Press Release Details

Franchise Group, Inc. Announces Fiscal 2022 Second Quarter Financial Results

Aug 04, 2022 at 4:01 PM EDT

DELAWARE, Ohio, Aug. 04, 2022 (GLOBE NEWSWIRE) -- Franchise Group, Inc. (NASDAQ: FRG) (“Franchise Group,” “FRG” or the “Company”) today announced the financial results of its fiscal 2022 second quarter. For the second quarter of fiscal 2022, total reported revenue for Franchise Group was $1.1 billion, net income from continuing operations was $41.0 million or $0.94 per fully diluted share, Adjusted EBITDA was $103.4 million and Non-GAAP EPS was $1.19 per share.    On June 25, 2022, total cash on hand was approximately $95.0 million and outstanding term debt was approximately $1.1 billion.  

“Core to FRG is an intentional model of operational and end market diversification that is serving us well during the recent supply and demand turbulence. Accelerating franchising and continued profitable growth in pet, health & wellness, and education services are countering reduced top and bottom-line performance in our home furnishings businesses. Currently, we are seeing signs that inflation is cresting and even reversing in the areas of freight and home furnishing product costs. We believe that market forces will continue to shift in our favor over the balance of the year and begin to restore our home furnishings unit volumes and profit margins to historical levels next year,” stated Brian Kahn, Franchise Group’s President and CEO.

The Company has six reportable segments: American Freight; The Vitamin Shoppe; Pet Supplies Plus; Buddy’s; Sylvan; and Badcock. The following table summarizes Revenue, Adjusted EBITDA, and Net Income/(Loss) for each of these segments.   Reconciliations of Adjusted EBITDA, Non-GAAP Net Income and Non-GAAP EPS to their respective most comparable GAAP measures, are included below under “Non-GAAP Financial Measures and Key Metrics.”

    For the Three Months Ended   For the Six Months Ended
    June 25, 2022   June 25, 2022
        Adjusted   Net       Adjusted   Net
    Revenue   EBITDA   Income/(Loss)   Revenue   EBITDA   Income/(Loss)
    (In thousands)   (In thousands)
American Freight   $         226,428   $            7,443     $            2,236     $         467,843   $           23,325     $               803  
Vitamin Shoppe   306,897   38,414     18,332     617,851   78,908     39,737  
Pet Supplies Plus   302,733   27,244     11,298     603,946   51,465     19,423  
Buddy's   14,129   4,093     1,883     29,713   9,328     4,448  
Sylvan Learning   11,512   3,887     408     21,556   6,715     574  
Badcock   233,299   26,163     14,422     489,558   52,273     11,563  
Corporate   -   (3,825 )   (7,596 )   -   (6,255 )   (23,247 )
Total   $      1,094,998   $         103,418     $           40,983     $      2,230,467   $         215,759     $           53,301  
                                 

Outlook

Franchise Group is updating its previously announced financial outlook for fiscal year 2022 to revenue of approximately $4.3 billion from $4.45 billion, Adjusted EBITDA to approximately $390 million from $450 million and Non-GAAP EPS to approximately $4.00 per share from $5.00 per share. In calculating EPS, the Company is using approximately 41.0 million weighted average shares outstanding. Non-GAAP EPS is calculated by adding the tax effected impact of adjustments to EBITDA to net income on a per share basis. In calculating GAAP and Non-GAAP EPS, the Company is currently using an effective tax rate of approximately 27%.

The Company does not provide a quantitative reconciliation of forward-looking, Non-GAAP financial measures such as forecasted Adjusted EBITDA or Non-GAAP EPS to the most directly comparable GAAP financial measures because it is difficult to reliably predict or estimate the relevant components without unreasonable effort due to future uncertainties that may potentially have significant impact on such calculations, and providing them may imply a degree of precision that would be confusing or potentially misleading. Estimates exclude potential acquisitions, divestitures or refranchising activities. See “Non-GAAP Financial Measures and Key Metrics.”

