Alcanna Inc. (the “Company” or “Alcanna”) (TSX: CLIQ) today
reported its results for the three and nine months ended September
30, 2019.
The Company achieved 26.6% growth in total sales
compared to the third quarter of 2018 and same-store sales growth
of 4.9% in its core Canadian liquor retail business. This marks the
fourth straight quarter of strong market share gains by
Alcanna.
“We continue to execute our strategy according
to plan in the third quarter. Regaining and growing market share in
our core Alberta liquor business and beginning to carefully raise
margins as we said we would,” said James Burns CEO. “Margin
enhancements are continuing in the fourth quarter and we are on
track for enhanced profitability in 2020 according to plan. Our
Alberta liquor business continued to face headwinds in Q3 as a
result of one of the coldest and wettest summers in decades, the
soft Alberta economy, intense competition, and rising thefts and
robberies in our stores. However, despite these factors, our
results are coming in as planned and predicted and we believe that
sticking to the plan we launched a year ago remains the best way to
maximize earnings and to enhance shareholder value.”
Alcanna’s Nova Cannabis brand generated $36.1
million in sales between October 17, 2018 and September 30, 2019 –
for much of that period with only 6 stores open. Nova
Cannabis sales for the three months ended September 30, 2019 were
$12.9 million with gross margins of 28.6%.
“Our Nova Cannabis stores are showing average
sales per store which are higher compared to most of those publicly
disclosed by other Canadian retailers. This confirms what we have
been saying since before legalization. While many companies new to
the retail industry opened stores anywhere they could obtain a
lease in a race to be a “first mover” in Cannabis retail, Alcanna
prudently leased Class A sites with the objective of building a
sustainable long-term business in great locations where people
actually shop,” said Mr. Burns.
Third quarter and subsequent event highlights:
- With supply shortages no longer an issue, Alcanna now has 14
Nova Cannabis stores licensed in Alberta and is in the final stages
of construction and inspection/licensing on a further 14. We expect
to have 30 licensed and operating in Alberta by year-end (or
shortly thereafter depending on regulatory delays due to the
holiday season). Alcanna is poised to expand Nova Cannabis rapidly
into Ontario if the Ontario government reverts to an open market as
anticipated in early 2020. Our Queen Street West store in Toronto
continues to show sales of approximately $400,000 - $500,000
per week.
- Same-store sales in Canadian liquor have increased by 4.9% and
total company liquor sales have increased by 19.2%. Towards the end
of Q3 2019 the focus shifted to enhancing margin and capitalizing
on our increased market share. To date margin increases have been
realised with no impact on market share and customer count.
- Alcanna made reductions to corporate overhead of approximately
$2.0 million annually in the third quarter and intends to cut a
further $2.0 million in annual spend in the fourth quarter.
Management changes with respect to how the Company’s banners are
operated will provide further opportunities for overhead reduction
in Q1 2020.
- The third new Wine and Beyond store for 2019 has been built in
Red Deer, Alberta and is scheduled to open on November 21, 2019. We
are ready to expand Wine and Beyond in 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.
FINANCIAL RESULTS
(In thousands of Canadian dollars |
Three months ended September 30 |
Nine months ended September 30 |
except per share amounts, unaudited) |
2019 |
2018 |
2019 |
2018 |
Sales |
219,504 |
173,349 |
569,751 |
468,032 |
Operating profit before amortization |
12,319 |
788 |
21,086 |
285 |
Net loss from continuing operations |
(3,031) |
(3,977) |
(18,284) |
(7,024) |
Basic and diluted loss per share from continuing operations |
(0.09) |
(0.11) |
(0.48) |
(0.20) |
|
|
|
|
|
As adjusted1: |
|
|
|
|
Operating profit before amortization |
14,853 |
2,859 |
23,620 |
6,792 |
Net loss from continuing operations |
(1,076) |
(2,451) |
(16,329) |
(2,228) |
Basic and diluted loss per share from continuing operations |
(0.04) |
(0.07) |
(0.43) |
(0.07) |
1 Adjusted operating profit before amortization,
adjusted net (loss) earnings 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 and nine months ended September 30,
2019, which is available on the Company’s website
(www.alcanna.ca/investors) and on the SEDAR website
(www.sedar.com).
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, which is
disclosed in the unaudited Condensed Interim Consolidated Financial
Statements for the three and nine months ended September 30, 2019
and 2018 and discussed further in the Company’s Management’s
Discussion and Analysis for the three and nine months ended
September 30, 2019.
The adoption of IFRS 16 results in a significant
increase in operating profit (loss) before amortization in 2019
which may not provide for a meaningful comparison to 2018 given
that the comparatives for 2018 have not been restated. For the nine
month period ended September 30, 2019, the adoption of IFRS 16
resulted in the recognition of depreciation expense related to
right-of-use-assets of $13.4 million, lease liability interest
charge of $14.1 million and a reduction to rent expense of $26.3
million. For the three-month period ended September 30, 2019, the
adoption of IFRS 16 resulted in the recognition of depreciation
expense related to right-of-use-assets of $4.9 million, lease
liability interest charge of $5.1 million and a reduction to rent
expense of $8.6 million.
Sales in Q3 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, and one (1) that opened in
Q3 2019.
- Opening two (2) new Wine and Beyond stores in Q2 2019, one (1)
convenience format store in Q2 2019, and two (2) new convenience
format stores in Q3 2019.
- These increases were offset by the closure of seventeen (17)
convenience-format stores since June 30, 2018, and a reduction in
Canadian wholesale sales by $1.5 million as part of a deliberate
attempt to lower the Company’s exposure to low margin, high credit
risk bar and restaurant customers. In October 2019, the
Company sold its wholesale customer list and has exited this
service offering as it required high investment in capital assets
and people, with low return.
Net loss from continuing operations during the
third quarter of 2019 compared to third quarter of 2018 decreased
as a result of the increase in operating profit from the additional
new liquor and cannabis stores, which was partially offset by the
strategic decision to recalibrate pricing to regain market
share.
CONFERENCE CALL
Alcanna Inc. will host an analyst and investor
conference call on November 15, 2019 to discuss results for the
three and nine months ended September 30, 2019. The
conference call will take place at 10:00 a.m. MT (12:00 p.m.
ET).
To participate in the call, please dial (416)
340-2216 or toll-free (800) 273-9672. An archived recording of the
conference call will be available approximately one hour after the
completion of the call, by dialling: (905) 694-9451 or toll-free
access: (800) 408-3053. The required passcode is: 5420415.
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 258 locations in Alberta, British
Columbia and Alaska. The Company also operates 11 cannabis retail
stores under the “Nova Cannabis” brand, with 10 locations in the
Province of Alberta and one in the Province of Ontario. With
revenues in excess of $700 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.
Additional information about Alcanna Inc. is
available at www.sedar.com and the Company’s website at
www.alcanna.com.
FORWARD-LOOKING STATEMENTS
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.
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
David GordeyExecutive Vice President and Chief
Financial OfficerAlcanna Inc. (780) 497-3262
Alcanna (TSX:CLIQ)
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