Healthier Choices Management Corp. (HCMC)·Q3 2022 Earnings Summary

Executive Summary

• Net sales were $5.78M, up 76.7% year-over-year; gross margin was $1.87M, up 35.7% YoY, while loss from operations widened to $2.12M due to over $0.9M in non-recurring costs. Management highlighted Hurricane Ian impacts and retail vapor store closures as contributing factors .
• Liquidity remained strong with $30.0M in cash at quarter-end (Sep 30, 2022), supporting ongoing expansion and operational runway .
• Post-quarter, HCMC completed the acquisition of Green’s Natural Foods (8 stores) and authorized a share repurchase program of up to $5M, both potential catalysts for investor sentiment .
• The company also disclosed a planned spin-off of the grocery and wellness businesses into a new public entity (“NewCo”), with HCMC retaining its patent suite and Q-Cup brand .

What Went Well and What Went Wrong

• What Went Well

  • “We had our second consecutive record-breaking quarter…extremely pleased with our sales and margin performance” — CEO Jeffrey Holman, citing $5.8M sales (+76.7% YoY) and $1.9M gross margin (+35.7% YoY) .
  • Strategic expansion: acquisition of Green’s Natural Foods, expected to approximately double annual sales to ~$60M on an annualized basis, strengthening the grocery footprint and scale .
  • Strong cash balance ($30.0M) and positive working capital supported growth initiatives and operational resilience .

• What Went Wrong

  • Operating loss expanded to $(2.12)M, with management noting >$0.9M in non-recurring expenses in Q3; this weighed on profitability despite strong top-line growth .
  • Gross margin percentage decreased by ~10% versus prior year due to lost sales in Florida stores and inventory write-offs from Hurricane Ian, indicating weather-related and regional operating risk .
  • Ongoing internal control material weaknesses (inventory procedures, segregation of duties, disclosure controls) remained unremediated as of Q3, posing execution and reporting risks .

Financial Results

Segment revenue breakdown:

KPIs and balance sheet highlights:

Notes:

• Non-GAAP Adjusted EBITDA for Q3: $(1,888,168), reflecting add-backs of D&A and stock comp; management uses this for core operations assessment .
• Item 2.02 press release reconciled results and emphasized the non-recurring cost impact and hurricane-related disruption .

Guidance Changes

Earnings Call Themes & Trends

No earnings call transcript was located for Q3 2022. Themes below reflect MD&A and press releases.

Management Commentary

• “We had our second consecutive record-breaking quarter and are once again extremely pleased with our sales and margin performance…Given a very challenging economic environment coupled with the impact hurricane Ian had on our operations, this is a testament to our team’s ability to continue delivering results.” — CEO Jeffrey Holman .
• “We continue investing strategically in our natural foods grocery business, as evidenced by our latest acquisition of Green’s Natural Foods…We remain disciplined in our cost management, and our team has stayed focused on achieving profitability for the business.” — CEO Jeffrey Holman .
• Spin-off strategy: HCMC plans to separate grocery/wellness into a new public company while retaining and monetizing its patents/Q-Cup brand at HCMC .

Q&A Highlights

• No Q3 2022 earnings call transcript was available; thus, no analyst Q&A disclosures were found [ListDocuments result: 0 for earnings-call-transcript].
• Guidance clarifications: None disclosed beyond corporate actions (buyback, spin-off) .

Estimates Context

• Wall Street consensus (S&P Global) for Q3 2022 EPS and revenue was unavailable for HCMC; we were unable to retrieve SPGI estimates due to data access limitations for this issuer. Without consensus, results cannot be categorized as beat/miss versus Street expectations [GetEstimates error].
• Investors should monitor initiation of coverage post-acquisitions, which may improve availability of consensus data over time .

Key Takeaways for Investors

• Grocery-led growth is the core narrative: Q3 net sales reached $5.78M (+76.7% YoY), with record gross margin dollars ($1.87M); expansion through Mother Earth’s and Green’s materially increases scale and regional presence .
• Profitability remains the milestone: Operating loss widened to $(2.12)M, impacted by >$0.9M non-recurring costs and weather-related margin pressure; expense discipline and integration synergies are critical near term .
• Weather and regional risk: Hurricane Ian drove ~10% YoY gross margin percentage compression; store-level resilience and inventory practices warrant focus ahead of storm seasons .
• Liquidity is a strategic asset: $30.0M cash supports integration, store investments, and working capital needs, reducing financing risk in a competitive grocery retail landscape .
• Corporate actions as catalysts: The $5M buyback authorization and proposed spin-off of grocery/wellness businesses create potential valuation and trading catalysts once executed or further detailed .
• Vapor exit clarifies mix: De minimis vapor revenue signals completion of retail vapor exit, aligning HCMC’s narrative tightly to natural/organic grocery and wellness .
• Execution watchlist: Persistent internal control weaknesses (inventory, segregation of duties, disclosure controls) should be tracked for remediation progress, especially as scale increases .

Appendix: Other Relevant Q3 2022 Press Releases and Subsequent Events

• Acquisition of Green’s Natural Foods (8 stores in NY/NJ): purchase structure includes cash and promissory note; management targets doubling annualized revenue to ~$60M .
• Share repurchase authorization: Up to $5M aggregate, via open market or other methods, discretionary timing .