Darren Lampert Archives - Green Market Report

GrowGeneration Corp. (NASDAQ: GRWG) slumped in late trading on Thursday after second-quarter results missed expectations — showing that consumer demand for hydroponics in the nation remained muted as a lack of regulatory guidance and recessionary pressures in the sector persist. The company released its financial results for the second quarter ending June 30, 2022.

For the key metric of same-store sales, GrowGeneration reported a 56.9% decline in same-store sales — lower than analysts’ expectations. The company also saw a $3.7 million decline for the combined e-commerce platform versus $20 million at the same time last year. The decline stems from the closure of the company’s commercial-focused Agron.io platform.

The company missed total revenue expectations as it delivered approximately $71.1 million during the period — missing the Stifel analyst estimate for revenues of $85 million.

GrowGeneration reported revenues of $54.8 million for the second quarter of 2022 and is lowering its guidance for 2022 revenue. GrowGeneration‘s new forecasted range for revenue is $250 million–$275 million, far below a range of $340 and $400 in the previous quarter. Adjusted EBITDA guidance is estimated to be a loss of $12 million–$15 million, down from previous quarter expectations of $0 to $10 million profit.

The company also reported a second-quarter 2022 GAAP net loss of $136.7 million compared to a net income of $9.6 million in the same period last year. Diluted loss per share in the fourth quarter was $2.24 versus diluted earnings per share of $0.11 in the same period last year. Non-GAAP income before interest, taxes, depreciation, amortization and share-based compensation (Adjusted EBITDA) was a loss of $2.9 million in the second quarter of 2022, compared to earnings of $14.5 million in the same period last year.

Revenue from non-retail operations and distributed products was $12.0 million in the second quarter versus $5.0 million in the same quarter last year.

The decrease in net income was mainly due to a $127.8 million non-cash impairment expense for goodwill and intangible assets “acquired in historical business combinations.” The company said that impairment and income tax expense represents a preliminary amount and remain subject to change following the completion of normal quarter-end accounting procedures.

“The GrowGen team faced significant industry headwinds in the second quarter resulting in disappointing results for the quarter,” said CEO Darren Lampert. “We expect the revenue and gross profit headwinds in the first half will continue in the second half, with the remainder of 2022 revenue decline compared to the first half as we are facing more pressure than we initially planned. While the industry is experiencing a prolonged period of softer demand, we remain confident in the longer-term opportunity that exists within hydroponics and indoor controlled environment agriculture. GrowGen remains on a solid financial footing with a strong balance sheet and operational capabilities.

We firmly believe we are well positioned to emerge stronger when the market eventually turns. In the meantime, we are taking an active approach to manage the business in a way that preserves cash through working capital optimization and we are more aggressively right-sizing our cost structure.”

Earlier this week, Stifel analysts Andrew Carter and Christopher Growe published an earnings preview report that estimated GrowGen’s second-quarter revenue would be $85 million, which is a drop of -32% over last year and just above consensus.

In his report, Carter thought that the company’s cost savings plan could help it in the back half of 2022. He also noted that his estimates didn’t include benefits from reduced inventory levels, and he thinks rightsizing the inventory will be a tailwind for cash flow aiding the company’s efforts to achieve break-even cash flow while investing behind the organization.

The company generated $3.8 million of positive cash flow from operations “as we managed inventory levels during the second quarter,” Lampert said. He also said the company “on track” to reduce its annualized cost base by $13 million versus last year’s levels.