Jewett-Cameron Trading Company Ltd. (JCTC) Q1 2025 Earnings Report, Transcript and Summary

Good day, and welcome to the Jewett-Cameron Trading Company Reports First Quarter Fiscal Year 2025 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Robert Blum. Please go ahead, sir.

All right. Thank you very much, operator, and thank you all to everyone for joining the call today. As the operator indicated, we are discussing Jewett-Cameron's fiscal year 2025 first quarter financial results for the period ended November 30, 2024. With us on the call representing the Company today are Chad Summers, Jewett-Cameron's Chief Executive Officer; and Mitch Van Domelen, the Company's Chief Financial Officer. At the conclusion of today's prepared remarks, we'll open the call for a question-and-answer session. [Operator Instructions]. Before we begin with our prepared remarks, please note that statements made by the management team of Jewett-Cameron during the course of this conference call may contain forward looking statements within the meaning of U.S. Securities laws. Forward looking statements describe future expectations, plans, results or strategies and are generally preceded by words such as may, future, planned, will, should, expected, anticipates or similar words. Listeners are cautioned that such statements are subject to a multitude of risks and uncertainties that could cause future circumstances, events or results to differ materially from those identified in the forward-looking statements as a result of various factors and other risks identified in the Company's 10-K for the fiscal year ended August 31, 2024 and other filings made with the Securities and Exchange Commission. An audio recording and webcast replay for today's conference call will also be available online on the Company's Investor Relations page. With that said, let me turn the call over to Chad Summers, Chief Executive Officer for Jewett-Cameron. Chad, please proceed.

Thank you, Robert, and good afternoon to all of you. I'm excited to speak with you all again today. One of our key strategic initiatives this past year has been to improve the visibility of Jewett-Cameron in the investment community, and today's call is an important part of that effort. During our first ever earnings call back in November, we spent quite a bit of time walking through the history of Jewett-Cameron as well as our initiatives to drive shareholder value in the years to come. For today's call, I will provide updates on those initiatives and how we are positioned to execute on our ultimate goal to drive profitability in the business and improve shareholder value. As Robert mentioned, Mitch Van Domelen, Jewett-Cameron's CFO, is with me again today and will dive into the key drivers of our first quarter financial results. And at the conclusion of our prepared remarks, we'll be happy to answer any questions you might have. Over the past few years, we have been guided here at Jewett-Cameron by our mission to improve the lives of professionals and do-it-yourselfers with innovative products that enrich outdoor spaces. We offer quality products that solve problems and fulfill unmet needs at competitive prices. As we mentioned during our last call, Jewett-Cameron was founded over 70 years ago and was owner-operated and managed for nearly 40 years. The Company was lean and opportunistic acquiring an eclectic combination of businesses, but we had aging technology and operational processes unable to scale. It has been my focus since taking over as CEO a few years ago to become a more focused company that can scale profitably. This has required us to aggressively improve our systems and processes in everything from supply sourcing to product marketing, all of which are well underway.

Let me provide some updates on these initiatives, and let's start with the end in mind, profitable sales growth. One of our biggest near-term initiatives to drive profitable sales growth has been our innovative in-aisle displayers in major home centers, including the two largest in the United States, The Home Depot and Lowe's. With approximately 4,000 stores across the country between Home Depot and Lowe's, we are able to meet the needs of professionals and DIYers wherever they most want our products. We first introduced our innovative Adjust-A-Gate product years ago, and we're able to place them conveniently in displayers adjacent to the lumber aisles where people were purchasing their wood fence supplies. Last year, we were successful in developing an in-aisle displayer for our Lifetime Steel Post to also be placed in the lumber aisle. This has opened up a tremendous growth opportunity to better serve anyone building a fence with the option to use a Lifetime Steel Post, which can be driven directly into the ground in many parts of the country. If installed similar to a traditional fence post, it requires a smaller fence post hole and less concrete and will never rot, which is an issue with treated wood fence post overtime.

