Release Date: November 12, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Grove Collaborative Holdings Inc (NYSE:GROV) achieved break-even on adjusted EBITA for the quarter, marking four consecutive quarters of positive adjusted EBITA.
• The company reported positive operating cash flow for the fourth time in the last six quarters.
• Grove Collaborative Holdings Inc (NYSE:GROV) reduced its inventory from $27.8 million to $24.5 million, optimizing its inventory position.
• The company secured an additional $15 million investment from Volition Capital, aiding in debt reduction.
• Grove Collaborative Holdings Inc (NYSE:GROV) expanded its third-party brand offerings by 18.3% year-over-year on its e-commerce platform.

Negative Points

• Net revenue decreased by 7.3% quarter-over-quarter and 21.8% year-over-year, primarily due to fewer repeat orders and reduced advertising spend.
• Total orders and active customers both declined significantly year-over-year, by 22.8% and 30.4% respectively.
• The company reduced its revenue guidance for the second time this year, now expecting net revenue between $200 to $205 million.
• Gross margin decreased by 80 basis points year-over-year due to retail markdowns and a shift towards third-party products.
• Grove Collaborative Holdings Inc (NYSE:GROV) is exiting the brick-and-mortar retail channel due to consistent unprofitability, which constituted less than 4% of its business.

Q & A Highlights

• Warning! GuruFocus has detected 2 Warning Signs with GROV.

Q: Can you provide an update on the digital transformations announced last quarter, particularly the transition to Shopify? A: Jeff Jurgenson, CEO: We are still guiding towards sequential growth, which is significant for us. Our cohorts are stabilizing, and we're getting the right economics on advertising. The Shopify migration is expected to be complete by early Q1. We're excited about the potential it offers but are focused on maintaining a strong customer experience during the transition.

Q: What are the key factors needed to achieve sequential growth in the fourth quarter, and what potential headwinds could impact this? A: Jeff Jurgenson, CEO: Brick and mortar has been a headwind, impacting our quarter-over-quarter growth. However, our DTC business is strong, and we have a new acquisition model and offering. We will continue to invest in advertising when it makes sense, which could cause fluctuations in quarterly EBITDA.

Q: Can you elaborate on the timeline for exiting brick and mortar and its impact on the overall P&L? A: Jeff Jurgenson, CEO: We plan to exit brick and mortar by early 2025. While it has been a challenge, we are still guiding towards sequential growth. Our DTC business needs to be strong enough to offset any losses from brick and mortar. We may also explore M&A opportunities to support growth.

Q: Will you continue selling on Amazon, and what are the consumer trends heading into the holiday season? A: Jeff Jurgenson, CEO: We will continue selling on Amazon. Regarding consumer trends, our average order value has increased, indicating customers are trading up. Our DTC customers typically have higher household incomes, and we are confident in meeting their needs with our product offerings.

Q: How has the reduction in advertising spend impacted customer orders and revenue? A: Sergio Cervantes, CFO: Advertising expenses decreased 30.6% year over year, impacting total orders and active customers. However, the sequential decline has slowed, and we are seeing stabilization in revenue from repeat customers. We are increasing advertising spend to support our initiatives.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.