SOURCE: AeroGrow International, Inc.

AeroGrow International, Inc.

November 19, 2009 19:12 ET

AeroGrow Reports Results for Quarter Ended September 30, 2009

Revenue of $3.3 Million for the Quarter

BOULDER, CO--(Marketwire - November 19, 2009) - AeroGrow International, Inc. (OTCBB: AERO) ("AeroGrow" or the "Company"), makers of the AeroGarden® line of indoor gardening products, announced results for the quarter ended September 30, 2009.

For the quarter ended September 30, 2009, AeroGrow reported net revenue of $3.3 million, down 76% from the quarter ended September 30, 2008. The Company also reported a net loss for the quarter of $1.8 million, or -$0.14 per share, down from a net profit of $0.4 million, or $.03 per share, last year in the same period.

"The decline in sales reflects the continued economic downturn as well as a global shift in purchasing patterns at retail, from large stocking orders to later, smaller, more just-in-time inventory purchases," said Jerry Perkins, CEO of AeroGrow. "We expected this would change the seasonal pattern of our sales to retailers, and push more sales into the December quarter as retailers shifted inventory risk to manufacturers to conserve cash. In addition, our total retail storefronts declined from about 9,000 in September of last year to about 3,600 this year. A combination of factors led to the reduction, including a decision on our part to lower our inventory risk in a volatile marketplace.

"In contrast, our direct-to-consumer sales managed modest year-over-year growth even in the face of a 26% reduction in media spending. This was fueled primarily by demand for seed kits and accessories, which increased as a percentage of total sales to 29% from 19% last year. Stronger performance in this area reflects the leverage or our recurring revenue model and the loyalty or our customers as we continue to build our user base.

"Our cash remained extremely tight throughout the quarter, which at times impacted our ability to manage efficiently on a day-to-day basis, and adversely affected our margins. As previously announced, we raised $0.6 million in new cash proceeds through the sale of preferred stock in October to improve our liquidity position. In terms of spending, I continue to be encouraged by the results of our cost reduction initiatives that have driven year-over-year reductions in almost every key spending category. These decreases in our expenses and the continued strong performance of our direct business represent positive developments in difficult times."

The quarter ended September 30, 2009, is AeroGrow's second quarter of the fiscal year. The following table sets forth, as a percentage of sales, our unaudited quarterly financial results for the three months ended September 30, 2009, and the three months ended September 30, 2008:

                                                     Three Months Ended
                                                        September 30,
                                                  ------------------------
                                                     2009         2008
                                                  ----------   -----------
Revenue
  Product sales - retail, net                           55.8 %        83.0%
  Product sales - direct to consumer, net               41.8 %         9.9%
  Product sales - international                          2.4 %         7.1%
                                                  ----------   -----------
    Total sales                                        100.0 %       100.0%

Operating expenses
  Cost of revenue                                       69.1 %        57.9%
  Research and development                               5.3 %         3.0%
  Sales and marketing                                   38.0 %        20.8%
  General and administrative                            41.2 %        13.7%
                                                  ----------   -----------
    Total operating expenses                           153.6 %        95.4%
                                                  ----------   -----------

Profit/(loss) from operations                          (53.6)%         4.6%
                                                  ==========   ===========

Summary Results of Operations - Three Months Ended September 30, 2009

For the three months ended September 30, 2009, our sales totaled $3,285,949, a 76.3% decrease from the same period in the prior year. The decline in sales reflected an 84.1% reduction in sales to retailers, caused in part by the decline in economic activity associated with the global recession, which adversely affected the levels of consumer spending and retailer procurement relative to the prior year period. In addition, our sales to retailers relative to the prior year period declined because of a comparison to the 2008 period during which retailers took large stocking orders in anticipation of the holiday shopping season. In 2009, retailers are delaying orders until later in the year, and ordering inventories on a just-in-time, replenishment basis, rather than placing large stocking orders. In addition, we experienced a decline in the number of retail storefronts carrying our products, from approximately 9,000 at September 30, 2008 to approximately 3,600 at September 30, 2009, reflecting a shift in stocking strategy by many retail chains to focus inventory investment on more traditional consumer product categories. Our direct-to-consumer sales were up slightly from the prior year, despite a 25.9% reduction in the amount of revenue-generating media spending during the period. The increase in sales was driven by strong direct-to-consumer sales of seed kits and accessories, reflecting continued strength in the recurring revenue portion of our direct-to-consumer business, as the cumulative number of AeroGardens sold continued to increase, to 852,092 as of September 30, 2009. As a percent of total revenue, seed kits and accessories represented 28.7% for the three months ended September 30, 2009, up from 18.6% in the prior year period.

