CA - Fire & Flower Holdings Corp. (FFLWF) Q4 2022 Earnings Call Transcript

2023-03-28 14:28:13 ET

Fire & Flower Holdings Corp. (FFLWF)

Q4 2022 Earnings Conference Call

March 28, 2023 8:30 AM ET

Company Participants

Stéphane Trudel – President and Chief Executive Officer

John Chou – Chief Financial Officer

Chris Bolivar – Executive Vice President, Commercial and Growth

Conference Call Participants

Frederico Gomes – ATB Capital Markets

Andrew Semple – Echelon Capital Partners

Presentation

Operator

Ladies and gentlemen, welcome to the Fire & Flower Fiscal 2022 and Fourth Quarter Financial and Operational Results. My name is Glenn and I'll be the moderator for today's call. [Operator Instructions]

I will now hand you over to your host Stéphane Trudel, CEO of Fire & Flower to begin. Stéphane?

Stéphane Trudel

Thank you operator and welcome to Fire & Flower's fourth quarter and fiscal year 2022 financial and operational results conference call. I'm Stéphane Trudel, President and CEO, and joining me today is John Chou, our Chief Financial Officer; and Chris Bolivar, our Executive Vice President, Commercial and Growth. Earlier today, the company published its financial and operational results for the fiscal year and fourth quarter ended December 31, 2022. The results are available on the company's website and on SEDAR. Prior to beginning our call, I will direct listeners to the cautionary statement regarding forward-looking information published on the news release for the fourth quarter of fiscal year 2022.

Today we'll be providing commentary on the quarter and fiscal year 2022, as well as an update on our operational improvements in new initiatives that will position the company for growth with the goal of generating free cash flow and realizing our mission of delivering cannabis to the world. We will also provide an update on our expansion plans, leveraging the Hifyre digital retail platform that has enabled the operational improvements that we have demonstrated, as well as provides us with the ability to create long-term value through loyal and highly engaged customers. We will then conclude with the moderated Q&A period with from equity research analysts that cover Fire & Flower.

Before I begin, I would like to remind you that, as previously announced, we have changed our fiscal year to a 12 month calendar ending on December 31st. Today, we are presenting results for a shorter 9-week quarter and a 48-week fiscal year. We have not made comparative period comparisons in our news release on the quarter due to the significant seasonality that occurs between the months of December and January of the calendar year. Going forward for the fiscal 2023 fiscal year, fiscal quarter, and all subsequent quarters will be three months quarters, but will not be true comparisons to fiscal 2022 quarters because they will not cover the exact same periods, which may introduce variability because of the seasonal nature of our business.

Before I go into details of our last shortened 9-week quarter that has seen our retail metrics continue improving, I would like to thank the entire Fire & Flower team for being laser focused on both the big picture and small details in our business that make a difference to reach our objective of generating free cash flow, a target we have a line on when I joined last June. We have made significant improvements along the way, always keeping in mind that at the core of sustainable success are our current and future customers.

We will only win if we keep them at the center of what we do, leveraging the business intelligence in our Hifyre retail platform to ensure we are selecting the right products at the right prices, being in stock, in offering them a fast and personal service, serving them when and where they want, which increasingly is on our e-commerce platform with 14% of all transactions directly initiated on our proprietary digital platform with 75% from mobile and 40% higher average spend per transaction. To support this demand from our customers, we continue to improve our platform to conveniently shop and complete a transaction, get personalized product recommendations, which further differentiates Fire & Flower and Friendly Stranger from competition. So as we see solid year-over-year growth in the legal retail cannabis market and positive trends in our own business, we continue down the path of simplifying our business model to concentrate on what we do best, which will be our competitive advantage as we look to enter new markets.