Conference Call Information

Franchise Group will conduct a conference call on August 4th at 4:30 P.M. ET to discuss its business, review financial results for its fiscal 2022 first and discuss its outlook for the balance of fiscal year 2022. A real-time webcast of the conference call will be available on the Events page of Franchise Group’s website at www.franchisegrp.com. Dial in access is also accessible through the link on the website. Please register 5-10 minutes prior to the scheduled start time.

About Franchise Group, Inc.
Franchise Group is an owner and operator of franchised and franchisable businesses that continually looks to grow its portfolio of brands while utilizing its operating and capital allocation philosophy to generate strong cash flow for its shareholders. Franchise Group’s business lines include Pet Supplies Plus, American Freight, The Vitamin Shoppe, Badcock Home Furniture & more, Buddy’s Home Furnishings and Sylvan Learning. On a combined basis, Franchise Group currently operates over 3,000 locations predominantly located in the U.S. that are either Company-run or operated pursuant to franchising and dealer agreements.

FRANCHISE GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets 
         
(In thousands, except share count and per share data)   June 25, 2022   December 25, 2021
Assets   (Unaudited)   (Unaudited)
Current assets:        
Cash and cash equivalents   $ 95,038   $ 292,714
Current receivables, net   178,687   118,698
Current securitized receivables, net   322,028   369,567
Inventories, net   825,393   673,170
Current assets held for sale   27,999   -
Other current assets   26,389   24,063
Total current assets   1,475,534   1,478,212
Property, plant, and equipment, net   226,771   449,886
Non-current receivables, net   10,402   11,755
Non-current securitized receivables, net   40,820   47,252
Goodwill   806,653   806,536
Intangible assets, net   122,347   127,951
Tradenames   222,703   222,687
Operating lease right-of-use assets   866,226   714,741
Investment in equity securities   24,394   35,249
Other non-current assets   19,151   18,902
Total assets   $ 3,815,001   $ 3,913,171
Liabilities and Stockholders' Equity        
Current liabilities:        
Current installments of long-term obligations   $ 322,363   $ 486,170
Current operating lease liabilities   178,278   173,101
Accounts payable and accrued expenses   425,728   410,552
Other current liabilities   41,671   50,833
Total current liabilities   968,040   1,120,656
Long-term obligations, excluding current installments   1,281,530   1,383,725
Non-current operating lease liabilities   701,185   557,071
Other non-current liabilities   95,392   88,888
Total liabilities   3,046,147   3,150,340
         
Stockholders' equity:        
Common stock, $0.01 par value per share, 180,000,000 shares authorized, 40,358,754 and
 40,296,688 shares issued and outstanding at June 25, 2022 and December 25, 2021,
 respectively.
                           404                            403
Preferred stock, $0.01 par value per share, 20,000,000 shares authorized, and 4,541,125
 issued and outstanding at June 25, 2022 and December 25, 2021, respectively.
                              45                               45
Additional paid-in capital                     486,059                     475,396
Retained earnings                     282,346                     286,987
Total equity                     768,854                     762,831
Total liabilities and equity   $ 3,815,001   $ 3,913,171
         

 

        

FRANCHISE GROUP, INC. AND SUBSIDIARIES
         Consolidated Statements of Operations
 
