GrowGeneration Corp. Q1 FY2025 earnings call

• The company is transforming into a leaner, more profitable, product-driven company with a B2B customer focus, though top-line contracted due to softness in durables and consumables demand from regulatory and tariff concerns. - Proprietary product sales accounted for 32% of total revenue, up 22.6% year-over-year, with leading brands like Drip Hydro, Charcoir, etc. - Formally launched the GrowGen Pro Portal, a digital B2B platform for commercial growers, etc., which is fully operational with features like real-time inventory. - Gross margins grew to 27.2%, up year-over-year and sequentially, reflecting stronger product mix and disciplined procurement. - Ended the quarter with $52.6 million in total liquidity and no debt, with $42.1 million inventory in proprietary products. - MMI Storage Solutions segment revenue was flat year-over-year at $4.8 million but faced margin pressure, with efforts to manage costs and expand into other industries. - Actively executing a plan to right-size the company for sustainable profitability, including reducing fixed costs, simplifying operations, and repurposing stores into fulfillment centers.

Cultivation and Gardening segment: First quarter net sales were $30.9 million compared to $43.1 million in the comparable year-ago period. Proprietary brand sales accounted for 32% of Cultivation and Gardening sales for the first quarter of 2025, up from 22.6% in the first quarter of 2024. Storage Solutions segment: Net sales of commercial fixtures were $4.8 million for the first quarter of 2025, flat to the prior year quarter. Based on recent activity, the segment is anticipated to have quarter-over-quarter growth in the second quarter.

• Expect revenue in excess of $40 million in the second quarter of 2025. - Withdrew full-year 2025 guidance due to macroeconomic uncertainty from global trade policy changes and consumer demand fluctuations. - Plan to revisit full-year guidance once there is greater visibility in the broader economic outlook. - Anticipate both reporting segments to generate higher revenue in the second quarter than the first quarter.

• Softness in durables and consumable demand due to regulatory and tariff concerns. - Macro-economic climate uncertainty affecting forecasting. - Global trade policy changes and potential fluctuations in consumer demand posing risks to actual results differing from forward-looking statements.

Q: Hi, guys. I want to ask, first off, just a little bit around tariffs and proprietary products. Can you just give any additional insight on how much products may be coming out of China versus other countries? And then any other steps that you’ve taken thus far in kind of mitigation process?

A: Yes, I’ll take that, Mark, currently, on our proprietary brands, less than 10% is coming from China. So we’re pretty – we’re in a pretty decent shape right there within our proprietary brand portfolio. We have products coming in from India, our Charcoir brands. Drip, we’re now hopefully switching manufacturing. We’re manufacturing the liquids in the United States and the powders are coming out of Mexico. So we’re in pretty decent shape when it comes to our proprietary brands. Steps, we continue to negotiate with our vendors on pricing. We are starting, as we spoke about within our conference call, starting to use more of a hub-and-spoke model. So products are getting delivered where they do belong, and we’re using some of our larger stores as storage and to fulfill customers’ orders, so starting to save some money on shipping and fulfillment. And when necessary, we are increasing pricing.

Q: Hi, guys. I want to ask, first off, just a little bit around tariffs and proprietary products. Can you just give any additional insight on how much products may be coming out of China versus other countries? And then any other steps that you’ve taken thus far in kind of mitigation process?

A: Yes, I’ll take that, Mark, currently, on our proprietary brands, less than 10% is coming from China. So we’re pretty – we’re in a pretty decent shape right there within our proprietary brand portfolio. We have products coming in from India, our Charcoir brands. Drip, we’re now hopefully switching manufacturing. We’re manufacturing the liquids in the United States and the powders are coming out of Mexico. So we’re in pretty decent shape when it comes to our proprietary brands. Steps, we continue to negotiate with our vendors on pricing. We are starting, as we spoke about within our conference call, starting to use more of a hub-and-spoke model. So products are getting delivered where they do belong, and we’re using some of our larger stores as storage and to fulfill customers’ orders, so starting to save some money on shipping and fulfillment. And when necessary, we are increasing pricing.