The gross margin for the three months ended September 30, 2009, was 30.9% as compared to 42.1% for the year earlier period. The decline reflected changes in channel, customer, and product mix, as well as the impact of fixed facility costs in our Indianapolis, Indiana manufacturing and distribution facility that became fully operational in September 2008, on a lower revenue base in the current year period. Operating expenses other than cost of revenue were reduced $2,419,382, or 46.6%, from the prior year reflecting cost saving initiatives and staffing reductions.

The loss from operations totaled $1,759,845 for the three months ended September 30, 2009, as compared to an operating profit of $633,985 in the prior year period. The increased loss principally reflected the impact of the decline in revenue and the lower gross margin, which, in combination, more than offset the significant decrease in operating expenses other than cost of revenue.

The net loss for the three months ended September 30, 2009 was $1,765,254 as compared to a net profit of $418,370 in the same period a year earlier.

                    CONDENSED STATEMENTS OF OPERATIONS
                                (Unaudited)


                                                    Three Months ended
                                                --------------------------
                                                      September 30,
                                                --------------------------
                                                    2009          2008
                                                ------------  ------------
Revenue
    Product sales                               $  3,285,949  $ 13,854,930

Operating expenses
    Cost of revenue                                2,270,556     8,026,325
    Research and development                         173,354       416,778
    Sales and marketing                            1,248,102     2,875,729
    General and administrative                     1,353,782     1,902,113
                                                ------------  ------------
    Total operating expenses                       5,045,794    13,220,945
                                                ------------  ------------

Profit (loss) from operations                     (1,759,845)      633,985

Other (income) expense, net
    Interest (income)                                    (61)         (454)
    Interest expense                                 185,756       216,069
    Other (income)                                  (180,286)            -
                                                ------------  ------------
    Total other (income) expense, net                  5,409       215,615
                                                ------------  ------------

Net income (loss)                                 (1,765,254) $    418,370
                                                ============  ============

Net income (loss) per share, basic                     (0.14) $       0.03
                                                ============  ============

Net income (loss) per share, diluted                   (0.14) $       0.03
                                                ============  ============

Weighted average number of common shares
 outstanding used to calculate basic net
 income per share                                 12,422,249    12,121,858
                                                ============  ============

Effect of dilutive securities:
      Equity based compensation                            -       254,698
                                                              ------------
Weighted average number of common shares
 outstanding used to calculate diluted net
 income per share                                 12,422,249    12,376,556
                                                ============  ============



                                                     Six Months ended
                                                --------------------------
                                                      September 30,
                                                --------------------------
                                                    2009          2008
                                                ------------  ------------
Revenue
Product sales                                   $  6,265,642  $ 20,575,011

Operating expenses
    Cost of revenue                                4,140,361    11,713,148
    Research and development                         742,552     1,142,193
    Sales and marketing                            2,407,898     6,325,612
    General and administrative                     2,405,042     3,420,825
                                                ------------  ------------
    Total operating expenses                       9,695,853    22,601,778
                                                ------------  ------------

Profit (loss) from operations                     (3,430,211)   (2,026,767)

Other (income) expense, net
    Interest (income)                                   (141)       (1,504)
    Interest expense                                 384,754       373,716
    Other (income)                                  (987,838)            -
                                                ------------  ------------
    Total other (income) expense, net               (603,225)      372,212
                                                ------------  ------------

Net income (loss)                                 (2,826,986)   (2,398,979)
                                                ============  ============

Net income (loss) per share, basic                     (0.22)        (0.20)
                                                ============  ============

Net income (loss) per share, diluted                   (0.22)        (0.20)
                                                ============  ============

Weighted average number of common shares
 outstanding used to calculate basic net
 income per share                                 12,729,125    12,108,177
                                                ============  ============

Effect of dilutive securities:
    Equity based compensation                              -             -
Weighted average number of common shares
 outstanding used to calculate diluted net
 income per share                                 12,729,125    12,108,177
                                                ============  ============



