TORONTO, Aug. 13, 2020 // GLOBE NEWSWIRE // - Health and wellness brand Freshii Inc. (TSX: FRII) (“Freshii” or, the “Company”) today announced financial results for the second quarter ended June 28, 2020 (“Q2 2020”).
“While recognizing the challenges that the COVID-19 pandemic continues to present to our franchisees, employees and the broader restaurant industry, we are encouraged by the improving sales and reopening trends we are now seeing each week in our restaurants,” said Matthew Corrin, Chairman and Chief Executive Officer of Freshii. “We remain focused on executing against our strategic agenda and making sound investments to support our franchisees, all while taking prudent steps to actively manage our strong cash position. We continue to be excited about our omnichannel growth, particularly with the recent addition of ONroute travel hubs to our retail distribution network, the continued progress and excitement around the development of Freshii’s dinner daypart, and the upcoming roll out of our new ordering and delivery app.”
Business Update and Key Metrics
2020 Strategic Pillars
The Company has outlined 3 strategic pillars for 2020 to accelerate short-term recovery and position the brand for long-term growth:
Focus on Core Business
Significant steps have been made in Q2 2020 and into the third quarter, including the completion of a Canada-wide rollout of our new elevated chicken, the most popular protein offering with our guests, after strong test results in Ontario drove higher average cheque.
We are continuing to develop a data-driven, customer centric innovation pipeline of new menu items that we will test through our stage-gate approach in the coming quarters.
Digital and Delivery Acceleration
Customer habits are changing quickly, and the impact of COVID-19 has accelerated pre-existing shifts to digital ordering and delivery channels. Freshii has taken important steps in Q2 to be better positioned to meet customer’s needs with respect to how and where they want to interact with our brand. Throughout Q2, the Company made critical progress in this area, including completing the rollout of both UberEats and Doordash partnerships across 90% of serviceable locations across North America. We believe a meaningful portion of Freshii’s delivery sales are incremental sales and continue to partner with third party delivery aggregators to offer convenience and value to Freshii customers.
We have also made critical progress on our technology and digital app roadmap, with over 90% of North American traditional restaurants fully completing the point of sale system upgrades, creating a consistent restaurant platform to integrate future technology enhancements.
We have also reached several significant milestones with our new mobile app, with development substantially complete and testing having begun in select locations. We are excited about introducing this new ‘frictionless’ experience for our customers, as well as point of sale integration that will create efficiencies for our franchisees and restaurant team members. Our new app remains on track for phase 1 launch in Q4 of 2020.
Develop Dinner as a Second Daypart
Freshii continues to see an increase in the dinner daypart as a percentage of sales as compared to pre-COVID-19 periods. Freshii launched its first market test of the Company’s new dinner plates platform in Vancouver, Canada, complete with family meal options and sides and available for dine in, takeout or delivery.
Early test results demonstrated strong guest trial and garnered positive franchisee feedback. During the test, dinner plates drove up average cheque, which we believe was a result of their premium positioning, protein inclusive pricing and higher beverage attachment rates. We remain excited about dinner as a second daypart opportunity, and we are pleased to see strong early guest trial of our dinner platform.
Franchisee Incremental Investment Program
This week, we announced to our franchise partners an investment program that Freshii will be funding over the next 12 months to help accelerate the sales recovery of our restaurants. We intend to invest to support our restaurant network in the following areas:
This $1 million investment is to be partially funded by the Company’s cost management initiatives, described further below.
Freshii CPG Launches with ONroute
In addition to continuing to work with its current retail partners, including Walmart Canada, Shell, Air Canada and others, in late-July, Freshii launched its full CPG offering in 23 highway-side ONroute locations in Ontario. Early results of the new partnership have been encouraging, as drivers appreciate the availability of a healthy and wholesome options while on the road.
Cost Base Management and Liquidity
Driving cost discipline and maintaining sufficient liquidity is a top focus both for our franchisees and at a corporate level. For our franchised restaurants, in consultation with our franchise council, we have supported in the implementation of cost reduction initiatives and extended payment terms designed to improve profitability while ensuring restaurants remain well prepared to meet growing guest counts as sales continue to improve.
In addition, Freshii is testing a new operating model in a select number of restaurants in Ontario. The new operating model includes a simplified menu, improved ingredient line flow, more efficient product build sequencing and new menu price point architecture. Early results from this test are positive and we are optimistic that we will be able to our leverage learnings to date to scale the streamlined model to restaurants across a wide range of sales levels.
