Grove Collaborative Holdings, Inc. (NYSE:GROV) Q3 2023 Earnings Call Transcript

Grove Collaborative Holdings, Inc. (NYSE:GROV) Q3 2023 Earnings Call Transcript November 11, 2023

Operator: Good afternoon, and thank you for standing by. Welcome to Grove Collaborative Holdings, Inc.’s Third Quarter 2023 Earnings Conference Call. [Operator Instructions] Hosting today’s call are Grove’s CEO, Jeff Yurcisin; and CFO, Sergio Cervantes. Before they begin their prepared remarks, I will review the forward-looking statements, safe harbor. Some of the statements made today about future prospects, financial results, business strategies, industry trends and Grove’s ability to successfully respond to business risks may be considered forward-looking. Such statements involve a number of risks and uncertainties that could cause actual results to differ materially. All of these statements are based on Grove’s view of the world and their business as they see it today.

As described in the SEC filings, the underlying facts and assumptions for these statements can change as the world and their business changes. For more information, please refer to the risk factors discussed on their most recent filings with the SEC, which are available on Grove’s Investor Relations website at investors.grove.co. During today’s call, they will also discuss certain non-GAAP financial measures. Reconciliations of these non-GAAP items to the most directly comparable GAAP financial measures are provided in the earnings release, which is also available on our Investor Relations website. I would now like to turn the call over to Jeff Yurcisin to begin.

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Jeff Yurcisin: Thank you, operator. Hello, everyone, and thank you for joining the call today. I want to start this call by saying how honored and excited I am to be joining Grove as CEO. I’d like to thank my predecessor and our Executive Chairman of the Board Stuart Landesberg, the Board of Directors, the Grove leadership team and all of our employees who have put their trust in me to lead the next chapter. We have all been incredibly supportive during my transition. I joined Grove because, fundamentally, I believe that every individual can make a positive impact and drive change beyond themselves. What unites growth team is that we are all committed to a singular purpose, one that is bigger than ourselves. We create and curate high-performing Planet First products and aspire to transform the consumer product industry into a force for human and environmental good.

Having followed Grove for some years before joining, I have made a number of assumptions about the business. And after 75 days into the role, I am reaffirmed by 4 core themes. First, we have an incredible brand. Grove is the leading platform for natural shoppers and is well positioned with our customers, including both active customers and those that haven’t made a recent purchase will continue to come back to us because they believe in our mission. When you listen to these “inactive customers”, you realize they too love our product and brand. With the home and personal care market amounting to roughly $180 billion, we know there is room for our trucked brand to grow. Second, we are the leaders in sustainable home care and have strong potential to expand beyond that category.

Our formidable foothold in home care is an entry point and a springboard for growth to expand our presence, deliver innovations and launch wholesale into other categories that are relevant to natural shoppers. We can do this because of the trust we’ve built in our core products and offerings. We said we would expand into health and wellness, and we are doing it week by week. More customers continue to trust us for their broader sustainable needs. Third, we have best-in-class talent. The Grove’s team is one that has made difficult decisions, endured cost-cutting measures and work through unfortunate but necessary reductions. And yet, our employees, teams and the broader culture are incredibly strong, resilient and united around our mission. I am deeply impressed by the team and energized by what we can accomplish together.

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Q&A Session

Fourth and lastly, we have a strong business foundation with great unit economics and are well positioned for profitable growth. This won’t happen overnight. For the longer-term goals seem reasonable given secular trends around natural shoppers and convenient digital experiences, both of which will benefit us as we go forward. Our brand, leadership, talent and strong foundation or would have gotten us to today. I’m proud of the team’s results to achieve positive adjusted EBITDA for the first time this quarter. It demonstrates that we do what we say. This focus on profitability remains priority #1 for the company. We will maintain this focus while we reshape our customer experience and culture, and our culture will start with the customer at the center of every decision.

