Earnings call transcript: Colabor Group Q1 2025: EPS Misses, Stock Drops

Colabor Group Inc. (GCL) reported its first-quarter earnings for fiscal year 2025, revealing a net loss per share greater than analysts had anticipated. The company’s stock reacted negatively, dropping 14.85% in after-hours trading. The actual earnings per share (EPS) came in at -$0.04, missing the forecast of -$0.01. Revenue also fell short of expectations, totaling $131.7 million against a forecast of $137.27 million. According to InvestingPro data, the company currently maintains a market capitalization of $313.11 million and shows a concerning P/E ratio of -145.85, suggesting significant valuation concerns.

Key Takeaways

• Colabor Group’s EPS missed expectations by $0.03.
• Revenue growth was modest at 0.4%, below forecasts.
• Stock price fell by 14.85% following the earnings release.
• Adjusted EBITDA decreased significantly year over year.
• The company is focusing on market expansion and cost reduction strategies.

Company Performance

Colabor Group’s performance in Q1 2025 showed mixed results, with a slight increase in total revenues by 0.4% to $131.7 million. Distribution sales grew by 3%, but this was offset by a decline in wholesale revenues by 3.8%. The company faces challenges in a competitive market, particularly in the restaurant industry, which is experiencing declining same-store sales. Despite these headwinds, Colabor is gaining market share in the independent restaurant segment, leveraging its strong local supply chain.

Financial Highlights

• Revenue: $131.7 million, up 0.4% year-over-year.
• Earnings per share: -$0.04, compared to -$0.01 last year.
• Adjusted EBITDA: $2.3 million, down from $4.9 million in the previous year.
• Net debt: $47.1 million, with a leverage ratio of 2.8x adjusted EBITDA.

Earnings vs. Forecast

Colabor Group’s EPS of -$0.04 fell short of the forecasted -$0.01, representing a miss of $0.03 per share. Revenue also missed expectations, coming in $5.57 million below the projected $137.27 million. This marks a significant miss compared to previous quarters, where the company had shown closer alignment with forecasts.

Market Reaction

Following the earnings announcement, Colabor Group’s stock price declined by 14.85%, closing at $0.86, a significant drop from its previous close of $1.01. This places the stock closer to its 52-week low of $0.79, reflecting investor concern over the earnings miss and revenue shortfall.

Outlook & Guidance

Looking ahead, Colabor Group is focusing on expanding its presence in Western Quebec and improving its product and customer mix. The company anticipates gradual margin improvement and is working to mitigate the impact of institutional contract repricing. Future revenue forecasts for FY2025 and FY2026 are set at $117.04 million and $131.67 million, respectively. InvestingPro data suggests the company’s net income is expected to grow this year, despite current challenges. For comprehensive analysis including Fair Value estimates and detailed financial health metrics, investors can access the full Pro Research Report, available exclusively to InvestingPro subscribers.

Executive Commentary

CEO Louis Renette emphasized the company’s strategic direction, stating, "Our ability to continue gaining market shares in a challenging restaurant and industrial environment is a testament to our diversification strategy." He also noted, "We’re gaining customers at a faster pace than last year," highlighting the company’s efforts to expand its customer base.

Risks and Challenges

• Continued pressure from declining same-store restaurant sales.
• Competitive threats from larger players like Cisco and JBS.
• Potential supply chain disruptions affecting local sourcing.
• Economic uncertainties impacting consumer spending.
• Challenges in maintaining cost reductions and improving margins.

Q&A

During the earnings call, analysts inquired about the impact of institutional clients on revenue and the company’s margin mitigation strategies. Executives expressed confidence in closing a pending acquisition and noted stable market conditions, despite current challenges.

Full transcript - Colabor Group Inc. (GCL) Q1 2025:

Sylvie, Conference Call Operator: Good morning, ladies and gentlemen, and welcome to ColorBor’s First Quarter twenty twenty five Results Conference Call. At this time, note that all participant lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. Also note that this call is being recorded on Friday, 05/02/2025. At this time, I would like to turn the conference over to Louis Renette, President and Chief Executive Officer.

Please go ahead, sir.

