DENVER — GrowGeneration Corp., one of the largest retailers and distributors of specialty hydroponic and organic gardening products in the United States, reported financial results for the third quarter ended September 30, 2024.
Third Quarter 2024 Summary
- Net sales decreased 10.2% year over year to $50.0 million for the third quarter 2024, due to 25 less retail locations;
- Positive same-store sales of 12.5% in the third quarter of 2024 compared to the prior year;
- Proprietary brand sales as a percentage of Cultivation and Gardening net sales increased to 23.8% as compared to 19.4% in the third quarter of 2023;
- Gross profit margin of 21.6%, a 750 basis point decrease from the 29.1% in the year ago period mainly due to restructuring related activities;
- Operating expenses decreased $1.3 million, or 5.4%, to $22.9 million in the third quarter of 2024 compared to the same prior year period;
- Net loss of $11.4 million the third quarter of 2024 compared to a net loss of $7.3 million in the year ago period;
- Adjusted EBITDA loss of $2.4 million for the third quarter of 2024, a decrease of $1.5 million from the year ago period; and
- Cash, cash equivalents, and marketable securities of $55.2 million and no debt.
Darren Lampert, GrowGen’s Co-Founder and Chief Executive Officer, commented, “Our third quarter results were consistent with our expectations and reflect the substantial progress we have made executing on our strategic restructuring plan. In particular, we exceeded our near-term targets for proprietary brand sales as a percentage of Cultivation and Gardening net sales, which grew to 23.8%, compared to 19.4% for the third quarter last year. This is tracking well against our goal to grow proprietary brand sales to 35% in 2025. Additionally, same-store sales grew 12.5% year-over-year in the third quarter, reflecting the strong performance of our core store locations as we right-size our retail footprint. In addition, we met our store closures target, even as we maintained our focus on improving efficiencies, reducing store and other operating expenses by 13.9% during the quarter. Our financial position also remains strong, with $55.2 million in cash, cash equivalents, and marketable securities and no debt.”
“Our same-store sales growth, reduction in expenses and the improvement in our proprietary brand sales all demonstrate, our actions to date have proven successful in positioning GrowGen for sustainable growth in 2025. In line with these priorities, we are also on track to launch our e-commerce portal in the fourth quarter of this year, which is a key part of our digital transformation and B2B customer focus. We are well-positioned in the industry to capitalize on growth opportunities, and our restructuring plan has put us on a stronger footing to drive revenue growth, optimize margins, and build a leaner, more profitable company,” added Mr. Lampert.
Third Quarter 2024 Consolidated Results
Net sales declined $5.7 million, or 10.2%, to $50.0 million for the third quarter 2024 compared to $55.7 million for the third quarter 2023.
The decrease in net sales was primarily related to our Cultivation and Gardening segment, which had net sales of $41.4 million for the third quarter 2024 compared to $48.0 million for the same prior year period. Cultivation and Gardening’s decrease in net sales was primarily driven by the fiscal 2023 consolidation of 6 retail locations after the third quarter 2023 in addition to 19 retail locations to date in fiscal 2024, which include the 12 redundant or underperforming retail locations consolidated in conjunction with our strategic restructuring plan announced in July 2024. Additionally, we estimate that sales discounts offered as part of our strategic restructuring plan at those 12 retail locations negatively impacted net sales by approximately $0.9 million in the third quarter 2024. Cultivation and Gardening’s same-store sales increased 12.5%, primarily attributable to commercial sales growth, customer retention in markets where there were retail location closures, and improvements in our e-commerce site sales volume. Proprietary brand sales as a percentage of Cultivation and Gardening net sales for the third quarter 2024 increased to 23.8% as compared to 19.4% for the same prior year period largely driven by our strategic initiatives to increase sales volume with our expanded portfolio of proprietary brands and products and various proprietary product launches. The percentage of Cultivation and Gardening net sales related to consumable products remained relatively flat at 73.3% and 73.5% for the third quarter 2024 and 2023, respectively.
Additionally, net sales of commercial fixtures within our Storage Solutions segment increased by 12.9% to $8.6 million for the third quarter 2024 compared to $7.6 million for the year ago period, primarily due to increased demand from retail customers and timing differences of various projects being pushed into the third quarter of 2024 from the prior quarter.
