GrowGeneration Corp. (GRWG) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the GrowGeneration Second Quarter 2022 Earnings Results Conference Call. Today's call is being recorded. For opening remarks, I'll turn the call over to Clay Crumbliss from ICR. Please go ahead.

And welcome, everyone, to the GrowGeneration Second Quarter 2022 Earnings Results Conference Call. Today's call is being recorded. With us today are Mr. Darren Lampert, Co-Founder and Chief Executive Officer; and Jeff Lasher, Chief Financial Officer of GrowGeneration Corp. You should have access to the company's second quarter earnings press release issued after the market closed today. This information is available on the Investor Relations section of GrowGeneration's website at ir.growgeneration.com. Certain comments made on this call include forward-looking statements, which are subject to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and beliefs concerning future events and are subject to several risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Please refer to today's press release and other filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any of the forward-looking statements made today. During the call, we will use some non-GAAP financial measures as we describe business performance. The SEC filings as well as the earnings press release, which provide reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures, are all available on our website. Following our prepared remarks, we will take questions from research analysts. We ask that you please limit yourself to 1 question and 1 follow-up. If you have additional questions, please reenter the queue and we will take them as time allows. Now I will turn the call over to our Co-Founder and CEO, Darren Lampert. Darren?

Thanks, Clay, and good afternoon, everyone. Thank you for joining us today to discuss our second quarter 2022 financial results. I will begin with a brief discussion of the challenges that continue to pressure all aspects of the U.S. cannabis and hydroponic markets. I'll then provide an overview of how our GrowGen business is performing, and I'll highlight the aggressive proactive steps we are taking to adapt. Then I'll finish by reiterating our confidence in the longer-term strategic plan for GrowGeneration. I will then turn the call over to our CFO, Jeff Lasher, who will take you through the details of our second quarter results and our updated full year 2022 guidance. I would like to start by thanking each one of our employees across our corporate center and 62 retail locations for your continued support of GrowGen. It's been a challenging few months, but I, along with the rest of the executive team, appreciate your hard work and dedication to our vision and strategic plan. It will not come as a surprise to anyone on this call that the cannabis industry is currently experiencing an unprecedented and prolonged downturn that is negatively impacting all participants across the cannabis value chain, from growers to suppliers to retailers. For GrowGen, while our sales and profit generation in the first half of the year have clearly underperformed our original expectations, and while we're planning for the lull to continue through the second half, we remain dedicated to controlling the areas of the business which we are able to control. We identified early the need to proactively make changes in our business, and we're shifting our priorities to put less focus on our 5 strategic imperatives and put even more emphasis on cost controls, inventory reduction and cash generation. As a result of our actions over the last few months, which we will discuss in more detail later, I want to reassure you, GrowGen is on solid financial footing. We have a strong balance sheet, and we don't anticipate the need for external debt or equity issuance. We currently have $65.6 million of cash and cash equivalents with zero debt. As we sit here today, we feel very good about our liquidity position well into the foreseeable future, and the company has the ability to meet the operational needs of the business without additional capital, even if the current market conditions persist. As it relates to the broader industry, supply and demand remains out of equilibrium, with a large oversupply of cannabis in the marketplace. As a result, growers have slowed CapEx projects, which is directly pressuring hydroponic sales year-to-date. The trends are most pronounced in major markets, such as California, Oklahoma and Michigan, which represent, in aggregate, over 56% of our retail sales. In summary, we've seen cannabis demand and, therefore, hydroponic demand, slow nationwide, and we're not able to accurately predict when the industry will get out of this rut. On a positive note, we do see continued opportunities for cultivation growth in emerging states and regions, including the Northeast, Midwest and New England, which over time is where we will focus our store expansion and commercial efforts. In addition, there have been some positive developments on the legislative front. The state of California recently eliminated the cultivation tax that will make legal cannabis more competitive in the marketplace where wholesale cannabis prices remain well below year ago levels. At the federal level, lawmakers in the United States Senate have introduced new legislation that, if passed, would pave the way to federal cannabis legalization. While the general consensus is that the build faces an uphill battle to overcome the Republican filibuster, we were encouraged that the conversation on Capitol Hill seems to be gaining traction again. As we said before, we manage our day-to-day operations and plan for the future under the going assumption that cannabis is not federally legalized in the U.S. In other words, our business model does not depend on that outcome. That said, we think it's only a matter of time until lawmakers in Washington catch up with the American public who overwhelmingly support federal cannabis legalization. The first half of 2022 hasn't been easy, but we've made a lot of progress, strengthening our business over the last 6 months. As I mentioned earlier, our balance sheet is strong and healthy. We have $65.6 million of unencumbered cash. We reduced inventory by $7 million from $106 million to $99 million in the second quarter through a combination of inventory management and selling out of closeout