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HF

HF Foods Group Inc. (HFFG)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered modest top-line growth and stronger profitability metrics: net revenue rose 0.9% to $298.4M; Adjusted EBITDA increased 12.3% to $9.8M as DSA costs fell and commodity/seafood margins improved .
  • GAAP diluted EPS was a loss of $0.03, wider year-over-year, driven primarily by unfavorable non-cash changes in the fair value of interest rate swaps (~$3.2M impact) despite improved operating income .
  • Gross margin held at 17.1% despite tariff/macro headwinds; DSA as a percent of revenue improved to 16.7% with management targeting further 3–5% cash DSA reductions by year-end 2025 .
  • Potential stock catalysts: ERP go-live on May 1 and launch of a new e-commerce platform in UT/NC/FL (margin accretive channel), plus continued facility upgrades in Charlotte and Atlanta; monitoring tariff policy and swap valuation impacts remains critical .

What Went Well and What Went Wrong

  • What Went Well

    • Adjusted EBITDA climbed to $9.8M (+12.3% YoY) on lower DSA and better margins in commodity and seafood: “Adjusted EBITDA increased to $9.8 million… mainly due to the decrease in DSA expenses, along with an increase in gross profit.” .
    • Digital and commercial initiatives reached milestones: “completed the implementation of a new ERP application across our entire network… launched our new e-commerce platform at our Utah, North Carolina and Florida DCs” .
    • Operational discipline on costs: “DSA expenses… decreased to 16.7%… we finalized our comprehensive plan to reduce cash DSA expenses by 3% to 5% by the end of 2025” .

  • What Went Wrong

    • GAAP net loss widened to $1.5M vs $0.6M YoY, driven by the non-cash change in fair value of interest rate swaps (approx. $3.2M adverse change) .
    • Operating cash flow decreased to $6.9M from $11.2M YoY due to working capital timing (AR growth and inventory build against potential tariffs) .
    • Macro/tariff overhang persisted: management cited slower February and ongoing tariff uncertainty affecting supply chain and consumer demand dynamics .

Financial Results

Sequential quarterly comparison (oldest → newest):

MetricQ3 2024Q4 2024Q1 2025
Revenue ($USD Millions)$298.4 $305.3 $298.4
GAAP Diluted EPS ($)$(0.07) $(0.83) $(0.03)
Gross Profit Margin (%)16.8% 17.1% 17.1%
Adjusted EBITDA ($USD Millions)$8.3 $14.5 $9.8
Net (Loss) Income ($USD Millions)$(3.8) $(43.9) $(1.5)

Year-over-year comparison:

MetricQ1 2024Q1 2025
Revenue ($USD Millions)$295.7 $298.4
Gross Profit ($USD Millions)$50.4 $51.0
Gross Profit Margin (%)17.1% 17.1%
DSA Expenses ($USD Millions)$50.5 $49.8
Adjusted EBITDA ($USD Millions)$8.7 $9.8
GAAP Diluted EPS ($)$(0.01) $(0.03)
Cash From Operations ($USD Millions)$11.2 $6.9

KPIs and liquidity:

KPIQ3 2024Q4 2024Q1 2025
DSA as % of Net Revenue16.6% 15.7% 16.7%
Operating Income ($USD Millions)$0.5 $(42.2) $1.2
Interest Expense ($USD Millions)$2.6 $2.8 $2.6
Cash & Equivalents ($USD Millions)$11.4 $14.5 $16.1
Revolver Additional Availability ($USD Millions)$27.3 $36.1 ~$60.0

Segment/category commentary (no quantitative segment reporting disclosed):

CategoryQ1 2025 Commentary
CommodityVolume and pricing contributed to net revenue growth; margin improved .
Meat & PoultryPricing supported net revenue; prior periods saw margin compression; wholesale mix generally lower margin .
SeafoodMargin improved; central purchasing bolstering category performance .

