After the markets closed, Los Angeles-based MedMen reported revenue of $29.9 million and a net loss of $64.6 million for its fiscal second quarter ended Dec. 29. The company has been mired in a host of negative headlines, but in a call with analysts today to discuss the latest results, company executives noted some missteps and vowed to make changes going forward.
Here are key takeaways Investor Intelligence subscribers should know:
- Analysts were encouraged by the company’s decision to freeze its SG&A budget (Selling, General and Administrative Expenses). The decision to do so was made a couple of weeks ago, CFO Michael Kramer said on the investor call after the release of the Q2 2019 earnings.
Analyst take: “(Executives) offered explicit recognition that they need to be more rational with expenses,” said Paul Penney, of Northland Capital Markets. “This is top of mind for a lot of investors. The new CFO has a lot of public market experience, and they’re putting an executive team in place that is a real comfort point for those who thought SG&A was out of control.”
- Adam Bierman, CEO, said the company had not done enough to “own our own narrative,” and this was reflected in a stock price that Kramer described as trading at a “significant discount to its peers.” Analysts had previously noted that the company seemed to be in good financial shape, but the controversies could damage the corporation overall.
Analyst take: Jesse Pytlak, of Cormark Securities, told Investor Intelligence that the expenses and “corporate governance” issues had combined to keep MedMen’s share price down. Penney agreed the ongoing lawsuit issues had helped depress the stock price: “The company is going to have growth pains, and those pains unfortunately are going to be very visible because they’re a public company,” he wrote in a report last weekend in the Los Angeles Times.
- MedMen expects to open 12 new Florida retail stores in 2019, with four slated to launch in the next 90 days. The company’s Eustace, Florida, cultivation location will be able to supply the new stores, Bierman said. MedMen will be able to save approximately $150 million in capital expenditure costs through its partnership with Treehouse Real Estate Investment Trust, Kramer said. MedMen completed the sale of three retail and growing properties to Treehouse on Feb. 7. Gross margins were also seen as a solid performance at 53%.
Analyst take: “These guys are going to continue to drive up margins at the store level given their best-in-class real estate and licenses in recreational markets,” Penney said.
Bottom line:
MedMen is on the right track financially, and the steps announced in today’s investor call could go a long way toward alleviating concerns among investors – so long as the company follows through on its promises.
