GrowGeneration Corp. Price & Performance (GRWG)

Continue to drive growth proprietary brand sales. By integrating these proprietary brands, into our commercial and e commerce platforms, We are providing growers premium products that reduce input costs, while maximizing yields. Regarding the digital transformation of sales, our new B2B e commerce platform was launched as planned in the fourth quarter twenty twenty four. Since its launch, we received extremely positive customer feedback. We will continue migrating transaction activity for our brick and mortar stores to our new digital platform enhancing the customer purchasing experience while driving operational efficiencies. Across our supply chain. And lastly, in 2024, we made substantial progress in streamlining operations and reducing expenses. Throughout our entire organization. We proactively optimized our retail footprint completing strategic store consolidation ahead of schedule. Which significantly reduced operating while preserving sales in key markets. Following these actions, we now have 31 operational stores and two regional distribution centers. Looking forward, we expect to reduce annual expenses by approximately $12,000,000 We've already made considerable progress. Gross profit margin was 16.4% for the fourth quarter, of twenty twenty four. Compared to 23.5% for the fourth quarter of twenty twenty three. Primarily due to one time inventory disposal costs, and strategic discounting as part of restructuring efforts.

With the increasing revenue contribution we are realizing from proprietary brands, we anticipate sequential margin improvement throughout 2025. With a margin target of 30%. Which will drive overall profitability. Complementing all of this we finished 2024 with no debt on our balance sheet and a strong cash equivalent marketable securities position of $56,500,000 Additionally, in 2024, we completed a $6,000,000 share repurchase program. Demonstrating our commitment to returning value to our shareholders. This strong financial footing provides a significant financial flexibility for future growth investments and initiatives. As well as potential acquisitions. With our strong cash position we can opportunistically acquire businesses that complement our proprietary brand portfolio expand our market share and increase our profitability. Lastly, before I discuss guidance, I want to talk about our Storage Solutions business MMI. During 2024, MMI continues to exceed our expectations. With full year 2024 revenue of $25,400,000 and $6,300,000 in operating profit. As previously communicated, in 2024, we engaged Lake Street Capital to explore strategic opportunities for this business. After a thorough evaluation process, the Board determined current market conditions to not support an optimal value creation scenario for divestiture at this time. Instead, we will continue to focus on leveraging a strong profitability to drive additional value within the GrowGen portfolio.

Turning to guidance for the full year 2025, we expect net revenues to be in the range of 170,000,000 to $180,000,000 and adjusted EBITDA the range of a $2,000,000 loss to a positive $2,000,000 profit. Before we take your questions, I want to briefly talk about invested concerns. Related to the impact of proposed global tariffs. We have already implemented measures to mitigate these effects. These include diversifying our material sourcing strategy including optimizing costs, renegotiating with vendors and exploring manufacturing options. And improving supply chain efficiencies to optimize logistics and fulfillment reduce unnecessary costs, and improved margins. 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, surcharges will be put in place to reflect additional costs. In summary, 2024 was a transformational year for GrowGen. And we entered 2025 with a leaner, more efficient and more product driven business model. With our proprietary brands, digital transformation, and cost optimization strategies in place, we are 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 twenty twenty five.

I will now hand the call over to our CFO, Greg Sanders. Greg? Thank you, Darren, and good afternoon, everyone. Today, I'll review the highlights of our fourth quarter and full year 2024 financial results and then I'll discuss our outlook for 2025. 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'll highlight proprietary brand sales, which outpaced our expectations delivery of our second consecutive quarter of same store sales growth, additional improvements to our expense base, measures taken to right size inventory, Fourth quarter net revenue was $37,400,000 compared to 49,500,000.0 the year ago period. Decline was mainly due to the closure of 19 retail locations during 2024. As anticipated, these store closures and consolidations impacted overall net revenue. This was partially offset by an increase in same store sales, which rose 1% year over year. Fourth quarter represented our second consecutive quarter of positive same store which was primarily driven from consolidation efforts, along with year over year growth of our commercial customer base. Cultivation and gardening net sales was $32,900,000 for the fourth quarter of twenty twenty four, compared to $41,700,000 for the comparable year ago period.

