Good morning, ladies and gentlemen. Welcome to the Second Quarter Fiscal twenty twenty one Results Conference Call. I would now like to turn the meeting over to Mr. David Mills. Please go ahead, Mr.
Mills.
Thank you, Melanie, and good morning, everybody. Before we begin, we'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 things over to Mr.
John Peller, Chief Executive Officer.
Thank you very much, David, and good morning, everyone. I'm joined by our CFO, Steve Atrich, this morning. We're both in our home offices here in Burlington looking out over an incredibly beautiful sunny morning. And I mean, the weather we have today is somewhat representative of this incredible summer and fall that we've enjoyed, which is totally unprecedented. It's hard to think back to February.
I was away skiing in the West and got my first CNN news about a virus that was coming and hurried home like everybody else and have gone through the strangest year that I can ever remember. But it was a blessing that we've had such incredible weather throughout the summer and the fall. This last Indian summer here in our region has been remarkable. We're still actually finishing our harvest in the Agra as we speak. Our last tons are coming in and we've been finished we've had an incredible harvest, both in terms of yield and quality.
As I said, I think earlier too in September, we're certain this will be one of our best vintages ever and we're hopeful that it may be the best. And in the Okanagan, we finished a few weeks ago and we've had a good harvest in the Okanagan, excellent quality, a little lower yields than were normal, but all manageable. So we're pleased. We continue to manage our way through the challenges that are presented by the pandemic. And in addition to working from home, we've been focused on the health and safety of our team.
We're considerable focus on our operations, our supply chain. You can imagine going through the harvest with all the farmers, hundreds of farmers and truckloads of grapes and processing in addition to the action of our supply chain because we've had to increase our expediting line from all over the world. And we've had a very, very busy warehouse because our sales have been strong. So it's been a very, very busy last three months, and we're as proud as how focused our team remains on the health and safety of our company, of our employees and our customers as well. So we've done quite well.
Our sales are up 2% over the last six months from a year ago, and our earnings are up 45% to $24,000,000 The increase in our earnings has been significantly aided by lower SG and A, general and administration expenses. Early in the year, we were aggressive in cutting back our spending, and we wanted to make sure the company stayed healthy from a cash perspective, and we were aggressive cutting back all our expenses. And now that we've demonstrated that we're performing well, we're increasing our spend not quite back to last year's levels, but very close to last year's levels in the back half. As I said, the consumption for wine in Canada has remained stable and strong right across the country. But obviously, purchasing patterns have changed.
The sales to our export trade channel have gone almost to zero. And similarly, our sales to restaurants are negligible. Our sales through our own hospitality and estate trade channels, our nine estate wineries have been significantly reduced, but our sales through our larger liquor store, provincial liquor stores, our own wine shop system have been strong and our direct to consumer has been strong as well and more than offset what we've lost in the other areas. I think it was it's very fair to say that in the context of retail sales that strong brands, brands that consumers do and trusted have definitely outperformed their peers more than usual during the pandemic process. So we're confident that we'll maintain this momentum for the remainder of the year, Although we note with caution that the pandemic continues to throw curves and catch us off guard with changes, and we'll be still somewhat cautious as we plan to finish the next year.
Though I would say that even though we are cautious in our market spending, we continue to invest heavily in the future of our business. We're spending more capital now on future growth than we've ever spent in our company's history. In particular, our ERP system, which is the largest CapEx our company has ever made, is an investment in our knowledge that we want to lead in a digital future. We're spending more money on plant and equipment than we've ever spent in the past updating our equipment and improving our quality and our efficiency. And we have plans to continue to strengthen our facilities from a marketing perspective and in our state wineries as well.
So we're being prudent and cautious in the marketplace and performing well while we continue to invest heavily into our future. So with that, I'll turn things over to Steve.
Thanks, John. Good morning, everyone.
I'll take you through some of
the details of our financial performance in the quarter and year to date. So starting with sales, we're up sales were $202,900,000 for the six months that ended 09/30/2020, up 2.1 from the same six month period a year ago. As John mentioned, revenues were down in export export and our hospitality trade channels due to COVID-nineteen. However, this was offset by our increased sales to provincial liquor stores, other retail channels and through our new online sales portal, thewineshops.com. With our sales growth so far this year, we're confident our market share remains stable, a reflection of our strong product portfolio, our reputation for delivering value and the loyalty of our customer base.
Our gross margin of 42.8% in fiscal 'twenty one has declined from the prior year due to the impact of COVID-nineteen. Factors include higher imported wine costs, an increase in consumption of lower margin products and revenue declines in higher margin trade channels. We expect margins to strengthen post pandemic when consumers return to normal patterns of purchasing higher margin products. Our sales and admin expenses were lower in the first six months of fiscal 'twenty one as we made a deliberate effort to manage costs by temporarily reducing advertising and promotional spending and lower staffing due to the pandemic. As a percentage of sales, selling and admin costs were 20.6% compared to 26.6% through the first six months of last year.
