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Charlotte’s Web Stock Rose after Its Q4 Earnings


Mar. 24 2020, Published 11:13 a.m. ET

Today, Charlotte’s Web Holdings (TSE:CWEB)(OTCMKTS:CWBHF) reported its fourth-quarter earnings, which ended on December 31. For the quarter, the company reported revenues of $22.8 million, while its adjusted EBITDA came in at a loss of $10.2 million. The company’s second-quarter performance fell short analysts’ expectations. Analysts expected the company to report revenues of $26.6 million and an EBITDA of $0.67 million.

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On Monday, Charlotte’s Web announced that it will acquire Abacus Health for 99 million Canadian dollars in an all-stock deal. The company expects to close the deal in the second quarter. However, the deal requires regulatory and Abacus shareholders’ approval. After the completion of the acquisition, Abacus shareholders would own 15% of Charlotte’s Web. The acquisition could expand Charlotte’s Web’s market share in the F/D/M segment to 35%. The acquisition of Abacus Health appears to have impressed investors. Today, the company was trading over 8% higher in the early morning trading hours amid a strong broader equity market.

Charlotte’s Web’s fourth-quarter revenue

Compared to the revenues of $21.5 million in the fourth quarter of 2018, Charlotte’s Web rose by 6.3%. During the quarter, the company’s human consumables generated 90% of the total revenue. Meanwhile, topical and pet products generated 6% and 4% of the total revenue, respectively. The company’s human ingestible, topical, and pet product segments rose by 26%, 29%, and 33% YoY, respectively.

Charlotte’s Web’s DTC (direct-to-customer) sales grew 14% YoY to form 65% of the company’s total revenue. The growth in online traffic and conversions drove the segment’s revenue. The company’s management credited its marketing and social media programs and customers’ enhanced shopping experience for its revenue growth. During the quarter, the company upgraded its e-commerce platform to provide greater segmentation and marketing capabilities. Meanwhile, B2B sales witnessed just 6% YoY growth. The company’s management blamed the decline in the natural health channel’s revenue for lower revenue growth. The natural channel’s revenue fell by 11% YoY due to crowding. The company’s management added that the low entry barrier due to a lack of regulatory oversight caused overcrowding.

For the fourth quarter, Charlotte’s Web’s net loss was $18.8 million or $0.19 per share. The net loss is a decline from net profits of $3.2 million or $0.03 per share in the same quarter of the previous year.

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Lower adjusted EBITDA

During the quarter, Charlotte’s Web’s adjusted EBITDA fell from $3.4 million in the fourth quarter of 2018 to a loss of $10.2 million. The decline in the company’s gross margin and an increase in operating expenses compared to lower-than-expected revenue from the F/D/M and natural retail segments caused the company’s EBITDA to fall. During the quarter, the company’s fourth-quarter gross margin fell from 72% to 54%. During the quarter, Charlotte’s Web recognized inventory provisions of $13.9 million, which was applied to the cost of goods resulting in negative gross profit and gross profit margin.

YTD stock performance

Since the beginning of this year, Charlotte’s Web has lost 48.7% of its stock value as of Monday. Fear of dilution due to new equity offering, the FDA’s warning letters to 15 CBD manufacturers in November 2019, and weakness in the broader equity market led to a fall in the company’s stock price. However, the company’s stock rise today could mitigate some of the declines. Meanwhile, the company has underperformed its peers this year. During the same period, Curaleaf Holdings (OTCMKTS:CURLF), OrganiGram Holdings (NASDAQ:OGI), and Aphria (NYSE:APHA) have fallen by 45.2%, 32.3%, and 45.1%, respectively. Curaleaf will report its fourth-quarter earnings today after the market closes. Read Will Curaleaf Beat Analysts’ Expectations in Q4? to learn more.


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