Good morning. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Andrew Peller Limited First Quarter Fiscal twenty twenty two Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
I will now turn the call over to David Mills. Please go ahead, Mr. Mills.
Thank you, Michelle, and good morning, everybody. Before we begin, I'd like to remind you that during this conference call, we may make statements containing forward looking information. This forward looking information is based on a number of assumptions and is subject to a number of known and unknown risks and uncertainties that could cause actual results to differ materially from those disclosed or implied. We direct you to our earnings release, MD and A and other securities filings for additional information about these assumptions, risks and uncertainties. I'll now turn the call over to Mr.
John Teller, Chief Executive Officer.
Good morning, everyone. Again, it's always nice to be with you. And I'm in Grimsby this morning. It's a beautiful day. And we're honored to catch you up with our first quarter results.
And obviously, we're still in the midst of pandemic conditions. And I would definitely tell you that the last year and now this first quarter have consistently been, if nothing else, incredibly challenging for our business to operate in. And we're still dealing with the changing opening and closings of different chain channels and disruptions to our supply chain and focusing on the health of our employees, while implementing a new ERP system. We've been very, very busy and I think we've performed very, very well. And to say that I'm very, very proud of everybody in our company for the great job that they've been able to do.
So for the first quarter, the kind of theme is comparing quarterly and annual results these days is very, very problematic. And certainly in this first quarter, our highlights were a decrease in sales of 6% from last year. And then our EBITDA is down significantly from last year in the first quarter. And first, commenting on the sales revenue, we budgeted and planned for a decrease in revenue in this first quarter because last year, we as the pandemic first hit, we had an incredible boom in our first quarter retail sales at the LCBO in our wine shops. We had a boom in e commerce sales like the likes of which we had never seen before.
And with restaurants being closed, it was reasonable to expect all the shopping to go into the retail system and we have a strong presence there and we benefited from that. And on top of that, the LCBO struggled to even keep stores open and in fact they closed down on Mondays and there was a significant lift from the closure of those stores on Mondays. So for us to be down 6% this year is certainly kind of consistent with how we would have expected things to play out. Though naturally the trade channels are opening and closing at different points in times and restaurant policies are different in each of the provinces. We had fully expected our state wineries to be open this first quarter and they were significantly restricted in terms of their ability to open so that we were negatively impacted by that.
And the e commerce channel has definitely quieted down now. I mean, there's still increased spending from historical levels, but the sales are down from what was happening this time last year. So that was the story on the revenue side and obviously on the EBITDA side. Last year in the first quarter, we were very fearful for how the results could play out because we didn't even know if retail stores would stay open. So we went into a very aggressive cost cutting mode and we laid off and furrowed rather a significant number of our employees.
We stopped all ad spending and we had kind of severe reduction in SG and A. Whereas this year, we are now back into the full flow of our SG and A. So comparing those to this year to last year, there's a significant increase in SG and A. So with the reduction of our revenue and the significant increase in our SG and A, you're seeing our EBITDA at $11,000,000 down from $22,000,000 last year and our revenue down 6%. So there are still lots of challenges we're managing through our supply chains and shipments not coming in as normal as we want.
But the good news is things are opening up. And I would say that most importantly, restaurant and we call them licensee sales, which normally in the market account for almost 20% of sales. They're opening up aggressively and business is brisk. And it's not clear how fast we'll return to the kind of pre pandemic levels in the restaurant level in the restaurant business. There were a lot of rule changes made during the pandemic.
Restaurants are allowed to sell cocktails and alcohol beverages to go, if you will. And there have been changes in BC in the markup structure to support restaurants. I'm sure you've heard that a lot of the restaurants have closed and some are not reopening. And they're all dealing with severe labor shortages. So how fast they come back to pre COVID conditions is not clear.
Certainly on our state line side, business is now very brisk and we're finally open everywhere. Unfortunately in the West, there are some fires out there in the Okanagan Valley and there's been a lot of smoke in the last two or three weeks. I call out daily to see how things are going. The air quality is starting to improve and there's a sense that things are coming under control. They're all praying for rain that's supposed to come on Friday.
And there's still a solid opportunity that will come out of this unscathed, but it is weather and these things are unpredictable. So we'll continue to keep our fingers crossed and monitor things closely. Certainly in Ontario and Niagara, we've had a great summer and all systems are go towards harvest, which starts up in another month or so. And the estate business is very, very busy rather. There's a great deal of pent up demand and you can tell that Canadians are planning their travel nationally this year and we will definitely benefit from that going forward.
We expect to see more North American travel in the remainder of the year, but we don't expect European, Asian travel to really pick up for another year or two as things continue to unfold. So our kind of narrative, if you will, is that we have managed very well through COVID and we will manage again well this year. And we're hopeful to kind of hit similar performance levels certainly from revenue as we did last year. Our earnings may be a little down because of the supply challenges that we're dealing. We are not losing sight of the fact that we will remain in kind of COVID conditions for the remainder of this year.
