Executive Summary / Key Takeaways

• Healthy Choice Wellness Corp. (HCWC) is transforming from a segment of a larger entity into an independent, publicly traded company focused on the growing natural and organic retail and wellness market, leveraging a multi-channel strategy encompassing physical stores, e-commerce, and specialized wellness centers.
• Recent performance shows significant top-line growth, with Q1 2025 net sales increasing 27% year-over-year to \$20.3 million, driven by strategic acquisitions like GreenAcres Market and a successful new customer loyalty program contributing to same-store sales growth.
• While the company reported a net loss of \$0.71 million in Q1 2025 and has negative working capital, it generated positive cash flow from operations (\$1.1 million) in the quarter, and has secured committed equity financing and executed debt-to-equity conversions to bolster its balance sheet and address near-term liquidity needs.
• HCWC operates in a highly competitive landscape dominated by larger players like Whole Foods and Sprouts, differentiating through its integrated wellness offerings and online presence, but faces challenges related to scale, cost efficiencies, and internal control deficiencies.
• Key factors for investors to monitor include the successful integration of acquired businesses, the effectiveness of strategic initiatives like the unified loyalty program, progress on remediating material weaknesses in internal controls, and the impact of competition and rising operating costs on future profitability.

A Seed Planted: HCWC's Journey to Independence

Healthy Choice Wellness Corp. (HCWC) is cultivating its path in the dynamic natural and organic retail and wellness sectors. Spun off from Healthier Choices Management Corp. (HCMC) in September 2024, HCWC emerged as an independent, publicly traded entity, bringing together a portfolio of established natural grocery brands and a nascent wellness business. This separation marked a pivotal moment, allowing HCWC to focus exclusively on its core mission: providing consumers with healthier daily choices.

The company's roots are spread across various retail banners, including Ada's Natural Market, Paradise Health Nutrition, Mother Earth's Storehouse (with over 40 years of history), Greens Natural Foods, Ellwood Thompson's, and GreenAcres Market. This collection of brands provides a multi-state footprint offering a wide array of organic produce, bulk foods, vitamins, supplements, and natural household items. Beyond traditional retail, HCWC extends its reach through licensed wellness centers offering services like vitamin drips and an online wholesale platform, TheVitaminStore.com, selling health and beauty products. This multi-channel approach is foundational to HCWC's strategy, aiming to capture consumer spending across various health and wellness touchpoints.

Strategic acquisitions have played a significant role in shaping HCWC's current scale and geographic presence. The acquisition of Ellwood Thompson's in late 2023 added a store in Virginia, while the more substantial purchase of five GreenAcres Market stores in Kansas and Oklahoma in July 2024 significantly expanded the company's footprint and contributed meaningfully to its revenue base. These moves underscore a strategy focused on growth through consolidation within the fragmented natural foods market. Conversely, the decision to close and sell the Saugerties, NY store in 2024 highlights a concurrent effort to optimize the existing portfolio for profitability.

Competitive Roots in Fertile Ground

HCWC operates within a highly competitive food retail industry. Its rivals range from national giants like Whole Foods Market (owned by Amazon (AMZN)) and Sprouts Farmers Market (SFM) to regional natural food chains, conventional supermarkets with expanding organic offerings (like Kroger (KR)), smaller specialty stores, and even farmers markets and restaurants. The competitive landscape is characterized by intense price pressure, evolving consumer preferences, and the constant opening and closing of competing locations.

Compared to larger players like Whole Foods and Sprouts Farmers Market, HCWC operates at a significantly smaller scale. Whole Foods, leveraging Amazon's vast ecosystem, commands a dominant market share and benefits from superior brand recognition, efficient logistics, and robust e-commerce integration, reflected in its higher gross margins (38-40% TTM for AMZN's overall business, which includes Whole Foods) compared to HCWC's 39.14% TTM gross margin. Sprouts Farmers Market competes effectively on price and efficiency, boasting a lean cost structure and strong supply chain, resulting in a TTM gross margin of 38.03%. Natural Grocers (NGVC), another direct competitor, focuses on affordability and a loyal customer base, with a TTM gross margin of 29.03%.

HCWC seeks to differentiate itself through its integrated wellness offerings and a focus on personalized health. While competitors primarily focus on retail products, HCWC's wellness centers and online vitamin store add layers of service and product specialization. The wellness centers, offering services like IV nutrient drips, are marketed with claims of tangible benefits like faster recovery times, potentially offering a unique value proposition not readily available at traditional grocery competitors. However, these specialized services may also contribute to higher operating costs compared to more streamlined retail-only models. The online platform, TheVitaminStore.com, provides a digital channel, though its processing speed may lag behind the sophisticated systems of e-commerce giants like Amazon.

Despite its smaller scale and potential cost disadvantages compared to larger, more efficient competitors, HCWC's strategy of combining traditional retail with specialized wellness services and an online presence aims to build customer loyalty and capture a broader share of the health and wellness market. The success of initiatives like the new unified loyalty program is critical in this regard, aiming to enhance customer engagement and retention in the face of intense competition.

Cultivating Performance: Recent Financial Harvest

The first quarter of 2025 demonstrated significant top-line growth for HCWC, reflecting the impact of its strategic initiatives and acquisitions. Net sales for the three months ended March 31, 2025, reached a record \$20.3 million, a substantial 27% increase compared to \$15.9 million in the same period of 2024. This growth was primarily fueled by the inclusion of the GreenAcres Market stores acquired in July 2024 and a notable \$0.7 million increase in same-store sales, which the company attributes mainly to the success of its new customer loyalty program.

