GrowGeneration Corp. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited. GrowGeneration operates Cultivation and Gardening and Storage Solutions businesses, with 46 retail locations across 18 U.S. states at quarter-end.
Financial results
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Net sales | $47.9 million | $56.8 million |
| Gross profit / margin | $12.4 million / 25.8% | $16.3 million / 28.7% |
| Operating loss | $9.4 million | $7.4 million |
| Net loss | $8.8 million | $6.1 million |
| Adjusted EBITDA (non-GAAP) | Loss of $2.9 million | Loss of $1.8 million |
| Operating cash flow | Used $3.7 million | Provided $3.5 million |
Sales declined 15.7% year over year. Cultivation and Gardening sales were $43.1 million, down from $49.1 million; Storage Solutions sales were $4.8 million, down from $7.7 million. Management attributed the cultivation segment decline primarily to store consolidations, including 13 locations consolidated after Q1 2023 and four additional consolidations during Q1 2024. Same-store sales declined approximately 1%, with weaker e-commerce partly offset by growth at brick-and-mortar stores.
Gross margin fell 290 basis points, mainly from pricing pressure on distributed products and non-recurring store-consolidation costs. Operating expenses decreased 8.1% to $21.8 million, as lower store operating costs were partly offset by higher SG&A, including one-time severance and professional fees. The net loss widened to $0.14 per share from $0.10.
Liquidity, cash flow and obligations
- Cash and cash equivalents were $31.1 million and marketable securities were $30.3 million at March 31, 2024, totaling $61.3 million. Working capital was $112.4 million, down from $116.5 million at year-end 2023.
- Operating cash use was $3.7 million. Investing activities provided $5.0 million, largely reflecting marketable-security maturities net of purchases. Capital expenditures were $0.4 million. Cash ended the quarter at $31.1 million.
- The balance sheet reports no conventional borrowings. Operating lease liabilities totaled $43.0 million, including $7.6 million current; lease commitments are the principal stated future cash obligation.
- Management said the company was adequately funded for operations over the next 12 months, while noting that future financing could be needed to support growth strategies.
Developments, outlook and risks
- The company authorized a share-repurchase program of up to $6.0 million, beginning April 1, 2024 and lasting up to one year. It is discretionary; no purchases occurred during Q1.
- In March, GrowGeneration engaged Lake Street Capital to advise on strategic opportunities for its Mobile Media benching, racking and storage solutions business.
- Management cited difficult market conditions persisting from 2023 into 2024 and continued store consolidation efforts. It described growth priorities including proprietary brands, commercial and wholesale sales, new markets, and broader Storage Solutions customer reach. The filing provides no specific financial guidance.
- Management concluded disclosure controls and internal control over financial reporting were not effective at March 31, 2024 because of material weaknesses. Identified issues include accounting resources and policy controls, risk assessment and monitoring, IT general controls, inventory counts, valuation controls, and segregation of duties. Remediation is ongoing; management expects to test controls during 2024. The 2023 auditor issued an adverse opinion on internal control over financial reporting.
- In the Total Grow bankruptcy proceedings, the company received $0.3 million in February 2024 on a previously fully reserved $1.5 million note; the remainder was written off. Management said ordinary-course legal claims are not expected to have a material adverse effect, but outcomes cannot be assured.
Key facts for investors to verify
- Whether sales and gross-margin trends stabilize, particularly in Cultivation and Gardening and Storage Solutions.
- Progress and effectiveness of remediation of material weaknesses in internal controls.
- Cash generation, working capital, and liquidity relative to lease obligations and any discretionary share repurchases.
- Results of the strategic review of Mobile Media and any resulting transaction or change in business focus.
- Store-consolidation costs, market conditions, and any further closures or financing needs.