Proprietary brand sales increased to 30.4% of cultivation and gardening sales for the fourth quarter of twenty twenty four compared to 21.2% for the fourth quarter of twenty twenty three. Our fourth quarter proprietary brand sales outpaced our internal expectations and provides us with confidence in our long term ability to expand gross margin. Net sales of commercial fixtures within our Storage Solutions segment decreased 41% to $4,500,000 for the fourth quarter of twenty twenty four compared to $7,700,000 in the comparable year ago quarter. This decrease was largely due to timing of revenue recognition on various large projects that went into the third quarter twenty twenty four. Gross profit margin was 16.4% for the fourth quarter of twenty twenty four, compared to 23.5% for the fourth quarter of twenty twenty three a decrease of seven ten basis points. Primarily due to inventory disposal costs which was a component of our restructuring plan. Continued to lower expenses in the fourth quarter. Store and other operating expenses declined 21.1% to $9,300,000 compared to 11,800,000.0 in the fourth quarter of twenty twenty three. Selling, general and administrative expenses for the quarter were $6,800,000 compared to $7,900,000 in the fourth quarter of twenty twenty three.

A 13.3% improvement. We expect to recognize additional cost improvements into the first quarter of twenty twenty five and beyond. Depreciation and amortization was $7,100,000 for the fourth quarter of twenty twenty four, compared to $4,100,000 in the comparable year ago quarter This increase was due to an acceleration of certain depreciable assets resulting from our restructuring initiatives through year end. In addition, the company recognized a non cash impairment of $6,700,000 of certain intangible assets and goodwill from acquisitions completed in prior years. Net loss was $23,300,000 for the fourth quarter of twenty twenty four negative $0.39 per share. An improvement of $4,000,000 compared to a net loss of $27,300,000 or negative $0.44 per share the fourth quarter of twenty twenty three The improvement in net loss was primarily due to improvements in expense structure and lower impairment offset by gross margin. Adjusted EBITDA, as defined in our press release, was negative $8,100,000 compared to negative 3,700,000.0 in the same period last year. The decrease to adjusted EBITDA was primarily driven by sales mix and one time inventory adjustments of more than $3,000,000 that we believe addresses the alignment of our inventory mix to meet go forward proprietary brand expectations.

Now, I will provide a quick overview of our results Net sales were $188,900,000 compared to 225,900,000.0 for 2023. As mentioned, this was mainly due to the closure of 19 retail locations, twenty twenty four proprietary brands accounted for 24.2% of cultivation and gardening sales, up from 18.8% in 2023. Additionally, proprietary brand sales increased on an absolute basis. From $36,500,000 in 2023. To $39,500,000 in 2024. An 8.4% improvement Gross profit was 43,700,000.0 for the full year 2024, a decrease of 17,500,000.0 compared to gross profit of $61,300,000 for the full year 2023. Gross profit margin was 23.1% for the full year '20 compared to 27.1% for the full year 2023. Decrease of 400 basis points Net loss was $49,500,000 for the full year 2024 or negative $0.82 per share an increase of $3,000,000 compared to a net loss of $46,500,000 for the full year 2023. Or negative $0.76 per share. Adjusted EBITDA as defined in our press release, was negative 14,500,000.0 for the full year 2024 compared to a negative $5,600,000 for the full year 2023. Increase in adjusted EBITDA was primarily driven by the pivot that we took in the third quarter of twenty twenty four to restructure the business Fluctuation was primarily due to software revenues, along with a decrease in gross profit margin resulting from inventory disposal costs and inventory sales discounts resulting from 19 store closures and rationalizing our product mix.

