Q4 2024 GrowGeneration Corp Earnings Call
Speaker Change: This conference calls may be recorded and a replay of today's call will be available on the Investor Relations section of GrowGeneration's website. I will now hand a call over to Phil Carlson with KCSA for introductions and a reading of the Safe Harbor Statement. Please go ahead.
Phil Carlson: Thank you and welcome everyone to GrowGeneration's fourth quarter and full year 2024 Earnings Results Conference Call. With us today, I'm Darren Lampert, co-founder and chief executive officer in Greg Sanders, Chief Financial Officer of GrowGeneration.
Speaker Change: The company's fourth quarter in full year 2024 earnings press release was issued after the market closed today. The copy of this press release is available on the Investor Relations section of the GrowGeneration website at ir.grogeneration.com.
Speaker Change: I'd like to remind everyone that certain comments made on this call include for looking statements which are subject to the safe harbor provisions of the private security litigation reform act of 1995.
Speaker Change: These four-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 different materially from those described in these four-looking statements. [inaudible]
Speaker Change: Please refer to today's press release and other filings with the SEC for a detailed discussion of the risk that could cause actual results to different materially from those expressed or implied in any of the four looking statements made today.
Speaker Change: Yes, you see filing as well as the earnings press release, which provide recommendations of non-GAAP and intermeasures to the most directly comparable GAAP measures are available on our website.
Unidentified Moderator: Following prepared remarks, we'll be happy to take your questions. We ask you, please limit yourself to one question and one follow-up. If you have additional questions, please re-enter the queue and we'll take them as time allows. Now I will hand the call over to GrowGeneration's co-founder and CEO , Darren Lampert, Darren, please go ahead.
Thanks, Phil, and good afternoon, everyone.
Unidentified Moderator: We appreciate you joining us today, as we discussed our fourth quarter and full year of 2024 results and talk about our outlook for 2025.
Unidentified Moderator: Today, we reported fully year 2024 results that were consistent with our expectations.
Unidentified Moderator: This included full year 2024 net revenue of 188.9 billion which was in line with the preliminary results we reported in early February .
Total 2024 proprietary brand sales with 39.5 million.
Unidentified Moderator: representing 24.2% of total net sales compared to 18.8% in the prior year.
2024, Mark the pivotal year for GrowGeneration. [inaudible]
Unidentified Moderator: as we've successfully executed a strategic transformation to position the company for sustainable, profitable growth.
Unidentified Moderator: With this extensive strategic restructuring plan, we have moved away from a focus on stores in order to transform GrowGen into a product driven company with a business to business customer focus.
Unidentified Moderator: For proprietary brands, I'm happy to report that 30.4% of our fourth quarter of 2024 cultivation and gardening revenue was derived from sales of our proprietary products compared to 21.2% for the fourth quarter of 2023.
Unidentified Moderator: This is very important because proprietary product sales not only drive higher margins but also to create a stable, reoccurring revenue stream for GrowGen.
Unidentified Moderator: Our goal remains clear for proprietary grants to reach 35% of cultivation and gardening net sales by the end of 2025.
Unidentified Moderator: Power for Folio, a leading brand such as Charfer Cocoa, Drift Hydro-Nutrients, the Harvest Company, and our Ion Lighting Solutions.
Unidentified Moderator: continue to drive growth for proprietary brand sales, by integrating these proprietary brands into our commercial and e-commerce platforms, we're providing growers, premium products that are reduced input costs while maximizing yields.
Unidentified Moderator: Regarding the digital transformation of sales, our new V2V e-commerce platform was launched on the 4th quarter of 2024.
Since its launch, we received extremely positive cuts to repeat that.
Unidentified Moderator: We will continue migrating transaction activity for our brick and mortar stores for a new digital platform, enhancing the customer purchasing experience while driving operational efficiencies across a supply chain.
Unidentified Moderator: And lastly, in 2024, we made substantial progress in streamlining operations and reducing expenses throughout our entire organization.
