as continued subscriber growth, number of orders and average order values, which positively impacted revenues. The Company incurred direct Covid-19 incremental costs of approximately CAD 0.9 million for the three-month period ended November 30, 2020, consisting of additional production costs and temporary agency premiums (but do not include the cost of standard hourly wages).

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 continue 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, 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. As an essential service in Canada, Goodfood has been operating throughout the pandemic and experienced an acceleration of growth in demand. Pressure on supply chains, inventory levels and increased operational costs or disruptions and labor 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.