Earnings Call Transcript - JCTC Q4 2025

Operator, Operator

Good afternoon, and welcome to the Jewett-Cameron Trading Company's Review of Financial Results for the Fiscal 2025 Full Year and Fourth Quarter ended August 31, 2025. Please note, this event is being recorded. I would now like to turn the conference over to your host. Please go ahead.

Robert Blum, Host

Thank you very much, operator, and thank all of you for joining us today to discuss Jewett-Cameron's operational and financial results for the fiscal 2025 full year and fourth quarter for the period ended August 31, 2025. 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 will address questions that have been submitted to the company. 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 U.S. 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, 2025, and other filings made with the Securities and Exchange Commission. A webcast replay of 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. I appreciate the chance to talk with everyone here today. As I mentioned in the press release, we started fiscal 2025 with a positive outlook, focusing on increasing sales, improving margins, lowering costs, introducing innovative products, and monetizing surplus assets. Throughout the first two quarters of the fiscal year, we achieved many of management’s key objectives. Specifically, our metal fence business has been growing steadily, leading to revenue growth in the first half of 2025 compared to the same period in 2024. This growth has been driven by the ongoing success of our Lifetime Steel Post and Adjust-A-Gate products, enhanced in-store displays, and new product launches. Additionally, our new supply partners were ramping up production to support our sales, reducing our reliance on China amidst higher tariffs. With new display units set up in strategic stores and aisles, we were positioned for a strong second half of the year when professionals and DIYers actively utilize our products to enhance outdoor spaces. Unfortunately, the rapid and unpredictable tariffs introduced in February 2025 created significant market disruption, leading to deferred retailer purchases, logistical challenges, and increased costs, all of which adversely affected our second-half results. It wasn't only our challenge in understanding and navigating the swiftly changing executive orders, but also in getting our customers to accept price increases promptly. In recent months, we have taken proactive measures to lessen the impacts of the tariffs in the short term. We acted quickly to realign our workforce, reshuffling some employees into new roles and implementing a 27% overall headcount reduction in 2025 compared to the previous year. Moreover, our initiatives to diversify sourcing over the past couple of years have helped mitigate some of these new tariff costs by shifting production from China, which faces the highest tariffs. We believe retailers are starting to adapt to the new tariff landscape and the associated costs. Our customers are increasingly accommodating the new pricing, which will ease some of the cost pressures moving forward. We will continue collaborating with our suppliers and customers to overcome these tariff challenges while minimizing our costs as much as possible. Additionally, we are working with our customers to ensure our costs align more closely with the prices we charge for our products. This realignment is essential for maintaining our long-term profitability and reducing risk from future volatility. While tariffs impacted our business in the second half of fiscal 2025, they also prompted us to accelerate our internal strategic review. For years, Jewett-Cameron Trading Company operated as a collection of businesses and brands, including pneumatic tools, seed cleaning, engineered plywood flooring, dog kennels, gates, and metal fencing. As circumstances evolved, we began shifting our strategic focus to businesses with scaling potential and substantial profitability. We closed the pneumatic tool division, shut down our seed cleaning facility, and rebranded Jewett-Cameron to focus on our strengths in differentiation, innovation, and channel presence, aiming to improve the lives of professionals and DIYers in their backyards. Our metal fence products remain our highest margin category, sustaining their growth trajectory post-pandemic and matching last year’s sales despite tariff fluctuations. Moving forward, Jewett-Cameron fencing will remain the primary focus of our operations and resources as we expand our in-store presence and roll out innovative products. With thousands of display units rolled out and our Lifetime Steel Post program on track to be in over 500 stores—a small fraction of its potential—we see considerable growth opportunities through broader retail placement, new channels, and ongoing product improvement. As global conditions stabilize, we believe there are significant opportunities to enhance growth and recover margins by strengthening key partnerships, improving purchasing practices, and reaching more customers with our core fencing products. Mitch will elaborate on this point later, but it’s noteworthy that despite the tariff challenges this year, our metal fence products remained nearly unchanged compared to last year. Let me delve a bit deeper into the measures we’ve taken. Firstly, regarding overhead and administrative expense reductions, we are implementing a plan aimed at cutting operating expenses by about $1 million to $3 million. Our goal is to align our operating expenses with gross profit levels to achieve long-term profitability. Originally, Jewett-Cameron was founded as a lumber brokerage and has maintained steady lumber sales over the years. In 2023, we assisted a major customer who lost their primary source of Western Red Cedar fence tickets by joining their lumber consignment program. This initiative helped stabilize the year-over-year sales fluctuations typically experienced as a secondary supplier to major retailers. However, the increased need to maintain inventory, inability to accept