SNDL’s Liquor Sales Slip While Cannabis Gains Drive Record 26.6% Margin in Q3 2024
SNDL Inc. (NASDAQ: SNDL) announced its financial results for the third quarter ending September 30, 2024. While the company posted strong gross margins, significant cash reserves, and positive cash flow, year-over-year revenue remained largely flat, facing headwinds particularly in its liquor retail segment.
The company reported net revenue of $236.9 million for Q3 2024, a marginal decrease of 0.3% from $237.6 million in the same quarter of 2023. The modest decline was attributed to weak performance in the liquor retail sector, which offset growth in SNDL’s cannabis retail and operations segments. Quarter-over-quarter, however, revenue rose by 3.8% from Q2 2024, reflecting improvements in cannabis-related segments.
A key achievement for SNDL this quarter was its record gross profit of $63 million, marking a year-over-year increase of 30%. This improvement elevated the company’s gross margin to 26.6%, up from 20.5% in Q3 2023, showcasing the success of strategic initiatives like data licensing, supply chain optimization, and product mix adjustments.
“We are pleased with the substantial progress reflected in our results for Q3 2024 as we advance towards sustainable profitability,” said CEO Zach George. “Our team delivered a record gross margin, positive cash flow, and free cash flow, ending the quarter with over $763.8 million in unrestricted cash and no debt.”
SNDL, Canada’s largest private liquor retailer, faced a 4.8% year-over-year drop in liquor retail revenue, posting $144.6 million for Q3 2024, down from $151.8 million in Q3 2023. This segment saw a 5% drop in same-store sales, indicative of broader challenges in consumer traffic for the industry.
Despite this revenue shortfall, SNDL’s liquor retail gross margin improved to 25.6% from 24.5% in the previous year’s quarter. Operating income from liquor retail rose significantly to $11.8 million, a 42.5% increase from the $8.3 million reported in Q3 2023. This improvement was attributed to the effectiveness of SNDL’s data-driven licensing program and strategic procurement adjustments.
The cannabis retail segment, consisting of 187 stores across Canada, saw net revenue increase by 7.4% to $81.1 million, up from $75.5 million in Q3 2023. Same-store sales within the cannabis retail segment also improved by 2.3%, indicating successful productivity enhancements and the impact of newly opened locations.
Gross profit for cannabis retail reached $20.7 million, up 3.3% from $20 million a year prior, though gross margins for the segment slightly declined to 25.5% from 26.5%. Operating income in cannabis retail, however, saw a substantial increase, up 28.1% year-over-year to $4.4 million from $3.4 million in Q3 2023.
The cannabis operations segment posted the most notable growth, with a revenue increase of 19.3% to $25 million, compared to $21 million in Q3 2023. Gross profit reached $5.3 million, a sharp improvement from the negative $8.7 million seen in the same period last year, marking a new high gross margin of 21.2%.
The turnaround in cannabis operations contributed to a major reduction in operating losses, which improved by $13.3 million, with the segment recording a loss of $0.7 million compared to a $14 million loss in Q3 2023.
SNDL ended Q3 with $763.8 million in unrestricted cash and investments, bolstered by positive cash flow of $80 million, a significant increase from $16.5 million in the same period last year. The company also reported positive free cash flow of $9.2 million, although this was down from $16.3 million year-over-year.
Despite a challenging market, SNDL has maintained liquidity while reducing its reliance on external financing, noting it has not raised cash through share offerings since June 2021. George commented on the company’s financial health, emphasizing that SNDL’s “strong balance sheet serves as a beacon for future opportunities,” with the firm aiming to “deploy capital into investments with attractive, risk-adjusted returns.”
In a move to strengthen its Canadian cannabis presence, SNDL completed several acquisitions, notably securing Indiva Group’s assets to lead in the Canadian edibles market. SNDL also privatized Nova Cannabis Inc., enhancing its market position and integrating its cannabis retail operations.
Meanwhile, the company’s investment portfolio saw a negative impact this quarter. A valuation adjustment on equity-accounted investments, primarily linked to the SunStream joint venture, contributed to an overall operating loss in investments of $7.8 million, a downturn from a $9.9 million profit in Q3 2023. Nonetheless, repayments from Ascend Wellness (US$12 million) and Jushi Holdings (US$53 million) boosted liquidity.
Despite these challenges, the company remains cautiously optimistic. George noted, “I am more confident than ever that our team – setting new records with each quarter – has the expertise and drive to unlock SNDL’s significant potential.”
Information for this briefing was found via the sources mentioned. 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.