Unidentified Moderator: We proactively optimize our retail footprint, completing strategic store consolidation ahead of schedule, which significantly reduce operating expenses while preserving sales in key markets.
Unidentified Moderator: Following his actions, we now have 31 operational stores and two regional distribution centers.
Unidentified Moderator: Looking forward, we expect to reduce annual expenses for approximately 12 million. We've already made considerable progress.
Unidentified Moderator: Rose Prophet Margin was 16.4% for the fourth quarter of 2024, compared to 23.5% for the fourth quarter of 2023.
Unidentified Moderator: Primarily due to one time inventory disposal costs and strategic discounting as part of a restructuring effort.
Unidentified Moderator: With the increasing revenue contribution we are realizing from proprietary brands. We are anticipating sequential margin improvement throughout 2025 with a margin target of 30% which will drive overall profitability.
Unidentified Moderator: Complimenting all of this, we finished 2024 with no debt on our balance sheet and a strong cash, cash equivalent, a marketable securities position of 56.5 million.
Unidentified Moderator: Additionally, in 2024, we completed a $6 million share repurchase program demonstrating our commitment to returning value to our shareholders.
Unidentified Moderator: This strong financial footing provides a significant financial flexibility for future growth investment
Unidentified Moderator: With our strong cap position, we can opportunistically acquire businesses that complement our proprietary brand portfolio, expand our market share and increase our profitability.
Unidentified Moderator: Lastly, before I discuss guidance, I want to talk about our story solutions business, MMI.
32024, MMI continues to exceed our expectations.
Unidentified Moderator: As previously communicated in 2024, we engaged Lake Street Capital to support strategic opportunities for this business.
Unidentified Moderator: After a thorough evaluation process, the board determined current marking conditions do not support an optimal value creation scenario for the vestiture at this time.
Unidentified Moderator: Instead, we will continue to focus on executing our long-term expansion plans for MMI, leveraging its strong profitability to drive additional value within the GrowGen portfolio.
Unidentified Moderator: Starting for guidance, to the full year 2025, we expect net revenues to be in the range of $170,280,000,000 and adjusted EBITOP in the range of a $2,000,000 loss to a positive $2,000,000 profit.
Unidentified Moderator: Before we take your questions, I want to briefly talk about invested concerns related to the impact of proposed global tariffs.
We've already implemented measures to mitigate these effects.
Unidentified Moderator: These include diversifying and material sourcing strategy, including optimizing costs, renegotiating with vendors, and exploring manufacturing options.
and Improve and Supply Chain Efficiency.
Unidentified Moderator: to optimize legit system fulfillment, reduced unnecessary costs, and improved margins.
Unidentified Moderator: including utilizing our larger stores as regional fulfillment hubs to improve inventory flow and lower shipping costs.
and in cases where tariffs may impact our businesses.
Chair Charges will be put in place, reflect additional costs.
In summary, 2024 was a transformational year for GrowGen.
Unidentified Moderator: and we enter 2025 with a leaner, more efficient and more product driven business model.
Unidentified Moderator: with a proprietary brand, digital transformation, and cost optimization strategies in place.
Speaker Change: You're confident that 2025 will be a year of revenue growth and innovation for GrowGen as we aim to reach profitability in the second quarter of 2025. I will now hand the call over to our CSL Greg Sanders, Greg.
Greg Sanders: Thank you, Darren. Good afternoon, everyone. Today, I'll review the highlights of our fourth quarter in full year 2024 financial results.
and then I'll discuss our outlook for 2025.
Greg Sanders: During the fourth quarter, we continue to place heavy emphasis on rapid execution of our restructuring plan in order to position the business for 2025.
We will highlight proprietary brand sales, which outpaced our expectations.
Greg Sanders: The delivery of our second consecutive quarter of St. St. Stor sales growth, additional improvements to our expense base, and measures taken to right size inventory.
