EX-99.1 2 ex99-1.htm ex99-1.htm
Exhibit 99.1
 
AeroGrow Achieves First Profitable Quarter

·  
Strong retail sell-in, cost-control measures drive $418 thousand net income
·  
Quarterly revenue more than doubles from prior year, to $13.9 million

Boulder, CONovember 6, 2008 – AeroGrow International, Inc. (NASDAQ:AERO - News) ("AeroGrow" or the "Company"), makers of the AeroGarden® line of indoor gardening products, announced results for the quarter ended September 30, 2008.

AeroGrow reported quarterly revenue of approximately $13.9 million, an increase of 120% over the $6.3 million reported for the prior year's quarter ended September 30, 2007, and an increase of 106% over the $6.7 million in revenue reported for the quarter ended June 30, 2008.

For the quarter ended September 30, 2008, AeroGrow reported a net profit of $418 thousand, or $0.035 per share, as compared to a net loss of $2.3 million for the prior year’s quarter, a $2.8 million turnaround.  The current quarter’s profit represents more than a $3 million improvement from the June 30, 2008 quarter as well, when the company reported a net loss of $2.8 million.

“We are happy to be reporting our first-ever profitable quarter,” said Jerry Perkins, CEO of AeroGrow.  “We achieved it by balancing our dramatic revenue growth with the successful implementation of the profitability measures we announced in February, including decreases in product, G&A and transportation costs as a percentage of sales.  We committed to an increased focus on our bottom line results and are proud to have delivered.

“We more than doubled the number of retail storefronts carrying our products from a year ago, and demonstrated our ability to handle the inventory build and logistics required to manufacture and profitably deliver a record number of products over a very short time frame, in a rapidly changing retail environment,” continued Mr. Perkins.  “The team executed all of the major initiatives efficiently, more than doubling our accounts with essentially the same head count as last year.”

For the six months ended September 30, 2008, AeroGrow reported revenue of $20.6 million, compared to $12.6 million for the six months ended September 30, 2007.  Net loss for the six months ended September 30, 2008 was $2.4 million, as compared to a net loss of $4.4 million for the same period in 2007.

 “However, due to the downturn in consumer spending and caution from our retailers caused by the ongoing turmoil in the global financial markets, we are moderating our expectations for the balance of our fiscal year,” continued Mr. Perkins.  “We now anticipate that revenue for our fiscal year will come in between $50 million and $55 million, about 10 to 15% lower than our previous $60 million annual projection.

“This cautious downward estimate is consistent with recent estimates from most consumer product companies and economists, and will still represent meaningful growth in year-over-year sales for AeroGrow.  Lower revenue will also impact our overall profitability for the year. While we have been actively managing to the declining retail climate, we no longer expect to achieve breakeven for the fiscal year, although we will still achieve a significant turnaround in our net loss for the fiscal year, thanks to the cost savings measures already in place.

“We plan to continue to manage G&A and other costs very tightly, and are working closely with our vendor partners to effectively manage our supply chain to the new lower-demand forecast.  At the same time, we will continue to provide appropriate media and marketing support through the fiscal year, building greater awareness of our expanded product line and retail distribution. This will leave us well positioned for the inevitable improvement in the economic picture – with our costs under control, a full line of products in multi-SKU distribution through a broad base of retailers, a loyal customer base, and a rapidly expanding base of recurring revenues from continuing sales of our seed kits and accessories.”

Summary Results of Operations – Three and Six Months Ended September 30, 2008

The following table sets forth, as a percentage of sales, our unaudited quarterly financial results for the three and six months ended September 30, 2008 and the three and six months ended September 30, 2007:
 
   
Three months ended
September 30,
   
Six months ended
September 30,
 
Product Revenues
 
2008
   
2007
   
2008
   
2007
 
Retail
    83.0 %     77.2 %     68.8 %     71.5 %
Direct to Consumer
    9.9 %     22.8 %     22.9 %     28.5 %
International
    7.1 %     0.0 %     8.3 %     0.0 %
Total
    100.0 %     100.0 %     100.0 %     100.0 %
                                 