And our goal is to be kind of cost effective and prudent and kind of skate into the post COVID world healthy and raring to go focused on a lot of growth opportunities. So I'll leave it at that and pass it over to Steve and then we'll take some questions.
Thanks, John. Good morning, everybody. I'll just reinforce a few of the comments that John made. And with respect to revenue, clearly once the pandemic was announced at the end of the fourth quarter, consumers increased their purchase of products through the first quarter of fiscal twenty twenty one over concerns that trade channels for alcoholic beverages might be closed through the pandemic and the purchase pattern stopped towards the end of sorry, in fiscal twenty twenty one once there was a realization that beverage alcohol locations would remain open through the pandemic. And then in addition, as John mentioned, the LCBO was closed on Mondays during the first quarter of last year and is now since reopened.
So those factors contributed significantly to our sales decrease of 6.1% when we compare that to the first quarter of fiscal twenty twenty one. If we have a look at our margins, gross margin again was negatively impacted by purchasing patterns and other factors created by the COVID-nineteen pandemic. These would include revenue declines in our higher margin trade channels and higher imported wine costs. And then in addition, we experienced increased distribution costs and higher co packing costs in our new and growing refreshment beverage brands, including beer, cider and ready to drink products. We expect margins to strengthen over the longer term as our business returns to a more normal operation as the pandemic eases.
Our SG and A expense increased compared to last year's first quarter as we increased our staffing and marketing efforts in anticipation of more normal markets. As John mentioned, we were in cash conservation mode in the first quarter of last year and we've now reinvested in SG and A in anticipation of those channels becoming more vibrant. You'll remember that last year's first quarter, we also materially cut back on our capital investment again just as a cash conservation effort. And then finally, during the first quarter of this year, we incurred non recurring startup costs related to the reopening of our investment in the Riverbend, which opened on June nineteen of twenty twenty one. So including all of these factors, net earnings for the first quarter of fiscal twenty twenty two were $3,300,000 or $0.08 per Class A share compared to $11,200,000 or $0.26 per Class A share in the first quarter of fiscal twenty twenty one.
And then just a note on the balance sheet, our debt increased to $180,200,000 at 06/30/2021, largely due to working capital requirements and increased investment in our properties and operations. At quarter end, with capacity on our revolving line credit of about $169,800,000 So with that, thanks for your time and I'll turn it back over to John to wrap up.
Thanks, Steve. And I'm happy at this point, operator, to see if there are any questions we can help people with.
Thank you. Your first question comes from Amer Azat of Echelon Partners. Please go ahead.
John, Steve, good morning. Thanks for taking my questions. First, like well, a question I've been getting a lot is on the high temperatures and fires and I guess it might be too early in the harvesting season. But maybe you could give us your early thoughts there. Maybe you need to take the line first, but you foresee the 2021 vintage to be subpar.
Is that like a fair statement?
It's like I said, we are monitoring it very, very closely. There are some 300 fires burning in B. C. Right now and only a couple that are close to us. One is in Vernon and then there are two in the Lower South Valley, but they're on the other side of our hill and the prevailing air is pushing them east, whereas the one in Vernon had a significant southern blow down into the valley and it's already started to clear.
So I'm led to believe, Emmer, that they're feeling things are trending positively. And if they continue to trend positively that we will already have a lighter crop this year than what a normal crop would be. We'll probably be down 10% or 15% in total yield and that's just because of the heat. And in years of extreme heat, we tend to have lighter crops and that will definitely be the case. But we've planned we can plan around that and manage our results without significant impact there.
So I'm saying I'm sticking to the fact that we're hopeful things will continue to improve and we won't have much the big issue we have is smoke taint. If there is far too much smoke for too long on the grapes, it gets on the skins. We do have a lot of processes we put in place to mitigate against smoke paint and we're preparing if we have to go through those processes to make the best of what we can. Certainly in previous years, we've rejected fruit when it has too much smoke taint there. So but I'm thinking that we could be quite skating scot free if things continue to improve and there's still several weeks to go.
Let's hope so. Remind me, in your BC portfolio, do you guys don't have any nouveau wines that are consumed the same year as they're harvested?
Well, no, but white wines are generally served within a year after being picked. So and then the reds two and three years after that generally on average, certainly for the premium products.
Great. Okay. So let's switch gears to sales and let's forget last year's quarter, which as you mentioned was a bit special. But if we go back to Q1 '2 years ago, sales are down 3%. So is that 100% attributed to the issues you spoke to within like some of the channels like the export sales and so on?
And maybe you could sort of touch on or give us a sense of what your market share is in retail or how it evolved over that time period? Is it stable? Are you guys gaining or losing share?
So your first question, if we compare our sales in the first quarter this year to the sales pre pandemic and we look at our sales in the retail channels, our first quarter sales are up over those sales from a year ago, maybe in the call 3% range. But we're also having to adjust for the fact that pre pandemic there weren't trade channel closures and now there are. You understand what I'm saying there?
Yes, yes, yes.