Going forward, we expect costs to rise gradually once the pandemic eases and our business returns to more normal levels. With the increased sales and reduced selling and admin costs, our EBITDA rose to $45,000,000 for the first six months ending September 30, up from $35,700,000 a year ago. Interest expense has decreased this year due primarily to lower debt levels and lower interest rates compared to last year. Net earnings for the first six months of fiscal 'twenty one were $23,900,000 or $0.56 per Class A share, up from $16,400,000 or $0.38 per share in fiscal 'twenty. Turning to the balance sheet.
Overall debt continues to decline down to $143,800,000 from $165,200,000 in March of 'twenty. The decrease is due to higher cash flows from operations this year than our regular debt repayments. Cash from operating activities through the first six months of fiscal 'twenty one was $41,200,000 up from $21,200,000 last year. At quarter end, we had capacity in our operating credit facility of about $41,000,000 With another $117,000,000 in our investment facility, we believe this strong liquidity position will enable us to remain well capitalized going forward. As we've commented in the past, we are in the midst of implementing a new highly scalable enterprise resource planning solution at the company, an initiative we're confident will greatly benefit our production, logistics and delivery systems going forward.
It will make meaningful contribution to our efficiency and improve results in the years ahead. In summary, as John mentioned, we're pleased with our results through the first half of fiscal 'twenty one and remain confident this track record of solid performance will continue over the long term. Thanks very much. I'll turn it over to John to wrap up.
Thanks, Steve. To follow-up on Steve's comments, we're performing well in the marketplace and proud of that. We're certainly dealing with lots of challenges that are some headwinds for our industry, and they remain principally focused around the government disruption and policies there. One you may have heard recently is governments are now giving restaurants the right to sell wine beer and spirits, beverage alcohol outside of the restaurant. This is a major, major change in policy and naturally, we're very, very sympathetic to the absolute horrific disruption that's occurring to the restaurant industry as we speak.
Restaurants that we thought were unshakable are closing. The damage to the restaurant industry has been, in many ways, quite uneven. In other words, it's very location specific. Certainly, downtown is the areas that are doing the poorest, Downtown Toronto, downtown urban centers where people have evacuated and in all areas as well are not seeing normal traffic and anybody who's located in those areas is hurting. But we weren't opposed to the allowing of restaurants to sell beverage alcohol, but there has been a lack of clarity and regulation around how this would be managed.
So that obviously the goal is not to turn these restaurants now into new retail stores and we're working with government to ensure that the sale of the products is aligned with the service the restaurant provides in terms of selling principally food. And there have been in one of the markets, there's been a change to the tax structure to support this, which unfortunately created an inequity with our industry, and we're trying to address that. We're still dealing with interprovincial trade issues and the several provinces are being incredibly zealous over taxation and they're not allowing what should be a right for businesses in Canada to do commerce within the Canadian border in an unfettered way there. They're gouging the system for increased taxation. We're continuing to fight that and this is a war we will win and I'm 100% sure of that, but it will take increased effort because even though a federal law now exists to say that near provincial barriers are illegal, some of the provinces, one in particular, is being very overzealous.
And we've still had challenges with international trade agreements. And this is extra challenging for us because all of the countries that do sell wine into Canada receive significant financial support in their own markets that we don't receive as well as export subsidies to ship into our country. And then when they're in the liquor boards, they receive subsidized service as well from our own liquor boards. And we're increasingly drawing this to our government's attention because there's so much more local governments could be doing to support our industry. As I said before, we're planning to spend more money on capital in the next five years than we've ever spent, both in our facilities, our people and our technologies.
We've entered new categories beyond wine in the RTD, so called refreshment beverage alcohol, craft beers, ciders and vodka sodas. Our entries are doing very, very well. We've launched into the Spirit category. Our products are doing very, very well, our Gretzky whiskey and our cream pears. And we have a record number of new brands and innovations slated to go into the market next year.
Our retail system, the TWS system has performed very well. And in addition, we've launched an e commerce platform that has performed admirably. And we're pleased to say as well that our personal winemaking business has had a solid performance this year. So we're proud of our results and confident that our best years are definitely in front of us. So with that, I'll turn this back to you, Melanie, to go for questions.
Thank you. We will now take questions from the telephone lines. The first question is from Emer Ezaat of Echelon Partners. Please go ahead. Your line is now open.
Good morning. Congratulations on a strong quarter. Guys, I'm pleasantly surprised to see sales hold up despite this quarter being usually very heavy in hospitalities. Can you give us, I guess, more color on how the hospitality channel performed in relation to last year? Did you guys manage to keep this flat?
I'd be surprised. Then the other part of this question is it seems like there's a lot of strength in the other channels. And I'm just trying to get a sense of what is driving that. Are you guys like winning market share? Are you seeing less competition out west from the imported key point that was hurting your sales in the past?
Is it your ecom websites? More color would be appreciated.
