Q3 2023 GrowGeneration Corp Earnings Call
Speaker 1: Hello and welcome to Grow Generations This is the third quarter 2023 Earnings Conference
Hello, and welcome to krill generations third quarter 2023 earnings conference call.
Speaker 1: My name is Jui and I will be coordinating your call today.
My name is Kelly and I will be coordinating your call today.
Speaker 1: Following prepared remarks, we will open the call to questions from analysts with instructions to be given at that time. I will now hand the call over to Clay Crumbless with ICR.
<unk> prepared remarks, we will open the call to questions from analysts with instructions given at that time.
I'll now hand, the call over to clay Chromebooks with ICR.
Speaker 2: Good afternoon and welcome to the Grow Generation third quarter 2023 earnings results conference call. Today's call is being recorded. With us are Mr. Darren Lampert, co founder and chief executive officer, and Greg Sanders, chief financial officer of Grow Generation Corp. You should have access to the company's third quarter earnings press release issued after the market closed today. This information is available on the investor relations section of the Grow Generation website at IR.growgeneration.com
Good afternoon, and welcome to the grow generation third quarter 2023 earnings results Conference call. Today's call is being recorded with US are Mr. Darin Lampert co founder and Chief Executive Officer, and Greg Sanders, Chief Financial Officer of grow generation Corp.
Should have access to the company's third quarter earnings press release issued after the market closed today. This information is available on the Investor Relations section of the grow generation website at IR Dot grid generation Dot com.
Speaker 2: Certain comments made on this call include forward looking statements which are subject to the safe harbor provisions of the private securities litigation Reform Act of 1995
Certain comments made on this call include forward looking statements, which are subject to the safe Harbor provisions of the private Securities Litigation Reform Act of 1095.
Speaker 2: These forward looking statements are based on management's current expectations and beliefs concerning future events and are subject to several risks and uncertainties that could cause actual results to differ materially from those described in these forward looking statements.
These forward looking statements are based on management's current expectations and beliefs concerning future events and are subject to several risks and uncertainties that could cause actual results to differ materially from those described in these forward looking statements.
Speaker 2: Please refer to today's press release and other filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward looking statements made today. During the call will use some non-GAAP financial measures as we described business performance. The SEC filing as well as the earnings press release which provide reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures are all available on our website.
Please refer to today's press release and other filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward looking statements made today during the call. We'll use some non-GAAP financial measures as we describe business performance the SEC filing as well as the earnings press release, which provide reconciliations of.
The non-GAAP financial measures to the most directly comparable GAAP measures are all available on our website. Following our prepared remarks, we will take questions from research analysts. We ask that you. Please limit yourself to one question and one follow up if you have additional questions. Please reenter the queue and we will take them as time allows now I will turn the call over to our co founder and CEO Daryl.
Speaker 2: Following our prepared remarks, we will take questions from research analysts. We ask that you please limit yourself to one question and one follow up. If you have additional questions, please reenter the queue and we will take them as time allows. Now I will turn the call over to our co-founder and CEO , Darren Lampert. Darren?
Darren.
Speaker 3: Thanks, Clay, and good afternoon, everyone. Thank you for joining us today to discuss our third quarter, 2023 financial resale, and our fully year 2023 guide.
Thanks, Cliff and good afternoon, everyone.
Joining us today to discuss our third quarter 2023 financial results.
And our full year 2023 guidance.
Speaker 3: As always, I want to thank each one of our employees, of course, our company for their continued support of Grogy.
As always I want to thank each one of our employees across the company for their continued support of growing yet.
Speaker 3: I am grateful to our entire team for their continued hard work, dedication, and for being steadfast in executing our company's strategy.
Grateful to our entire team for their continued hard work dedication and for being steadfast in executing our company strategy.
Speaker 3: I am pleased with GroGen's third quarter results, and I'm happy to discuss the progress we have made to drive future growth and profitability, including the launch of our new ERP system and East Region Distribution Center on July 1, and the success of our proprietary brand.
I am pleased with <unk> third quarter results and I'm happy to discuss the progress we have made to drive future growth and profitability.
The launch of our new ERP system, and East region distribution Center on July one and the success of our proprietary brands.
Speaker 3: Despite the ongoing challenges in our industry, which we have discussed extensively in the past, GroGen remains in a strong financial position with sufficient liquidity to continue investing for growth, while putting profitability at the forefront of all we do.
The ongoing challenges in our industry, which we have discussed extensively in the past.
<unk> remains in a strong financial position with sufficient liquidity to continue investing for growth, while putting profitability at the forefront of all we do.
Speaker 3: In the third quarter of 2023, we generated net revenue of $55.7 million, which represents a 13% decline over the second quarter of 2023, consistent with the expectations we communicated on our second quarter call.
In the third quarter of 2023, we generated net revenue of $55 7 million.
Which represents a 13% decline over the second quarter of 2023.
Consistent with the expectations, we communicated on our second quarter call.
Speaker 3: Gross margins improved 320 basis points to 29.1% versus the prior year's comparable quarter of 25.9% and improved 230 basis points from second quarter gross margins of 26.8%.
Gross margins improved 320 basis points to 29, 1% versus the prior year's comparable quarter of 25, 9% and improved 230 basis points from second quarter gross margins of 26, 8%.
Speaker 3: We ended the third quarter with 66.6 million of cash, casual equivalents and marketable securities, no debt and 76 million of inventory on our balance.
We ended the third quarter was $66 6 million of cash cash equivalents and marketable securities no debt and $76 million of inventory on our balance sheet year to date, we have generated approximately $2 8 million of operating cash flow.
Speaker 3: Year-to-date, we've generated approximately 2.8 million of operating cash flow.
Speaker 3: While the federal legislative agenda has not moved definitively in our favor, it does seem to be getting more favorable.
While the federal Legislative agenda has that moved definitively in our favor it does seem to be getting more favorable.
Speaker 3: There's renewed optimism for federal reform with the State of Iraq passing the Senate committee on banking and potentially heading to the Senate for a full vote. And it approved to the House, then the President.
There is renewed optimism for federal reform would say direct passing the Senate committee on banking and potentially heading to the Senate floor for a full vote and if approved to the house than the president.
Speaker 3: More importantly, there's excitement building around cannabis rescheduling after the Department of Health and Human Services recommended rescheduling cannabis from schedule one to three, which would remove the 280E tax penalty on license cultivators bringing hundreds of millions of dollars back into the cannabis industry. We expect that this would provide a major tailwind for our industry.
More importantly, there is excitement building around cannabis rescheduling after the department of health and human services recommended rescheduling cannabis from schedule one to three.
Which would remove the $2 80, a tax penalty unlicensed cultivators, bringing hundreds of millions of dollars back into the cannabis industry.
Expect that this will provide a major tailwind for our industry.
Speaker 3: With that said, our three main initiatives remain our primary focus.
With that said our three main initiatives remain our primary focus as we discussed last quarter what that means in practical terms is.
Speaker 3: As we discussed last quarter, what that means in practice of the terms is number one, we're going to continue to bring to market innovative new products and growing our proprietary brand portfolio, attracting a larger customer base.
Number one.
We continue to bring to market innovative new products and growing our proprietary brand portfolio, attracting a larger customer base.
Speaker 3: Number two, we're building upon a ERP launch and forming our technology and digital platform.
Two we are building upon our ERP launch and transforming our technology and digital platforms.
Speaker 3: And number three, we're putting profitability at the forefront, focusing on margin expansion and profitable growth.
And number three we're putting profitability at the forefront focusing on margin expansion and profitable growth.
Speaker 3: Briefly, on each of these. First, we remain committed to the expansion of our proprietary and distributed brands, and we are very satisfied with the results.
On each of these.
First we remain committed to the expansion of our proprietary and distributor brands and we're very satisfied with the results.
