GrowGeneration Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 9, 2023

There are 11 speakers on the call.

Operator

Hello, and welcome to GrowGeneration's First Quarter 2023 Earnings Conference Call. My name is Joelle, and I'll be coordinating your call today. Following prepared remarks, we will open the call to questions from analysts with instructions to be given at that time. I'll now hand the call over to Clay Krumbliss with IR.

Speaker 1

Thank you, and welcome everyone to the GrowGeneration First Today's call is being recorded. With us today are Darren Lampert, Co Founder and Chief Executive Officer and Greg Sanders, Chief Financial Officer of GrowGeneration Corp. You should have access to the company's Q1 earnings press release issued after the market closed today. This information is available on the Investor Relations section of GrowGeneration's website at ir.growgeneration.com. Certain comments made on this call include forward looking statements, which are subject to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Speaker 1

These forward looking statements are based on management's current expectations and beliefs concerning future events and are subject to several risks and uncertainties that Could cause actual results to differ materially from those described in these forward looking statements. Please refer to today's press release and other filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any of the forward looking statements made today. During the call, we will use some non GAAP financial measures as we describe business performance. The SEC filings as well as the earnings press release, which provide reconciliations of the non GAAP financial measures to the most directly comparable GAAP measures are all available on our website. Following our prepared remarks, we will take questions from research analysts.

Speaker 1

Now I will turn the call over to our Co Founder and CEO, Darren Lambert. Darren?

Speaker 2

Thanks, Clay, and good afternoon, everyone. Thank you for joining us today to discuss our Q1 2023 financial results and our full year 2023 guidance. As always, I want to thank each one of our employees across our company for their continued support Of GrowGen. I'm grateful to our entire team for stepping up to every challenge and for being steadfast and executing our company's strategy. GrowGen is more than just a retailer.

Speaker 2

We are a developer Market leading brands and private label products. We are a distributor supporting the entire Hydroponics growing community. And we're above all a passionate and dedicated partner to our customers. As we mentioned last quarter, We celebrate our 10th anniversary in a year. As we continue into the year ahead, we take great pride in our past And we're equally excited about our future.

Speaker 2

I'm pleased to report that GrowGen's 1st quarter results Performed at the high end of our expectations, which further increases our optimism for 2023. In the Q1, we generated net revenue of $56,800,000 at the high end of our guidance, which as expected Represent the sequential improvement over the Q4 of 2022. Furthermore, gross margins in the Q1 of 2023 were 28.7% Above our expectations. We generated an adjusted EBITDA loss in the Q1 of $1,800,000 which represents Significant improvement versus the prior quarter, which had an adjusted EBITDA loss of 10,200,000 And outperform our previously issued Q1 guidance. We also ended the Q1 with $72,000,000 of cash, Cash equivalents and marketable securities, no debt and $75,000,000 of inventory on our balance sheet.

Speaker 2

We've spoken about it extensively in previous quarters, so I won't dwell on the challenges of the past. Other than to say this, Last year was a transition year for GrowGen. As we detailed on our Q4 earnings call nearly 2 short months ago, We have made significant progress transforming our business to be more nimble, efficient and better positioned for profitable growth In 2023 beyond, on the legislative side, state momentum has continued With Delaware becoming the 22nd state to legalize adult use cannabis. Minnesota is another state That could legalize adult use cannabis this year with state, house and senate versions of the bill passing last month. Additionally, Georgia issued its 1st dispensary licenses and Texas, North Carolina In Ohio, it adds to their medical cannabis programs with Maryland adult use sales planned to begin July 1.

Speaker 2

At the federal level, the reintroduction of Safe Act last month has renewed hope for federal reform. As a result, I'm more excited today than I've been in a while about the opportunities that lie ahead. We are entering a new chapter of the GrowGen story and we're significantly focused on managing our business despite the ongoing challenges While we maintain a degree of cautious optimism, we expect to invest for growth in 2023, Searching out opportunities where they exist and putting resources behind them in an appropriate and disciplined manner. What that means in practical terms is 1, we will continue building and growing our private label brands. 2, we're back on the acquisition front.