                         
    Three Months Ended   Six Months Ended
(In thousands, except share count and per share data)   June 25, 2022   June 26, 2021   June 25, 2022   June 26, 2021
    (Unaudited)   (Unaudited)   (Unaudited)     (Unaudited)  
Revenues:                        
Product   $ 952,009     $ 805,768     $ 1,931,173     $ 1,389,585  
Service and other   135,648     48,193     283,929     76,768  
Rental   7,341     8,797     15,365     17,750  
Total revenues   1,094,998     862,758     2,230,467     1,484,103  
Operating expenses:                        
Cost of revenue:                        
Product   600,780     522,576     1,217,364     861,991  
Service and other   8,732     934     17,395     1,339  
Rental   2,741     2,935     5,603     5,940  
Total cost of revenue   612,253     526,445     1,240,362     869,270  
Selling, general, and administrative expenses   405,639     278,157     782,633     503,702  
Total operating expenses   1,017,892     804,602     2,022,995     1,372,972  
Income from operations   77,106     58,156     207,472     111,131  
Other expense:                        
Bargain purchase gain   3,581     -     3,514     -  
Gain on sale-leaseback transactions, net   49,854     -     49,854     -  
Other   12,853     -     (9,122)     (36,726 )
Interest expense, net   (88,839 )   (22,865 )   (181,167 )   (70,300 )
Income from continuing operations before income taxes   54,555     35,291     70,551     4,105  
Income tax expense (benefit)   13,572     2,770     17,250     (81 )
Income from continuing operations   40,983     32,521     53,301     4,186  
Income from discontinued operations, net of tax   -     6,215     -     48,363  
Net income attributable to Franchise Group, Inc.   $ 40,983     $ 38,736     $ 53,301     $ 52,549  
                         
Income per share from continuing operations:                        
Basic   $ 0.96     $ 0.76     $ 1.22     $ -  
Diluted   0.94     0.74     1.19     -  
                         
Net income per share:                        
Basic   $ 0.96     $ 0.91     $ 1.22     $ 1.20  
Diluted   0.94     0.89     1.19     1.20  
                         
Weighted-average shares outstanding:                        
Basic   40,356,299     40,175,058     40,331,855     40,142,571  
Diluted   41,126,605     40,905,567     41,148,668     40,142,571  
                         

 

FRANCHISE GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
             
             
    Six Months Ended
(In thousands)   June 25, 2022   June 26, 2021
    (Unaudited)   (Unaudited)
Operating Activities            
Net income   $ 53,301     $ 52,549  
Adjustments to reconcile net income to net cash provided by (used in) operating activities:            
Provision for doubtful accounts   56,840     1,910  
Depreciation, amortization, and impairment charges   42,236     31,157  
Amortization of deferred financing costs and prepayment penalties   12,032     69,923  
Amortization of securitized debt discount   128,208     -  
Stock-based compensation expense   10,853     5,478  
Change in fair value of investment   10,855     -  
Gain on sale-leaseback, bargain purchases, and sales of Company-owned stores   (55,883 )   (731 )
Other non-cash items   (2,182 )   645  
Changes in other assets and liabilities   (206,572 )   (55,305 )
Net cash provided by operating activities   49,688     105,626  
Investing Activities            
Purchases of property, plant, and equipment   (21,809 )   (25,028 )
Proceeds from sale of property, plant, and equipment   240,558     293  
Acquisition of business, net of cash and restricted cash acquired   (3,754 )   (462,821 )
Issuance of operating loans to franchisees   -     (17,612 )
Payments received on operating loans to franchisees   1,000     23,013  
Net cash (used in) investing activities   215,995     (482,155 )
Financing Activities            
Dividends paid   (54,665 )   (32,808 )
Issuance of long-term debt and other obligations   219,056     1,306,724  
Repayment of long-term debt and other obligations   (625,746 )   (856,385 )
Issuance of common stock   49     -  
Issuance of preferred stock   -     79,542  
Principal payments of finance lease obligations   (1,383 )   -  
Payment for debt issue costs and prepayment penalty on extinguishment   (431 )   (87,502 )
Other stock compensation transactions   (239 )   (18 )
Net cash provided by (used in) financing activities   (463,359 )   409,553  
Effect of exchange rate changes on cash, net   -     142  
Net increase (decrease) in cash equivalents and restricted cash   (197,676 )   33,166  
Cash, cash equivalents and restricted cash at beginning of period   292,714     151,502  
Cash, cash equivalents and restricted cash at end of period   $ 95,038     $ 184,668  
Supplemental Cash Flow Disclosure            
Cash paid for taxes, net of refunds   $ 17,842     $ 1,284  
Cash paid for interest   42,013     61,249  
Accrued capital expenditures   2,751     3,406  
Tax receivable agreement included in other long-term liabilities   -     1,211  
             