Speaker 3: For prior to the product accounted for $7.4 million of retail and e-commerce sales in the third quarter of 2023, which is around 16.6% of our overall retail and e-commerce sales, up from 15% in the second quarter of 2023.
Proprietary products accounted for $7 4 million of retail and ecommerce sales in the third quarter of 2023.
Which is around $16, 6% of our overall retail and ecommerce sales up from 15% in the second quarter of 2023.
Speaker 3: Product launches include the introduction of the much anticipated new drift powder nutrient line in Q4, delivering a cost-efficient nutrient solution while not compromising on quality.
Product launches include the introduction of the much anticipated new drip pattern nutrient line in Q4 <unk>.
Delivering a cost efficient nutrient solution, while not compromising on quality.
Speaker 3: We're expanding power aside with an advanced granular range of beneficial microbial solutions to bolster plan health and optimize growth to be released in Q4. In Q3, we rolled out charcourt cocoa coins and during the propagation market.
We're expanding power side with an advanced granular range beneficial microbial solutions to bolster plant health and optimize growth to be released in Q4.
In Q3, we rolled out sure core cocoa points entering the propagation market.
Speaker 3: The Harvest Company, our consumer gardening initiative, is finalizing a diverse product portfolio that includes the already launched premium gloves and pruners, as well as a garden in the box kit, an all-in-one solution for gardening enthusiasts that includes raised metal beds, soils, fertilizers, and a curated selection of organic seeds.
The harvest company, our consumer gardening initiatives finalizing a diverse product portfolio that includes the already launched premium glass and printers as well as the garden and the box kit and all in one solution for gardening enthusiasts that includes raised metal beds soils fertilizers and a curated selection.
Actually the organic seats.
Speaker 3: Lastly, MMI AG is introducing a single-tier mobile bench and tray systems for indoor and green house growers in Q4.
Lastly, MMA AG, introducing a single tier mobile bench and trade systems for indoor increased greenhouse growers in Q4.
Speaker 3: Second, a RRP system has been rolled out across all key business part of its card.
Second our ERP system has been rolled out across all key business verticals.
Speaker 3: Like many other ERP rollouts, ARDS has not been without its challenges. And it will take time before benefits slowly materialize, when we are confident in our internal team, and they are ability to manage through the transition.
Like many other ERP rollouts ours has not been without its challenges and it will take time before benefits fully materialize we're <unk>.
And in our internal team and their ability to manage through the transition.
Speaker 3: Encouragingly, most of the issues we've encountered have been relatively minor. We're pleased with the progress that has been made today.
Encouragingly most of the issues, we've encountered had been relatively minor and we're pleased with the progress that has been made to date.
Speaker 3: The further developer a key technology initiative, we have strengthened our leadership team with the addition of a senior VP of technology who comes to us with impressive credentials and whose mandate includes during our technological advancement and solidifying our digital infrastructure.
To further develop our key technology initiatives, we have strengthened our leadership team with the addition of a senior VP of technology, who comes to us with impressive credentials and whose mandate includes during our technological advancement and solidifying our digital infrastructure.
Speaker 3: And third, we are prioritizing profitable growth, which we believe we will obtain for our continued efforts to grow revenue, execute our margin expansion strategies, and consolidate storage.
And third we are prioritizing profitable growth, which we believe we will obtain through our continued efforts to grow revenue execute our margin expansion strategies and consolidate stores.
Speaker 3: We're constantly analyzing the business for additional optimization and cost savings opportunities and expect the continued benefits to flow through to our margins through remainder of 2023 and 2024.
We are constantly analyzing the business for additional optimization and cost savings opportunities and expect a continued benefit to flow through to our margins through remainder of 2023 and 2024.
Speaker 3: As part of these efforts, we continue to analyze the performance of our current stores with respect to redundancies in the footprint and nonperformance. We closed and consolidated six retail locations in the third quarter and are in the process of consolidating and closing six additional locations in the fourth quarter that we expect to be finalized in November .
As part of these efforts we continue to analyze the performance of our current stores with respect to redundancies in the footprint and nonperformance risk.
Closed and consolidated six retail locations in the third quarter.
We're in the process of consolidating and closing six additional locations in the fourth quarter that we expect to be finalized in November.
Speaker 3: That said, we expect a lower operating expense base and aim to retain the key customers from consolidating locations on a revenue base.
That said, we expect a lower operating expense base and aim to retain the key customers from consolidated locations on a revenue basis.
Speaker 3: Further, with our recently implemented centralized distribution system, consolidation of shipments and storage, we will reduce our in-store inventory levels and ensure quicker delivery.
Further with our recently implemented centralized distribution system consolidation of shipments and storage, we will reduce our in store inventory levels and ensure quicker deliveries.
Speaker 3: The skewer acceleration we executed in Q3 will now allow us to focus on high demand products in phasing out low performing skewers.
The SKU rationalization, we executed in Q3 will now allow us to focus on high demand products and phasing out low performing skus.
Speaker 3: All these executables are positioning us to operate more effectively and efficiently.
All of these executable are positioning us to operate more effectively and efficiently.
Speaker 3: Turning to guidance for full year 2023, we remain 10-year guidance of net revenue in the range of 220 million to 225 million and adjusted even a loss in the range of minus 4 million to minus 6 million. With that, I will turn the call over to our CFL Greg Sanders.
Turning to guidance for full year 2023, we are maintaining our guidance of net revenue in the range of $220 million to $225 million and adjusted EBITDA loss in the range of minus $4 million, the minus $6 million with that I will turn the call over to our CFO Greg Sanders.
Speaker 4: Thank you, Darren, and good afternoon, everyone. First, I will address our third quarter, 2023 financial results, and then I will discuss our updated full-year 2023 guidance.
Thank you Darren and good afternoon, everyone first I will address our third quarter 2023 financial results.
Then I will discuss our updated full year 2023 guidance for.
Speaker 4: For the third quarter, Grove Generation generated revenue of 55.7 million versus 70.9 million in the third quarter of 2022, representing a decline of approximately 21.4%. Our same store sales for the third quarter of 2023 were 40.7 million compared to prior year sales of 47.5 million, representing a 14.4% decline against the comparable year-ago quarter.
For the third quarter grow generation generated revenue of $55 7 million versus $70 9 million in the third quarter of 2022, representing a decline of approximately 21, 4%.
Our same store sales for the third quarter 2023 were $47 million compared to prior year sales of $47 5 million, representing a 14, 4% decline against the comparable year ago quarter.
Comparable same store sales in the third quarter represents a modest sequential improvement over the prior quarter on a percentage basis.
Speaker 4: Comparable same-store sales in the third quarter represent a modest sequential improvement over the prior quarter on a percentage basis.
Speaker 4: Our e-commerce division generated $2.7 million of revenue versus $3.1 million in the year-ago period representing a decline of 10.2% year-over-year. Our distribution and other revenue was $11.5 million for the quarter compared to $19.8 million in the year-ago period, representing a decline of 42% largely due to a few large, one-time transactions in the year-ago period.
Our E Commerce division generated $2 $7 million of revenue versus $3 1 million in the year ago period, representing a decline of 10, 2% year over year, our distribution and other revenue was $11 5 million for the quarter compared to $19 8 million in the year ago period represent to get to.
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42% largely due to a few large onetime transactions in the year ago period.
Speaker 4: Gross profit margin was 29.1% for the third quarter of 2023, which is an improvement of 320 basis points to the year ago period. The increase in gross margin in the third quarter of 2023 was largely attributed to the improvement of proprietary brand sales as a percent of revenue, which increased to 16.6% of sales in the third quarter versus 13% of sales in the year ago period.
Gross profit margin was 29, 1% for the third quarter of 2023, which is an improvement of 320 basis points to the year ago period. The increase in gross margin in the third quarter of 2023 was largely attributed to the improvement of proprietary brand sales as a percent of revenue which increased to 16.