So let me add a little more color on how we anticipate these fence product displayers to contribute to our second half results fiscal 2025. An in-aisle displayer is similar to a vending machine in that they are loaded up with our product and they sell, and as they sell, more product is replenished or reloaded into them. Getting these displayers in the right stores, in the correct locations, especially ahead of the spring and summer seasons is expected to drive increased sales volume. Typical fence projects often include 1 or 2 gates and dozens of fence posts, so it is critical to replenish or reload the displayers with more product to meet the need the fence builders. The way these displayers impact our financial performance is initially when they are loaded into the store with a displayer and the products loaded in them. In order to meet the demand from our customers for these displayers for the upcoming season, we produce them domestically. While this accelerated getting those displayers into the stores in various reasons, it came at an increased cost per displayer, which impacts our gross margin to some extent. For the Adjust-A-Gate products, as I mentioned, we have thousands of in-aisle displayers across primarily Home Depot and Lowe's. Some of these have been in use for a dozen years or more, while others have, relatively new. We also will move them from store-to-store based on regional demand. Overall, we installed over 1,500 new displayers in just the last six months. For the Lifetime Steel Post displayers, we are just getting started. Our first in-aisle displayers were only installed in May of 2024 in Southern California. In the five months from May through August, we installed displayers in approximately 100 stores up and down the West Coast and Northwest region. In the three months of our Q1 2025, which runs from September through November, we installed another 100 displayers and expect to be in over 300 stores within the next few months. Growth in overall number of displayers particularly on the Lifetime Steel Post side has been and will continue to be a key driver to 2025 sales growth in Lifetime Steel Post. Load-in sales are only part of the equation. Pull-through demand from the consumers is essential to have these stores order replenishment posts to restock these displayers. That's why it's important to evaluate the dollar-based and unit-based point-of-sale or POS data. POS data for Adjust-A-Gate and LTP products in key retailers highlighted strong end-market year over year growth during Q1, highlighting the success of the Company's display strategy. This demonstrates the effectiveness of our in-store displays and is expected to lead the replenishment orders in the second half of fiscal 2025 in addition to loading in more displayers in more stores. Beyond basic marketing initiatives with our new sales representative partner Continental Sales & Marketing, whom we discussed last quarter, we also are working on improved presentation of the displayers to drive increased gate sales. This improvement, coupled with our strategic advice on accelerating the rate of displayer adoption and assisting us on optimal location placement, has proven incredibly valuable to us in the last few months. As I mentioned, coupling display replacements with improved marketing of our products to enhance pull through of product is key. Early indicators of POS data from our customers is showing incredible traction. One further dynamic is the seasonality of our business. As you can imagine, more people, particularly in the northern states where it's cold and wet, are doing their fenced installations in the spring summertime. However, there are those states in the Sunbelt that generally maintain a more year-round demand. The ability to get the in-aisle displayers up and running as effectively as possible heading into the spring summer months, which corresponds with the back half of our fiscal year, is a key objective for our growth this year and one we believe we are on track to achieve. And let me just leave you with one final quote from Mike Siuda, our VP of Sales and Marketing, who has worked in the industry for years at other reputable building product suppliers on the success of our LTP, our Lifetime Steel Post displayers and products, “We have never seen big box demand for a product like this.” Our sales rep, Continental, has echoed this statement. Needless to say, I am pleased with this progress. I know I went into a bit more detail there than I might normally on the dynamics of an in-aisle display, but I did feel it was important to understand each of the critical success components and how we are executing on each one of them to set ourselves up for not just the second half of fiscal 2025, but for years to come. It is worth mentioning that our supply chain initiatives to multi-source our production with strategic sourcing partners in various countries has progressed well and created less dependence on one specific supply source for any single product or component. This has been a major project over the last two years and we believe, has successfully mitigated the impact of China tariffs, which helps ensure our continued competitiveness of our product pricing.

