SOURCE: AeroGrow International, Inc.

AeroGrow International, Inc.

February 12, 2009 10:40 ET

AeroGrow Announces Fiscal 2009 Third Quarter Results

Quarterly Revenue Declined in Deteriorating Retail Environment; Fiscal Year-to-Date Revenue up 16% Over Previous Year

BOULDER, CO--(Marketwire - February 12, 2009) - AeroGrow International, Inc. (NASDAQ: AERO) ("AeroGrow" or the "Company"), makers of the AeroGarden® line of indoor gardening products, announced results for the quarter ended December 31, 2008.

AeroGrow reported quarterly revenue of $11.0 million, a decrease of 25% over the $14.6 million reported for the prior year's quarter ended December 31, 2007. For the nine months ended December 31, 2008, AeroGrow reported an increase of 16% over the nine months ended December 31, 2007, with revenue of $31.6 million in 2008, compared to $27.2 million in 2007.

"Consumer demand for the AeroGarden line stayed strong in the quarter," said Jerry Perkins, CEO of AeroGrow. "Consumers bought 63% more gardens and 91% more seed kits than in the prior year's quarter through broader distribution at our top tracked retail accounts. However it was largely accomplished by selling through inventory already on shelves as of the end of September. Disappointing sales for most consumer products continued through the holidays, forcing retailers to focus on managing inventories and cash, resulting in significantly lower wholesale reorder rates than we had forecast.

"In our retail business, reported net revenue was down 39% from last year on declining wholesale shipments of 19%, compounded by the impact of sales allowances offered to our retail customers. In our direct business, revenue increased almost 50% in web marketing and 70% in catalog, as sales to new and existing customers remained strong. These gains were offset by a significant decrease in our direct TV revenue in the quarter as we dialed back media spending in light of the rapidly deteriorating economic conditions. For the quarter, our direct business revenue was down 5% from the same period last year."

AeroGrow reported a $4.4 million loss for the quarter ended December 31, 2008, up from a loss of $1.7 million in the quarter ended December 31, 2007 and down from a profit of $418,000 in the previous quarter ended September 30, 2008. The net loss for the nine months ended December 31, 2008, totaled $6.8 million as compared to a loss of $6.0 million reported for the same period in 2007.

"Lower-than-forecast revenue in conjunction with unusual expenses directly attributable to the economic downturn drove the loss for the quarter," continued Mr. Perkins. "Almost $2 million of the loss reflects pricing actions taken to remain competitive in a highly discounted retail environment. $800,000 of this was due to our share of price markdowns taken at retail in the December quarter and $1 million more was booked in recognition that these economic conditions will persist and additional actions will likely be required. In addition, more than $600,000 of the loss is due to a combination of cash and non-cash expenses including severance costs recognized in the quarter from December's headcount reductions and other cost-cutting measures.

"Our primary goal at present is to preserve the long-term value of the company and brand by resizing our business structure and overhead to the new and dramatically altered retail and consumer landscapes. The steps we have taken and have planned, which include the engagement of an investment banker to assist with raising capital or potential strategic alternatives, should leave us well-positioned for renewed growth when the economy stabilizes. We still have a unique position in the marketplace, with products that consumers love, broad distribution through multiple channels, no established competition, and a recurring revenue model that continues to prove itself through the lifetime value of our customers."

Summary Results of Operations - Three and Nine Months Ended December 31, 2008

The following table sets forth, as a percentage of sales, our unaudited quarterly financial results for the three and nine months ended December 31, 2008, and the three and nine months ended December 31, 2007:

                                          Three Months      Nine Months
                                          Ended 12/31       Ended 12/31
                                        ----------------  ----------------
Product revenue                           2008     2007     2008     2007
                                        -------  -------  -------  -------
Sales - Retail                             51.1%    62.6%    62.6%    66.7%
Sales - Direct to Consumer                 44.2%    34.9%    30.3%    32.0%
Sales - International                       4.7%     2.5%     7.1%     1.3%
                                        -------  -------  -------  -------
Total                                     100.0%   100.0%   100.0%   100.0%

Operating expenses
Cost of revenue                            68.6%    61.1%    61.0%    59.9%
Research and development                    6.4%     4.7%     5.9%     6.8%
Sales and marketing                        42.7%    34.1%    34.9%    40.8%
General and administrative                 18.5%    10.1%    17.3%    13.5%
                                        -------  -------  -------  -------
Total operating expenses                  136.2%   110.0%   119.1%   121.0%

