8-K: Grove Collaborative Reports Second Consecutive Quarter of Positive Adjusted EBITDA and Provides 2024 Financial Outlook

Grove Collaborative Holdings, Inc. announced its fourth quarter and full year 2023 financial results, highlighting a second consecutive quarter of positive Adjusted EBITDA, positive operating cash flow, and record net revenue per order.

Summary

• Grove Collaborative reported its Q4 and FY 2023 financial results, achieving its second consecutive quarter of positive Adjusted EBITDA and positive operating cash flow.
• Q4 revenue was $59.9 million, down 3.1% from Q3 2023 and 19.2% year-over-year, primarily due to decreased direct-to-consumer (DTC) orders resulting from reduced advertising spend.
• Gross margin improved to 54.4% in Q4, up 60 basis points from Q3 2023 and 740 basis points year-over-year.
• Operating expenses for Q4 were $40.5 million, an increase of 8.5% from Q3 2023 but a decrease of 35.9% compared to Q4 2022.
• The company reported a net loss margin of (15.8%) for Q4, compared to (15.9%) in Q3 2023 and (17.1%) in Q4 2022.
• Adjusted EBITDA margin was 0.2% in Q4, marking the second consecutive quarter of positive Adjusted EBITDA.
• Grove ended Q4 with $94.9 million in cash, cash equivalents, and restricted cash.
• DTC total orders were 0.9 million in Q4, down 5.8% quarter-over-quarter and 23.7% year-over-year.
• DTC active customers were 0.9 million, down 9.7% quarter-over-quarter and 33.2% year-over-year.
• DTC net revenue per order reached a record $66.83 in Q4, up 2.4% quarter-over-quarter and 5.4% year-over-year.
• For the full year 2023, net revenue was $259.3 million, down 19.4% year-over-year.
• Full year gross margin was 53.0%, up 490 basis points year-over-year.
• Full year operating expenses were $172.6 million, down 41.6% year-over-year.
• Full year net loss margin improved to (16.7%), up 1,060 basis points year-over-year.
• Full year Adjusted EBITDA margin was (3.5%), an improvement of 2,130 basis points year-over-year.
• Grove provided guidance for 2024, expecting net revenue of $215 to $225 million and Adjusted EBITDA margin of 0.0% to 1.0%.

Sentiment

Score: 7

Explanation: The sentiment is positive due to the achievement of positive Adjusted EBITDA and operating cash flow, along with a record net revenue per order. However, the revenue decline and projected decrease in the first quarter of 2024 temper the overall sentiment slightly.

Positives

• Grove achieved positive Adjusted EBITDA for the second consecutive quarter.
• The company generated positive operating cash flow in two of the last three quarters.
• Record net revenue per order of $66.83 was achieved in Q4 2023.
• Gross margin improved significantly, both sequentially and year-over-year.
• Operating expenses were reduced substantially compared to the previous year.
• The company has made progress in expanding its third-party product offerings.
• Grove has launched new products and streamlined its brand strategy.
• The company has seen significant growth in the health and wellness category.
• Grove has implemented initiatives to improve customer experience and loyalty.
• The company has recovered 15 million pounds of natureand ocean-bound single-use plastic since 2020.

Negatives

• Revenue declined both sequentially and year-over-year in Q4 2023.
• DTC total orders and active customers decreased significantly year-over-year.
• Grove Brands % of net revenue declined both sequentially and year-over-year.
• The company incurred $3.3 million of restructuring expenses in Q4 2023.
• Full year 2023 net revenue decreased by 19.4% compared to 2022.
• The company is projecting a revenue decline in the first quarter of 2024.

Risks

• The company faces risks related to changes in business, market, financial, political, and legal conditions.
• There are uncertainties surrounding the projected financial information.
• Grove's ability to successfully expand its business may be challenged.
• The company faces competition in the sustainable consumer products market.
• The uncertain effects of the COVID-19 pandemic could impact the business.
• Risks relating to inflation and interest rates may affect financial performance.
• The effectiveness of the company's ecommerce platform and selling efforts is crucial.
• Demand for Grove's products and other brands it sells may fluctuate.

Future Outlook

Grove anticipates net revenue between $215 million and $225 million for 2024, with an Adjusted EBITDA margin ranging from 0.0% to 1.0%. The company expects sequential revenue growth in the second half of 2024 and aims to maintain positive Adjusted EBITDA throughout the year, extending this trend into 2025.