Let's transition to a few other key strategic initiatives, starting with product innovation. In December, we launched our new Adjust-A-Gate Unlimited. This complete gate kit redefines adaptability and simplicity for gate construction and is designed with flexibility and customization at its core. This innovative gate kit features a low-profile corner bracket solution that allows for fully adjustable gate designs, empowering professionals and DIYers with greater control to create gates tailored to their unique needs. Its innovative design provides all the benefits of a steel no sag gate frame with minimal visibility of the steel. So, the focus is on the gate, not the frame. The kit supports both horizontal and vertical gate designs, and accommodate sizes up to 72 inches high and 84 inches wide. Additionally, its patent pending design with anti-sag technology ensures gate stay straight and secure over time, solving one of gate owners' most common challenges. With its durable steel corner brackets, all necessary hardware, and a comprehensive installation guide, the Adjust-A-Gate Unlimited is designed for users of all skill levels. Its straightforward installation process can be completed in very little time. Beyond its technological advancements, the Adjust-A-Gate Unlimited is sold as an all-in-one complete integrated system at a competitive price point compared to other gate kits that require purchasing additional parts such as latches, hinges, and other components to complete a gate project. This is just the first of multiple new products planned for the fiscal year. I am pleased that we continue to be at the forefront of innovation to enrich outdoor spaces. As you can hear, we are operating at a high level within our metal fence category. Overall, in Q1, our metal fence solutions were up 19% compared to Q1 of last year. We are seeing growth in customer demand, growth in new stores carrying our in-aisle displayers, and we are continuing to bring exciting new products to the market. The stage is set for an improved fiscal 2025.

Beyond our metal fence products, let me quickly discuss a few of our other initiatives. Within our wood fence products, where for many years we've served as a secondary supplier of cedar fence boards to major home centers, we are starting to see the availability of western redcedar come back, allowing us to get back on track with a book from a booking standpoint. Overall, we saw a 4% year-over-year growth during Q1. Within our pet containment products, we continue to see softness within the retail channel following the surge from the pandemic in pet ownership. We are working on various marketing strategies and are meeting with key customers to better understand the market and how we can ensure maximum effectiveness in product placements. We are also launching a new and improved Lucky Dog chain link kennel in a few months to address common complaints of chain link kennels around quality and assembly difficulties, which we believe can help boost this area for us. Within our sustainable products category led by our proprietary MyEcoWorld compostable and post-consumer recycled or PCR bag products, the financial results show the impact from a large load in we received from a major customer last year and the absence of that similar load in this year. We've been working to diversify this reliance on one customer with strong headway being made with large and regional retailers to increase in store placements. We are currently scheduled for load-ins in multiple regional grocery chains in calendar year 2025 and are also seeing some positive response from international customers as well. Progress is certainly being made, which I hope to be able to share more with you about in the coming months. And finally, at Greenwood, we continue to normalize from the higher demand we saw a year ago as municipalities and transit operators caught up on deferred vehicle production post the pandemic. We have added two new traders to our team so far this year and we look forward to their additional sales contributions. This business remains steady at current levels as we now operate in a much more normalized environment which we expect will continue going forward.

And before I turn it over to Mitch to review the financials in more detail, let me provide an update on the asset sale of our seed processing facility. As a reminder to those of you who may be new to the Company, as part of the conglomeration of the various businesses the Company has had over the years, we ran a seed cleaning facility based here in Oregon. It's in a great location with high quality warehousing space readily available. From an operation standpoint, we shut down the cleaning operation in August of 2023 and wrapped up seed storage near the end of fiscal 2024. The 11.6-acre property is currently on the market, and it is our belief that the value we will receive for this will be well north of what is currently on the bookstore, and thus it will be additive to our overall shareholder value. Currently, we have it listed for sale at $9 million although no assurance can be given that, that will be the price we receive for it, and it sits on our books for less than $600,000. We are in preliminary discussions with various parties, but nothing thus far has progressed to a point where further details are warranted. While we wait for a potential ideal party to sell the facility to, we may elect to lease part of the space to generate income in the near term. But it's important to note that our goal is to fully monetize the asset and put the capital to best use once sold for the benefit of the Company and our shareholders.

