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GrowGeneration Corp. (GRWG)·Q2 2024 Earnings Summary

Executive Summary

  • Net revenue was $53.5 million, up 11.8% quarter-over-quarter; gross margin improved to 26.9% (+110 bps q/q); net loss narrowed sequentially to $5.9 million; adjusted EBITDA loss improved to $1.1 million .
  • Management announced a comprehensive restructuring: closing 19 stores in 2024 (7 already closed in H1), targeting ~$12 million annualized cost savings, and focusing on proprietary brands and digital B2B sales; FY24 revenue guidance cut to $190–$195 million and FY24 adjusted EBITDA guidance withdrawn .
  • Proprietary brands reached 21.5% of Cultivation & Gardening sales (vs. 16.7% YoY), consumables mix rose to 73.0% (vs. 69.7% YoY); Storage Solutions revenue was softer on project timing (pushed into Q3) .
  • Street consensus (S&P Global) was unavailable at time of retrieval; we cannot assess beat/miss vs estimates (S&P Global data not accessible due to limit).

What Went Well and What Went Wrong

What Went Well

  • Sequential acceleration: net revenue increased 11.8% q/q to $53.5 million despite 7 store closures between Q1 and Q2, underscoring strength of remaining footprint .
  • Margin and mix improvement: consolidated gross margin reached 26.9% (+110 bps q/q), driven by proprietary brands; Storage Solutions gross margin was 46.9% .
  • Proprietary brands gaining traction: proprietary brand sales were 21.5% of Cultivation & Gardening, up from 16.7% a year ago; management targets 35% of total sales by end-2025—“a clear target for our proprietary brands to account for 35% of total sales by the end of 2025” .
  • Balance sheet resilience: $56.0 million in cash, cash equivalents, and marketable securities; no debt .

What Went Wrong

  • Year-over-year decline: net sales fell 16.3% YoY to $53.5 million, primarily from store consolidations/closures; same-store sales decreased 6.2% YoY .
  • Near-term margin headwinds ahead: management expects gross margin to dip to the low-to-mid 20s in H2’24 due to inventory rationalization from restructurings before returning to high 20s/low 30s in 2025 .
  • Guidance reduction and uncertainty: FY24 revenue guidance lowered to $190–$195 million; FY24 adjusted EBITDA guidance withdrawn amid restructuring timing and actions .
  • Segment softness: Storage Solutions revenue declined 11.3% YoY to $7.4 million on project timing; regional headwinds persisted in Oklahoma and the Northeast .

Financial Results

Income Statement Summary vs Prior Quarters (oldest → newest)

MetricQ4 2023Q1 2024Q2 2024
Revenue ($USD Millions)$49.5 $47.9 $53.5
Gross Margin (%)23.5% 25.8% 26.9%
Net Income (Loss) ($USD Millions)$(27.3) $(8.8) $(5.9)
Diluted EPS ($USD)$(0.44) $(0.14) $(0.10)
Adjusted EBITDA ($USD Millions)$(3.7) $(2.9) $(1.1)

Q2 2024 vs Prior Year and Prior Quarter

MetricQ1 2024Q2 2023Q2 2024
Revenue ($USD Millions)$47.9 $63.9 $53.5
Gross Profit ($USD Millions)N/A$17.1 $14.4
Gross Margin (%)25.8% 26.8% 26.9%
Net Income (Loss) ($USD Millions)$(8.8) $(5.7) $(5.9)
Diluted EPS ($USD)$(0.14) $(0.09) $(0.10)
Adjusted EBITDA ($USD Millions)$(2.9) $0.9 $(1.1)

Segment Breakdown (Q2 2024)

SegmentRevenue ($USD Millions)YoY ChangeGross Profit ($USD Millions)Gross Margin (%)
Cultivation & Gardening$46.1 Down from $55.6 $10.9 23.7%
Storage Solutions (MMI)$7.4 Down from $8.4 $3.5 46.9%
Total$53.5 Down from $63.9 $14.4 26.9%

KPIs and Operational Metrics (oldest → newest)

KPIQ4 2023Q1 2024Q2 2024
Same-Store Sales ($USD Millions)$35.6 $38.2 (vs. $38.6 PY) $41.1 (vs. $43.9 PY; -6.2%)
Proprietary Brands Mix (% of C&G sales)~19% FY23 context 22.6% 21.5% (vs. 16.7% PY)
Consumables Mix (% of C&G sales)N/AN/A73.0% (vs. 69.7% PY)
Storage Solutions Revenue ($USD Millions)$7.7 $4.8 $7.4
Cash & Marketable Securities ($USD Millions)$65.0 (12/31/23) $61.3 (3/31/24) $56.0 (6/30/24)
Inventory ($USD Millions)$64.9 (12/31/23) $66.0 (approx; Q1 call) $60.6 (6/30/24)
Current Liabilities ($USD Millions)$30.9 (12/31/23) N/A$29.2 (6/30/24)
Retail Locations (count)47 (early 2024) 47 (after Q1 consolidations) 43 operating; plan to reduce to 31 in H2’24

Estimates vs Actuals

MetricQ2 2024 ConsensusActual
Revenue ($USD Millions)N/A (S&P Global unavailable at time of retrieval)$53.5
EPS ($USD)N/A (S&P Global unavailable at time of retrieval)$(0.10)

Note: Wall Street consensus estimates from S&P Global were not available at time of retrieval due to access limits; therefore, beat/miss vs consensus cannot be assessed.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net SalesFY 2024$205–$215 million (Mar 13; reiterated May 8) $190–$195 million Lowered
Adjusted EBITDAFY 2024$(2) million to $+3 million (Mar 13; reiterated May 8) Withdrawn (to be updated later) Withdrawn
Cost Savings (OpEx)Next 12 monthsN/A~$12 million annualized savings targeted New target