Speaker 2

As you have seen from our recent press releases and 3, we're putting profitability at the forefront, focusing on margin expansion and profitable growth. Briefly on each of these. First, we remain committed to the expansion of our proprietary and distributed brands, And we are very satisfied with the results of our private label products. Private label accounted for 6,900,000 Our retail and e commerce sales in the Q1 of 2023, which is around 16.1% Our overall retail and e commerce sales, up from 10.8% in the Q1 of 2022. 2nd, GrowGen will continue actively seeking accretive acquisitions where we believe they are complementary to our current business.

Speaker 2

We believe we're one of the few companies that is well positioned and well capitalized enough to take advantage of the attractive valuation In the hydroponics and garden center space. So far this year, we acquired a store in Traverse, Michigan in January. We entered our 17th state with the acquisition of a store in Bozeman, Montana in early April. And most recently, we required a retail store in Jackson, Michigan a few weeks ago. As part of these efforts, we continue to analyze The performance of our current stores with respect to redundancies in the footprint.

Speaker 2

We don't expect many additional store closures this year, Which was a major focus for us last year. We're focused on monetization of our nearly 1,000,000 square feet of retail space, Which includes merchandising, product education with key partners and a laser focus on execution Of the various business transformation initiatives centered around technology and supply chain, we are pleased to announce That our 3rd distribution center, approximately 100,000 square feet located in Columbus, Ohio is now operational And serving our Midwest and East Coast customers. 3rd, we are prioritizing profitable growth, Which we believe will attain through our continued efforts to expand revenue and execute our margin expansion strategies. We think we are past the vast majority of our cost cutting initiatives, the benefit of which will continue to flow through our margins in 2023. In addition, we feel our inventory is in a much better position today As reflected in our Q1 gross margins that expanded 1100 basis points over the 4th quarter margin, And we don't see the need for significant inventory discounting going forward.

Speaker 2

Turning to guidance for full year 2023, We are maintaining our net revenue in the range of $250,000,000 to $270,000,000 translating into adjusted EBITDA In the range of a $4,000,000 loss to a $1,000,000 profit, we are seeing incremental signs of stabilization in our business And we expect sequential quarter over quarter improvements in net revenue and adjusted EBITDA to continue through the Q2. With that, I will turn the call over to our CFO, Greg Sanders.

Speaker 3

Thank you, Darren, and good afternoon, everyone. First, I will address our Q1 2023 financial results and then I will discuss our full year 2023 guidance. For the Q1, GrowGeneration generated revenue of $56,800,000 versus $81,800,000 in the Q1 of 2022, Representing a decline of approximately 31%. Our same store sales for the Q1 2023 We're $37,700,000 compared to prior year sales of $59,500,000 representing a 36.6% decline against the comparable year ago quarter. Our e commerce revenue declined on a comparable basis from $5,300,000 to 3,300,000 representing a decline of 37.7 percent.

Speaker 3

Our distribution and other revenue was $14,200,000 for the quarter Compared to $12,200,000 in the year ago period, representing an improvement of 17%. Gross margin was 28.7 percent for the Q1 of 2023, up Approximately 1110 basis points sequentially from the Q4 of 2022. Gross profit percent in the Q1 increased 160 basis points from the comparable year ago quarter. The improvements in gross margin in the Q1 of 2023 are largely attributed to the completion of our 2022 inventory Rationalization initiatives in the retail segment and a healthy margin contribution from our distribution and other segment. Store operating costs and other operational expenses declined from $14,500,000 in the Q1 of 2022 to $12,900,000 in the Q1 of 2023, representing an 11% reduction.

