Despite financial troubles and doubts about the ability to continue operations, the management of Goodfood Market had maintained for several months that an operating profit would be released at the start of the year and it won its bet.
Not only did the Montreal-based ready-to-cook meal company generate an adjusted operating profit of $3 million for the quarter covering the months of December, January and February, it even posted a net profit of $100,000.
This performance, closely linked to cost reduction initiatives, is recorded despite a marked drop in sales and the number of active customers.
Sales for the quarter fell 43% year-on-year to 42 million reflecting a change in consumer behavior and the modification of the service offer.
Goodfood dropped fast on-demand grocery delivery in the fall and announced in January that it is now focusing more on its best customers, those who order the most ready-to-cook meals. . Management argues that these high-value customers drive greater savings per unit.
“Sales have declined primarily due to our focus on attracting and retaining high-value customers with less need for incentives,” said Goodfood CEO Jonathan Ferrari.
The number of active customers stood at 124,000 at the beginning of March compared to 137,000 three months earlier. This decrease surprises analyst Frédéric Tremblay, at Desjardins, who expected that Goodfood had rather gained active customers. He predicted that the company would reveal having 139,000 active customers.
This expert nevertheless underlines that the improvement in profitability is much better than expected. He was expecting an operating profit of $300,000, not $3 million.
He also points out that the gross margin of 41% is unheard of at Goodfood. This margin had reached 36% in the previous quarter and stood at 24% a year ago.
Goodfood management says it expects to return to operating profit for the current quarter. Analyst consensus is currently hinging on an operating profit of $700,000 for the months of March, April and May.
Jonathan Ferrari said the results presented Wednesday highlight successful execution in turning around operational efficiency and the company is now focused on profitable growth.
After hitting a stock market high of $14 two years ago, Goodfood’s stock has fallen and is now worth around 60 cents.