Louis Renette, President and Chief Executive Officer, Colabor Group: Thank you, Sylvie. Good morning, everyone, and welcome to Calabar Group’s fiscal twenty twenty five first quarter results conference call. This is Louis Renette, President and Chief Executive Officer of Colabor. Last evening, we released our earnings results for the twelve week period ending 03/22/2025. The press release and disclosure documents can be found on our website at sedarplus.ca.

The accompanying presentation, including our statement on forward looking information and non IFRS performance measures, can also be accessed online in the Investors section on calabar.com. Joining me today is Pierre Blanchet, our Chief Financial Officer, who, following my initial remarks, will provide an overview of our financial results. Our first quarter results demonstrate that we continue to execute against our plan and we are winning market shares. Our diversification strategy within the HRI market and investment made to expand our presence in Western Quebec allowed us to offset some of the effects of the ongoing challenging backdrop in the restaurant industry. In the first quarter, total revenues grew by 0.4% And our distribution sales grew by 3%, resulting from higher volume from new and existing clients, market share gains, as I said, and M and A.

This positive trend underlying our distribution activities was mitigated by the effect of the major contract renewal. As for our wholesale revenues, we experienced a slowdown of the pace of decline, with wholesale revenues down by 3.8%, a much lower pace of decline than what we have been experiencing since the start of 2024. On the profitability front, the combination of softness in restaurants industry and the previously announced repricing of a major contract had a significant impact on our adjusted EBITDA margin this quarter. In order to manage the effect of the repricing of this major contract, we have implemented various mitigation measures, including reducing our operating expenses and diligently working to add more products that are outside of our scope of contract. During the first quarter, we also prudently managed our capital allocation and further reimburse debt.

With our demonstrated ability to grow our distribution sales in our new and coveted markets, we remain on a solid ground. On 02/19/2025, we announced a highly strategic acquisition, which once concluded aimed to further consolidate our position as the largest Quebec food distributor and boost our presence in the Western part of the province. Our management team is working diligently on the conclusion of the transaction. Looking ahead, our primary focus lies on growing our presence in the Western market, all while continuing to improve our product and customer mix. We will continue to work on all fronts to improve productivity, raise efficiencies, and tightly control our operating expenses.

This will allow us to mitigate the effect of the major contract renewal. Before I turn the call over to Pierre, I would like to discuss the ongoing tariff situation. As we currently stand, food products exported from The US into Canada are generally subject to The United States Mexico Canada Agreement, the USMCA, and remain mostly duty free and quota free. Over 90% of all products that Carabao buys are from Quebec or the rest of Canada. In addition, the majority of our private label is sourced from Quebec suppliers, manufacturers, and farmers.

Because of our strong local supply chain and efforts to promote local brands, we are starting to experience demand tailwind that has started to translate into market share gains with independent restaurants. This trend, along with customers looking for value, is also benefiting our private label brand, sales of which continued to grow in Q1. Pierre, on this, I will turn the call over to you.

Pierre Blanchet, Chief Financial Officer, Colabor Group: Thank you, Louis, and good morning, everyone. I am pleased to be here today to discuss our key financial results for the first quarter of fiscal twenty twenty five. Please refer to the presentation for highlights of our financial performance in the quarter. In the first quarter of twenty twenty five, sales were up 0.4% to 131,700,000.0 Revenues from our distribution activities increased by 3%. Distribution volume growth came from new and existing clients and the contribution of the acquisition of the assets from Boudre Calderain concluded in the first quarter of last year.

This allowed us to mitigate the effect of the major contract renewal, which took effect in December of twenty twenty four. Please note that the effect of inflation was nil in the quarter. Our wholesale activities were down by 3.8% and as Louis indicated earlier, declining at a lower pace than we have experienced since the start of 2024. Consolidated adjusted EBITDA from continuing operations reached $2,300,000 or 1.7% of sales compared to $4,900,000 or 3.7% in the first quarter of last year, mainly from the effect of the major contract renewal at lower margin, which occurred in December of twenty twenty four. Our first quarter is always a more sensitive quarter with lower seasonal revenue patterns, limiting our ability to absorb our fixed cost structure.