Turning to the balance sheet. As of 12/31/2024, the company had $56,500,000 of cash, cash equivalents marketable securities and no debt. During the full year 2024, we utilized $6,000,000 to repurchase company shares at an average share price of $2.38 per share. As of 12/31/2024, had completed all purchases available under the share repurchase 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. As Darren mentioned earlier, for the full year 2025, we expect net revenues to be in the range of $170,000,000 to 180,000,000 We expect full year 2025 adjusted EBITDA to be in the range of a $2,000,000 loss to a positive $2,000,000 profit Further, with the improvements made in our inventory base, we anticipate gross margins for the full year 2025 to be in the range of 2931%, Our updated guidance assumes a softer first quarter with profitable second and third quarters emphasized by the outdoor cultivation along with continued improvements in gross margin, and a lower operating expense base we emerge into 2025 with a cleaner, more strategic model that better aligns our business to current industry conditions. In closing, during 2024, we made significant progress in streamlining our operations and restructuring our business for long term profitability We ended the year with a strong balance sheet and the financial resources to support our continued strategic growth. 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 profit to our shareholders.

With that, will hand the call over to Darren for closing remarks. Thanks, Greg. 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 business. As we move forward, we will continue to expand our high margin for proprietary product offerings refine our B2B e commerce platform and leverage our optimized cost structure. To deliver stronger financial performance. With a debt free balance sheet and strong cash position, ProGen is well positioned for sustainable revenue growth and profitability as we move throughout 2025. That concludes our prepared remarks. Operator, please open the line for questions. Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from the line of Aaron Gray from Alliance Global Partners.

Your line is now open. Hi, good evening and thank you for the question. The first question I want to ask is just on the gross margin. You guys are targeting a lot of improvement there. So just want to talk about cadence we should expect. You alluded to it a little bit. It seems like a little bit softer 1Q and a lot more improvement in 2Q. I 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 in in one of the quarters there or were there more gradual improvement throughout relative to where we came for 4Q? Thanks.

Greg, you just take that. Yes, I'll take that one. So Aaron, I think when we look at the first quarter we're coming off of a fourth quarter where 30.4% of our cultivation and gardening net sales were driven from our proprietary brands. In our model, we're assuming a continued ramp throughout the course of the year. Which will help support greater gross margin as we proceed through the duration of the year. Traditionally, Q3 is our strongest quarter from a gross margin perspective. Q2 tends to perform [indiscernible] an immediate lift in the first quarter on gross margin. We're seeing it in our results already. As we're looking at reporting on a monthly basis and we're excited to talk about May in our next earnings call.

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 our range on the guidance side from 29% to 31% is at midpoint. So hopefully that helps.

That's very helpful.

Thank you for that. Second question for me, just high level as you guys look to shift a bit more to the e commerce versus stores, can you talk about 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 potential for that to slim down even more? Thank you.

If I could start, Aaron, 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. But as always, we'll continue to evaluate performance and market conditions. And we're always looking to optimize if we can. The B2B portals launched in the fourth quarter they're up and working well. We are transferring our commercial customers over the portals as we speak.

With direct shipments out of our hubs and also out of our warehouses. So we're seeing right now is from GrowGeneration just much more business to business company than business to consumer. So the necessity of overlapping stores in 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.

Okay, great. Thanks for the commentary there and I'll go ahead and jump into the queue.

Your next question comes from the line of Mark Smith from Lake Street. Your line is now open.

Hi guys. First question for me is just looking at the proprietary brands, Can you talk about the sales within different kind of channels? What's going through ecom, B2B business versus kind of in the stores?

Greg, would you have to take that?

Yes. 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 our proprietary brands. 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 our own products at this point. And ecom is picking up as well. We have spent a lot of time building our brand pages and prioritizing Amazon and in recent months. We moved that business to FPA as well. So that's all of our proprietary [indiscernible] So you're seeing really growth from all of our channels right now on the proprietary brand side, of things with some of the channels almost exclusively focused on those products right now as we look at the pivot from from being a retailer, which we still have 31 retail locations that are very important to our business, but doubling down on our products and finding additional [indiscernible] in 2025 above and beyond what we've already executed.

