SPAR Group, Inc. Q2 FY2023 earnings call

• First half of 2023 was strongest six months in company history with revenue, gross profit, EBIT at new levels. • Merchandising services grew in US, Brazil, Mexico; US remodel business delayed due to rising interest rates. • Currency fluctuations impacted South Africa; business there grew 7% in local currency but 10% decline in USD. • Second quarter consolidated revenue $66M, down 2.7% year-over-year, but up 1% on constant currency. • Launched diversity, equity, inclusion initiative; team members won industry awards. • Fulfillment services business on track to deliver nearly $5M net new revenue in US in 2023. • SPARview technology portfolio expanded, with work moved to cloud, leveraging AWS, and analytics improved.

Consolidated revenue was $66 million, down 2.7% from prior year. Americas (79% of revenue) had softness in US remodels but strong merchandising; Canada up 48%, Brazil up 18%, Mexico up 9%. EMEA (12% of revenue) down 10% year-over-year due to currency, but up 7% in constant currency. Asia Pacific (9% of revenue) up 5%. Second quarter gross profit was $13.1 million, up 1% from prior year. Operating income was $2 million, net income $1.1 million compared to $1.6 million in 2022.

• Management and Board are evaluating potential strategic alternatives to maximize shareholder value, including sale, strategic M&A, or going private, but no specific forward-looking guidance revised at this time.

• Currency fluctuations can impact international business results. • Retail theft and rising shrink numbers could affect retailers' decisions and thus SPAR's business. • Technology hurdles remain for implementing customer self-checkout solutions.

Q: Thanks very much. Mike, I appreciate your comments here about the stores adding perishables and big-box stores adding pack and ship. I was wondering if you're seeing any changes driven by the sort of high level of retail theft that's going on like we saw in Los Angeles last week?

A: We are having discussions with retailers. We've tasked our team to use analytics to look for indicators of rising shrink. We're having creative discussions about it as shrink is a challenge for retailers.

Q: And I asked the question because I was in a large supermarket -- national supermarket chain that had added a whole bunch of things to the shelves that make it more difficult to grab products and put it in your cart. And I was wondering if that's the sort of thing that would be part of a remodel for you?

A: We haven't seen a lot of the devices retailers put in as part of remodels yet. We're seeing it more as an indicator of shrink, but remodels for such devices aren't common yet as retailers haven't determined ROI.

Q: Are you seeing any trends in stores trying to remove cashiers and go sort of use your platform to do automatic checkout?

A: We haven't yet. A few retailers have asked about image capture for self-checkout, but no tailwinds for widespread adoption yet; technology hurdles remain.