Greg Sanders: Fourth quarter net revenue was $37.4 million compared to $49.5 million in the year ago period. The decline was mainly due to the closure of 19 retail locations during 2024.
Greg Sanders: As anticipated, these store closures and consolidations impacted overall met revenue. This was partially offset by an increase in team store sales, which rose 1% year-over-year.
Greg Sanders: The fourth quarter represented our second consecutive quarter of positive same-star sales growth.
Greg Sanders: which was primarily driven from consolidation efforts along with your over your growth of our commercial
Greg Sanders: Cultivation and gardening net sales was 32.9 million for the fourth quarter of 2024 compared to 41.7 million for the comparable year ago period.
Greg Sanders: Net sales of commercial fixtures within our storage solution segment decreased 41% to 4.5 million for the fourth quarter of 2024 compared to 7.7 million in the comparably year ago quarter.
Greg Sanders: Gross profit margin was 16.4% for the fourth quarter of 2024, compared to 23.5% for the fourth quarter of 2023, a decrease of 710 basis points.
Greg Sanders: Primarily due to inventory disposal costs, which was a component of our restructuring plan.
We continue to lower expenses in the fourth quarter.
Greg Sanders: Store and other operating expenses declined, 21.1% to 9.3 million compared to 11.8 million in the fourth quarter of 2023.
Greg Sanders: Selling General and Administrative Exfences for the quarter was $6.8 million, compared to $7.9 million in the fourth quarter of 2023, a 13.3% improvement.
Greg Sanders: We expect to recognize additional cost improvements into the first quarter of 2025 and beyond.
Greg Sanders: Appreciation and amortization was $7.1 million for the 4th quarter of 2024 compared to $4.1 million in the comparable year ago quarter.
Greg Sanders: This increase was due to an acceleration of certain depreciable assets resulting from our restructuring initiatives through your end.
Greg Sanders: In addition, the company recognized a non-cash impairment of 6.7 million of certain intangible assets and goodwill from acquisitions completed in prior years.
Greg Sanders: Netloss was 23.3 million for the fourth quarter of 2024 or negative 39 cents per share, an improvement of 4 million compared to a net loss of 27.3 million or negative 44 cents per share in the fourth quarter of 2023.
Greg Sanders: The improvement in net loss was primarily due to improvements in expense structure and lower impairment offset by gross margin.
Greg Sanders: Adjusted EBITDA, as defined in our press release, was negative 8.1 million compared to negative 3.7 million in the same period last year.
Greg Sanders: Now, I will provide a quick overview of our results for the full year 2024. Net sales were 188.9 million compared to 225.9 million for 2023. As mentioned, this was mainly due to the closure of 19 retail locations.
Greg Sanders: In 2024, proprietary brands accounted for 24.2% of cultivation and gardening sales up from 18.8% in 2023.
Additionally, proprietary brand cells increased on an absolute basis.
Greg Sanders: From 36.5 million in 2023 to 39.5 million in 2024, an 8.4% improvement.
Greg Sanders: Gross Profit was 4.7 million for the full year 2024 in decrease of 17.5 million compared to the gross profit of 61.3 million for the full year 2023.
Greg Sanders: Gross Profit margin was 23.1% for the full year 2024, compared to 27.1% for the full year 2023.
A decrease of 400 basis points.
Greg Sanders: That loss was 49.5 million for the full year 2024 or negative 82 cents per share.
Greg Sanders: An increase of $3 million compared to a net loss of $46.5 million for the full year 2023, or negative $0.76 per share, adjusted EBITDA as defined in our press release.
Greg Sanders: was negative 14.5 million for the full year 2024, compared to a negative 5.6 million for the full year 2023.
Greg Sanders: The decrease in adjusted EBITDA was primarily driven by the pivot that we took in the third quarter of 2024 to restructure the business.