Speaker 3

The savings year over year were primarily attributed to payroll reductions. Further, we expect that the reductions executed Over the prior year are sustainable as we move forward into future reporting periods. Selling, general, and or SG and A costs were $6,800,000 in the Q1 of which $600,000 were derived from stock based compensation. This compares to $8,600,000 in the 4th quarter with $1,000,000 of stock based compensation. This represents a 20% improvement quarter over quarter to SG and A.

Speaker 3

Compared to the Q1 last year, SG and A expense decreased $2,800,000 in 2023 with overall savings driven from payroll reductions and increased cost controls over a broad range of categories. Depreciation and amortization of intangibles were 3,900,000 in the Q1 of 2023 compared to $4,500,000 in the year ago period. In the Q1 of 2023, The company did not recognize an income tax benefit or expense. GrowGeneration is using a 0% tax rate as its deferred taxed assets Are not expected to be realizable. As such, the company has established a full valuation allowance, primarily resulting from the 2022 Impairment of goodwill.

Speaker 3

Net loss for the Q1 was $6,100,000 or negative $0.10 per share Compared to a net loss of $5,200,000 or negative $0.09 per share in the year ago period. Compared to the Q4 of 2022, The company improved net income from a net loss of $15,000,000 to a net loss of $6,100,000 Adjusted EBITDA, which excludes interest, Taxes, depreciation, amortization, restructuring charges and share based compensation Was a loss of $1,800,000 for the Q1 of 2023 compared to a loss of $800,000 in the Q1 of 2022. Compared to the Q4 of 2022, the company improved adjusted EBITDA from a loss of $10,200,000 to a loss of 1,800,000 Primarily resulting from increased revenue, improvements in gross margin as well as sustainable reductions in expense. In the Q1, the company included one time restructuring charges for severances and consolidation expenses into adjusted EBITDA, which had a $278,000 favorable impact. Related to the balance sheet, As of March 31, 2023, the company had total cash, cash equivalents and marketable securities $71,900,000 which was sequentially flat to the Q4 of 2022.

Speaker 3

From a year over year perspective, Cash and cash equivalents increased by $5,500,000 mainly due to inventory rationalization measures and other strategic initiatives. Within working capital, the company collected a $4,900,000 income tax receivable as well as reduced total accounts and notes receivable by $1,700,000 As such, the company generated positive cash from operations of $3,400,000 in the quarter. In the Q1, the company reduced inventory by approximately $1,500,000 compared to year end. We believe that the outcome of our inventory reduction efforts in 2022 positioned the company with sufficient inventory levels And product mix for 2023. We will continue to make incremental improvements to lower inventory where needed while ensuring that we continue to meet the procurement needs of our customers' just in time inventory.

Speaker 3

Now moving on to our full 2023 Outlook. As Darren mentioned earlier, we are maintaining our previously communicated guidance with full year 2023 revenue To be between $250,000,000 $270,000,000 and full year adjusted EBITDA to be in the range of a $4,000,000 loss to a positive $1,000,000 profit. We have observed stabilization in our expense structure And believe that we have sufficient alignment on cost of sales based on our Q1 results. As the company reduced Expense based by over $20,000,000 in 2022. We are not forecasting further significant reductions in 2023.

Speaker 3

We expect that both sales and adjusted EBITDA will show incremental improvements in the Q2 compared to our Q1 results. We are optimistic about 2023 and remain confident in our ability to navigate the industry. We will continue to stay focused on cost controls in our efforts to return the business to profitable. As Darren's remarks indicated earlier, Profitability is the forefront goal of the business in 2023. Our approach to capital allocation is shifting from a focus on preservation To a disciplined approach centered on return on invested capital, we will execute on the right M and A opportunities that fill white space.

Speaker 3

We will also invest capital in our deployment of private label products where the return is appropriate. We are positioning the company and executing our business strategy to focus on business and profitability improvement. With that, I will turn the call back over to Darren for closing remarks.