product. If there's a silver lining to this exceptionally difficult operating environment, we've used this opportunity to more closely evaluate our retail footprint and cost structure. Throughout the first half of the year, we've reduced our expense base by roughly $1.5 million a quarter through a combination of labor management and tighter day-to-day expense controls. In the second half of the year, we are projecting a decrease of an additional $1 million a quarter sequentially, primarily through store closures and expense control. In total, we estimate that our annual run rate expense will be down about $13 million by year-end 2022 when compared to Q4 2021 pace. That is, $26 million of expenses in Q4 2021, down to $22.7 million in Q4 2022, not including annualized contributions from HRG and MMI. While dismissing employees is never an easy decision, I'm confident we've made the right choices to strengthen the company and better position GrowGen to make a strong recovery. In terms of our store count, we've closed 2 stores in July, and we'll be closing an additional 3 to 5 stores this year. The majority of these consolidations are simply eliminating redundancies in the footprint to unlock those stranded costs. In fact, we expect very little, if any, lost sales due to these closures as most of the stores were within 20 miles of another GrowGen retail location. As a reminder, we recently opened our new greenfield location in Jackson, Mississippi and our new location at Ardmore, Oklahoma that opened earlier this year, is performing as well as can be expected given the market conditions. As of now, we've scaled back store opening plans and only have 2 to 4 locations planned before year-end as we have shifted our priorities to manage through this downturn. Notwithstanding, we have signed leases that will be opening retail locations in Missouri, New Jersey and Virginia. The takeaway is we still believe there are compelling opportunities to acquire and build new stores in states where we don't yet have a physical presence throughout the eastern parts of the country and in the Midwest. As I hope you can see, we are actively prioritizing working capital optimization to preserve our capital base while rightsizing our cost structure to reduce our breakeven and enhance our future margin structure. We believe that when the cannabis industry eventually recovers, these efforts have put GrowGen in a better place to emerge stronger with an even more attractive financial algorithm as the leading hydroponic retailer and private label supplier. Our private label strategy remains one of the top imperatives this year. We are driving sales of proprietary brands and private label products. And we're investing in resources to provide customer service, product development and distribution excellence. Private label accounted for $6.5 million of retail sales which is around 11% of our overall retail and e-commerce sales. Drip Hydro, our proprietary nutrient and additive line launched in GrowGen stores during the second quarter, is off to a strong start. In our non-retail store segment, our acquisition of HRG is enabling us to expand the distribution of some of our 400 private label SKUs to 750 hydroponic stores across the U.S. We've already made good progress against this goal during the second quarter. Revenue from our non-retail distribution business, including HRG, MMI, Power SI, Char Coir and other own brands totaled 16% of sales in the second quarter but contributed over 21% of gross profit. I want to make a few points about our performance in the quarter. Clearly, we are not satisfied with the current sales trends in the business. Our second quarter comparable sales declined 57% year-over-year with generally equal distribution of dollar sales across April, May and June. We did not see a seasonal increase in revenue in June, which historically showed an increase of over 10%. Same-store sales remain under pressure from declining demand for durable goods, including lighting and HVAC products, as well as lower demand from large commercial accounts. We also have not seen a material improvement in the July trend, which was down approximately 52% compared to last year on a same-store comp basis. On a positive note, private label sales and margins have held up relatively well, and we generated positive operating cash flow in the second quarter of $3.8 million due to our concerted efforts to reduce inventory, optimize our working capital and preserve cash. In terms of profitability, we had a GAAP net loss in the quarter, inclusive of goodwill and intangible impairment. We delivered an adjusted EBITDA loss in the second quarter of $2.9 million with a gross margin of 28.5%. These results in 2Q included a few items worth noting. Freight transportation costs were $3.8 million in the quarter, which we estimate is roughly triple our volume adjusted historical normal. And we expect these elevated costs to continue in the back half of the year as we look to minimize procurement through rebalancing inventory and store closures. We incurred $0.5 million of severance costs related to workforce reduction, and we incurred $800,000 of bad debt expense. The declining macro environment in the industry have adversely impacted the enterprise value since our last quarterly report. This triggered a review of goodwill and intangible assets acquired in business combinations over the last few years. The impairment expense is a result of declining enterprise values throughout the peer group. Net of these items, we estimate our adjusted EBITDA would have been more consistent with the first quarter, reflecting the difficult decisions we've made throughout the quarter to rightsize our expense structure and ultimately reduce the company's breakeven point. As Jeff will detail for you shortly, we are reducing our guidance for both net revenue and adjusted EBITDA for the full year 2022. On the top line, the revised guidance reflects the third and fourth quarter that closely resembles the trends we saw in the second quarter, which, as you will recall, was sequentially softer than the first quarter. From a margin perspective, we expect continued pressure from elevated freight costs to be at least partially offset by the ongoing benefit of reduced G&A expense and the mix benefit from a higher proportion of private label sales. With that, I'll turn the call over to our CFO, Jeff Lasher.

