AeroGrow Reports 3rd Quarter Results

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BOULDER, Colo., Feb. 11, 2019 (GLOBE NEWSWIRE) -- AeroGrow International, Inc. (OTCQB: AERO) (“AeroGrow" or “the Company"), the manufacturer and distributor of AeroGardens - the world’s leading family of In-Home Garden Systems™ – announced results for its third quarter ended December 31, 2018.

For the quarter ended December 31, 2018 the Company recorded net revenue of $12.9 million, a decline from $17.4 million in the same period in the prior year.  Loss from Operations was $535K, vs. income of $406K in the prior year period.  For the nine months ended December 31, 2018, net revenue stands at $25.3 million vs. $25.6 million for the same period last year.  The Company posted a loss from Operations for the nine month period of $517K, vs. a loss of $452K the prior year. 

“Our 3 Quarter sales results proved to be disappointing for us, although they are complicated by timing issues associated with sell-in and drop ship support for our retail customers,” said AeroGrow President & CEO J. Michael Wolfe.  “We implemented a great deal of change in our December quarter:  from new products to new branding and packaging along with a new marketing and media strategy.  I think some of these changes worked well, and some didn’t perform to the level that we had anticipated.  These factors, in combination with what proved (at least for us) to be a difficult consumer environment in the weeks leading up to Christmas, created some significant headwinds for us.  However, a careful look at our fundamental metrics (including gross margin improvement for the nine month period and overall seed kit sales) continues to suggest a strong underlying business on an upward trajectory. 

“In studying our in-store and on-line sales performance, it becomes clear that we primarily had a difficult period from right after Cyber Monday through Christmas.  The good news is that – since early January – all of our sales channels have picked right back up to pre-December levels and we appear to be tracking well again.  This suggests to me that the challenges we faced were associated narrowly with the holiday-selling season – which is the exact time that we were counting on our new marketing and media programs to create broad awareness of our product and to drive retail traffic as it has in the past, but may have fell short.

“I’ll briefly address the major changes that we made and provide a comment on each.  Our most notable change was that we updated our flagship product, the AeroGarden Harvest.  We feel as though the product looks great and our early customer feedback is that it is performing better than any AeroGarden ever.  We think this change proved quite successful.  It’s also noteworthy that we began implementing a change to our seed kit manufacturing process during the quarter that will allow us to more effectively ensure long-term, successful germination – another big win for us.  Based on the continued success of our product development efforts, we have several new and highly innovative products in our pipeline that we plan to launch later in 2019.

“Our distribution strategy was largely unchanged this year versus the last several years.  The cornerstone of our strategy continues to be utilizing Amazon and on-line sales through our retail partners.  This portion of our business continued to show solid growth.  We also used Kohl’s, Macy’s Bed, Bath & Beyond and several other retailers to drive sales through in-store placements.  The results of these retailers were mixed – ranging from significant sell-thru growth to not measuring up to last year on a sell-thru basis.   Overall, we have to acknowledge that our in-store sales did not meet our past performance nor our expectations.

“The most significant change we made this year was to our marketing strategy.  We decided that we would begin to make a series of changes designed to evolve our brand from being a 'direct response-focused brand' to more of a 'lifestyle brand.'  We believe that long-term this is a key evolution for us to make if we are to truly build a widely accepted category and a brand that is broadly recognized.  Toward this end, we changed a great deal associated with our marketing strategy.  From our brand name (we de-emphasized the Miracle-Gro component of our brand) to our packaging and particularly to our media strategy, we made many changes aimed at evolving our brand.  I think some of these changes proved effective, but some didn’t help us as much with our in-store sales as we had hoped.  We have undertaken a full review of these programs and I am confident that we will learn from any mistakes we made in our strategy, get them corrected and will only be better because of it.

"I mentioned earlier that timing of orders and drop shipping on behalf of our customers also affected our Q3 revenue.  This year, we shipped some orders on a different cadence than we have in the past (shipping in Q2 and planned for Q4 rather than Q3).  Some of our customers also relied less heavily on drop shipping in November and December and instead used stock that we had shipped them in Q2. 

"I also want to point out that we are always careful to take reserves for any potential returns when we ship our products.  However, based on our disappointing December sell-thru, we have taken additional reserves in the 3 quarter to guard against any potential returns we may have coming from our in-store retail partners.  We don’t know exactly how many products might be returned from our in-store retailers, but we wanted to be sure that we were adequately reserved so that we get all of our 'bad news' behind us.  Our gross margin dipped slightly in the 3 quarter in large part due to the frictional costs associated with these returns and the resulting lower level of net sales.  I am pleased that our nine month gross margin improved by 180 basis points, and we will continue to make this improvement a focus of our efforts. 

“We’ve had a remarkable five year period here at AeroGrow, with compound annual growth of over 35% leading into this year – and strong performance during the first half of Fiscal 2019.  Obviously, we stubbed our toe this past holiday season, but it appears to me that we had a '4 week holiday season problem' and not an 'AeroGarden problem.'  We’re working hard to identify our short comings, get them fixed and get on with the business of building a highly successful company.  I look forward to updating you with our ongoing progress.”

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: Statements by J. Michael Wolfe and/or the Company, statements regarding growth of the AeroGarden product line, ability to raise capital, optimism related to the business, expanding sales, market acceptance of developments and enhancements to our product line, improved margins and profitability, and other statements in this press release are forward-looking statements within the meaning of the Securities Litigation Reform Act of 1995. Such statements are based on current expectations, estimates and projections about the Company’s business. Words such as expects, anticipates, intends, plans, believes, sees, estimates and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict. Actual results could vary materially from the description contained herein due to many factors including continued market acceptance of the Company’s products or the need to raise additional capital. In addition, actual results could vary materially based on changes or slower growth in the indoor garden market; the potential inability to realize expected benefits and synergies; domestic and international business and economic conditions; changes in customer demand or ordering patterns; changes in the competitive environment including pricing pressures or technological changes; technological advances; shortages of manufacturing capacity; future production variables impacting excess inventory and other risk factors listed from time to time in the Company’s Securities and Exchange Commission (SEC) filings, including in “Item 1A Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2018. The forward-looking statements contained in this press release speak only as of the date on which they are made, and the Company does not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this press release.

Additional detailed information concerning a number of the important factors that could cause actual results to differ materially from the forward-looking information contained in this release is readily available in the Company’s publicly filed quarterly, annual and other reports. The Company disclaims any obligation to update developments of these risk factors or to announce publicly any revision to any of the forward-looking statements contained in this release, or to make corrections to reflect future events or developments.

Investor Relations: 
Grey Gibbs
Senior Vice President of Finance and Accounting
grey@aerogrow.com
303-444-7755

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Globe Newswire: 21:30 GMT Monday 11th February 2019

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