Speaker 2

Thank you, Greg. Before we open the line for your questions, I want to reiterate At GrowGen is on solid financial footing with a strong balance sheet, healthy liquidity and a solid cash position. In 2023, we are putting profitability at the forefront, focusing on margin expansion and profitable growth. We're encouraged that we made significant progress during a year of transition to right size our business, and we're ready to move forward As a stronger, nimbler and more profitable company. Thank you for your time today and thank you for your interest in GrowGeneration.

Speaker 2

We will now take your questions. Operator?

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer One moment please for your first question. Your first question comes from Brian Nagel with Oppenheimer. Please go ahead.

Speaker 4

Hey, guys. Good afternoon.

Speaker 2

Good afternoon, Brian.

Speaker 4

So I guess, Darren, I just want to start, I mean, we talk a lot We talked a lot lately about the backdrop for GrowGen in the space. Your comments on sales suggest you're getting maybe a little more optimistic here. I guess So the question I have is like maybe it's kind of on the ground level. What are you seeing? How is have there been any meaningful changes in kind of the interaction with Customers, are you seeing different trends across geographies, that type of thing?

Speaker 2

Yes. I think to start with Brian, as you probably know, we've had 6 Sequential quarters of down revenue, which was certainly out of the ordinary for GrowGen, at least for the first six Quarter since we started back in 2014. What we're starting to see is pickup from our customers. We're starting to see consolidation and price stabilization in mature markets. The supply demand is normalizing out west.

Speaker 2

New states are starting to roll out, and CapEx is increasing, in new states. We're also seeing activity in the outdoor markets, Which we didn't see in 2022, which should be a positive boost in sales for GrowGen in both the 2nd and third quarters. So again, this is really the first time we've seen it. We saw back in 2018, there was about a 6 month downturn. This has lasted 6 quarters.

Speaker 2

So we're seeing stabilization, Brian, albeit off a very long number. You saw same store sales, which were down in the mid-50s During 2022, they were down 36% Q1 of 2023, and we certainly look for that to be much better in the second

Speaker 4

Got it. And then that's helpful. And then just on the gross margin side, I guess I'll tie together gross margins and inventory. So You did a lot of aggressive corrective action last year with your inventories. You came into 23 clean.

Speaker 4

So as and then you're seeing you saw the better gross margin performance During Q1, I mean, how should we think about just that trajectory in gross margins, the kind of trajectory in inventories from here?

Speaker 2

I'm going to send it over to Greg. Greg?

Speaker 3

Yes. So I think the impact of the last two quarters in 2022 as you mentioned had a significant impact On the overall gross margin in those periods, we reduced inventory by $20,000,000 in the last two quarters of 2022. And we felt that inventory was in a much better position coming into 2023. We did make sequential improvements To inventory in the quarter, but nothing of significance, we reduced our inventory balance by $1,500,000 in the quarter. I think what you saw in our results for the Q1 was a gross margin profile of 28.7%, which we believe is in the more normalized range we look forward at the business in the future reporting periods, we're still continuing to communicate that our expected gross margin profile For 2023, we'll be in the mid to upper 20s, on a normalized basis.

Speaker 2

Yes. Brian, you also saw a bump in our private label division from 10% up into that 16% range. Our private label products Carry a much higher margin than our normal products, and we are buying better right now also. So I think It's all factoring into what you're seeing normalization of our margins in that mid to high 20s.

Speaker 4

Got it. I appreciate. Thank you.

Operator

Your next question comes from Mark Smith with Lake Street Capital Markets. Please go ahead.

Speaker 5

Hi, guys. First question that I have is Just looking at valuations on M and A transactions, you've been you've gotten a little bit busier here the last couple of months. Can you just talk about, Darren, what you're seeing as far as pricing as you look at buying some new stores?