Okay. And then I want to follow-up gross profit margin. It sounds like there's a lot of kind of clear out sales type stuff to clean up the inventory in Q3. Do you feel like you got through all of that? Or is there some carryover still of inventory that needs to be cleaned up here in Q1?

Yes.

The heavy lifting is really done on the inventory side of things, Mark. When we saw the industry start to turn in late 'twenty one, we had over $20,000,000 in inventory that some companies may have discarded more rapidly for us. We sold through most of it at a at a lower margin profile, sometimes at a loss or last several years and it really burdened our results as we're 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 SKUs on a qualitative basis. And move on from what no longer serves as business as we look at 2025 and beyond and focusing on our proprietary brands, cleaning up our warehouses and our distribution centers, 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 we'll achieve on a gross margin perspective for 2025.

And Mark, what you also saw during the cleansing of the inventory it's sort of 19 stores closed in the last six months of the year. So there was a lot of inventory running through those 19 closed stores. Where we put products on sale to better serve our customers. Opposed to spending additional capital on moving the products from store to store So I think it was twofold. One, it was cleansing of the inventory 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 certainly reaching the 30s hopefully by second quarter of this year.

Excellent.

Thank you.

Your next question comes from the line of Brian Nagel from Oppenheimer.

Hey, this is William Dawson. I'm on for Brian Nagel. Thanks for taking our questions. So very broadly, just wanted to ask about demand in the space. And respect to your 2025 outlook, [indiscernible] understand better growth and demand assumptions embedded within that outlook? Greg, you can go over the outlook and then I'll take the other part of it.

Yes. So when we look at 2025 from a demand perspective, we foresee a rebound from our MMI business a drop from $30,000,000 to $25,000,000 in the prior year.

Expect some growth back in that business into 2025. More diversification in revenue streams The largest part of that business from a revenue perspective in 2024 was on the retail side of things and we're seeing more and more opportunities within retail but in other places as well. So optimistic about MMI and that's part of the basis of why we believe the valuation is worth holding on to long term and continuing to double down on that business. But within the cultivation and gardening side of things, which is our core core business, I think we're seeing most of the growth coming in from our proprietary Over the last several months, we rolled out B2B portals for both our wholesale business as well as our commercial customer base. We're beginning to see very strong adoption within the portals. And more interest in our proprietary brands. We launched the drip powder line in Q2 of twenty twenty four and we're starting to see a lot more conversion as time progresses. ShoreCore continues to evolve and become a higher demand product. So I think when we look at our business, we're focused on the demand of our proprietary brands as much as anything right now.

We continue to stay focused state by state and in different markets. Just based on how the laws are structured in The U. S. Around cannabis cannabis growers. And then lastly, we're continue to place emphasis as well on diversifying our revenue streams 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. Appreciate that.

My next question was going to be on the regulatory environment. A lot of change since we last spoke and just wanted to see if there's been any updated thinking around cannabis reclassification banking policies, SAFE Act? Type of thing? Thank you. As of today, I think most of us are still very confused We are waiting. We still do believe that it's not if, it's when. The Trump administration has certainly has signaled prior to the election that they would they stood for rescheduling at state by state. But most of it's been pushed back without any some certain date. We do believe that if you see rescheduling or safe banking that it will bring tremendous capital into the industry. Which will slow down to GrowGeneration the build out side, on also on the consumer side of it. So we were waiting like the rest of us Our numbers that you see today, dollars 170,000,000 to 180,000,000 are based on nothing happening with our federal government this year.

But we still remain optimistic We remain optimistic that President Trump will reschedule as he promised in his pre election campaign. Thank you.

There are no further questions at this time. Will now turn the call over to Darren Lambert, Please continue.

Thank you for joining us on the call today.

We look forward to updating you on our progress on our first quarter call in May. Thank you.

Ladies and gentlemen, this concludes today's conference call. You for your participation. You may now disconnect.