We also continue to support our franchisees in accessing government support programs and in their negotiations with landlords, as rent continues to be the single largest fixed cost for our small business owner-operator franchisees.
At a corporate level, in early August the Company undertook a re-organization that resulted in a decrease in headquarters employee head count. Having evolved our ways of working through the pandemic period to date, we believe that we can operate with this leaner team while improving the velocity of our execution and maintaining our high standard of franchise partner support. This reorganization also contributes to our ability to invest in the franchise system when and as needed.
We have maintained a strong stable cash position through the pandemic to date, with $30.7 million (C$41 million) in cash as at August 11, 2020. We are committed to maintaining adequate liquidity and financial flexibility throughout the pandemic, while also investing in strategic priorities across both our restaurant and CPG divisions. We strongly believe that, if the recovery and re-opening of economies in the markets in which we operate continues as we anticipate, we can continue to generally maintain our strong cash position in the coming quarters while continuing to reinvest for growth in our restaurant and CPG divisions.
Financial Highlights for the Second Quarter
Eat. Energize. That’s the Freshii mantra. Freshii is a health and wellness brand on a mission to help citizens of the world live better by making healthy eating convenient and affordable. With a diverse and completely customizable menu of breakfast, soups, salads, wraps, bowls, burritos, frozen yogurt, juices, and smoothies served in an eco-friendly environment, Freshii caters to every taste and dietary preference.
Since it was founded in 2005, Freshii has grown to operate 430 restaurants in 14 countries around the world. Now, guests can energize with Freshii’s menu anywhere from cosmopolitan cities and fitness clubs to sports arenas and airplanes.
Non-IFRS Measures and Industry Metrics
This news release makes reference to certain non-IFRS measures including key performance indicators used by management and typically used by our competitors in the restaurant industry. These measures are not recognized measures under IFRS and do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing further understanding of our results of operations from management’s perspective. Accordingly, these measures should not be considered in isolation nor as a substitute for analysis of our financial information reported under IFRS. We use non-IFRS measures including “EBITDA”, “Adjusted EBITDA”, “Adjusted EBITDA on a constant currency basis”, “free cash flow”, “free cash flow conversion” and “Adjusted Net Income”. This news release also makes reference to “system-wide sales”, "system-wide stores", and “same-store sales growth” which are commonly used operating metrics in the restaurant industry but may be calculated differently by other companies in the restaurant industry. These non-IFRS measures and restaurant industry metrics are used to provide investors with supplemental measures of our operating performance and liquidity and thus highlight trends in our business that may not otherwise be apparent when relying solely on IFRS measures. We also believe that securities analysts, investors and other interested parties frequently use non-IFRS measures, including restaurant industry metrics in the evaluation of companies in the restaurant industry. Our management also uses non-IFRS measures and restaurant industry metrics, in order to facilitate operating performance comparisons from period to period, to prepare annual operating budgets and forecasts and to determine components of executive compensation. For a: (i) detailed definition of each of the non-IFRS measures and industry metrics referred to; and (ii) reconciliation of these non-IFRS measures refer to the Company's Management’s Discussion and Analysis dated August 13, 2020, which is available on SEDAR.
Forward-Looking Information
Certain information in this news release contains forward-looking information and forward-looking statements which reflect the current view of management with respect to the Company's objectives, plans, goals, strategies, outlook, results of operations, financial and operating performance, prospects and opportunities, including statements relating to store count, same-store sales growth, the recovery of the Company’s franchise system, that healthy eating trends will continue, the effectiveness of the Company’s realignment of its 2020 strategic pillars, the timelines for and effectiveness of new menu rollouts (including our elevated chicken items), the development of the Company’s new app, the Company’s plans with respect to its Franchisee Incremental Investment Program, the ability of the Company to scale its new operating model and take advantage of the cost savings that have resulted from the re-organization, the ability of the Company to generally maintain its existing cash position and to reinvest, the growth of the dinner daypart and the extent of the expected impact of the COVID-19 pandemic and associated government regulation on Freshii’s business, operations and financial performance. Wherever used, the words "may", "will", "anticipate", "intend", "estimate", "expect", "plan", "believe", “lead”, “continue”, “plan”, “design”, “likely” and similar expressions identify forward-looking information and forward-looking statements.
