GrowGeneration Corp (GRWG) Q1 2024 Earnings Call Transcript Highlights: Navigating Challenges ...

• Revenue: $47.9 million in Q1 2024, down from $56.8 million in Q1 2023.

• Net Loss: $8.8 million in Q1 2024, compared to a net loss of $6.1 million in Q1 2023.

• Earnings Per Share (EPS): Negative $0.14 in Q1 2024, versus negative $0.10 in Q1 2023.

• Adjusted EBITDA: Loss of $2.9 million in Q1 2024, compared to a loss of $1.8 million in Q1 2023.

• Gross Margin: 25.8% in Q1 2024, showing a sequential improvement from Q4 2023.

• Same-Store Sales: $38.2 million in Q1 2024, slightly down from $38.6 million in Q1 2023.

• Store Locations: 15 fewer retail locations compared to the previous year.

• Proprietary Brand Sales: Represented 22.6% of total gardening and cultivation sales, the highest in company history.

• Guidance for 2024: Revenue expected between $205 million and $215 million; Adjusted EBITDA forecasted from a $2 million loss to a $3 million profit.

• Warning! GuruFocus has detected 3 Warning Signs with GRWG.

Release Date: May 08, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• First positive same-store sales comp for retail stores in nine quarters, indicating stabilization and effectiveness of strategic adjustments.

• Achieved the lowest total expense base in three years, highlighting successful cost control measures.

• Proprietary brand sales grew, reaching the highest mix in company history at 22.6% of total gardening and cultivation sales.

• Expansion into new vertical markets with the launch of the Harvest Company pipeline targeting the home and edible gardening markets.

• Strong cash position, supporting strategic initiatives like the stock repurchase program to enhance shareholder value.

Negative Points

• Reported a net revenue decline of approximately 16% year-over-year, with revenue dropping from $56.8 million in Q1 2023 to $47.9 million in Q1 2024.

• Adjusted EBITDA reported as a $2.9 million loss, compared to a $1.8 million loss in the same quarter the previous year.

• Storage Solutions segment underperformed, with a significant revenue decline of 37.9% year-over-year.

• Gross profit margin declined year-over-year, partially due to higher freight expenses and costs associated with relocating inventory from store closures.

• Continued pressure from pricing affecting gross margins, with expectations of ongoing challenges despite increasing private-label mix.

Q & A Highlights

Q: Can you provide commentary on how 2Q is looking quarter to date? A: Darren Lampert, CEO, mentioned that while he couldn't provide specific details, the company is reaffirming its guidance for the year, which indicates a positive outlook starting from the second quarter.

Q: Regarding the FDA's recent decision to recommend rescheduling cannabis, how do you see this impacting GrowGeneration? A: Darren Lampert, CEO, explained that the rescheduling could significantly benefit cultivators by reducing tax burdens and potentially freeing up capital for facility upgrades and new products, which in turn could benefit GrowGeneration as their customer base might increase spending.

Q: How are the proprietary brands performing, and what are the margin expectations for these products? A: Darren Lampert, CEO, noted that proprietary brands are expected to make up 30-40% of sales, with margins ranging from 40-50%. The highest margins are seen in the Harvest Company products, with lower margins in nutrient and Coco charcoal brands.

Q: What are the current dynamics and trends in e-commerce versus brick-and-mortar sales? A: Darren Lampert, CEO, indicated a shift in larger customers from e-commerce to commercial teams for more personalized service, although the company is also enhancing its B2B e-commerce portals for proprietary brands.

Q: Can you discuss the inventory levels and how they align with your operational strategies? A: Gregory Sanders, CFO, stated that inventory levels are managed to align with seasonal demand, particularly ensuring availability for the second quarter, which is typically strong. They are working on optimizing inventory levels throughout the year.

Q: With the potential for increased capital due to regulatory changes, how is GrowGeneration planning to allocate this capital? A: Darren Lampert, CEO, outlined several areas for capital allocation including investing in business infrastructure, proprietary brand launches, customer credit facilities, stock repurchases, and potential acquisitions if they align with shareholder interests.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.