Jewett-Cameron Trading Company

Good afternoon, and welcome to the Jewett Cameron Report's second quarter fiscal year 2026 financial results conference call. After today's presentation, there will be an opportunity to ask questions. To submit a question, you may type it in the ask a question box on the webcast screen. Please note this event is being recorded. I would now like to turn the conference over to Mr. Robert Bloom with Lithum Partners.

Please go ahead. All right. Thank you very much, and thank you all for joining us today to discuss Jewett Cameron's Operational and financial results for the fiscal 2026 second quarter is for the period ended February 28, 2026. With us on the call representing the company today are Chad Summers, Jewett Cameron's Chief Executive Officer, and Mitch Van Domelen, the company's Chief Financial Officer. At the conclusion of today's prepared remarks, we will address questions that have been submitted to the company. Before we begin with prepared remarks, please note that statements made by the management team at Jewett Cameron during the course of this conference call may contain forward-looking statements within the meaning of U.S. securities laws. Forward-looking statements describe future expectations, plans, results, or strategies and are generally preceded by words such as may, future, plan, will, should, expected, anticipates, or similar words. Listeners are cautioned that such statements are subject to a multitude of risks and uncertainties that could cause future circumstances, events, or results to differ materially from those identified in the forward-looking statements. As a result, various factors and other risks identified in the company's 10-K for the fiscal year ended August 31, 2025, and other filings made with the Securities and Exchange Commission. An audio recording and webcast replay for today's conference call will also be available on the company's investor relations page. With that said, let me turn the call over to Chad Summers, Chief Executive Officer for Jewett Cameron. Chad, please proceed.

Good afternoon. And thank you for joining us today. To set the stage for today's call, let me first dive into a few key financial highlights for the quarter and six-month period. Then I'll discuss updates on a few of the key initiatives we have mentioned in the last few calls. And I'll provide an update into our end markets before turning it over to Mitch to review the financials in more details. I will then wrap things up and then look to address any questions there might be. So to start things off, revenue for the second quarter increased 16% year-over-year to $10.5 million and 5% for the first six months over last year. That increase was driven primarily by the sell-through of substantial portions of our excess cedar fencing inventory, the liquidation of certain slow-moving pet inventory, and stronger sales at Greenwood. I'll touch more on this in a moment. Within metal fencing, Higher lifetime steel post sales were offset by lower adjustigate and other metal fence products. We saw a meaningful improvement in gross margin versus the sequential first quarter. Gross margins moved to 15.7% in Q2 from negative 12.5% in Q1, despite a meaningful amount of essentially zero margin liquidation activity this quarter. We continue to work to realign our costs. with end market pricing to improve our gross margins. Acceptance of price increases are not happening as fast as costs are changing. Margins remain below historical levels due to liquidation sales below cost, a higher mix of lower margin product sales, and continued pressure from raw material, shipping, logistics, and tariff-related costs. We continue to make progress aligning the business and the balance sheet with current market conditions. As mentioned, we sold through substantial portions of the excess cedar fencing inventory accumulated before the consignment sales agreement was terminated, liquidated a significant portion of slow-moving pet inventory, and continued to reduce overhead and administrative costs. Wages and employee benefits declined 19% year-over-year to $1.3 million, while SG&A was higher, primarily due to professional fees and warehousing costs associated with the excess lumber inventory. So while this quarter still reflects a challenging operating environment, we believe we made meaningful progress on many of the actions we outlined last quarter. Let's turn to an update on how the initiatives we outlined in December and again in January are progressing and how we are positioning the company as we move through a difficult operating environment. Many of the broader headwinds impacting the business continue to persist, especially around tariffs, purchasing behavior, and consumer demands. That said, we believe the actions we have taken and continue to take are helping us streamline the company, reduce exposure to non-core issues, and strengthen the foundation of the business. At the center of our strategy remains our core metal fencing business, which continues to be our largest and most successful product category. Lifetime Steel posts continue to show positive momentum, expanding through existing accounts, and our in-store displays continue to support consumer engagement. While higher LTP sales were offset by overall lower sales of Adjustagate and other metal fence products, we continue to see meaningful opportunity in fencing through expanded store penetration, better merchandising, and growth in more of our sales channels. Metal fencing remains the primary focus of our operations, capital allocation, and innovation efforts. and we continue to work on enhancements to our current products while evaluating complementary offerings from third parties that can broaden the line over time. Operational efficiency and organizational alignment also remain key priorities. We continue to execute initiatives designed to reduce complexity, lower costs, improve execution, including further headcount reduction where appropriate, tighter overhead control, and disciplined inventory management. A major focus this quarter was the monetization of excess inventory. During the second quarter, we successfully negotiated with the consignment customer for them to purchase the portion of the excess cedar fencing inventory already present in their distribution facilities and additional purchases through the end of the calendar year at the originally contracted prices. And we sold most of the remaining excess cedar inventory to a lumber wholesaler. While a portion of that inventory was sold below cost, These actions unlocked stranded capital, greatly reducing carrying costs, and improved our inventory position. We continued similar efforts on the pet side of the business. We have been liquidating certain slow-moving pet inventory to reduce our exposure and convert inventory into cash, even though those sales have been made at a low cost. Our pet business is focused on pet containment, where our Lucky Dog brand has established a solid reputation for providing quality safe spaces for pets at affordable prices. It remains our commitment to reduce annual operating expenses by $1 million to $3 million, and our intent to exit fiscal 2026 with a business model that is sustainable in the long term. The work we are doing now to reduce non-core inventory, streamline the organization, and sharpen our focus is all consistent with that objective. In addition, as announced previously, We continue to evaluate strategic options that prioritize the company's overall value. This includes completing the monetization of our remaining excess non-core inventory while evaluating strategic partnerships, collaborations, and potential divestitures involving select businesses and real estate assets. These efforts may include Greenwood, our industrial lumber subsidiary, selective pet assets, our wood fencing business, and certain real estate assets, including the former seed processing property and the Innovation Studio property. As we have said previously, these discussions may include mergers, acquisitions, divestitures, joint ventures, and other collaborations involving specific assets or business lines. There can be no assurance that any of these discussions will result in definitive agreement or completed transaction. The company does not intend to provide Further updates on these discussions unless and until a definitive agreement is reached. Turning to the broader environment, tariff changes and uncertainty continue to create cost pressures and disrupt purchasing patterns across our markets, while soft consumer sentiment continues to weigh on discretionary spending. Those conditions are having broader impacts on both our do-it-yourself and home improvement professional customer base. We have made progress aligning our costs within market pricing from last year's tariffs, but the environment remains volatile. Most of the tariffs affecting our imported steel and aluminum products remain in place, and following the recent changes to the Section 232 steel and aluminum tariffs in April, we are currently evaluating how the new rule will apply to our imported products. At this point, we do not expect that change to relieve much. if any, of the overall tariff burden on our metal products, and in some cases, it may increase the amounts of tariffs due. In addition to tariffs, we are beginning to see higher fuel-related shipping and logistical costs, and our ability to pass those higher costs through quickly remains limited. So while we are encouraged by the operational progress made during the quarter, we remain very mindful of the pressures still present in the external environment. As we look ahead, our objective remains clear to exit fiscal 2026 with a business model that is sustainable over the long term, focused on our strongest product categories, supported by disciplined operations, and positioned to unlock value from non-core assets where appropriate. While the environment remains complex, we believe the progress we are making across our strategic initiatives continues to reinforce the direction we are taking. Let me turn the call over to Mitch for additional comments.

