SNDL Prints An Impressive Quarter
If you’re searching for a company that can navigate market headwinds with a grin and a puff, look no further than SNDL. Their third quarter of 2024 reads like a tale of two indulgences: while liquor sales nursed a slight hangover, cannabis operations were flying high, lighting up the balance sheet in the process.
First, let’s address the mild buzzkill. Net revenue for Q3 2024 was $236.9 million, a negligible dip of 0.3% compared to the same quarter last year. The culprit? A soft patch in the Liquor Retail segment. It appears that some consumers are trading in their bottles for buds. However, before you pour one out for SNDL, consider this: net revenue actually climbed a healthy 3.8% from the previous quarter’s $228.1 million. It seems the green leaf is cushioning the fall of the clinking glass.
Now, onto the good stuff—the kind that would make any CFO’s eyes gleam with pride. Gross profit soared to $63.0 million, marking a record gross margin of 26.6%, up from 20.5% a year ago. That’s a year-over-year gross profit improvement of 30%, or an 8.3% lift quarter-on-quarter. It’s clear that SNDL’s margin improvement initiatives—like data licensing, product mix optimization, and supply chain wizardry—are paying off at an accelerated rate.
Of course, every party has its costs. The company reported an operating loss of $18.5 million, nudged into the red by a $13.4 million negative valuation adjustment of equity-accounted investees (looking at you, SunStream portfolio) and $1.9 million in restructuring charges. But let’s not get lost in the accounting smoke. Excluding these non-cash valuation twists, SNDL is showing material improvements in profitability.
Cash flow is where SNDL really flexed its financial muscles. Positive cash flow hit a robust $80.0 million, a significant leap from the $16.5 million pocketed in the same quarter last year. Year-to-date cash flow stands at a solid $67.9 million. Free cash flow was also in the black at $9.2 million, bringing the year-to-date figure to a near-breakeven negative $2.8 million—a remarkable recovery from the $62.3 million deficit in the first nine months of 2023. In a world where cash is king, SNDL just crowned itself.
Strategically, SNDL made some high impact moving and shaking in the Q. They snapped up the principal indebtedness of Delta 9 for $28.1 million, ascending to the throne as its senior secured creditor. A mid-July restructuring program aimed at trimming the corporate fat is on track, already delivering over $2 million in savings this quarter—a cool $10.3 million annualized. It’s corporate efficiency on a diet plan that actually works.
In early August, they collected a tidy US$73 million from SunStream, following loan repayments that cleared the decks with Ascend and Jushi. Not one to rest on their laurels, SNDL’s stalking horse bid galloped to victory in acquiring Indiva Group’s business and assets. This move crowns them as the market leader in the Canadian edibles category—proof that they can have their cake and infuse it too.
October brought more treats than tricks. SNDL completed the privatization of Nova Cannabis Inc., acquiring the remaining minority equity interest. This consolidation is set to streamline operations and could be the strategic equivalent of finding a forgotten stash of high-grade synergy.
Financially, SNDL’s war chest is impressive. The company boasts $763.8 million in unrestricted cash, marketable securities, and investments, with no outstanding debt—cleaner than a distillery’s finest batch. Even after shelling out $37.3 million post-quarter for Nova’s minority interest, they still sit on a comfortable $263.0 million in unrestricted cash. Notably, they haven’t diluted shareholder value by issuing new shares since June 2021—a rarity in an industry where dillution is common place.
In summary, SNDL’s third quarter performance is a masterclass in balancing acts. While the Liquor Retail segment might be nursing a slight headache, the Cannabis divisions are soaring, driving growth and profitability. With strategic acquisitions, operational efficiencies, and a fortress-like balance sheet, SNDL appears well-positioned to keep the good times rolling. Investors might find themselves raising a glass—or perhaps something a bit more herbal—to a company that’s proving it can thrive in both spirits and spirit.