Our core business is retail enabled by our proprietary Hifyre platform to generate above average retail gross margin and positive same-store sale growth. This is complemented by the Hifyre's ability to deliver high margin alternative revenue channels to our industry leading data platform and media offerings. We believe these strategic components drive our long-term success and therefore have decided to make changes to reduce our SG&A by outsourcing non-core functions to maximize our profitability. While these changes don't show up in our shortened 9-week Q4, we have made changes to our organization in Q1 and anticipate an annualized reduction of SG&A of approximately $6 million starting in Q1, but fully ramping up in Q2. As part of an overall reduction in payroll costs, we have simplified our customer support function by further empowering our frontline team members. We have significantly reduced overhead expenses in our delivery and logistics business, Pineapple Express, and concentrated our efforts on profitable B2C markets to Firebird Delivery. As we focus on the path of creating positive free cash flow, we will continue to optimize our business by driving lower costs and we'll continue to make the decisions that are in the best interest of our shareholders.

Total consolidated revenue across the segments of digital, retail and wholesale was $156 million for the 48-week fiscal year. In Q4, total consolidated revenue across the segments of digital, retail and wholesale and logistics were $30.5 million reflecting the results of a 9-week quarter. The results from our shortened quarter demonstrate significant turnaround and the growing strength of our retail core business. Same-store sales for stores that operated continuously during the quarter and on the – and the same 9-week period in 2021, increased by 4% year-over-year, representing significant sequential improvement from previous quarters in 2022, where we saw decreases of minus 26, minus 14 and minus 4 respectively for Q1, Q2, and Q3. This turnaround is exceptional and I want to thank all our team members that made this possible. Our performance in the new year continues on that trend, and I'm excited to see what our customers have – that our customers have responded to our new programs.

Even with a smaller number of stores, we have rebuilt our market share from the low point hit in the middle of May of last year, and then in all provinces. These positive metrics also came with the additional benefits of an increased gross margin profile in the business enabled by a new and industry leading merchandising strategy. We've achieved the retail gross margin percentage of 25.4% for the 9-week period ended December 31, 2022, representing the second consecutive quarterly improvement from 23.4% in the second quarter and 24.2% in the third quarter of 2022. We've achieved these numbers by leveraging Hifyre, our competitive advantage with its database insights to focus our working capital on products that drive price credibility as well as products that are at high consumer demand. With our peers now signaling as we had expected that the unsustainable days of blanket discounting may be over as they look to generate free cash flow. We expect that this trend will continue as we're able to see it ourselves in the current quarter. Our digital segment revenue of $1.7 million in 9-week period was softer as a consequence of the shorter quarter and timing of data revenue. We anticipate to be back to our approximate run rate of $3 million in the next quarter.

Our wholesale and logistics segment revenues for the fourth quarter were $5.9 million for the 9-week quarter, a combination of strong wholesale revenues and softer logistic revenues from the Pineapple Express business. As I mentioned earlier, to adapt to the change in demand and improve our profitability, we have restructured the Pineapple Express Delivery and logistics business to focus on profitable B2C markets. Our Open Fields Distribution business remained strong and a market leader in Saskatchewan, and we anticipate seeing additional growth from the cross-docking service launched in November in the province of Manitoba. The total addressable market, Manitoba market is approximately the same size as the Saskatchewan market and Open Fields is leveraging its relationships with major cannabis licensed producers, and market leading expertise in distribution to extend service into this new market.

We anticipate Fire & Flower achieving a run rate of positive adjusted EBITDA in the first half of this fiscal year enabled by healthy metrics in our core business, in our core retail business.

In 2022 we worked hard at making significant foundational changes in our business, including establishing price credibility in the market, making consumer shopping experience better, and streamlining our head office and administrative functions to better align with the realities of the cannabis market. These foundational changes will enable Fire & Flower to position itself as a leader in the market as we look to 2023 and anticipate executing upon fully accretive acquisitions. We remain laser-focused on our goal of positive free cash flow. Our ability to simplify and streamline our operations to more easily and cost effectively integrate acquisitions and run our business will be key contributors to our success.

On that note, I would like to give you an update on our Get-to-Green program. Focusing on company-wide top line revenue growth and cost reductions, John will get into more details, but with our discipline approach and taking a hard look at all cost areas, we expect to generate annualized SG&A and lease savings of approximately $6 million in 2023 to various initiatives including rationalizing overhead and administrative functions, subleasing underutilized properties, and the recent restructuring of our Pineapple Express delivery and logistics business to drive profitability across all segments, most of which have already been in action in Q1.

