Franchise Group, Inc. Announces Fiscal 2022 First Quarter Financial Results

Rhea-AI Summary

Franchise Group, Inc. (NASDAQ: FRG) reported first-quarter fiscal 2022 revenue of $1.1 billion and net income of $12.3 million, or $0.25 per share. The company anticipates a full-year revenue of approximately $4.45 billion and Adjusted EBITDA of $450 million. Cash on hand was around $149.6 million, with outstanding term debt of approximately $1.3 billion. Significant real estate sales from the Badcock portfolio are expected, which will reduce debt. The company remains optimistic about its diversified business model as it navigates fiscal challenges.

Positive

• Q1 revenue of $1.1 billion, reflecting strong business performance.
• Reaffirmed full-year revenue guidance of approximately $4.45 billion.
• Adjusted EBITDA for Q1 was $112.3 million.
• Positive outlook on debt reduction to below $1.1 billion by fiscal year-end.

Negative

• Outstanding term debt is approximately $1.3 billion.
• Net income from continuing operations was relatively low at $12.3 million.

• Reaffirms financial outlook for fiscal 2022
• Franchising momentum continues

DELAWARE, Ohio, May 05, 2022 (GLOBE NEWSWIRE) -- Franchise Group, Inc. (NASDAQ: FRG) (“Franchise Group,” “FRG” or the “Company”) today announced the financial results of its fiscal 2022 first quarter. For the first quarter of fiscal 2022, total reported revenue for Franchise Group was $1.1 billion, net income from continuing operations was $12.3 million or $0.25 per fully diluted share, Adjusted EBITDA was $112.3 million and Non-GAAP EPS was $1.29 per share. On March 26, 2022, total cash on hand was approximately $149.6 million and outstanding term debt was approximately $1.3 billion.  

The outstanding term debt balance does not include repayments from the net proceeds received from the $94 million sale of the W.S. Badcock Corporation (“Badcock”) retail real estate portfolio which closed on March 31, 2022. FRG anticipates closing the previously announced $150 million sale of the Badcock distribution centers and the $18.5 million sale of the Badcock corporate headquarters by the end of its fiscal second quarter, as well as an additional sale of other Badcock real estate for approximately $5.6 million by the end of fiscal 2022. FRG intends to use the net cash proceeds from these real estate sales to repay the remaining $175 million of Badcock acquisition financing.  

Brian Kahn, Franchise Group’s President and CEO stated, “I am proud of FRG’s overall performance in the first quarter. FRG’s diversification across various discretionary and non-discretionary products and services continued to serve us well.” Mr. Kahn continued, “I can’t stress enough how resilient and nimble our management teams have been while staying true to our brands’ ethos and value propositions. Their collective success is strengthening the foundation of FRG  as we seek to further diversify and scale through strategic internal and external investment opportunities.”        

The Company has six reportable segments: American Freight; The Vitamin Shoppe; Pet Supplies Plus; Buddy’s; Sylvan; and Badcock. The following table summarizes Revenue, Adjusted EBITDA, and Net Income/(Loss) for each of these segments. Reconciliations of Adjusted EBITDA, Non-GAAP Net Income and Non-GAAP EPS to their respective most comparable GAAP measures, are included below under “Non-GAAP Financial Measures and Key Metrics.”

	For the Three Months Ended
	March 26, 2022
					Adjusted				Net
	Revenue				EBITDA				Income/(Loss)
	(In thousands)
American Freight	$	241,416			$	15,879			$	(1,434	)
Vitamin Shoppe		310,953				40,493				21,405
Pet Supplies Plus		301,214				24,221				8,125
Buddy's		15,585				5,235				2,564
Sylvan Learning		10,043				2,828				166
Badcock		256,259				26,111				(2,859	)
Corporate		-				(2,429	)			(15,650	)
Total	$	1,135,470			$	112,338			$	12,317

Outlook
Franchise Group is reaffirming its previously announced financial outlook for fiscal year 2022 of revenue of approximately $4.45 billion, Adjusted EBITDA of approximately $450 million and Non-GAAP EPS of approximately $5.00 per share. In formulating its outlook, the Company expects to reduce net debt to below $1.1 billion by the end of its fiscal year 2022. In calculating EPS, the Company is using approximately 41.0 million weighted average shares outstanding. Non-GAAP EPS is calculated by adding the tax effected impact of adjustments to EBITDA to net income on a per share basis. In calculating GAAP and Non-GAAP EPS, the Company is currently using an effective tax rate of approximately 27%.