6% of sales in the third quarter versus 13.
<unk> of sales in the year ago period. Additionally.
Speaker 4: Additionally, the company is executing on more bulk buys with the development of our distribution network that has led to favorable gross margin performance in the quarter.
Additionally, the company is executing on more bulk buys with the development of our distribution network that has led to favorable gross margin performance in the quarter.
Speaker 4: Store operating costs and other operational expenses declined from 13.6 million in the third quarter of 2022 to 11.9 million in the third quarter of 2023, representing a 12.2% reduction. The savings year over year were primarily attributed to rationalization efforts of our store count and personnel expense.
Store operating costs and other operational expenses declined from $13 6 million in the third quarter of 2022 to $11 9 million in the third quarter of 2023, representing a 12, 2% reduction.
The savings year over year were primarily attributed to rationalization efforts of our store count and personnel expense.
Speaker 4: We believe that the expense reductions to date are sustainable and we expect to execute upon further reduction through the balance of the year and into the first quarter 2024.
We believe that the expense reductions to date are sustainable and we expect to execute upon further reductions through the balance of the year and into the first quarter 2024.
Speaker 4: Selling General Administrative or SGNA costs were 7.6 million in the third quarter. This compares to 8.8 million in the year ago period representing a 13.8% improvement year over year. SGNA expense reductions are being achieved through various cost controls, most notably through personnel.
Selling general and administrative or SG&A costs were $7 6 million in the third quarter. This compares to $8 8 million in the year ago period, representing a 13, 8% improvement year over year.
SG&A expense reductions are being achieved through various cost controls most notably through personnel.
Speaker 4: Appreciation and amortization of intangibles was 4.7 million in the third quarter of 2023 compared to 3.9 million in the year ago period. The increase in depreciation expense is primarily due to the go-live of our new business systems in the third quarter for which we place the assets into service at July 1.
Depreciation and amortization of intangibles was $4 7 million in the third quarter of 2023 compared to $3 9 million in the year ago period. The increase in depreciation expense is primarily due to the go live of our new business systems in the third quarter for which we place the assets into service at July one.
Speaker 4: In the third quarter of 2023, the company did not recognize an income tax benefit or expense.
In the third quarter of 2023, the company did not recognize an income tax benefit or expense grow generation is using a zero percent tax rate as its deferred tax assets are not expected to be realizable.
Speaker 4: Groge generation is using a 0% tax rate as its deferred tax assets are not expected to be realizable. As such, the company is established to full valuation allowance against its deferred tax assets.
The company has established a full valuation allowance against its deferred tax assets.
Speaker 4: Net loss for the third quarter was $7.3 million or negative $0.12 per share compared to a net loss of $0.7.2 million or negative $0.12 per share in the year ago period. Adjusted EBITDA, which excludes interest, taxes, depreciation, amortization, restructuring charges, and share based compensation, was a loss of $908,000 for the third quarter of 2023.
Net loss for the third quarter was $7 3 million or negative <unk> 12 per share compared to a net loss of $7 2 million or negative <unk> 12 per share in the year ago period, adjusted EBITDA, which excludes interest taxes depreciation amortization restructuring charges and share based compensation was <unk>.
Loss of $908000 for the third quarter of 2023 compared to a loss of $2 7 million in the third quarter of 2022, representing a $1 $8 million improvement.
Speaker 4: We've compared to a loss of 2.7 million in the third quarter of 2022, representing a $1.8 million improvement.
Speaker 4: Related to the balance sheet, as of September 30th, 2023, the company had total cash, cash equivalence, and marketable securities of $66.6 million, which was a decrease of $4 million to the second quarter of 2023. The company increased its prepays by $4.5 million in the third quarter, primarily to increase our inventory positions in our proprietary branded products, where we are seeing demand increase.
Related to the balance sheet as of September 32023, the company had total cash cash equivalents and marketable securities of $66 6 million, which was a decrease of $4 million to the second quarter of 2023. The company increased its prepaid by $4 5 million in the third quarter.
Primarily to increase our inventory positions and our proprietary branded products, where we are seeing demand increase.
Speaker 4: Cash used from operations for the third quarter was approximately $4.6 million, primarily related to the aforementioned prepaid investment.
Cash used from operations for the third quarter was approximately $4 $6 million.
Primarily related to the aforementioned prepaid investments year to date the company generated positive cash from operations of $2 8 million.
Speaker 4: Year to date, the company generated positive cash from operations of $2.8 million. That said, the company has sufficient reserves with over $60 million held in money market accounts and short-term low-risk investments at September 30, 2023.
The company has sufficient reserves with over $60 million held in money market accounts and short term low risk investments at September 32023.
Speaker 4: In the third quarter, the company decreased inventory by approximately $700,000 compared to the second quarter. As we look at the fourth quarter, we are aiming to further reduce the inventory position and to improve upon turns. The company has instituted promotional sale events for overstock and slow moving inventory in the fourth quarter to help drive additional sell through of inventory.
In the third quarter, the company decreased inventory by approximately $700000 compared to the second quarter as we look at the fourth quarter. We are aiming to further reduce the inventory position and to improve upon turns the company has instituted promotional sale events for overstock and slow moving inventory.
In the fourth quarter to help drive additional sell through of inventory.
Speaker 4: During the quarter, we continued to see improvement in our operating expense structure and were encouraged by the gross margin improvements in the quarter. Operationally, we transitioned our entire retail and corporate business into new ERP, point of sale, and warehouse management systems. As such, change management and user adoption were a very large focus in the quarter.
During the quarter, we continued to see improvement in our operating expense structure and we're encouraged by the gross margin improvements in the quarter operationally, we transitioned our entire retail <unk> corporate business into new ERP point of sale and warehouse management systems, as such change management and user adoption.
We're a very large focus in the quarter.
Speaker 4: Now, moving on to our full year 2023 outlook. We are reaffirming our previously communicated guidance with full year 2023 revenue to be between 2 2022 5 million and full year adjusted EBITDA loss to be in the range of minus 4 million to minus 6 million. We believe the fourth quarter should benefit from lower inventories and continued rationalization of operating expenses through our strategic initiative.
Now moving on to our full year 2023 outlook, we are reaffirming our previously communicated guidance with full year 2023 revenue to be between 220 and $225 million in full year adjusted EBIT loss to be in the range of minus $4 million to minus $6 million, we believe the fourth.
<unk> should benefit from lower inventories and continued rationalization of operating expenses through our strategic initiatives in summary, we remain confident in our ability to navigate the industry and we will continue to stay focused on managing the balance sheet and controlling costs and our efforts to return the business to profitability.
Speaker 4: In summary, we remain confident in our ability to navigate the industry and will continue to stay focused on managing the balance sheet and controlling costs in our efforts to return the business to profitability and driving long-term shareholder value.
And driving long term shareholder value.
Speaker 4: Positioning the business for long term profitability continues to be a top priority today and into 2024.
Positioning the business for long term profitability continues to be a top priority today and into 2020 for our approach to capital allocation remains focused on a disciplined approach to return on invested capital and we see opportunities and long term planning we are continuing to invest in digital transformation to propel our company there are few.
Speaker 4: Our approach to capital allocation remains focused on a disciplined approach to return on investment capital. And we see opportunities in long-term planning.
Speaker 4: We are continuing to invest in digital transformation to propel our company through future business cycles.
Your business cycles further we continue to invest capital into the development of proprietary products and initiatives that expand our value proposition to a broader base of customers I'll reiterate that our daily mandate is executing our business strategy with a sharp focus on long term profitability and shareholder value.
Speaker 4: Further, we continue to invest capital into the development of proprietary products and initiatives that expand our value proposition to a broader base of customers.
With that I will turn the call back over to Darrin for closing remarks.
Speaker 3: Thank you, Greg. Before we open the line for your questions, go in and reiterate that Grodgen is on solid financial footing with a strong balance sheet, healthy liquidity, and a solid cash position.