Forward-looking information and forward-looking statements should not be read as guarantees of future events, performance or results, and will not necessarily be accurate indications of whether, or the times at which, such events, performance or results will be achieved. All of the information in this news release containing forward-looking information or forward-looking statements is qualified by these cautionary statements. In particular, the Company notes that the dynamic nature of the COVID-19 pandemic and the events and circumstances resulting from or associated with that pandemic mean that management can offer no assurance such forward-looking information or forward-looking statements will occur or be accurate in the circumstances.
Forward-looking information and forward-looking statements are based on information available to management at the time they are made, underlying estimates, opinions and assumptions made by management and management's current belief with respect to future strategies, prospects, events, performance and results. These estimates, opinions and assumptions include that the COVID-19 pandemic and associated government regulation, expected consumer behaviour and other matters will not have a materially different impact on the business, operations or financial performance than currently anticipated by management, the continued availability of food commodities used by Freshii locations at stable prices, the availability and timely receipt of funds expected by management to be received in connection with applicable government relief programs, that Freshii will be able to continue to effectively assist its franchise partners (including that its further $1 million investment will generate the benefits on the timelines anticipated or at all), that the recovery and re-opening of the economies (including the dates upon which various regions are permitting restaurants to reopen for dine-in service) in Canada and the United States and elsewhere will occur in the manner and on the timelines anticipated by management, the continued access by the Company and its franchise partners to a pool of suitable workers at reasonable wage levels, that the foreign exchange rates may continue to fluctuate (in particular, that the value of the Canadian dollar will continue to fluctuate against the US dollar and other currencies), that the recovery of Freshii’s franchise system occurs on the timelines and in the manner anticipated, that healthy eating trends continue in the manner anticipated, that the re-alignment of the Company’s 2020 strategic pillars, the timelines for new menu rollouts, the development of the Company’s new app, the implementation of the Company’s Franchisee Incremental Investment Program, the anticipated growth in the dinner daypart and the development of strategies to drive down costs with franchise partners and cost control activities at the corporate level will each have the anticipated effect on the Company’s business, operations and financial performance and will proceed on the timelines and in the manner currently anticipated by management, and are subject to inherent risks and uncertainties surrounding future expectations generally, including that such estimates, opinions and assumptions may not be accurate, particularly given the dynamic nature of the COVID-19 pandemic and the events and circumstances resulting from or associated with that pandemic. Such risks and uncertainties include, but are not limited to, those described in “Forward-Looking Statements” which are described in the Company's Management’s Discussion and Analysis dated August 13, 2020 and in the Company’s other filings, which are available on SEDAR website.
Readers are urged to consider the risks, uncertainties and assumptions carefully in evaluating the forward-looking information and forward-looking statements and are cautioned not to place undue reliance on such information and statements. The Company does not undertake to update any such forward-looking information or forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable laws.
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Selected Quarterly Consolidated Information
The following table summarizes our results of operations for the 13 and 26 week periods ended June 28, 2020 and June 30, 2019, respectively:
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The following table summarizes our Consolidated Statement of Balance Sheet Information as at June 28, 2020 and December 29, 2019:
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The following table shows our cash flows information for the 26 week periods ended June 28, 2020 and June 30, 2019, respectively:
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The following table reconciles EBITDA, Adjusted EBITDA, free cash flow, free cash flow conversion, Adjusted Net Income to the most directly comparable IFRS financial performance measure:
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Notes:
(1) In the 26 week periods ended June 28, 2020 and June 30, 2019, the Company granted RSUs to executive officers, management, employees, and non-management directors of the Company in conjunction with an annual employee grant.
(2) For the 26 week period ended June 28, 2020, represents an accrual for accounting purposes of certain professional fees associated with one-time investments in the Company’s growth strategy. See also “Selling, General and Administrative” in “Results of Operations” section in the Company’s related Management Discussion and Analysis, available on Sedar website. For the 26 week period ended June 30, 2019, represents expenses related to severance costs to employees previously employed by the Company.
(3) Related tax effects are calculated at statutory rates in Canada or U.S. depending on adjustment.
The Company’s condensed consolidated interim financial statements for the 13 and 26 week periods ended June 28, 2020 and the relevant Management’s Discussion and Analysis documents, are available under the Company’s profile on SEDAR website.
SOURCE Freshii Inc.