Earnings Call Transcript - JCTC Q2 2025

Operator, Operator

Good day, and welcome to the Jewett-Cameron Trading Company Second Quarter Fiscal Year 2025 Financial Results Conference Call. All participants will be in listen-only mode. Please note, this event is being recorded. I would now like to turn the conference over to Robert Blum with Lytham Partners. Please go ahead.

Robert Blum, Moderator

All right. Thank you very much, Gary, and thank you everyone for joining us today to discuss Jewett-Cameron's fiscal year 2025 second quarter financial results for the period ended February 28, 2024. With us on the call representing the company today are Chad Summers, Jewett-Cameron's Chief Executive Officer, and Mitch Van Domelen, the company's Chief Financial Officer. At the conclusion of today's prepared remarks, we'll open the call for a question-and-answer session. As the operator indicated, if you're listening through the webcast portal and would like to ask a question, you can submit your question through the Ask a Question feature in the webcast player. Before we begin with prepared remarks, please note that statements made by the management team of Jewett-Cameron during the course of this conference call may contain forward-looking statements within the meaning of US securities laws. Forward-looking statements describe future expectations, plans, results, or strategies, and are generally preceded by words such as may, future, planned, will, should, expected, anticipates, or similar words. Listeners are cautioned that such statements are subject to a multitude of risks and uncertainties that could cause future circumstances, events, or results to differ materially from those identified in the forward-looking statements as a result of various factors and other risks identified in the company's 10-K for the fiscal year ended August 31, 2024, and other filings made with the Securities and Exchange Commission. An audio recording and webcast replay for today's conference call will also be available online on the company's Investor Relations page. With that said, let me turn the call over to Chad Summers, Chief Executive Officer for Jewett-Cameron. Chad, please proceed.