Thank you Greg.
When we open the lines for your questions I want to reiterate that <unk> is on solid financial footing with a strong balance sheet healthy liquidity and a solid cash position.
Speaker 3: We continue to manage our business prudently through the current industry landscape with an emphasis on sustainable growth, margin expansion, and profitability. We are encouraged by our continued progress and remain laser focused on continuing what we can control to continue to build a stronger, nimbler, and more profitable company. Thank you for your time today and thank you for your interest in Grow Generation. We will now take your questions. Operator.
We continue to manage our business prudently through the current industry landscape with an emphasis on sustainable growth margin expansion and profitability.
We're encouraged by our continued progress and remain laser focused on continuing what we can control to continue to build a stronger nimbler and more profitable company.
You for your time today and thank you for your interest and grow generation, we will now take your questions.
Operator.
Speaker 1: Thank you. Ladies and gentlemen, should you have a question, please press the star followed by the one on your touch on phone. If you'd like to which I question, please press the star followed by the two. If you're using a speaker phone, please lift your hands up.
Thank you ladies and gentlemen should you have a question. Please press the star followed by one on your Touchtone phone is like to withdraw your question. Please press star followed by the two thank you.
You're using a speakerphone please lift the handset before pressing any keys one moment. Please for your first question.
Speaker 1: questions and some Erin Gray from Alliance Global Partners. Please go ahead.
Your first question comes from Aaron Grey from Alliance Global Partners. Please go ahead.
Okay.
Hi, good evening and thank you for the questions.
Speaker 5: So first question for me, I just want to talk about some of the reform, you know, most notably the potential rescheduling to Schedule 3. You know, for you guys, you know, maybe more of an indirect impact and obviously not being impacted by the 280E tax right now, but a lot of your clients are. So how do you think about potential indirect impacts of scheduling Schedule 3 could have removal of 280E, particularly with some of your players maybe pulling back on CapEx initiatives and how that could change and direct benefits for you guys could have come back? Thank you. Aaron, I find it's quite exciting.
So first question for me I, just want to talk about some of the reform most notably the potential rescheduling to schedule III.
For you guys, maybe more of an indirect impact obviously not being impacted by the tweet E tax right now, but a lot of your clients are so how do you think about potential indirect impacts our scheduling schedule III had removal to ETE, particularly with some of your plans or are you pulling back on capex initiatives, and how that could change and indirect benefits.
Thank you.
Yeah, and I find it quite exciting and I think the industry.
Speaker 3: currently, there's hundreds of millions of dollars right now.
Currently there is hundreds of millions of dollars right now.
Speaker 3: It depends on 280 tax penalties, as you probably know. I mean, we're talking hundreds of millions of dollars. And with this money coming back into the industry at reschedule, the money will go to the MSOs and large single state operators back onto their balance sheets, discrentened balance sheets. And with that, we do believe...
On 280 tax penalties as you probably know I mean, we're talking one hundreds of millions of dollars and with this money coming back into the industry. If reschedule the money will go to the Msos and large single state operators back onto their balance sheet.
The strengthened balance sheet and with that we do believe.
Speaker 3: start coming into expansion of facilities and also more importantly into refreshing facilities. We've seen so many build-up.
We will start coming into expansion of facilities and also more importantly into refreshing facilities.
We have seen so many build out from 2019 to 2021 and with the life expense expectancy led.
Speaker 3: 2019 to 2021 and with the life expectancy of LED lighting and D use and a lot of the durable products that they use there will become becoming a tremendous you know, up fresh cycle coming. And they're going to be to there's going to be a lot of durable products going out in the next couple of years to refresh a lot of the facilities out.
Led lighting and do use and a lot of the durable products that they use so it will become becoming a tremendous upfront cycle coming.
And theyre going to be there's going to be a lot of durable products going out in the next couple of years to refresh a lot of the facilities out there right. Now. So we are quite excited as you know <unk> bread and butter is the large commercial operators out there. So we believe that we will get a majority or a lot of the business coming out of.
Speaker 3: So we are quite excited, as you know, Grogens, a bread and butter is the large commercial operators out there. So we believe that we will get a majority, a lot of the business coming out of...
Speaker 3: 2.80 if it goes away with the risk you had joined. So we're excited about it. And we got our fingers crossed and like we all know in the next couple months.
Sure.
If it goes away with the rescheduling. So we're excited about it and we.
<unk> got our fingers crossed and like we all know in the next couple of months, we should be hearing software.
Speaker 6: Okay, great. Thanks, that color. And then second one for me, it kind of bring down the store fleet. Yeah, 50 now sounds like you'll be at about 44 with another six and the upcoming quarter. Number one, how do you feel with the store fleet at that level? Do you like kind of hold there? Maybe some smaller growth opportunities to open up some new stores. And then number two, on the 40%.
Okay, great. Thanks for that color and then second one for me.
Just kind of bring down the store fleet 50, now it sounds like you'll be at about 44th another six in the upcoming quarter.
Number one.
Do you feel with the store fleet at that level.
Kind of pulled there.
Maybe some smaller growth opportunities to open up some new stores and then number two on.
The 40%.
Speaker 5: same-store sales decline, could you maybe provide what that might be on a pro forma basis on what the new, you know, 44 would be including the 6Q plan to consolidate in 4Q?
Same store sales decline could you maybe provide what that might be on a pro forma basis on what the new 44 would be including the <unk> plant to consolidate in <unk>. Thank you.
Speaker 3: Yeah, I'll start and then send it over to Greg with the six stores there and that brings us down to fifty. So you're double counting the six. So, you know, we weren't we weren't fifty six with the, with the six stores we're talking about closing this month. That would bring us.
Yeah, I'll start and then send it over to Greg.
Six stores, there and that brings us down to 50, so you're double counting the six so.
We were if we were at 56 with the six stores. We're talking about closing this month that would bring us down to 50, we've already shut those stores in the midst of consolidating so that brings us down a 50.
Speaker 3: We've already shut those doors in the midst of consolidating them. So that brings us down to 50. We still do have a small amount of work to do in the portfolio. And the way we're looking at it, rate.
We still do have a small amount of work to do on the portfolio.
The way, we're looking at it right now with the build out of our distribution center in Ohio.
Speaker 3: with the build out of our distribution center in Ohio, the success of our private label brand.
Our private label brands.
Speaker 3: and the launch of a RERP system, POS and also warehouse for becoming much more efficient. And we're starting to see right now, the stores don't need as much product in it. Our customers are much more reliable, they're planning much better. And with that, we just don't need pre-done the seeds within the footprint. And when you take a look what we've closed in the last, in the last four months, it was 12 stores, I think 15 during the last.
The launch of our ERP system, Pos and also warehouse, we're becoming much more efficient and we're starting to see right now the stores don't need as much product in it.
Our customers are much more reliable theyre planning much better and with that we just don't need redundancies within the footprint and when you take a look we've closed in the last.
In the last four months. It was 12 stores I think 15 during the last seven or eight months, but most of them within 30 miles of another store. They were smaller stores that were majority were bought through acquisitions and those warrant. The main the main stores within the acquisitions. So we feel pretty comfortable right now we believe that.
Speaker 3: seven or eight months. But most of them within 30 miles of another store. They were smaller stores that were majority were bought through acquisitions. And those weren't the main stores within the acquisition.
Speaker 3: So we feel pretty comfortable right now. We believe that there will be tremendous savings, not only through the store closures, but also through consolidation of a back office staff.
There'll be tremendous savings not only through the store closures, but also through consolidation of back office staff in the county.
Speaker 3: So it's, you know, it's twofold opposed to one. And when you look at the stores that we've closed, the 12 stores that we've closed accounted for about $22 million of business in 2022.
So it's twofold opposed to one and when you look at the stores that we've closed the 12 stores that we closed accounted for about $22 million of business in 2022.