Speaker 2

Yes, I can, sir. I'm going to stay away from exact Pricing with you, Mark. Well, the one thing I can tell you is when you take a hard look at GrowGen's balance sheet, When you look at our inventory and cash position and our asset value and fixed assets, GrowGen is trading with very little goodwill on our balance sheet right now. And when we're going out to market, we look at the same from individuals that we're looking to buy right now. So the goodwill A portion of these transactions are very minor right now.

Speaker 5

Okay. And then you spent some time talking about private label Good. It seems like that's certainly a push for you. Any additional insight into kind of how you feel about the brands that you have now? Is this somewhere you Still want to be active and maybe acquire new things and what it takes to continue kind of ramping sales of these private label goods?

Speaker 2

I feel that we have the right team in place right now to continue ramping our private label products. Both Charcor and Dripper Are performing above our expectations. We do have product extensions coming out on both lines as we speak. So our private label products are taking hold in the industry, and we're having wonderful results. And we will continue with our private label penetration, and we feel very good where we are right now with our private label products And the increase in sales that we're seeing from them and margins.

Speaker 5

Okay.

Speaker 2

And

Speaker 5

then the last question, Similar here as we look at e commerce sales, with where those are sitting today, is that just really a function of kind of where the Cannabis industry is, and are there any levers you can pull to turn on a little more digital sales?

Speaker 2

We are trying. We're feeling more comfortable we'll be increasing our advertising spend on our online division. The one positive that we did see Mark is our private label, I mean our online division was up quarter over quarter. So we had a 7% bump from the Q4 on to the Q1. So that was the first positive time we've seen in a while with our online division.

Speaker 5

Perfect. Thank you.

Operator

Your next question comes from Andrew Carter with Stifel. Please go ahead.

Speaker 6

Hey, thank you. Good afternoon. I wanted to ask, and this may be a little messy because I know stores have moved in and out of the base. If you look at the 2 year same store sales comp, you were down 61.6% in 1Q, Which actually was the first time you had a 2 year improvement from 4Q. If I look at 2Q 'twenty three and I look at 2Q22 being down 57%, you're implying like a down low single digit kind of comp.

Speaker 6

Can you expect that kind of rate of improvement? Or is it just Too noisy to think that you're going to have that much of an improvement potentially in same store sales coming here in the second quarter?

Speaker 2

I'm going to have Greg start with that and I'll finish you.

Speaker 3

Yes. So, hey Andrew, nice to talk to you here. For us, We are expecting improvement on our comp sales number in the Q2. In terms of guiding to what that number exactly will be whether it's single digits or not, I don't think we're at a place right now that we could solidly make that statement, but we do expect improvement and we expect a better Q2 than our Q1. We're up against better comps in the Q2 versus the Q1 of last year as well, which is another advantage to help Perform against that prior year number for us.

Speaker 2

Andrew, on the other side of that, when you look Comps from our Q1. We had a pretty strong first couple of months of our Q1. We started sales deteriorating Probably in that Feb March, Ben. So we do feel pretty comfortable on a go forward basis with same store sales.

Speaker 6

Fair enough. Second thing I wanted to ask is, obviously one of your peers, suppliers, whatever you want to call them, last Reported last week and they made several comments around looking at industry combinations. I know you're not going to speak to anything specifically, But how do you view yourself as if things happen in the industry, do you have to participate? Or is it just Kind of how you can execute your game plan. It looks like buying assets for inventory kind of bolt ons.

Speaker 6

Just any kind of commentary there would be helpful.

Speaker 2

Hey, Andrew. When you look at GrowGen, we have built tremendous brand recognition in this industry over the 10 years that we've been here. We're doing over 2,500 transactions a day within our service and we're building out a wonderful private label division at GrowGen. RoGen is an acquirer. We're back on the acquisition front.

Speaker 2

We've acquired 3 stores already this year And the year is just beginning. So for us, we'll always do what's in the best interest of our shareholders. But right now with $75,000,000 cash in the bank and $75,000,000 of inventory, we believe we're in a wonderful position. And I still say if you were to close your eyes and look in 10 years, GrowGen will be the dominant force in both hydroponic and indoor gardening In the country we live in. So we're 100% comfortable with the position we're in right now.