Cost of goods sold increased commensurately with sales, rising from \$9.8 million in Q1 2024 to \$12.4 million in Q1 2025, primarily due to the GreenAcres acquisition and higher same-store costs. Despite this, gross profit saw a healthy increase of 30%, climbing from \$6.1 million to \$7.9 million. This resulted in a slight improvement in the gross margin percentage, increasing by approximately 0.7% year-over-year, indicating some operational efficiency or favorable product mix shifts.

Operating expenses also rose, totaling \$8.3 million in Q1 2025 compared to \$6.7 million in Q1 2024. This \$1.6 million increase was largely driven by the GreenAcres acquisition (\$1.3 million) and higher professional fees (\$0.5 million), partially offset by decreases in same-store insurance and payroll/benefits expenses. The increase in operating expenses outpaced gross profit growth, resulting in an operating loss of \$409,675 for the quarter, an improvement from the \$601,746 operating loss in Q1 2024.

After accounting for other income and expenses, primarily interest expense which significantly increased from \$103,072 in Q1 2024 to \$297,731 in Q1 2025 (reflecting new debt from acquisitions), HCWC reported a net loss of \$712,410 for the three months ended March 31, 2025, compared to a net loss of \$701,463 in the prior year period. Despite the net loss, the company highlighted achieving positive Adjusted EBITDA in Q1 2025, suggesting improved operational performance before accounting for interest, taxes, depreciation, and amortization, and certain non-recurring items.

Financial Soil and Future Growth

As of March 31, 2025, HCWC's balance sheet showed cash and cash equivalents of approximately \$1.8 million and negative working capital of \$2.4 million. Historically, the company has experienced net losses and cash outflows from operations. However, Q1 2025 marked a positive shift in operating cash flow, generating approximately \$1.1 million compared to using \$2.5 million in the same period of 2024. This improvement in operating cash flow is a critical development, suggesting better management of working capital or improved underlying business performance.

The company's liquidity needs have been supported by proceeds from its initial public offering, financing agreements, and a committed \$13.25 million in equity financing from investors who also invested in its former parent. Management believes its current cash position and this committed financing are sufficient to meet obligations and capital requirements for at least the next twelve months.

Debt remains a significant factor on the balance sheet. As of March 31, 2025, total debt net of discount was \$10.64 million. Subsequent to the quarter end, HCWC has actively worked to reduce this burden through debt-to-equity conversions. In March, \$450,000 of principal was exchanged for 750,000 shares of common stock. Further conversions in April and May exchanged an additional \$500,000 and \$362,727 of principal, respectively, for shares, leaving approximately \$6.36 million in principal outstanding under the primary Loan and Security Agreement as of the date of the 10-Q filing. These conversions strengthen the balance sheet by reducing debt obligations and associated interest expense, albeit at the cost of shareholder dilution.

Lease liabilities also represent a substantial long-term commitment, totaling \$13.3 million as of March 31, 2025, with a weighted-average remaining term of 4 years. Rent expense is expected to rise incrementally over the next two years as leases reset to higher rates, potentially impacting future operating expenses.

Looking ahead, the company expects to continue incurring losses for the foreseeable future. However, management has outlined strategic growth drivers for 2025, focusing on operational efficiencies, developing new revenue streams, investing in leadership, and enhancing customer engagement through initiatives like the unified rewards program. The committed equity financing provides capital for potential future expansion or working capital needs.

Risks and Weeds in the Garden

Despite the positive revenue momentum, HCWC faces notable risks. The highly competitive market environment could limit pricing power and pressure margins. The reliance on a few key suppliers (UNFI (UNFI) and KeHe accounted for 14% and 26% of purchases, respectively, in Q1 2025) presents supply chain risk, although the company believes it has alternative supply methods.

Operational challenges are also evident. The company identified material weaknesses in its internal control over financial reporting as of March 31, 2025, related to documentation, segregation of duties, and IT General Controls. These weaknesses pose risks to financial reporting accuracy and operational efficiency. Management is actively working on remediation plans, including increasing headcount and establishing new policies, but full remediation will take time.

Legal proceedings, such as the wage and hour lawsuit served on a subsidiary in July 2024, represent potential liabilities, although management believes the claims lack merit. Furthermore, the concentration of cash in a single financial institution exceeding FDIC limits poses a minor risk.

The company's expectation of continued losses and rising rent expense indicates that achieving sustainable profitability remains a challenge that will require successful execution of its growth and efficiency strategies.

Conclusion

Healthy Choice Wellness Corp. is in a transitional phase, leveraging its recent Spin-Off to pursue focused growth in the natural and organic retail and wellness markets. The significant revenue growth in Q1 2025, driven by strategic acquisitions and improved same-store sales performance linked to customer engagement initiatives, demonstrates promising momentum. The company's multi-channel approach, integrating physical stores, e-commerce, and specialized wellness services, provides a differentiated offering in a competitive landscape.

While challenges persist, including historical losses, negative working capital, intense competition, and identified internal control weaknesses, HCWC is taking steps to strengthen its financial position through committed equity financing and debt reduction efforts. The ability to generate positive operating cash flow in the most recent quarter is a positive sign. The investment thesis for HCWC hinges on its ability to successfully integrate acquired businesses, execute its strategic initiatives to drive sustainable same-store sales growth and operational efficiencies, and effectively address its internal control deficiencies. Investors should closely monitor the company's progress on these fronts as it seeks to cultivate long-term value in the health and wellness market.