Greg you have anything to add to that.
Speaker 4: Yeah, no, I think that's spot on Darren. And I think, you know, for the for the comp question in isolation, what we'll see on a quarterly basis is a reduction of approximately
Yeah, No I think thats spot on Darrin and I think for the for the comp question in isolation, what we'll see on a quarterly basis as a reduction of approximately.
Speaker 4: three to four million depending on the quarter at this point. We did see some down performances in some of those locations that we've consolidated throughout the course of the year and into the fourth quarter as well. And the the number around 50, Aaron, just to mention, is inclusive of the Q4 activity where we've ceased operations within November and expect to conclude the the operational procedures around closing by the end of the month. So that's an all in number for us.
$3 million to $4 million, depending on the quarter at this point, we did see some down performances in some of those locations that we've consolidated throughout the course of the year and into the fourth quarter as well.
The number around 50, Eric just mentioned is inclusive of the Q4 activity, where we've ceased operations within November and expect to conclude the.
Operational procedures around closing by the end of the month.
So that's an all in number for us at this point.
Speaker 3: yeah and just a little more color with seven stores in california three stores in calorado one store in michigan
Yes, a little more color and then just a little more color was seven stores in California, three stores in Colorado, One store in Michigan, and one store in Washington.
Speaker 5: That's a vocolor. Appreciate that. Thanks for calling the clarification. I'll jump back in here.
That's helpful color I appreciate that thanks for calling the clarification and I'll jump back in queue.
Thank you Eric.
Okay.
Speaker 1: Your next question comes from Andrew Carter from Steve Folle, please go.
Thank you. Our next question comes from Andrew Carter from Stifel. Please go ahead.
Speaker 7: Hey, thanks. Just kind of wanted to build on that just a little bit with the same stores. Obviously, you're closing the more redundant locations, and therefore, there should be some kind of lift within the cannibalization. So, I think, going back in, it seems like the absolute decline is moderating quite a bit in 4Q, given the absent stores. But when do you think cannibalization category, you could see actually a return to same store sales growth of the current base?
Hey, Thanks, just wanted to build on that just a little bit with the same stores, obviously, you're closing the more redundant locations and therefore, there should be some kind of lift within the cannibalization. So I think back in it seems like the absolute declines moderating quite a bit in <unk> given the absence of <unk>.
But when do you think cannibalization category you can see actually a return to same store sales growth.
Current base.
Yes.
Speaker 3: I believe that we see it next year. We've been bouncing along the bottom this year. Our same store sales and the last.
I believe that we see it next year, we've been balancing along the bottom this year.
Same store sales for the last six months had been and that's 14% down range. We are seeing a lot more commercial bidding coming into January.
Speaker 3: We are seeing a lot more commercial bidding coming into GrowGen right now. And with the uptake of our.
And with the uptake of our private label products.
Speaker 3: and distribution and being able to get products to our customers quicker than any other store in the country. You know, we do believe that business is gonna restart and GrowGen will be a better company for it.
And distribution and being able to get products to our customers quicker than any other store in the country.
We do believe.
That business is going to is going to restart.
And <unk> will be a better company for it.
Speaker 3: Can I tell you it's going to happen in the first quarter of the fourth quarter of this year? I can't tell you that. But, you know, with what's going on in legislation right now, I think of 280E.
Can I tell you it's going to happen in the first quarter to fourth quarter. This year I can't tell you that but with what's going on in the legislation right now I think of $2 80, I think if we schedule youll see money coming back into the industry.
Speaker 3: I think if we reschedule, you'll see money coming back into this industry. So, you know, we're very optimistic where we've brought the cost levels of this company.
So we're very optimistic where we brought the cost levels of this company we've brought.
Speaker 3: We have brought we brought costs down almost 25 million dollars over the last couple of years. We brought inventory down over.
We brought costs down almost $25 million over the last couple of years, we brought inventory down over $30 million over the last couple of years. So we are working hard at getting this company back profitable and getting same store sales. The other way we caused a lot of a lot of the stores that we closed will rebound as well.
Speaker 3: So, you know, we are, it will work hard to get in this company backprop.
Speaker 3: the other way. We've caused a lot of the stories that we close, we've done this. But, you know, a portion of them were also non-performing too. And with our private blazing penetration up at about 17% right now, and we believe that goes into the 20s next year, we think that will feel same-star sales growth at our stores.
A portion of them were also nonperforming too.
With our private label penetration up about 17% right now and we believe that goes into the Twenty's next year, we think that will fuel same store sales growth at our stores.
Speaker 7: A simple question I wanted to ask and just kind of stepping back like, you know, you're closing the stores. I guess during the super cycle, it could have kind of given you some false reads of the category of kind of the necessity of that last mile.
The second question I wanted to ask and just kind of stepping back like you're closing the stores I guess during the super cycle. It could it kind of given you. Some false reads of the category, that's kind of the necessity of that last mile.
Speaker 7: Do you believe like this step back in the footprint, you'll be just as well positioned with the category accelerates or is this, or are there some trade offs? Or is this a category where last mile is as necessary, what I mean is that Grover doesn't have to have it in 24 hours. He can live with 48, therefore shipped from Ohio. Just kind of those puts in takes as you're thinking about being prepared for the eventual return to growth in this category.
Do you believe like to step back and the footprint youll be just as well positioned with the category accelerates.
Or is is this or are there some tradeoffs or is this a category where last mile isn't necessarily what I mean is that <unk> doesn't have to have it 24 hours. He can live with 48, therefore shift from Ohio, just kind of those puts and takes as you're thinking about being prepared for the eventual return to growth in this category.
Speaker 3: Yeah, when I look at Grogin right now in our store accounts, you know, where we are and with boots on the ground with our commercial team, I think we're better positioned than we've ever been with the launch of our new year piece of some distribution and private lab.
Yeah, when I look at <unk> right now in our store counts, where we are.
With boots on the ground with our commercial team I think we're better positioned than we've ever been with the launch of our new ERP system distribution and private label and the one thing that we're starting to see is forecasting coming from our customers and like we've always said, we don't represent that much of the illegal.
Speaker 3: And you know, the one thing that we're starting to see is forecasting coming from our customers.
Speaker 3: And what we've always said, we don't represent that much of the illegal markets. So, you know, our bread and butter is the legal market.
Markets, So our bread and butter is the legal markets, so with more money going back onto the balance sheet. If you see a reschedule. We do believe that business is going to come to grow jet and will make us a better company for it so it's what keeps us optimistic.
Speaker 3: So with more money going back onto the bat lunche, if you see a reschedule, we do believe that business is gonna come to grow yet and we'll make us a better company for it.
Speaker 3: So it's what keeps us optimistic and you know, again, we will continue to cut where it needs it and continue to get this company, Andrew, you know, where it needs to be. And you've seen it through the year, you've seen it through our numbers right now. But the most exciting part of Grogen right now is the uptake of our private label products and the brands that we're bringing to market.
Again, we will continue to cut where needed and continue to get this company, Andrew where it needs to be and you've seen it through the year you've seen it through our numbers right now, but the most exciting part of <unk> right. Now is the uptake of our private label products and the brands that we're bringing to market.
Speaker 3: We're launching trip powders on this quarter.
Launching powders this quarter.
Speaker 3: to follow up on our new chain lines that's had a tremendous first year for us. We're adding products onto our Chorco brand. We're launching a benching from RMMI company, single tier benching. So there's a lot of excitement at our company right now, but getting costs in line with...
To follow up on our nutrient mines.
A tremendous first year for us, we're adding products onto our charcoal brands, we're launching single.
Branching a benching from Rmi and then my company single tier benching.
So there's a lot of excitement at our company right now.
<unk> costs in line with with really.
Speaker 3: with really it's the new norm in the business if you ask me. There are people waking up in the morning and deciding to go out and start growing. That's run its course.