The Company does not provide a quantitative reconciliation of forward-looking, Non-GAAP financial measures such as forecasted Adjusted EBITDA or Non-GAAP EPS to the most directly comparable GAAP financial measures because it is difficult to reliably predict or estimate the relevant components without unreasonable effort due to future uncertainties that may potentially have significant impact on such calculations, and providing them may imply a degree of precision that would be confusing or potentially misleading. Estimates exclude potential acquisitions, divestitures or refranchising activities. See “Non-GAAP Financial Measures and Key Metrics.”

Conference Call Information
Franchise Group will conduct a conference call on May 5^th at 4:30 P.M. ET to discuss its business, review financial results for its fiscal 2022 first and discuss its outlook for the balance of fiscal year 2022. A real-time webcast of the conference call will be available on the Events page of Franchise Group’s website at www.franchisegrp.com. The conference call can also be accessed live via telephone at (866) 374-5140. The passcode is 42926723#. Please dial in 5-10 minutes prior to the scheduled start time.

About Franchise Group, Inc.
Franchise Group is an owner and operator of franchised and franchisable businesses that continually looks to grow its portfolio of brands while utilizing its operating and capital allocation philosophy to generate strong cash flow for its shareholders. Franchise Group’s business lines include Pet Supplies Plus, American Freight, The Vitamin Shoppe, Badcock Home Furniture & more, Buddy’s Home Furnishings and Sylvan Learning. On a combined basis, Franchise Group currently operates over 3,000 locations predominantly located in the U.S. that are either Company-run or operated pursuant to franchising and dealer agreements.

FRANCHISE GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share count and per share data)		March 26, 2022				December 25, 2021
Assets		(Unaudited)				(Unaudited)
Current assets:
Cash and cash equivalents		$	149,597			$	292,714
Current receivables, net			110,368				118,698
Current securitized receivables, net			386,886				369,567
Inventories, net			779,279				673,170
Current assets held for sale			203,679				-
Other current assets			28,403				24,063
Total current assets			1,658,212				1,478,212
Property, plant, and equipment, net			237,056				449,886
Non-current receivables, net			11,156				11,755
Non-current securitized receivables, net			48,355				47,252
Goodwill			806,697				806,536
Intangible assets, net			125,222				127,951
Tradenames			222,687				222,687
Operating lease right-of-use assets			713,820				714,741
Investment in equity securities			11,626				35,249
Other non-current assets			18,578				18,902
Total assets		$	3,853,409			$	3,913,171
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term obligations		$	487,957			$	486,170
Current operating lease liabilities			173,295				173,101
Accounts payable and accrued expenses			458,776				410,552
Other current liabilities			51,572				50,833
Total current liabilities			1,171,600				1,120,656
Long-term obligations, excluding current installments			1,286,972				1,383,725
Non-current operating lease liabilities			552,412				557,071
Other non-current liabilities			90,739				88,888
Total liabilities			3,101,723				3,150,340
Stockholders' equity:
Common stock, $0.01 par value per share, 180,000,000 shares authorized, 40,353,865 and 40,296,688 shares issued and outstanding at March 26, 2022 and December 25, 2021, respectively			404				403
Preferred stock, $0.01 par value per share, 20,000,000 shares authorized and 4,541,125 issued and outstanding at March 26, 2022 and December 25, 2021			45				45
Additional paid-in capital			480,628				475,396
Retained earnings			270,609				286,987
Total equity			751,686				762,831
Total liabilities and equity		$	3,853,409			$	3,913,171

        

