Sundial Growers (SNDL 10.11%) released its latest quarterly results this month. And while the company did get a boost from acquisitions, it was still an extremely disappointing performance for Sundial. The volatility of its earnings remains a concern and is something investors should continue to keep an eye on in future periods.
Here's what went wrong for the company.
Image source: Getty Images.
Revenue declined from the previous period
For the first quarter of 2022 (period ending March 31), Sundial's revenue of 17.6 million Canadian dollars fell 23% from the CA$22.7 million it reported in the fourth quarter. That's despite this being the first period in which the company has contributions from liquor retail (CA$1.3 million), due to its recent acquisition of Alcanna. The lack of consistent revenue growth from the company represents an all too consistent pattern that investors are likely familiar with by now:
Data source: Company filings. Chart by author.
And while recent quarters seem to be on the rise, in each of the past three periods, its sales have received a boost from Inner Spirit, the retail cannabis operator it incorporated into its business in July of last year. Sundial has grown primarily through acquisitions, and even that hasn't always been enough to ensure revenue would increase. Next quarter, the company will see an increase in the top line as these latest results only included one day of Alcanna's performance (the acquisition closed on March 31).
The big question is whether, after it establishes a new baseline, Sundial will continue to grow. And more importantly, whether its margins will be sufficient to cover the company's volatile expenses.
Sundial's operating loss was more than its top line
At CA$23.2 million, Sundial's operating loss was staggering. Not only was it significantly worse than the CA$1.7 million profit it reported in the prior-year period, but it was 132% of revenue.
Data source: Company filings. Chart by author.
Although the cannabis company did make a modest improvement in gross margin, it was still less than 20% of revenue; that's going to make it difficult for Sundial to post positive operating income. General and administrative expenses of CA$10.7 million in Q1 alone would have wiped out its margins. But the main reason Sundial suffered such a disastrous operating loss during the period is its investment losses, which totaled CA$17.7 million. A year ago, that number was a positive CA$12.9 million and helped push the company's operating income into the black.
Like many investors, Sundial has seen a sharp drop in the value of its equity securities over the past three months. The positive is that nearly all of these losses are unrealized, and so this figure could change again next quarter. However, it also highlights the significant volatility that exists in its financials due to the size of these swings in value.
Sundial's fluctuating financials make it a risky buy
There weren't many positives to take away from Sundial's most recent quarterly results. Between a lack of revenue growth and an income statement that got destroyed by investment losses, I would call this period a disaster. Even though the company's net loss of CA$38 million for the period was less than the CA$134.4 million loss it reported in the prior-year quarter, that was largely due to changes in fair value on its derivative warrants.
Unless you're ready for a bumpy and unpredictable ride, Sundial is not an investment you should consider adding to your portfolio.
