Q1 2024 GrowGeneration Corp Earnings Call
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Joanna: Hello, and welcome to GrowGeneration's first quarter 2024 earnings conference call. My name is Joanna.
Hello, and welcome to grow generation first quarter 'twenty 'twenty four earnings conference call. My name is Joanna I will be coordinating our call today.
Joanna: Following prepared remarks, well open the call to questions from analysts with instructions to be given at that time I.
Joanna: I will be coordinating your call today. Following prepared remarks, we will open the call to questions from analysts with instructions to be given at that time. I'll now hand the call over to John Mills with ICR. Please go ahead. Thank you and welcome.
Joanna: I'll now hand, the call over to channels with ICR. Please go ahead.
John Mills: Thank you and welcome everyone to the GrowGeneration's first quarter 2024 Earnings Results Conference Call. Today's call is being recorded.
John Mills: Thank you and welcome everyone to the grow generations first quarter 2024 earnings results Conference call. Today's call is being recorded with US today are Darrin Leopard co founder Chief Executive Officer, and Greg Sanders, Chief Financial Officer of <unk> Corporation.
John Mills: With us today are Darren Lampert, Co-Founder, Chief Executive Officer, and Greg Sanders, Chief Financial Officer, of GrowGen Corporation. You should have access to the company's first quarter earnings press release issued after the market closed today. This information is available in the Investor Relations section of GrowGen's website at ir.growgeneration.com.
John Mills: You should you should have access to the company's first quarter earnings press release issued after the market close today. This information is available on the Investor Relations section of grow generations website at IR dot growth generation Dot com.
John Mills: Some 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. 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. 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 of the forward-looking statements made today.
John Mills: 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.
John Mills: These forward looking statements are based on management's current expectations and beliefs.
John Mills: 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. 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 of the.
John Mills: Forward looking statements made today.
John Mills: During the call, we will use some non-GAAP financial measures as we describe business performance. The SEC filing, as well as the earnings press release, which provides reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures, are all available on our website.
John Mills: During the call we will use some non-GAAP financial measures as we describe business performance the SEC filings as well as the earnings press release, which provides reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are all available on our website.
John Mills: 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 any additional questions. Please reenter the queue and we'll take them as time allows now I will turn the call over to our founder and CEO Darren Lambert Darren.
John Mills: 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 any additional questions, please reenter the queue, and we'll take them as time allows. Now, I will turn the call over to our founder and CEO, Darren Lampert.
Darren Lampert: John, and good afternoon, everyone. Thank you for joining us today to discuss our first quarter 2024 financial results. As always, I want to extend my gratitude to each one of our employees for their dedication and hard work. Your commitment is fundamental and the backbone of our success. I am pleased to announce that our first quarter results are in line with our expectations, with revenue of $47.9 million and adjusted EBITDA of a $2.9 million loss. Additionally, our retail stores in isolation were positive on a same-store-sales-comp basis in the first quarter, which represents the first time we've seen a positive safe store sales count for retail stores in nine quarters.
Darren Lampert: Thanks, John.
Darren Lampert: And good afternoon, everyone.
Darren Lampert: This indicates the stabilization of cells, affirming the effectiveness of our strategic adjustments over the past two years. Our proprietary brand sales also continue to grow, supporting sequential gross margin improvement from fourth quarter 2023. Lastly, through our continued focus on cost controls, we have achieved the lowest total expense base that the company has reported in three years.
Darren Lampert: Thank you for joining us today to discuss our first quarter 2024 financial results.
Darren Lampert: As always I want to extend my gratitude to each one of our employees across cogeneration for their dedication and hard work.
Darren Lampert: This commitment is fundamental and the backbone to our success.
Darren Lampert: I am pleased to announce that our first quarter results were in line with our expectations with revenue of $47 9 million and adjusted EBITDA of $8 million to $9 million of loss.
Darren Lampert: Encouragingly, our retail stores and isolation for positive on a same store sales basis in the first quarter, which.
Darren Lampert: Which represents the first time, we've seen a positive same store sales comp for retail stores in nine quarters.
Darren Lampert: This indicates the stabilization of sales affirming the effectiveness of our strategic adjustments over the past two years our.
Darren Lampert: Our proprietary branch sales also continued to grow supported sequential gross margin improvement from fourth quarter 2023.
Darren Lampert: Lastly through a continued focus on cost controls we have achieved the lowest total expense base and the company has reported in three years.
Darren Lampert: Based on this quarter's results, we continue to believe that our business is strong and poised for growth. And you have seen that confidence reflected in our stock repurchase program, which we announced last quarter to help support long-term shareholder value creation. Looking ahead, our strategic focus for 2024 remains on expanding our brand portfolio, growing and broadening our customer base, and prioritizing profitability through rigorous cost control and margin expansion. I'm excited to discuss several key points today that underlie our strategic direction and future growth.
Darren Lampert: Based on this quarter's results we continue to believe that our business is strong and poised for growth.
Darren Lampert: And you've seen that coffee is reflected in our stock repurchase program, which we announced last quarter to help support long term shareholder value creation.
Darren Lampert: Looking ahead, our strategic focus for 2024 remains on expanding our brand portfolio.
Darren Lampert: Growing and broadening our customer base.
Darren Lampert: <unk> profitability, the rigorous cost control and margin expansion.
Darren Lampert: I'm excited to discuss several key points today, and underlines, our strategic direction and future growth.
Darren Lampert: We continue to see accelerating adoption of our proprietary brands, including Charcor, Trip Hydro, and The Harvest Company. In the quarter, 22.6% of our total gardening and cultivation sales were generated from our proprietary brand portfolio, the highest mix in our company's history, and above the 18.8% we reported for full year 2023. We are especially excited about the early signs of momentum within our drip hydro-powdered nutrients, which are now in over 300 active trials with licensed cultivators around the country.
Darren Lampert: We continue to see accelerating adoption of our proprietary brands, including chart core drip hydro and the harvest company.
Darren Lampert: In the quarter 22, 6% of our total gardening and cultivation sales were generated from our proprietary brand portfolio.
Darren Lampert: The highest mix in our company's history.
Darren Lampert: And above the 18, 8% we reported for full year 2023, we're especially excited about the early signs of momentum within our drip hydro powder nutrients, which are now in over 300 active trials with licensed cultivators around the country.
Darren Lampert: We expect these trials to begin transitioning to sales and benefiting our P&L beginning late in Q2. Our margin expansion strategy continues to focus on increasing sales of higher-margin proprietary products and Forging Close Strategic Relationships with Keek Vestibreed Manufacturing Partners. We are also working to develop new vertical markets with our existing ones, including the marketing and sales of the Harvest Company line of proprietary products, which targets the home and edible gardening market. Within the Harvest Company, branded products include raised garden beds, organic seeds, and various gardening tools and accessories that are now available for sale online and in our stores.
Darren Lampert: We expect these trials to begin transitioning to sales and benefiting our P&L beginning late in Q2 our.
Darren Lampert: Our margin expansion strategy continues to focus on increasing sales of higher margin proprietary products and forging close strategic relationships with key best of breed manufacturing partners.