I mean, certainly, thanks for your comments. The two channels that have performed very, very well in the retail provincial liquor stores, our wine shop systems and as well our e commerce. In the retail systems, there has been a pronounced focus by consumers on more value priced products. And in particular, the bag in box, four liter bag in box has been a has seen a significant surge. And those are areas where our brands are strong and our distribution is the strongest.
So naturally, we benefited from that trend. The offset in people eating in restaurants, which is probably down 60%, sixty five % in total, has been offset by people entertaining at home, having more dinners and socials within their bubble and neighborhood type things so that it's clear, as we've seen in past recessions in the last four, that people's consumption does not change through these types of patterns, where they purchase and how they consume changes. And that certainly has been the case. Even down at our state wineries where we have restaurants, our restaurants down there did performed well. And they did because the estates have been a popular destination and distraction for people who no longer travel and the like.
Having said that, we have not had any events. We've done none of the group and large corporate events that we normally do, which is a significant part of our business down there. That's gone to zero. So I think it just shows that consumers are still interested in their food and dining and wine tasting. It's just that they've had to do it where it's been safe and reasonable access to do it.
And they definitely have, as you've seen in all the other businesses in the community, adapted to e commerce and e commerce has advanced five, six years in the space of the last six months. And as sales and e commerce have been positive as well. The supply chains have been disrupted a little, so some of the imported wines are not having the same access that they have had in the past just because their shipping has been disrupted. And some of the premium wines are still doing well. Like I said, though, I think the strong indication there is that France people know are doing better.
In other words, people when they go into stores, they know what they want, they get it and they leave. They're not browsing and spending a lot of time in the stores like they had previously. So that's about as good as I can summarize it.
No, that's very good color. Maybe switching gears on gross margin dynamics. Steve, I know you said that you expected that's normalized post COVID. But I'm trying to get a sense of how much of the decline in gross margin is driven by higher imported wine costs versus the changing product mix that you guys spoke to with consumers going more towards value brands?
Sure. So
there are there's a number of things that are impacting kind of margin as a result of COVID. And we've got some softness in particular in our estate group, as we had mentioned. It tends to be a bit of a higher margin channel. So we'd expect post COVID for people to return to the estates in the to the same levels as they have in the past. And then certainly, the shift sort of toward the value end of our brands has some margin compression.
And as we've ramped up e commerce, e commerce comes with some delivery expenses. And at this point, our intent is to continue to offer free delivery. So that does have an impact on margin and getting more margin mix than it's a channel that's performed very well for us. And then we have as our ICB portfolio has increased in volume through sort of this shift of value, we've had to expedite imported wine to satisfy our production requirements. And so I would say that all of those things are really outcomes of the pandemic.
And so as we recover, as the economy recovers and as we sort of come along with that recovery, then I would expect that we'll return to close to where our margins were before the pandemic.
Perfect. Then like the SG and A surprised me as well. I mean, it's two quarters now of unusually lower SG and A. I think we caught up after last quarter. You mentioned that it's temporary as we go through that pandemic.
But if I'm looking forward over the next couple of quarters, are you guys should we expect that to normalize back to 25% to 27% of sales? Is that the intent? Or are you guys going to keep spending a bit lower to compensate for some of the lower gross margin?
I think it's fair to say you'll see us go back to our normal levels of SG and A spending. We may be on the lower side of that range that you just gave, but we've already built in increased spending in the back half of our year and our expectation is to plan to spend in the 25% range going forward in the following year as well. And then we'll manage things carefully quarterly based on how things change with the pandemic. But our ambition is to start putting our spending back into our marketing programs.
Great. Then maybe one last one for you, John. Maybe you could give us like at a high level your thoughts on the excise tax taxes that could be imposed in the 'twenty two. What sort of discussions are you and industry groups having with the federal government? And maybe try to give us a sense of how much of your portfolio would be impacted?
I mean, it's a very significant issue. I don't want to suggest to you that it is something that we're not laser focused on. We are totally focused on it. The federal government has given us a commitment to replace the program in substance and so that we will not be changed. And they have given us that commitment in writing.
And without that program support in place, it would be devastating to hundreds of wineries. And so I have absolutely no doubt in my mind that they'll deliver on their commitment. As you might expect, it's a bit of a challenge working with the various departments as to how this is going to come program will be replaced. We're dealing with several ministries as we speak. And, but there's a total focus and a timeline in place.
And we're meeting weekly as a national industry with all the regional industries and many, many people in the federal government. So I'm confident this is going to get done.
And there are no further questions registered at this time. I'll turn the meeting back over to Mr. Carlar.
Thank you, Melanie, and thanks everybody for tuning in for your support. And by all means, don't hesitate to call us, Steve or I, if you have any questions at any time. And as far as that goes, we're looking forward to our next call with you in February as the snow starts to fly. We're wishing you all good health and good fortune in the next few months and we look forward to connecting with you soon. Thanks.
Thanks everyone. Sure, everyone.
The conference has now ended. Please disconnect your lines at this time. We thank you for your participation.