Greg Sanders: The fluctuation was primarily due to software revenues, along with the decrease in gross profit margin resulting from inventory disposable costs and inventory sales discounts resulting from 19 store closures and rationalizing our product mix.
Greg Sanders: Turning to the balance sheet, as of December 31, 2024, the company had 56.5 million of cash, cash equivalents and marketable securities and no debt.
Greg Sanders: During the full year 2024, we utilized $6 million to repurchase company shares at an average share price of $2.38 per share.
Greg Sanders: As of December 31st, 2024, we had completed all purchases available under the Shervery Purchase Program. We continue to maintain a strong cash position and do not foresee any near term financing needs.
Now, I'll discuss our guidance for 2025.
Greg Sanders: As Darren mentioned earlier, for the full year 2025, we expect net revenues to be in the range of 170 to 180 million.
Greg Sanders: We expect full year 2025 adjusted EBITDA to be in the range of a $2 million loss to a positive $2 million profit.
Greg Sanders: Further, with the improvements made in our inventory base, we anticipate gross margins for the full year 2025 to be in the range of 29%, 31%.
Greg Sanders: Our updated guidance assumes the software first quarter with profitable second and third quarters emphasized by the outdoor cultivations here.
Greg Sanders: Along with continued improvements in gross margin and a lower operating expense base as we emerge into 2025 with a cleaner and more strategic model that better aligns our business to current industry conditions .
Greg Sanders: In closing, during 2024, we made significant progress in reminding our operations and restructuring our business for long-term profitability.
Greg Sanders: We ended the year with a strong balance sheet and the financial resources to support our continued strategic growth.
Greg Sanders: In 2025, we will remain focused on driving further margin expansion, managing our costs and focusing our attention towards opportunities that we expect will deliver long-term profits to our shareholders.
Darren Lampert: With that, I will hand the call over to Darren for closing remarks.
Thanks, Gregor.
Darren Lampert: and thank you for everyone for joining us today. Over the past year, we've taken actions to fundamentally transform GrowGeneration into a leaner, more efficient, and product-driven
Darren Lampert: As we move forward, we will continue to expand our high margin proprietary product offerings, refine our B2B e-commerce platform, and leverage our optimized cost structure to deliver stronger financial
Darren Lampert: with a debt-free balance sheet and strong cash position. GrowGen is well-positioned for sustainable revenue growth and profitability as we move throughout 2025.
Speaker Change: That concludes our prepared remarks. Operator, please open the line for questions.
Unidentified Moderator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press our followed by the number one on your touch stone phone.
Speaker Change: You will hear a prompt that your hand has been raised.
Unidentified Moderator: Should you wish a decline from the polling process, please press star, followed by the number two.
Unidentified Moderator: If you're using a speaker phone, please lift the handset before pressing any keys.
Please be reminded to ask one question and one follow-up
Unidentified Moderator: Their first question comes from the line of Aaron Grey from Alliance Global Partners. Their line is now open.
Hi, good evening, and thank you for the question.
Speaker Change: So first question I want to ask you just on on the gross margin you guys are targeting a lot of improvement there so
Speaker Change: I just want to talk about the cadence we should expect you alluded to it a little bit. It seems like a little bit softer, one cue and a lot more improvement in two cue. Don't know if that was more broad profitability versus just the gross margin, so just curious there should we expect some level of a step up. [inaudible]
Speaker Change: and one of the quarters there where there's more gradual improvement throughout relative to where we came from for a cue. Thanks.
Gregory, do you want to take that?
Gregory: Yep, I'll take that one. So Aaron, I think when we look at the first quarter, you know, we're coming off of the fourth quarter, we're 30.4% of our cultivation and gardening net sales were driven from our proprietary brands.
Speaker Change: In our model, we're assuming a continued wrap throughout the course of the year, which will help support, you know, greater gross margin as we proceed through the duration of the year. Traditionally, Q3 is our strongest quarter from a gross margin perspective.
