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16. September 2020
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Results Analysis: Charlotte’s Web Posts Q2 Losses Citing Pandemic Sales Disruption

Charlotte’s Web Holdings Inc. (TSX: CWEB) (OTCQX: CWBHF) swung to a loss for the fiscal second quarter as it took a hit from Covid-19 store closures and production disruptions. The company, which makes a variety of CBD wellness products, posted a loss of $14.4 million, or 13 cents a share, compared with a profit of $2.2 million, or 2 cents a share, for the same period of 2019.

Charlotte’s Web Posts Q2 Losses Citing Pandemic Sales Disruption

For the quarter, Charlotte’s Web booked consolidated revenue of $21.6 million, which only slightly exceeded the Q1 tally of $21.5 million, and was down by 13% on a year-over-year basis. The Q2 net loss was $14.4 million, or $0.13 per diluted share. This was deeper than the $11.5 million shortfall of the previous quarter, and far down from the $2.2 million profit in Q2 2019.

The pandemic has had a larger and longer impact than we anticipated on retail and health practitioners,” explained Russ Hammer, Chief Financial Officer of Charlotte’s Web. “We are seeing improvements and a stronger back half in our DTC channel, but without a meaningful opening up of the economy and health practitioner channel we expect only flat to modest consolidated net revenue growth for 2020. Our long view market opportunity remains intact and we continue to add new customers, doors, and products. Our Q3 revenues are trending ahead of Q2 sales levels and we anticipate reopening of retail locations in the U.S. will support a positive growth trend. As we see resolutions in COVID-19 and hemp CBD regulations or legislation we can see the category build towards its full potential.

The year-over-year decline in revenue came despite several recent positive developments for the company during the quarter, notably the closing of its Abacus Health acquisition. Abacus Health is a leading provider of over-the-counter (“OTC”) topical products for pain relief and skincare containing CBD hemp extracts. The acquisition greatly extends Charlotte’s Web’s product offerings and reach and solidifies a commanding position in the U.S. hemp CBD topicals category. In the third quarter, Charlotte’s Web commenced implementing operating cost synergies with Abacus and will continue through the remainder of the year. Further cost synergies are targeted in 2021 through integration into the Company’s new production and fulfilment centre.

The company also saw a big leap in direct-to-consumer (DTC) sales, which jumped by nearly 34% year over year. The channel now comprises almost 72% of overall revenue.

Second quarter revenue was below expectations due to the impact of Covid-19 on retail sales,” Chief Executive Deanie Elsner said.

Revenue Expectations Downgraded

Earlier this week analysts cut revenue and earnings per share (EPS) estimates sharply to factor in the latest outlook for the business, concluding that they were too optimistic previously.

After this downgrade, Charlotte’s Web Holdings’ eight analysts are now forecasting revenues of US$95m in 2020. This would be a reasonable 4.2% improvement in sales compared to the last 12 months. Losses are forecast to narrow 9.1% to US$0.39 per share. Yet prior to the latest estimates, the analysts had been forecasting revenues of US$111m and losses of US$0.16 per share in 2020. Ergo, there’s been a clear change in sentiment, with the analysts administering a notable cut to this year’s revenue estimates, while at the same time increasing their loss per share forecasts.

There was no major change to the consensus price target of US$5.80, signalling that the business is performing roughly in line with expectations, despite lower earnings per share forecasts.

Certified B Corporation

In other news, the company announced it has earned B Lab’s B Corporation™ certification to further expand the ways in which the Company can fulfill its mission of benefitting the planet. and all who live upon it.

Certified B Corporations™ (also referred to as B Corps™) are for-profit companies that use the power of business to build a more inclusive and sustainable economy. B Corps are required to consider the impact of their decisions on all stakeholders: customers, workers, communities, and the environment. These requirements are aligned with Charlotte’s Web’s socially conscious founding principles, and formalize its commitment to environmental, social, and governance issues for stakeholders.  In connection with the certification process, and as approved by the shareholders of the Company at the August 2019 annual general and special meeting, the Company has converted to a “benefit company” in accordance with the Business Corporations Act (British Columbia).

Source | Charlotte’s Web