So that as best we can compare our sales in say our retail stores, in the liquor board stores and grocery stores, if we compare to that quarter and we adjust for store closures, our retail sales are up about around say 3% for that quarter. Having said that, your second part of your question was, will help me with that.
On market share, because I think that would sort of capture it's like you're sort of gaining market share in these like channels or
at least you're maintaining this. Yes. In fact, we have gained market share in the last year and our market share continues to improve in especially at the value price points. And one of the biggest changes we haven't highlighted is that the change of mix that has happened with the pandemic. In other words, especially in the beginning of the pandemic, but also through the last nine months, there was a significant move away from premium to value price products in the liquor stores, in the grocery stores.
And now there's a slow movement back to premium as people are going back into stores, spending more time there and that is starting to normalize again. But overall, our market share has been performance has been very positive.
Great. Maybe I missed that in your financials. Did you guys disclose how much Riverbend contributed to sales during the quarter?
No, we did not. I mean, we only opened
in June, yes, we
were hoping to open in May and then there was closure policies here in Ontario. So we opened in the middle of it. And people were slowly coming in at first. It wasn't a boom to come down down because I think it's going to take people a while to adjust to things opening up. You can see that as they come into restaurants and the like.
But having since then now we're booked solid at the Riverbend and at the Estates. We have to take reservations and we're definitely going to be fully booked through the fall and hoping that things will stay open and that we don't have any more problems.
Okay. Maybe one last question on gross margins. It's good to see the rebound from last quarter, but obviously we're still well below your norm. And I'm trying to understand how should we see it sort of evolve over the next couple of quarters? Are you guys starting to see some of the issues impacting margins such as raw materials or co packing linger like over the next couple of quarters or do you see the light at the end of the tunnel?
Definitely things will improve. I mean that move to value price products and certainly RTDs and those products have lower gross margins as well. But the states not being open and the decline of premium products and grocery channels all serve to compress gross margins and they're now starting to come back and just how fast they get to where they were pre pandemic, it's not clear, but I have no doubt that they'll get back there within the space of six months to the six to nine months type of thing.
Great. Thanks for the color. I'll pass the mic.
Thanks. Thank you very much.
Your next question comes from Nick Corcoran of Acumen. Please go ahead.
Good morning and thanks for taking my questions.
Nice to see you Nick.
To maybe dig into the performance quarter to date, how like have you seen continued normalization of trade channels? And can you maybe speak to how quickly people came back to the state wineries in Ontario and BC?
Yes, I mean, obviously things are opening and liberalizing quickly. And the biggest change is restaurant opening right now. And their growth in the restaurant trade is improving quickly, but I would still submit I don't have a solid number of this, but it's kind of gone from where it was down in the 10%, twenty % range to getting up into the kind of 50%, sixty % range of normal. And we saw in The U. S.
That people went back to their normal shopping behaviors more quickly than what people had expected. So that's our best barometer for assuming that things should get back to normal restaurant shopping within the next three to six months. And that retail shopping people are showing not just in our business, but in food and home improvement. Even though e commerce sales were booming last year, there people are showing that they want to get back to brick and mortar retail shopping. And I think our state line business is getting back to normal.
It couldn't be busier right now. And part of that is the normal flow of business, but also I think increased business because people aren't traveling outside the country as much and we're benefiting from that. So it's August and we still have not things fully opening and functioning as you know the way we would hope they would be. But we're optimistic that through September and through to Christmas and into early next year that the prudent management of health, we're definitely not expecting a fourth wave as you'll see in other markets in North America. And we're hopeful that things we come back to more normal pre pandemic levels across the board with the exception of travel, which will take a year or two by the end of the third quarter and the beginning of the fourth quarter.
Great. That's good color. And we spoke about the harvest in BC potentially being impacted by the fires in Spokane. Can you give any indication on the harvest in Ontario and how it's looking?
It's very strong. It's instead of a light yield, it's a strong crop and quality is very, very high. So we're feeling good about that, but we still need cooperative weather through the harvest fall period. I mean, we like a dry, warm harvest. We don't like too much rain and things have been a little wet lately, but we expect a very, very strong yield and good quality in Niagara and we're grateful for that.
Good. And then last question for me. Do you have any update on the land sales in the lower mid month?
Yes. I mean the smaller property which is in Port Coquitlam, there's interest in that property right now and we expect that property to transact in the next quarter, but it's still working through its negotiations, but it's looking positive. And on our Port Moody property, it's a very, very large proposed development and where the development community was very, very quiet during the pandemic, they're now much, much more engaged. We're talking with lots of people. The market is incredibly strong and we're optimistic in the next year that we'll make significant progress on that transaction.
That's all for me. Thanks.
Thanks,
There are no further questions at this time. Please go ahead.
Okay. Thank you very much and thanks everyone for joining us. And both Steve and I are available anytime you have any questions and we'll look forward to following up with you after our next quarter. Thank you, operator and we are finished.
Thanks, everyone.
Ladies and gentlemen, this does conclude your conference call for today. We thank you for participating and ask that you please disconnect your lines.