Thank you, Darren. First, I will address our second quarter financial results, and then I will discuss our updated full year 2022 guidance. For the second quarter, GrowGeneration generated revenue of $71.1 million versus $125.9 million in the second quarter of 2021, representing a decline of approximately 44%. The decrease in revenues was primarily attributable to a 57% decrease in same-store sales revenue and an $8.3 million decline in e-commerce revenue. This was partially offset by a $7 million increase in non-retail businesses, including the acquisition and integration of HRG and MMI into our distribution and other segment, which increased that segment's sales to $12 million this quarter from $5 million a year ago. Our same-store sales for the second quarter 2022 were $44.8 million compared to prior year sales of $104.1 million, representing a 57% decline against the comparable [indiscernible] operated in both periods for 2021 and 2022. Gross profit margin was 28.5% for the second quarter of 2022, up approximately 140 basis points sequentially from the first quarter. Gross profit dollar generation in the second quarter decreased 43% from the prior year, including the impact of additions -- of acquisitions and new stores in our retail stores, e-commerce and our non-retail segment. Our retail gross margins in the quarter were flat to last year, but aggregate gross margins benefited from the decline in e-commerce volume as a percentage of total sales from 10% of revenue to 5% of revenue, as well as an increase in mix of distribution and other segment revenue from 4% of revenue to 17% of revenue. The Distribution and other segment has meaningfully more favorable gross margin than the retail and e-commerce segment. We did have a significant headwind on a gross margin -- percentage basis from freight and shipping expense. On an absolute basis, freight expense is in line with last year. But, as Darren mentioned, with the decline in sales volume, the percent of revenue spent on freight increased substantially in the second quarter. Core operating costs and other operational expenses declined sequentially from the first quarter. Overall, the expense directly associated with revenue production declined from $14.5 million in Q1 to $13.8 million in Q2. Selling, general and administrative or SG&A costs were $10.6 million in the second quarter, of which, $1.1 million was derived from stock-based compensation. This compares to $10.3 million in Q1 with $1.6 million of stock-based compensation expense. Total SG&A expenses were impacted by $500,000 of severance-related expenses and $800,000 of bad debt expense, more than double the amount of bad debt related expense on Q1. Compared to the same period last year, SG&A expenses increased $100,000 in the second quarter of 2022, with overall savings offset by the addition of HRG and MMI and the previously mentioned increase in bad debt. On a year-over-year basis, we added 6 retail locations from 58 to 64 stores in the second quarter, which also contributed to the increase in second quarter store operating costs on an absolute basis versus the comparable period 1 year ago. As Darren outlined, we have taken a number of steps to rightsize operating expense, including resizing the payroll, consolidation of the e-commerce web stores that reduced marketing expenses, rationalizing our store count and other operational changes. Depreciation and amortization of intangibles was $4.8 million in the second quarter of 2022. In addition, as Darren mentioned, the company had a onetime impairment of goodwill and intangibles associated with a previous acquisition. This $127.8 million will not impact the day-to-day operations of the business and is related to the contraction of the company's enterprise value. This onetime noncash expense resulted in a valuation allowance expense of additional $1 million associated with the temporary impairment of deferred tax assets as we do not project the ability to use those operating loss credits in the foreseeable future. However, the loss generated will result in a tax refund of approximately $3 million later in 2022. Income tax was a benefit of $283,000 in the quarter. The income tax provision was impacted by the valuation allowance of $1 million. For 2022, we are forecasting a financial loss for tax purposes. But with the valuation allowance, we do not expect significant income tax provision benefit or expense for the remainder of the year. Net loss for the second quarter was $136.4 million or $2.24 and per diluted share compared to net income of $6.7 million or $0.11 per diluted share from the comparable year ago quarter. Just a reminder that impairment and income tax expense represents a preliminary amount and remain subject to change following the completion of normal quarter-end accounting procedures. Adjusted EBITDA, which excludes the expenses associated with interest, taxes, depreciation, amortization, impairment and share-based compensation expense, was a loss of $2.9 million for the second quarter of 2022 compared to income of $14.5 million in the second quarter of 2021. We estimate this quarter's adjusted EBITDA loss includes roughly $1.3 million of unusual items that we expect should either become less impactful or will not repeat going forward, including bad debt expense and cost of labor reductions. Related to the balance sheet, the company ended the quarter with $55.6 million of cash and $10 million of marketable securities that are mature and available for sale. Total liquidity was $65.6 million at the end of 2022. The company reduced inventory by $6.9 million, offset partially by a $2.2 million increase in prepaid inventory. We also consumed about $4.4 million for payments associated with technology and distribution investments. Cash generated from operations in the quarter was $3.8 million, primarily from the reduction in inventory. I will now discuss our updated expectations for the balance of the year. We saw an acceleration of declines from first quarter sequentially into the second quarter. We have not seen an improvement in the third quarter to date through July from those 2Q lows. As such, we are now expecting and planning for comparable store sales across the country in the second half of the year to resemble the first half. Specifically, July was down 52% on a same-store sales basis. As a result, we are now forecasting comparable sales declines at or below Q2 results for Q3 and continued degradation in comparable store sales for the fourth quarter. Overall, we anticipate revenue to be down $30 million to $55 million in the second half of 2022 compared to first half revenue of $152.9 million. We are now expecting full year 2022 revenue to be between $250 million and $275 million and full year adjusted EBITDA to be $12 million loss to $15 million loss, all including the contribution from recent acquisitions. The middle of our guidance range embeds a continuation of the current trends we are seeing today and the low end contemplates a further deterioration in the operating environment. We expect gross margins to remain under pressure throughout the balance of the year due to lower sales volume that produces deleverage of the supply chain as well as discounting and elevated freight costs. We expect adjusted EBITDA in the third quarter of 2022 to be a loss in the range of $3 million to $5 million, weighed down by elevated gross margin pressures, additional employee separation and store closure costs and other expenses. We expect operating expenses to be controlled and sequentially down in the third and fourth quarters as we are now planning for fewer retail store openings than we previously expected to add to the absolute dollar expense in Q4. We are continuing to take steps in executing our business strategy to focus on generating cash from operations during this challenging industry environment. We are planning for total capital investments outside of acquisitions, primarily for new store build-outs and technology investments of $6 million to $9 million for the back half of 2022. Thus far, we have spent $8.8 million in 2022. We have opened a new location in Ardmore, Oklahoma, near the Texas border and relocated stores in Auburn, Maine as well as Redding, California. Our new Jackson, Mississippi location in July -- opened in July. We have closed 2 stores and plan to close 3 to 5 additional locations, and we are in the process of reviewing additional store closures. We estimate year-end store count to be around 60. With that, I will turn the call back to Darren for closing remarks.