Speaker Change: Q2 tends to perform quite well also, but we are expecting an immediate lift in the first quarter on gross margin, we're seeing it in our results already.
Speaker Change: as we're looking at reporting on a monthly basis, and we're excited to talk about the first quarter of May and our next running school.
Speaker Change: But as we get throughout the year, I think you will see continued improvements. We're targeting 30% for the full year in terms of gross margin. So we're arranging on the guide inside from 29 to 31 counters at midpoint.
So hopefully that helps you.
Speaker Change: That's very helpful. Thank you for that. Um, second question for me, just high level as you guys have to shift, you know, a bit more to the e-commerce, university stores, can you talk about?
Speaker Change: Some initiatives you're taking to help transition some of those sales and with the store fleet at 31 today are you comfortable with that or potentially if you get more traction on shifting sales to e-commerce is there a potential for that to slim down even more. Thank you.
Speaker Change: I think I can start, Aaron, you know, restructuring is largely complete when it comes to the store side of it. We're down to 31 stores, focusing on a higher performing market and driving operational efficiencies.
Speaker Change: And we're always looking to optimize if we can. The B2B portal to launch in the fourth quarter, they're up and working well where we are transferring our commercial customers over the portals as we speak with the wreck ship inside of our hubs and also out of our warehouses.
Speaker Change: So, what we're seeing right now is, you know, from GrowGen, we're just, you know, much more business-to-business company than business-to-consumer. So, the necessity of, you know, of overlapping stores and the same areas you're just starting to disappear. So, we will continue to rationalize, but I will say that the majority of it is over today.
Speaker Change: Okay, great. Thanks for the commentary there, and I'll go ahead and jump back into the queue.
Speaker Change: Your next question comes from the line of Mark Smith from Lake Street. Your line is now open.
Speaker Change: Hi, guys. Our first question for me is just looking at the proprietary brands. Can you talk about the sales within different kind of channels, you know, what's going through become, you know, B2B business versus kind of in the stores?
Grey would you have to take that?
Speaker Change: Yeah, so I think when you look at the different channels right now you're seeing our retail and commercial group really accelerating the penetration of our proprietary brands.
Speaker Change: Our wholesale business at this point is almost entirely our proprietary brand, so we are distributing very little of other organizations products. It's mostly our own products at this point.
Speaker Change: I'm an e-commerce picking up as well. We have spent a lot of time building up brand pages and prioritizing Amazon in recent months. We moved that business to FPA as well so that's all of our proprietary brands. We are no longer distributing other companies products on Amazon either.
So you're seeing really growth.
Speaker Change: from all of our channels right now in the proprietary brand side of things with some of the channels.
Speaker Change: You know, almost exclusively focused on those products right now as we look at, you know, the pivot from being a retail, which we still have, you know, 31 retail locations that are very important to our business.
Speaker Change: But doubling down on our products and finding additional verticals to sell through those products into, and I think you'll see more diversification from us in 2025 above and beyond what we've already executed.
Speaker Change: Okay. And then I wanted to follow up on on gross profit margin. You know, it sounds like there's a lot of kind of clear out sale type stuff to clean up the inventory Q4. Do you feel like you got through all of that or is there some carry over still of inventory that needs to be cleaned up here in Q1?
Speaker Change: You know, we had over 20 million in inventory that, you know, what-
Speaker Change: at a lower margin profile sometimes at a loss throughout the last several years and it really burned our results. As we were looking at the heavy focus on restructuring in the back half of 2024, we did make a pretty significant cut in the fourth quarter to go through all of our skews on a qualitative basis.
Speaker Change: and repositioning the business. So in short, there will always be continuous improvements made to inventory, but I mean the heavy lift is gone and that really reflects what we believe will achieve on a gross margin perspective for 2025.
Mark: Ian Mark, which you also saw during the cleansing of the Indian service.
Speaker Change: It's our nineteen stores closed in the last six months of the year.
