Goodfood Market Corp. (TSE: FOOD) is on a quest to return to adjusted EBITDA profitability by H1 2023. A once profitable company during the pandemic, Goodfood has been racking up losses lately. To attempt to reach adjusted EBITDA profitability and long-term, profitable growth, the company will focus more on its weekly meal kits and add-ons and will phase out Goodfood On-Demand (grocery delivery). Indeed, the losses didn’t start piling up for Goodfood until it started focusing more on on-demand delivery.
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Goodfood mentioned that it would cost too much to scale its on-demand business to reach a desirable level of profitability, which is why the company is scaling back.
This initiative by Goodfood is dubbed Project Blue Ocean, and it is expected to result in a non-cash impairment charge between C$45 million and C$50 million in Q4 due to the consolidation of assets and fulfillment center closures in Montreal and Toronto.
However, these moves are expected to improve FOOD’s gross profit margin and mitigate expenses.
In Q4, Goodfood’s net sales are expected to land between C$50 million and C$51 million, compared to C$79.36 million in Q4 2021. Meanwhile, its adjusted EBITDA will range between -C$2 million to -C$4 million.
Further, Goodfood’s lenders have limited a portion of its available credit, but the company is looking for an alternative credit arrangement. At year-end, FOOD had C$38 million in cash and equivalents.
Is Goodfood a Good Stock to Buy, According to Analysts?
Analysts currently have a Hold consensus rating on FOOD stock. This is based on three unanimous Hold ratings assigned in the past three months. Still, the average Goodfood stock price target of C$1.30 implies 113.1% upside potential.
Conclusion: The Pain Before the Gain?
Goodfood likely tried to do too much too fast during the pandemic. Its on-demand business generated losses, and now it’s taking the initiative to scale back. While this will cause some short-term pain (negative growth), it may be a positive when looking from a long-term perspective – if the company can reach its profitability targets.