Speaker 6

I'm good. Thanks. I'll pass it on.

Operator

Your next question comes from Aaron Grey with Alliance Global Partners. Please go ahead.

Speaker 7

Hi, good evening and thank you for the questions. I'll go ahead and jump off the back of that last question first. Just on the M and A front, so It's been some store acquisitions at the beginning of the part of this year, strong balance sheet. Are you looking at different verticals as well or what are you kind of seeing out there? Is it primarily the storefront We see appealing acquisitions.

Speaker 7

Do you think there's something might be more to diversify yourself more on the vertical front either via hydroponics or indoor gardening? Just any Further commentary you can give on that would be helpful. Thank you.

Speaker 2

Yes. I think Aaron to start with, GrowGen right now, our number one the number one Thanks for GrowGen right now. It's getting this company back profitable. And it's getting back profitable in the hydroponic area, the CEA area. We do believe there's tremendous verticals out there on indoor gardening product side and the indoor gardening side.

Speaker 2

But until this company gets profitable and gets back to growth, I'd be hard pressed to see acquisitions outside our core competency right now. And there are a lot of acquisitions that we're starting to see within the hydroponic space on the source side of it. The industry, as you probably know, after Couple of years of just disastrous growth in this industry, there are a lot of players that want out and it's getting harder to service Customers right now. And GrowGen has the skill and certainly the balance sheet to do it. We just finished building 100,000 square feet of Distribution in Ohio to basically take care of our Midwest and East Coast customers.

Speaker 2

So GrowGen is building out distribution. We're launching our ERP system at the beginning of July. So we built Again, we've built an

Speaker 1

end to end for our customers.

Speaker 2

And again, we may look elsewhere, but I will I highly doubt you'll see that this year.

Speaker 7

Okay, great. Thanks for that detail. That's helpful. A second question for me. You talked about being a rebound in some of So just want to get some further color on California.

Speaker 7

What you're seeing there? Those are number of licenses that are coming for renewal that were not renewed at the end of And those are number that were also for renewal in the first half of this year. So just any further color in terms of what you're specifically seeing in California and some stabilization in your outlook there? Thank you.

Speaker 2

Yes, we are seeing stabilization in California. You have to understand when you're seeing closures on the growth side of it, you're also seeing closures on the hydroponic side of it. So we are taking business from stores that are going out of business and also from some of our some of the other stores within the California space. We are seeing a pickup in our outdoor stores in California. We also had positive same store sales for a few of our California stores Versus last year, so our California stores are starting to perform much better than we've expected, But we are highly surprised and then certainly we are hearing from customers that people are starting to grow and we see it from the sales of our products.

Speaker 7

Okay, great. Thanks for the detailed and I'll jump back in the queue.

Operator

Your next question comes from Eric Delaurier with Craig Hallum Capital Group. Please go ahead.

Speaker 8

Great. Thank you for taking my questions. First one focusing on same store sales again. So you mentioned that you're actually starting to see some positivity in California. It seems like We'll see some nice improvements in same store sales in Q2 as well.

Speaker 8

I'm just wondering if you can help parse that out between Durable goods versus consumable goods, not looking for a specific figure here, but just kind of anecdotally, when do you expect A lot of those more durable goods like lighting and HVAC, like when do I guess when did those really kind of dropped off significantly last year, when should we get some easier comps? So just any kind of color on the Same store sales trends with respect to durables versus consumables. And since you mentioned California, I guess I'll ask if you're seeing any If there are any trends to call out on a geographic standpoint from same store sales as well. Thanks.

Speaker 2

Yes. Right now, Eric, we're seeing about 70% on the consumable side, 30% on the durable side. It used to be sixty-forty during our crazy growth periods. But we are starting to see on the East Coast build outs in New Jersey and some other states. And we are starting to see again some refresh cycles.