It's the new norm in the business. If you ask me there are people waking up in the morning, and deciding to go out and start growing that's kind of.
That's run its course.
Speaker 3: So you're seeing many more legal growers out there and also single-lites in states that are allowing a short Ohio yesterday. They have very stable homegrown rules in Ohio. You probably won't see a store from Grow Gen in Ohio this year. It's not in a probably first quarter next year. And we will still be expanding, but you're probably talking one or two stores in states, not what we used to have.
Seeing many more illegal growers out there.
And also single license in states that are allowing that you saw in Ohio yesterday.
Very favorable homegrown rules in Ohio.
We will see a store from growth in Ohio. This year it's.
It's not going to probably first quarter next year and we will.
I'll still be expanding.
But you're probably talking one or two stores in states.
Not what we used to have the industry right now is more predictable on forecasting is better. So left is more right now for us.
Speaker 3: The industry right now is more predictable and forecasting is better. So, less is more right now for us.
Thanks, I'll pass it on.
Speaker 1: And your next question is from Eric de Lourier, from Craig Harlem Capital Group. Please go ahead.
And your next question is from Annick de Longhi from Craig Hallum Capital Group. Please go ahead.
Great. Thank you for taking my question.
Speaker 8: I guess first I'm just kind of following up on the store outlook here. It sounds like you're mostly consolidating stores in these, you know, more legacy unlimited license markets here. You mentioned Ohio is a place that you might look to to add a store, you know, within the next couple months here.
I guess first one just kind of following up on.
The.
Store outlook here it sounds like you're mostly consolidating stores and these more legacy unlimited license.
It's here you mentioned, Ohio is a place that you might look to add a store.
In the next couple of months here.
Speaker 8: Beyond this newly legalized Ohio state here, are there other states that you are looking to sort of continue expanding in? I guess just how should we think of the overall expansion plans kind of going forward here? Is it kind of following states as they legalize or do you have sort of a more extensive roadmap for call it the next year?
Beyond this newly legalized, Ohio State here are there other states that you are looking to sort of continue expanding in.
I guess, just how should we think of the overall expansion plans kind of.
Going forward here is it is it kind of following states as they legalize or do you have.
Sort of a more extensive roadmap for call. It the next the next year or so.
Speaker 3: Yeah, we're in the states that are legalizing dependent upon rules, you know, and again, the Ohio rules were favorable. We have a hundred thousand square foot warehouse in Ohio. So, you know, we'll probably, you know, probably need to store an Ohio and ship out of our warehouses within 24 hours. We're still looking at New York. We're looking at Pennsylvania, Maryland and a couple other states.
Yes.
States that are legalizing dependent upon our rules and again, the Ohio rules were favorable and we have a 100000 square foot warehouse in Ohio, So, we'll probably probably only need store in Ohio and ship out of our warehouses within 24 hours. We're still looking at New York were looking at Pennsylvania, Maryland.
And a couple other states will look to add another store in Missouri, and New Jersey.
Speaker 3: But right now, we're taking a wait and see out. If you, the states that we're already in, we believe that we're pretty well.
But right now, we're taking a wait and see attitude the states that we're already in.
Leave that we're pretty well well served in those states are looking to add to footprints.
Speaker 3: You know, wealth served in those states and you know, aren't looking to add to square prints.
Speaker 3: But if something comes up that, you know, benefits or shareholders.
If something comes up that's beneficial to our shareholders.
Speaker 3: We will do it. You know what we're really looking for right now is stores that are closing. We're bringing them into the grow genome relic by some inventory from them and taking customer lists and sometimes some employees.
We will do it.
Looking for right now is stores that are closing.
We're bringing them into the grow general relative buying some inventory from them and taking customer lists.
Sometimes some employees we.
Speaker 8: We did that in St. Louis this year and it worked out tremendously for us. So it's just that wait and see and see where the market goes. But the one thing that we will continue to do is keep our balance sheet extremely strong until we see a real turn in the industry. That's helpful. I appreciate that color. Next.
We did that in.
St. Louis this year. It all worked out tremendously for us. So, it's just that wait and see and see where the market goes but the one thing that we will continue to do is keep our balance sheet extremely strong until we see a real turn in the industry.
That's helpful. I appreciate that color.
Next one for me.
I think I caught in some of the Q&A here that.
Speaker 8: You think private label as a percentage of overall sales or maybe it's as a percentage of retail sales I'm not sure, but that could go up into the 20s next year. I think that's an increase from sort of previous commentary. Could you just kind of expand on that a bit of, do you need to get additional new products in line here? I know you have a handful that you've just recently
You think private label as a percentage of overall sales or maybe it's a as a percent of retail sales I'm not sure but that that could go.
And up into the <unk> next year.
I think thats an increase from previous.
Commentary could you just kind of expand on that a bit of.
Do you need to get.
Additional new products and line here I know you have.
Handful that you've just recently.
Speaker 8: introduced here is this sort of portfolio of proprietary brands now sufficient to get you to that to that you know 20% plus level and if you can kind of if you're willing to share any kind of longer term goals of you know where you think private label could be as a percentage of sales that we hope.
Introduced here.
Is this sort of portfolio of proprietary brands now.
Sufficient to get you to that.
To that 20% plus level and if you could kind of.
If youre willing to share any kind of longer term goals of where you think private label could be as a percentage of sales would be helpful. Thanks.
Speaker 3: You know, I believe that what we have in house right now with the launch of Trip Hydro powders will bring us into that 20% mark next year. We're also doing a lot of work to the harvest.
I believe that what we have in house right now with the launch of drip Hydro powders will bring us into that 20% Mark next year. We're also doing a lot of work to the harvest company.
Speaker 3: And we will be launching a product into IGC next year. You know, pruners.
And we will be launching products into the ITC next year.
<unk>.
Crooners in Denmark and garden in a box that we've just started to roll out certain Washington kits that we're rolling out with Shawcor has had a wonderful year.
Speaker 3: garden in a box that we've just started to roll out certain mushroom kits that we're rolling out. What chart for has that a wonderful year this you know has that a wonderful 2023 and we continue to launch new chart for products from chart for it. We just ended the propagation space with cocoa.
Is that a wonderful 2023.
Continue to launch new new chocolate products from from chart or we just entered the propagation space with Coco coins.
Speaker 3: So there's a lot going on right now in our private life.
So there's a lot going on right now on our private label Division and it's.
Speaker 3: And it's really what fueling roadgen right now, starting to fuel new customers coming to our stores and all the distribution side of them.
It's really what's fueling growth Gen right now starting to fuel new customers coming to our stores and also on the distribution side of it.
Speaker 3: So we're excited and we do believe you will see that number in the 20s next year. You know, further out into 2025, you know, we do believe it will continue to grow.
We're excited and we do believe you will see that number into 'twenty next year further out to 2025, we do believe it will continue to grow we believe there is a lot of wonderful products from other vendors out there right now so we believe somewhere between that 30% to 35% number when we fully grow up and that it will call.
Speaker 3: We believe, you know, there's a lot of wonderful products from other vendors out there right now. So we believe somewhere between that 30 to 35% number when we fully grow up and that will probably be 2026, 27. You know, we do believe we've reached that number.
In 2026 27, we do believe we would reach that number.
Thank you I appreciate it.
Speaker 1: Your next question comes from Brian Nigel from Oppenheimer. Please go ahead.
Your next question comes from Brian Nagel from Oppenheimer. Please go ahead.
Hey, guys good afternoon.
Speaker 9: Good afternoon, Brad. Brad. So I apologize this is repetitive. I do want to jump the call late. But just with regard to the store closing.
Good afternoon, Brian.
Alright, okay. So.
I apologize this is repetitive.
What keeps you on the call late but just with regard to the store closings.
Speaker 9: Are you, is this this repositioning within markets or you have, or you with these closings?