We have aggressively attacked our lease liabilities by renegotiating lower lease conditions and subleasing unused space, reducing both SG&A and the lease liabilities and improving both our income statement and our balance sheet.

We have made great progress in early 2023 and have a pipeline of opportunities that are active for more subleases to come up to offset our liabilities.

We have reduced the size of our leadership team and our office personnel to right size to current realities, but we have done this while still growing and ensuring that we will remain a leader in our field. We have grown our Spark Perks member base to more than 550,000 members. In Ontario, more than 20% of our transactions are processed on our many digital touchpoints with a higher backup size and more frequent shopper. The tremendous success of the use of our own technology is reflected in our growing same-store sales and gross margin.

With our operating leverage acquired stores automatically take advantage of this digital platform to increase sales with little to no additional costs. As we look to grow through acquisitions, this competitive advantage in our relationship with Couche-Tard, our strategic partner, makes us an acquirer of choice. On the subject of our strategic partnership with Alimentation Couche-Tard, owner of the Circle K stores, we held a shareholder vote on December 29, seeking shareholder approval on a comprehensive financing package that was negotiated Couche-Tard. The proposed package did not receive sufficient votes by shareholders and was terminated on December 29.

As our strategic partner, Couche-Tard, continues to support our business through the $11 million secured financing that was put in place in October 22. Our strategic partner shares our view that the market is right for consolidation and that Fire & Flower should play an active role, while remaining disciplined to focus on operations and profitability. We are having active and constructive discussions on many fronts with our partner, including advancing our common objective to develop co-located and licensed stores.

Operationally, our teams are meeting on a weekly basis to get stores open in Western Canada once they get their licenses, to add to the two existing co-located stores that we operate. In Ontario, licensed stores continue to operate under a brand and technology license agreement for Spark Perks and Hifyre, and we are providing our expertise on assortment pricing and operations, while leveraging our Hifyre platform and Spark Perks member program to reach new customers at their five existing stores.

We anticipate that our strategic partners’ presence in other countries that are moving towards legalization of cannabis, including Germany, may prove to be a key differentiator for us to having retail move on the ground access to capital in high traffic real estate combined with Fire & Flower’s expertise in federally legal cannabis jurisdictions.

I would now like to turn the call over to John to discuss our financials and provide a more detailed overview for the fourth quarter financial results. John?

John Chou

Thank you, Stéphane. And good morning everyone. I will now provide a summary of the financial results for the fourth quarter of 2022, which were released earlier this morning.

To begin, a reminder that as Stéphane explained, the fourth quarter of 2022 consisted of nine weeks, while the fiscal year consisted of 48 weeks ending December 31. In our financial statement, MD&A and the news release issued earlier today, the prior year comparative periods reflect the results for the 13 weeks and 52 weeks ended January 29, 2022.

During the fourth quarter of 2022, consolidated revenue totaled $30.5 million for a nine-week period. Consolidated revenue for the fourth quarter consisted of retail revenue of $22.9 million, wholesale and the logistics revenue of $5.9 million and digital revenue of $1.7 million.

Consolidated gross profit for the nine-week Q4 was $7.4 million compared with $13.7 million for the 13-week Q4 last year, and $11.8 million for Q3 this year.

Consolidated gross margin percentage for this quarter was 24.3%, compared with 32.1% in Q4 last year, and 27% in Q3 this year, primarily due to lower gross margin from Pineapple Express delivery as part of the Wholesale and Logistics segment. Pineapple Express delivery, as you would remember, was acquired in late January, 2022.

Consolidated SG&A expense for the nine-week fourth quarter was $11.7 million compared with $17.9 million in Q4 last year, and $15.6 million in Q3, representing a year-over-year improvement of 6% on a prorated basis. The year-over-year improvement was the result of the company continuing to reduce operating costs through reductions in payroll, marketing and other SG&A expenses. Compared to the prior quarter SG&A expense for the shortened fourth quarter was negatively impacted by certain non-recurring expenses, including severance, integration costs and other one-time charges. As Stéphane indicated earlier, we have undertaken serious cost reduction measures and expect to achieve $6 million in annualized SG&A and lease savings through 2023.

