• Net Revenue: $53.5 million, a sequential increase of 11.7% from $47.9 million in Q1 2024.
• Adjusted EBITDA Loss: $1.1 million, a $1.7 million improvement from Q1 2024.
• Gross Margin: 27%, a 110 basis point improvement from the previous quarter.
• Same-Store Sales: $41.1 million, a decrease of 6.2% year-over-year.
• Proprietary Brand Sales: Increased to 21.5% of cultivation and gardening net sales from 16.7% in the same period last year.
• Store Closures: 19 stores to be closed in 2024, with 7 already closed in the first half of the year, leaving 31 operational stores.
• Net Loss: $5.9 million or negative $0.1 per share, compared to a net loss of $5.7 million or negative $0.09 per share in the prior year.
• Cash Position: $56 million in cash, cash equivalents, and marketable securities as of June 30, 2024.
• Full Year Revenue Guidance: Revised to $190 million to $195 million for 2024.

• Warning! GuruFocus has detected 3 Warning Signs with GRWG.

Release Date: August 08, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• GrowGeneration Corp (NASDAQ:GRWG) reported a sequential net revenue increase of 11.7% from the first quarter, reaching $53.5 million.
• Proprietary brand sales increased significantly, accounting for 21.5% of cultivation and gardening net sales, up from 16.7% the previous year.
• Gross margins improved by 110 basis points from the previous quarter, reaching 27%, driven by the growth in proprietary brand sales.
• The company has launched a strategic restructuring plan aimed at achieving long-term profitability, including a focus on proprietary brands and digital transformation.
• GrowGeneration Corp (NASDAQ:GRWG) maintains a strong cash position with $56 million in cash, cash equivalents, and marketable securities, supporting its share repurchase program.

Negative Points

• Net revenue for the second quarter decreased by 16.3% compared to the same period last year, reflecting the closure of 19 retail locations.
• Same-store sales declined by 6.2% year-over-year, with continued pressure in the Oklahoma and Northeast markets.
• The company reported a net loss of $5.9 million for the second quarter, slightly higher than the $5.7 million loss in the same period last year.
• GrowGeneration Corp (NASDAQ:GRWG) has reduced its full-year 2024 revenue guidance to $190 million to $195 million and eliminated its adjusted EBITDA guidance due to restructuring impacts.
• The company anticipates near-term impacts on margins and expenses as it executes its restructuring plan, including store closures and inventory rationalization.

Q & A Highlights

Q: Can you provide guidance on gross profit margins in the near term and long term, considering the store closures and inventory liquidation? A: Darren Lampert, CEO: We expect gross margins to be in the low to mid-20s range as we work through inventory reductions in the back half of the year. For 2025, we anticipate margins in the high 20s to low 30s, driven by increased proprietary brand sales.

Q: What is the timeline for the store closures, and should we expect any lumpiness in the process? A: Darren Lampert, CEO: We plan to close three stores per month over the next three months, aiming to complete closures by November. Some legacy leases may extend into 2025, but we are actively working on transferring or terminating them.

Q: What investment is needed for the restructuring, and how cumbersome will the process be? A: Darren Lampert, CEO: The cost of closing the remaining nine stores is estimated at $3 to $5 million, covering inventory, lease negotiations, and severance. We aim to complete 80% of this by year-end, entering 2025 as a leaner company.

Q: How will the digital initiative impact customer reach, and what is the plan for transitioning customers to this model? A: Darren Lampert, CEO: The digital initiative will allow us to serve customers beyond our physical store locations. We are launching a B2B e-commerce portal and enhancing our warehouse capabilities to facilitate online orders and pickups, improving service and reducing costs.

Q: What is the potential for proprietary brands to expand into third-party stores and distributors? A: Darren Lampert, CEO: About 50% of our proprietary brands are already distributed outside GrowGen. We are building brand equity, and with new product launches, we expect to increase our presence in third-party stores and distributors.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.