Speaker 2

There's tremendous, tremendous rebates going on in the LED markets right now From the electric company. So we're starting to see pickup on LED lighting right now even. So it's kind of across the board. We did very little of the build out last year. So we're comping as a very small number right now.

Speaker 2

But the more important part of our business we always look at is 70% of consumables, those are repeat customers every weekend on a weekly, monthly basis. So that's the more important part of our business, the higher margin part of our business. So we do believe that you pick up going through this year with new states rolling out and always that hope of legislation And you will start seeing refresh cycles on some of the legacy farms out there and cultivators that need new equipment. So it's kind of an ongoing situation, but we see it as getting better.

Speaker 8

That's great to hear. My next question is on private label as well. I guess it's kind of a State of the union overall, on the different sort of brands that you're seeing in different categories. I guess what I'm getting at is, Can you kind of talk about how your private label brands are performing in different categories? And if there are other categories where you're seeing significant brand turnover where It might present a private label opportunity versus maybe some other categories where there just continues to be sort of dominant brands there.

Speaker 8

So Yes. I guess, just kind of an overall kind of state of the union on the different brands within categories and then your ability to kind of Attack That with private label. Thanks.

Speaker 2

Yes. I think it's highly competitive in nature unfortunately. Our private label division, we don't usually break down sales per category for Wall Street. But suffice it to say that our sales are up from So 10% to 16% from 2022 to 2023. And we will continue to bring products to our customers as they want them.

Speaker 2

We have a tremendous R and D group at GrowGen and We work with a lot of the firms out in California that do R and D for us. So again, we love bringing new options to our customers and Always their choice what brands they should choose to grow. The one thing with GrowGen as we always say, we're product agnostic in a lot of ways. We sell what our customers want and we will continue to.

Speaker 8

Okay, great. And I guess if I could just kind of simplify the private Should we expect GrowGeneration to kind of just put more weight behind its existing private label brands or should we expect new brands and new categories for this year? Thanks.

Speaker 2

You will see continued rollout of new products from GrowGen. That's what we do. So again, we service our customers to the best of our ability and we have wonderful relationship with our vendors. But We do have a private label division that's GrowGen and we will continue to hopefully roll out innovative products that the growers want. Thank you.

Operator

Next question comes from Scott Fortune with Roth. Please go ahead.

Speaker 9

Darren, you mentioned in the last quarter that you saw an uptick in margin and biddings and commercial project back east. Just want to get a sense for how that continuing to trend through here in April and kind of these new states coming on board in back East From that standpoint. And with that in mind, kind of, do you expect this sequential growth here Q1, but you A little bit more of a pickup in the second half. How do you look at this kind of going forward for us?

Speaker 2

I think right now, Scott, it's really hard Forecast this industry, we're a month and a half into the second quarter, so the second quarter becomes much easier. So looking comps of April and half of May. So it's kind of easy for us to get an understanding where we are right now And make a call that you'll see sequential growth in the Q2. We much rather give it a couple of months before calling the 3rd 4th quarters. We've heard from certain of our certain of the other public companies in this industry, they believe that you're going to see a very strong back half to the year.

Speaker 2

We're not endorsing that as of yet, but we're certainly not saying it's not true. We shall see how it goes. It's just too early for us to call. We want to see a turn and really see that turn before I can tell you again that the year is going to continue to get stronger. I certainly do believe that you'll see positive same store sales going into the end of the year.

Speaker 2

We're copying against very, very Minimal sales. So we feel confident right now, but you'll hear us guide probably on our Q2 call in August.

Speaker 9

Got it. And just kind of follow-up on kind of what are you hearing as far as commercial projects that you And I take it kind of as you look at any new store opportunities, you'll be focusing on that Midwest, The Maryland, Connecticut, Georgia, Missouri, they've all come on board, right? And kind of your sense is building out That area, geographic area, if there are new store ads?

