Alcanna Inc. (the “Company” or “Alcanna”) (TSX: CLIQ) today
reported its unaudited financial results for the three months ended
March 31, 2020 and announced the sale of the Company’s Alaska
operations.
First Quarter Financial Results and
Business Update
During the first quarter of 2020, Alcanna
continued to show significant growth over the prior year with total
Company sales from continuing operations up 28.1% and total gross
margin up 28.7%. Canadian same-store liquor sales for the
first quarter of 2020 were up 10.7%, which marks the sixth straight
quarter of strong market share gains by Alcanna. Cannabis sales
also increased by $9.3 million over the first quarter in the prior
year, or 144.6%.
Alcanna’s liquor and cannabis stores in all
regions experienced significantly higher than normal sales during
the last three weeks of March 2020, which coincided with the World
Health Organization's characterization of COVID-19 as a pandemic.
This “stockpiling” buying subsided once customers were assured by
provincial and state governments that liquor and cannabis stores
were being classified as essential services and would remain open.
Nonetheless, Canadian same-store liquor sales to date for the first
two months of the second quarter continue to be strong, trending
approximately 12% higher compared to the same period last
year.
Alcanna believes this continuing stronger than
expected sales growth is primarily the result of the forced closure
of on-premise alcohol establishments such as bars,
restaurants and lounges, and the resulting shift of customer
consumption habits to people staying and dining at home, and now
the mass gathering and social distancing restrictions on these
establishments as they begin to reopen. We believe these new
consumer behaviour patterns will continue for the foreseeable
future with on-premise locations being allowed only restricted
operations and many consumers being uncomfortable in confined
public places as long as the COVID-19 threat remains.
Margin improvement continued through the first
two months of the second quarter with a reduction of promotional
activities, the continued integration of the Company’s revised
buying program, and integration of the new liquor business
operations team.
Highlights
- Total liquor division sales increased by 21.9% which is
primarily attributable to the increase in same-store sales, the
acquisition of Ace Liquor and Solo Liquor in 2019, and the opening
of three new Wine and Beyond store locations in 2019. Same store
sales were 10.7% higher in Q1 2020 and have continued that trend
through Q2 to date.
- The Company continued to slowly and carefully recalibrate
margins in the Alberta liquor banners in the first quarter of
2020. Every year in liquor retail there is a significant
shift in sales mix between beer, wine and spirits, as well as
between value and premium products in the first quarter of the year
compared to the holiday season fourth quarter. While the blended
margin for Q1 2020 is comparable to Q4 2019, this was largely due
to the traditionally softer January and February period. The gross
margin by the end of March was higher and continues to grow through
the second quarter.
- Alcanna now has 31 Nova Cannabis stores licensed and opened
(Alberta: 30; Ontario: 1), of which nine (9) opened in Q1 2020,
resulting in a 144.6% increase in cannabis sales compared to Q1
2019. The gross margin as a percentage of sales in the
cannabis division was 32.5% in Q1 2020, an increase from 23.6% in
the prior year, primarily as a result of managing cannabis
inventories strategically to carry products that are in high
customer demand.
- The loss before income taxes in the first quarter of 2020 was
reduced by 49% compared to Q1 2019 as a result of the increase in
sales and margin, improved labour management at the store level,
and initiatives the Company implemented in Q3/Q4 2019 to reduce
corporate overheads and create efficiencies from integrating
banners and reducing duplicative overheads.
Sale of the Company’s Alaska
Operations
Effective June 1, 2020, the Company entered into
a definitive stock purchase agreement (the
“Agreement”), and simultaneously sold the
shares of its indirect wholly-owned subsidiary, Liquor Stores USA
North Inc., which owns and operates the Brown Jug banner of
twenty-one (21) retail liquor stores and one (1) distribution
centre (the “Alaska Operations”), to a subsidiary
of Afognak Native Corporation (“Afognak”)
(collectively, the “Transaction”). Under the terms
of the Agreement, total cash proceeds are expected to be
approximately US$21.4 million (approximately CAD$29.1 million at
current exchange rates), subject to a retention amount of US$1.3
million (CAD$1.8 million) which is payable by Afognak to Alcanna at
certain intervals over the next twelve (12) months upon the
finalization of the working capital adjustment and subject to
potential contingencies related to the Transaction. Closing costs
for the Transaction are estimated to be approximately US$0.7
million (CAD$0.9 million).