Consolidated adjusted EBITDA this quarter with negative $3.8 million compared to negative $2.4 million in the fourth quarter of last year, and negative $2.8 million in Q3 this year. Overall, consolidated adjusted EBITDA trended lower in the nine-week fourth quarter as higher adjusted EBITDA from Retail segment was offset by lower EBITDA in Wholesale and Logistics, and Digital segments. We have undertaken steps to restructure the Pineapple Express delivery business to improve the performance of the Wholesale and Logistics segment, while we expect Digital segment results to improve and return to higher run rate after the shortened Q4 2022.

As of December 31, 2022, the company had cash on hand of $12.4 million.

Now onto an overview of the segmented results. In Q4, we opened two new stores ending the year with the retail network across Canada of 92 stores compared to 90 stores at the end of the previous quarter. In addition, we have since expanded our market presence in Winnipeg by opening a store in the Sports Hospitality Entertainment District, bringing the total number of Fire & Flower stores in Manitoba to eight.

Retail revenue for the shortened fourth quarter was $22.9 million, which when pro-rated reflects an increase of 4% from the fourth quarter 2021 and a 0.2% increase from Q3 2022. We continue to see our store performances improve despite the weakness in retail cannabis prices in Canada in general with CPI of recreational cannabis products in Canada, decreasing by 2.5% for the 12 months ending December 2022. Same-store sales for the nine week period improved year-over-year by 4%, representing the third consecutive quarterly improvement, showing that the member pricing program and other improvements are turning the corner for our retail operations.

Our Spark Perks program have demonstrated its strength in improving both a number of transactions and transaction size, with member pricing – with member transactions now representing 72% of total retail revenue. Retail gross profit for the nine week fourth quarter was $5.8 million, representing a 3% increase from Q4 last year and a 5% increase from Q3 this year when prorated.

Gross margin for the current quarter was 25.4% compared to 25.8% in the prior year, and 24% in Q3 2022. The sequential improvement of our gross profit and gross margin reflect our focus to high grade of stores and improvements on merchandising and product assortment. While the decline year-over-year reflects our strategy this year to address value conscious consumer demands and drive customer acquisition.

We're now confident in our strategy to deliver healthy and sustainable gross margin supported by what we are seeing in the most recent months in 2023. Adjusted EBITDA for retail in the nine week Q4 was negative $1.9 million, 32% lower compared with Q4, but an improvement of 1% from Q3 this year when prorated. Adjusted EBITDA for the period was impacted by higher SG&A expenses due to seasonality and timing of certain one-time expenses. Overall, we are encouraged by the continued improvement in all the key retail metrics this quarter supported by our focus on consumer engagement, merchandising and store optimization. We have seen sustained strength in our retail sales as well as gross margin as we continue to grow in 2023.

Now turning to the Wholesale and Logistics segment. Wholesale and Logistics revenue was $5.9 million for the nine week Q4, compared with $7 million for Q4 last year and $7.9 million for Q3 this year. Q4 2022 revenue represents a 22% increase from the same period last year and 8% increase from Q3 this year on a prorated basis. Gross profits for Wholesale and Logistics in the shortened fourth quarter was $0.2 million compared with $1.6 million in Q4 last year, and $1.1 million in Q3. While gross margin for Q4 was $2.8 million, a 2.8% compared with 22.7% in Q4 last year and 14.5% in Q3 this year.

Gross profit dollars and gross margin percentage decreased in Q4 this year, primarily due to lower gross margin on Pineapple Express, while our Open Fields wholesale business continues to perform well. Adjusted EBITDA for Wholesale and Logistics for Q4 2022 was negative $1.1 million, decreased from positive $1 million in Q4 last year and negative $0.1 million for Q3 this year. The decrease in adjusted EBITDA on a prorated basis was contributed by lower gross profit dollars and higher SG&A expenses, primarily as a result of timing of certain operating expenses.

As Stéphane mentioned earlier, we have now taken steps to reorganize our delivery and logistics business, including Pineapple Express to reduce operating costs and focus on certain key markets.