Chad Summers, CEO

Thank you, Robert, and good afternoon. Today, I will provide an update on our performance through the second quarter and our key initiatives aimed at enhancing shareholder value. As Robert mentioned, Mitch Van Domelen, Jewett-Cameron's CFO, is with me today and will discuss the main drivers of our second quarter financial results. After our prepared remarks, we will gladly take any questions you may have. Jewett-Cameron is dedicated to improving the lives of professionals, do-it-yourselfers, and dog owners with innovative products that enhance outdoor spaces. Our quality products address practical problems and meet unmet needs at competitive prices. For those who may be new to Jewett-Cameron, we were founded over 70 years ago and were owner-operated and managed for nearly 40 years. During that time, the company was lean and opportunistic, acquiring a diverse range of businesses, but we faced challenges with aging technology and operational processes that couldn't scale. In the last couple of years, my team and I have focused on Jewett-Cameron and created a strategic plan to enhance profitability. We are actively improving our systems, refining processes, and expanding our supply sourcing to better serve our customers. Now, I will provide some updates on our key initiatives. Jewett-Cameron's innovation in our metal fence category is driving growth. Our Adjust-A-Gate products have been displayed in thousands of stores over the years, and I am pleased to report that we exceeded our target of placing our new Lifetime Steel Post displayers in over 330 Home Depot and Lowe's stores as of February. This represents a 65% increase from just three months ago when we were at around 200 stores. These displayers are placed in the right stores, in the right aisles, and next to wood fence materials, making our steel fence accessories easily accessible to professionals and do-it-yourselfers. Sales data has been strong during the fall and winter months, indicating promising results for the upcoming fence building season in spring and summer. Demand for our displayers is strong, and we are working with various regions to ensure a successful rollout and support. Initially, our Lifetime Steel Post displayers were produced domestically at a high cost, impacting our margins in the first half of this year. However, we significantly reduced displayer costs by producing them overseas in the second quarter, which will alleviate margin pressures going forward. In the fence category, we also launched our unique low-profile Adjust-A-Gate Unlimited earlier this year. This gate is distinct from other four-corner steel frame gate kits on the market, as it is one of the few complete gate kits that includes hinges, a latch, and a strike plate, along with a truss cable to prevent sagging. Once installed, it blends seamlessly with wood gates, allowing the focus to remain on the wood rather than the steel frame. This fully adjustable gate design provides professionals and do-it-yourselfers with greater control to create custom gates. The kit supports both horizontal and vertical designs and accommodates gate sizes up to 72 inches high and 84 inches wide. Its patent-pending design incorporates anti-sag technology to ensure the gate remains straight and secure over time, addressing a common challenge for gate owners. The Adjust-A-Gate Unlimited comes with durable steel corner brackets, all necessary hardware, and a comprehensive installation guide, making it suitable for users of all skill levels. Its straightforward installation can be completed quickly. Additionally, it is offered as a complete integrated system at a competitive price, compared to other gate kits that require purchasing extra components. Clearly, we're thriving in our metal fence category, observing increased customer demand, growth in new stores carrying our displayers, and the introduction of exciting new products. I’d like to shift to the topic of tariffs. While this area is rapidly changing, the potential positive impact from our supply chain strategy, initiated approximately two years ago, could be significant. We started multi-sourcing our production two years ago, eliminating our reliance on a single supplier and broadening our sourcing to countries outside of China. This strategy has allowed us to remain competitive and somewhat mitigate the effects of current tariffs. Jewett-Cameron's management team recognized the need for multi-sourcing hundreds of products into various countries starting in 2023. The success of this initiative has provided us with options that many importers do not have amid shifting tariff policies. Today, the global steel tariff of 25% affects all imported steel products, increasing costs across the board. The tariff situation remains dynamic, and we will continue to monitor it closely to figure out the best way to serve our customers. However, thanks to our sourcing initiatives over the past two years, I believe we are significantly better positioned than we would have been otherwise. I extend my appreciation to the entire Jewett-Cameron team for their hard work. Now, let’s discuss the performance of other areas in our business. Our wood fence products revenue saw a slight decline compared to last year due to material constraints. We continue to collaborate with a major big-box retailer as a primary supplier of select fence board products in multiple markets. In the pet containment segment, ongoing inventory congestion at downstream retail channels has negatively impacted our sales. Nevertheless, we are seeing recent growth in online sales for several of our pet products. We have made progress, with our pet inventory down over 17% year-over-year and nearly 60% from our peak in February 2023. Our pet product pricing, previously affected by high shipping costs, is now attractive to many retailers aiming to keep their shelves stocked while avoiding the new high tariffs on importing similar products, especially from China. In our sustainable products category, we have transitioned from our Lucky Dog compostable poop bags to a broader range of sustainable bag products, including bin liners and post-consumer recycled plastic dog waste bags under the MyEcoWorld brand in 2023. Sales under this new brand began in the fall of 2023. While it contributes a relatively small portion of our revenue, we’ve seen strong growth over the last 15 months, driven by strong online performance, the adoption by new grocery channels, and recent success in Mexico with our post-consumer recycled dog waste bags. Lastly, Greenwood's sales increased by 31% in this quarter, reaching $1.1 million compared to $0.9 million in Q2 of 2024. As a reminder, we previously operated a seed cleaning facility on 11.6 acres near our headquarters in Oregon. We shut down the cleaning operation in August 2023 and completed seed storage by the end of fiscal 2024. This property is currently on the market, and we believe it will sell for significantly more than its book value of less than $600,000. Initially, we listed it for sale at $9 million, though we cannot guarantee that this will be the final price. We may also consider leasing part of the space to generate income in the interim, but our goal is to fully monetize the asset for the benefit of the company and our shareholders. Now, I will turn it over to Mitch for a detailed review of the financials. After that, I will share some brief closing remarks before taking any questions.