Darren Lampert: We're also working to develop new vertical markets within our existing offerings, including the marketing and sales the harvest company lineup proprietary products, which is targeting the home and edible gardening markets.
Darren Lampert: Within the harvest company branded products include rate garden beds organic seeds, and various gardening tools and accessories that are now available.
Darren Lampert: Online and in our stores.
Darren Lampert: We are also actively seeking opportunities to enter the high-value greenhouse, nursery, and floriculture verticals with our proprietary products later this year. Lastly, our commitment to investing in our customers' success remains unwavering; we continue to offer a complete suite of industry-leading products, competitive prices, and opportunities for finance. Comprehensive Inventory Management and Logistics Solutions
Darren Lampert: We're also actively seeking opportunities and there's a high value greenhouse nursery and floraculture verticals without proprietary products later this year.
Darren Lampert: Lastly, our commitment to investing in our customer success remains unwavering.
Darren Lampert: To offer a complete suite of industry leading products.
Darren Lampert: If prices and opportunities for financing and <unk>.
Darren Lampert: Comprehensive inventory management and logistics solutions.
Darren Lampert: Additionally, our soon-to-be-launched digital platform will enhance connectivity to our B2B portal, further empowering our customers' ability and convenience to do business with us. Now, before turning to guidance, I want to briefly mention two additional points. First, I'd like to address the significant news last week that the DEA agreed with the Health and Human Services and FDA recommendation to reschedule cannabis from a Schedule I to a Schedule III controlled substance. This critical shift in the regulatory landscape is expected to ease restrictions on cannabis research and to strengthen the cash flow and balance sheets of state legal cannabis operators by allowing them to take federal tax deductions for business expenses.
Darren Lampert: Additionally, our soon to be launched digital platform will enhance connectivity through our <unk> portal.
Darren Lampert: Furthermore, empowering our customers ability and convenience to do business with us.
Darren Lampert: Now before turning to guidance I want to briefly mention two additional points.
Darren Lampert: First I'd like to address the significant news last week that the <unk>.
Darren Lampert: Greed with the health and human services, and SBA recommendation to reschedule candidates from a schedule one to a schedule III control substance.
Darren Lampert: This critical shifting regulatory landscape is expected to ease restrictions on candidates research and to strengthen the cash flow and balance sheets are state legal cannabis operators by allowing them to take federal tax deductions for the business expenses.
Darren Lampert: While additional steps remain and additional challenges, such as litigation, may arise, we ultimately expect these developments to strengthen investor sentiment and broaden market opportunities for our products as cultivators will have more capital available to invest back into their business, including in building new facilities and refreshing existing ones. Regarding the next step. We expect a formal announcement by the DEA soon, following which the proposal will go to the Office of Management and Budget for review and then to the public comment period before being finalized.
Darren Lampert: While additional steps remain an additional challenges such as litigation may arise. We ultimately expect these developments to strengthen investor sentiment and broadened more market opportunities for our products as cultivators will have more capital available to invest back into their businesses.
Darren Lampert: And build with building new facilities and refreshing existing ones.
Darren Lampert: Regarding next steps, we expect a formal announcement by the DEA soon.
Darren Lampert: Following which the proposal will go to the office of management and budget for review and then to public common period before being finalized.
Darren Lampert: We are actively assessing how this regulatory change will impact our operations and strategic opportunities, and we will keep our stakeholders informed in future earnings calls as things progress. Second, continuing from our year-end discussions, we are continuing to seek opportunities to monetize our storage solution segment, MMI, which remains a leader in providing mobile shelving and racking solutions. While we do not have any news to report this quarter, should a material update become available as it relates to the MMI business, we will issue an announcement accordingly.
Darren Lampert: We are actively assessing how this regulatory change will impact our operations and strategic opportunities.
Darren Lampert: And we will keep our stakeholders informed in future earnings calls as things progress.
Darren Lampert: Second continuing from our yearend discussions, we're continuing to seek opportunities to monetize our storage solutions segment, EMI, which remains a leader in providing mobile shelving and racking solutions.
Darren Lampert: While we do not have any news to report this quarter showed a material update become available as it relates to the MMA business, we will issue an announcement accordingly.
Darren Lampert: Moving on to our guidance. We are reiterating our previously communicated guidance for full year 2024. We anticipate net revenue to be in the range of $205 million to $215 million, and adjusted EBITDA is expected to range from a $2 million loss to a $3 million profit.
Darren Lampert: Moving on to our guidance, we are reiterating our previously communicated guidance for full year 2024.
Darren Lampert: We anticipate net revenue to be in the range of $205 million to $215 million. Adjusted EBITDA is expected to range from a $2 million loss to a $3 million profit.
Gregory Sanders: This guidance underscores our confidence in our strategic direction and the underlying strength of our business model. I'm proud of the work and effort our team has put into getting us where we are today. As we look through the balance of the year, we are optimistic that GrowGen is on a solid platform for growth in 2024 and beyond. With that, I'll turn the call over to our CFO, Greg Sanders.
Darren Lampert: This guidance underscores our confidence in us.
Gregory Sanders: Strategic direction and the underlying strength of our business model.
Gregory Sanders: I'm proud of the work and effort our team has put into getting us where we are today.
Gregory Sanders: As we look through the balance of the year. We are optimistic that grow James is on a solid platform for growth in 2024 and beyond.
Gregory Sanders: With that I'll turn the call over to our CFO, Greg Sanders Greg.
Gregory Sanders: Thank you, Darren, and good afternoon, everyone. Starting with our first quarter results, GrowGeneration is pleased to report revenue of 47.9 million versus 56.8 million in the first quarter of 2023, representing a decline of approximately 16% year-over-year. On an absolute basis, this measurement includes the impact of 15 fewer retail locations. Our same store sales for the gardening and cultivation segment in the first quarter of 2024 were $38.2 million, compared to $38.6 million in 2023, representing a 1% decline compared to the comparable year-ago quarter. Our same-store sales metric includes e-commerce. Excluding e-commerce, retail and isolation was positive on a same-store sales comp basis for the first time since the third quarter of 2021.
Gregory Sanders: Thank you Darren.
Gregory Sanders: Good afternoon, everyone, starting with our first quarter results grow generation is pleased to report revenue at $47 9 million versus $56 8 million in the first quarter of 2023, representing a decline of approximately 16% year over year on an absolute basis. This measurement includes the <unk>.
Gregory Sanders: <unk> 15 fewer retail locations are.
Gregory Sanders: Our same store sales for the gardening and cultivation segment in the first quarter of 2024 was $38 2 million compared to $38 6 million in 2023, representing a 1% decline to the comparable year ago quarter.
Gregory Sanders: Our same store sales metric includes ecommerce.
Gregory Sanders: Excluding ecommerce retail in isolation was positive on a same store sales comp basis for the first time since the third quarter of 2021.