Speaker Change: So there was a lot of inventory running through those 19 closed stores.
Speaker Change: where we put products on sale as a better server of customers.
Speaker Change: Opposed to spending additional capital on moving the products from sort to sort.
Speaker Change: So I think it was twofold. One, it was cleansing of the inventory.
Speaker Change: But it was the amount of stores that were closed in such a short period of time is why you saw 16% margins in the fourth quarter. And again, we do believe that you'll see those numbers even in the first quarter in the high 20s. And you know, certainly reaching the 30s, hopefully by second quarter this year.
Excellent. Thank you.
Speaker Change: Your next question comes from the line of Brian Nagel from Openheimer. Your line is not opened.
Speaker Change: Hey, this is William Dowth, and I'm on for Brian Nagel. Thanks for taking our questions.
Speaker Change: Greg, you can go over the outlook and then I'll take the other part of it.
Greg Sanders: Yeah, so when we look at 2025 from a demand perspective,
You know we we foresee
Greg Sanders: A rebound from wherever my business had dropped from 30 million to 25 million in the prior year, we expect some growth back in that business into 2025.
Greg Sanders: More diversification in revenue streams. The largest part of that business.
Greg Sanders: from a revenue perspective in 2024 was on the retail side of things and we're seeing more more opportunities within retail but in other places as well so we're optimistic about what MMI and that's part of.
Greg Sanders: The basis of why we believe evaluation is worth holding on to long-term and continuing to double down in that business, but within that cultivation and gardening side of things, which is our core business,
Greg Sanders: I think we're seeing most of the growth coming in from our proprietary brands and our ability to service the B2B customers.
Greg Sanders: Over the last several months we've rolled out B2B portals for both our wholesale business as well as our commercial customer base.
Greg Sanders: and we're beginning to see a very strong adoption within the portals. And more interested in our proprietary brands, we launched the drip powder line in.
Greg Sanders: Q2 of 2024, and we're starting to see a lot more conversion as time progresses. Charcore continues to evolve and become a higher demand product.
Greg Sanders: So I think when we look at our business, we're focused on the demand of our proprietary branch as much as anything right now, we continue to stay focused, state by state and in different markets.
Greg Sanders: just based on how the laws are structured in the US around cannabis and cannabis growers. And then lastly, we're, you know, continue to, you know, place emphasis as well on diversifying our revenue streams.
Greg Sanders: You know, outside of cannabis into lawn and garden, nurseries, greenhouses, and eventually big box as well. So, there's a lot of moving parts but we feel good about really our brands and our ability to drive more sales through those brands.
Speaker Change: A lot of change since we last spoke and just wanted to, you know, if there's been any updated thinking around cannabis reclassification, thanking policies, safe act, that type of thing, thank you.
Speaker Change: As of today, I think most of us are still very confused. You know, we are waiting. We still do believe that it is.
Speaker Change: Not if it's when the Trump administration, you know, has certainly, has...
Fignal prior to the election that they would-
Speaker Change: You know, they stood for rescheduling in state by state, but most of it's been pushed back with that in some certain date. We do believe that if you see rescheduling.
Speaker Change: or Safe Banking that it'll bring tremendous capital into the industry, which will flow down to GrowGen on the build-out side and also on the consumer side of it.
Speaker Change: So we were waiting like the rest of us. Our numbers that you see today are 170 million to 180 million are based on nothing happening with our federal government this year. But we still remain optimistic. We remain optimistic that President Trump will.
Re-schedule as he promised in this pre-election campaign.
Great color. Good luck, guys. Thank you.
Thank you.
Speaker Change: There are no further requests that this time, I will now turn the call over to Darren Lampert, please continue.
Speaker Change: Attendee, Darren Lampert, John Mills, Gregory Sanders, Philip Carlson, Unknown Executive
Darren Lampert: Thank you for joining us on the call today. We look forward to updating you on our first-door call in day.
Thank you.
Darren Lampert: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
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