Hydrofarm Holdings Q1 Net Sales Drop 45% YoY, What About Gross Profit?

Hydrofarm Holdings Group HYFM, a leading manufacturer and distributor of hydroponics equipment and supplies, announced its financial results for the first quarter of 2023.

Bill Toler, Hydrofarm chairman stated: “I am proud of our team who has worked tirelessly to execute our restructuring and related cost savings initiatives while navigating the challenging operating environment as the broader industry finds its way through supply/demand imbalances."

Financial Highlights For Q1 2023 Compared To Q1 2022

• Net sales decreased to $62.2 million compared to $111.4 million.
• Gross Profit decreased to $11.4 million compared to $16.6 million. Adjusted Gross Profit(1) was $14.1 million compared to $22.3 million.
• Gross Profit Margin increased to 18.3% of net sales compared to 14.9%. Adjusted Gross Profit Margin(1) increased to 22.6% of net sales compared to 20.0%.
• Net loss was $(16.8) million, or $(0.37) per diluted share, compared to net loss of $(23.3) million, or $(0.52) per diluted share.
• Adjusted EBITDA decreased to $(2.1) million compared to $3.1 million in the prior year period.
• Cash used in operating activities of $(9.0) million and negative Free Cash Flow of $(10.6) million, a $2.0 million improvement compared to the first quarter of 2022, per a press release.

Full-Year 2023 Outlook

• Net sales are expected to be approximately $290 million to $310 million, with results leaning toward the lower end of the range.
• Modestly positive Adjusted EBITDA expected for the full year.
• Positive Free Cash Flow is anticipated for the full year.

The company “recently completed the consolidation of our Canadian nutrient manufacturing facility, the closure of our regional office in China as well as the relocation of our distribution center in Western Canada," Toler said.

Additionally, the Company's balance sheet shows $18.7 million in cash, $123.4 million in outstanding Term Loan balance, $10.4 million in finance leases, and $0.2 million in other debt as of March 31, 2023.

Hydrofarm reaffirmed its full-year outlook, expecting improved Adjusted Gross Profit and margin, capital expenditures of $7 million to $9 million, and a reduction in inventory and net working capital to generate positive Free Cash Flow.

“We have made strides by reducing our overall costs in an effort to position ourselves to drive profitability in the near term by improving brand sales mix, increasing productivity, and reducing SG&A,” Toler concluded. “We remain optimistic about our long-term business fundamentals and our ability to take advantage of growth opportunities ahead."

Photo: Courtesy Of Markus Winkler On Unsplash