Greg Sanders: Yes. So I think when you look at the third quarter gross margin, the primary driver within the period itself was private label more than any other independent factor. On a quarter-over-quarter basis, we drove in a private label from 15 to 17 year-over-year was 13% to 17%, 75% of our Q3 sales were from the retail business, which in itself improved a point and a half on margin. Primarily from some of the private label benefits, also some improvements and mix as well as price increases within some of our products, as we’re focused on profitability of the business. Separate from that, I think you’re starting to see early signs of some of the margin improvements from the distribution development and investments that we’ve made, as we’re going out and negotiating larger bulk buys, negotiating points off those SKUs that we’re bringing into our portfolio.
And then, recognizing a slightly larger margin on the sale itself. So there’s a lot of factors that go into it. But we were very, very pleased with how the quarter reported. And we’re optimistic that we’ll continue to build on this into future periods.
Operator: Your next question comes from Scott Fortune from ROTH MKM. Please go ahead.
Scott Fortune: Yes. Good afternoon, and thanks for the questions. Just kind of follow up on that, can you break down a little bit, and provide a little more color on the sustainable kind of modeling, looking to deal with the consumables, what percent came from consumables versus equipment mix. I know, we see rescheduling, which we think is likely that could increase the equipment side of it. But just kind of gives us a sense of how that makes and how you see it kind of going forward in ’24 moving forward with the margin improvement there.
Darren Lampert: Greg, do you have any specifics with that, or do you want me to take it?
Greg Sanders: Maybe I’ll just start down and pass it over to you. I mean what we’ve seen on a consumables versus durables basis, over the last several quarters is certainly more stabilization in the consumables end of our business primarily, and the Char Coir and Drip lines, which are our private label brands. I think Char Coir at this point in time is, maybe our best-selling brand in our entire portfolio. So you’re seeing about a 75%, 25% mix, which has been generally consistent over the last three or four quarters, as we’ve looked at the business, and certainly down from some of the higher end years or quarters in 2020 and 2021, and we’re seeing a lot of build activity. So we do have a fair amount of comfort at this point with — we’re consumables are and how they’re supporting kind of the baseline of the business. And Darren, I’ll pass it over to you.
Darren Lampert: Hey, Scott. On the other side of that, with rescheduling, rescheduling does come, there is no question that build outs will, presume money will come into the industry. And we still believe that there’s a tremendous refresh cycle coming. So with that, consumables will stay the same, if not started ticking up a notch as people hopefully, start opening up certain rooms that they’ve closed. But we do believe you’ll see a tremendous lift on the durable side of it and on the lighting side of it, on the DU side of it. And we are seeing much more bidding, and we’re seeing a tremendous amount of bidding right now on commercial products around the country, in anticipation of rescheduling. So I think our commercial team has been extremely busy, the busiest that they’ve been in the last couple of years, albeit it takes time to get these projects done.
But the amount of quoting we’re doing right now is certainly much different than we’ve seen and it’s much better than we’ve seen in the last couple years.
Scott Fortune: Great. I appreciate that color. And then, just one other, where are you with the inventory levels? Kind of, obviously, with the discounting of inventory from competitors, that kind of playing out here? Are we still seeing some pressures there? And then, was consolidating your store base, what’s kind of the normalized inventory level that you’re looking at it? I know, you have, like 76 million or something like that this quarter? And where are the turns that are kind of viewed focused on targeting towards getting on inventory level side of things?
Darren Lampert: Greg, I think that one question is over to you.
Greg Sanders: Yes. So inventory, we’re highly focused on this quarter. As we moved into our new European warehouse management systems, we loaded on inventory a little bit heading into that, kind of massive change management piece in our business, which we think went pretty well. So now we’re looking at, eliminating redundancies in our inventory and driving progress in the fourth quarter. We think there is opportunity to improve upon our turns. Where we’re adding inventory more than anywhere else right now is on our private label side of things as there’s longer lead times and demand is increasing. We still have a lot of very, very good vendors domestically that — we have great partnerships with as well, that will continue to carry their products and sell through. But we think there’s opportunity to reduce inventory, 5 or so million in the fourth quarter, and then, we’ll probably have more color on the next call in terms of what that might look like for ’24.
Operator: [Operator Instructions] Your next question comes from Mark Smith from Lake Street Capital Markets. Please go ahead.
Mark Smith: Hi, guys. Just a follow-up from that last one. Darren within your private label, what is your mix look like, they are kind of consumables versus durables?
Darren Lampert: I would say consumables, probably is about 80% of it right now, on the 17%. And we have a lighting brand, ion lights that have been quite successful. It is our leading lighting brand right now at GrowGen. But, the leading part of our portfolio right now on our private label side is certainly Char Coir and Drip has had a tremendous launch this year and is growing very quickly. So, we believe that will stay somewhere like that 80:20, maybe 90:10, but much more on the consumable side and the durable side. The only thing on the durable side, you’ll see from GrowGen is a lighting brand ion. And, again, some people include fans in durables, or consumables, we do have a decent light –we have decent fan business, the DuraBreeze brand has been selling for many years.
And that’s really the nine yards of what you’re seeing. The only difference next year, we are bringing the market to single tier bench from MMI that we believe will make some inroads into the industry.
Mark Smith: Okay. And then, as we look at, potential growth down the road. What are you seeing in kind of M&A market for stores? You said you’re looking at some that are kind of closures right now. And what’s kind of your strategy, as far as mix that you see is — in buying versus building?
Darren Lampert: Right now, we haven’t been 100% concentrating on it, Mark. We’ve been getting our own house in order, especially with the launch of our ERP system. So we’ve had a quiet six months on the M&A side. What we do believe next year, you will see us back, certainly nothing like you’ve seen in the past. We will do it slowly and deliberately. And depends what markets we’re going into and what is there. We still do believe with our distribution centers working. And our commercial team out there, there’s a lot of large commercial growers that don’t come to the stores anymore, we can ship out of our warehouses to them. So we’re just balancing it right now. If you ask me, we’ll probably add five stores to the portfolio next year, but you will see some kind of consolidations from GrowGen next year, depending upon leases, but certainly nowhere in the realm of what you’ve seen this year.
Operator: And there are no further questions at this time. Ladies and gentlemen, this concludes your conference call for today. We thank you for joining and you may now disconnect your lines. Thank you.