                             CONDENSED BALANCE SHEETS
                                    (Unaudited)

                                              September 30,    March 31,
                                                  2009           2009
                                              -------------  -------------
ASSETS
Current assets
  Cash                                        $      46,891  $     332,698
  Restricted cash                                   438,441        438,331
  Accounts receivable                             2,444,181      2,278,052
  Other receivable                                   39,461        332,059
  Inventory                                       7,753,816      8,350,135
  Prepaid expenses and other                        506,356        565,454
                                              -------------  -------------
            Total current assets                 11,229,146     12,296,729
Property and equipment                            1,336,464      1,768,369
Other assets
  Intangible assets                                 257,145        231,590
  Deposit                                           190,776        110,776
  Deferred debt issuance costs                      162,990        201,726
                                              -------------  -------------
            Total other assets                      610,911        544,092
                                              -------------  -------------
Total Assets                                  $  13,176,521  $  14,609,190
                                              =============  =============

LIABILITIES AND STOCKHOLDERS' EQUITY
 (DEFICIT)
Current liabilities
  Current portion  - long term debt           $   5,996,083  $   1,099,060
  Accounts payable                                4,452,184      8,338,559
  Accrued expenses                                1,474,916      2,318,670
  Customer deposits                                 459,869        246,728
  Deferred rent                                      49,028         57,283
                                              -------------  -------------
           Total current liabilities             12,432,080     12,060,300
Long term debt                                    1,405,113      5,547,144
Long term debt-related party                              -      1,233,371
Stockholders' equity
  Preferred stock                                         7             --
  Common stock                                       12,422         13,343
  Additional paid-in capital                     52,095,483     45,696,630
  Accumulated (deficit)                         (52,768,584)   (49,941,598)
                                              -------------  -------------
Total Stockholders' Equity (Deficit)               (660,672)    (4,231,625)
                                              -------------  -------------
Total Liabilities and Stockholders' Equity
 (Deficit)                                    $  13,176,521  $  14,609,190
                                              =============  =============




                              SALES BY CHANNEL
                                 (Unaudited)

                                                     Three Months Ended
                                                        September 30,
                                                  ------------------------
                                                      2009         2008
                                                  -----------  -----------
Revenue
  Product sales - retail, net                            55.8%        83.0%
  Product sales - direct to consumer, net                41.8%         9.9%
  Product sales - international                           2.4%         7.1%
                                                  -----------  -----------
    Total sales                                         100.0%       100.0%


                                                     Three Months Ended
                                                        September 30,
                                                  -------------------------
Product Revenue                                       2009         2008
                                                  ------------ ------------
  Retail, net                                     $  1,831,781 $ 11,508,030
  Direct to consumer, net                            1,375,141    1,365,438
  International                                         79,027      981,462
                                                  ------------ ------------
    Total                                         $  3,285,949 $ 13,854,930
                                                  ============ ============


                             SALES BY PRODUCT CATEGORY
                                    (Unaudited)

                                                    Three Months Ended
                                                      September 30,
                                                --------------------------
                                                    2009          2008
                                                ------------  ------------
Product Revenue
  AeroGardens                                   $  2,343,439  $ 11,278,260
  Seed kits and accessories                          942,510     2,576,670
                                                ------------  ------------
    Total                                       $  3,285,949  $ 13,854,930
                                                ============  ============
% of Total Revenue
  AeroGardens                                           71.3%         81.4%
  Seed kits and accessories                             28.7%         18.6%
                                                ------------  ------------
    Total                                              100.0%        100.0%
                                                ============  ============

About AeroGrow International, Inc.

Founded in 2002 in Boulder, Colorado, AeroGrow International, Inc. is dedicated to the research, development and marketing of the AeroGarden line of foolproof, dirt-free indoor gardens. AeroGardens allow anyone to grow farmer's market fresh herbs, salad greens, tomatoes, chili peppers, flowers and more, indoors, year-round, so simply and easily that no green thumb is required. See www.aerogrow.com.

FORWARD-LOOKING STATEMENTS

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements by Jerry Perkins, and/or the Company, statements regarding growth of the AeroGarden product line, optimism related to the business, expanding sales, 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 under "risk factors" and elsewhere. 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.

Contact Information

  • Contact:
    John Thompson
    303-444-7755