Hydrofarm Stock Craters As Sales Wither

Hydrofarm Holdings Group, Inc. (Nasdaq: HYFM) slumped in trading on Tuesday as it posted second-quarter results that missed expectations — showing that consumer demand for hydroponics remained flat as a lack of regulatory guidance and recessionary pressures facing the sector persist. The company released its financial results for the second quarter ending June 30, 2022.

The company missed revenue expectations as it delivered approximately $97.5 million in revenue during the period — missing the Yahoo Finance average analyst estimate for revenues of $111.32 million.

Hydrofarm reported net sales of $97.5 million for the second quarter, versus $133.8 million for the same period last year, and is lowering its guidance for 2022 revenue. The company said that declining valuation trends within the industry and in the broader market “adversely impacted the company’s market valuation since its last quarterly report and triggered a full evaluation of the goodwill arising from prior acquisitions.”

The company’s new forecasted range for revenue is $330 million$347 million, far below a range of $480 and $520 in the previous quarter. Adjusted EBITDA guidance is estimated to be a loss of $16 million$25 million, down from previous quarter expectations of $46 to $54 million profit.

“Our second quarter results reflect the ongoing impact of the hydroponic industry recession in the U.S. and Canada,” CEO Bill Toler said. “Nonetheless, we took positive steps to lower our cost structure and maintain a solid liquidity position.”

The company also reported a second-quarter 2022 GAAP net loss of $203.3 million versus a net income of $2.3 million in the same period last year. Diluted loss per share in the fourth quarter was $4.53 versus diluted earnings per share of four cents in the same period last year.

Adjusted EBITDA saw a loss of $6.8 million in the second quarter of 2022, compared to earnings of $16.2 million in the same period last year. The company said that the decrease was primarily related to lower gross profit due to a decline in net sales and an additional inventory reserve of $10.2 million. It also attributes the losses to lower net sales and falling gross profit margins — as well as higher labor and freight costs.

The company said it had $27.4 million in cash, cash equivalents, and restricted cash, an aggregate principal amount of debt outstanding of $126.7 million — including $0 drawn on the company’s revolving credit facility, approximately $124.4 million in principal balance on its Term Loan and approximately $2.4 million in finance leases and other debt — $15.3 million in contingent payments and approximately $70 million of available borrowing capacity under its revolving credit agreement.

Hydrofarm decreased its net debt by approximately $14.1 million during the second quarter by improving its working capital position and controlling costs. The company said it was in compliance with all debt covenants as of June 30, 2022.

Lowered Outlook

With the new guidance, Hydrofarm expects approximately $330.0 million to $347.0 million in net sales “combined with some further reduction to account for the holiday-shortened months in the fourth quarter.”

In October 2021, Hydrofarm lowered its outlook from a range of $565 million to $590 million of net sales to approximately $470 million to $490 million – a sign of just how bad sales have plunged.

The company — whose president stepped down in June — also said that it incurred severance costs during the period as it cut part of its workforce “to optimize our cost structure.”

Adam Jackson

Adam Jackson covers the cannabis industry for The Green Market Report. He previously covered the Missouri statehouse for The Columbia Missourian and freelanced for The Missouri Independent. He most recently covered retail, restaurants, and other consumer companies for Bloomberg Business News. You can find him on Twitter @adam_sjackson and email him at adam.jackson@crain.com.

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