As of note, we managed to reduce our operating expenses this quarter and continue to be an area of focus for the team. Net loss from continuing operation was $4,000,000 or $04 per share, down from a net loss of $1,800,000 or $01 per share in the equivalent quarter of last year. Cash flow from operating activities were $6,200,000 in the first quarter, down from $11,700,000 in the equivalent quarter of last year, resulting from higher utilization of working capital and lower adjusted EBITDA. Higher utilization of working capital is to fund inventory buildup ahead of the busy summer season. CapEx investment amounted to CAD0.3 million in Q1 and were part of a regular basic maintenance.

For 2025, we expect our maintenance capital expense to be slightly lower than last year at approximately $2,000,000 We ended the first quarter of twenty twenty five with lower net debt of 47,100,000.0 down from CAD47.8 million at the end of twenty twenty four and a leverage ratio of 2.8 times adjusted EBITDA, up from 2.4 times at the end of last fiscal quarter, a level at which we remain comfortable. Total available borrowing capacity on our credit facility stood at 36,700,000 I would now like like to turn the call over to the operator for the Q and A period.

Sylvie, Conference Call Operator: Thank you, sir. Ladies and gentlemen, if you do have any questions, please press star followed by one on your touch tone phone. You will then hear a prompt that your hand has been raised. And should you wish to decline from the polling process, please press followed by 2. And if you’re using a speakerphone, you will need to lift the handset first before pressing any keys.

Please go ahead and press 1 now if you do have any questions. First, we will hear from Kyle McPhee at Cormark Securities. Please go ahead, Kyle.

Kyle McPhee, Analyst, Cormark Securities: Hi, everyone. I want to dig into the impact of the institutional client contract repricing. You had disclosed that this client was 11% of 2024 revenue, but on a quarterly basis, is this client a much higher percentage of revenue in Q1 periods, given the institutional client may not be seasonal, but a lot of your other business is seasonal to the downside in Q1? Can you provide any clarity on that?

Louis Renette, President and Chief Executive Officer, Colabor Group: Hi, Kyle, it’s Louis. Yes, you’re right, that client represented 11% last year, and yes, in the Q1, it was a major, a bigger proportion. The proportion of the institutional customers in Q1 is higher because of the restaurants have lower volume in that period, so the mix is unfavorable on that. So, the answer is yes.

Kyle McPhee, Analyst, Cormark Securities: Okay. Can you tell us how much of your revenue weight this client was in Q1 of last year?

Louis Renette, President and Chief Executive Officer, Colabor Group: How much what? Sorry.

Kyle McPhee, Analyst, Cormark Securities: How much revenue, percentage of your revenue this institutional client was in Q1 of twenty twenty four? Just quantify

Louis Renette, President and Chief Executive Officer, Colabor Group: I don’t have that. In cases, it’s fairly similar. Okay, but in year over year, but I don’t know the proportion of that client last year.

Kyle McPhee, Analyst, Cormark Securities: Okay. Okay, so it looks like us analysts may have kind of underestimated the margin impact simply because of this seasonality dynamic. Now the opposite should be true going forward. Is that correct? This client will be is a lower percentage of revenue than 11% in kind of Q2, Q3, Q4?

Louis Renette, President and Chief Executive Officer, Colabor Group: Yeah, the average of last year was 11%, so in Q1 it was higher, so it will readjust over the year case of the seasonality and golf courses opening and the campaigns and yeah, so absolutely.

Kyle McPhee, Analyst, Cormark Securities: Okay. And your press release and comments mentioned steps taken to mitigate the impact of the repriced institutional contract. It looks like your wages expense line was a favorable moving part that helped in the Q1 you just reported. But with Q1 a full quarter benefit of these cost mitigation efforts with wages or will we see more progress with that in Q2 to claw back more margin dollars?

Pierre Blanchet, Chief Financial Officer, Colabor Group: Heiko, it’s Guerre. The answer to this is that, yes, we’ve taken actions. It did not hit the full Q1, you know, so it’s not the full effect has not been seen in Q1 and continue to look at operational efficiencies and any other factor to help us.

