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Here's How GrowGeneration Crushed It in Q3

By Keith Speights - Nov 12, 2020 at 6:05AM

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Nearly everything went right for the nation's largest specialty hydroponic and organic gardening chain.

A great year for GrowGeneration ( GRWG 1.25% ) just keeps getting better. Its shares are up over 450% year to date, and they're likely to jump even more.

The specialty hydroponic and organic gardening retailer announced its third-quarter results after the market closed on Wednesday, and there was a lot to like. Here are the highlights from GrowGeneration's Q3 update.

Cannabis plants growing under lights.

Image source: Getty Images.

By the numbers

GrowGeneration reported revenue of $55 million in the third quarter, a 153% jump from the $21.8 million generated in the same quarter of the previous year. This result easily beat the average analyst revenue estimate of $47.4 million.

The company announced Q3 net income of $3.3 million, or $0.07 per share, based on generally accepted accounting principles (GAAP). This reflected a huge jump from GrowGeneration's earnings of $1 million, or $0.03 per share, in the prior-year period. It also topped the consensus analyst earnings estimate of $0.06 per share.

GrowGeneration ended the third quarter with cash of $55.3 million. This was an increase from the $13 million on hand as of Dec. 31, 2019.

Behind the numbers

Nearly everything went right for GrowGeneration in Q3. The company's same-store sales soared 73% year over year, partly propelling GrowGeneration to its 11th consecutive quarter of record revenue. At the same time, its store operating costs as a percentage of sales fell 28% from the prior-year period. 

GrowGeneration's online sales more than doubled year over year. Its commercial division raked in nearly three times more revenue than in the same quarter of 2019. The company's private-label products made more than $1 million in sales in Q3.

Was there anything that wasn't terrific for GrowGeneration in the third quarter? There was one negative in the company's Q3 results: GrowGeneration's gross profit margin slipped to 26.5% from 29.9% in the prior-year period. This lower margin was the result of the company taking a bigger percentage of revenue from its commercial and e-commerce businesses.

Looking ahead

GrowGeneration now anticipates revenue of $185 million to $190 million in full-year 2020, up from its previous guidance of $170 million to $175 million. It also projects 2020 pre-tax net income will be between $9 million and $11 million, compared to a range of $7 million to $8 million provided in its previous outlook.

Next year looks even more promising for the "pick-and-shovel" cannabis stock. GrowGeneration boosted its full-year 2021 revenue guidance to a range of $280 million to $300 million from its previous forecast of revenue between $245 million and $260 million.

GrowGeneration's business development pipeline is more robust than ever. Earlier this month, the company announced plans to acquire The GrowBiz. This deal will increase GrowGeneration's number of stores to 36. Acquisitions will be key to the company achieving its goal of operating 50 garden centers across 15 states in 2021.

The votes in several states to legalize marijuana should also open up new opportunities for GrowGeneration. CEO Darren Lampert noted that the "results of the recent elections" were important in enabling the company to continue growing rapidly.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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