Gross profit was $10.8 million for the third quarter 2024 compared to $16.2 million for the third quarter 2023, a decrease of $5.4 million or 33.2%. The decrease in gross profit was driven primarily by our Cultivation and Gardening segment, which decreased $5.5 million, or 43.3%, largely as a result of the 25 store consolidations since the end of the third quarter 2023 as well as the effects of our strategic restructuring plan, which include the $0.9 million in sales discounts and an additional $1.0 million of inventory disposal costs incurred in the third quarter 2024. Gross profit from our Storage Solutions segment increased $0.1 million, or 2.7%, to $3.6 million for the third quarter 2024 compared to $3.5 million for the third quarter 2023.
Gross profit margin decreased to 21.6% for the third quarter 2024, compared to 29.1% for the year ago period. The decrease in gross profit margin was largely driven by our Gardening and Cultivation segment, which had a gross profit margin of 17.3% for the third quarter 2024 as compared to 26.3% for the third quarter 2023, due to the effects of the strategic restructuring plan, including the inventory disposal costs and inventory sales discounts, reduced inventory discounts from vendors, and continued industry pricing compression on distributed products. Gross profit margin also decreased for our Storage Solutions segment to 42.2% in the third quarter 2024 from 46.4% in the same prior year period primarily driven by higher costs of inventory.
Adjusted Gross Profit and Adjusted Gross Profit Margin, which exclude the effects of the strategic restructuring plan announced in July 2024, were $12.7 million and 25.4% for the third quarter 2024, respectively, compared to $16.2 million and 29.1% for the third quarter 2023.
Store and other operating expenses for the third quarter 2024 were $10.0 million compared to $11.7 million in the year ago period, a decrease of 13.9%, primarily driven by the 25 store consolidations since the end of the third quarter 2023.
Selling, general, and administrative expenses in the third quarter 2024 were $7.4 million compared to $7.6 million in the third quarter 2023, a decrease of 2.3%.
GAAP net loss was $11.4 million for the third quarter 2024, or a loss of $0.19 per diluted share, compared to $7.3 million in the year ago period, or a loss of $0.12 per diluted share.
Adjusted EBITDA was a loss of $2.4 million in the third quarter 2024, compared to Adjusted EBITDA loss of $0.9 million in the same prior year period.
Cash, cash equivalents, and marketable securities as of September 30, 2024 were $55.2 million. Inventory as of September 30, 2024 was $48.0 million, and prepaid and other current assets were $7.7 million.
Total current liabilities, including accounts payable, accrued payroll, and other liabilities as of September 30, 2024 were $24.5 million.
Geographical Footprint
Our geographic footprint for our Cultivation and Gardening segment spans 724,000 square feet of retail and warehouse space and includes 31 retail locations across 12 states. To date in fiscal 2024, we have consolidated 19 retail stores where we generally expect to be able to serve the same customer base through a single location, thereby reducing redundancies in cost structure.
Fiscal Year 2024 Financial Outlook
As a result of its previously announced restructuring plan, GrowGen expects full-year 2024 net sales in the range of $190 million to $195 million. In the prior quarter, we had removed our full-year 2024 Adjusted EBITDA guidance as we assessed the impact of the restructuring, and we expect to provide updated Adjusted EBITDA guidance at a later date.
Footnotes
Adjusted EBITDA represents earnings before interest, income 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.
Adjusted Gross Profit represents gross profit as adjusted for certain items as set forth in the reconciliation table of U.S. GAAP to non-GAAP information, and Adjusted Gross Profit Margin is calculated as Adjusted Gross Profit as a percentage of net sales. These measures are 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 these measures to GAAP measures.
Sales and Adjusted EBITDA guidance metrics are inclusive of any acquisitions and store openings completed in 2024 and 2023, but do not include any unannounced acquisitions.
About GrowGeneration Corp
GrowGen is a leading developer, marketer, retailer, and distributor of products for both indoor and outdoor hydroponic and organic gardening, as well as customized storage solutions. GrowGen carries and sells thousands of products, such as nutrients, additives, growing media, lighting, environmental control systems, and benching and racking, including proprietary brands such as Charcoir, Drip Hydro, Power Si, Ion lights, The Harvest Company, and more. Incorporated in Colorado in 2014, GrowGen is the largest chain of specialty retail hydroponic and organic garden centers in the United States. The Company also operates an online superstore for cultivators as well as a wholesale business for resellers, HRG Distribution, and a benching, racking, and storage solutions business, Mobile Media or MMI.