Gregory Sanders: Our storage solutions revenue was $4.8 million for the quarter, compared to $7.7 million in the year-ago period, representing a decline of 37.9% year-over-year. While our storage solutions revenue did not perform to plan this quarter, we expect some pickup in the second and third quarters for this reporting segment. To offset this, gardening and cultivation sales were higher than planned, which is an encouraging development, and in consolidation, first quarter revenue was reported at the high end of guidance.
Gregory Sanders: Our storage solutions revenue was $4 8 million for the quarter compared to $7 7 million in the year ago period, representing a decline of 37, 9% year over year, while our storage solutions revenue did not perform to plan. This quarter, we expect some pickup in the second and third quarters for this reporting segment to offset.
Gregory Sanders: <unk> and cultivation sales were higher than planned which is an encouraging development and in consolidation first quarter revenue reported at the high end of guidance.
Gregory Sanders: Gross profit margin was 25.8% for the first quarter 2024, a sequential improvement of approximately 230 basis points compared to our fourth quarter 2023 results. Although gross margin improved on a quarter-over-quarter basis, we observed a decline on a year-over-year basis, partially due to higher freight expense than planned, relative to costs associated with relocating inventory from store closures. Further, we observed some impact from segment reporting.
Gregory Sanders: Gross profit margin was 25, 8% for the first quarter of 2024, a sequential improvement of approximately 230 basis points compared to our fourth quarter 2023 results, although gross margin improved on a quarter over quarter basis, we observed a decline on a year over year basis.
Gregory Sanders: Partially due to higher freight expenses plan relative to costs associated with relocating inventory for store closures. Further we observed some impact from segment reporting mix more specifically storage solutions, which boasts a 43% gross margin profile reported at approximately 10% of total.
Gregory Sanders: More specifically, Storage Solutions, which boasts a 43% gross margin profile, reported that approximately 10% of total company sales in the first quarter, compared to an average of 14% of sales in 2023. As we look forward, we expect sequential improvements in consolidated gross margins in the second and third quarters, resulting from higher planned Storage Solutions revenue, as well as less impact from store closures. The company's total expense base was $21.8 million in the first quarter compared to $23.7 million in the first quarter of 2023.
Gregory Sanders: Company sales in the first quarter compared to an average of 14% of sales in 2023.
Gregory Sanders: As we look forward, we expect sequential improvements in consolidated gross margins in the second and third quarters, resulting from higher plant storage solutions revenue as well as less impact from store closures.
Gregory Sanders: The company's total expense base was $21 8 million in the first quarter compared to $23 7 million in the first quarter 2023.
Gregory Sanders: Withstanding any further improvements that management executes over the remainder of 2024, this was the lowest total expense base that the company has reported since Q1 of 2021. We believe that the current cost model is sustainable going forward, and it highlights our commitment to driving a more nimble and profitable business long term.
Gregory Sanders: Withstanding any further improvements that management executes over the remainder of 2024. This was the lowest total expense base that the company has reported since Q1 of 2021 we.
Gregory Sanders: We believe that the current cost model is sustainable going forward and it highlights our commitment to driving a more nimble and profitable business long term.
Gregory Sanders: Store operating costs and other operational expenses declined to $10.6 million in the first quarter, compared to $11.8 million in the fourth quarter of 2023. The company closed and consolidated four locations in the first quarter of 2024, of which one-time closure costs were included in our first quarter results. We believe that the closures and consolidations align our operating model to future strategic priorities and allow for stronger operating leverage.
Gregory Sanders: <unk> operating costs and other operational expenses declined to $10 6 million in the first quarter compared to $11 8 million in the fourth quarter of 2023, the company closed and consolidated four locations in the first quarter of 2024 of which one time closure costs were included in our first quarter results.
Gregory Sanders: We believe that the closures and consolidations align our operating model to future strategic priorities and allow for stronger operating leverage.
Gregory Sanders: Selling general administrative costs were $7.9 million in the first quarter compared to $7.9 million in the fourth quarter of 2023. Within our first quarter SG&A results were a few significant non-recurring expenses, including $900,000 in severances and legal settlements and $250,000 in marketing samples, primarily attributed to the nutrient powder launch from our proprietary brand, Drip Hydro. The depreciation and amortization of intangibles was $3.7 million in the first quarter of 2024 compared to $4.1 million in the prior quarter. As it relates to income tax, with a full valuation allowance in place, we did not recognize a significant tax benefit or expense during the period.
Gregory Sanders: Selling general and administrative costs were $7 9 billion in the first quarter compared to $7 9 million in the fourth quarter of 2023.
Gregory Sanders: Within our first quarter SG&A results were a few significant nonrecurring expenses, including $900000 in severance and legal settlement and $250000 and marketing samples primarily attributed to the nutrient putter launch from our proprietary brands drip hydro depreciation.
Gregory Sanders: And amortization of intangibles was $3 7 million in the first quarter of 2024 compared to $4 1 million in the prior quarter.
Gregory Sanders: As it relates to income tax with a full valuation allowance in place we did not recognize a significant tax benefit or expense in the period.
Gregory Sanders: The net loss for the first quarter of 2024 was $8.8 million, or negative $0.14 per share, compared to a net loss of $6.1 million, or negative $0.10 per share for the comparable year-ago quarter. Compared to the fourth quarter of 2023, the company improved its net income from a net loss of $27.3 million to a net loss of $8.8 million. Adjusted EBITDA, as defined in our press release, was a loss of $2.9 million for the first quarter of 2024, compared to a loss of $1.8 million in the first quarter of 2023. The change in year-over-year performance is primarily related to a $3.9 million decline in gross profit.
Gregory Sanders: Net loss for the first quarter of 2024 was $8 8 million or negative <unk> 14 per share compared to a net loss of $6 1 million or negative <unk> 10 per share for the comparable year ago quarter compared to the fourth quarter of 2023. The company improved net income from a net loss of $27 3 billion to a net loss.
Gregory Sanders: Of $8 8 million adjusted EBITDA as defined in our press release was a loss of $2 9 million for the first quarter of 2024 compared to a loss of $1 8 million in the first quarter of 2023 the.
Gregory Sanders: The change in year over year performance is primarily related to a $3 $9 billion decline in gross profit dollars.
Gregory Sanders: Compared to the fourth quarter of 2023, the company improved adjusted EBITDA by approximately $800,000. Now moving to the balance sheet, as of March 31st, 2024, the company had total cash, cash equivalents, and marketable securities of $61.3 million, a decrease of $3.6 million from December 31st, 2023. Within working capital, inventory increased by 1.1 million, driven by first quarter bulk inventory purchases to support Q2 sales demand, for which we expect favorable seasonality.
Gregory Sanders: Compared to the fourth quarter of 2023, the company improved adjusted EBITDA by approximately $800000.
Gregory Sanders: Now moving to the balance sheet as of March 31, 2024, the company had total cash cash equivalents and marketable securities of $61 3 million a decrease of $3 6 million from December 31 2023.
Gregory Sanders: Within working capital inventory increased by $1 1 million driven by first quarter bulk inventory purchases to support Q2 sales demand for which we expect favorable seasonality.
