Today, AeroGrow International, Inc. (AERO) reported its first earnings report after Scotts Miracle-Gro’s (SMG) subsidiary exercised its warrants to establish an 80% ownership stake in the company.
In April 2013, AeroGrow entered a securities purchase agreement and strategic alliance with a wholly owned subsidiary of The Scotts Miracle-Gro Company (SMG: Nasdaq). Since that time, the business has demonstrated strong and consistent growth with a leading line of consumer indoor gardening systems.
AeroGrow’s principal business is developing, marketing, and distributing advanced indoor aeroponic garden systems for the consumer gardening, cooking and small indoor appliance markets. The company manufactures, distributes and markets its products primarily in North America as well as certain countries in Europe, Asia and Australia.
During the third quarter, AeroGrow recorded net loss of $639,000 on $13.2 million in revenue. This is well below the $2.3 million in net income (off $11.9 million in revenue) recorded during the same period last year. The decrease is primarily a result of the fair value revaluation of the Scotts Miracle-Gro warrant and the higher spending on general advertising and brand awareness with key retailers (part of its strategic growth strategy).
One of AeroGrow’s key strategic initiatives for the 2016 Fiscal year has been to increase brand and category awareness of its products with targeted consumers. During the quarter, the company spent $2.6 million in advertising expenditures to support its direct-to- consumer and retail channels, a 25.1% increase when compared to the same period last year.
During the quarter, AeroGrow saw retail sales increased 9.4% to $9.7 million while direct-to-consumer sales increased 7.2%, to $3.2 million.
As of December 31 st , AeroGrow had $48.4 million in cash. On January 3 rd , the company issued $40.5 million worth of dividends paid to holders of common stock. The large cash balance can be attributed to the exercise of a warrant by Scotts Miracle-Gro in November (warrant was issued in April 2013.) To exercise the warrant, Scotts Miracle-Gro paid AeroGrow approximately $47.8 million. As of December 31 st , AeroGrow’s total inventory balance was $4.0 million and the total accounts payable was $2.5 million
We remain favorable on AeroGrow due to the company’s strategic relationship with Scotts Miracle Gro, its continued success and improving market share, and its expanded product line. AERO is trading at $3.25 after a 1.5% move higher on light volume (21,000 shares) and we will monitor how the market responds to this news. The company’s third quarter financial results were nothing spectacular and we expect to see a mild response from the market.