price hikes, and longer cash conversion cycles severely impacted our lumber program's profitability. Under the consignment arrangement, we were obliged to purchase and store higher volumes of inventory to ensure quick restocking at our customers’ distribution centers, which created liquidity pressures since cash was tied up until store inventory was replenished. Recently, our lumber consignment customer informed us of their intention to move away from this arrangement in 2026. While the consignment program generated significant revenue, it had low margins and consumed substantial internal resources, making it less profitable than desired. We are currently in discussions with this customer and other parties regarding the sale of our remaining lumber inventory, which incurs additional warehousing costs. On the pet product front, demand for some of our pet offerings remains slow as the overall pet market struggles. Consequently, we have excess pet inventory in our warehouse, which has strained our working capital. Recently, we have initiated programs that are beginning to boost sales of our pet products. Additionally, we are coordinating with third-party liquidators to sell the remaining high-quality yet slow-moving inventory, which will help us recover cash and reduce warehousing costs. We aim to sell most, if not all, of this inventory in the upcoming months. Due to the anticipated lower selling prices, we have increased our allowance for obsolete inventory by $650,000 in fiscal 2025 compared to fiscal 2024. Looking ahead, we are considering changes to our pet business as we expect challenges in the overall pet industry to persist in the near future. At Greenwood, sales in fiscal 2025 increased by 2% over the previous year. Although demand for transit-focused products continues to recover from pandemic lows as more workers return to offices, a shortage of transit seats during fiscal 2025 limited new bus construction and orders for our transit products. Demand for these products improved as the seat shortage was largely resolved in the fourth quarter of fiscal 2025. We have recently reassigned some personnel to assist Greenwood in opening new sales channels and attracting new customers. We believe this segment has substantial growth potential in both our core transit sector and emerging industrial markets. While Greenwood is generally a profitable and lower-risk business, it is somewhat outside our primary operations and may hold more value as part of a strategic partnership. Therefore, we are exploring transactions that could enhance the overall worth of our industrial wood products subsidiary and our company. If any initial discussions evolve into something more concrete, we will provide suitable updates at that time. Transitioning to MyEcoWorld, we have experienced good growth since our rebranding, but we have yet to reach our $2.5 million sales level from when we initially launched our compostable dog waste bags a few years ago. One element of our growth strategy for this line was to enter the grocery sector. In fiscal 2025, we secured our first placement for our pet waste bags in 59 Tops Friendly Markets across the Northeast starting in late February. However, the new tariffs introduced in February 2025 made our products less price competitive, making growth in the grocery segment much more difficult. Instead, we will focus on expanding our successful introductions into big box stores where we already have strong supplier relationships and into foreign markets that are unaffected by U.S. tariffs, enhancing our competitiveness. A significant value opportunity lies in our seed cleaning property, which is currently valued at just $566,000. We believe its actual value is much higher. However, current sluggish economic conditions in nearby cities and Greater Portland have reduced the perceived urgency for rapid urban growth expansion, which previously prioritized our property. Thus, any inclusion of this property in the urban growth boundary expansion or a reclassification from its limited rural industrial status seems less likely to occur soon given the current economic and political environment. We have relisted the property at a price of $7.223 million, reflecting comparable values, its prime location along a major highway, and its unique zoning. Additionally, we own another property in North Plains, Oregon, referred to as our innovation studio, which features a photo studio and meeting space that we are listing for $795,000. This property is also unencumbered. After a promising start to fiscal 2025, the second half brought unprecedented challenges that required a shift in focus. As you've heard, management and the Board are diligently evaluating strategic alternatives aimed at maximizing value for the company and shareholders. Of course, there are no guarantees that any strategic discussions will yield definitive agreements or successful transactions, but we understand that maintaining the status quo isn't an option. We will provide further updates on these preliminary discussions once a definitive agreement is reached, which is not assured. Looking ahead, we see potential value in our business. Our primary goal is to establish an operating structure that can achieve profitability as rapidly as possible. While the market remains challenging, we believe the best path forward is to concentrate on our core strengths, improving the lives of professionals and DIYers with innovative products that enhance outdoor spaces, while leveraging our extensive distribution network through leading home improvement retailers. By focusing on aligning our costs with product prices, reducing excess inventory through direct import sales to lessen working capital requirements, and maintaining a lean operating structure, we aim to conclude fiscal 2026 in a significantly improved financial situation. Additionally, as we monetize certain noncore assets, we can generate added value for shareholders. Now, I will turn the call over to Mitch to delve into the financial details. We will then address your questions.