Gregory Sanders: We believe that the cash position of the business is in strong health, which was evidenced by our recent announcement of the company's share repurchase program. As Darren mentioned earlier, we are reiterating our full year 2024 guidance with revenue to be between $205 million and $215 million, and full year adjusted EBITDA to be in the range of a $2 million loss to a positive $3 million profit. Our guidance assumes higher second and third quarter revenue from a seasonality perspective, along with stabilized improvements in our operating expense base from our strategic operating initiative.
Gregory Sanders: We believe that the cash position of the business isn't strong health, which was evidenced by our recent announcement of the Companys share repurchase program.
Gregory Sanders: As Darren mentioned earlier, we are reiterating our full year 2024 guidance with revenue to be between 205 and $215 million in full year adjusted EBITDA to be in the range of a $2 million loss to a positive $3 million profit or.
Gregory Sanders: Our guidance assumes higher second and third quarter revenue from a seasonality perspective, along with stabilized improvements in our operating expense base from our strategic operating initiatives.
Gregory Sanders: That said, we are optimistic about the 2024 fiscal year and how our cost control initiatives have translated into the lowest expense base that we have reported in several years. Our balance sheet remains strong with a healthy cash position from which we see opportunities to deploy resources toward customer growth initiatives, product development, market expansion, and accretive pathways such as the share of a purchase program to drive shareholder value. Our daily mandate remains centered on executing the business strategy to drive future growth and profitability. With that, I will turn the call back over to Darren for closing. Thank you, Greg.
Gregory Sanders: That said, we are optimistic about the 2020 for fiscal year and how our cost control initiatives have translated into the lowest expense base that we have reported in several years.
Gregory Sanders: Our balance sheet remains strong with a healthy cash position from which we see opportunities to deploy resources towards customer growth initiatives product development market expansion and accretive pathways, such as the share repurchase program to drive shareholder value.
Gregory Sanders: Our daily mandate remains centered on executing the business strategy to drive future growth and profitability.
Darren Lampert: With that I will turn the call back over to Darrin for closing remarks.
Darren Lampert: Thank you Greg.
Darren Lampert: As we continue our journey through 2024, our commitment to operational excellence, strategic market expansion, and profitability remains unwavering. I am immensely proud of what our team has achieved, and I look forward to our continued growth and success. We remain optimistic about the future, backed by a robust business model and strategic initiatives that are set to drive our growth in the evolving market landscape. Thank you all once again for your continued support and interest in GrowGeneration. We will now take your questions. Operator.
Darren Lampert: As we continue our journey through 2024, our commitment to operational excellence strategic market expansion and profitability remains unwavering.
Darren Lampert: I'm immensely proud of what our team has achieved and then look forward to our continued growth and success with.
Darren Lampert: We remain optimistic about the future backed by a robust business model and strategic initiatives that are set to drive our growth in the evolving market landscape.
Darren Lampert: Thank you all once again for your continued support and interest and grow generation.
Darren Lampert: We'll now take your questions operator.
Speaker Change: Thank you.
Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number on your touchtone phone. You will hear a three-tone prompt. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by 2. If you are using a speakerphone, please lift the handset before pressing any key. First question, please.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the one on your Touchtone phone you will USB compounds you will hear a comment that you had has been raised.
Operator: Should you wish to claim from the polling question. Please press star followed by Q.
Operator: The phones, please lift the handset before pressing any case.
Operator: First question comes from Brian Nagel from Oppenheimer. Please go ahead.
Speaker Change: Hi, good afternoon.
Operator: Okay.
Brian: Good afternoon, Brian. My first question, Darren, I know you talked a little bit about this in your prepared comments, but with regard to the, I guess, let's just say, potential rescheduling here. Now that's something we've talked about for a while, but is there any, I recognize it's early and there's still a lot of unknowns, but just as you think about that and your GrowGeneration business, are there any parameters you can give us about how we should think about, you know, the size of the potential positive or even how this would play out for GrowGeneration?
Speaker Change: So good afternoon, Brian.
Brian: My first question Darren I know you talked a little bit about this in your prepared comments, but just with regard to the I.
Brian: I guess, let's just say.
Brian: Potential rescheduling here.
Brian: It's something we've talked about for a while but is there any.
Brian: And it's early and there's still a lot of unknowns, but youre just as you think about that.
Brian: And your grow generation business I mean is there.
Brian: There any parameters you can give us on how we should think about.
Brian: Baird.
Brian: The size of the potential positive or even how how this would play out for <unk> generation.
Darren Lampert: I think the simple part is, Brian, with rescheduling, 280E goes away, and that is the tax penalty on licensed cultivators. Basically, the analysts are saying that almost between a billion and a half and two billion dollars will come back to the balance sheets of the cultivators, which will go to shoring up balance sheets and also going into rebuilding facilities, updating facilities, and going out and getting new products that are coming to market
Brian: I think the simple part as Brian with Rescheduling 280, <unk> goes away.
Darren Lampert: And that is the tax penalty on licensed cultivators.
Darren Lampert: Yes.
Darren Lampert: Basically the analysts are saying almost.
Darren Lampert: Almost between 1 billion and they have a $2 billion will come back to the balance sheets of the cultivators, which will go to shoring up balance sheets and also going into rebuilding facilities.
Darren Lampert: Updating facilities and going out and getting new products that are coming to market.
Darren Lampert: So there will be a tremendously different, you know, view with our customers, with money coming back in. Customers will be making money, reinvesting in their business. Over the last three years, you know, with Wall Street pretty much pulling funding from most of the cultivators, most of the public companies, also the large private companies, these cultivators have not been able to refresh their facilities. They haven't put money into facilities.
Darren Lampert: So there will be a tremendously different.
Darren Lampert: With our with our with our customers with money coming back in.
Darren Lampert: Customers will be making money reinvesting in their businesses over the last three years.
Darren Lampert: With Wall Street pretty much pulling funding for most of the cultivators most of the public companies is also the large private companies.
Darren Lampert: These cultivators have not been able to refresh.
Darren Lampert: Their facilities, they haven't put money into facilities.
Darren Lampert: And so we've been in this place where our durable sales have been tremendously low for the last couple of years. But in the first quarter, we did see a little uptick in durables. And we are starting to see much more bidding out there, and we do believe that you will see the other part of our business, the durable side of it, start picking up. And again, everyone is still waiting. It's a waiting game out there, Brian.
Darren Lampert: So we've been in this place where our durable sales have been tremendously low over the last couple of years, but in the first quarter. We did see a little up we did see a little uptick in durables and we are starting to see much more bidding out there and we do believe that you will see the other part of our business the durable side of it start.
Darren Lampert: Picking up.
Darren Lampert: And again everyone's still is waiting it's a waiting game out there Brian we've been waiting 10 years since we started great Jen.
Darren Lampert: You know, we've been waiting 10 years since we started GrowGen. The process is still not complete right now. The DEA has agreed with Health and Human Services to reschedule, but it could be another four to six months. And that's probably as quick as it can go. And that's if litigation and other issues don't arise.
