Release Date: November 12, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• HF Foods Group Inc (NASDAQ:HFFG) reported a 6% increase in net revenue for the third quarter, driven by inflation and higher pricing in seafood and meat categories.
• The centralized purchasing program for seafood has been successfully rolled out, leading to a $1.3 million increase in seafood gross profit.
• The company is expanding its centralized purchasing program to include cooking oil, which is expected to enhance supply chain resilience and improve gross margins.
• HF Foods Group Inc (NASDAQ:HFFG) is making strategic facility upgrades, including a new Atlanta facility and a transition of Las Vegas operations to a full distribution center, which will optimize distribution networks and support long-term growth.
• The company is launching an e-commerce business in early 2025, aiming to cater to younger generation business owners and expand its market reach, potentially boosting margins and operational efficiency.

Negative Points

• Gross profit decreased by 1.5% to $50.2 million, with a decline in gross profit margin from 18.1% to 16.8%, primarily due to decreased margins in meat and poultry.
• The company experienced a net loss of $3.9 million, compared to a net income of $2 million in the prior year quarter, driven by non-cash expenses and increased rental and insurance costs.
• Distribution, selling, and administrative expenses increased slightly, driven by higher rental expenses and insurance costs, impacting overall profitability.
• The restaurant industry slowdown and increased competition have led to weaker ordering patterns and margin pressures in certain markets.
• Operating income decreased to $0.5 million from $2.1 million in the prior year quarter, reflecting challenges in maintaining profitability amidst increased expenses.

Q & A Highlights

• Warning! GuruFocus has detected 6 Warning Signs with HFFG.

Q: Can you elaborate on the progress of the centralized purchasing program and its impact on margins? A: Felix Flynn, Interim CEO, explained that the centralized purchasing program has been successfully rolled out across the entire seafood category, leading to a $1.3 million increase in seafood gross profit from Q3 2023 to Q3 2024. While gross profit margin remained flat, the program helped offset margin pressures from increased competition and a slowdown in the restaurant industry.

Q: What are the expected benefits of the new cooking oil facility? A: Felix Flynn, Interim CEO, stated that the new cooking oil facility, expected to be fully operational by early 2025, will initially focus on the West Coast with plans for nationwide expansion. The facility has a full-year revenue capacity of $60 million and aims to improve supply chain resilience and gross margin profile through vertical integration.

Q: How is HF Foods addressing distribution and transportation costs? A: Felix Flynn, Interim CEO, mentioned ongoing modernization of the vehicle fleet and enhanced route optimization initiatives. Facility upgrades, such as the Charlotte, North Carolina renovation, are expected to optimize the distribution network and reduce costs in the Southeast region.

Q: What are the strategic goals for HF Foods' e-commerce expansion? A: Felix Flynn, Interim CEO, highlighted the launch of the first phase of their e-commerce business in early 2025. The initiative aims to cater to younger business owners and non-Chinese speaking customers, leveraging the existing distribution network to enhance margins and operational efficiency.

Q: Can you provide details on the financial performance for Q3 2024? A: Cindy Yao, CFO, reported a 6% increase in net revenue to $298.4 million, driven by inflation and higher pricing in seafood and meat categories. However, gross profit decreased by 1.5% to $50.2 million, with a decline in gross profit margin to 16.8% due to lower margins in meat and poultry.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.