Fire and Flower Holdings (TSX: FAF) released its third quarter financials for the thirteen weeks ended November 2, 2019 this morning, reporting revenues of $13.7 million on a net income of $10.2 million for the quarter. Revenues were up 23.6% on a quarter over quarter basis, however gross margins decreased marginally during the period relative to the previous quarter.
Despite the increase in sales, gross margins dipped to 34.7%, from that of 36.5% in the prior period. Average sales per store also decreased, with the current quarters 30 stores averaging out to revenues of $456,666 across the thirteen week period, as compared to 22 stores averaging $503,636 in revenues during the second quarter. While this ratio will be impacted by store opening schedules during the quarter, it is nonetheless a decrease.
Gross profit for Fire and Flower during the third quarter amounted to $4.7 million, while total expenses came in at $10.6 million. Expenses primarily consisted of general and administrative at $7.1 million, and depreciation and amortization of $2.0 million. Within the provided breakdown, general and administrative expenses largely consisted of salaries and benefits at $4.3 million, followed by legal and professional fees at $0.5 million.
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The firm managed to post a net income for the quarter as a result of other income, which amounted to $16.1 million in total. This largely consisted of a gain from a derivative liability associated with the firms outstanding convertible debentures. In layman terms, this means the company “profited” from the value of its equity decreasing.
Fire and Flower posted a net income of $10.2 million during the quarter as a result.
Noteworthy for Fire and Flower shareholders is the debt coming due in 2020 for the firm. Currently, $47.1 million in the form of convertible debentures is due for payment in June and July 2020, all of which is currently under the previously agreed upon conversion prices. With only $42.8 million in cash and cash equivalents, and a negative operating cash flow, its likely that further dilution will come to shareholders as agreements are entered to lower conversion prices for the debt.
Fire and Flower last traded at $0.89 on the TSX.
Information for this briefing was found via Sedar and Fire and Flower Holdings. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