John: John, that's very, very helpful. Second question.
Darren Lampert: Is it still the process is not complete right now.
John: <unk> has agreed with the health and human services to reschedule.
John: Could be another four to six months and Thats, probably as quick as it can go net of litigation and other issues don't arise.
John: Yes.
Speaker Change: Thanks, very very helpful.
Speaker Change: Second question.
Darren Lampert: That's your business, but Look, you've done a very nice job of streamlining the model over the past several quarters, closing stores where appropriate. So as we look at the business now from a store perspective, is the base of stores appropriate?
Speaker Change: Back to your business, but.
Darren Lampert: Very nice job streamlining the model over the past several quarters.
Darren Lampert: Closing stores, where appropriate so as we look at the business now from a store perspective.
Darren Lampert: Because the base of stores appropriate.
Darren Lampert: You know, right now, we're happy with our portfolio. We probably will be closing another three stores this year, but our business has changed dramatically. We're seeing much more business-to-business as opposed to business-to-consumer. We just opened up a 100,000-square-foot warehouse in Ohio. As our business evolves, our stores are both marketing tools for our private label brands and also for brands of our, you know, some of our top vendors. And the stores are a place for people to go, our customers to go, you know, learn and also purchase products from us. But we believe that we can serve most of our customers from our distribution centers and our larger stores around the country.
Speaker Change: Right now we are happy with our portfolio, we probably will be closing another three stores this year.
Darren Lampert: But our business has changed dramatically, we're seeing much more business to business as opposed to business to consumer.
Darren Lampert: Just opened up a 100000 square foot warehouse in Ohio.
Darren Lampert: Our business evolves our stores are both marketing tools for our private label brands and also brands of our.
Darren Lampert: Of our top vendors.
Darren Lampert: And there's still a place for people to go people to <unk>, our customers to go and learn and also purchased products from us, but we believe that we can.
Darren Lampert: Service most of our customers from our distribution centers and our largest stores around the country.
Darren Lampert: So right now, we will not be investing in new stores this year, and we probably won't be in the market buying stores. Right now, GrowGen is investing in supply chain distribution and B2B portals. We're investing in our proprietary brands, which you see are growing very quickly. We're investing in our customers. We're easing credit right now, and I think we've given out more credit in the last month to customers than we have in some time.
Darren Lampert: Right now we.
Darren Lampert: We will not be investing in new stores this year and.
Darren Lampert: And we probably won't be in the market buying stores, but right now <unk> is investing in and supply chain distribution of <unk> portals were investing in our proprietary brands, which you see are growing very quickly.
Darren Lampert: Vesting and our customers were easing credit right now.
Darren Lampert: I think we've given out more credit in the last month to customers than we have in some time.
Darren Lampert: And we're investing in GrowGen. We're investing in stock repurchase plans. So I think we're starting to see different uses of our capital, and we're investing in getting GrowGen into the IGC world, the one-in-a-garden space. So GrowGen is definitely morphing into a different kind of company over the last couple years since you've seen the slowdown in the cannabis space.
Darren Lampert: We're investing in growth and we're investing in stock repurchase plans. So I think we're starting to see different use of our capital and we're investing in getting <unk> into the <unk> world The lawn and garden space. So growth is definitely morph into a different kind of company over the last couple of years since you've seen the slowdown in the cannabis space.
Darren Lampert: That's very helpful. I appreciate it. Best of luck here. Thank you.
Speaker Change: That's very helpful. I appreciate it.
Speaker Change: Best of luck to you. Thank you.
Speaker Change: Thank you Brian.
Scott Thomas Fortune: Thank you. The next question comes from Scott Fortune at Roth MKM. Please go ahead.
Darren Lampert: Thank you. The next question comes from Scott Fortune at Roth and Kim. Please go ahead.
Scott Thomas Fortune: Yeah, good afternoon, and thank you for the questions. Just kind of following up, you put a lot of emphasis on the proprietary products and the success of that segment, which moved up very nicely here in the quarter, but just want to kind of get a sense for the potential for your DRIP nutritional product that you're rolling out here. It sounds like a good interest from that level. And then just remind us the target of proprietary brands, which is targeting your own brands for the overall business segment and makes. I believe it's about 30%, but where can that target potentially go here?
Scott Thomas Fortune: Yes, good afternoon, and thank you for the questions.
Scott Thomas Fortune: Just kind of following up you put a lot of emphasis on the proprietary products and the success of that segment moved up very nicely here in the quarter.
Scott Thomas Fortune: But just wanted to kind of get a sense for the potential for your drip.
Scott Thomas Fortune: Drip nutritional product that you're rolling out here it sounds like a good interest from that level and then just remind us the target of proprietary banner brands with fewer <unk>.
Scott Thomas Fortune: Targeting your own brands for the overall business segment and next I believe it's about 30%, but where can that that target potentially go here.
Darren Lampert: You know, we believe you'll see anywhere between 30 and 40% of private label proprietary brands out of GrowGen in the future. We believe we will end this year somewhere in the mid to high 20s, which is pretty aggressive. And that is dependent upon the drip launch on taking, you know, when you look at the amount of trials that we have around the country right now, those turning into sales in the future. And we do believe you start seeing those late in the second quarter.
Scott Thomas Fortune: We believe youll see anywhere between 30% and 40% on private label proprietary brands out of grow again in the future. We believe we end this year somewhere in the mid to high Twenty's, which is pretty aggressive in that is dependent upon the drip launch.
Darren Lampert: I'm taking.
Darren Lampert: When you look at the amount.
Darren Lampert: Of trials that we have around the country right now those turning into sales in the future.
Darren Lampert: And we do believe you start seeing those late in the second quarter.
Scott Thomas Fortune: I mean, we believe that this, you know, the drip, the drip powder brand, could be anywhere from a $25 to $50 million business for GrowGen in the future. We will keep you posted as sales turn, trials turn into sales.
Darren Lampert: Although we believe that the drip the drip powder brand.
Scott Thomas Fortune: It could be anywhere from a 25% to $50 million business for grow agenda. The future. Although we will keep you posted as as sales sales turn it trials turn into sales.
Darren Lampert: Just kind of from a geographic interest, and you mentioned stores, just want to see, you mentioned you're seeing stabilization in the market overall, but can you provide a little more color on kind of the regions or the areas outside California, Michigan still seems pretty weak there, just a little more color on certain states that are driving the strength here and the 2Q trends as we're going forward here?
Speaker Change: Got it appreciate color, there and just kind of from a geographic.
Darren Lampert: Interest you and you mentioned stores right.
Darren Lampert: Just wanted to see you mentioned you were seeing stabilization in the market overall, but can you provide a little more color on kind of the regions or.
Darren Lampert: The area of him outside California, Michigan still seem pretty weak there just spend a little more color on certain states that are driving the strength here in the <unk> trends as we look going forward here.
Scott Thomas Fortune: We are seeing strength in California right now, Scott, contrary to what you're hearing. We are winning a lot of new business in the California market. We're also seeing strength in Michigan right now. We're seeing considerable weakness out in Oklahoma and back east in the Maine and Massachusetts markets, but there's tremendous strength at GrowGen right now in California.