Now onto the Digital segment. Digital revenue was $1.7 million for the nine week fourth quarter, which when prorated represents a decrease of 38% compared with Q4 last year and a 16% decrease from Q3. The decrease in Digital revenue was primarily due to timing as data sales is dependent on timing of certain project based data analytics product offerings, which may fluctuate from month to month.

Gross profit for Digital was $1.4 million or 83% in gross margin percentage compared with 97% in Q4 last year, and 89% in Q3. The decrease in gross margin was primarily due to lower revenue in the nine week fourth quarter, adjusted EBITDA for Digital for the shortened Q4 2022 was $0.6 million, lower compared with Q4 last year and Q3 this year when prorated. The decrease in adjusted EBITDA for Digital was mostly due to lower revenue in the shortened quarter and slightly higher SG&A due to certain seasonal expenses.

Going forward, we expect Digital revenue to be in the run rate of approximately $3 million on a quarterly basis similar to prior quarter. Free cash flow in the fourth quarter 2022 was negative $4.9 million, resulting from cash using operations of $2.5 million, these payments of $1.7 million and capital expenditures of $0.5 million. Free cash flow for Q4 on a prorated basis trended lower from the prior quarter, primarily because of higher cash using operations offset by relatively lower cap expense. As discussed earlier, due to the timing of certain non-recurring expenses, SG&A in Q4 was negatively impacted.

At the end of Q4, the company had $13.5 million in total debt versus $21.8 million at the end of the last fiscal year end. Total debt at the end of this quarter includes the $11 million senior secured loan with Couche-Tard that was closed and received in October 2022, reflecting the confidence and continuing commitment in Fire & Flower by our largest shareholder.

To summarize our financial results for the quarter, we continue to demonstrate the success of our retail strategy through growth in both same-store sales and gross margin percentage. We have also executed on steps to restructure and improve our delivery and logistics business by focusing on the B2C business and certain key markets, which we anticipate will improve the result of our Wholesale and Logistics segment supported by our strong and steady Open Field wholesale business. On the Digital front, we expect the revenue to rebound in the first quarter of 2023 as the fourth quarter was impacted by timing of certain data product subscriptions and renewal.

Now I will turn it back to Stéphane.

Stéphane Trudel

Thank you, John. Some concluding remarks before we move on to questions from research analysts covering Fire & Flower. Looking back at 2022, I see many positive signs in our business, there are distinct from the overall negative sentiment in the cannabis industry. Over the past year, we have been able to turn our business around through a focus on the customer while growing both sales and margin, which are critical steps on our journey to positive free cash flow. The market continues to grow year-over-year, and we anticipate this consumer category to continue to grow.

Cannabis customer demographics are particularly compelling and bodes well for companies like us that are playing the long game, we have not changed our targets to generate free cash flow. It has been the rallying cry of our entire team for many months, and now that we have stabilized and have the right plans to streamline our operations, our focus will be even more on finding the right opportunities to increase our scale and drive towards our goal of a 10% market share in all markets we operate in.

In closing, I would like to thank our team at Fire & Flower. The last few months have brought a lot of changes and required focus, long hours and patience. I’m extremely grateful to be part of this team and I’m excited for 2023. I would also like to thank our loyal shareholders, many of which I have had a chance to interact within the past few months for being supportive of our shared objectives.

I would now like to turn it over to the operator for questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] We have our first question comes from Frederico Gomes from ATB Capital Markets. Frederico, your line is now open.

Frederico Gomes

Yes, thank you. Good morning, Stéphane, John and Chris. Thank you for taking my questions. My first question is on your retail gross margin. So you had over a 100 basis points there of margin expansion at the retail level this quarter from the previous quarter. So I’m curious how much of that is due to improvement in your pricing and mix strategy? And how much of that is just due to an overall improvement in the retail competitive environment in Canada? Just given that it is a market consolidating. And then a second part of the question is, how would you expect those retail gross margins to trend in 2023? Thank you.

Stéphane Trudel

Good morning, Frederico. And thanks for the question. So for the first part of your question, definitely, we – I think that this wasn’t just a matter of the market moving up. We’ve changed our mix. We – and we’ve described that in the past as well, where we’ve introduced some higher margin product that customers are looking for in our mix. So we don’t do blanket discounting and we’ve been able to continue to grow that portion of our assortment and ourselves through that portion of our assortment.