We will systematically listen to customer needs and innovate to unlock new growth paths in the next year. I have succeeded 2 founders, grown D2C businesses to $1 billion-plus and know how to profitably scale a business-like growth. I have seen firsthand a number of positive things in my first 75 days that have made me confident that we have what it takes. And while I remain focused on profitability in the near term, I did not join Grove just to ensure it is profitable. We have a lot of work ahead of us. But I see a clear path for profitable, sustainable growth. I plan to prioritize profitability and to ramp up growth behind and improved the margin structure and customer experience that we will build in the coming months. As a result, I’m comfortable with 2024 revenue below 2023 because I’m confident by the end of 2024, Grove will be growing sequentially with positive adjusted EBITDA, and we’ll exit the year with ongoing profitable growth for the quarters to come.

And I know how to get us there. First, it starts with becoming even more meaningful in the lives of our customers. This will be through systematic, consistent data-driven decisions to serve natural shoppers and expanding our role as the trusted brand and platform that helps customers make the right sustainable decisions for themselves, their families and their homes. Second, we will win with sustainability at our point of differentiation. This means leaning into our mission, being even more focused on our environmental impact through plastic, carbon and deforestation offset and customer education on the sustainable alternatives that exist today and that are coming tomorrow. These inputs will lead to results. In the long term, we are well positioned to be the trusted brand and platform for high-performing planet-first products for natural shoppers and their homes.

And now we’ll turn to the results. I am incredibly pleased to share the current third quarter results, which represents cumulative quarters of great work, difficult decisions and smart planning by the team. To start. This quarter marks the first quarter of positive adjusted EBITDA in the company’s history, a massive step in our journey towards becoming a growing profitable organization. We are in the midst of a transformation area. And today’s results proved that point. While it’s not the finish line, it is a notable accomplishment worth highlighting. And one was far sooner than we had previously thought possible. We do not expect a positive adjusted EBITDA every quarter going forward, but this result highlights the massive improvement growth has made over the last 2 years.

Again, I want to give kudos to the team for the incredible work that went into driving this result. Adjusted EBITDA in the third quarter of 2023 was positive $0.2 million, up from a loss of $2.6 million in the second quarter of 2023 and a loss of $9.6 million in the third quarter of last year. While not a competitive period, it’s worth highlighting that our Q1 2022 adjusted EBITDA, which was just 7 quarters ago, was negative $40 million. The holistic P&L transformation has been truly incredible and rare among our industry. This improvement was achieved despite revenue declining in the third quarter, which was down 6.6% sequentially and 20.6% year-over-year. The revenue decline continues to be impacted by the advertising spend reduction, which was down 53.1% in the current quarter when compared to Q3 2022.

As we eliminate our lowest performing marketing spend, maximize our return on investment and continue our aggressive push to sustain profitability. Even at lower levels of spend, we are pleased with the results and continue to see strong performance in unpaid channels. Contributing to current quarter performance and continuing the trend from prior quarters were new records for net revenue per order and gross margin. Net revenue per order improved to $65.24, increasing from $64.82 in Q2 of 2023, our previous record high. Furthermore, gross margin increased 190 basis points from last quarter to 53.8% and was 180 basis points higher than our prior record in Q1 2023. We’re excited to continue moving the needle on these important metrics. We will remain focused on profitability, finding leverage across the P&L.

We’ve already discussed our marketing efficiency and net revenue improvement. So now I want to highlight our progress on omnichannel expansion and operating expense discipline. Meeting our customers where they shop is critical to our objective of making planet-friendly household essentials as accessible as possible. We continue to balance growth in the retail channel with our overall profitability objectives, ensuring our growth strategy is capital efficient. During the quarter, we are excited to share that we expanded our retail distribution to include KeHe investments. We have over 420 KeHe points of distribution and are in approximately 50 Wegmans stores with the expectation of being rolled out to 100 locations by year-end. These additions take our retail footprint to over 7,500 brick-and-mortar locations.