Are you is it is this just repositioning within markets or you are you with these closings exiting some markets.
Speaker 9: And then a second question, you know, apologize if you may have already laid this out. How should we think about, you know, kind of the near-term financial applications of closing these stores? I mean, you know, from a sales loss perspective, as well as a, you know, expense reduction for...
And then a second question.
Apologize if you may have a religious about how should we think about kind of the near term financial implications of closing these stores from a sales loss perspective as well.
Expense reduction perspective.
Speaker 3: The 12 stores that we've closed Brian in the last four months, we weren't leaving markets they were redundant.
The 12 stores that we've closed Brian in the last four months, we werent, we werent, losing markets. There were redundancies most of that I think probably 10 or 11 of the stores.
Speaker 3: You know, most I think probably 10 or 11 of the stories we could were within 30 miles of another story that we had. They were smaller stories within regions and not performing as well as we would have liked.
30 miles of another store that we had they were smaller stores within regions are not performing as well as we would've liked.
Speaker 3: And then we've done a decent job getting out of most of the leases right now and cutting the car.
And we've done a decent job getting out of most of the leases right now in cutting the cost when you look from a financial side of it.
Speaker 3: When you look from a financial side of it, you know, those 12 stores accounted for about $22 million of business in 2022 and that was telling off into 2023. From a revenue standpoint, what we believe we're going to keep.
Those 12 stores accounted for about $22 million of business in 2022, and that was tailing off into 2023.
From a revenue standpoint, what we believe we're going to keep.
Speaker 3: You know, somewhere in that 50% mark, we usually, you know, we'll keep a majority of the commercial customers. And depending upon which store it is and how close there's another store to it, that's where the home grow markets will fall. We believe that, you know, again, GrowGen still is.
Somewhere in that 50% Mark we usually we will keep a majority of the commercial customers.
And dependent upon which store it is and how close theres another store to it.
That's where the the homegrown markets will fall, we believe that again <unk> still is.
Speaker 3: The best on, you know, we have the best back in our stores, we have the best solutions, and you know, again, people still want to shop with us. So we are incentivizing our staff to keep these customers to go getting the customers, but doing work before closing stores with contacting customers and giving them benefits to come to the next nearest store of groceries.
First on <unk>.
We have that we have the desktop in our stores, we have the best solutions.
People still want to shop with us. So we are incentivizing our staff to keep these customers to go getting the customers were doing work before closing stores with contacting customers and giving them benefits to come to the next nearest store of growth. Yet also we will have a little more color for that probably in six months.
Speaker 3: So, you know, we'll have a little more color for that, you know, probably in six months when we really get an understanding of what percent as we get, but we do track it.
We get an understanding of what percentage suite gap, but we do track it.
Speaker 3: You know, right now for guidance, you know, we are in changing guidance for 2023. So, you know, with that, you know, you probably, you know, probably dropped three or four million off the fourth quarter, but we still, we're very comfortable with guidance right now for the year.
Right now for guidance, we arent changing guidance for 2023, so with that <unk>.
Youll, probably dropped three of $4 million.
Fourth quarter, but we still have we're very comfortable with guidance right now for the year.
That's very helpful. Jerry then as a follow up question if I could.
Speaker 9: Bruce Margin looked a bit better here.
Sorry, say caveat if you addressed this I apologize, but gross margin looked a bit better.
Speaker 9: I guess one can perm nap. Then also, how should we think about the drivers near the better gross margins in the Q-break?
Just wondering.
From that but then also what are the how should we think about the drivers there are better gross margins in Q3.
Greg if you could take that.
Speaker 4: yeah so i think you know when you look at the third quarter gross margin the primary driver within the period itself was private label more than any other independent factor on a quarter of a quarter basis we drove in a private label from you know fifteen to seventeen year-over-year was thirteen to seventeen
Yes, So I think when you look at the third quarter gross margin. The primary driver within the period itself was private label more than any other independent factor on a quarter over quarter basis, we drove private label from 15 to 17 year over year was 13 to 17.
Speaker 4: 75% of our Q3 sales were from the retail business, which in itself improved a point and a half on margin. Primarily from some of the private label benefits also, some improvements in mix as well as price.
75% of our Q3 sales were from the retail business, which in itself improved.
A point and a half on margin.
Primarily from some of the private label benefits also.
<unk> and mix as well as price increases.
Speaker 4: within some of our products is we're focused on profitability of the business.
Within some of our products is we're focused on profitability of the business separate.
Speaker 4: Separate from that, I think you're starting to see early signs.
Separate from that I think youre starting to see early signs of some of the margin improvements from the distribution development and investments that we've made as we're going out and negotiating larger bulk buys negotiating points off those.
Speaker 4: of some of the margin improvements from the distribution development and investments that we've made as we're going out and negotiating larger book buys, negotiating points off those.
Speaker 4: you know, skews that we're bringing to our portfolio and then, you know, recognizing us by the larger margin on the sale itself. So there's a lot of factors that go into it, but we were very, very pleased with, you know, how the quarter reported and we're optimistic that we'll continue to build on this into, you know, future periods. Geologists who you know now,
Skus that we're bringing into our portfolio and then recognizing a slightly larger margin on the sale itself. So there's a lot of factors that go into it but we're very very pleased with how the quarter reported.
And we're optimistic that we'll continue to build on this.
Future periods.
Okay I appreciate the color thanks a lot.
Thanks Brent.
Speaker 1: your next question comes from Scott Fortune from ROTMKM. Please go ahead.
Your next question comes from Scott Fortune from.
Please go ahead.
Speaker 10: You're gonna go up noon. Thanks for the questions. Just kind of follow up on that. Can you break down a little bit or provide a little more color?
Yes, good afternoon, thanks for the questions.
Kind of follow up on that can you break down a little bit or provide a little more color.
Speaker 10: on the sustainable model I look and build with the consumables. What percent came from consumables versus equipment mix? I know if we see rescheduling, which we think is likely that can increase the equipment side of it, but just kind of give us a sense of that mix and how you see it can go forward in 24 moving forward with the margin improvement there.
On the sustainable kind of model that Youre looking bill was the consumables what percent came from consumables versus equipment mix I know we see.
Scheduling, which we think is likely that you can increase the equipment side of it but just kind of gives us a sense of that mix.
You see it going forward in 'twenty for moving forward with the margin improvement there.
Greg.
<unk> with that or you want me to take it.
Speaker 4: you know up maybe i'll just dark down and passed over to you i mean you know what what we've seen on a you know consumables versus durable basis over the last several quarters is certainly more stabilization in the consumables end of our business primarily in the chart core and and driplines which are private label brands i think you know chart core at this point in time is is you know maybe our best selling brand in our entire portfolio
Maybe I'll just start Darrin and pass it over to you.
What we've seen.
Consumables versus durables basis over the last several quarters is certainly more stabilization in the consumables and of our business primarily in the charcoal and drip lines, which are private label brands.
I think charter at this point in time is maybe our best selling brand in our entire portfolio.
Speaker 4: So you're seeing about a 75, 25% mix, which has been generally consistent over the last, three or four quarters as we've looked at the business, and certainly down from some of the higher end years or quarters in 2020 and 2021 when we're seeing a lot of build activity. So we do have a fair amount of comfort at this point with where consumables are and how they're supporting kind of the baseline of the business and Darryl Passat over to you. Thank you.
So you are seeing about a 75%, 25% mix, which has been generally consistent over the last.
Three or four quarters as we've looked at the business and certainly down from some of the higher end years or quarters.
2020 in 2021, and we're seeing a lot of build activity. So we do have a fair amount of comfort at this point with where consumables are and how they're supporting kind of the baseline of the business.
Darrin I'll pass it over to you.
Yes, Scott Scott on the on the other side of that.