Speaker Change: Yes, we are seeing strength in California, right now Scott contrary to what you are hearing.
Scott Thomas Fortune: Our winning a lot of new business in the California market. We're also seeing strength in Michigan right now, we're seeing considerable weakness out in Oklahoma and back East.
Scott Thomas Fortune: In the main and the Maine, and Massachusetts markets, but theres tremendous strength that grow Gen right now in California.
Scott Thomas Fortune: I appreciate that. I will jump back in the line for you. Thanks.
Speaker Change: I appreciate that.
Speaker Change: I will jump back in.
Speaker Change: Thank you.
Speaker Change: Thank you.
Eric Des Lauriers: Thank you. The next question comes from Eric DeLaurier from Crack Island Capital Group. Please go ahead.
Scott Thomas Fortune: Thank you. The next question comes from Eric <unk> from Craig Hallum Capital Group. Please go ahead.
Eric Des Lauriers: Great, thank you for taking my questions. The first one is just on the proprietary brands. How should we think about margins here going forward? You know, it's nice to see the increase in mix here.
Eric Des Lauriers: Great. Thank you for taking my questions.
Eric Des Lauriers: First one is just on the proprietary brands.
Eric Des Lauriers: How to think about margins here going forward I mean, it's nice to see the increase in mix.
Eric Des Lauriers: Obviously, margins were down year over year. So just wondering how to think about the overall margin profile of proprietary brands. And then if there's anything to comment on, you know, sort of the subsegments within that, like if Drip Hydro has a significantly different margin profile than some of the other proprietary brands, that'd be helpful as well. Just kind of looking to get a sense of the margin profile of proprietary brands.
Eric Des Lauriers: Here, obviously margins were down year over year, So I'm just wondering.
Eric Des Lauriers: How to think about the overall margin profile of proprietary brands and then if there's anything to comment on.
Eric Des Lauriers: Sorry, the sub segments within that like if Jeff Hydro has a significantly different margin profile than some of the other proprietary brands.
Eric Des Lauriers: That'd be helpful. As well, just just kind of looking to get.
Eric Des Lauriers: Our sense of the margin profile of the proprietary brands. Thanks.
Darren Lampert: I'm going to keep it kind of basic for you, Eric. We're seeing anywhere from 40 to 50 percent, you know, average within our proprietary brands. You will see the highest margins coming out of the harvest company and usually the lowest margins you'll see coming out of our ion brands, which are our lighting brands, and our nutrients and cocoa truckers.
Speaker Change: Yes, I'm going to keep it kind of basic for you Eric.
Darren Lampert: Were seeing anywhere from 40% to 50% average within our proprietary brands.
Darren Lampert: You will see the highest margins coming out of.
Darren Lampert: Out of the harvest company and usually the lowest margins youll see coming out of our ion brands, which is a lighting brands and our nutrients and Coco chocolate brands fall somewhere in between.
Eric Des Lauriers: All right, that's very helpful. And then...
Eric: Alright, that's very helpful.
Eric Des Lauriers: And then.
Eric Des Lauriers: I'm wondering if you can comment a bit on some of the difference in dynamics between e-commerce revenues and brick and mortar. You called out e-commerce comps as sort of masking the positive same-store sales growth that you saw at retail. I'm just wondering how the sort of demand dynamics within those channels differ and maybe how to think about those going forward as you are investing more in B2B.
Eric Des Lauriers: Yeah.
Eric: I'm wondering if you can comment a bit on some of the difference in dynamics.
Eric Des Lauriers: Between e-commerce revenues in brick and mortar you called out E Commerce.
Eric Des Lauriers: So that's sort of masking the positive same store sales growth that you saw at retail I'm just wondering.
Eric Des Lauriers: How the sort of demand dynamics within those channels differ.
Eric Des Lauriers: And maybe how to think about those going forward as you are investing more in <unk>.
Darren Lampert: I think as you see the Canada space turning more B2B than B2C, what we've seen with our e-commerce division is some of our larger customers that started out in the e-com division have switched over to our commercial team in some of our stores, where they get white glove service, where they're looking for credit, and they're looking for account reps with more skills opposed to just going on websites and buying. So it's not that our e-com division has been slow; it's just the mix of business is much smaller, and again, a lot of our larger customers that did come in through e-com, that shopped on e-com, have changed over to a different division of GrowGen.
Eric Des Lauriers: I think as you see on the cannabis space, turning more b to B to B to C and what we've seen with our ecommerce division some of our larger customers that started out in the E. Comm division have switched over to our commercial team in some some of our stores, where they get white glove service, where they are.
Darren Lampert: Im looking for credit Theyre looking for account reps with more skills proposed to just going on websites and buying so it's not that are such that our recon division has been slow.
Darren Lampert: It's just again, it's just the mix of business is much smaller.
Darren Lampert: And again, a lot of our larger customers that were that did come in through E. Comm that shaft on E com.
Darren Lampert: Have changed over to a different division of grow Jess we have definitely pulled back expenses.
Darren Lampert: We have definitely pulled back expenses on our e-com division. We pulled back on advertising. A lot of it is very price sensitive as opposed to service sensitive, so again, we will continue to monitor. We are starting to open up some B2B portals for our proprietary brands which will go through the e-com division, which should help drive sales through that division.
Darren Lampert: On our on our E Comm division, while we pulled back on advertising a lot of it is very price sensitive as opposed to service sensitive.
Darren Lampert: So again, we will continue to monitor but we are starting to open up some <unk> portals for our for our proprietary brands, which will go through the E Comm Division.
Darren Lampert: Which should help drive sales through that division.
Eric Des Lauriers: All right, great. Thank you for taking my question.
Speaker Change: Alright, great. Thanks for taking my questions.
Mark Eric Smith: Thank you. The next question comes from Mark Smith from Lake Street. Please go ahead.
Eric Des Lauriers: Thank you. The next question comes from Mark Smith from Lake Street. Please go ahead.
Mark Eric Smith: Hi guys, I wanted to ask first off just about the inventory. It came up just a little bit here but looks good year over year. Just give us your thoughts around comfort levels and kind of the quality of your inventory today.
Mark Eric Smith: Hi, guys I wanted to ask first off just about the inventory.
Mark Eric Smith: Mark just a little bit here, but looks good year over year, just give us your thoughts around comfort levels and kind of the quality of your inventory today.
Mark Eric Smith: Greg I understand that over the year.
Gregory Sanders: Yeah, yeah. Hey, Mark, you know, today we reported inventory at $66 million for the first quarter, which was up just incrementally to the fourth quarter, primarily due to Q2 sales demand as we look at things. As we get through the year, we see opportunities to continue to take down inventory throughout the year. I mean, that might be 5 or 10 million we're working through in a more optimized model on the inventory side of things as we progress throughout the year, but we want to make sure we have the right inventory in the right locations for Q2, which is, you know, from a seasonality perspective, our best performing quarter.
Speaker Change: Yeah, Hey, Mark.