Before we open the line for your questions, I want to reiterate that while 2022 is not shaping up as we initially expected, we are making the tough decisions necessary to ensure we're in the best place possible to emerge stronger than ever when the industry eventually turns around. We are actively focused on the areas of the business that we can control and we acted quickly beginning back in January to reduce cost and prepare to weather the industry downturn. We accelerated those efforts even further during the second quarter by delaying a few of our strategic goals this year in favor of rightsizing our core structure with significant workforce reductions, including a couple of high-level executive positions and store count rationalization. As an update on our 5 key initiatives, our e-commerce sites have been combined, and we are actively working on efficient operation of profitable web stores. We have opened 5 new and relocated locations but scaled back mid-term openings considering the industry-wide sales slowdown. Our technology improvements are delayed until later this year. We continue to expand private label penetration with 11% of retail sales from brands that we have control over, and our distribution and other segments continue to be an area that shows incremental revenue and beneficial margins. We have not changed investment activities in this segment. We remain committed to the expansion of our proprietary and distributed brands outside our own retail locations into 750 independent locations. We are very satisfied with the results of both Char Coir and Power Si and are very excited to have introduced Drip Hydro nutrients and additives. The addition of MMI strengthens our position to gain indoor vertical cultivation projects with their leading benching and racking systems. Controlled environmental agriculture and sustainable ag are only in the developmental stage, and we believe more local communities will invest in sustainable indoor vertical farms for local production of leafy greens, tomatoes, fruits and other food products. GrowGen remains on solid financial footing with a strong balance sheet, a healthy liquidity position and solid cash generation. We are confident that when the cannabis cycle turns and the excess supply in the marketplace eventually normalizes, GrowGen will be well positioned to recover quickly with a more attractive expense structure on a lower G&A base from which to build. Thank you for your time today, and thank you for your support of GrowGeneration. We will now take your questions. Operator?

