Very Good Food Co Slashes Production, Staff, As Growth Fails To Materialize

Evidently the plant-based food market is not as big as it was believed to be after all. This morning, The Very Good Food Company (TSXV: VERY) announced that it would be cutting production as well as its headcount as it looks to maintain inventory levels.

Production cuts by the company are said to be “temporary” in nature, despite the reduced headcount that is slated to occur as a result. The company this morning also announced that it would be halting any non-critical capital expenditures, while focusing on cutting its SG&A spending. Translated into layman terms, it appears the company is headed for a restructure.

The major cost cutting initiatives are being undertaken as the company looks to “manage both short and long-term liquidity,” while it also looks for a path towards profitability.

The production cuts reportedly follow a previous over-correction by the company, whereby it increased production as a result of supply chain concerns, leading to overstocking of products. Now, the company is sitting on too much inventory, while also dealing with “retailer reset timing delays,” hinting that their product is not selling like they had anticipated.

The company is now said to removing its focus on topline growth and now focusing on balancing that growth with profitability. This focus on topline growth has appeared to sputter, with sales in the third quarter declining to $2.5 million from $2.8 million in the second quarter, and further hints at poor fourth quarter performance.

Finally, the firm is cutting its digital spend due to rising costs, which the company expects to further impact sales growth as it works to refocus on wholesale and food service channels.

While the company has indicated multiple times in this mornings announcement that headcount cuts are coming, further specifics were not provided. Instead, the firm indicated that its cash burn is much more than it had anticipated, resulted in a strained short-term liquidity situation and a “reduced cash position.”

As of September 30, the firm reported cash and equivalents of $10.5 million, which grew from $5.9 million in the prior quarter. That however followed a $20.7 million financing that closed on July 2, indicating they spent over half of those gross proceeds in the third quarter alone. Negative operating cash flow in the third quarter alone was over $8.4 million, while negative investing cash flow was over $4.3 million, leading to significant cash outflows for the period.

While the firm subsequently completed a US$30 million registered direct offering in October, the current cash burn rate suggests that this still is not enough for long term sustainability, as the company has suggested today. Instead, the firm is now looking for ways to again increase its cash position, as announced this morning.

The Very Good Food Company last traded at $0.70 on the TSX Venture.

Information for this briefing was found via Sedar and The Very Good Food Company. The author has no 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.

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