Speaker 3: You know, with rescheduling, rescheduling does come. There is no question that buildouts will resume. Money will come into the industry. And we still believe that there's a tremendous refus cycle.
With rescheduling rescheduling does comp there is no question that build outs will resume money will come into the industry and we still believe that theres, a tremendous refresh cycle coming.
Speaker 3: So with that, you know, consumables will stay the same. If not, start taking up a notch as people hopefully, you know, start opening up certain rooms that they have closed.
So with that consumables will stay the same if not start ticking up with not just people hopefully start opening up certain rooms that they close.
Speaker 3: But we do believe you'll see a tremendous lift on the durable side of it, on the lighting side of it, on the de-use side of it. We are seeing a tremendous amount of bidding right now on commercial products around the country in anticipation of reschedule.
But we do believe you will see a tremendous lift on the durable side of it on the lighting side of it on the <unk> side of it.
And we are seeing much much more we're seeing a tremendous amount of bidding right now on commercial products around the country.
Dissipation.
Speaker 3: So I think our commercial team has been extremely busy, the busiest that they've been in the last couple of years.
Scheduling so I think our commercial team has been extremely busy the busiest that they've been in the last couple of years.
Speaker 3: You know, albeit it takes time to get, you know, to get these projects done. But the amount of coding we're doing right now is certainly much different than we've seen. And, you know, it's much better than we've seen in the last couple.
Be it it takes time to get to get these projects done but the amount of.
Quoting we're doing right now is certainly much different than we've seen them.
Much better than we've seen in the last couple of years.
Speaker 10: Great, I appreciate that color. And then just real, one of their, where are you with state inventory levels? Kind of obviously with the discounting of inventory from competitors, that kind of playing out here, are we still seeing?
Great I appreciate that color and then just real.
One other where where are you with the inventory levels.
With the discounting of inventory from competitors that kind of playing out here or are we still seeing.
Speaker 10: Some pressure there and then was consolidating your store base Well, what's kind of a normalized inventory level that you're looking at it? I know you have like 76 million or something at this quarter And where are the turns that are kind of you focused on targeting towards getting on inventory level five things
Some pressure there and then was consolidating your store base, what's kind of the normalized inventory level that you are looking at I know you added 76 million or something.
This quarter and what are the terms that are.
You focused on targeting towards getting on the inventory level side of things.
Greg I would say that's one question over to you.
Speaker 4: Yeah, so inventory, we're highly focused on this quarter. As we moved into our new European warehouse management systems, we loaded on inventory a little bit heading into that kind of massive change management piece in our business, which we think went pretty well. So now we're looking at eliminating redundancies in our inventory and driving progress in the fourth quarter. We think there is opportunity to improve upon our turn.
So inventory we're highly focused on.
This quarter.
As we moved into our new ERP and warehouse management systems, we loaded on inventory a little bit heading into that kind of massive change management piece of our business, which we think.
Pretty well.
So now we're looking at eliminating redundancies in our inventory and driving progress in the fourth quarter.
We think there is opportunity to improve upon our turns.
Speaker 4: You know, we're adding inventory more than anywhere else right now is on our private label side of things as you know There's longer lead times and demand is increased
We're adding inventory more than anywhere else right now is on our private label side of things as you know there is longer lead times and demand is increasing.
Speaker 11: We still have a lot of very, very good vendors domestically that we have great partnerships with as well that will continue to carry their products and sell through. But we think there's opportunity to reduce inventory five or so million in the fourth quarter. And then we'll probably have more color on the next call in terms of what that might look like for 24.
We still have a lot of very very good vendors domestically that we have great partnerships with as well that will continue to carry their products and sell through.
But we think theres opportunity to reduce inventory five or so million in the fourth quarter and then.
We'll probably have more color on the next call in terms of what that might look like for 'twenty four.
I appreciate it thanks Paul.
Yes.
Speaker 1: Ladies and gentlemen, as a reminder, should you have a question, please post a star. Follow by the one. Your next question comes from Mark Smith from Lake Street Capital Markets. Please go ahead.
Ladies and gentlemen, as a reminder, should you have a question. Please press the star followed by the one. Your next question comes from Mark Smith from Lake Street Capital markets. Please go ahead.
Sure.
Speaker 12: Hi guys, just to follow up from that last one, I've been there within your private label. What does your mix look like there are consumables versus durable?
Hi, guys just a follow up from that last one darin within your private label.
Your mix look like Theyre kind of consumables versus durables.
Speaker 3: I would say consumer was probably about 80% of it right now on the 17% and we have a lighting brand Ion lights that have been quite successful at his early lighting brand right now in Grogen
I would say consumables, probably is about 80% of it right now on the 17% and we have a lighting brand ion lives that have been quite successful at is our leading lighting brand right now on the road yet.
Speaker 3: But the leading part of our portfolio right now on our private label side is certainly charcourt. And drip is, you know, drip is how to tremendous loss this year and is growing very quickly. So we believe that'll stay somewhere like that 80, 20, maybe 90, 10. But much more on the consumable side than the durable side. The only thing on the durable side you'll see from Grogent is a lighting brand eye on.
But the leading part of our portfolio right now on a private label side is certainly chart court.
And drip drip has had a tremendous loss this year and is growing very quickly.
We believe that will stay somewhere like that 80, 20, maybe 90 10.
Much more on the consumable side and the durable side the only thing on the durable side Youll see from grow jet is a lighting brand ion.
Again.
Speaker 3: You know, some people include fans in Durables or consumables. We do have a decent business, the Durabree's grant and selling for many years. And that's really the nine years of what you're seeing. The only difference next year, you know, we are bringing a market single tier bench from MMI that we...
Some people include fans in durables.
Consumables, we do have a decent.
Decent fan business that Europe region granite and selling for many years and Thats really the nine years of what Youre seeing the only difference next year, we're bringing to market a single tiered bench.
And from MSCI that we believe will make some inroads into the industry.
Speaker 12: And then as we look at potential growth down the road, what did you see in kind of M&A market for stores? I know you said you're looking at some that are kind of closures right now. And what's kind of your strategy as far as mix that you see is in buying versus building?
Okay.
As we look at potential growth down the road what are you seeing any kind of M&A market for stores. I know you said you are looking at some that are kind of closures right now.
What's kind of your strategy as far as mix as you see us.
In buying versus building.
Speaker 3: You know, right now we haven't been 100% concentrating on it. Mark, you know, we've been getting our own house in order, especially with the law and say we're here.
Right now we haven't been 100% concentrating on it Mark we've been getting are we've been getting our own house in order, especially with the launch of our ERP system.
Speaker 3: So, you know, we've had a quiet, we've had a quiet six months on the M&A side of it. But we do believe next year you will see us back. Certainly nothing like you've seen in the past, you know, we will do it slowly and do our-
So we've had a quiet we've had a quite a six months on the M&A side.
But we do believe next year, you will see us back certainly nothing like <unk> seen in the past, we will do it slowly and deliberately.
It depends what markets, we're going into and what is there.
We still do believe with the with our distribution centers working.
And our commercial team out there there's a lot there's a lot of large commercial growers that don't come to the stores anymore, and we can ship out of our warehouses to them. So we're just balancing it right now.
Speaker 3: So, you know, we're just balancing it right now. You know, if you ask me, you know, we'll probably add five stores to the portfolio next year, but you will see some contact consolidations from Groja next year, depending upon the leases, but, you know, certainly nowhere in the room.
If you ask me will probably at five stores to the portfolio next year, but you will see some conduct consolidations from grow Jan next year dependent upon leases, but certainly nowhere in the realm of what you've seen this year.
Okay. Thank you.
Speaker 1: And there are no further questions at this time. Ladies and gentlemen, this concludes your conference call for today. We thank you for draining and you may not disconnect your lines.
And there are no further questions at this time, ladies and gentlemen. This concludes your conference call for today, we thank you for joining and you may now disconnect your lines. Thank you.
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