My Food Bag expands into gifting as earnings improve

Thursday, 21 November 2024

Meal kit company My Food Bag increased its net profit in the six months to September 30, despite its revenue dropping slightly - in a nod to high food costs subsiding.

The online food delivery business that sells meal kits under the My Food Bag, Bargain Box, Fresh Start, and Ready-Made brands generated revenue of $82.2 million, down 1.9% compared with $83.8m made in the same period a year earlier.

It posted an after-tax profit of $2.95m in the six months, up almost 18% on the $2.5m made during the same time last year.

Its active customer base fell to 61,100 from 61,600 and total deliveries to 643,000 from 652,000.

My Food Bag shares gained 6.98% on Wednesday ahead of releasing its financial results to market.

Company chair Tony Carter said My Food Bag had undergone a successful transformation last year and its recent half-year results showed progress continued to “build on this momentum”.

“We have further stabilised active customer numbers and the business in general. We have also continued to benefit from productivity improvements made in [the 2024 financial year], including the consolidation of Auckland sites and the investment in pick technology,” Carter said in an NZX announcement.

My Food Bag had earlier signalled it had plans to grow its business and take a greater share of New Zealand's online food market.

Last week it expanded into gifting, launching an online shop allowing non-subscribers, as well as its customers, to purchase and gift items such as ready-made meal bundles, gift and care packages.

The shop launched with 11 items in time for the Christmas gifting season and would release around 20 more seasonal items over the next few months, chief marketing officer Trish Whitwell said.

Orders from the shop are sent out from its Auckland distribution centre, and are not expected to have a material impact on its FY25 results.

During the financial results announcement, the company said it had been able to reduce its net debt from $11.8m at the end of FY24 to $9.7m at the end of September.

It declared an interim dividend of 65 cents per share.

My Food Bag said its gross margins had improved due to lower produce prices resulting from a combination of favorable growing conditions, and purchasing directly from growers to secure more competitive pricing.

It also designed its recipes to better manage food price inflation.

Chief executive Mark Winter said growing the company’s core offering had been a significant focus during the first half of the current financial year.

It was now focused on growing its active customer numbers.

“We’ve continued to protect and grow our core My Food Bag, Fresh Start and Bargain Box brands, while strengthening them with new offerings. Since bringing our ready-made offering under the My Food Bag brand, re-launching our My Gluten Free Bag and increasing the number of low-carb options across our meal kit offering, we’ve seen an encouraging sales uplift.”

Winter said the market remained challenged and the company expected to “continue to trade broadly in line with the prior year”.

Milford Asset Management NZ equities analyst Jeremy Hutton said My Food Bag had benefited from food costs coming down.

“Food inflation has been rampant, and affects My Food Bag substantially. It'll be one of their largest cost lines. Despite the revenue tailing off a little bit, that lower cost line means that the earnings have increased,” Hutton told The Post.

He called the result “solid” in what had been a very tough consumer environment.

“Its number of deliveries were down, active customers down slightly, and the average order value down, and that's customers switching to their lower priced boxes, so you are seeing that New Zealand macro cyclical pressure coming through. But given how penal food inflation has been on everyone in the country, but particularly My Food Bag, that has outweighed the revenue softness to make the earnings go up.”

My Food Bag’s share price has improved by 30% in the past three months, but remains low, trading at around 23 cents a piece.

Hutton said he believed the share price would recover over the next 12 to 18 months if the business continued to post improved financial results.

“The business has a lot of what they call operating leverage, so any increases of volume orders,or top line growth will flow through to the earnings line very quickly, and that could enable large earnings growth when conditions get a little bit better, and if food inflation stays muted.

“My Food Bag have set the building blocks for recovery reasonably well. They have stabilised the business, they're paying a dividend again - which is a good confidence signal from the board and management. In line with where the economy is hopefully going, My Food Bag should benefit to the same extent.”