FRANCHISE GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
		Three Months Ended
(In thousands, except share count and per share data)		March 26, 2022				March 27, 2021
		(Unaudited)				(Unaudited)
Revenues:
Product		$	979,164			$	583,816
Service and other			148,282				28,576
Rental			8,024				8,953
Total revenues			1,135,470				621,345
Operating expenses:
Cost of revenue:
Product			616,585				339,414
Service and other			8,663				405
Rental			2,861				3,005
Total cost of revenue			628,109				342,824
Selling, general, and administrative expenses			376,995				225,545
Total operating expenses			1,005,104				568,369
Income from operations			130,366				52,976
Other expense:
Bargain purchase gain			(67	)			-
Other			(21,977	)			(36,726	)
Interest expense, net			(92,327	)			(47,435	)
Income (loss) from continuing operations before income taxes			15,995				(31,185	)
Income tax expense (benefit)			3,678				(2,851	)
Income (loss) from continuing operations			12,317				(28,334	)
Income (loss) from discontinued operations, net of tax			-				42,147
Net income attributable to Franchise Group, Inc.		$	12,317			$	13,813
Income (loss) per share from continuing operations:
Basic		$	0.25			$	(0.76	)
Diluted			0.25				(0.76	)
Net income (loss) per share:
Basic		$	0.25			$	0.29
Diluted			0.25				0.29
Weighted-average shares outstanding:
Basic			40,307,412				40,110,084
Diluted			41,107,793				40,110,084

FRANCHISE GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
		Three Months Ended
(In thousands)		March 26, 2022				March 27, 2021
		(Unaudited)				(Unaudited)
Operating Activities
Net income		$	12,317			$	13,813
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for doubtful accounts			15,103				710
Depreciation, amortization, and impairment charges			22,033				14,176
Amortization of deferred financing costs and prepayment penalties			71,679				67,699
Stock-based compensation expense			5,447				2,550
Change in fair value of investment			23,723				-
(Gain) on bargain purchases and sales of Company-owned stores			(2,206	)			(623	)
Other non-cash items			(2,227	)			(62	)
Changes in other assets and liabilities			(83,716	)			(22,512	)
Net cash provided by operating activities			62,153				75,751
Investing Activities
Purchases of property, plant, and equipment			(9,752	)			(11,667	)
Proceeds from sale of property, plant, and equipment			2,554				277
Acquisition of business, net of cash and restricted cash acquired			(3,930	)			(463,753	)
Issuance of operating loans to franchisees			-				(17,058	)
Payments received on operating loans to franchisees			-				21,644
Net cash (used in) investing activities			(11,128	)			(470,557	)
Financing Activities
Dividends paid			(27,315	)			(15,620	)
Issuance of long-term debt and other obligations			124,358				1,306,724
Repayment of long-term debt and other obligations			(290,202	)			(854,665	)
Issuance of common stock			24				-
Issuance of preferred stock			-				79,541
Principal payments of finance lease obligations			(768	)			-
Payment for debt issue costs and prepayment penalty on extinguishment			-				(87,490	)
Other stock compensation transactions			(239	)			(336	)
Net cash provided by (used in) financing activities			(194,142	)			428,154
Effect of exchange rate changes on cash, net			-				56
Net increase (decrease) in cash equivalents and restricted cash			(143,117	)			33,404
Cash, cash equivalents and restricted cash at beginning of period			292,714				151,502
Cash, cash equivalents and restricted cash at end of period		$	149,597			$	184,906
Supplemental Cash Flow Disclosure
Cash paid for taxes, net of refunds		$	274			$	65
Cash paid for interest			21,424				39,730
Accrued capital expenditures			3,177				3,019
Tax receivable agreement included in other long-term liabilities			-				16,775

Non-GAAP Financial Measures and Key Metrics

Adjusted EBITDA, Non-GAAP Net Income and Non-GAAP EPS are financial measures that are not prepared in accordance with GAAP. Management believes the presentation of these measures is useful to investors as supplemental measures in evaluating the aggregate performance of the Company’s operating businesses and in comparing its results from period to period because they exclude items that the Company does not believe are reflective of its core or ongoing operating results. These measures are used by management to evaluate the Company’s performance and make resource allocation decisions each period. These metrics are also used in the determination of executive management's compensation. Adjusted EBITDA, Non-GAAP Net Income and Non-GAAP EPS should not be considered in isolation or as a substitute for net income or other income statement information prepared in accordance with GAAP and our presentation of these non-GAAP measures may not be comparable to similarly titled measures used by other companies.

