JanOne Inc. (JAN)·Q3 2017 Earnings Summary

Executive Summary

• Q3 2017 revenue was $25.48M, down 6.8% YoY due to the absence of a one-time $1.05M carbon credit sale in Q3 2016 and temporary closure of the Reynoldsburg, OH store after a July fire; gross margin improved to 33.1% while operating margin fell to 4.4% .
• Diluted EPS was $0.11 (basic $0.12), declining QoQ from $0.31 in Q2 and YoY from $0.19; net income attributable to shareholders was $0.77M vs. $1.12M in Q3 2016 .
• Structural actions: deconsolidation and sale of AAP (eliminated >$4.2M in liabilities, $0.8M cash received) and acquisition of GeoTraq (new Technology segment; $272K quarterly amortization), strengthened equity to $30.84M .
• Balance sheet/credit: MidCap Revolver outstanding $3.62M at quarter end with $2.42M available capacity; lender issued default notice related to the GeoTraq acquisition covenants—company disputes and is negotiating forbearance; default-rate interest applied (LIBOR + 4.5% + 5%) until cured .
• No formal guidance or earnings call transcript was available; near-term stock narrative likely hinges on resolution of MidCap default, Reynoldsburg reopening, and GeoTraq development milestones .

What Went Well and What Went Wrong

• What Went Well

  • Retail Unboxed margins expanded sharply (Q3 gross margin 55.9% vs. 31.9% LY), driven by renegotiated purchase discounts; category gross profit up $1.09M YoY .
  • Recycling byproducts/carbon offset gross margin improved (40.4% vs. 34.3% YoY) with $562K higher gross profit; segment delivered $1.09M operating income in Q3 .
  • Strategic portfolio moves: sale/deconsolidation of AAP improved liabilities and cash, and GeoTraq acquisition created a new Technology segment positioning for location-based services; “we believe these efforts result in additional shareholder value” (CEO) .

• What Went Wrong

  • QoQ profitability compression: operating income fell to $1.13M from $2.5M in Q2; diluted EPS slid to $0.11 from $0.31, impacted by Reynoldsburg store fire closure and lack of Q3 2016 carbon credit sale .
  • Retail Boxed weakness: revenue down $1.52M YoY and gross profit down $1.57M YoY; retail service/parts also deteriorated with $689K gross profit decline YoY .
  • Financing headwinds: MidCap default notice tied to GeoTraq acquisition covenants and incremental indebtedness, triggering default-rate interest and funding risk until forbearance resolution .

Financial Results

Segment breakdown (YoY):

Key product/category (Q3 detail):

KPIs and balance sheet items:

Guidance Changes

Earnings Call Themes & Trends

No earnings call transcript found for Q3 2017; themes below reflect filings and press releases.

Management Commentary

• “We are very pleased with our Q3 results… we had a large one-time carbon credit sale of $1.048 million [in Q3 2016] and all 18 ApplianceSmart stores were operational… in July 2017, we had a fire in our Reynoldsburg, OH store… we have cleaned up our balance sheet with the sale of our stake in AAP… improving our profitability, reducing expenses and improving margins.” — Virland Johnson, CFO .
• “The sale of our stake in AAP… improved our balance sheet through the receipt of $800,000 in cash and the elimination of more than $4.2 million in direct and indirect liabilities. We have also recently acquired GeoTraq Inc.… we believe [these] efforts will result in additional shareholder value.” — Tony Isaac, CEO .
• MD&A notes: Retail Unboxed margin expansion and delivery/vendor changes; Retail Boxed margin compression; Reynoldsburg fire insurance recovery for inventory loss ($764K) and expected business interruption proceeds in Q4 .

Q&A Highlights

No Q3 2017 earnings call transcript located; no Q&A highlights available [ListDocuments returned none].

Estimates Context

• Wall Street consensus estimates via S&P Global were unavailable for JAN/ARCA due to missing mapping in S&P’s CIQ company database; as a result, we cannot assess beats/misses against consensus for Q3 2017 [SpgiEstimatesError].
• If estimates are needed, we recommend re-requesting once S&P Global mapping is updated or using alternative consensus sources; otherwise rely on internal trend analysis [SpgiEstimatesError].

Key Takeaways for Investors

• Q3 showed resilient gross margins and positive operating income despite revenue headwinds from a store fire and lapping a one-time carbon credit sale; however, QoQ EPS and operating income fell versus a strong Q2 .
• Retail Unboxed is the margin engine (purchase discounts and mix), while Retail Boxed remains a drag; focus on category mix and vendor terms is key to sustaining margin gains .
• Credit risk/event: MidCap default notice tied to GeoTraq acquisition covenants introduces funding uncertainty and higher interest costs until resolved; forbearance terms are a near-term catalyst .
• Strategic repositioning improved equity and reduced liabilities (AAP sale) and adds optionality via GeoTraq; monitor Technology segment expenses/amortization and commercialization milestones .
• Expect Q4 tailwinds from Reynoldsburg reopening and business interruption insurance; watch for any formal guidance or updates on insurance proceeds timing .
• Legal/regulatory overhang persists (CA BOE sales tax assessment); resolution could take up to two years—keep an eye on cash reserves and potential impacts .
• With consensus data unavailable, relative performance should be judged on sequential trends and YoY comps; absent a call, rely on filings for narrative and risk monitoring [SpgiEstimatesError] .