With that said, let me turn it over to Mitch for a detailed review of the financials. I will then provide some brief closing comments and turn it over for any questions. Mitch?

Thank you, Chad, and good afternoon to everyone on the call today. My comments will focus on adding color to the key areas and events that had material influence on the quarter's performance. I will of course answer any questions that you might have later on this call during the Q&A period. Let's start with the revenue line. I'd like to remind our long-time investors and more recent shareholders that our revenue tends to be very seasonal with the majority of our impactful sales occurring in our third and fourth fiscal quarters, March through August. As such, Q1 and Q2 sales results are slower than the second half of the year. Revenue for the first quarter of 2025 was $9.3 million compared to $9.8 million in 2024. As Chad mentioned, sales of metal fencing products increased 19% compared to Q1 2024, driven by the ongoing load-in of new Lifetime Steel Post in store displayers. Wood fencing product sales increased by 4% compared to the same period. Overall, fence products represent approximately 79% of our Q1 sales. Demand for pet products continues to be weak as sales in the current quarter declined by 31% compared to Q1 of 2024. Sales of compostable products were also down in this quarter as a major customer made a large purchase to take advantage of a regional promotion of our compostable bags in the prior year's quarter, which was not repeated this year. Sales at our Greenwood operating segment for the current quarter were $0.8 million compared to $1.1 million in Q1 of 2024, as the prior year's period was boosted by initial higher demand from municipalities and transit operators catching up on deferred vehicle production post pandemic. As Chad mentioned, as we look to fiscal 2025, the growth initiatives we have implemented, particularly the Lifetime Steel Post displayer load-in and anticipated replenishment orders, anticipated reorders from the increased and improved marketing of Adjust-A-Gate displayers and onboarding new regional grocery retailers carrying our sustainable bags is expected to offset softness in our Pet Solution business. Turning to gross margins. Gross profit margins for Q1 2025 were 18.3% compared to 19.9% in Q1 of 2024, also compared to 14.5% in Q4 of 2024. The decrease in gross profit margins from the year ago period primarily relate to higher shipping and logistics costs, particularly in sharply higher ocean shipping container rates. The high cost of additional in-store display units produced domestically and deployed during the current quarter also increased our cost compared to the first quarter of fiscal 2024, but we believe this to be an investment in our future growth strategy. Initiatives to improve gross margins, including new supply chain partners and enhanced pricing strategies are expected to result in margin improvements in future quarters. Turning to operating expenses. Operating expenses during the first quarter of 2025 were $2.6 million compared to $2.7 million in Q1 of fiscal 2024. The decrease is primarily due to a reduction in professional fees from the prior year due to the settlement of legal matter as well as initiatives taken by the Company to implement operational efficiencies and realigning headcount to new business practices. As a reminder, during first quarter of last year, we successfully settled a multiyear arbitration dispute with a former distributor and received a onetime cash payment of $2.45 million in October of 2023. This payment offset legal fees and some of the losses in connection with the arbitration. You'll see this presented as a net amount in the income statement. Loss from operations for Q1 2025 was $0.9 million compared to $0.8 million loss in Q1 of fiscal 2024. Net loss for Q1 of 2025 was $0.7 million or negative $0.19 per basic and diluted share compared to net income of $1.3 million or $0.37 per basic and diluted share in Q1 of 2024. Again, the change in that loss is primarily a result of the legal settlement received in Q1 of last year and other below the operating line items. As Chad mentioned, it is our expectation with the initiatives in place to drive sales, improve gross margins, right-size our operating structure, and move the Company towards profitability in fiscal 2025. Finally, a few comments on the balance sheet. As part of our initiatives to improve working capital, we’ve reduced our inventory balances by 23% to $13.5 million at November 30, 2024 from 17.5% at November 30, 2023. Our cash balance at November 30, 2024 was $3 million compared to $3.6 million at November 30, 2023, and we currently have no long-term debt. I do want to note that we have access to a $6 million revolving line of credit that we use for seasonal working capital needs. Based on the seasonality of our normal cash cycle, we typically see our working capital needs spike in the early spring as we transition our inventory to sales and thus collections. Our credit facility is currently available to support these seasonal working capital needs. Finally, our total stockholders' equity at November 30, 2024 was $24.2 million or $6.90 per share. And as Chad touched on, our carrying balance of the seed processing facility is less than $600,000 whereas we currently have it listed for $9 million for sale. The successful sale of this real estate and facility would dramatically improve shareholder equity. We hit some of those topics from a pretty high level and covered them pretty quickly, but we're happy to answer any additional questions you might have. So let me turn it back over to Chad.