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2023, Q1 2024)Current Period (Q2 2024)Trend
Proprietary brands strategyFY23 mix ~19%; launching Drip powder; aim mid-20s% in 2024 21.5% of C&G; target 35% of total sales by end-2025; ~50 new products next 12 months Strengthening focus; long-term mix higher
Digital/B2B transformation“Soon to be launched” digital platform; B2B portals in development Launching B2B e-commerce portal in Q4’24; warehouse pickup model; HRG B2B portal launched (June) Execution underway
Retail footprint optimization14 closures in 2023; 3 consolidated in Q1’24; ~47 stores 19 closures in 2024 (7 done); plan to end 2024 with 31 stores Accelerated consolidation
Storage Solutions (MMI)Considering monetization; strong growth 2021–2023 Revenue down YoY on timing; engaging Lake Street Capital for strategic options Evaluating strategic alternatives
Macro/regulatory (DEA, 280E)Anticipated rescheduling; positive impact on CapEx cycles Public comment closed July 22; management remains optimistic on rescheduling benefits Potential catalyst; still pending
Regional trendsCA/MI strength; OK/Northeast weakness CA/MI strength continues; OK/Northeast headwinds persist Mixed; concentrating on stronger regions
Pricing/freight pressuresIndustry pricing pressure; freight costs elevated Pricing pressure on distributed products; higher freight costs; planned inventory reduction to impact margins short term Near-term margin headwinds

Management Commentary

  • Strategic focus and targets: “We have a clear target for our proprietary brands to account for 35% of total sales by the end of 2025… add approximately 50 new products… launch a B2B e-commerce portal… fulfillment strategy where commercial customers will shop online and have access to products in existing warehouse style stores” .
  • Restructuring plan and cost savings: “Closing 19 redundant or underperforming stores in 2024… expected to generate margin gains, improve profitability and reduce expenses by approximately $12 million on an annualized basis” .
  • Margin trajectory: “We expect [gross margin]… in that low to mid-20s range as we work through… inventory reductions… ultimately lead… high 20s, low 30s… with… proprietary brand sales next year” .
  • Q2 results and brand momentum: “Gross margins for the second quarter was 27%, a 110 basis point improvement… proprietary brand sales increased in July… as customers migrate from trials to sales” .
  • Quote from press release: “These results highlight the success of our strategic initiatives to drive proprietary brand sales as well as our ongoing focus on streamlining our business” .

Q&A Highlights

  • Gross margin outlook and inventory actions: Gross margin expected to be low-to-mid 20s in H2’24 due to inventory reduction from store closures, then return to high 20s/low 30s in 2025 with proprietary mix expansion .
  • Restructuring timing and costs: Remaining 9 store closures targeted by November; estimated closure-related costs $3–$5 million (inventory discounts, leases, severance), with margin degradation near-term due to discounting strategy to maintain goodwill and retention .
  • B2B portal capabilities and customer transition: Digital/B2B portal designed to serve commercial customers with online ordering and warehouse pickups; infrastructure in Ohio/Sacramento supports fulfillment; portals for proprietary brands in flight .
  • Proprietary brands distribution: About 50% of proprietary brand sales already go through third-party stores/distributors; Drip Hydro and Char Coir showing strong trial-to-sales momentum .
  • 2025 profitability prospects: Management expects margins to return and positions the business back for profitability in 2025, but too early to provide exact EBITDA figures .

Estimates Context

  • S&P Global consensus estimates for Q2 2024 EPS and revenue were unavailable at time of retrieval due to access limits; therefore, we cannot provide beat/miss analysis versus Street consensus at this time.
  • In lieu of consensus comparison, results should prompt downward estimate revisions to FY24 revenue across the sell-side, with increased uncertainty around FY24 EBITDA given management withdrew guidance; near-term gross margin assumptions likely to be revised lower for H2’24 given inventory actions, with FY25 margin modeled higher on proprietary mix expansion .

Key Takeaways for Investors

  • Sequential improvement and mix shift: Revenue and margins improved q/q, driven by proprietary brands; expect near-term margin pressure from restructuring, then recovery in 2025—position sizing should account for this cadence .
  • Restructuring is the key 2H’24 narrative: Store closures and SKU rationalization create transitory headwinds but target ~$12 million annualized OpEx savings—watch execution milestones (closure timing, inventory actions, B2B launch in Q4) as stock reaction catalysts .
  • Guidance reset lowers FY24 revenue base: FY24 revenue cut to $190–$195 million and EBITDA guide withdrawn; the removal elevates uncertainty/risk premiums near-term, but sets up the bar for 2025 profitability inflection on strategic initiatives .
  • Proprietary brands and digital B2B are structural drivers: Target 35% proprietary mix by end-2025 and B2B portal rollout should enhance margins and reduce cost-to-serve—track brand adoption (Drip Hydro, Char Coir, Ion, The Harvest Company) and third-party distribution penetration .
  • Segment dynamics: Storage Solutions softness was timing-related; monitor Q3 revenue catch-up and strategic alternatives (Lake Street Capital mandate) as potential value unlock .
  • Macro/regulatory optionality: DEA rescheduling (280E relief) could kickstart durable refresh cycles and capital access for cultivators, benefiting higher-ticket categories; timing remains uncertain but is a positive optionality overlay .
  • Trading setup: Near-term volatility likely around closure updates and margin prints; a credible execution of B2B launch and evidence of proprietary mix expansion could re-rate the name ahead of 2025 profitability signals .