Mitch Van Domelen, CFO

Thank you, Chad. Good afternoon to everyone on the call today. My comments will focus on adding some color to key areas and events that had material influence on the fiscal year and the fourth quarter. Now let's start on the revenue line. For the year, total revenue was $41.3 million, down $5.8 million compared to the $47.1 million from last year. For the fourth quarter, revenue was $10.4 million versus $13.2 million for the fourth quarter of last year. Despite the impact from the tariffs, our metal fence business was essentially flat from last year. This highlights our rationale to lean into our differentiated metal fence operations as the normalization in the market occurs, and we come to the other side of this with better contractual structures with our retail customers. Looking at the remainder of our operations, our lumber sales were down due to supply challenges and profitability to support this program remains undesirably low due to the customer resistance to accept new prices in a timely fashion. As Chad mentioned, our primary lumber customer gave notice of their intention to transition away from our consignment arrangement in calendar 2026. We currently have about $5 million in excess lumber inventory, which we acquired to meet the needs of the customer under our consignment arrangement. We are currently in discussions with this customer as well as other third parties regarding the purchase of this excess lumber inventory. Our pet business was $4.3 million compared to $7.6 million last year, reflecting the overall weakness in the pet industry in general. Our Greenwood industrial wood business saw 2% growth for the year, coming in at $3.8 million compared to $3.7 million, while the sustainable or MyEcoWorld business had revenue of $800,000 versus $1.5 million in last fiscal year. Turning to gross margins. Overall, gross profit margins for the year were 15.1% compared to 18.8% in fiscal 2024. For the fourth quarter, gross margins were 8.2% compared to 14.5% in Q4 of last year. The decline in gross margins was due to a combination of higher tariff costs, higher shipping costs, expenditures on the continued rollout of in-store display units and a shift by customers towards lower-margin products during the quarter. Our 2025 margins were also negatively affected by an increase in our obsolete inventory reserve of $650,000 to $1.2 million from the $550,000 in fiscal 2024. We've made strenuous efforts to adjust our selling prices to correctly reflect the new tariff rates, but the rapid and unpredictable announcements of new rates have made that process extremely difficult, which is largely dependent on our customers consenting to these higher prices in a timely manner. Chad had mentioned this process in his remarks, but progress has been made, and we expect prices to normalize as the global economic situation stabilizes. Turning to operating expenses. As a result of our cost reduction initiatives implemented through fiscal year '25, operating expenses decreased from $10.7 million last year to $10 million this year. For the fourth quarter, operating expenses were $2.3 million compared to $2.2 million in Q4 of 2024. As Chad mentioned, we have initiated a plan to further reduce operational expenses by an additional $1 million to $3 million annually moving forward. Net loss for the year was $4.1 million compared to $722,000 net income last year. Looking specifically at the fourth quarter, net loss was $2.2 million compared to $191,000 net loss for the fourth quarter of fiscal year 2024. For the year, the impact of tariffs was the primary driver that impacted the decrease in both sales and gross margins. Please remember that the last fiscal year also included a $2.45 million gain from a settled arbitration case against one of our former distributors. Finally, a few comments on the balance sheet. Our inventory balance at August 31, 2025, was $15.9 million. And yes, that does include the obsolete inventory reserve of $1.2 million. We are currently in discussions with the lumber customer as well as other third parties regarding the purchase of the remaining lumber inventory. We are also working with third-party liquidators to sell our high-quality but slow-moving pet inventory, which will provide us with cash and clear our warehousing and maintenance costs for these products. As I communicated last quarter, based on the seasonality of our normal cash cycle, we typically see our working capital needs spike in the early spring as we transition our inventory to sales and collection. For this reason, coupled with the slower movement of certain inventories, we once again drew on our credit line at the end of the fiscal year. We had drawn $2.1 million against the credit line. However, as of November 28, 2025, our borrowing under the credit line was about $4.3 million. Under the current terms of the credit line, our lender, Northrim, provides short-term operating capital by purchasing the company's accounts receivable invoices and as a loan against our inventory position. The maximum we may borrow against the line is $6 million. We are currently discussing with Northrim to adjust the credit line to increase the maximum borrowing capacity, which would provide us with additional financial flexibility and to raise the maximum amount available to us. As Chad discussed, we will continue to focus on our operational strengths while reducing costs where possible in our efforts to increase our sales and margins and return to profitability. In addition, we are currently evaluating several different strategies to strengthen our liquidity position, many of which we discussed during this call and are otherwise detailed in our public reports.

