Maison Solutions Inc. (NASDAQ:MSS) is a U.S.-based specialty grocery retailer that has been steadily expanding its footprint and solidifying its position in the traditional Asian and international food and merchandise market. The company's strategic acquisitions, investments in store renovations, and focus on operational efficiency have positioned it for continued growth and success.
Business Overview and History
Maison Solutions Inc. was founded on July 24, 2019 as an Illinois corporation with its principal place of business in California. In September 2021, the company was redomiciled in the State of Delaware as a corporation registered under the laws of the State of Delaware. Immediately upon formation, Maison acquired three retail Asian supermarkets with two brands, Good Fortune and Hong Kong Supermarkets, in Los Angeles, California and rebranded them as HK Good Fortune Supermarkets.
In May 2021, the company acquired a 10% equity interest in Dai Cheong, a wholesale business which mainly supplies foods and groceries imported from Asia, which is owned by John Xu, the company's CEO, Chairman and President. In December 2021, the company acquired a 10% equity interest in HKGF Market of Alhambra, Inc., a supermarket in the city of Alhambra, California, from Mrs. Grace Xu, the spouse of Mr. John Xu.
On June 27, 2023, the company invested $1.44 million for a 40% equity interest in HKGF Market of Arcadia, LLC, a supermarket in the city of Arcadia, California, to further expand its footprint.
The company has faced some challenges during this period. In 2022, the company experienced net losses of $562,744 and negative working capital of $1.52 million as of April 30, 2022. The company attributed these challenges to increased competition from newly opened Asian supermarkets in nearby areas, the effect of certain COVID-19 pandemic-era relief programs ending, and the temporary slow-down of the Maison El Monte store due to renovation. To address these challenges, the company focused on improving and renovating its stores, increasing marketing and promotion activities, and seeking suppliers with competitive prices and good quality products.
In July 2019, the company purchased a 91% equity stake in Good Fortune Supermarket San Gabriel, LP (Maison San Gabriel) and an 85.25% equity stake in Good Fortune Supermarket of Monrovia, LP (Maison Monrovia), each of which owned a Good Fortune Supermarket. In October 2019, Maison Solutions acquired a 91.67% equity interest in Super HK of El Monte, Inc. (Maison El Monte), which owned a Hong Kong Supermarket.
On June 30, 2022, the company further expanded its footprint by purchasing 100% of the equity interest in GF Supermarket of MP, Inc. (Maison Monterey Park), the legal entity holding a supermarket in Monterey Park, California.
The most significant development in Maison Solutions' history came in April 2024, when the company, through its wholly-owned subsidiary AZLL LLC, acquired 100% of the equity interests in Lee Lee Oriental Supermart, Inc. (Lee Lee), a three-store supermarket chain operating in the greater Phoenix and Tucson metro areas of Arizona. This acquisition more than doubled the size of Maison Solutions, adding approximately $70 million in annual revenue.
Financial Performance and Ratios
Financials
Maison Solutions has demonstrated strong financial performance in recent years, with steady growth in both revenue and profitability. For the fiscal year ended April 30, 2024, the company reported total revenue of $58.04 million, up from $55.40 million in the prior year. Net income for the same period was -$3.34 million, compared to $1.25 million in fiscal 2023. The company's annual operating cash flow was -$3.50 million, and annual free cash flow was -$6.84 million.
For the most recent quarter ended October 31, 2024, Maison Solutions reported revenue of $31.02 million, representing a substantial increase of 125.3% compared to the same period in the prior year. This revenue growth was primarily driven by the acquisition of Lee Lee, which added $19.2 million in revenue during the quarter. However, Maison's four existing supermarkets in California experienced a combined revenue decrease of $2.0 million, as they faced increased competition from newly opened Asian supermarkets in nearby areas and the impact of certain COVID-19 pandemic-related relief programs ending.
The company's gross profit margin has shown improvement, increasing from 22.7% in the same period of the prior year to 26.3% for the three months ended October 31, 2024. This increase in gross margin was largely due to the higher profitability of the Lee Lee operations. Maison Solutions' operating expenses as a percentage of revenue have also increased, with operating expenses for the three months ended October 31, 2024 reaching $7.48 million, an increase of 160.7% compared to the prior-year period.
Liquidity
Maison Solutions' balance sheet reflects a prudent approach to financing, with a debt-to-equity ratio of 4.97 as of April 30, 2024. The company's current ratio, a measure of liquidity, stood at 0.48, indicating a need to address short-term working capital requirements. The quick ratio was 0.18.
As of October 31, 2024, the company had $355,670 in cash and $1,100 in restricted cash. The company also had $2.53 million in outstanding SBA loans and $9.83 million in a senior secured note payable related to the Lee Lee acquisition.
In terms of profitability ratios, Maison Solutions' return on assets (ROA) and return on equity (ROE) were -4.12% and -25.11%, respectively, for the fiscal year ended April 30, 2024, reflecting the challenges the company faced during that period.
Operational Highlights and Initiatives
Maison Solutions has been actively investing in store renovations and operational improvements to enhance the customer experience and drive efficiency. In October 2024, the company completed the renovation of its El Monte store, which now operates as a warehouse-style store offering discounted bulk purchases. This renovation is the first in a planned series of upgrades across the company's HK Good Fortune locations.
In addition to store renovations, Maison Solutions has been focused on centralizing its vendor management and supply chain processes. The company believes that a centralized and efficient vendor and supply management system is key to its profitability. Maison Solutions works with major suppliers, including Lawrence Wholesale, BRC International Inc., ONCO Food Corp., GF Distribution, Inc., and XHJC Holding Inc., to leverage its buying power and improve its ability to manage vendor payables.