Mitch Van Domelen, CFO

Thank you, Chad, and good afternoon to everyone on the call today. I will focus on key areas and events that significantly impacted the quarter. Let's start with revenue. I want to remind our long-time and newer investors that our revenues are highly seasonal, with most of our significant sales occurring from March to August during our third and fourth fiscal quarters. Therefore, sales in Q1 and Q2 are generally lower than in the latter half of the year. Revenue for Q2 2025 was $9.1 million compared to $8.2 million in Q2 of 2024. As Chad noted, sales of metal fencing products rose compared to Q2 last year, driven by the ongoing load-in of new Lifetime Steel Post displayers. Sales of compostable products remained flat year-over-year. Additionally, we are seeing growth with the MyEcoWorld products online as we shift our marketing focus to this brand. Sales at our Greenwood operating segment for the current quarter were $1.1 million compared to $0.8 million in Q2 2024, as customers accelerated some purchases due to tariff uncertainty. This growth in certain product lines was partially offset by a decline in wood fencing product sales, attributed to material constraints. Furthermore, demand for pet products remains weak, with sales down compared to Q2 2024. Looking ahead to the rest of fiscal 2025, we believe the growth initiatives we have implemented will help offset challenges in our pet solutions business. Although the impact of tariffs and price changes on seasonal sales remains uncertain, we will closely monitor our inventories to adapt to market demand. Now onto gross margins. For Q2 2025, gross margins were 20.1%, down from 25.1% in Q2 2024 and compared to 18.3% in Q1 2025. The decline in gross profit margins from the previous year mainly stems from a shift toward lower-margin products and increased costs due to additional in-store display units produced domestically during the quarter, which we view as an investment in future growth. While the tariff situation develops, our ongoing initiatives to enhance gross margins, including new supply chain partners and improved pricing strategies, aim to bolster margins in future quarters, although we cannot guarantee success given the uncertainties around tariffs. Regarding operating expenses, in Q2 2025, they were $2.6 million, a decrease from $2.8 million in Q2 2024. This reduction is primarily due to a realignment and cutback in headcount to adapt to new business processes. For Q2 2025, the loss from operations was $0.8 million compared to a $0.7 million loss in Q2 2024. The net loss for Q2 2025 was $0.6 million or $0.16 per share, in contrast to net income of $0.5 million or $0.15 per share in Q2 2024. Moving on to the balance sheet, we have improved working capital by reducing inventory balances by 23% to $14.9 million as of February 28, 2025, down from $17.6 million the previous year. The cash balance at the same date was $0.4 million compared to $1.1 million in February 2024. We currently have no long-term debt and have access to a $6 million revolving line of credit for seasonal working capital needs. Typically, our working capital spikes in early spring as we transition inventory to sales and collections. After the end of the second quarter, we began utilizing our line of credit. Our total stockholder equity at February 28, 2025, was $23.7 million or $6.73 per share. Also, as Chad mentioned, we have the carrying balance of the seed facility under $600,000, which we are currently listing for sale at $9 million. Selling or leasing this property will substantially enhance shareholder equity. We covered a lot today, and I'm happy to answer any additional questions. I will now hand the call back to Chad.

Chad Summers, CEO

Thanks, Mitch, for the overview. Let me just wrap things up with a few key comments and takeaways. First, our focus remains on driving shareholder value. Our strategy is focused on four key areas: growth drivers, product innovation, supply chain and operational efficiency, and asset monetization. The successful growth in our metal fence category and encouraging traction of our MyEcoWorld products is validation of good execution on our strategic focus. Our product innovation continues to progress and drive our desire to enrich outdoor spaces and improve the lives of professionals, do-it-yourselfers, and dog owners with our new Adjust-A-Gate Unlimited gate kit. We are not out of the woods yet, and there is much more work to be done as we navigate the rapidly changing geopolitical landscape impacting importers of quality products like ours. We are partnering with our suppliers and our customers to navigate the changing landscape over the coming months. With that, let me turn the call over to the operator for any questions.

Operator, Operator

We will now begin the question-and-answer session. Robert, I'll hand it over to you to address the questions.

Robert Blum, Moderator

Thank you for your attention. I want to remind everyone that if you're using the webcast player and would like to ask a question, please use the Ask a Question feature on the player. Chad, I have a question for you. Can you explain why you or other members of the executive team have not purchased shares in the open market? It would be helpful if you could discuss insider purchases in general terms.

Chad Summers, CEO

Sure. Thank you for the question. I, of course, cannot speak for everyone, but this is certainly something that I will review and evaluate. Oftentimes, management teams are locked out from purchasing shares due to material information. So, it's clearly a factor that has to be considered, but I'll certainly investigate that further.

Robert Blum, Moderator

Okay. Once again, everyone on the line here, if you would like to submit a question, type it into the webcast player. I'll pause for just a moment to see if there's any additional questions. All right, Chad, I'm not showing any additional questions here. So, with that, I'll turn it back over to you for closing remarks.

Chad Summers, CEO

Okay. Thank you, Robert. One final point, as part of our ongoing effort to increase investor awareness of the company, we have recently commenced quarterly conference calls. We have updated our NASDAQ trading symbol from JCTCF to JCTC to better highlight our US-based operations, and we have expanded our shareholder communications program. In furtherance of this expansion, we will be attending the Planet MicroCap Showcase in Las Vegas coming up on April 23rd and 24th. If you are attending, we look forward to seeing you there. If you're not attending but would like to follow-up and learn more about Jewett-Cameron, please contact Robert Bloom to help coordinate an introduction. Again, I want to thank you all for your continued interest and support of Jewett-Cameron, and thanks again for your participation. Have a good afternoon.

Operator, Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.