Kyle McPhee, Analyst, Cormark Securities: Got it, okay. And then beyond, you know, wage adjustments and operational efficiencies, are there other mitigation efforts that may start to help in Q2 and beyond, specific to how much margin you can make with this specific institutional client, maybe things like more volume on the truck to this client or shifting around margin mix, has that begun at all?

Louis Renette, President and Chief Executive Officer, Colabor Group: Yeah, the answer is yes, and as usual, we work to improve our margin mix with all of our customers, if you’re talking specifically about that customers. So the more products we sell that are outside of the contract, that helps the margins, and they’re very happy to have products from outside the contract such as our private label. As an example, we’re saying more private labels, so it’s, by definition, it helps raising the margin over time, And other products from meat and proteins that we find that are good for them, and so yes, it’s helping.

Kyle McPhee, Analyst, Cormark Securities: Okay, and would any of that had started in Q1 or is that kind of more Q2 and beyond?

Louis Renette, President and Chief Executive Officer, Colabor Group: Yeah, that contract was renewed I think December ’2, whatever of last year, and we did add some products, so we saw a small improvement, yeah.

Kyle McPhee, Analyst, Cormark Securities: Okay. And then your press release also mentioned that beyond this contract repricing dynamic that impacted margins in Q1, there was also some other unfavorable client mix that was margin drag. Can you explain what that means and if this was unique to Q1 or something we should be aware of going forward?

Louis Renette, President and Chief Executive Officer, Colabor Group: Yes, I explained the Q1 seasonality by the fact that restaurant sales are lower, the proportion of our institutional clients was higher, so that affected directly the mix and the margins, as we understand. To give a bit of color about the market and all of this, I think I should add that our market share in cases is increasing, okay, in the distribution segment. The client mix, as you understand, was unfavorable. The good news is that we keep gaining customers at a faster pace than last year in the quarter, partly due to our push from our sales in Western Part Of Quebec and the effect of Buy Local or Buy Canada brought on by the tariff war, and you know that there were very little affected by tariffs, but I think that’s important to mention. The, so the mix, talking about the mix and more about the restaurant, that’s the one that was hurt.

The equivalent of same store, same restaurant sales are lower by restaurants versus last year in that quarter, but we showed growth. It’s only because we gained new customers, and I was saying at a faster pace, so that’s great and we will continue to develop the business to do the push and it’s a good situation. When it comes back, it will be the effect like after COVID. So if you remember that, like we’re really hurt, but we gained stores during a difficult period and then when it reopened or things got settled, business came over Calabar. So the growth of that 3% comes from the M and A we did last year, the new customers that we got, okay, which is important, and some of the existing customers had growth, but I’m talking restaurants here, but very few of them, but at least that helped, and this result was mitigated in sales by the reduction in pricing at our institutional contract that we talk about and the poor performance of the restaurant sales per store.

Kyle McPhee, Analyst, Cormark Securities: Okay. Appreciate all that color. I’ll pass it along.

Sylvie, Conference Call Operator: Thank you. Next question will be from Michael Glenn at Raymond James. Please go ahead, Michael.

Michael Glenn, Analyst, Raymond James: Hey, good morning. So just to start off, can maybe can you are you able just to give us some ideas or thoughts surrounding how we should think about gross margin trending through the rest of 2025?

Louis Renette, President and Chief Executive Officer, Colabor Group: Yes, good morning. The mix will, by default, adjust, okay, because of seasonality, so that by definition, should be better going on forward for the rest of the year. Okay, so this is the, and the mix is affected by the seasonality and new stores that we’re getting. I understand that we make more margins when we’re getting new independent restaurants, and that’s what we’re doing on a daily basis. Our market shares prove it.

Michael Glenn, Analyst, Raymond James: Okay. And like to think about where you start the year relative to where you were last year on gross margin are the factors you’re speaking about. How much are we thinking about in terms of sequential improvement? Is it 50 basis points? Is there enough in hand to view

Louis Renette, President and Chief Executive Officer, Colabor Group: We give forward looking as you know, so it will improve. It should not get to the levels we had before, last year as an example, because of the significant impact of the margin reduction on an institutional contract, but the more independent restaurants we have, it’ll increase and over time it’ll readjust.