Management defines and calculates Adjusted EBITDA as net income (loss) from continuing operations before interest, income taxes, depreciation and amortization adjusted for certain non-core or non-operational items related to executive severance and related costs, stock-based compensation, shareholder litigation costs, corporate governance costs, accrued judgments and settlements, net of estimated revenue, store closures, rebranding costs, acquisition costs, inventory fair value step up amortization and prepayment penalty on early debt repayment. Adjusted EBITDA is a financial measure that is not prepared in accordance with GAAP.

Management defines and calculates Non-GAAP Net Income and Non-GAAP EPS as net income (loss) and net income (loss) per diluted share from continuing operations adjusted for non-core or non-operational items related to executive severance and related costs, stock-based compensation, non-cash executive compensation expense, shareholder litigation costs, prepayment penalties on early debt repayment, non-cash amortization of debt issuance costs, store closures, rebranding costs, acquisition costs, inventory fair value step up amortization, and amortization of acquired intangible assets. Although amortization of acquired intangible assets is excluded from these non-GAAP measures, it is important for investors to understand that such intangible assets support revenue generation. Management excludes amortization of intangible assets because these are non-cash amounts for which the amount and frequency are significantly impacted by the timing and size of our acquisitions, which vary from period to periods and across companies. The tax effect on the related non-GAAP adjustments was calculated based on an estimated annual non-GAAP effective tax rate of 27%.

Reconciliation of Adjusted EBITDA
Below are reconciliations of Net Income/(Loss) from continuing operations to Adjusted EBITDA for the three months ended March 26, 2022.

		For the Three Months Ended March 26, 2022
($ In thousands)		Buddy's			Pet Supplies Plus				American Freight				Vitamin Shoppe				Sylvan			Badcock				Corporate				Total
Net income (loss) from continuing operations		$	2,564		$	8,125			$	(1,434	)		$	21,405			$	166		$	(2,859	)		$	(15,650	)		$	12,317
Add back:
Interest expense			808			4,731				7,568				6,398				719			72,030				73				92,327
Income tax expense (benefit)			693			4,165				5,078				7,550				60			993				(14,862	)			3,678
Depreciation and amortization charges			757			6,129				2,559				6,863				1,856			3,870				-				22,033
Total Adjustments			2,258			15,025				15,205				20,811				2,635			76,893				(14,789	)			118,038
EBITDA			4,822			23,150				13,771				42,216				2,801			74,034				(30,439	)			130,355
Adjustments to EBITDA
Executive severance and related costs			-			(6	)			-				-				-			102				-				96
Stock based compensation			70			875				294				-				9			-				5,377				6,626
Litigation costs and settlements			343			-				1,082				550				-			-				(1,745	)			230
Corporate compliance costs			-			-				-				-				-			-				51				51
Store closures			-			120				238				-				-			-				575				933
Securitized receivables, net			-			-				-				-				-			(50,871	)			-				(50,871	)
Prepayment penalty on early debt repayment			-			-				-				-				-			-				-				-
Right-of-use asset impairment			-			-				375				-				-			-				-				375
Integration costs			-			44				105				-				18			297				-				464
Divestiture costs			-			-				-				(2,273	)			-			1,936				-				(337	)
Acquisition costs			-			38				14				-				-			546				29				626
Loss on investment in equity securities			-			-				-				-				-			-				23,723				23,723
Acquisition bargain purchase gain			-			-				-				-				-			67				-				67
Total Adjustments to EBITDA			413			1,071				2,108				(1,723	)			27			(47,923	)			28,010				(18,017	)
Adjusted EBITDA		$	5,235		$	24,221			$	15,879			$	40,493			$	2,828		$	26,111			$	(2,429	)		$	112,338

Reconciliation of Non-GAAP Net Income and EPS
Below are reconciliations of Net Income/(Loss) from continuing operations to Non-GAAP Net Income and Net Income/(Loss) from continuing operations per diluted share to Non-GAAP EPS for the three months ended March 26, 2022.