Chad Summers, CEO

Thanks, Mitch, for the overview. Clearly, fiscal 2025 didn't go as we or anyone else expected. The results of the first half of the year versus the second half show a tale of two stories: one pre-tariffs, where we were in a growth trajectory, and one post-tariffs, which highlighted a significant slowdown in sales and impact on our gross margins. Our goal, first and foremost, is to create an operating structure that gets us to operating profitability as quickly as possible. We are executing on a plan to further reduce operating expenses by approximately $1 million to $3 million annually and through a lean operating structure, we can exit fiscal 2026 in a dramatically improved financial position. I look forward to communicating with you in the months to come as we continue to execute on these reformulated strategic initiatives. I thank you all for your continued interest and support of Jewett-Cameron, and we'll now be happy to take any questions. Robert, can you let me know if there are any questions?

Robert Blum, Host

Yes, Chad, there's a couple of questions here. First off, can you provide maybe some more details about the customer slow adoption of your price adjustments? Anything you can expand upon there?

Chad Summers, CEO

Yes, absolutely. Our customer relationships are such that any of our price increases must be consented to by the customer. The customer may not agree to any increase or negotiate lower price increases and any change may only be accepted after 30 to 90 days or longer, if at all. Ultimately, many of our customers did not immediately accept higher prices for our products, which we adjusted in response to the increased costs associated with the tariffs and global trade disruption. The frequent changes to tariff rates since February also caused some of the price changes we instituted in response to become obsolete before we could even pass them on to our customers. This forced us to spend time to recalculate the new prices and begin the process of presenting them to and negotiating with our customers again, which further affected our ability to recapture our higher costs through increasing our sales prices.

Robert Blum, Host

All right. The next question here is, maybe you can discuss why your lumber customer decided to move forward without you.