Gregory Sanders: We reported inventory at $66 million for the first quarter, which was up just incrementally to the fourth quarter, primarily due to Q2 sales demand as we look at things.
Gregory Sanders: As we get through the year, we see opportunities to continue to take down inventory.
Gregory Sanders: The course of the year that might be five or 10 in play and we're working through more optimized model on the inventory side of things as we progress throughout the year, but we want to make sure. We have the right inventory in the right locations for Q2, which is from a seasonality perspective, our best performing quarter.
Gregory Sanders: So that's a little bit around inventory and, you know, the quality of the inventory. We still have decent reserves on what we have in place. We feel very, very comfortable with what we have from a quality standpoint and a mix perspective.
Gregory Sanders: So that's a little bit around inventory.
Gregory Sanders: The quality of the inventory.
Gregory Sanders: We still have decent reserves on what we have in place.
Gregory Sanders: We feel very very comfortable with what we have from a quality standpoint, and a mix perspective.
Mark Eric Smith: And then second, just big picture, Darren, just as we think about kind of capital allocation, you've got a good balance sheet with the cashier, you know, how you kind of weigh and think about, you know, investing back into the business, you know, in stores or brands, versus, you know, share repurchases, or potentially acquisitions. Walk us through kind of how you think about capital allocation today. Yeah, I think I started off when I answered the question.
Mark: Perfect and then second just big picture there just as we think about kind of capital allocation, you've got a good balance sheet with good cash year.
Mark Eric Smith: How are you kind of way and think about investing back in the business and stores are brands versus.
Mark Eric Smith: Share repurchases or potentially acquisitions walk us through kind of how you think about capital allocation today.
Darren Lampert: Yeah, I think I started off when I answered a question from Brian Nagel, but we'd go over it again. You know, there are five different buckets that we look at right now, especially for 2024, as we go on to 2025. And it's mostly organic. It's investing in GrowGen, as opposed to investing outside of GrowGen. You know, and our first bucket is investing in the business. That's our supply chain distribution, where we just built out 100,000 square feet in Ohio.
Speaker Change: Yes, I think I started off with we don't want to answer the question from Brian Nagel, but we go over it again.
Darren Lampert: There's five different buckets that we look at.
Darren Lampert: Right now, especially for 2024 as we go into 2025.
Darren Lampert: It's mostly organic it's investing and grow Janet postal investing outside of grow J R.
Darren Lampert: And our first bucket is investing in the business, that's our supply chain distribution, where we just felt that 100000 square feet in Ohio.
Darren Lampert: And we're just in the midst of building out B2B portals for our proprietary brands, so people can go online and purchase, you know, on our different portals. Secondly, we're investing in proprietary brands. Launches, as you saw, Private Label went from 18.6 last year up to 22.6 this year.
Darren Lampert: And we're just in the midst of also building a BBB portals.
Darren Lampert: For our proprietary brands so people can go online.
Darren Lampert: <unk> and purchased all of those different portals, but secondly, we are investing in proprietary brands launches as you saw with private label up from $18 six last year up to 22, 6% this year.
Darren Lampert: We have over 300 active trials right now with DRIP. We've given out over a quarter of a million dollars of product last quarter for our DRIP launches. Also, we have a full team of salespeople for DRIP right now. We're also investing in new products coming out of ChartCorps, some we believe will be in the IGC world, and also new products coming out of PowerSI and The Harvest Company. So GrowGen is spending an enormous amount of money on these product launches, developing new products that we believe will be the future of GrowGen.
Darren Lampert: We have 353 over 300 active trials right now in Europe, we've given out over a quarter of $1 billion of product last quarter.
Darren Lampert: For our drip launches are also we have a whole team of salespeople for Jeff right now while we're also investing in new products coming out of charcoal work. Some we believe will be me.
Darren Lampert: Seaworld and also new products coming out of power assign the harvests company. So <unk> spending an enormous amount of money on these product launches developing new products that we believe will be the future grow jet or thirdly, we're investing in our customers. We've increased credit too to a number of our customers right now we're starting with.
Darren Lampert: Thirdly, we're investing in our customers. We've increased credit to a number of our customers right now. We're starting to invest in certain buildouts for our customers. We're opening up credit as we see the industry starting to turn. You know, we believe the days of people waking up and, you know, deciding they want to become growers are over.
Darren Lampert: Best in certain build outs for our customers or opening of credit as we see the industry starting to churn. We believe the days of people waking up and decided he wanted to become grow as your over the individuals that have made it through the harder parts of this market. The last four years, we believe is going to be here for a long time to come.
Darren Lampert: Individuals that have made it through the harder parts of this market the last four years, we believe are going to be here for a long time to come and be wonderful customers of GrowGen. And we are starting to open up, you know, credit at GrowGen and bringing in new customers and also helping old customers. We're also investing in GrowGen. We just announced a $6 million share repurchase that started on April 1st.
Darren Lampert: Can be wonderful customers of grow Jan and we are starting to open up credit at grow Jen and bringing in new customers and also helping old customers. We're also investing in roads, yet, we just announced the $6 million share repurchase that started on April one we will update wall Street in our second quarter to second quarter event.
Darren Lampert: We will update Wall Street in our second quarter, but we have been in the market buying back stock. And, you know, with that, we are always looking at acquisitions. Again, if we find something that we believe is creative and in the best interest of our shareholders, we will take a hard look at it. And if it's going to work for GrowGen, we're a buyer. So we are always reviewing, you know, different products, and stores out there and looking what's in the best interest of GrowGen. So it's that five-step process that we are looking at on a daily basis.
Darren Lampert: But we have been in the market buying back stock and with that we are always looking at acquisitions.
Darren Lampert: Again, if we find something that we believe is accretive and in the best interest of our shareholders and we will take a hard look at it and if it's going to work for <unk> and we're a buyer. So we are always reviewing.
Darren Lampert: Products stores out there.
Darren Lampert: Looking what's in the best interest of grow Jay So thats helpful.
Darren Lampert: Five step process that we are looking at on a daily basis.
Speaker Change: Excellent. Thank you.
Aaron Thomas Grey: Thank you, ladies and gentlemen. As a reminder, should you have any questions, please press star followed by 1. The next question comes from Aaron Grey at Alliance Global. Please go ahead.
Speaker Change: Thank you, ladies and gentlemen, as a reminder, should you have any questions. Please press star followed by one.
Aaron Thomas Grey: Next question comes from Aaron Grey.
Aaron Thomas Grey: <unk> Global please go ahead.
Mark Eric Smith: Hi, good evening, and thank you for the questions. This is Remy Smith on for Aaron Grey. So my first question, can you provide commentary on how 2Q is looking quarter-to-date? I know it's historically been a strong quarter for you guys, so any color and if you're seeing a typical seasonal benefit would be helpful. Thank you.
Aaron Thomas Grey: Hi, Good evening and thank you for the questions. This is Robert Smith on for Erinn Greg.
