Alcanna Inc. (the “Company” or “Alcanna”) (TSX: CLIQ) today
reported its results for the three and six months ended June 30,
2019.
The Company achieved 20.9% growth in sales
versus the second quarter of 2018 and same-store sales growth of
8.2% in its core Canadian liquor retail business. This marks the
third straight quarter of strong market share gains by
Alcanna.
“Alcanna continued to participate in the Alberta
market with lower gross margin percentage to regain market share
lost to competitors in past years by not adapting to the realities
of a changing industry. Once a strong customer base is
re-established, margins can be carefully managed to restore bottom
line results,” said James Burns, Vice Chair and CEO. “Alcanna’s
announced strategy for 2019 has been to first regain market share
and then selectively begin margin enhancement in Q3/Q4 2019.”
“We continue to target 2020 to have the Alberta
liquor business in a position to return to strong positive cash
flows. Our growth in both total sales and same-store sales reflects
the successful execution of our strategy to grow market share both
for our existing stores and trade areas as well as invest in new
markets,” said Mr. Burns.
Second quarter highlights:
- The Canadian Liquor Retailers
Alliance (the “Alliance”) acquired the underlying assets of
twenty-eight (28) operational liquor stores operating as ‘Solo
Liquor’, two (2) additional leased locations that have not been
built out or opened yet, and the “Solo Liquor” brand and related
trademarks from FTI Consulting Canada Inc., in its capacity as
court-appointed receiver of Solo Liquor. The Alliance paid cash
consideration of $15.0 million, which was funded by the Company’s
credit facility. The Alliance now owns and operates ninety-three
(93) discount liquor stores in Alberta making it the market leader
in the province.
- Two (2) new Wine and Beyond stores
opened in May 2019 in Lethbridge and St. Albert, Alberta.
- In April 2019 a Nova Cannabis
retail store opened on Queen Street West in Toronto, Ontario
pursuant to an agreement with one of the five successful Toronto
license lottery winners. Sales started strongly and have continued
to grow steadily from there - now averaging $450,000 per week,
which makes Nova Queen Street the highest volume store of all our
two hundred sixty-one (261) locations at this time.
- In May 2019, we opened three (3)
new Nova Cannabis retail stores in Edmonton, Sherwood Park and
Whitecourt, Alberta bringing the total in Alberta to eight (8). We
received an additional license for Grande Prairie, Alberta in July
2019 which we anticipate opening in August 2019.
- Implementation continued on track
for a new enterprise resource planning system that will improve
business operations, enhance inventory management and procurement
to further reduce capital invested in inventory, enhance internal
data management, create significant insight into customer shopping
behavior, and provide a scalable growth platform. The
implementation cost is estimated to be between $3.0 million to $5.0
million over the next 12 months.
- A new Wine and Beyond store for Red
Deer, Alberta is under construction with opening forecast for Q4
2019. We are ready to expand Wine and Beyond in Ontario if the
Ontario government’s reform of liquor retail, expected to be
announced this fall, permits the private retailing of alcohol on a
basis similar to Alberta, which would allow an appropriate return
on capital.
- Additional cannabis stores are
under construction with a goal to have fifteen (15) to twenty (20)
additional retail cannabis locations ready to open in Alberta by
the end of 2019 subject to receiving licences.
“Alcanna’s financial position remains strong and
we will continue to use that strength to our best advantage. We are
well underway to achieving our objective to turn the strong balance
sheet we created in 2018 into a strong income statement in a
transformed business with a solid foundation for long-term growth
and value appreciation. The business model once successful for the
former Liquor Stores N.A. Ltd. had to change - and it is changing.
Alcanna is on the path to becoming a dynamic growth-oriented
business,” said Mr. Burns.
FINANCIAL RESULTS
(In thousands of Canadian dollars except per share amounts,
unaudited) |
Three months ended June 30 |
|
Six months ended June 30 |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
Sales |
200,264 |
|
165,599 |
|
350,247 |
|
294,683 |
|
Operating profit (loss) before amortization |
7,888 |
|
1,786 |
|
8,767 |
|
(503 |
) |
Net loss from continuing operations |
(5,958 |
) |
(1,221 |
) |
(15,253 |
) |
(3,047 |
) |
Basic and diluted loss per share from continuing operations |
(0.15 |
) |
(0.04 |
) |
(0.39 |
) |
(0.09 |
) |
|
|
|
|
|
As adjusted1: |
|
|
|
|
Operating profit before amortization |
7,888 |
|
6,132 |
|
8,767 |
|
3,933 |
|
Net (loss) earnings from continuing operations |
(5,958 |
) |
1,982 |
|
(15,253 |
) |
222 |
|
Basic and diluted (loss) earnings per share from continuing
operations |
(0.15 |
) |
0.05 |
|
(0.39 |
) |
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, which is
disclosed in the unaudited Condensed Interim Consolidated Financial
Statements for the three and six months ended June 30, 2019 and
2018 and discussed further in the Company’s Management’s,
Discussion and Analysis for the three and six months ended June 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 six
month period ended June 30, 2019, the adoption of IFRS 16 resulted
in the recognition of depreciation expense related to
right-of-use-assets of $8.5 million, lease liability interest
charge of $9.0 million and a reduction to rent expense of $17.7
million. For the three month period ended June 30, 2019, the
adoption of IFRS 16 resulted in the recognition of depreciation
expense related to right-of-use-assets of $4.3 million, lease
liability interest charge of $4.6 million and a reduction to rent
expense of $8.7 million.
Sales in Q2 2019 were positively impacted
compared to the same period in the prior year by:
- The acquisition of thirteen (13) 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, and four (4) that opened in Q2 2019.
- A shift in the timing of Easter in 2019 compared to 2018 had a
positive impact on Canadian same-store sales in Q2 2019, which we
estimate to be approximately 1.2% when compared to Q2 2018.
- These increases were offset by the closure of fifteen (15)
convenience stores since March 31, 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.
Net loss from continuing operations during the
second quarter of 2019 compared to second quarter of 2018 was
impacted primarily by increased operating expenses related to the
new Cannabis division, an increased number of liquor stores, an
increase in labour costs in the Liquor division as a result of
increases in minimum wage in Alberta and British Columbia in 2018,
and investments in the shared services team to support the growing
and transitioning company.
CONFERENCE CALL
Alcanna Inc. will host an analyst and investor
conference call on August 9, 2019 to discuss results for the three
and six months ended June 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: 6146693.
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 261 locations in Alberta, British
Columbia and Alaska. The Company also operates 9 cannabis retail
stores under the “Nova Cannabis” brand, with 8 locations in the
Province of Alberta and one 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
____________________________
1 Same-store sales, 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 six months ended June
30, 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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