Chad Summers, CEO

Yes. Good question. At Jewett-Cameron, we have a long history of being a reliable secondary supplier of cedar fence boards, able to step in and fill gaps if and when primary suppliers face delays or challenges. We were honored to be able to step in and help our customer in a time of crisis when they were in need of a primary supplier for multiple distribution centers. However, as I mentioned earlier, the consignment model slowed our cash flow, reduced our margins and demanded additional internal resources to support the program, in addition to greatly increasing our lumber inventory requirements and tying up our capital. I presume their decision to switch suppliers aligns with their long-term strategic direction for the category. while the program did provide meaningful revenue for our business, we believe this transition will reduce our inventory burdens and allow us greater focus on our metal fence products moving forward.

Robert Blum, Host

All right. Maybe you could expand on your decision to focus on the metal fence business as sort of the go-forward strategy here.

Chad Summers, CEO

Yes. Well, the Jewett-Cameron fence products best represent our innovative abilities to deliver functional solutions to both pros and do-it-yourselfers. For example, our patented Adjust-A-Gate family of products is virtually unrivaled as it prevents gates from sagging and provides an adjustable gate frame kit to perfectly fit the opening. Our latest innovation, the Adjust-A-Gate Unlimited, is the only complete four-corner gate on the market and its low-profile design offers a no-sag technology that is low profile, so the metal is barely noticeable on a wood gate. Developing these differentiated products that deliver value to end users is something Jewett-Cameron has excelled at throughout our history. Jewett-Cameron fence continued to grow post-pandemic, as I mentioned earlier, and held steady in the midst of the tariffs this past year. We believe there's room to grow. Our existing customers are requesting us to expand our fence products into thousands of stores. Our sales team is actively pursuing expanding channels and prospecting to make our products available wherever pros and do-it-yourselfers want to buy these products. I would add too, that our fence category offers diversity of products that are well positioned for growth, such as our perimeter patrol, temporary fencing and our high-quality, low-maintenance composite Euro fence products in both existing and new sales channels.

Robert Blum, Host

All right. Thank you for that, Chad. Maybe we could talk a little bit about the timeline for any asset sales.

Chad Summers, CEO

Yes, asset sales. As I mentioned earlier in my prepared remarks, we are engaged in a variety of preliminary discussions, and we'll provide additional disclosures if and when definitive arrangements are entered into.

Robert Blum, Host

All right. There's a couple of additional questions here. Maybe we could expand a little bit on the increase in the credit line usage from $2 million to $4 million. Is there anything that could be expanded upon there?

Mitch Van Domelen, CFO

Well, I can take that. What I'd say is to fully capitalize on reformulated business strategy, we're actively pursuing strategic financing to accelerate our business plan to fund the core growth initiatives and to ensure robust operational capacity in the face of continuing global economic volatility. So securing the capital is key to maintaining our ability to consistently purchase and deliver products, thereby supporting our customers in the normal course of our business and their business.

Robert Blum, Host

All right. Very good. Next question here is specifically as it relates to collateral for the Northrim line of credit. Is there anything you can expand upon there on what specifically is the collateral?

Mitch Van Domelen, CFO

Currently, our agreement with Northrim provides for the sale of accounts receivable and an advance against current inventory. And that's how we currently have that structured and that would remain in place.

Robert Blum, Host

All right. Very good. Maybe you could discuss what range of cash do you estimate freeing up in the next 6 months from pet product liquidation and excess lumber inventory to the extent that you're able to provide any details on any of that?

Chad Summers, CEO

Yes. Mitch, I can speak to that. We won't be able to disclose that beyond what we've already kind of highlighted in the 10-K. I can't guarantee the value we're going to receive for that. But again, as previously mentioned, we are motivated and we'll be able to share that at a later date.

Robert Blum, Host

All right. Very good. I think we're sort of at the top of the hour here on questions. If there's any additional questions, we'll look to get these addressed directly. I guess with that, I will turn it over to management for any closing remarks.

Chad Summers, CEO

Well, again, thank you again for your interest in Jewett-Cameron, and I look forward to communicating with you in the months to come as we continue to execute on these reformulated strategic initiatives.

Operator, Operator

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