Mark Eric Smith: So my first question can you provide commentary on how to accuse looking quarter to date I know, it's historically been a strong quarter for you guys. So any color and if youre seeing that typical seasonal benefit would be helpful. Thank you.
Darren Lampert: I think the only color I can give you right now is that we're reaffirming guidance for the year, which is a two million dollar loss to a three million dollar profit. And as you saw, our first quarter EBITDA loss was 2.9 million, so we're looking for a positive back half of the year starting in the second quarter. We also reaffirmed our revenue guidance, which you know was 47.8 million for the first quarter.
Mark Eric Smith: I think the only color I can give you right now is we're reaffirming guidance for the year, which is a $2 million loss to a $3 million profit and as you saw our first quarter EBITDA loss was $2 9 million. So we're looking for a positive.
Darren Lampert: Half of the year starting in the second quarter. We also reaffirmed our revenue guidance that that was when we did $47 8 million for the first quarter. So if you took that knee you times that by three you can see that many times. It by four we're considerably behind our guidance numbers. So we are looking for a tremendous.
Darren Lampert: So if you took that and you times that by three, you'd see that times it by four, we're considerably behind our guidance numbers. So we are looking for a tremendous pickup in the second quarter, third quarter, and you know for the remainder of the year.
Darren Lampert: Pick up in the second quarter.
Darren Lampert: Third quarter for the remainder of the year.
Mark Eric Smith: Thank you, that's helpful. And then on my second question, you called out pricing pressure weighing on gross margins in the quarter. Can you speak to how you see pricing in the segment going forward? Do you expect it to continue to weigh on margins and offset the benefit from increasing private label mix? Or do you see this as transitory with the return to higher gross margins in the near term?
Speaker Change: Thank you that's helpful. And then my second question called out pricing pressure weighing on gross margin in the quarter can you speak to how you're seeing pricing in the segment going forward do you expect it to continue to weigh on margins and offset the benefit from increasing private label mix or are you seeing this as transitory.
Mark Eric Smith: Back to higher gross margins in the near term.
Mark Eric Smith: Greg, I'm going to send that over to you.
Mark Eric Smith: Greg I'm going to send that over to you.
Gregory Sanders: Yeah, you know, I think when you look at the first quarter, margins improved compared to the fourth, which was a positive, but they're down year over year. And I think there were two primary drivers that I'll try to unpack.
Greg: Yeah, I think when you look at the first quarter margins improved compared to the fourth which was a positive but theyre down year over year.
Gregory Sanders: I think there was two two primary drivers that I'll try to unpack.
Gregory Sanders: The first was storage solutions revenue, which came in less than planned. For the quarter, storage solutions was about 10% of revenue. If we look at it as, you know, 14%, which is kind of where we were for the duration of 2023, that brings us up to a, you know, mid-27% gross margin profile on the business, just at the revenue levels that we're at. So that's a big lever that we're expecting continued improvement from in the second and third quarters.
Gregory Sanders: The first was storage solutions revenue, which came in less than planned.
Gregory Sanders: For the quarter storage solutions was about 10% of revenue.
Gregory Sanders: If we look at it is 14%, which is kind of where we were for the duration of 2023 that brings us up to a mid 27% gross margin profile on the business.
Gregory Sanders: Just at the revenue levels that we're at so that's a big lever that we're expecting continued improvement from the second and third quarters and the other piece is we closed six locations in the fourth quarter and four more in the FERC and with that you get a certain amount of inventory that you have to move around the country moved from the closures to stores that are <unk>.
Gregory Sanders: And the other piece is that we closed six locations in the fourth quarter and four more in the first. And with that, you get a certain amount of inventory that you have to move around the country, move from the closures to stores that are open, and those costs had an impact on our results as well. So when you factor in those different pieces, it kind of pushes us up into that 28 to 29 range.
Gregory Sanders: And those costs had an impact on our results as well.
Gregory Sanders: So when you factor in those different pieces of kind of pushes us up into that 20% to 29 range.
Gregory Sanders: So that's kind of the area that we're looking at, you know, as we look through the duration of 2024 from a margin perspective. You know, we're hopeful that drip powders will really take off for us as we look at, you know, really Q3 and Q4. Maybe there's a small impact in the second quarter yet to be determined. Most of those, you know, trials are still ongoing throughout the country. So there are a lot of bright spots that we believe are out there right now to kind of help drive a stronger, you know, gross margin profile through the rest of the year.
Gregory Sanders: So that's kind of the area that we're looking at as we look through the duration of 2024 from a margin perspective.
Gregory Sanders: We're hopeful that drip powders.
Gregory Sanders: Really take off for us as we look at really Q3 and Q4, maybe there's a small impact in the second quarter yet to be determined most of those.
Gregory Sanders: Miles are still ongoing throughout the country.
Gregory Sanders: So theres a lot of bright spots that we believe are out there right now.
Gregory Sanders: Kind of help drive a stronger gross margin profile through the rest of the year.
Mark Eric Smith: And then my last question, if I could, if I have time, with the cannabis reform in Germany that recently occurred in April and broader legalization efforts around Europe, do you see opportunity to capitalize on some of this reform?
Gregory Sanders: Yes.
Speaker Change: Really appreciate the color there and then my last question if I could at that time.
Mark Eric Smith: With the candidates reform and Jeremy that recently occurred in April.
Mark Eric Smith: Broader legalization efforts around Europe, do you see opportunity to capitalize on some of those reforms.
Darren Lampert: We believe there is an opportunity. We have not taken advantage of it as yet, but we are actively speaking with certain distribution companies about getting some of our proprietary brands into the European market, but again, nothing has been done as yet.
Mark Eric Smith: We believe there is opportunity we have not taken advantages as of yet, but we are actively speaking with certain distribution companies about getting some of our proprietary brands over into the European market, but.
Darren Lampert: Again nothing is done.
Darren Lampert: Nothing has been done as of yet.
Mark Eric Smith: Okay, I appreciate the call. I'll hop back in the queue.
Darren Lampert: Okay.
Speaker Change: Okay I appreciate the color I'll hop back in the queue.
Mark Eric Smith: Okay.
Darren Lampert: Thank you. At this time, we have no further questions. I will turn the call back over to you for closing comments.
Speaker Change: Thank you at this time, we have no further questions I will turn the call back over for closing comments.
Darren Lampert: I'd like to take this opportunity to thank all our shareholders for their continued support of GrowGeneration. I wish you all the best for a happy summer, and we look forward to updating you on our second quarter in August. Thank you. Ladies and gentlemen, this concludes your conference for today. We thank you for participating, and we ask that you please disconnect your line.
Speaker Change: I'd like to take the opportunity to thank all our shareholders for their continued support of grow generation and.
Darren Lampert: I wish you all the best for a happy summer and we look forward to updating you on our second quarter.
Darren Lampert: August thank you.
Operator: Ladies and gentlemen, this concludes your conference for today. We thank you for participating, and we ask that you please disconnect your lines.
Darren Lampert: Ladies and gentlemen. This concludes your conference for today, we thank you for participating and we ask that you. Please disconnect your lines.
Operator: Okay.
Operator: Okay.