GrowGeneration Corp. (NASDAQ: GRWG) (“GrowGen” or the “Company”), the largest chain of specialty hydroponic and organic garden centers with 63 locations across 13 states, today reported financial results for the first quarter ended March 31, 2022.
First Quarter 2022 Highlights Compared to Prior-Year Period
- Net sales declined 9.2% to $81.8 million driven by softer industry demand
- Comparable store sales for the quarter decreased 35.5%
- Net loss of $5.2 million compared to net income of $6.1 million last year
- Loss per share of $0.09 in the quarter
- Adjusted EBITDA loss of $0.7 million
Darren Lampert, GrowGeneration’s Co-Founder and Chief Executive Officer stated, “The GrowGen team faced significant industry disruptions head on, and we exceeded our internal expectations in the first quarter despite a very difficult macro environment. The first half of last year was exceptionally strong with same-store sales up approximately 60% compared to the same period in 2020. In the first quarter of 2022, on a two-year basis, our same-store sales increased 7.3% compared to the first quarter of 2020.”
Lampert continued, “We expect the revenue and gross profit headwinds in the first quarter will become more pronounced in the second quarter, with the remainder of 2022 facing more pressure than we initially planned. While the industry is experiencing a prolonged period of softer demand, we remain confident in the longer-term opportunity that exists within hydroponics. GrowGen remains on solid financial footing, and we firmly believe we are well positioned to emerge stronger when the market eventually turns. In the meantime, we are taking an active approach to managing the business in a way that preserves cash through working capital optimization and we are more aggressively right-sizing our cost structure. We remain committed to our five key strategic initiatives this year, which we think will position us to win in 2023 and beyond.”
First Quarter 2022 Consolidated Results
Revenues declined $8.3 million, or 9.2%, to $81.8 million, for the quarter ended March 31, 2022, compared to $90.0 million for the first quarter ended March 31, 2021. The decrease in net revenue was attributed to a decline in same-store sales of 35.5% at 48 retail locations and the Company’s e-commerce operations open in the first quarter of 2022 compared to the same period last year, offset partially by the addition of 15 new stores and the contribution from acquisitions.
E-commerce revenue, including growgeneration.com and Agron, was $5.3 million in the first quarter, compared to $6.0 million for the same period last year. Revenue from non-retail operations, including distributed brands and MMI, was $12.2 million in the first quarter of 2022, compared to $2.8 million in the same quarter last year.
Gross profit was $22.1 million for the first quarter of 2022, compared to $25.4 million for the first quarter of 2021. Gross profit margin decreased approximately 110 basis points to 27.1%, compared to 28.2% in the same quarter last year. The decrease in gross profit was due primarily to lower net sales, fewer rebates, and increased obsolescence and shrinkage costs in the first quarter of 2022 compared to the same period last year.
Operating expenses in the first quarter of 2022 were $29.4 million, compared to $17.6 million in the prior year. Selling, general, and administrative expenses in the first quarter of 2022 were $10.3 million, compared to $7.4 million in the prior year. The increase was primarily attributable to the addition of non-retail operations through acquisition. Store operations expenses were $14.5 million, compared to $8.2 million in the prior year associated with the increase in store locations over the same period in the prior year.
GAAP pre-tax net loss was $6.8 million for the first quarter of 2022, or a loss of $0.09 per diluted share, compared to pre-tax net income of $7.7 million in the first quarter of 2021, or earnings of $0.10 per diluted share. The decrease in net income was due to lower gross profit combined with higher operating expenses associated with additional store locations and operations.
Non-GAAP earnings before interest, taxes, depreciation, amortization, and share-based compensation (Adjusted EBITDA) was a loss of $0.7 million in the first quarter of 2022, compared to $11.1 million in the same period last year.
Cash and short-term marketable securities as of March 31, 2022, were $66.3 million. Inventory as of March 31, 2022, was $105.9 million and prepaid inventory and other current assets were $7.0 million.
Total current liabilities, including accounts payable and accrued payroll and other liabilities decreased from $47.1 million at December 31, 2021 to $36.6 million at March 31, 2022.
M&A Activity
In February 2022, the Company acquired the assets of Horticultural Rep Group, Inc. (“HRG”), a specialty marketing and sales organization of horticultural products based in Ogden, Utah. The total consideration for the purchase of HRG was $13.4 million.
Expansion Efforts
The Company’s supply chain spans approximately 1,022,000 square feet of retail and warehouse space, across existing locations and signed leases in new locations, spanning 13 states. In January 2022, the Company opened its sixth Oklahoma location in Ardmore. The Company relocated two retail stores into multi-channel operations that will serve as fulfillment centers, including a 25,000 square feet location in Phoenix, Arizona and a 58,000 square feet location in Medley, Florida.
Fiscal Year 2022 Financial Outlook
- Revenue guidance for 2022 updated to be between $340 to $400 million, down from a range of $415 million to $445 million previously
- Adjusted EBITDA guidance expected to be between zero and $10 million, down from previous expectations of $30 million to $35 million
- Expect to add 10-15 new stores this year, down from previous target of 15-20 new stores, given strategic decision not to build new stores in states where there is already physical retail presence
Conference Call
The Company will host a conference call today, May 10, 2022, at 5:00PM Eastern Time. To participate in the call, please dial (800) 289-0438 (domestic) or (647) 484-0478 (international). The conference code is 219309. This call is being webcast and can be accessed on the Investor Relations section of GrowGen’s website at: https://ir.growgeneration.com/news-events/ir-calendar.
A replay of the webcast will be available approximately two hours after the conclusion of the call and remain available for approximately 90 calendar days. An Encore replay of the call will be available for seven days after the call. To access the replay, please dial (888) 203-1112 (domestic) or (647) 436-0148 (international). The conference code is 219309.
