GrowGeneration Corp. (NASDAQ: GRWG) (“GrowGen” or the “Company”), the largest chain of specialty hydroponic and organic garden centers in the United States with 50 stores across 18 states, today reported financial results for the third quarter ended September 30, 2023.
Third Quarter 2023 Highlights
- Net sales decreased 13% quarter-over-quarter to $55.7 million
- Comparable store sales decreased 14.4% to the prior year
- Gross profit margin of 29.1%, increase of 320 basis points to the prior year
- Net loss of $7.3 million, compared to a net loss of $7.2 million in the prior year
- Adjusted EBITDA(1) loss of $0.9 million, an improvement of $1.8 million to 2022
- Year-to-date cash flow provided by operations of $2.8 million
- Cash, cash equivalents, and marketable securities of $66.6 million
- Maintains full-year 2023 guidance for revenue to be $220 million to $225 million and Adjusted EBITDA(1) to be a loss of $4 million to $6 million
Darren Lampert, GrowGeneration’s Co-Founder and Chief Executive Officer, stated, “I am pleased with our third quarter results, which are broadly consistent with the expectations we communicated last quarter. Our continued focus on proprietary brands and distribution helped drive gross profit margin of 29.1%, representing a 230 basis point improvement over the second quarter. We have also reduced store operating expenses by over 12% and SG&A by nearly 14% year-over-year. As I have said before, we are constantly evaluating our network to enhance profitability and, as such, we consolidated 6 retail locations during the third quarter. Further in the fourth quarter, we expect to consolidate 6 additional locations where we identified cost rationalization opportunities through our ability to serve a similar customer base from a smaller footprint. GrowGen ended the quarter with $66.6 million of cash and cash equivalents and generated nearly $3 million of operating cash flow year-to-date. We continue to make progress on our digital transformation efforts and we are excited about the potential of our new ERP system to enable further efficiencies in our supply chain and ultimately improve our end-to-end customer experience.”
Lampert continued, “We are bringing innovative new products to market and have seen success in growing our proprietary brand portfolio. We believe that our third quarter results represent progress towards the initiatives that we have been striving to achieve. Despite challenges within the industry, we remain focused on what we can control to position GrowGen to be more nimble, efficient, and better-positioned for profitable growth in 2024 and beyond.”
Third Quarter 2023 Consolidated Results
Revenues declined $15.2 million, or 21.4%, to $55.7 million for the quarter ended September 30, 2023, compared to $70.9 million for the quarter ended September 30, 2022. The decrease in net revenue was partially attributed to a decline in same-store sales of 14.4% at 55 retail locations. Overall retail sales were $41.4 million in the third quarter, compared to $47.9 million for the same period last year.
E-commerce revenue was $2.8 million in the third quarter, compared to $3.1 million for the same period last year.
Revenue from non-retail operations, including distributed brands and MMI, was $11.5 million in the third quarter of 2023, compared to $19.8 million in the same quarter last year. The year ago period in 2022 included a few large one-time transactions to account for the decrease.
Gross profit was $16.2 million for the third quarter of 2023, compared to $18.3 million for the third quarter of 2022. Gross profit margin was 29.1%, compared to 25.9% in the same quarter last year. The increase in gross margin in the third quarter of 2023 was due to increased private label sales growth, pricing expansion, and margin accretion from development of our distribution network and corresponding bulk-buy negotiations.
Store and other operating expenses in the third quarter of 2023 were $11.9 million, compared to $13.6 million in the prior year, a decrease of 12%.
Selling, general, and administrative expenses in the third quarter of 2023 were $7.6 million, compared to $8.8 million in the prior year, a decrease of 13.8%.
GAAP pre-tax net loss was $7.3 million for the third quarter of 2023, or a loss of $0.12 per diluted share, compared to $7.9 million in the third quarter of 2022, or a loss of $0.12 per diluted share.
Non-GAAP loss before interest, taxes, depreciation, amortization, share-based compensation, and other non-recurring charges (Adjusted EBITDA)(1) was $0.9 million in the third quarter of 2023, compared to a loss of $2.7 million in the same period last year.
Cash and short-term marketable securities as of September 30, 2023 were $66.6 million. Inventory as of September 30, 2023 was $76.0 million, and prepaid inventory and other current assets were $12.4 million.
Total current liabilities, including accounts payable, accrued payroll, and other liabilities, increased from $35.8 million at December 31, 2022 to $40.5 million at September 30, 2023.
The Company’s operations span approximately 826,000 square feet of retail and warehouse space at 50 existing locations across 18 states.
Fiscal Year 2023 Financial Outlook(2)
Revenue guidance for full-year 2023 is unchanged to be between $220 million to $225 million.
Adjusted EBITDA(1) guidance for full-year 2023 is unchanged to be between a loss of $4 million to a loss of $6 million.
(1) Adjusted EBITDA represents earnings before interest, taxes, depreciation, and amortization as adjusted for certain items as set forth in the reconciliation table of U.S. GAAP to non-GAAP information and is a measure calculated and presented on the basis of methodologies other than in accordance with GAAP. Please refer to the Use of Non-GAAP Financial Information herein for further discussion and reconciliation of this measure to GAAP measures.
(2) Sales and Adjusted EBITDA guidance metrics are inclusive of acquisitions and store openings completed in 2023 and 2022, but do not include any unannounced acquisitions.
The Company will host a conference call today, November 8, 2023, at 4:30PM Eastern Time. To participate in the call, please dial (888) 664-6392 (domestic) or (416) 764-8659 (international). The conference code is 71685189. This call is being webcast and can be accessed on the Investor Relations section of GrowGen’s website at: https://ir.growgeneration.com.
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.