Release Date: August 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Village Farms International Inc (VFF, Financial) reported record consolidated sales driven by Canadian cannabis and fresh produce.
- Total net sales grew 45% year over year to $56 million, all organically without acquisitions.
- The company achieved a 94% repeat purchase rate among consumers for its Super Toast brand.
- Village Farms International Inc (VFF) is expanding its international export business with solid contributions from Germany and the United Kingdom.
- The company is actively looking at expanding its cultivation cannabis capacity in Canada to meet growing demand.
Negative Points
- Village Farms International Inc (VFF) reported a net loss of $23.5 million for the quarter.
- Approximately $12 million of the net loss was due to a noncash impairment charge on the US cannabis business.
- The fresh produce segment experienced temporary pricing pressure, leading to a larger-than-expected operating loss.
- The company faces significant excise taxes in Canada, which are a major expenditure for its cannabis business.
- The US cannabis sales continue to be impacted by the proliferation of unregulated hemp-based products.
Q & A Highlights
Q: Can you provide insights into the growth of retail branded sales and whether it reflects normalized purchase habits or timing impacts from provincial boards?
A: The growth is attributed to our performance, quality, innovation, and genetics, not timing or board influences. It's purely based on execution at the Canadian cannabis level. We even faced some out-of-stock situations due to higher-than-expected sales.
Q: How should we think about gross margin evolution, given the current mix of value products and cultivation costs?
A: The branded gross margin was 28%, lower due to a higher percentage of value brand sales. We still support the 30%-40% range and are analyzing our current SKU in the market. The consumer shift to value segments is significant, and we are working on profitability with our partners.
Q: What are the dynamics affecting produce supply and profitability, and how do you see this evolving in the second half of the year?
A: Our own greenhouses improved significantly in volumes and efficiencies. The second quarter costs were higher due to accounting practices, but for the full six months, we were close to breakeven. Improved pricing in July-August due to supply issues should lead to better performance in the second half.
Q: How are pricing dynamics in Canadian cannabis affecting margins, and what is the impact of supply changes?
A: Pricing declines are stabilizing, and B2B pricing is increasing, which should reflect in retail. Supply reductions due to taxes and asset-light strategies are supporting pricing. Export opportunities are also drawing down Canadian supply.
Q: Can you provide more details on the Netherlands market and the expected profitability from your operations there?
A: The Netherlands market is about $1 billion, with 10 municipalities and 85 coffee shops participating legally. We expect to be sold out due to limited license holders. Prices are favorable, and there are no excise taxes, which should lead to solid profitability. We plan to start generating revenue in Q1 2025.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