Pierre Blanchet, Chief Financial Officer, Colabor Group: Louis, would add that the industry will also dictate where it goes as if if restaurants are are are picking up faster or not picking up, then it definitely will the it drives the the margin as well.

Michael Glenn, Analyst, Raymond James: Louis, you spoke about gaining some market share given among the independent restaurants, just given your positioning in Quebec, I’m just wondering, are there any emerging opportunities with national chains who might be looking to source source change their sourcing strategy?

Louis Renette, President and Chief Executive Officer, Colabor Group: Depending of the definition of national. Yes. The national Quebec, the answer is yes. You understand that we don’t do we don’t ship outside of the Western provinces. We ship a little bit in Ontario, we’re good in New Brunswick, but the answer is yes.

That trend is favorable for us. So as I was saying in my comments, the push from our sales organization is working well, plus the inbound calls because of tariffs, so we’re invited to present our business case because we’re a large supplier, a large distributor, and we can compete straight with Cisco and JFS, and we can replace them in the province of Quebec as we’re organized today.

Michael Glenn, Analyst, Raymond James: Okay. And just on the transaction that we’re waiting for the closing for, can you provide some, just some thoughts as to what we should think about for expected closing? Are you able to indicate it feels like it’s been a little bit longer than expected to close. Are there some specific items that are delaying the close that you can speak to?

Pierre Blanchet, Chief Financial Officer, Colabor Group: Michael, it’s Pierre. We’re not going to get into the specifics, but there are closing conditions that we are working on. We agree, I agree with you. It’s a little bit longer than expected.

Michael Glenn, Analyst, Raymond James: Okay. I will leave it there. Thank you.

Pierre Blanchet, Chief Financial Officer, Colabor Group: Thank you.

Sylvie, Conference Call Operator: Next question will be from Frederic Tremblay at Desjardins. Please go ahead, Frederic.

Frederic Tremblay, Analyst, Desjardins: Thanks. Good morning. Just a bit of a follow-up on the last question there. In the financials, we see a note that says that the required closing conditions must be met by 05/20/2025. That’s pretty soon.

So I’m just wondering what’s your level of confidence that the conditions will be met by that date? And if they’re not, is there a possibility for an extension of the deadline there?

Pierre Blanchet, Chief Financial Officer, Colabor Group: Thanks, Frederic, for the question. Yes. Yes. May 20 is the outside date. Our our level of confidence is is good, and yet the possibility of extension could happen.

It’s in any contract, you know, everything is negotiable.

Frederic Tremblay, Analyst, Desjardins: Okay. Moving back to the the contract renewal, and this is a two year contract with two potential six month extensions. I was just, given those timelines, I was just curious to know what your internal expectations are in terms of like getting the full benefits of your mitigating actions on the margin. Are we talking about, I don’t know, a year from now, you would expect the full impact or full benefit from that or is it, you know, sooner or later than that? Just a bit of a timing perspective on implementation of your actions there.

Louis Renette, President and Chief Executive Officer, Colabor Group: So we did have mitigations to absorb the loss of profits on that, and it’s in part met, but not entirely. Okay, so the idea is to keep working on productivities. We adjusted our workforce help mitigate this, and the idea is to work on the top line with better margins, and over time, it will be covered. It takes time, it takes time to do this, but we’re in a I like the pace we’re on, gaining market shares like this is cool, at a same margin with normal customers or better margins, so that’s cool. As I was saying, we’re gaining customers at a faster pace than last year, Same quarter, it’s gonna be the same thing in Q2.

So, that’s the only forward looking I’m gonna give you on that, but the trend is good.

Frederic Tremblay, Analyst, Desjardins: Okay. I appreciate that. And last question for me, just on the distribution volume increase. Some of it is from market share gains, obviously. I was just curious, though, on the existing customers, like generally speaking, their volume demand, is it stable, up, down year over year?

And we obviously know that the restaurant industry is in a bit of a challenging place right now, but in terms of your own clients, like what’s the general trend that you’re seeing with your existing customers?

