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High Tide stock given an Outperform rating by ATB Capital

Canadian cannabis retailer High Tide (High Tide Stock Quote, Charts, News, Analysts, Financials TSX:HITI) just delivered quarterly results that came in better than expected, with ATB Capital Markets analyst Frederico Gomes remarking that while there could be some margin compression up ahead, High Tide has really positioned itself well for a strong sales growth in the Canada’s pot market. Gomes delivered a research note to clients on Thursday where he maintained his “Outperform” rating and $13.25 target price for HITI, which at press time represented a projected one-year return of 162.9 per cent.

Currently Canada’s largest cannabis retailer by revenue, Calgary-based High Tide has 109 locations across Ontario, Alberta, Manitoba and Saskatchewan. The company also operates a cannabis discount club model under store banners Canna Cabana, Meta Cannabis Co and Meta Cannabis Supply Co.

Like the rest of the sector, High Tide has dealt with a major pullback over the past 11 months where its share price went from as high as $15.00 last February to now in the low $5.00 range. 

But Gomes sees better times ahead for HITI and has taken its latest quarterly results — the company’s unaudited fourth quarter and full-year fiscal 2021 results, announced on Thursday — as more indication of better stock performance coming up.

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“Through a mix of store footprint expansion and acquisitions, HITI continues to increase its sales at a rapid pace (12 per cent quarter on quarter growth). Although announced only on October 20, the discount club model strategy drove a same-store sales growth (SSSG) of seven per cent for the quarter,” Gomes wrote in his report. 

“In our view, the implementation of the discount club model, combined with management’s guidance of +$70 million in sales in Q1/FY22 and over 150 stores by the end of FY2022 support a robust sales growth outlook. We note that the Company has not yet filed its financials due to an income tax provision issue; however, management expects to file the financials by the January 31 deadline. Overall, we view the Q4/FY21 unaudited results as positive and supportive of our constructive stance on the stock,” he said.

By the numbers, High Tide reported fiscal fourth quarter (ended October 31, 2021) revenue of $53.9 million, up 12 per cent sequentially and making for a full-year topline of $181.1 million, up 118 per cent from fiscal 2020. Gomes was calling for $51.9 million in revenue while the consensus was $52.5 million.

Gross profit for the year grew by 108 per cent to $64.0 million for the year and up five per cent sequentially for the Q4 to $17.6 million, which was higher than both Gomes’ estimate at $15.6 million and the Street’s $15.9 million.

And adjusted EBITDA hit $12.4 million for the year compared to $8.0 million for fiscal 2020 and $1.6 million in the fourth quarter compared to $3.6 million a year earlier. Gomes had forecasted Q4 EBITDA of negative $0.2 million and the consensus was $0.7 million.

Speaking in his quarterly comments on High Tide’s discount club business, CEO and President Raj Grover said the aim is to reach 750,000 members.

“2021 was a very special year for our growth as we further extended and strengthened our bricks and mortar footprint as well as our online retail ecosystem as we rapidly grew our business across all three of the segments we operate in: THC, CBD and consumption accessories,” Grover said in a press release.

“Our continued growth in THC sales is especially impressive given the increasingly competitive Canadian retail landscape. With the launch of our innovative discount club model, which is the first of its kind in North America and is tailored to our Company’s retail ecosystem, we continue to rapidly gain Canadian retail market share,” he said.

Looking ahead, Gomes said management’s guidance for 150 stores opened by the end of fiscal 2022 is ahead of his call for 136 stores, while Gomes emphasized in his commentary High Tide’s international platform which has now hit a revenue run-rate of $80 million compared to just $11 million at the start of the company’s fiscal 2021.

“We believe this international exposure provides diversification benefits, which are important given the near-term headwinds the Canadian retail market is expected to face over the coming 12-18 months, due to store saturation and deep-discount competition. We expect HITI to realize greater revenue from international e-commerce platforms as integration occurs and financial results are fully consolidated,” Gomes wrote.

Finally, looking at management’s fiscal Q1 sales guidance of $70 million, Gomes is coming in a little under at $67.1 million.

“We view the sales guidance as positive but we remain cautious on the margin side. Based on management’s comments, gross margin could see a six to seven per cent decline in Q1/FY22e due to the implementation of the discount club model. In addition, over the near-term we expect adj. EBITDA to be impacted by COVID-19-related issues, such as staff shortages and irregular store hours/closures,” he said.

About The Author /

Jayson is a writer, researcher and educator with a PhD in political philosophy from the University of Ottawa. His interests range from bioethics and innovations in the health sciences to governance, social justice and the history of ideas.
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