COVID Hurts Slang Revenue, But Sales Look To Be Recovering

SLANG Worldwide Inc. (OTC: SLGWF) reported that in Canadian dollars that its revenue decreased by 3% sequentially to $4.6 million in the second quarter from $4.6 million in the first quarter 2020. The drop was attributed to stores that were impacted by COVID lockdowns. Slang said in a statement, “The stay-at-home orders associated with the COVID-19 response also adversely affected certain retail locations that sell the company’s branded products.”

The company also noted that its previously announced decision to recalibrate supply chain relationships in California and other emerging markets had affected revenue. The company said that performance in its core markets of Colorado and Oregon helped offset decreased revenues in its emerging markets. “On a year-over-year basis, core market revenues were down 50% in the month of April, at the height of the pandemic, but recovered by June to deliver a 130% increase over June 2019.” Slang said that sales have continued to rise through July and August.

The company recorded net income of $2.7 million, which dropped from $16 million reported for the same time period last year. Slang said it expects solid growth in the second half of 2020 due to continued strength in core markets, new product launches and traction in newly-entered markets.

“We were encouraged to see our revenues and margins hold steady in the second quarter despite facing a full three months of the COVID-related challenges that first appeared in March,” said SLANG President & CEO Chris Driessen. “These results reflect improvements in June, which offset weak April and May activity driven by the COVID-19 crisis. Additionally, the decisive steps we have taken to adjust to the market environment have led to reduced operating expenses and more efficient use of our cash resources. The success we have experienced since the recovery in June is further proof that we are emerging from the challenges of the first half of the year even stronger, with revenues and momentum exceeding pre-COVID levels.”

Looking Ahead

The company has said it is focused on a path to profitability through a rebalancing its workforce and continued optimization of SLANG Network relationships, resulting in combined annualized savings expected to be approximately $10.5 million. “SLANG Network partner assets in Colorado and Oregon are demonstrating the capability for profitable cash flow from operations and we are optimistic for the future as those acquisitions are near completion.” The company listed the following reasons why it is so optimistic:

  • Licensing revenues from recently-signed strategic partners commencing and continuing to grow as those partners introduce products into their local markets;
  • Continued expansion into new emerging markets, such as California and Massachusetts, provided strategic partnerships can be successfully concluded;
  • Increased sales from the Company’s recent and ongoing expansion into new product categories and introduction of new brands;
  • The ongoing recovery from the effects of COVID-19 closures, as demonstrated by positive sales trends in July and August;
  • The consolidation of supply chain assets, and a corresponding increase in revenue and margins, resulting from the potential closing of the proposed acquisitions of LBA in Oregon, and Allied Concession Group (“ACG“), Peoria Partners LLC and Pleasant Valley Ranch, LLC in Colorado;
  • Reduced operating expense run-rate as a result of recent streamlining activities; and
  • Continued focus on prudent credit management and prioritization of near-term cash generation.

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