                                        -------  -------  -------  -------
Profit (loss) from operations             -36.2%   -10.0%   -19.1%   -21.0%
                                        =======  =======  =======  =======

For the three months ended December 31, 2008, our sales totaled $11,010,885, a 24.8% decrease from the same period in 2007. The revenue decline reflected a 38.7% decrease in sales to retailer customers and a 4.7% decrease in direct-to-consumer sales, partially offset by a 44.8% increase in sales to international distributors. Macroeconomic factors and changes in retailer buying patterns caused shipments into the retail channel to decline by approximately 19%, despite an overall 63% increase in consumer purchases of AeroGarden units from our top 11 retailers that provide us with their sales data. Compounding the decline in shipments to retailers was the impact of approximately $1.84 million in gross sales allowances we recognized in the three months ended December 31, 2008, the result of discounting programs in the 2008 holiday period and estimates of the impact of similar programs in the future. The decline in direct-to-consumer sales reflected a reduction in the number of airings of our direct response commercials during the three months ending December 31, 2008, partially offset by the impact of increased catalog operations and web marketing activity. We began selling to distributors outside of North America in late 2007, so the increase in international sales during the three months ended December 31, 2008, primarily reflects our initial penetration into new markets in Europe, Asia, and Australia.

The gross margin for the three months ended December 31, 2008, was 31.4%, down from 38.9% for the same period in 2007 because of the impact on sales of the $1.84 million in gross sales allowances, and because of a $174,545 inventory reserve established during the three months ended December 31, 2008. Excluding these items, the gross margin for the three months ended December 31, 2008, would have increased by approximately four percentage points, reflecting improvements in product and distribution costs, and an increase in direct-to-consumer sales as a percentage of total sales, which have higher margins than sales to retailers and international distributors.

Operating expenses other than cost of revenue totaled $7.4 million during the three months ended December 31, 2008, an increase of $294,224, or 4.1%, from the same period in 2007. The higher costs in 2008 include a $362,701 increase in non-cash stock option expense, reflecting a cumulative expense catch-up related to the October 1, 2008, approval by our stockholders of changes to our 2005 Equity Compensation Plan. In addition, we recognized $264,059 in severance charges incurred as a result of a 35% reduction in our workforce in mid-December 2008. These increased costs were partially offset by reductions in sales and marketing costs, including advertising and sales commissions, and reduced spending on general and administrative expenses.

For the three months ended December 31, 2008, our net loss totaled $4,402,222, or $0.35 per share, as compared to the $1,655,887 net loss ($0.13 per share) reported for the three months ended December 31, 2007.

Earnings Conference Call

AeroGrow will host a conference call today, Thursday, February 12, 2009, to review operational results for the quarter ended December 31, 2008.

The conference call is scheduled for 12:00 PM (noon) ET. To participate in the call, please dial:

                                 U.S. and Canada:  1 (888) 241-0558
                                 International:    1 (647) 427-3417

A replay of the call will be available within 12 hours of completion. You will be able to access it for the following 30 days through the AeroGrow website at www.aerogrow.com/investors or by phone until March 12, 2009. To access the replay by phone, please dial:

                                 U.S. and Canada:  1 (800) 839-9820
                                 International:    1 (402) 220-4281
                                 Conference ID:    84211496

AeroGrow International, Inc.


CONDENSED
 STATEMENTS OF
 OPERATIONS                Three Months                 Nine Months
 (Unaudited)                Ended 12/31                 Ended 12/31
                    --------------------------  --------------------------
                        2008          2007          2008          2007
                    ------------  ------------  ------------  ------------
Revenue
Product sales       $ 11,010,885  $ 14,637,742  $ 31,585,896  $ 27,199,821

Operating expenses
Cost of revenue        7,558,322     8,938,857    19,271,470    16,286,651
Research and
 development             703,133       682,453     1,845,326     1,840,441
Sales and marketing    4,704,912     4,997,801    11,030,524    11,089,338
General and
 administrative        2,037,797     1,471,364     5,458,622     3,679,397
                    ------------  ------------  ------------  ------------
Total operating
 expenses             15,004,164    16,090,475    37,605,942    32,895,827
                    ------------  ------------  ------------  ------------

Profit (loss) from
 operations           (3,993,279)   (1,452,733)   (6,020,046)   (5,696,006)

Other (income)
 expense, net
Interest (income)           (939)      (31,679)       (2,443)     (101,879)

Interest expense         409,882       234,833       783,598       426,681

Other (income)                 -             -             -        (2,929)
                    ------------  ------------  ------------  ------------
Total other (income)
 expense, net            408,943       203,154       781,155       321,873

                    ------------  ------------  ------------  ------------
Net profit (loss)   $ (4,402,222) $ (1,655,887) $ (6,801,201) $ (6,017,879)
                    ============  ============  ============  ============

Net profit (loss)
 per share, basic
 and diluted        $      (0.35) $      (0.13) $      (0.56) $      (0.52)

Weighted average
 number of common
 shares outstanding,
 basic and diluted    12,546,780    12,371,517    12,250,693    11,529,472

AeroGrow International, Inc.