Non-GAAP Financial Measures and Key Metrics

Adjusted EBITDA, Non-GAAP Net Income and Non-GAAP EPS are financial measures that are not prepared in accordance with GAAP. Management believes the presentation of these measures is useful to investors as supplemental measures in evaluating the aggregate performance of the Company’s operating businesses and in comparing its results from period to period because they exclude items that the Company does not believe are reflective of its core or ongoing operating results. These measures are used by management to evaluate the Company’s performance and make resource allocation decisions each period. These metrics are also used in the determination of executive management's compensation. Adjusted EBITDA, Non-GAAP Net Income and Non-GAAP EPS should not be considered in isolation or as a substitute for net income or other income statement information prepared in accordance with GAAP and our presentation of these non-GAAP measures may not be comparable to similarly titled measures used by other companies.

Management defines and calculates Adjusted EBITDA as net income (loss) from continuing operations before interest, income taxes, depreciation and amortization adjusted for certain non-core or non-operational items related to executive severance and related costs, stock-based compensation, shareholder litigation costs, corporate governance costs, accrued judgments and settlements, net of estimated revenue, store closures, rebranding costs, acquisition costs, inventory fair value step up amortization and prepayment penalty on early debt repayment. Adjusted EBITDA is a financial measure that is not prepared in accordance with GAAP.

Management defines and calculates Non-GAAP Net Income and Non-GAAP EPS as net income (loss) and net income (loss) per diluted share from continuing operations adjusted for non-core or non-operational items related to executive severance and related costs, stock-based compensation, non-cash executive compensation expense, shareholder litigation costs, prepayment penalties on early debt repayment, non-cash amortization of debt issuance costs, store closures, the Badcock segment's in-house financing operations, rebranding costs, acquisition costs, inventory fair value step up amortization, and amortization of acquired intangible assets. Although amortization of acquired intangible assets is excluded from these non-GAAP measures, it is important for investors to understand that such intangible assets support revenue generation. Management excludes amortization of intangible assets because these are non-cash amounts for which the amount and frequency are significantly impacted by the timing and size of our acquisitions, which vary from period to periods and across companies. The tax effect on the related non-GAAP adjustments was calculated based on an estimated annual non-GAAP effective tax rate of 27%.

Reconciliation of Adjusted EBITDA
Below are reconciliations of Net Income/(Loss) from continuing operations to Adjusted EBITDA for the three and six months ended June 25, 2022.

    For the Three Months Ended June 25, 2022
($ In thousands)   Buddy's   Pet Supplies Plus   American Freight   Vitamin Shoppe   Sylvan   Badcock   Corporate     Total
Net income (loss) from continuing operations   $ 1,883     $ 11,298   $ 2,236     $ 18,332   $ 408   $ 14,422     $ (7,596 )   $ 40,983  
Add back:                                          
Interest expense   826     4,774   7,592     6,432   731   68,103     381     88,839  
Income tax expense (benefit)   852     2,582   (4,799 )   6,253   480   1,813     6,390     13,572  
Depreciation and amortization charges   750     5,607   2,528     7,082   2,129   1,459     -     19,554  
Total Adjustments   2,428     12,963   5,321     19,767   3,340   71,375     6,771     121,965  
EBITDA   4,311     24,261   7,557     38,099   3,748   85,797     (825 )   162,948  
Adjustments to EBITDA                                          
Executive severance and related costs   -     161   -     -   -   -     -     161  
Litigation costs and settlements   (288 )   -   (296 )   315   -   -     -     (269 )
Stock-based and long term executive compensation   70     2,567   (71 )   -   139   -     5,337     8,041  
Corporate compliance costs   -     -   -     -   -   -     -     -  
Store closures   -     173   (20 )   -   -   -     -     153  
W.S. Badcock financing operations   -     -   -     -   -   (6,928 )   -     (6,928 )
Prepayment penalty on early debt repayment   -     -   -     -   -   -     -     -  
Right-of-use asset impairment   -     -   273     -   -   -     -     273  
Integration costs   -     64   -     -   -   -     -     64  
Divestiture costs   -     -   -     -   -   493     -     493  
Acquisition costs   -     18   -     -   -   236     4,522     4,776  
Gain on investment in equity securities   -     -   -     -   -   -     (12,859 )   (12,859 )
Acquisition bargain purchase gain   -     -   -     -   -   (3,581 )   -     (3,581 )
Gain on sale-leaseback and owned properties, net   -     -   -     -   -   (49,854 )   -     (49,854 )
Total Adjustments to EBITDA   (218 )   2,983   (114 )   315   139   (59,634 )   (3,000 )   (59,530 )
Adjusted EBITDA   $ 4,093     $ 27,244   $ 7,443     $ 38,414   $ 3,887   $ 26,163     $ (3,825 )   $ 103,418  
                                           