Q: Good evening. Thank you for the questions. First one for me, just want to keep going on proprietary brands, but instead think about total addressable market continue to outperform, gaining mix. So want to speak more about the incremental distribution opportunities that you see available in the near-term as you look to expand the client base for who your products cater to. I know you’re talking about putting more in the portal versus stores, but I’d love to hear more about maybe incremental distribution channels that might be available for your products?

A: Yes. And I think it’s all encompassing. One is certainly outside our country. We are working with certain countries right now, starting to ship both Drip and Charcoir outside the country right now. It’s been a slow process, but certainly starting to gain traction. We are working with some of the largest stores around the country and distribution, again, outside of the GrowGen stores. We do have, again, a growing clientele on that side of it that now distributes to their own clients. So as you see, we’re starting to close stores, but even with our store closures, you’re still seeing tremendous penetration. Right now Drip is still in a tremendous amount of trials around the country, so is Charcoir. And we have new products coming out of GrowGen on a monthly basis right now. So we do believe that our relationships are strong through distribution, other distribution channels, and we do believe that there’s many countries and growers outside our country that will be using our products in the future.

Q: Good evening. Thank you for the questions. First one for me, just want to keep going on proprietary brands, but instead think about total addressable market continue to outperform, gaining mix. So want to speak more about the incremental distribution opportunities that you see available in the near-term as you look to expand the client base for who your products cater to. I know you’re talking about putting more in the portal versus stores, but I’d love to hear more about maybe incremental distribution channels that might be available for your products?

A: Yes. And I think it’s all encompassing. One is certainly outside our country. We are working with certain countries right now, starting to ship both Drip and Charcoir outside the country right now. It’s been a slow process, but certainly starting to gain traction. We are working with some of the largest stores around the country and distribution, again, outside of the GrowGen stores. We do have, again, a growing clientele on that side of it that now distributes to their own clients. So as you see, we’re starting to close stores, but even with our store closures, you’re still seeing tremendous penetration. Right now Drip is still in a tremendous amount of trials around the country, so is Charcoir. And we have new products coming out of GrowGen on a monthly basis right now. So we do believe that our relationships are strong through distribution, other distribution channels, and we do believe that there’s many countries and growers outside our country that will be using our products in the future.

Q: Hey, guys. Good afternoon. I want to ask, and I think it’s a bit of a follow-up to maybe the prior two questions. But Darren, if you could talk a little bit more about what you’re seeing from a consumer standpoint. I mean we’re definitely hearing broadly pressures on consumers out there, particularly as the macro environment weakens or the trade war gets going, whatever. But is there something – just talk about – it sounds like incremental weakness in your consumer you’ve seen here lately, how that’s manifesting itself and the drivers behind it?

A: Yes. I think, Brian, there’s been tremendous weakness within the industry and pricing of cannabis over the last few years. So what you’re seeing right now, I think, is a shift towards the – whether you want to call it the illegal growers that have been around for many years, the outdoor growers where the price per pound is down tremendously or just the individual consumer growing are starting to go away. I think on the business-to-business side of it, it’s still strong. But what you’re seeing on the business-to-business side of it is the companies are managing their balance sheets as they also are taking a long-term outlook in this industry, hoping for 280E and certainly some change in the regulatory side of it. So we’re starting to see is pushbacks on capital builds. We aren’t having issues on the consumable side of it. It’s more the durable side of it that certainly is dropping. But the consumable side is the higher margin side of it. It’s the side that – it’s the stickier side of it where our customers are using our products and they come back on a weekly, monthly basis. So that’s where we have confidence in what we’re doing right now is we’re starting to cut costs again. We thought that we got there a year ago. But unfortunately, the industry has not strengthened as of yet. We’re just starting to see just a lack of consumer penetration. They’re not shopping anymore. So when we take a hard look at the portfolio, prices, rent goes up every year, cost of employees go up every year. We’re taking a hard look, I think, at every piece of GrowGen right now. And what we’re starting to see is with the portal penetration right now, individuals shopping on the portals, we’ve moved over 500 of our customers over the portal, and it’s gaining traction on a weekly basis that we can service the same customers without the expense of the stores. So there are certain areas that we need our stores where there still are 50 customers coming in every day. But there are certain stores where you’re seeing five to 10 customers and more drop ships and you don’t need the stores for drop ships. We do that out of our warehouses.