Thank you, Chad, and good afternoon to everyone on the call today. My comments will focus on adding color to key areas and events that had material influence on the second quarter. Let's start with the revenue line. Revenue for the second quarter of fiscal 2026 was $10.5 million compared to $9.1 million in Q2 of 2025, an increase of 16%. The growth in revenue was driven primarily by the liquidation of certain slow-moving pit inventory, the sale of excess cedar fencing that was purchased prior to the termination of the consignment sales arrangement with a major retailer, and stronger sales at Greenwood. Within metal fencing, higher lifetime steel post sales were offset by lower sales of adjustigates and other metal fence products. At Greenwood, sales for the second quarter were 1.5 million compared to 1.1 million in Q2 of 2025, an increase of 31%. Their demand from transit customers continued to recover as workers have returned to offices, and we also have benefited from higher sales to non-transit customers. For the first six months of fiscal 2026, revenue was $19.2 million compared to $18.3 million in the first six months of fiscal 2025. an increase of 5%. That said, approximately 2.5 million of those first half sales were from the liquidation of certain pet inventory and the sale of our excess cedar fencing inventory, and those sales will not repeat in future periods. Turning to gross profit. Gross profit margins during Q2 2026 were 15.7% compared to 20.1% in Q2 of 2025 and negative 12.5% in Q1 of 2026. So while margins declined year over year, they improved significantly on a sequential basis. The year over year decline and the significant decline in the first quarter were primarily due to the increase in the inventory reserve related to the liquidation of certain pet inventory and the surplus cedar fencing at prices at or below cost, along with a higher mix of lower margin products. For the six months of fiscal 2026, gross margin was 3%. compared to 19.2% in the first six months of fiscal 25. That first half comparison was negatively affected, again, by the $2.2 million inventory write-down taken in the first quarter related to the pet inventory and the lumber inventory and the liquidation activity during the current six-month period. As Chad mentioned, we've continued to work on aligning our costs with end-market pricing. While progress has been made, our costs remain elevated due to higher raw material costs higher shipping and logistics costs, and the import tariffs that began in March of 2025. Turning to operating expenses, during Q2 of 2026, they were $2.8 million compared to $2.6 million in Q2 of 2025. Breaking that down, wages and employee benefits declined to $1.3 million from $1.6 million as we continued to reduce headcount and align the organization with current operating conditions. Selling, general and administrative expenses rose to 1.4 million from 940,000, primarily due to higher professional fees related to the engagement of additional consultants and higher lumber warehousing costs associated with the excess inventory position. For the first six months of 2026, operating expenses were 5.5 million compared to 5.1 million in the prior year period. The increase was again driven by higher SG&A, while wages and employee benefits declined 23% to $2.5 million from $3.2 million. As Chad noted, we remain committed to reducing annual operating expenses by $1 to $3 million as we continue our operational realignments. Primarily as a result of the margin pressures we've discussed, net loss for Q2 2026 was $1.2 million, or a $0.35 loss per basic and diluted share. compared to a net loss of 573,000 or a 16 cent loss per basic and diluted share in Q2 2025. For the six months of fiscal 2026, net loss was $5.2 million or $1.48 loss per basic and diluted share compared to a net loss of 1.2 million or a loss of 35 cents per basic and diluted share in the first six months of fiscal 2025. As we've discussed, that first half result was heavily impacted by the inventory write-down taken in the first quarter and the ongoing liquidation of pet and excess seeder inventory. Finally, a few comments on the balance sheet. Our inventory balance at February 28, 2026 was $9.6 million. That compares to $13.5 million at the end of November 30, 2025, and $15.9 million at the end of August 2025. This reduction reflects the sell-through of substantial portions of our excess Cedar fencing inventory and the liquidation of certain older pet inventory. Accounts receivable at quarter end were 6.5 million compared to 3.9 million at August 31st, 2025, reflecting the timing of collections on the higher sales volume late in the quarter. Substantially, all amounts due at quarter end have since been collected and used to reduce borrowings under our credit facility. Cash and cash equivalents were $547,000 at quarter end compared to $226,000 at August 31st, 2025. As of February 28th, 2026, we had $4.3 million outstanding under our North Room credit facility compared to $2.1 million at August 31st. Based on the company's current working capital position, the expected timing of accounts receivable collections and the capital available under our revised credit arrangement, we believe the company has sufficient liquidity to meet working capital needs for the next 12 months. At the same time, we continue to evaluate additional strategies to strengthen liquidity and unlock values through the monetization of non-core assets. With that, let me turn it back over to Chad.