 

                                         
    For the Six Months Ended June 25, 2022
($ In thousands)   Buddy's   Pet Supplies Plus   American Freight   Vitamin Shoppe     Sylvan   Badcock     Corporate     Total  
Net income (loss) from continuing operations    $              4,448   $           19,423   $                 803   $           39,737     $                 574   $           11,563     $         (23,247 )   $            53,301  
Add back:                                        
Interest expense   1,634   9,505   15,161   12,831     1,450   140,133     453     181,167  
Income tax expense (benefit)   1,545   6,747   279   13,803     540   2,806     (8,470 )   17,250  
Depreciation and amortization charges   1,507   11,736   5,087   13,945     3,985   5,328     -     41,588  
Total Adjustments   4,686   27,988   20,527   40,579     5,975   148,267     (8,017 )   240,005  
EBITDA   9,134   47,411   21,330   80,316     6,549   159,830     (31,264 )   293,306  
Adjustments to EBITDA                                        
Executive severance and related costs   -   154   -   -     -   102     -     256  
Litigation costs and settlements   55   -   786   865     -   -     (1,745 )   (39 )
Stock-based and long term executive compensation   139   3,442   224   -     148   -     10,714     14,667  
Corporate compliance costs   -   -   -   -     -   -     51     51  
Store closures   -   293   218   -     -   -     575     1,086  
W.S. Badcock financing operations   -   -   -   -     -   (57,799 )   -     (57,799 )
Prepayment penalty on early debt repayment   -   -   -   -     -   -     -     -  
Right-of-use asset impairment   -   -   648   -     -   -     -     648  
Integration costs   -   108   105   -     18   297     -     528  
Divestiture costs   -   -   -   -     -   2,429     -     2,429  
Acquisition costs   -   57   14   -     -   782     4,550     5,403  
Gain on investment in equity securities   -   -   -   -     -   -     10,864     10,864  
Acquisition bargain purchase gain   -   -   -   -     -   (3,514 )   -     (3,514 )
Gain on sale-leaseback and owned properties, net -   -   -   (2,273 )   -   (49,854 )   -     (52,127 )
Total Adjustments to EBITDA   194   4,054   1,995   (1,408 )   166   (107,557 )   25,009     (77,547 )
Adjusted EBITDA   $ 9,328   $ 51,465   $ 23,325   $ 78,908     $ 6,715   $ 52,273     $ (6,255 )   $ 215,759  
                                         

 

Reconciliation of Non-GAAP Net Income and EPS

Below are reconciliations of Net Income/(Loss) from continuing operations to Non-GAAP Net Income and Net Income/(Loss) from continuing operations per diluted share to Non-GAAP EPS for the three and six months ended June 25, 2022.

