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GrowGeneration (GRWG) Q2 Earnings Miss Estimates, Improve Y/Y

Growth in e-commerce channel and same store sales led to improved second-quarter 2021 results for GrowGeneration's (GRWG). Backed by its expansion eff...

This story originally appeared on Zacks

GrowGeneration Corp. GRWG reported record second-quarter 2021 earnings per share of 11 cents, which missed the Zacks Consensus Estimate of 12 cents per share by a whisker. The bottom line, however, marked an 83% improvement from earnings of 6 cents per share in the prior-year quarter. The company’s continued focus on rapid, strategic growth in key markets both organically and through acquisitions, and efforts to reduce operational costs have aided results.

GrowGeneration generated record revenues of $126 million in second-quarter 2021, reflecting a whopping year-over-year growth of 190%. The top line surpassed the Zacks Consensus Estimate of $113.5 million. Comparable Store Sales for the quarter was up 60% from the last year.

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E-commerce revenues in the quarter were $12 million compared with $3.3 million in the last-year quarter. The website attracted approximately 1 million unique visitors and transactions in the quarter were up 55% year over year. Private label and proprietary brand sales amounted to $8.9 million, compared with $0.4 million in the prior-year quarter. Private-label sales, now account for approximately 7% of its overall sales, compared with 0.9% for the same period last year.

Store operating costs were around $12.6 million compared with $3.9 million in the prior-year quarter. Gross profit soared 208% year over year to $35.7 million driven by higher revenues. Gross margin was 28.4% in the second quarter, up 170 basis points year over year. Adjusted EBITDA was $14.5 million in the reported quarter, reflecting year-over-year surge of 229%. Adjusted EBITDA margin was 11.5% compared with 10.1% in the year-ago quarter.

Financial Performance

At the end of the second quarter, GrowGeneration had total liquidity of $124.5 million. Cash and cash equivalents were around $67.2 million and the company had $57.4 million of marketable securities that are mature and available for sale, if needed. Long-term debt was $106 million as of Jun 30, 2021, down from $158 million as of Dec 31, 2020.

In the second quarter, the company acquired Downriver Hydroponics, a Michigan-based indoor garden center in Wayne County and The Harvest Company, a Northern California-based garden center with operations in Redding and Hayfork, CA. In July 2021, the company entered into an asset purchase agreement to acquire HGS Hydro, the nation's third largest chain of hydroponic garden centers. During the month, the company also acquired Aqua Serene in Oregon and Mendocino Greenhouse and Garden Supply in California. Once, the HGS Hydro transaction is closed, GrowGeneration will have 68 garden centers across the country. It aims to finish the year with over 70 locations and over a 100 locations by 2023.

2021 Guidance

The company hiked its revenue guidance for 2021 to $455-$475 million from the previously targeted range of $450 million to $470 million as it continues to expand operations and broaden its customer base. The mid-point of the new guidance range indicates a 141% surge from revenues of $193 million reported in 2020. Full-year adjusted EBITDA guidance has been maintained in the range of $54 million to $58 million.

GrowGeneration has been gaining from ongoing strength in sales on all fronts — online, commercial and retail. Private label expansion is strategic priority for GrowGeneration, and a key component of its long-term revenue generation plan. The company is focusing on growing private brands and private label offerings that carry attractive gross margins. The U.S Hydroponics market is expected to witness significant growth. Hydroponics have been a staple in cannabis cultivation. As more and more states across the country continue to legalize cannabis, the company’s products are much in demand.

Share Price Performance

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Over the past year, GrowGeneration has soared 169.8% compared with the industry’s rally of 61.4%.

Zacks Rank & Other Stocks to Consider

GrowGeneration currently carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the basic materials space include Avient Corporation AVNT, Commercial Metals Company CMC and Veritiv Corporation VRTV. All of these stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Avient has a projected earnings growth rate of 75% for 2021. The company’s shares have soared 86% in the past year.

Commercial Metals has an expected earnings growth rate of 32.8% for the current fiscal year. The company’s shares have gained 62% in a year’s time.

Veritiv has an estimated earnings growth rate of 215% for the current year. Over the past year, the company’s shares have soared 381%.

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