Operating expenses
                               
Cost of revenue
    57.9 %     60.0 %     56.9 %     58.5 %
Research and development
    3.0 %     10.0 %     5.6 %     9.2 %
Sales and marketing
    20.8 %     50.2 %     30.7 %     48.5 %
General and administrative
    13.7 %     15.6 %     16.6 %     17.6 %
Total operating expenses
    95.4 %     135.8 %     109.8 %     133.8 %
                                 
Profit (loss) from operations
    4.6 %     -35.8 %     -9.8 %     -33.8 %
 
 

 
For the three months ended September 30, 2008, revenue totaled almost $13.9 million, representing a year-over-year increase of 120%.  The increase came primarily from higher sales to retail customers that totaled $11.5 million, an increase of 137% from the same period in 2007, reflecting a 157% increase in the number of storefronts selling our products (to approximately 9,000 storefronts as of September 30, 2008 from about 3,500 storefronts a year earlier), an increase in the number of our products being carried on store shelves, and the effect of stocking orders in 2008 for new customers and for customers transitioning to our new product line.  International sales were also up year-over-year to $981 thousand for the quarter ended September 30, 2008.  The Company did not begin selling into markets outside North America until late 2007, so no international revenue was recognized in the same time period last year.  Direct-to-consumer sales decreased 4.7% during the quarter ended September 30, 2008, totaling almost $1.37 million against $1.43 million in 2007, as the Company aired fewer television infomercials during the summer months, partially offset by the impact of a greatly expanded direct catalog business.
 
Sales of AeroGardens for the quarter ended September 30, 2008 totaled almost $11.3 million, up 134% from 2007 and representing 81.4% of total revenue.  Seed kits and accessories sales for the quarter increased 75.6% from a year earlier to almost $2.6 million, or 18.6% of total revenue.  These sales of both product categories bring the cumulative number of AeroGardens and seed kits sold to 638 thousand and 1.4 million, respectively.

Operating profitability for the quarter improved from a year earlier as gross margin increased to 42.1% from 40.1% on the strength of lower product costs and the distribution efficiencies gained from the Company’s Indianapolis, Indiana distribution center, which opened in July 2008. This was partially offset by the impact of a channel-mix shift toward lower-margin retail and international sales, from direct-to-consumer sales.  Non-product operating expenses declined as a percent of revenue to 37.5% from 75.8% in 2007 as sales, marketing, and general and administrative costs all declined as a percent of revenue.  Other expense, principally interest expense, increased to $216 thousand from $90 thousand in 2007 on a higher average level of interest-bearing debt outstanding.

Net income for the quarter totaled $418 thousand, or $0.035 per share, a $2.8 million improvement from the same period in 2007.

Earnings Conference Call

AeroGrow will host a conference call today, Thursday, November 6, 2008, to review operational results for the quarter ended September 30, 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 December 6, 2008. To access the replay by phone, please dial:

U.S. and Canada:
1 (888) 567-0343
International:
1 (402) 220-4373
Conference ID:
70407588
 
 

 
AEROGROW INTERNATIONAL, INC. CONDENSED STATEMENTS OF OPERATIONS
Unaudited
 
   
Three months ended 
September 30,
   
Six months ended 
September 30,
 
   
2008
   
2007
   
2008
   
2007
 
Revenue
                       
Product sales
  $ 13,854,930     $ 6,283,645     $ 20,575,011     $ 12,562,079  
                                 
Operating expenses
                               
Cost of revenue
    8,026,325       3,765,376       11,713,148       7,347,794  
Research and development
    416,778       628,542       1,142,193       1,157,987  
Sales and marketing
    2,875,729       3,156,414       6,325,612       6,091,537  
General and administrative
    1,902,113       982,181       3,420,825       2,208,033  
Total operating expenses
    13,220,945       8,532,513       22,601,778       16,805,351  
                                 
Profit (loss) from operations
    633,985       (2,248,868 )     (2,026,767 )     (4,243,272 )
                                 
Other (income) expense, net
                               
Interest (income)
    (454 )     (32,341 )     (1,504 )     (70,200 )
Interest expense
    216,069       125,664       373,716       191,849  
Other income
    -       (2,929 )     -       (2,929 )
Total other (income) expense, net
    215,615       90,394       372,212       118,720  
                                 
