GrowGeneration Corp. (NASDAQ: GRWG) (“GrowGen” or the “Company”), the largest chain of specialty hydroponic and organic garden centers with 62 locations across 14 states, today reported financial results for the second quarter ended June 30, 2022.
Second Quarter 2022 Highlights Compared to Prior-Year Period
- Net sales declined 44% to $71.1 million driven by softer industry demand
- Comparable store sales for the quarter decreased 56.9%
- Net loss of $136.4 million inclusive of $127.8 million impairment expense for goodwill and other intangibles compared to net income of $6.7 million last year
- Loss per share of $2.24 in the quarter
- Adjusted EBITDA loss of $2.9 million
- Revenue guidance for 2022 updated to be between $250 to $275 million, down from a range of $340 million to $400 million previously
- Adjusted EBITDA guidance expected to be a loss of $12 to $15 million, down from previous expectations of $0 million to $10 million profit
Darren Lampert, GrowGeneration’s Co-Founder and Chief Executive Officer stated, “The GrowGen team faced significant industry headwinds in the second quarter resulting in disappointing results for the quarter. The first half of last year was exceptionally strong with second quarter same-store sales up approximately 60% compared to the same period in 2020. In the second quarter of 2022 sales declined 43.5% and we had a $127.8 million impairment of goodwill and intangibles. However, we generated $3.8 million of positive cash flow from operations as we managed inventory levels during the quarter ended June 30, 2022. In addition, we are on track to reduce our annualized cost base by $13 million compared to year-end 2021 levels.”
Lampert continued, “We expect the revenue and gross profit headwinds in the first half will continue in the second half, with the remainder of 2022 revenue declining compared to the first half as we are 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 and indoor controlled environment agriculture. GrowGen remains on solid financial footing with a strong balance sheet and operational capabilities. 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.”
Second Quarter 2022 Consolidated Results
Revenues declined $54.8 million, or 43.5%, to $71.1 million, for the quarter ended June 30, 2022, compared to $125.9 million for the quarter ended June 30, 2021. The decrease in net revenue was attributed to a decline in same-store sales of 56.9% at 58 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 5 new stores and the contribution from acquisitions. Overall retail sales was $55.4 million in the second quarter, compared to $108.9 million for the same period last year.
E-commerce revenue was $3.7 million in the second quarter, compared to $12.0 million for the same period last year. The decline stems from closure of the company’s commercial focused Agron.io platform.
Revenue from non-retail operations, including distributed brands and MMI, was $12.0 million in the second quarter of 2022, compared to $5.0 million in the same quarter last year.
Gross profit was $20.2 million for the second quarter of 2022, compared to $35.7 million for the second quarter of 2021. Gross profit margin was 28.5%, flat to the same quarter last year.
Store and other operating expenses in the second quarter of 2022 were $13.8 million, compared to $12.6 million in the prior year. The increase was primarily associated with the increase in store locations over the same period in the prior year offset partially by cost reductions.
Selling, general, and administrative expenses in the second quarter of 2022 were $10.6 million, flat to prior year. The increase was primarily attributable to the addition of non-retail operations through acquisition partially offset by cost reductions.
GAAP pre-tax net loss was $136.7 million for the second quarter of 2022, or a loss of $2.24 per diluted share, compared to pre-tax net income of $9.6 million in the second quarter of 2021, or earnings of $0.11 per diluted share. The decrease in net income was primarily due to a $127.8 million non-cash impairment expense for goodwill and intangible assets acquired in historical business combinations. Impairment and income tax expense represents a preliminary amount and remain subject to change following the completion of normal quarter-end accounting procedures.
Non-GAAP earnings before interest, taxes, depreciation, amortization, and share-based compensation (Adjusted EBITDA) was a loss of $2.9 million in the second quarter of 2022, compared to a profit of $14.5 million in the same period last year.
Cash and short-term marketable securities as of June 30, 2022, were $65.6 million. Inventory as of June 30, 2022, was $99.1 million and prepaid inventory and other current assets were $9.2 million.
Total current liabilities, including accounts payable and accrued payroll and other liabilities, decreased from $47.1 million at December 31, 2021 to $39.5 million at June 30, 2022.
Expansion Efforts
The Company’s supply chain spans approximately 958,000 square feet of retail and warehouse space, across existing locations and signed leases in new locations, spanning 14 states. In July 2022, the Company opened its first location in Mississippi. The Company has closed two under-performing locations in July and expects to close 3 to 5 additional locations before year-end 2022. The company expects to add 3 to 4 additional new stores before the end of 2022, primarily in states where the company does not currently operate.
Fiscal Year 2022 Financial Outlook
- Revenue guidance for 2022 updated to be between $250 to $275 million, down from a range of $340 million to $400 million previously
- Adjusted EBITDA loss guidance expected to be $12 million to $15 million, down from previous expectations of $0 million to $10 million profit
Conference Call
The Company will host a conference call today, August 4, 2022, at 5:00PM Eastern Time. To participate in the call, please dial (888) 882-4478 (domestic) or (647) 484-0475 (international). The conference code is 8913925. 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.