BALANCE SHEETS                                   12/31/2008     3/31/2008
                                                ------------  ------------
                                                (Unaudited)
ASSETS
   Cash                                         $    834,181  $  1,559,792
   Restricted cash                                   431,999        86,676
   Accounts receivable                             6,164,936     2,412,101
   Other receivables                                 225,474       422,530
   Inventory                                      11,041,422     4,688,444
   Prepaid expenses                                  863,570       762,013
                                                ------------  ------------
Total current assets                              19,561,582     9,931,556

Property and equipment                             1,841,714     1,830,646
Other assets
   Intangible assets                                 212,418        56,263
   Deposits                                          101,164       101,164
   Deferred debt issuance costs                      279,412             -
                                                ------------  ------------
Total other assets                                   592,994       157,427
                                                ------------  ------------

TOTAL ASSETS                                    $ 21,996,290  $ 11,919,629

LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT)
Current liabilities
   Current portion - long term debt             $  8,942,402  $    128,927
   Due to factor                                           -     1,480,150
   Accounts payable                                8,833,832     3,023,366
   Accrued expenses                                4,541,556     2,452,025
   Customer deposits                                 472,255       232,200
   Deferred rent                                      60,535        65,037
                                                ------------  ------------
Total current liabilities                         22,850,580     7,381,705
Long term debt                                        49,876       129,373
Stockholders' equity (deficit)
   Common stock                                       13,342        12,076
   Additional paid-in capital                     45,511,777    44,024,559
   Accumulated surplus/(deficit)                 (46,429,285)  (39,628,084)
                                                ------------  ------------
Total stockholders' equity                          (904,166)    4,408,551
                                                ------------  ------------

TOTAL LIABILITIES AND STOCKHOLDERS'
 EQUITY/(DEFICIT)                               $ 21,996,290  $ 11,919,629

AeroGrow International, Inc.

SALES BY CHANNEL           Three Months                 Nine Months
(Unaudited)                 Ended 12/31                 Ended 12/31
                    --------------------------  --------------------------
                        2008          2007          2008          2007
                    ------------  ------------  ------------  ------------
Product revenue
Sales - Retail      $  5,621,688  $  9,168,337  $ 19,772,293  $ 18,148,237
Sales - Direct to
 Consumer              4,867,808     5,109,405     9,572,656     8,691,584
Sales -
 International           521,389       360,000     2,240,947       360,000
                    ------------  ------------  ------------  ------------
Total               $ 11,010,885  $ 14,637,742  $ 31,585,896  $ 27,199,821

% of revenue
Product sales -
 Retail                     51.1%         62.6%         62.6%         66.7%
Product sales -
 Direct to Consumer         44.2%         34.9%         30.3%         32.0%
Product sales -
 International               4.7%          2.5%          7.1%          1.3%
                    ------------  ------------  ------------  ------------
Total sales                100.0%        100.0%        100.0%        100.0%



AeroGrow International, Inc.

SALES BY PRODUCT           Three Months                 Nine Months
(Unaudited)                 Ended 12/31                 Ended 12/31
                    --------------------------  --------------------------
                        2008          2007          2008          2007
                    ------------  ------------  ------------  ------------
Product revenue
AeroGardens         $  8,683,670  $ 12,145,733  $ 24,945,346  $ 22,605,871
Seed kits and
 accessories           2,327,215     2,492,009     6,640,550     4,593,950
                    ------------  ------------  ------------  ------------
Total               $ 11,010,885  $ 14,637,742  $ 31,585,896  $ 27,199,821

% of revenue
AeroGardens                 78.9%         83.0%         79.0%         83.1%
Seed kits and
 accessories                21.1%         17.0%         21.0%         16.9%
                    ------------  ------------  ------------  ------------
Total                      100.0%        100.0%        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

  • CONTACTS:
    Corporate
    John Thompson
    AeroGrow International, Inc.
    (303) 444-7755
    Email Contact