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Second Cup hit hard by COVID-19 in Q1 2020

From the June 2020 issue.

Aegis Brands, the parent company of Canada’s Second Cup and Bridgehead Coffee, has announced an earning loss of C$1.473 million (about US$1.08 million) for the first quarter (Q1) of 2020. This is down from the profitable earnings before interest, taxes, depreciation, and amortisation of Q1 2019, at C$349,000 (about US$256,000).

Net loss, after adjusting for non-cash write-down of assets, was C$1.99 million (about US$1.46 million), compared with C$403,000 (US$296,000) in 2019.

Same store sales were -8.6 per cent, compared with -0.9 per cent in Q1 2019. Same store sales were up 3.2 per cent for Bridgehead and down 9.7 per cent for Second Cup in the quarter.

Like all companies in the foodservice sector, the company says its financial results in Q1 2020 were severely impacted by the COVID-19 pandemic. All 19 Bridgehead coffeehouses in Ottawa and 130 of the 244 Second Cup cafés across Canada closed in mid-March, and re-openings are just getting underway. Locations that remained in operation have experienced a dramatic reduction in both traffic and revenue.

By the end of June 2020, the company expects to have all 19 Bridgehead coffeehouses and 185 Second Cup cafés open across the country. Locations in Eastern and Western Canada have been leading in re-openings, as restrictions ease in areas including Alberta, British Columbia, and the Atlantic provinces. While Ontario and Quebec re-openings continue to lag, the majority of locations that remain closed are in malls, universities, recreation facilities and office towers – locations the company is expecting to have significantly slower return to normal sales level.

For the four weeks ending 13 June, same-store sales across the Second Cup system were 51 per cent of last year's results.

"We are seeing stronger-than-expected results as provinces reopen, with cafés in Alberta and the Eastern provinces delivering year-over-year same-store sales results of approximately 75 per cent, despite the fact that significant distancing regulations remain in place surpassing our post-COVID expectations," says Steven Pelton, President and CEO of Second Cup and Aegis Brands.

"We are optimistic that this trend will continue in Ontario and Quebec as those markets continue to relax restrictions."

The Company has taken significant actions to support its franchisee network in the face of these unique business challenges, including:

  • Halting the collection of all royalty and advertising fund payments for the period from 23 February 23 to 16 May.
  • Reducing salaries for Coffee Central staff by 28 per cent, and for the senior leadership team by up to 50 per cent, and temporarily eliminating all compensation for the company's Board of Directors.
  • Eliminating Coffee Central positions where possible, through both temporary and permanent layoffs.
  • Working closely with franchisees to help them understand, and take advantage of, any and all government programs available to them.
  • Leading discussions with landlords to secure adjusted rents obligations that match the sales volumes from April forward.

The Company had no external debt and C$2.6 million (about US$1.9 million) in unrestricted cash at the end of Q1. In addition, the company is engaging in discussions on various options to enhance liquidity.

"Ensuring the ongoing survival of small businesses and franchisees during this crisis can't be done by any company in isolation. We are grateful for the support of all levels of government, and many of our landlords across Canada. We urge those landlords who haven't been able to show flexibility to reconsider how they can support our hardworking franchisees," says Pelton.

"I'm incredibly proud of our franchise network and the teams in each brand. The response to these unprecedented business challenges and the sacrifices made are truly inspiring. As Aegis Brands, Second Cup and Bridgehead emerge from this experience, I am confident we will be stronger than ever before."

In April 2020, Second Cup launched its first-ever eCommerce platform, offering home delivery of its products. Following the closure of its coffeehouses due to COVID-19, Bridgehead has seen 10-times growth in its online sales, and Bridgehead products have launched at both Farm Boy and Whole Foods locations in Ottawa.

In addition, work has continued on Aegis Brands' commitment to innovation in cannabis retail. Six former Second Cup locations and one additional location are in the process of conversion to cannabis retail outlets. The first two stores are expected to open in July 2020, and more details will be announced in the coming weeks.

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