Thanks, Mitch, for the overview.

To reiterate, our objective remains to exit fiscal 2026 with a business model that is sustainable in the long term. leveraging the value of non-core assets to support our core growth strategy and deliver enhanced value to shareholders. We remain focused on steady execution, disciplined decision-making, and building a stronger and more focused company for the future. I do want to thank our employees for their continued commitment and execution, as well as our customers, partners, and investors for their collaboration during what remains a period of significant challenge and change. Robert, can you let me know if there are any questions?

Great. Yeah, thank you very much, Chad and Mitch, for the prepared remarks. Again, if you have a question through the portal, you can type it into the Ask a Question box on your webcast screen there. First question here is, to the extent possible, can you quantify the volume and impact of lumber liquidation and excess pet inventory in Q2 versus Q1 and indicate how much of this inventory remains outstanding?

Yes, great question. Approximately 2.5 million of second quarter sales came from liquidating certain pedimentary and selling excess cedar fencing, and we have previously mentioned that those sales will not repeat in future periods. And you know. We did make substantial progress in selling most majority of the excess lumber inventory. Again, the material, as I mentioned before, already in the customer's distribution facilities was sold at the contracted price and generated a small profit, while the remaining excess inventory was sold to wholesalers below cost. The important outcome was converting stranded capital back into cash, reducing warehouse costs, and reducing the need for additional borrowing. So that was the result of that. Hope that answers the question.

Okay, great. Next question here is, do you have any updates on the sale of Jewett Cameron Seed property in Hillsboro and the Innovation Studio property in North Plains?

Yeah, they remain listed for sale and we will certainly provide additional information when a sale document is executed.

Okay, very good. Next question here is, can you sort of expand upon tariff refunds and the, I think it was mentioned, the April 2026 Section 232 change.

Yeah, another great question. The refund, of course, is related to the IEEPA-related tariffs. And as we said, any refund is not expected to be material, and the timing and method remain uncertain. The reason for this is because our products have been more impacted by the steel tariffs than the IEEPA-related tariffs. And as far as the April 2026 Section 232 steel tariff change, the tariff is now going to be calculated on the full value of imported products rather than only the metal value, which in some cases could increase tariff expense. And we are still evaluating the product by product impact. In fact, some products will remain at 50% and be applied to the full value of the product, and others will be reduced to 25%, but also applied to the full value of the product. So a lot of moving parts on those tariffs.

Okay. And perhaps the last question here is, what is the latest on the cost reduction program?

The Cost Reduction Program, standby. I'm going to get my notes here.

Yes, we do continue to reduce headcount and align the cost structure to current revenue levels. Wages and employee benefits were down 19% year-over-year in Q2 and down 23% in the six-month period. And we remain committed to reducing annual operating expense by $1 million to $3 million as part of the exiting fiscal 2026 with a more sustainable model.

Okay. I am showing no further questions at this time. So with that, Chad, I will turn it over to you for any closing remarks.

Great. Thank you again for your interest in Jewett Cameron, and I do look forward to communicating with you in the months to come as we continue to execute on these reformulated strategic initiatives.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.