Management Comments

• Im incredibly proud of the Grove Collaborative team and their hard work to deliver positive Adjusted EBITDA for the second quarter in a row, and Operating Cash Flow in two of the last three quarters, building momentum for the future as we continue on our path to being the most trusted brand for conscientious customers who are making the right choices for their families and the planet.
• This past quarter has been the start of a critical business transformation as we create incentives for customers to build the most walletand planet-friendly box possible, and roll out a robust product pipeline prioritizing sustainability and convenience.
• We have an unyielding resolve to drive profitable, sustainable growth and shareholder value by putting the customer at the center of everything that we do and, as a result, in the second half of 2024, we expect to deliver sequential quarterly revenue growth.
• Moreover, we expect to be Adjusted EBITDA positive for the full year and expect the momentum to continue into 2025 where we plan to be growing and profitable for the entire year.
• 2023 was a step-change year for the Company where we made significant strides towards sustainable profitability, delivering positive Adjusted EBITDA in the third and fourth quarters, a strong result and a demonstration of our ability to manage our cost structure and commitment to the long term health of the business.
• As we look forward to 2024, revenue will decline again in the first quarter, but we expect to deliver sequential revenue growth in the second half of the year, while also balancing advertising efficiency and profitability.
• We believe that the transformational changes during 2023 and early 2024 have set us up well to achieve this outcome.

Industry Context

Grove's focus on sustainability and expansion into the health and wellness category aligns with broader industry trends towards eco-friendly products and increasing consumer interest in wellness. The company's efforts to reduce plastic usage and offer sustainable alternatives position it well in a market where consumers are increasingly conscious of environmental impact.

Comparison to Industry Standards

• Grove's plastic intensity score of 1.07 pounds of plastic per $100 in net revenue for Q4 2023 is a complex metric for direct comparison without specific industry benchmarks for plastic intensity.
• However, when considering the broader context of sustainability, Grove's commitment to reducing plastic waste and achieving plastic neutrality sets it apart from many traditional consumer packaged goods (CPG) companies.
• For instance, large CPG companies like Procter & Gamble and Unilever have set ambitious goals to reduce virgin plastic use and increase recycled content by 2025 and 2030, respectively, but they still heavily rely on plastic packaging.
• Grove's direct-to-consumer model and focus on sustainable products also differentiate it from traditional retailers, although some, like Target, are expanding their sustainable product offerings and partnering with brands like Grove.
• In the realm of direct-to-consumer brands, Grove's performance can be compared to companies like Seventh Generation (owned by Unilever), which also focuses on eco-friendly household products.
• Seventh Generation has a strong presence in both retail and online channels, and while it doesn't publicly disclose a plastic intensity score, it is known for its efforts to use recycled materials and reduce plastic waste.
• Compared to other digitally native vertical brands (DNVBs) in the sustainable space, such as Blueland and by Humankind, Grove's scale and breadth of product offerings are more extensive.
• Blueland, for example, focuses on cleaning products with a refillable model to reduce plastic waste, and by Humankind offers personal care products with a similar approach.
• Grove's ability to achieve positive Adjusted EBITDA and its commitment to sustainability likely place it favorably among its peers in the DNVB space, many of which are still in the growth phase and may not yet be profitable.

Stakeholder Impact

• Shareholders may benefit from the company's focus on profitability and positive Adjusted EBITDA, although the revenue decline could be a concern.
• Employees may be impacted by the ongoing restructuring and cost optimization efforts.
• Customers are likely to benefit from the expanded product offerings, improved customer experience, and continued focus on sustainability.
• Suppliers and partners may be affected by the company's negotiations and initiatives to increase operating leverage.
• Creditors may view the positive operating cash flow and reduction in operating expenses favorably.

Next Steps

• Grove will continue implementing its strategic pillars focusing on customer-driven growth, sustainability, and profitability.
• The company plans to further optimize its operating costs and expense structure, including reducing its headquarters lease footprint and optimizing its fulfillment network footprint.
• Grove aims to deliver profitable sequential revenue growth in the second half of 2024.
• The company will continue expanding its third-party brand and product offerings.
• Grove will focus on product innovation, particularly in sustainable and plastic-free alternatives.
• The company will continue its efforts to reduce plastic intensity and promote sustainability.

Key Dates

Keywords

sustainable consumer products, ecommerce, direct-to-consumer, DTC, health and wellness, plastic neutral, B Corporation, ESG, sustainability, home care, personal care, digital retail