Net profit (loss)
  $ 418,370     $ (2,339,262 )   $ (2,398,979 )   $ (4,361,992 )
                                 
Net profit (loss) per share, basic and diluted
  $ 0.035     $ (0.204 )   $ (0.198 )   $ (0.387 )
 
 

 
AEROGROW INTERNATIONAL, INC.
CONDENSED BALANCE SHEETS
Unaudited
 
   
September 30, 2008
   
March 31, 2008
 
ASSETS
           
     Cash
  $ 414,461     $ 1,559,792  
     Restricted Cash
    431,413       86,676  
     Accounts Receivable
    12,226,425       2,412,101  
     Other Receivables
    201,617       422,530  
     Inventory
    10,392,701       4,688,444  
     Prepaid Expenses and other
    1,052,339       762,013  
Total Current Assets
    24,718,956       9,931,556  
                 
Property and equipment
    2,002,120       1,830,646  
Other Assets
               
  Prepaid Debt Issuance Costs
    310,593       -  
  Intangible Assets
    209,106       56,263  
  Deposits
    101,164       101,164  
Total other assets
    620,863       157,427  
                 
Total Assets
  $ 27,341,939     $ 11,919,629  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Current Liabilities
               
     Current Portion - Long Term Debt
  $ 2,150,588     $ 128,927  
     Due to Factor
    -       1,480,150  
     Accounts payable
    10,745,818       3,023,366  
     Accrued expenses
    3,424,919       2,452,025  
     Customer deposits
    189,161       232,200  
     Deferred rent
    44,525       65,037  
Total current liabilities
    16,555,011       7,381,705  
Long term debt
    8,709,695       129,373  
Stockholders' equity
               
     Common stock
    12,109       12,076  
     Additional paid-in capital
    44,092,187       44,024,559  
     Accumulated (deficit)
    (42,027,063 )     (39,628,084 )
Total stockholders' equity
    2,077,233       4,408,551  
                 
Total Liabilities and Stockholders' Equity
  $ 27,341,939     $ 11,919,629  
 
 

 
Sales by Channel
(Unaudited)
 
 
Three months ended
September 30,
   
Six months ended 
September 30,
 
Product Revenues
 
2008
   
2007
   
2008
   
2007
 
Retail
  $ 11,508,030     $ 4,850,298     $ 14,150,605     $ 8,979,900  
Direct to consumer
    1,365,438       1,433,347       4,704,848       3,582,179  
International
    981,462       -       1,719,558       -  
Total
  $ 13,854,930     $ 6,283,645     $ 20,575,011     $ 12,562,079  
                                 
% of Revenues
                               
Retail
    83.0 %     77.2 %     68.8 %     71.5 %
Direct to consumer
    9.9 %     22.8 %     22.9 %     28.5 %
International
    7.1 %     0.0 %     8.3 %     0.0 %
Total
    100.0 %     100.0 %     100.0 %     100.0 %
 
Sales by Product
(Unaudited)
 
 
Three months ended
September 30,
   
Six months ended 
September 30,
 
   
2008
   
2007
   
2008
   
2007
 
Product Revenues
                       
AeroGardens
  $ 11,278,260     $ 4,816,504     $ 16,261,676     $ 8,979,900  
Seed kits and accessories
    2,576,670       1,467,141       4,313,335       3,582,179  
Total
  $ 13,854,930     $ 6,283,645     $ 20,575,011     $ 12,562,079  
                                 
% of Revenues
                               
AeroGardens
    81.4 %     76.7 %     79.0 %     71.5 %
Seed kits and accessories
    18.6 %     23.3 %     21.0 %     28.5 %
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 indoor gardening products. AeroGardens feature dirt-free technology, allowing 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.

CONTACTS:
                                                                                                                                        
 Corporate  Investor
 John Thompson      Budd Zuckerman
AeroGrow International, Inc   Genesis Select Corporation
(303) 444-7755   (303) 415-0200
john@aerogrow.com     bzuckerman@genesisselect.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 kitchen garden appliance 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.