The proceeds from the Transaction will be used
by Alcanna for debt reduction, new investment in its Canadian
liquor and cannabis retail businesses and for general corporate
purposes. The Alaska Operations contributed approximately US$2.4
million to Alcanna’s earnings before income taxes in 2019 after
adjusting for directly attributable corporate overhead. In the
interim financial statements and the management discussion and
analysis (the “MD&A”) for the three months
ended March 31, 2020 and in this press release, the results of the
Alaska Operations have been classified as discontinued operations,
and the related assets and liabilities have been presented as held
for sale as at March 31, 2020.
“Brown Jug has been a steady business for
Alcanna for many years but we believe it requires significant
capital expenditures to maintain its market position,” said James
Burns, Vice Chair and CEO of Alcanna. “These capital investments
could exceed the cash the Alaska Operations generates over the next
several years. Alcanna believes that capital would be better
allocated to growth opportunities here in Canada such as expanding
our Wine and Beyond banner into British Columbia, filling in the
few remaining trade area gaps for Wine and Beyond in Alberta,
expanding Nova Cannabis into Ontario, and being prepared for other
provinces, such as Ontario, to possibly open liquor retail to
private sector participants are better allocations of capital for
our shareholders.”
Afognak is an Alaska Native Corporation formed
under the 1971 Alaska Native Claims Settlement Act and through the
1977 merger of two Alaska Native village corporations. Today,
Afognak and its subsidiaries have over 4,000 employees in nearly
all 50 states of America as well as other countries worldwide. It
provides a variety of contract services to the federal government
and private business.
“It was important to Alcanna that if we sold our
Alaska business, it was to a responsible buyer with the financial
resources and corporate aspirations to take the business to the
next level. Afognak met those criteria extremely well. We have had
a tremendous team of people in the office and out in the stores in
Alaska and we believe that Afognak will be an excellent owner of
Brown Jug – Alaska’s oldest liquor retailer that has been in
business for 83 years,” continued Mr. Burns. “Brown Jug is a
ubiquitous brand in Anchorage, Wasilla and Fairbanks which Alaskans
refer to simply 'The Jug'. Having it returned to local ownership
with a growth objective is a great thing for Brown Jug and its team
and provides Alcanna with significant financial flexibility to
invest in opportunities closer to home.”
FINANCIAL RESULTS
(In thousands of Canadian dollars except per share amounts,
unaudited) |
Three months ended March 31 |
2020 |
|
2019 (restated)(i) |
Sales |
162,117 |
|
126,515 |
|
Operating profit before amortization and provisions |
7,703 |
|
(659 |
) |
Net loss from continuing operations |
(6,522 |
) |
(9,425 |
) |
Basic and diluted loss per share from |
|
|
from continuing operations |
(0.16 |
) |
(0.24 |
) |
i) The financial results for the three months ended March
31, 2020 have been restated to exclude the results of the Alaska
Operations, which have been classified as discontinued
operations.
CONFERENCE CALL
Alcanna Inc. will host an analyst and investor
conference call on June 2, 2020 to discuss the unaudited financial
results for the three months ended March 31, 2020 and the sale of
the Alaska Operations. The conference call will take place at 10:00
a.m. M.T.
To participate in the call, please dial (416)
340-2216 or toll-free (800) 273-9672. The required service
confirmation number is: 4328661. An archived recording of the
conference call will be available approximately 3 – 5 business days
after the completion of the call, by dialling: (905) 694-9451 or
Toll-Free Access: (800) 408-3053. The required passcode is:
7654213#.
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 231 locations in Alberta and British
Columbia. The Company also operates 31 cannabis retail stores under
the “Nova Cannabis” brand, with 30 locations in the Province of
Alberta and one in the Province of Ontario.
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, and the impact that COVID-19 may have
on sales and customer shopping habits in the future.
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 grow its
cannabis retail store locations and enhance profitability of its
liquor business, and assumptions about the COVID-19 pandemic and
the impact it might have on the economies in the jurisdictions that
the Company operates in.
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, especially given the unprecedented uncertainty of the
full extent and impact of COVID-19, 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 duration and severity of the COVID-19 pandemic on the
business, operations and financial condition of the Company; the
risk that Alcanna will be unable to execute its strategic plan and
growth strategy, including the capital allocation and retail
cannabis strategy, as planned without significant adverse impacts
from various factors beyond its 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), 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
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