Non-GAAP items and adjustments (Q1 2025):

  • Adjusted EBITDA add-backs include change in fair value of interest rate swaps (+$1.184M), executive transition/org redesign (+$0.973M), transformation costs (+$0.237M), other non-routine ($0.100M), and stock-based comp ($0.374M) .
  • Non-GAAP EPS was $0.07 vs $0.04 YoY; reconciliation includes amortization of intangibles (+$3.870M), swap fair value change (+$1.184M), transformation and other costs, and tax normalization at 24% .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Cash DSA Expense ReductionFY 2025Targeted 3–5% reduction (outlined Q3/Q4 2024) Reaffirmed plan to reduce cash DSA by 3–5% by YE25 Maintained
Wholesale Mix (%)OngoingExpected to remain <5% of revenue No quantitative update in Q1 call; wholesale remains smaller part of mix Maintained narrative
Revenue/Margins, Tax RateFY/QtrNot providedNot providedMaintained (no formal guidance)
Digital/ERP Milestones2025ERP rollout in 2025 ERP completed May 1; e-commerce launched UT/NC/FL Implemented milestones

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024 and Q4 2024)Current Period (Q1 2025)Trend
Digital Transformation (ERP)12/15 sites live; completion targeted in 2025 ERP completed across network on May 1 Positive milestone achieved
E-commercePilots planned for early 2025; higher-margin channel Platform launched in UT/NC/FL; direct-to-employee ordering Scaling; potential margin catalyst
Tariffs/MacroUncertainty from new tariff policies; softer restaurant traffic Continued tariff uncertainty; slow Feb offset by strong March/April momentum Persistent headwind but improving demand cadence
Supply Chain & SourcingDiversified global sourcing; centralized purchasing (seafood, oil) Further diversification; commodity/seafood margin improvements Execution driving resilience
DSA Cost OptimizationPlan to cut cash DSA by 3–5% by YE25 DSA to 16.7% of revenue in Q1; plan reaffirmed Ongoing cost discipline
Facilities/LogisticsCharlotte renovation (Q2’25), Atlanta multi-phase through 2026 Charlotte on track by end-Q2; Atlanta progressing Execution on footprint
Wholesale MixExpected <5%; lower margin than retail Wholesale remains smaller part; supports purchasing power Stable mix; strategic lever

Management Commentary

  • “Net revenue increased 0.9% year-over-year… Adjusted EBITDA increased 12.3%… we saw a relatively slow February… offset by a very strong March… momentum carry through into April” — Felix Lin .
  • “completed the implementation of a new ERP… launched our new e-commerce platform at our Utah, North Carolina and Florida DCs… catalysts for margin expansion” — Felix Lin .
  • “Gross profit increased by 1.1%… Gross profit margin of 17.1% remained consistent… DSA expenses decreased… we finalized our comprehensive plan to reduce cash DSA expenses by 3% to 5% by the end of 2025” — Cindy Yao .
  • “We remain focused on enhancing margins, streamlining operations, and executing strategic technology investments… well positioned to deliver sustained growth” — Felix Lin (press release) .

Q&A Highlights

  • The company provided a pre-recorded call; no live Q&A was included. Management highlighted:
    • Demand cadence: slow February, strong March with momentum into April .
    • Cost plan: reaffirmed 3–5% cash DSA reduction target by YE25 .
    • Tariff risk management: active supplier diversification and alternative sourcing strategies .
    • Strategic initiatives clarification: ERP go-live and e-commerce expansion to existing customers/employees via current delivery infrastructure .

Estimates Context

  • Wall Street consensus estimates (S&P Global) for Q1 2025 EPS and revenue were unavailable for HFFG at the time of this analysis; beat/miss determination versus consensus cannot be made. Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Margin stability with upside optionality: Maintaining 17.1% gross margin amid tariff and macro uncertainty, while ERP and e-commerce initiatives are positioned to drive efficiency and margin accretion through better purchasing and higher-margin channels .
  • Cost discipline gaining traction: DSA as % revenue improved to 16.7%; management reaffirmed 3–5% cash DSA reduction by YE25, supporting Adjusted EBITDA expansion even in a mixed demand environment .
  • Non-GAAP vs GAAP divergence: Adj. EBITDA growth contrasts with GAAP net loss impacted by non-cash swap fair value changes; focus on underlying operating trends for valuation framing .
  • Liquidity and growth capacity: Revolver expanded to $125M; ~$60M additional availability as of Q1, enabling M&A and facility investments without near-term balance sheet strain .
  • Watch wholesale mix dynamics: Wholesale aids scale/purchasing power but carries lower margins; monitor the mix’s impact on consolidated margin trajectory versus retail .
  • Near-term trading: Track tariff headlines and swap mark-to-market effects as potential sources of earnings volatility; operational milestones (Charlotte completion, e-commerce traction) may serve as positive catalysts .
  • Medium-term thesis: Digital transformation, centralized purchasing, facility optimization, and targeted M&A underpin a path to durable EBITDA growth and margin resilience in an underserved specialty market .