Louis Renette, President and Chief Executive Officer, Colabor Group: Frederic, in food service, don’t have access to the same data as retail with AC Nielsen, so what we know is that we’re wholesaler, we have around 125 distributors that order from us, and we’re also a distributor, and we all see sales per restaurant did decline versus last year. Okay? So it’s our data, internal data. We have other reports such Restaurants Canada and others that shows that it’s in March, that’s the last data that we have, March it improved by a point 1% over last year, so that’s a good sign from minus 4% in February, so that’s encouraging, but this is not a plus 8%, minus 10% that we should see.

Frederic Tremblay, Analyst, Desjardins: Understood. Thanks for taking the question.

Louis Renette, President and Chief Executive Officer, Colabor Group: Merci.

Sylvie, Conference Call Operator: Next question will be from Don Angelo Volpe at Beacon Securities. Please go ahead.

Don Angelo Volpe, Analyst, Beacon Securities: Hey, good morning everyone. Just looking at the wholesale activities, I noticed it was down as a result of restaurant industry slowdown. I was just looking for any commentary regarding the slowdown you guys are seeing. Is it mostly slowdown across independents? Or is it more of a broad based slowdown?

And you guys kind of touched on it, I guess, on the last question, but have there been signs of a pickup of activity throughout the first month of the second quarter?

Pierre Blanchet, Chief Financial Officer, Colabor Group: Hi, Don Angelo, and

Louis Renette, President and Chief Executive Officer, Colabor Group: welcome to the analyst guys. So the answer is yes. There’s a slowdown in the although the pace is better, okay, the decline is not as great as it was in the previous quarters, so that’s a good sign. But, there’s a slowdown with the independent restaurants. Okay?

So that’s the answer. And the second part of your question I missed. I

Don Angelo Volpe, Analyst, Beacon Securities: guess you guys kind of touched on it with, I guess you guys said the March data was the most recently available, and you did see a little uptick, up 1%. The second part of my question was just relating to if you guys had been seeing signs of a pickup of activity throughout the first month of the second quarter.

Louis Renette, President and Chief Executive Officer, Colabor Group: Yeah. We don’t share that information.

Kyle McPhee, Analyst, Cormark Securities: Yep.

Louis Renette, President and Chief Executive Officer, Colabor Group: So it’s I can answer that. The the market is is relatively stable overall. K? Okay.

Kyle McPhee, Analyst, Cormark Securities: Okay. Thank you. I’ll hop back in the queue.

Louis Renette, President and Chief Executive Officer, Colabor Group: So so our job is and that that pie that shrink on the restaurant side, we got more market shares. Okay, and with the M and A and the gain of customers, so that’s why we look good with a 3% increase on that side. If you take into consideration the effect of the institutional contract that dragged down our sales, we’re on the right. I’m very happy with my team and the excitement we have at gaining customers, so this is an adjustment period, and it’s going I’m very satisfied with those gains of customers.

Kyle McPhee, Analyst, Cormark Securities: Okay. Perfect. Thank you for the color. I’ll hop back in the queue.

Sylvie, Conference Call Operator: And at this time, Mr. Franette, it appears we have no other questions. Please proceed.

Louis Renette, President and Chief Executive Officer, Colabor Group: Thank you, Sylvie. Thank you, Kyle, Frederic, Michael and Daniel, for your questions. Our ability to continue gaining market shares, as I said, in a challenging restaurant and industrial environment is a testament of our diversification strategy and validates our expansion into Western Quebec. We are about to enter the busy spring and summer season. Our focus remains on, as Pierre mentioned, closing and integrating the Adyen plus acquisition, expanding our presence organically and inorganically in Western Quebec, promoting our locally sourced offering, including our private label brand, which benefits from the buy local tailwind, generating revenues and operating efficiencies, improving our product mix, and leveraging our position as the province’s largest locally focused supplier to the food service industry.

Again, we’re in a good position and I’m enthusiastic about our position in the marketplace and our ability to continue on the path to profitable growth. This concludes our call for the first quarter of fiscal twenty twenty five. Thank you for joining us. Stay safe and healthy, and see you at our upcoming virtual AGM on May 8.

Sylvie, Conference Call Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we ask that you please disconnect your lines. Have a good weekend.

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