So the improved gross margin percentage definitely was mostly part of our own making. However, we do see that the market is supporting higher margin as well. And we – so we expect to continue seeing some growth on the gross margin percentage in the next quarters because of this trend. And also the – no, we’re hearing – clearly hearing from market participants that they are also looking to get more profitable, get profitability out of retail. So I think that will support the trend. But the underlying reason why we’re performing this much is our own making because of our assortment mix and the growth of the – the increasing growth of the portion of ourselves are coming from higher margin products.

Frederico Gomes

Okay, yes. Thanks for that, Stéphane. And then my second question is on your digital revenue. Given, I know that you mentioned a guidance of roughly 3 million in sales – digital sales a quarter, but just given the distress that many LPs are experiencing right now. Do you view any risk in terms of your data sales over this year? How much of your digital revenue is coming from data sales to LPs? And should we expect any impact or do you think that’s a possibility throughout this year? Thank you.

Stéphane Trudel

So definitely, we keep an eye on the health of all our partners and part of our digital revenue and all that. Chris, expand a little bit more on these after. But part of the reason for our strength of our digital and the sustainability of our digital revenue is that it’s a mix, right? We’ve got base of subscribers that’s tried to – that make Hifyre a reference in the market that comes outside of the cannabis industry. We’ve got also licensing revenue coming from the U.S. So we’ve got numerous ways that we’re generating revenue in the Digital segment. So I think that the confidence that we have in the run rate comes from the fact that it’s a diversified source of revenue. But I will let Chris answer, give a little bit more color here on the relationships with the – our key partners, the license producers.

Chris Bolivar

Sure. Sure. Good morning, Fred. Yes, building on Stéphane’s points there. We went through an exercise of looking at, certainly, our key accounts and our accounts across all of our subscribers and all of our Hifyre products. And in many cases have redone agreements, have – I think set those agreements in terms of pricing, which is for even required in the market. So going forward, given, the fact that the base of revenue is largely recurring project revenue, there is some project based revenue that we have. We do have our new consumer insights module, our distribution module. We’re pretty comfortable in and around that 3 million run rate now that may have some variance quarter-over-quarter on that. We’ve seen a bit of that in Q4. There’s a slight variance, but when we extrapolate that out, we’re roughly in that ballpark. So some quarters may down a little bit, some quarters may be up a little bit. But generally speaking, we’re looking at that annual run rate in the Digital business.

Frederico Gomes

Okay. Thank you. I’ll hop back in the queue.

Stéphane Trudel

Thanks, Frederico.

Operator

Thank you, Frederico. We have our next question comes from Andrew Semple from Echelon Capital Partners. Andrew, your line is now open.

Andrew Semple

Hi, there. Good morning, and thanks for taking my questions. First one I just want to ask on maybe the bridge to positive adjusted EBITDA on the first half of 2023. Thank you for the color on the SG&A initiatives there. I know you’re speaking to about $6 million annualized or about $1.5 million per quarter which would be a good chunk of the needed improvements. But doesn’t seem to get you all the way there. So will the balance of EBITDA improvements come from business performance? And I guess maybe another way of rephrasing that question would be what sort of proportion of sequential EBITDA improvement might come from cost optimization as approved – as opposed to business performance such as revenue growth and gross margin enhancement?

Stéphane Trudel

Hi. Good morning, Andrew. Thank you for the question. Yes, so, I think that when we built our plan this year, we set realistic targets for ourselves. And I’ll let John maybe give you a little bit more technical information on the split. But I think we – when we set our plan for this year for 2023, we wanted a realistic plan that both we could execute on, that was supported by what we were doing at retail in all markets, at retail, and at wholesale and digital. So we realized that we had to be more aggressive on costs. And you’re seeing this already. Most of these changes have been actioned in Q1. So you’re seeing restructuring charges in Q4. But Q1 really saw the bulk of the changes. So we'll continue on that road to being extremely disciplined on cost. We've done tremendous work on the lease side, which still continues.