Speaker 2

Again, we are quoting deals. We are working on deals in Jersey And back East, it's all incremental business to GrowGen because it wasn't there last year. So with that, we also get the consumable products Once these facilities are built. So we are seeing a pickup in our commercial division. It's picking up every day.

Speaker 2

And we also are starting to see rebuilds. We are seeing, again, rebuilds in Washington and Oregon and in California also. So we are seeing business pick up. We saw very little durable business last year. We're seeing much more of right now.

Speaker 2

We're seeing more month by month. So We are again, we are excited, but too early to get that too excited. Scott? Thanks for the color.

Operator

Your next question comes from Brian Nagel with Oppenheimer. Please go ahead.

Speaker 4

Hey, guys again. So just a follow-up. I mean, a lot of I know we spent a lot of the Q and A, we spent time talking about this recent trajectory in sales. I just want to see if we To what extent we can just solidify it. We heard from the home from some of the others kind of in the home related categories that weather impacted Sales in the second half of March.

Speaker 4

So the question I have is, was there a weather impact at all at GrowGen. And then could you be a little more specific as to what you're seeing here either through Q1 and then into Q2 as far as comp sales?

Speaker 2

Yes, Brian, one thing I can tell you is weather only impacts the outdoor growth season and The outdoor growth season was pushed back probably a month in the California areas and other areas out West. And we are seeing a pickup. Again, we're seeing a pickup this month right now on a lot of our outdoor stores, which we didn't see Which we didn't see in March that we're starting to see late April and into May.

Speaker 4

Hey, Derek, do you want to talk more you want to give more specifics on kind of the numbers what we're seeing?

Speaker 2

I think it's just too early. We don't do again, We don't do same store sales daily calculations, but we are seeing a pickup in our outdoor stores.

Speaker 4

Got you. Okay. I'll do it at that. Thanks.

Operator

Your next question comes from Glenn Mattson with Ladenburg. Please go ahead.

Speaker 3

Yes. Hi. I'm just trying to get

Speaker 10

a sense of the what kind of trying to model for cash the rest of

Speaker 2

the year. You're not going to

Speaker 10

have the benefit of the working capital Reduction and there'll be some probably modest operating losses and maybe you could give us a sense And of what CapEx is going to be and then also just how aggressive you talked about making more acquisitions and getting more aggressive on that front. But just trying to understand how aggressive and what level of cash you feel comfortable with at this time?

Speaker 2

Greg, do you want to start with that and I'll finish it?

Speaker 3

Yes, absolutely. So quarter over quarter cash was sequentially flat In the balance sheet, we generated $3,400,000 from operations. We believe our cash position is very sufficient As we move through the year, we're investing capital where we believe we have access right now in generating returns on investment income and interest income. We are looking at M and A transactions to fill white space within the organization and are going to continue to execute upon the right transactions They come to the table. We added in Bozeman in Jackson, Michigan this quarter already.

Speaker 3

So we'll continue to look at deals on that end. As far as CapEx, Our dollars are going towards at this point in time are primarily investments in technology to lower the cost of doing business And to continue to automate functions as best we can as we move forward in the business' maturity, You could model a number between $2,000,000 $3,000,000 a quarter. That's generally what we expect to spend. And we'll continue to be nimble in terms of our management of the balance sheet In terms of lowering inventory incrementally where possible and being tight in our management of the business. Darren, if you want to add

Speaker 2

to that.

Speaker 10

Well, does the distribution center build out complete? And can you just give us Like a final, if it is complete, kind of sense of what's been done there and how the footprint looks?

Speaker 2

Yes, the Ohio distribution is complete. Sorry, go ahead, Darren. Yes, Glenn, Glenn, the Ohio distribution is complete. Okay. Great.

Speaker 10

That's it for me. Thanks.

Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect.

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Earnings Conference Call
GrowGeneration Q1 2023
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