Thanks, Mitch, for the detailed overview. Let me just wrap things up here with a few key comments and takeaways. First, our focus is keenly on driving shareholder value. To accomplish this, we have instituted key strategic initiatives in four key areas: growth drivers, product innovation, supply chain and operational efficiency, and asset monetization. There is more work to be done. However, I believe we are better positioned today to deliver on the opportunity that Jewett-Cameron represents to our customers, our retail partners, and shareholders than at any point in our recent history. I'm excited about, our future, and I'm appreciative of the support from our shareholders. With that, let me turn the call over to the operator for any questions. Operator?

Thank you. We will now begin the question-and-answer session. [Operator Instructions]

Chuck, while we wait to see if anyone comes into the queue, I've got a couple of webcast questions. And just a reminder to everyone on the webcast, if you'd like to submit a question, you can go ahead and submit it through the Ask-a-Question box on the webcast player. Chad, I think you touched a bit on this, but maybe if you can just expand or reiterate anything about your plans for use of capital in the sale of the 11.6-acre property?

Yes. Thank you for that question. And I wish I could say more than what I've shared in my prepared responses, but it's too preliminary now with the people and the opportunities that we're talking to. But we will, put it to good use for both the benefit of the Company and to our shareholders, but that strategy is being discussed and evaluated among the Board members.

Okay, great. Looks like maybe just a couple of other questions here. Again, if you'd like to ask a question, go and submit it through the Ask-a-Question box there. Can you talk about any other retailers besides Home Depot and Lowe's that are looking to add where you're looking to add displayers?

Yes. Great question. We are in conversations and have been over the years. Our focus on the prepared remarks tend to focus more on the Home Depot and Lowe's outlets where they are en masse. We do have displayers in other retailers that have a physical presence, and the new Adjust-A-Gate Unlimited also provides opportunities for more displayers because they come in a much smaller package. So, regional and other retailers that have a space where it makes sense, we are talking to, about getting those displayers again where it makes sense. Not every retailer, especially if they're smaller, has room for in-aisle displayers. So that is a consideration.

Okay, great. Again, one final reminder here. If you'd like to ask a question through the Ask-a-Question box, please go ahead and submit it there. Can you just talk a little bit, Chad, about so little insider ownership of the Company shares, maybe just insider ownership in general, any comments there?

Yes, sure. Our company has definitely gone through some changes in recent years. Over the last 40 years leading up to my arrival, it was largely held by two primary insiders or owners and management of the firm. One of them passed away in 2019, and the other retired a few years later and sold off his shares as he went off into retirement. And that created a big shift in the history of the, internal share ownership. We have an RSA plan where executives are awarded shares as part of their bonus strategy and the opportunity outside of the blackout periods for other employees and executives to also purchase shares as well. So, the share ownership internally has shifted dramatically in the last five years.

Okay, great. Showing no further questions here, Chad. I'll go ahead and turn it back over to you for any closing remarks.

Is that to me or to Chad?

To Chad, to yourself for any closing remarks that you might have there.

Yes. All right. Thank you. Again, I want to thank you all for your continued interest and support of Jewett-Cameron. We have some great opportunities ahead of us, and I believe we are in a great position to achieve our goals. And so, I just want to thank you all again for your time and participation today and wish you all a very good afternoon. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.