[Operator Instructions] We'll take our first question from Scott Fortune with ROTH Capital Partners.

I just want to focus, Darren, obviously, a lot of exposure in California, your kind of center of your store base there. We're seeing cultivation licenses up for renewal in October. It sounds like mainly, California cultivators are not planning this year on renewing license. And ongoing pressure for a lot of these small growers. What's your sense of California kind of that playing out in the rest of the year and then your footprint in California from a store base side of things?

Yes, Scott, I know you -- as you know, Scott, California is the epicenter of cannabis and always will be. There is a tremendous base of cultivators in the state of California. And there's also a tremendous -- this tremendous illegal market coming out of California. And we believe you will see an equilibrium somewhere. You've seen positive events in California over the last few months with the state tax giving back almost $160 a pound to the cultivators out in California. We've seen a very slow outdoor season in California, which usually bodes well for the indoor markets. Our bread and butter in California is the legal market, it's the indoor grows. So we feel pretty comfortable with where the market is, and we opened a store in L.A. last year that is progressing well. And our California stores, albeit down, have been stable over the last few months.

Got it. I appreciate the color there. And then can you provide a little more touch points from the top customers on the commercial side versus small operators kind of ordering, tenants in California with some of those other [ pressure ] states. What percentage of revenue is driven from kind of the recurring fertilizers and [ mediums ] now versus more of the equipment purchases overall for your business now?