So we have a healthy pipeline of lease – sub-leasing opportunities that will take a good chunk out of the occupancy costs on our side, so a lot of it – a lot of work on SG&A. The work we've done on Pineapple Express will also reduce our expenses just in terms of getting out of some segments of our business that had structural fixed costs. So really the plan we have is based on combination of these changes on expenses that are now all actions as well as the growth of retail. But the growth of retail based on the growth of the market and our position in that market. So organic growth itself gets us there, this isn't based on any M&A. This is based on our own organic growth on the trends we see and the stable growth that we've seen on gross margin, stable sales that we've – growth that we've seen in sales as well in our market share.

So I don't know, John, if there's, if you – there's any color there that you can add on the bridge, but that's my view of how we're going to reach adjusted EBITDA, Andrew?

John Chou

Yes. Andrew thanks for your question. Yes. So I'll just add that as Stéphane said this is, we build our plan from a point of looking really hard at every area of the business, and hence we are – we have high confidence and therefore giving the guidance that we look to achieve positive adjusted EBITDA in the first half of this year. And it's going to be contributed by all areas of the business. We are very motivated and encouraged by the growth – continued growth in the retail operations and the sustained margin that we're seeing. So it's going to come both from top line and the $6 million that we are anticipating interns annualized savings. So I will look at it as compared to the fiscal year 2022. It may not trend on an evenly quarterly basis, but certainly that we have high confidence that we can achieve that is the minimum that we can achieve in 2023.

Andrew Semple

Great. That's very helpful.

Chris Bolivar

And I'll just jump in here as well, Andrew, and provide some color from I think a business growth perspective. So in Q1 we're seeing a very positive trend here. Really that's measured by overall gross profit dollars. That's I think driven by the right products for our customer mix, customer shopping across our different assortment classes and really driving high – higher margins there in products that are new and in demand. We're also maintaining that price impression. So we're really pleased to see the positivity in Q1 in our business once.

Andrew Semple

Great. Thank you. Well, Chris. So to move on to my next question, which would be on M&A, really interesting to hear that you're returning to, I guess, the retail brick and mortar, M&A landscape. I'd appreciate if you could maybe elaborate on what opportunities you're seeing out there? What valuation multiples you're seeing from potential sellers? And whether you'd plan to use more of a mix of shares or cash in future M&A deals?

Chris Bolivar

Yes. So obviously thank you. Thanks. Very good question because we have not been that active and when we have, it has been outside of our retail core business. So this is definitely a focus of ours, and we're looking at several acquisitions. Clearly the pressure that are on the market for smaller operators to succeed and to grow makes it – makes it quite tough for them to grow right now with the economics. But a lot of them have been able to generate healthy 4-Wall EBITDA in smaller markets, but just don't have the capacity to stock their stores as much as they would want or grow as much as they could want. So a lot of them are talking to us and others and looking for their next step.

And I wouldn't say its bad selling. It is – we're seeing great operators looking at the market and saying, well, if I want to join a larger team who can I go with and how is that path going to be for me and my team? So that the approach there is to demonstrate what we could do as partners with these M&A targets to – for them to decide amongst many buyers. There are many buyers out there, but they're not all made equal and which one will get you the longest – the higher upside if you joined their team. So right now the multiples they've been decreasing.

I'd say looking at M&A from the last few years, now the multiple has gone down to lower than like 3.5, lower than 3.5. And it really depends on the makeup of the networks, the trends of these – the underlying assets within the network, the capacity of our platform to increase the sales of these platforms. And the consideration for the acquisition mix of equity depth is really what we'd be looking to do right now considering our cash position. And we can see that right now there's quite a lot of interest in the files we're working on.

Andrew Semple

That's excellent color. Thank you very much. I'll get back into queue.

Stéphane Trudel

Okay. Thanks Andrew.

Operator

Thank you, Andrew. [Operator Instructions] We have no further questions on the line.

Stéphane Trudel

Okay. Well, so in closing I would like to thank our team at Fire & Flower. Well, we and thank you for interest and thank you for joining the call. Thank you for interest in Fire & Flower and for joining our call this morning. We look forward to sharing our progress towards positive adjusted EBITDA with you in the next quarter. Have a great day, and thank you.

Thank you, operator, you can now end the call.

Operator

Thank you. Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.

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