Nova Announces Second Quarter 2022 Results
Second quarter sales growth of 90%, gross margin growth of 105%, and positive operating profit
EDMONTON, AB, Aug. 11, 2022 /CNW/ – Nova Cannabis Inc. (the “Company” or “Nova”) (TSX: NOVC) today released its unaudited condensed interim consolidated financial statements (the “interim financial statements”) and management’s discussion and analysis (“MD&A”) for the three months ended June 30, 2022. All financial information in this press release is reported in millions of Canadian dollars and represents results from continuing operations, unless otherwise indicated.
The performance of our Value Buds stores continues to outpace the growth of the industry as we reported record sales for the second quarter of 2022, underpinned by equally strong sales and gross margin growth that is driving greater operating leverage to the bottom line.
Marcie Kiziak, CEO of Nova
Delivering superior value to cannabis consumers will become increasingly important in the current economic environment, and Value Buds is purpose built for this. We will stay the course by being disciplined in how we expand our footprint, remaining customer focused and choosing the best real estate for our strategy, whether through acquiring stores or building our own.
- Record sales of $56.3 million, a 90% increase from the second quarter of 2021, and a 13% increase from the first quarter of 2022.
- Gross margin of $10.6 million, or 19% of sales, a 105% increase from the second quarter of 2021 and consistent with gross margin of 19% of sales for the first quarter of 2021.
- Nova now has 82 stores currently open, an increase of three stores since March 31, 2022.
- Positive operating profit before depreciation, impairment, and other costs of $2.1 million compared to a loss of $2.5 million for the second quarter of 2021.
- Increased revolving credit facility from a maximum of $10 million to a maximum of $15 million.
- Cash of $6.2 million as at June 30, 2022.
- On July 22, 2022, announced the launch of an at-the-market equity offering program (the “ATM Program“) which will allow the Company to issue up to $20 million of common shares from treasury to the public at the discretion of the Company and subject to market conditions and regulatory requirements
Sales
Sales increased 90% compared to the second quarter of 2021, to $56.3 million from $29.7 million. The increase is primarily due to the twenty-nine (29) retail cannabis stores that were opened since March 31, 2021, and increased sales from stores that were re-branded to the Value Buds discount banner from “Nova Cannabis,” “YSS,” and “Sweet Tree” at various times throughout 2021.
Gross margin
Gross margin for the period was $10.6 million, up $5.4 million or 105.0%, from $5.2 million for the same period in the prior year. The gross margin as a percent of sales was 18.8% for the period (Q2 2021 – 17.4%). During the comparative period for 2021, the stores were operated under the Nova Cannabis, YSS and Sweet Tree banners with a different operating, pricing and margin strategy than in the second quarter of 2022 when sales came primarily from the stores converted to the Value Buds discount banner. During the current period, the Company revised prices at certain retail locations where the competitive response has waned which contributed to the increase in gross margin percentage.
Operating profit before depreciation, impairment and other costs
Operating profit excluding depreciation, impairment and other costs for the three months ended June 30, 2022 was $2.1 million (Q2 2021 – $2.5 million loss). The increased operating profit excluding depreciation, impairment and other costs is primarily a result of the increase in sales and gross margin, partially offset by an increase in selling and distribution expenses, and a decrease in administrative expenses, for the three months ended June 30, 2022. Administrative expenses in the comparative period included $0.5 million in share-based payment expense, $0.2 million in severance expense, and $0.3 million of legal and professional fees in transitionary costs incurred after the reverse takeover transaction of YSS Corp. Selling and distribution expenses in the current period increased by $2.0 million to $7.0 million in the current period from operating a larger number of stores, however, the selling and distribution expenses as a percentage of sales decreased from 16.9% to 12.7% due to increased sales and cost efficiencies in the current period.
Net loss and comprehensive loss
For the three months ended June 30, 2022, the Company recorded a net loss of $1.4 million (Q2 2021 – $7.0 million net loss). The reduction is primarily a result of the increase in sales and gross margin for the three months ended June 30, 2022. Income taxes have not been recorded in either period as the Company incurred taxable losses for the current year to which deferred tax assets have not been recognized because it is not probable that sufficient taxable profits will be available against which the Company may use the benefits. Impairment of $0.9 million was recorded in the prior period for two (2) stores assumed as part of the reverse takeover transaction of YSS Corp. which the Company elected to close due to proximity to existing retail stores.
Revolving Credit Facility
Nova has an uncommitted revolving credit facility with Sundial in an aggregate principal amount not to exceed $15 million (the “Credit Facility“).
As at August 11, 2022, $8.7 million in principal and accrued interest is outstanding on the Credit Facility.
Nova is very well positioned to capitalize on the growth that’s in the market while continuing to take market share. The Company will remain disciplined in how it operates to drive margin expansion and deliver greater operating leverage.
- The Company is partnering with SNDL Inc. (formerly known as Sundial Growers Inc.) for Value Buds’ private label strategy, which is expected to launch before the end of 2022. Nova believes that establishing a high-performing private label will boost loyalty and drive more traffic to its stores.
- Nova remains on track with our target to add 10 more stores in Alberta and Ontario in the remainder of 2022 and early 2023.
Nova will host a conference call and webcast at 10:30 a.m. EDT (8:30 a.m. MDT) on Friday, August 12, 2022.
Call Access
Canada: 1-800-319-4610
International: +1-604-638-5340
Webcast Access
To access the live webcast of the call, please visit the following link:
https://services.choruscall.ca/links/novacannabis2022q2.html
Replay
The webcast archive will be available for three months via the link provided above.
A telephone replay will be available for one month. To access the replay dial:
Canada/USA Toll Free: 1-800-319-6413 or International Toll: +1-604-638-9010
When prompted, enter Replay Access Code: 9297#
For further information, refer to the Company’s interim financial statements and MD&A for the three and six months ended June 30, 2022, which are available from the Company’s profile on SEDAR, at www.sedar.com, or on the Company’s website at www.novacannabis.ca.
