Alcanna Inc. (the “Company” or “Alcanna”) (TSX: CLIQ) today
reported its results for the fourth quarter and year ended December
31, 2019.
ANALYST AND INVESTOR CONFERENCE CALL
POSTPONED
In light of escalating developments concerning
the global impact of the novel coronavirus (COVID-19), the Alcanna
analyst and investor conference call originally scheduled for March
12, 2020 at 10:00 a.m. MT (12:00 p.m. ET) to discuss results for
the three months and year ended December 31, 2019 has been
postponed until further notice. The Company will be focusing on
assessing its response to the situation for the protection of its
employees and customers.
2019 FOURTH QUARTER
COMMENTARY
For the year ended December 31, 2019 Alcanna
achieved a 21.7% growth in total sales versus 2018. The fourth
quarter sales increase was 21.5% over Q4 in 2018. Gross margin
dollars for the year increased to $178.3 million – a 12.8% increase
from 2018.
“Alcanna continued on course throughout 2019
with an aggressive strategy begun in 2018 to regain and grow market
share in our core Alberta liquor business and to establish Nova
Cannabis as a leader in the Canadian cannabis retail industry and
we delivered on that strategy,” said James Burns Vice Chair and
CEO. “Starting with only a few discount stores at the beginning of
the year Alcanna ended 2019 as the largest discount banner in
Alberta with 92 locations. Over the course of the year Alcanna
opened 3 new large-format Wine and Beyond stores and essentially
completed our two-year accelerated plan to renovate our Alberta
liquor stores - ending the year with a refreshed network of stores
better positioned to compete over the long term in an intensely
competitive market. And finally, Alcanna began 2019 with five Nova
Cannabis retail locations in Alberta and now have thirty opened,
along with a highly successful entrance into the Ontario market
with a store in Toronto. With all of this accomplished, the Company
ends 2019 with our liquor CAPEX program largely behind us and in an
excellent position to return to turning sales into bottom-line
results.”
“In late 2019, the Company started to slowly but
successfully recalibrate margins in the Alberta liquor banners to
restore bottom line results. However, the positive results of this
recalibration initiative on gross margin percentage were more than
offset by the significant increase in robberies and thefts across
the Alberta liquor retail industry, a decision made in the fourth
quarter to slightly lower margins in our Liquor Depot banner to
reduce the gap in pricing compared to the discount banners, and the
higher than anticipated customer trade over from regular priced
items to promotional items during the holiday season, which we
attribute to the weak economic conditions and consumer and public
confidence in Alberta. Alcanna has been working closely with law
enforcement and the provincial government to address the increase
in robberies and thefts throughout the Alberta liquor retail
industry and anticipates a gradual reduction in these occurrences
throughout 2020 as a result of strategies initiated in late 2019
and into 2020. We have adjusted our promotional, merchandising and
buying strategies in early 2020 to address the changes in customer
buying patterns and we are aiming at improving our gross margin
percentages throughout 2020 as a result,” said Mr. Burns.
Fourth quarter and subsequent event
highlights:
- As of today, Alcanna has 30 Nova Cannabis retail stores
operating in Alberta, of which 12 opened in the fourth quarter of
2019, and another 7 opened in January 2020. Alcanna is poised
to expand Nova Cannabis into Ontario now that the Ontario
government has opened the licensing process and anticipates
constructing and opening 10 to 20 new stores in Ontario in 2020
dependant on finding excellent locations, the pace at which the
Ontario regulator can grant new licences, cannabis supply, and the
competitive environment.
- Same-store sales in Canadian liquor increased by 4.6% and total
liquor sales increased by 19.7% compared to Q4 2018.
- The third new Wine and Beyond store for 2019 opened in Red
Deer, Alberta on November 21, 2019. We are ready to expand Wine and
Beyond into 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.
- Alcanna made reductions to corporate overhead of approximately
$1 million annually in the fourth quarter, which is in addition to
the $2 million in annual savings made in the third
quarter.
- The consolidation of the management of the Company’s liquor
business is expected to provide further opportunities for overhead
reduction in 2020.
FINANCIAL RESULTS
(In thousands of Canadian dollars except per share amounts,
unaudited) |
Three months ended December 31 |
Year ended December 31 |
2019 |
|
2018 |
|
2019 |
|
2018 |
|
Sales |
231,991 |
|
190,899 |
|
801,742 |
|
658,931 |
|
Operating profit before amortization and provisions |
12,420 |
|
1,561 |
|
32,059 |
|
1,846 |
|
Net loss from continuing operations |
(14,290 |
) |
(151,306 |
) |
(32,574 |
) |
(158,330 |
) |
Basic and diluted loss per share from |
|
|
|
|
from continuing operations |
(0.35 |
) |
(4.08 |
) |
(0.83 |
) |
(4.48 |
) |
|
|
|
|
|
As adjusted1: |
|
|
|
|
Operating profit before amortization and provisions |
12,420 |
|
1,561 |
|
34,593 |
|
8,353 |
|
Net earnings (loss) from continuing operations |
(14,290 |
) |
873 |
|
(30,668 |
) |
356 |
|
Basic and diluted loss per share from continuing operations |
(0.35 |
) |
0.02 |
|
(0.78 |
) |
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 and
provisions, which is disclosed in the audited consolidated
financial statements for the year ended December 31, 2019 and 2018
and discussed further in the Company’s Management’s Discussion and
Analysis for the three months and year ended December 31, 2019.
The adoption of IFRS 16 results in a significant
increase in operating profit before amortization and provisions in
2019 which may not provide for a meaningful comparison to 2018
given that the comparatives for 2018 have not been restated. For
the year ended December 31, 2019, the adoption of IFRS 16 resulted
in the recognition of depreciation expense related to
right-of-use-assets of $18.1 million, lease liability interest
charge of $19.2 million a reduction to rent expense of $35.9
million and a lease remeasurement expense of $0.3 million. For the
three-month period ended December 31, 2019, the adoption of IFRS 16
resulted in the recognition of depreciation expense related to
right-of-use-assets of $4.6 million, lease liability interest
charge of $5.1 million, a reduction to rent expense of $9.6
million, and a lease remeasurement expense of $1.7 million.
Sales in Q4 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, one (1) that opened in Q3
2019 and twelve (12) that opened in Q4 2019.
- Opening two (2) new Wine and Beyond stores in Q2 2019, one (1)
convenience format store in Q2 2019, two (2) new convenience format
stores in Q3 2019, one (1) new Wine and Beyond store in Q4 2019 one
(1) convenience format store in Q4 2019.
- These increases were offset by the closure of seven (7)
convenience-format stores and five (5) discount banner stores since
September 30, 2018 along with a reduction in Canadian wholesale
sales as the Company has stopped extending credit terms and
delivery services to licensee/wholesale customers in October 2019
as this business offering required high investment in capital
assets and people, with low return.
Net loss from continuing operations during the
fourth quarter of 2019 compared to fourth quarter of 2018 decreased
primarily as a result of the goodwill impairment recorded in
2018.
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 255 locations in Alberta, British
Columbia and Alaska. 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. With
revenues in excess of $800 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; its strategy to reduce thefts and
robberies in its liquor stores; changes in buying strategies to
meet changing consumer demands; the potential expansion of Nova
Cannabis and Wine and Beyond into Ontario; and the impact of
changes to the management of its liquor division on overhead
reduction.
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 Adjusted operating profit before amortization
and provisions, adjusted net loss 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 months and year ended December 31, 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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