Grove Collaborative Holdings, Inc. (NYSE:GROV) Q3 2023 Earnings Call Transcript

Our business in retail has been a learning experience. I’m energized by the partnerships that we have with critical retailers and can see the progress in both product and in the numbers. I believe many other brands be envious of our current shelf positioning. We also continue to make progress on Amazon, where we increase our SKU assortment to include laundry, room spray and other product categories, expanding on the product lines launched in the prior 2 quarters. In the 6 months, since we’ve launched our flagship brand, Grove Co on Amazon, we have over 900 positive customer reviews. Again, our business is effective because customers love our products. We are not only focused on improving operating efficiency in the retail channel, but across the entire P&L, even with the massive improvement in operating expenses over the last 7 quarters, which are down 58.5% from Q1 2022.

We continue to make progress. with my own fresh eyes, I see additional opportunities for the organization. Current quarter operating expenses are down 38.5% year-over-year and 14.9% quarter-over-quarter. While a portion of the reduction is due to lower variable costs from fewer orders, we are seeing the benefits of our outbound carrier mix optimization, driving down shipping costs. We also see it in the elimination of duplicative or unnecessary vendor spend, the optimization of advertising channel allocation to ensure the highest return on our investment and smaller teams, allowing for more rapid decision making. I’ve been impressed by the entire organization’s relentless work and difficult decisions to streamline our expense structure. This focus needs to and will persist.

We continue to see opportunities across the P&L to find points of leverage that will improve our economics and will enable us to be both profitable and growing in the near future. As we look to the future, I want to share my vision for growth and how we will focus our overall efforts to grow and scale the business. Today and moving forward, we will remain focused on one, customers; two, sustainability; and three, profitability. We are in business because of our customers. We are here to serve them and be their trusted destination to find high-performing planet first products. Sustainability is our foundation and our differentiation. It’s why we are unique in the industry, and profitability is a necessity. I’m going to start most discussions with our customer in mind, and you will hear us talking more and more about our customers on earnings calls.

It’s through increasing value to customers that businesses create sustainable growth. We are excited about the VIP program. And during the third quarter of this year, we launched the VIP HUB. This new feature provides our VIPs with exclusive benefits, including samples, earned dips, discount and early access to limited edition collections. We are thrilled to provide our best customers for more value, particularly in the current economic environment and reward them with newness through a dedicated program. While it is a recent launch, we are excited by the early trends. Additionally, our customers told us they want more selection. The tenants guiding our category expansion are high, including strict ingredient standards and providing transparency and education to customers to help them on their sustainability journey.

The expansion into the health and wellness category has proven that customers continue to place high trust in growth and are open to growth recommendations and selection beyond cleaning products. Since Q2 2022, we have nearly doubled the percent of orders containing our wellness SKU. Those health and wellness products continue to make up a small percentage of our total sales, expanding our assortment continues to be a focus. Our initial launch was focused on multi-item and other daily regimen products to drive repeat orders. We look to expand into other subcategories to round out our selection and make growth our destination for all of our customers’ wellness needs. Furthermore, during the quarter, we implemented an improved search, browse and sort of experience on our website and mobile application that we expect to vastly improve the customer experience.

These innovations will make it easier and more seamless for customers to find the right products at the right time. These changes will facilitate more health and wellness penetration and set us up well for further cross-category adoption. And while we’re talking about customers, I also want to discuss some new products. In Q3, we launched our holiday limited edition collection, Eves of Enchantment, featuring Peppermint Bark and Balsam for scents. Delivering the newness that our customers want as well as providing sustainable alternatives for popular seasonal products, and we have been pleased with the early interest and results. Turning our focus to sustainability. Research and development remains a top priority for us as we continue our market leadership and sustainable products, especially in our replenishment categories.