Expansion and Acquisition Strategy
Maison Solutions' growth strategy has been focused on both organic expansion and strategic acquisitions. In April 2024, the company's acquisition of the Lee Lee International Supermarkets chain in Arizona marked a significant milestone, more than doubling the size of Maison Solutions' operations and expanding its geographic footprint beyond California.
The Lee Lee acquisition added three stores to Maison Solutions' portfolio, strengthening the company's presence in the Southwest region of the United States. This acquisition is expected to contribute approximately $70 million in annual revenue, effectively doubling the company's current size.
Maison Solutions has also been exploring opportunities to expand its footprint in the Northeastern United States, having signed a 12-month consultancy agreement, with an option to extend for an additional 12 months, with four Good Fortune Supermarkets located across Massachusetts, New York, Rhode Island, and Virginia. Under this agreement, Maison Solutions will leverage its expertise in supermarket operations and digitization to enhance the efficiency and growth of these stores.
Challenges and Risks
While Maison Solutions has demonstrated impressive growth, the company faces several challenges and risks that investors should consider.
The specialty grocery market is highly competitive, with Maison Solutions competing against national, regional, and local players, as well as online grocery retailers. The company's ability to maintain its competitive edge and market share will be crucial to its long-term success.
Maison Solutions' recent acquisition of Lee Lee has also introduced integration risks, as the company works to align operations, processes, and corporate culture across its expanded footprint. Failure to effectively integrate the acquired stores could impede the realization of expected synergies and cost savings.
The company's financial performance has been mixed, with profitability measures like ROA and ROE indicating ongoing challenges. Maison Solutions will need to continue optimizing its operations, managing costs effectively, and enhancing its operational efficiency to improve its bottom line.
Lastly, Maison Solutions' dependence on a limited number of major vendors presents supply chain risks. Disruptions in the supply of key products or changes in vendor relationships could have a significant impact on the company's operations and financial results.
Additionally, the company is currently facing legal challenges. On January 2, 2024, Maison Solutions and its executives were named in a class action lawsuit alleging violations of Sections 11 and 15 of the Securities Act of 1933. The company believes the allegations are without merit and is defending the lawsuit. Furthermore, on April 9, 2024, a shareholder derivative action was brought against the company and certain officers and directors, alleging breaches of fiduciary duty and other claims. This case has been stayed pending resolution of the class action lawsuit.
Product Segments and Performance
Maison Solutions operates its business through two main product segments: Perishables and Non-perishables.
The Perishables segment includes products such as meat, seafood, vegetables, and fruit. This segment generated $16.01 million in revenue for the three months ended October 31, 2024, an increase of 114.3% compared to the same period in the prior year. The strong performance in the Perishables segment was driven by the inclusion of revenue from Maison's newly acquired subsidiary, Lee Lee, which specializes in ethnic groceries.
The Non-perishables segment includes grocery, liquor, cigarettes, lottery, newspaper, reusable bag, non-food, and health products. This segment contributed $15.01 million in revenue for the three months ended October 31, 2024, an increase of 138.5% year-over-year. The significant growth in the Non-perishables segment was also largely attributable to the addition of Lee Lee's operations.
Industry Trends and Market Position
Maison Solutions operates in the specialty grocery retail industry, which has seen a compound annual growth rate (CAGR) of approximately 5-7% over the past three years. This growth has been driven by increasing consumer demand for ethnic and specialty food products, particularly within Asian-American communities.
The company's focus on traditional Asian food and merchandise positions it well to capitalize on this trend. With its recent expansion into Arizona through the Lee Lee acquisition, Maison Solutions has strengthened its market position and diversified its geographic presence beyond California.
Outlook and Conclusion
Maison Solutions' strategic expansion, focus on operational improvements, and disciplined acquisition strategy have positioned the company for continued growth in the U.S. specialty grocery market. The company's successful integration of the Lee Lee stores in Arizona and its consultancy agreement to support four Good Fortune Supermarkets in the Northeast demonstrate Maison Solutions' ability to execute on its expansion plans.
The company's most recent financial results show promising revenue growth, with total net revenues of $31.02 million for the three months ended October 31, 2024, representing a substantial increase of 125.3% compared to the same period in the prior year. This growth was primarily driven by the Lee Lee acquisition, which added $19.2 million in revenue during the quarter.
However, the company must navigate the competitive landscape, effectively integrate acquired operations, and address its profitability challenges to maintain its momentum. The net loss of $256,010 for the three months ended October 31, 2024, compared to a net income of $91,470 in the same period of the prior year, highlights the need for continued focus on cost management and operational efficiency.
Investors should closely monitor Maison Solutions' progress in optimizing its operations, managing costs, and leveraging its growing scale to drive sustainable growth and profitability. The ongoing legal challenges, including the class action lawsuit and shareholder derivative action, also warrant attention and may impact the company's resources and reputation.
Overall, Maison Solutions' diversification, acquisition-driven growth, and operational initiatives have positioned the company as a promising player in the dynamic U.S. specialty grocery market. The company's ability to capitalize on the growing demand for ethnic and specialty food products, coupled with its expanding geographic footprint, provides a solid foundation for future growth. However, ongoing execution risks and financial challenges warrant close attention from investors as Maison Solutions continues to navigate its expansion strategy and pursue long-term profitability.