Net sales of $71 million exceeds internal expectations
Raising 2022 financial guidance for revenue and adjusted EBITDA
DENVER–(BUSINESS WIRE)– GrowGeneration Corp. (NASDAQ: GRWG) (“GrowGen” or the “Company”), the largest chain of specialty hydroponic and organic garden centers with 58 locations across 15 states, today reported financial results for the third quarter ended September 30, 2022.
Third Quarter 2022 Highlights
- Net sales declined 39% to $70.9 million driven by softer industry demand
- Comparable store sales for the quarter decreased 58.1%
- Net loss of $7.2 million compared to net income of $4.0 million last year
- Loss per share of $0.12 in the quarter
- Adjusted EBITDA loss of $2.6 million
- Revenue guidance for 2022 updated to be between $270 million to $280 million, an improvement from the previous range of $250 million to $275 million
- Adjusted EBITDA guidance updated to be between a loss of $10 million to $13 million, an improvement from the previous range of a loss of $12 million to $15 million
- Cash and cash equivalents were $71.1 million on September 30, 2022
Darren Lampert, GrowGeneration’s Co-Founder and Chief Executive Officer, stated, “I am proud of how resilient our team has been throughout this year as GrowGen – and the entire hydroponics category – has faced significant industry and economic headwinds. In the third quarter of 2022, net sales of $70.9 million outpaced our internal expectations, bolstered primarily by stronger-than-expected demand within our distribution and private label business. During the quarter we generated $8.3 million of positive cash flow from operations as working capital management remains a top priority across the business, and we ended the third quarter with $71.1 million of cash on our balance sheet with zero debt. On the expense side, we have reduced the payroll by an incremental $1.7 million in the quarter and $11.7 million year to date. We reduced inventory quarter-over-quarter by $10 million compared to the end of the second quarter 2022, which amounts to an aggregate reduction in our retail business of more than $24.1 million in inventory year-to-date since December 31, 2021.”
Lampert continued, “We remain cautiously optimistic on the broader industry as a whole and are seeing some early signs of stabilization. However, we’re still not prepared to definitively say the worst of the cycle is behind us. We remain committed to right-sizing the business, and we’re hyper-focused on our strategic initiatives, including new market expansion efforts, that remain a key priority. During the third quarter, we brought our total store count to 58 locations, reducing our store footprint overlap. We continue to believe that there are compelling opportunities to expand into areas where GrowGen does not have a physical presence. We are excited about the addition of two new stores in the fourth quarter in Missouri and New Jersey, which represent strategic markets for GrowGen. In 2023, GrowGen will also explore possibilities in the nascent indoor vertical farming market with our proprietary fertilizers and indoor farming solutions as a natural expansion of our core business. We firmly believe the work we have done, and continue to do, is positioning GrowGen to emerge stronger in 2023.”
Third Quarter 2022 Consolidated Results
Revenues declined $45.2 million, or 38.9%, to $70.9 million, for the quarter ended September 30, 2022, compared to $116.0 million for the quarter ended September 30, 2021. The decrease in net revenue was attributed to a decline in same-store sales of 58.1% at 57 retail locations and the Company’s e-commerce operations open in the third quarter of 2022 compared to the same period last year, offset partially by the addition of one new store and the contribution from acquisitions. Overall retail sales was $47.9 million in the third quarter, compared to $100.8 million for the same period last year.
E-commerce revenue was $3.1 million in the third quarter, compared to $10.5 million for the same period last year.
Revenue from non-retail operations, including distributed brands and MMI, was $19.8 million in the third quarter of 2022, compared to $4.7 million in the same quarter last year.
Gross profit was $18.3 million for the third quarter of 2022, compared to $34.1 million for the third quarter of 2021. Gross profit margin was 25.9% compared to 29.4% in the same quarter last year.
Store and other operating expenses in the third quarter of 2022 were $13.6 million, compared to $14.8 million in the prior year. The decrease was primarily associated with cost reduction efforts.
Selling, general, and administrative expenses in the third quarter of 2022 were $8.8 million, compared to $10.5 million in the prior year. The decrease was primarily attributable to the addition of non-retail operations through acquisition partially offset by cost reduction efforts.
GAAP pre-tax net loss was $7.9 million for the third quarter of 2022, or a loss of $0.12 per diluted share, compared to pre-tax net income of $5.1 million in the third quarter of 2021, or earnings of $0.07 per diluted share.
Non-GAAP earnings before interest, taxes, depreciation, amortization, and share-based compensation (Adjusted EBITDA) was a loss of $2.6 million in the third quarter of 2022, compared to a profit of $10.8 million in the same period last year.
Cash and short-term marketable securities as of September 30, 2022 were $71.1 million. Inventory as of September 30, 2022 was $89.1 million, and prepaid inventory and other current assets were $5.5 million.
Total current liabilities, including accounts payable and accrued payroll and other liabilities, decreased from $47.1 million at December 31, 2021 to $37.6 million at September 30, 2022.
The Company’s operations span approximately 873,000 square feet of retail and warehouse space across existing locations and signed leases in new locations, spanning 15 states. The Company opened its first location in Mississippi in June 2022, and its first location in Virginia in September 2022. The Company has closed five locations resulting from its store consolidation plan during the quarter and expects to close one additional location before year-end 2022. The company expects to add two 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 is updated to be between $270 million to $280 million, an improvement from the previous range of $250 million to $275 million.
Adjusted EBITDA guidance is updated to be between a loss of $10 million to $13 million, an improvement from the previous range of a loss of $12 million to $15 million.
The Company will host a conference call today, November 7, 2022, at 5:00PM Eastern Time. To participate in the call, please dial (888) 882-4478 (domestic) or (647) 794-4605 (international). The conference code is 7693711. 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.