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GrowGeneration (GRWG) Q1 Earnings Miss, Trims '22 Outlook

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·5 min read
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GrowGeneration Corp. GRWG reported a loss per share of 9 cents in the first quarter of 2022, wider than the Zacks Consensus Estimate of a loss of 8 cents per share. The company had reported earnings per share of 10 cents in the first quarter of 2021. The quarterly results reflect the ongoing weakness in the cannabis industry.

GrowGeneration generated revenues of $81.8 million in first-quarter 2022, which declined 9% year over year, highlighting the weak industry demand. The top line missed the Zacks Consensus Estimate of $83.2 million. Comparable store sales in the quarter slumped 35.5% from the prior year at its 48 retail locations and e-commerce operations. This was somewhat negated by contributions from acquisitions.

E-commerce revenues (including growgeneration.com and Agron revenues) in the quarter under review were $5.3 million, down from $6 million in the last-year quarter. Revenues from non-retail operations rose to $12.2 million in the quarter from $2.8 million last year.

Cost of sales declined 8% year on year to $59.6 million in the quarter. Gross profit was down 13% year over year to $22 million. Gross margin was 27.15% in the quarter under review, a 110 basis point contraction year over year on lower net sales, fewer rebates, and increased obsolescence and shrinkage costs.

Store operating costs were $14.5 million compared with $8 million in the prior-year quarter, owing to the increase in store locations. Selling, general, and administrative expenses surged 39% to around $10 million in the quarter under review, primarily attributable to the addition of non-retail operations through acquisitions. Adjusted EBITDA was a loss of $0.7 million in the quarter against the prior-year quarter’s positive $11.1 million.

Financial Position

At the end of the first quarter of 2022, GrowGeneration had cash and short-term marketable securities of $66 million. Inventory was $105.9 million, and prepaid inventory and other current assets were $7 million at the quarter-end. Total current liabilities, including accounts payable and accrued payroll and other liabilities, were $36.6 million at the quarter’s end.

Acquisition Activity

GrowGeneration purchased assets of Ogden, UT-based Horticultural Rep Group, Inc. (“HRG”) during the quarter. HRG is a specialty marketing and sales organization of horticultural products. The total consideration for the buyout was $13.4 million.

2022 Guidance Lowered

GrowGeneration anticipates the ongoing revenue and gross profit headwinds to intensify in the second quarter. The company is anticipated to face more pressure than initially expected for the remainder of 2022. Despite the weak demand faced by the industry currently, GRWG believes that the long-term prospect of hydroponics remains intact. Meanwhile, the company is working toward preserving cash through working capital optimization and aggressively right-sizing its cost structure.

GrowGeneration now expects revenues between $340 million and $400 million in 2022. The company had earlier provided guidance of $415 million to $445 million. Full-year adjusted EBITDA guidance is expected to come within $10 million, lowered from the prior range of $30 million to $35 million. GRWG expects to open 10-15 stores this year. The company has trimmed its target from the earlier planned 15 to 20 locations. The move is in sync with its intention to refrain from building new stores in states where it already has a physical retail presence. The company currently has 63 locations across 13 states.

Price Performance

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In the past year, GrowGeneration’s shares have fallen 86.4% against the industry’s rally of 12.2%.

Zacks Rank & Stocks to Consider

GrowGeneration currently has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the basic materials space include Steel Dynamics, Inc. (STLD), Commercial Metals Company CMC and Nutrien NTR.

Steel Dynamics, currently sporting a Zacks Rank #1 (Strong Buy), has an expected earnings growth rate of 18.5% for the current year. The Zacks Consensus Estimate for STLD's earnings for the current year has been revised upward by 32.5% over the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.

Steel Dynamics beat the Zacks Consensus Estimate for earnings in each of the last four quarters, the average surprise being 2.5%. STLD has gained around 27% in the past year.

Commercial Metals, presently flaunts a Zacks Rank #1, has a projected earnings growth rate of 78.2% for the current fiscal year. The Zacks Consensus Estimate for CMC's earnings for the current fiscal year has been revised 31.9% upward over the past 60 days.

Commercial Metals beat the Zacks Consensus Estimate for earnings in three of the last four quarters and missed once, the average surprise being 16%. CMC has gained around 20% in a year.

Nutrien, carrying a Zacks Rank #1 at present, has an expected earnings growth rate of 42.8% for the current year. NTR’s consensus estimate for earnings for the current year has been revised 37% upward in the past 60 days.

Nutrien beat the Zacks Consensus Estimate for earnings in three of the trailing four quarters and missed once, the average surprise being 5.8%. NTR has rallied around 53% in a year’s time.


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