		For the Three Months Ended
($ In thousands except share count and per share data)		March 26, 2022
Net income (loss) from continuing operations / Net income (loss) from continuing operations per diluted share		$	12,317			$	0.30
Less: Preferred dividend declared			(2,128	)			(0.05	)
Adjusted Net Income available to Common Stockholder			10,189				0.25
Add back:
Executive severance and related costs			96				-
Stock based compensation			6,626				0.16
Litigation costs and settlements			230				0.01
Corporate compliance costs			51				-
Store closures			933				0.02
Securitized receivables, net			(50,871	)			(1.24	)
Prepayment penalty on early debt repayment			-				-
Right-of-use asset impairment			375				0.01
Integration costs			464				0.01
Divestiture costs			(337	)			(0.01	)
Acquisition costs			626				0.02
Loss on investment in equity securities			23,723				0.58
Acquisition bargain purchase gain			67				-
Adjustments to EBITDA			(18,017	)			(0.44	)
Non-cash amortization of debt issuance costs			6,379				0.15
Amortization of acquisition-related intangibles			4,086				0.10
Securitized Receivables Interest Expense			65,300				1.59
Tax impact			(14,887	)			(0.36	)
Impact of diluted share count assuming non-GAAP net income			-				-
Total Adjustments to Net income (loss) from continuing operations			42,860				1.04
Non-GAAP Net Income from continuing operations / Non-GAAP diluted EPS from continuing operations		$	53,049			$	1.29
Basic weighted average shares							40,307,412
Non-GAAP diluted weighted average shares outstanding							41,107,793

Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, projections, predictions, expectations, or beliefs about future events or results and are not statements of historical fact. Such statements may include statements regarding the Company’s results of operation and financial condition, its outlook for fiscal 2022, the expected timing of the completion of the sale-leaseback of Badcock’s real estate portfolio and the use of proceeds therefrom. Such forward-looking statements are based on various assumptions as of the time they are made, and are inherently subject to known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements are often accompanied by words that convey projected future events or outcomes such as “expect,” “believe,” “estimate,” “plan,” “project,” “anticipate,” “intend,” “will,” “may,” “view,” “opportunity,” “potential,” or words of similar meaning or other statements concerning opinions or judgment of the Company or its management about future events. Although the Company believes that its expectations with respect to forward-looking statements are based upon reasonable assumptions within the bounds of its existing knowledge of its business and operations, there can be no assurance that actual results, performance, or achievements of the Company will not differ materially from any projected future results, performance or achievements expressed or implied by such forward-looking statements. Actual future results, performance or achievements may differ materially from historical results or those anticipated depending on a variety of factors, many of which are beyond the control of the Company. The Company refers you to the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of the Company’s Form 10-K for the fiscal year ended December 25, 2021, and comparable sections of the Company’s Quarterly Reports on Form 10-Q and other filings, which have been filed with the SEC and are available on the SEC’s website at www.sec.gov. All of the forward-looking statements made in this press release are expressly qualified by the cautionary statements contained or referred to herein. The actual results or developments anticipated may not be realized or, even if substantially realized, they may not have the expected consequences to or effects on the Company or its business or operations. Readers are cautioned not to rely on the forward-looking statements contained in this press release. Forward-looking statements speak only as of the date they are made and the Company does not undertake any obligation to update, revise or clarify these forward-looking statements, whether as a result of new information, future events or otherwise.

Investor Relations Contact:
Andrew F. Kaminsky
EVP & Chief Administrative Officer
Franchise Group, Inc.
akaminsky@franchisegrp.com
(914) 939-5161

FAQ

What were Franchise Group's Q1 2022 earnings results?

Franchise Group reported Q1 2022 revenue of $1.1 billion and net income of $12.3 million, equating to $0.25 per share.

What is Franchise Group's financial outlook for fiscal 2022?

Franchise Group projects full-year revenue of approximately $4.45 billion and Adjusted EBITDA of approximately $450 million.

How much debt does Franchise Group have?

Franchise Group has approximately $1.3 billion in outstanding term debt.

What is the significance of the Badcock real estate sales for FRG?

The sales are expected to help reduce the company's debt by approximately $175 million.

What is the Non-GAAP EPS for Franchise Group in Q1 2022?

The Non-GAAP EPS for Q1 2022 was reported at $1.29 per share.