Fire & Flower Holdings Corp. FAF FFLWFReport itsFinancial and operational results for fiscal year and fourth quarter ended January 29, 20,22
The company’s shares traded down 10% Tuesday following the earnings report’s release, closing at $2.8001 per share.
The results were below FactSet consensus. Same-store sales are down 30% YoY, and retail gross margins are down quarter-overquarter to 26% from 30%.
The Analyst
Cantor Fitzgerald’s analyst Pablo Zuanic retained an overweight rating on the company’s stock after the quarterly numbers but lowered the price target to CA$9.5 ($7.44) from CA$10.4.
The Thesis
The move is complete Zuanic addressed reduced estimates and an overall “tougher retail environment”In his most recent note.
The company reported 32 new stores opening during the fiscal year. However, 105 stores were open and operational at the end of the fiscal year. More competition among retailersAs a result,,Retail margins are falling, explained the analyst.
“We expect the company’s profit margins to drop further – direct peers pursuing a value/discount strategy are in the mid/high teens – as the company expands its own discount loyalty program,” said Zuanic who
earlier noted that “the retail segment remains fragmented, in addition to a crowded market with decreasing margins.” He called it a situation that “will likely lead to consolidation (M&A, attrition).”
ZuanicIn November, Fire & Flower was covered.
“We see an opportunity with Canada’s largest cannabis retail chains (operating in a market that we project will potentially double to $8 billion by 2024), as these Stocks are undervalued in comparison to domestic producers (1-2x CY22E sales vs. 5-15x), in our view, and trade at a steep discount to U.S. retail staple peers on a growth-adjusted basis (operating in rather matured industries, those trade at 1x),” Zuanic said at the time.
Alimentation Couche-Tard Partnership
The analyst also stressed recently that the company’s Alimentation Couche-Tard Inc. ANCTF This will allow for a significant footprint growth over time and minimal investment. FAF and Couche-Tard launched a pilot program for Fire & Flower co-located cannabis shops adjacent to Circle-K in October.
The company was sold shortly thereafter. $30 million in financing was secured through a loan agreement with the 2707031 Ontario Inc.ACT’s indirect wholly-owned subsidiary.
Last week ATC confirmed that it intends to exercise warrants for 8.29 million common stock of Fire & Flower. ACT will convert its Series B warrants on Thursday, April 28, resulting in the Common shares in Fire & Flower increasing by approximately 14.49% to around 35.32%
The proceeds were meant to fund further development of the company’s consumer digital platform as well as for general corporate purposes. Zuanic believes that ATC will convert its Series C warrants in the second quarter of 2023.
“By co-locating mini cannabis stores within Circle K stores, We expect the company’s top-line growth.,” he said, adding that Fire & Flower intends to open 20 stores in the 2023 fiscal year and “do so in an asset-light manner.”
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