    For the Three Months Ended   For the Six Months Ended
($ In thousands except share count and per share data)   June 25, 2022   June 25, 2022
                         
Net income (loss) from continuing operations / Net income (loss) from continuing operations per diluted share    $            40,983     1.00     $            53,301     $                1.30  
Less: Preferred dividend declared   (2,129 )   (0.06 )   (4,257 )   (0.11 )
Adjusted Net Income available to Common Stockholder   38,854     0.94     49,044     1.19  
Add back:                        
Executive severance and related costs   161     0.01     256     0.01  
Litigation costs and settlements   (269 )   (0.01 )   (39 )   -  
Stock-based and long term executive compensation   8,041     0.20     14,667     0.36  
Corporate compliance costs   -     -     51     -  
Store closures   153     -     1,086     0.03  
W.S. Badcock financing operations                 (6,928 )                    (0.17 )               (57,799 )                    (1.40 )
Prepayment penalty on early debt repayment                          -                              -                              -                              -    
Right-of-use asset impairment   273     0.01     648     0.02  
Integration costs   64     -     528     0.01  
Divestiture costs   493     0.01     2,429     0.06  
Acquisition costs   4,776     0.12     5,403     0.13  
Gain on investment in equity securities   (12,859 )   (0.31 )   10,864     0.26  
Acquisition bargain purchase gain   (3,581 )   (0.09 )   (3,514 )   (0.09 )
Gain on sale-leaseback and owned properties, net   (49,854 )   (1.21 )   (52,127 )   (1.27 )
Adjustments to EBITDA   (59,530 )   (1.44 )   (77,547 )   (1.88 )
Non-cash amortization of debt issuance costs   5,653     0.13     12,032     0.28  
Amortization of acquisition-related intangibles                   4,359                        0.11                     8,445                        0.21  
Securitized receivables interest expense   62,909     1.53     128,208     3.12  
Tax impact   (3,452 )   (0.08 )   (18,339 )   (0.45 )
Impact of diluted share count assuming non-GAAP net income   -     -     -     -  
Total Adjustments to Net income (loss) from continuing operations   9,939     0.25     52,798     1.28  
Non-GAAP Net Income from continuing operations / Non-GAAP diluted EPS from continuing operations   $            48,793     $                1.19     $          101,842     $                2.47  
Basic weighted average shares         40,356,299           40,331,855  
Non-GAAP diluted weighted average shares outstanding         41,126,605           41,148,668  
                         

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, projections, predictions, expectations, or beliefs about future events or results and are not statements of historical fact. Such statements may include statements regarding the Company’s results of operation and financial condition, statements regarding product and freight costs, home furnishings unit volumes and profit margins and its outlook for fiscal 2022. Such forward-looking statements are based on various assumptions as of the time they are made, and are inherently subject to known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements are often accompanied by words that convey projected future events or outcomes such as “expect,” “believe,” “estimate,” “plan,” “project,” “anticipate,” “intend,” “will,” “may,” “view,” “opportunity,” “potential,” or words of similar meaning or other statements concerning opinions or judgment of the Company or its management about future events. Although the Company believes that its expectations with respect to forward-looking statements are based upon reasonable assumptions within the bounds of its existing knowledge of its business and operations, there can be no assurance that actual results, performance, or achievements of the Company will not differ materially from any projected future results, performance or achievements expressed or implied by such forward-looking statements. Actual future results, performance or achievements may differ materially from historical results or those anticipated depending on a variety of factors, many of which are beyond the control of the Company. The Company refers you to the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of the Company’s Form 10-K for the fiscal year ended December 25, 2021, and comparable sections of the Company’s Quarterly Reports on Form 10-Q and other filings, which have been filed with the SEC and are available on the SEC’s website at www.sec.gov. All of the forward-looking statements made in this press release are expressly qualified by the cautionary statements contained or referred to herein. The actual results or developments anticipated may not be realized or, even if substantially realized, they may not have the expected consequences to or effects on the Company or its business or operations. Readers are cautioned not to rely on the forward-looking statements contained in this press release. Forward-looking statements speak only as of the date they are made and the Company does not undertake any obligation to update, revise or clarify these forward-looking statements, whether as a result of new information, future events or otherwise.

Investor Relations Contact:
Andrew F. Kaminsky
EVP & Chief Administrative Officer
Franchise Group, Inc.
akaminsky@franchisegrp.com 
(914) 939-5161 


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Source: Franchise Group, Inc.