Bridgford Foods Corporation — Q2 FY2022 Form 10-Q
Reporting period: Twelve and twenty-four weeks ended April 15, 2022; comparisons are to the corresponding periods ended April 16, 2021. Dollar amounts are in thousands unless stated otherwise. The company operates Frozen Food Products and Snack Food Products segments.
Financial performance
| Metric | 12 weeks ended Apr. 15, 2022 | 12 weeks ended Apr. 16, 2021 | 24 weeks ended Apr. 15, 2022 | 24 weeks ended Apr. 16, 2021 |
|---|---|---|---|---|
| Net sales | $59,986 | $50,477 | $124,072 | $105,170 |
| Gross margin | $16,682; 27.8% | $10,587; 21.0% | $33,075; 26.7% | $25,138; 23.9% |
| Operating income (loss) | $1,504 | $(2,311) | $3,184 | $(1,661) |
| Net income (loss) | $805 | $(1,773) | $1,112 | $(309) |
| Basic earnings (loss) per share | $0.09 | $(0.20) | $0.12 | $(0.03) |
- Second-quarter sales grew 18.8%; management attributed the increase to higher selling prices (11.0%) and volume (8.6%), partly offset by returns and promotional activity.
- For the 24-week period, sales rose 18.0%, reflecting higher prices (12.7%) and volume (5.4%). Frozen Food sales increased 37.1% to $24,843, primarily on foodservice volume recovery; Snack Food sales rose 14.0% to $99,229, driven mainly by pricing.
- Twenty-four-week operating cash flow was $2,273, compared with $1,531 a year earlier. Investing cash outflow was $611, versus $5,657, principally reflecting lower capital additions. Financing provided $4,821, compared with a $401 outflow.
- Cash and cash equivalents were $6,858 at April 15, 2022, versus no reported cash and $375 of restricted cash at October 29, 2021. Net working capital was approximately $50,246, as stated by management.
Balance sheet, debt and liquidity
- At April 15, 2022, total assets were $162,323, total liabilities $86,233, and shareholders’ equity $76,090. Inventories were $40,935, up from $36,771 at fiscal year-end.
- Total debt was $42,042, up from $37,069 at October 29, 2021, comprising $18,000 drawn on the revolving facility, $18,651 on the bridge loan and $5,391 in equipment notes. Current debt was $3,446; long-term debt was $38,596.
- The company reported $7,000 of availability under its temporarily expanded $25,000 revolving facility at April 15. It was in compliance with its stated loan covenants at that date.
- After quarter-end, the June 1 sale of Chicago real estate to CRG closed for $60,000, less $2,100 of previously received earnest money and subject to closing adjustments. The company reported $1,200 in broker commissions, including $300 paid to an entity controlled by a director. It used approximately $19,000 of proceeds to repay and terminate the bridge loan and planned to use approximately $18,000 to repay the revolver. The filing does not provide the final net cash proceeds or the subsequent revolver balance.
- The company received a $575 income-tax-receivable payment on May 16. Management expected adequate liquidity for at least the next twelve months, considering operating cash generation and tax refunds; this is a forward-looking assessment.
Changes, outlook and risks
- Profitability improved from losses in the comparable prior-year periods. For the 24 weeks, gross margin expanded to 26.7% from 23.9%, while SG&A increased 11.3% to $29,909.
- Commodity costs increased approximately $10,306 year over year in the 24-week period, including $9,580 for significant meat commodities and $726 for flour. Management cited inflation in labor, freight and materials and expected the trend to continue through the remainder of FY2022. Pricing may not fully or promptly offset cost increases; higher prices could also reduce demand.
- Management said foodservice reopening supported Frozen Food volume and that pandemic-related financial-statement effects were minimal in the reported periods. It warned that COVID-related channel shifts, supply constraints, production disruptions and worker availability could still affect future results.
- Customer concentration remains notable: Walmart represented 31.4% of 24-week sales and Dollar General 17.7%; Dollar General accounted for 38.1% of period-end receivables. Walmart receivables were 4.4% of total receivables, which the company attributed partly to accelerated payments.
- Inventory reserves were reduced by $2,159 during the 24 weeks as previously reserved goods sold through; a $194 reserve remained for certain meat products. The cash conversion cycle lengthened to 72 days from 59 days, mainly due to receivables and, to a lesser extent, inventory.
- Other exposures include uncertain future pandemic effects, commodity-price volatility, customer concentration, pension and employee-benefit estimate sensitivity, and potential inventory or long-lived-asset impairment. Management reported ordinary-course legal matters were not expected to materially affect financial position or results. No significant flour purchase contracts remained unfulfilled at quarter-end.
Important facts for investors to verify
- Final accounting for the $60,000 real-estate sale, including closing adjustments, any gain or tax effect, and the related-party broker commission.
- Actual application of sale proceeds and resulting cash, revolver borrowings, debt maturities and covenant headroom after the bridge-loan payoff.
- Whether pricing continues to offset meat, flour, labor and freight inflation without materially weakening volumes or margins.
- Receivables, inventory levels and reserves, particularly given the 72-day cash conversion cycle and customer concentration.
- Progress against management’s liquidity outlook and the timing and collection of remaining tax refunds and deferred payroll taxes.