10-Q: Healthy Choice Wellness Corp. Reports Q1 2025 Results: Sales Increase Driven by Acquisition and Same-Store Growth

Healthy Choice Wellness Corp. saw a rise in net sales for Q1 2025, primarily driven by the acquisition of GreenAcres Market and an increase in same-store sales.

Summary

• Healthy Choice Wellness Corp. reported a net loss of $712,410 for the three months ended March 31, 2025, compared to a net loss of $701,463 for the same period in 2024.
• Net sales increased to $20,259,606 for Q1 2025 from $15,894,358 in Q1 2024, driven by the acquisition of GreenAcres Market and a $0.7 million increase in same-store sales.
• The company's cost of sales increased to $12,407,696 from $9,839,981 year-over-year, primarily due to the GreenAcres Market acquisition and a $0.3 million increase in same-store cost of goods sold.
• Gross profit increased to $7,851,910 from $6,054,377, with gross margin as a percentage of sales increasing by approximately 0.7%.
• Operating expenses rose to $8,261,585 from $6,656,123, mainly due to the GreenAcres Market acquisition ($1.3 million) and an increase in professional fees ($0.5 million), offset by a decrease in same-store insurance and payroll expenses ($0.2 million).
• The company's cash position as of March 31, 2025, was $1,792,418, with total assets of $34,085,209.
• The company had negative working capital of $2.4 million as of March 31, 2025.
• The company is addressing material weaknesses in internal control over financial reporting, including issues with disclosure controls, segregation of duties, and IT general controls.

Sentiment

Score: 5

Explanation: The sentiment is neutral. While sales increased, the company still reported a net loss and faces challenges with internal controls and negative working capital. The debt-to-equity conversions are a positive step, but the overall financial picture is mixed.

Positives

• Net sales increased significantly due to the GreenAcres Market acquisition and same-store sales growth.
• Gross margin improved by 0.7%.
• The company is taking steps to address material weaknesses in internal control over financial reporting.
• The company's new customer loyalty program is contributing to same-store sales growth.
• The company is reducing its debt obligations through debt-to-equity conversions.

Negatives

• The company reported a net loss of $712,410 for the quarter.
• The company has negative working capital of $2.4 million.
• Material weaknesses exist in internal control over financial reporting.
• Operating expenses increased due to the GreenAcres Market acquisition and professional fees.

Risks

• The company faces increased competition in the food retail industry.
• Rising interest rates and inflation could increase the cost of future lease obligations.
• The company is addressing material weaknesses in internal control over financial reporting.
• The company expects to continue incurring losses for the foreseeable future.

Future Outlook

The company expects to continue incurring losses for the foreseeable future and anticipates rent expense to rise incrementally over the next two years as additional leases reset to higher rates.

Industry Context

The company operates in the highly competitive food retail industry, competing with national, regional, and local supermarkets, superstores, alternative food retailers, and restaurants.

Comparison to Industry Standards

• It is difficult to compare HCWC directly to industry standards without more specific information on comparable companies.
• However, companies like Whole Foods Market (owned by Amazon) and Sprouts Farmers Market are key competitors in the natural and organic grocery space.
• These companies generally have higher revenue and profitability due to their scale and established market presence.
• HCWC's focus on acquisitions and same-store sales growth is a common strategy in the industry, but its success will depend on effective integration and execution.
• The company's efforts to address internal control weaknesses are crucial for maintaining investor confidence and ensuring accurate financial reporting, which is a standard expectation for publicly traded companies.

Legal Proceedings

• One of the company's subsidiaries, Healthy Choice Markets IV, LLC, was served with a lawsuit filed by a former employee alleging violations of state and federal wage and hour laws; the company believes the claims are without merit and intends to vigorously defend against the lawsuit.

Related Party Transactions

• Prior to the Spin-Off, the Company has not historically operated as a separate, stand-alone company and, accordingly has had various relationships with HCMC whereby HCMC provided services to the Company.
• Following the Spin-Off, HCWC and HCMC entered into a Transition Services Agreement (TSA), under which both companies agreed to provide certain transitional services to one another to ensure smooth separation.
• The Company had a net intercompany receivable balance of $1.2 million and $0.2 million from HCMC as of March 31, 2025 and December 31, 2024, respectively.

Stakeholder Impact

• Shareholders: The company's financial performance and efforts to address internal control weaknesses will impact shareholder value.
• Employees: The company's hiring plans and efforts to improve internal controls will affect employees.
• Customers: The company's focus on providing healthier choices and improving customer loyalty programs will impact customers.
• Creditors: The company's debt obligations and efforts to reduce debt through equity conversions will impact creditors.

Next Steps

• The company will continue to improve its controls related to material weaknesses in internal control.
• Management will continue to assess additional opportunities for remediation on an ongoing basis.
• The company will continue to increase headcount across the company, with a particular focus on hiring individuals with strong internal control backgrounds and inventory expertise.
• The company will establish policies and procedures in the IT area to mitigate data breach, unauthorized access and address segregation of duties, as well as review key third party service provider SOC reports.

Key Dates

Keywords

financial results, net sales, GreenAcres Market, same-store sales, internal control, debt conversion, HCWC, Q1 2025, wellness, grocery