Yes. I think what you've seen this year, Scott, with the downturn in the cannabis markets and the downturn in the capital builds, we have probably seen a shift to about 75% on the consumable products and 25% on the capital build products. But we do believe with the growth of this industry, you will see a resurgence of capital build projects in the future. When that occurs, we just don't know right now. You're seeing some positive talk right now on Capitol Hill from Schumer and Booker. More articles were out today. So you're starting to see that compromise going into the midterm elections. And like anyone, we certainly have our fingers crossed. And as you know, as the cannabis markets right now are about a $20 billion market. And the forecast still are $100 billion by the end of the year. And when you compare it to the wine and spirits markets almost at that $1 trillion mark, we think there's tremendous upside. But in the growth of any industry, you do see ups and downs. And unfortunately, right now, Scott, you're seeing down. You heard it from Hydrofarm and Hawthorne this week, and the markets have been tremendously challenging. And GrowGen has taken all steps that we can and we will continue to take steps to stabilize this business and bring it back to profitability.

We'll take our next question from Aaron Grey with Alliance Global Partners.

So first question for me. I just want to look at the broader cannabis landscape in your customer base. So capital markets environment, very difficult for them right now, which always kind of has been given federal illegality. And that creates difficulty in retaining an ROI, particularly when you think about the 280E headwinds that your customers face. So I guess my question is, as we're kind of facing this reset now, oversupply in key markets, pricing pressure, which makes it even more difficult to be profitable, especially cash flow with the 280E. How do you think about changes that are going to be needed at the federal level to really get that shift back to where you might have been last year? And do you think SAFE would be enough for that if 280E was not being included and it was more just on the depository banking side?

I think to start with, Aaron, the SAFE Act certainly brings legitimacy to the markets, which I think everyone is looking for. We all know that build-outs and new facilities cost a lot of money. And right now, what you're seeing right now is on the cultivator side, they're also preserving cash for the future. So what you're seeing is just a tremendous amount of individuals that are just -- they're happy with what they have right now. Again, if the industry stays at the level it is right now, there's enough facilities to handle that. So really, the question that we'll have, and I think it's more of a question for the American public is cannabis -- is the cannabis industry going to grow from where it is today to where the estimates are in the future? And we still do believe that in the future, you will see a tremendous amount of business coming in from typical ag and indoor growing, which should be a boost for the hydroponic and the CEA industry on a go-forward basis. But we do believe that the SAFE Act will give a boost to the market. So it will give a boost to the capital equipment markets. And what you're seeing right now also is as new states come on board, albeit much slower than we expected, there are capital builds right now going on in New Jersey and New York. You're seeing them starting in Mississippi, but very slowly, Virginia, Missouri. So you're starting to see builds -- we're seeing builds all the time, but just not at the same level we saw a year ago.

I appreciate that color. That's really helpful there. And it's given you guys cash position, which sort of made strong -- you mentioned about how you don't need to take on any more equity or debt, and you guys are taking your own initiatives on the expenses side. On the flip side of it, I'm sure you guys are better positioned than many of your competitors and even other people within the hydroponic supply chain potentially. So during these times -- maybe not now, how do you think about potentially getting more aggressive and finding opportunistic M&A opportunities? Is that not something you might think about on the horizon? Is that something you might be seeing some [indiscernible] might be even more cash constrained while dealing with fundamental headwinds that you guys are as well? So I'd love to get your outlook in terms of whether or not there would be M&A that might be opportunistic right now for you guys.

Yes, Aaron, I think you know me well enough, and you know the company well enough: if there's a deal on the table that makes sense for GrowGen, we will look hard -- certainly hard at it, whether it's on the product side of it or on the store side of it. If it's accretive and it's for the right price, we're always looking. Right now, it has to be the right price. And we look at deals all the time still. But fortunately and unfortunately, we haven't pulled the trigger. We pulled the trigger on 2 deals earlier this year. One was, I think, the last day of December, MMI, and we bought HRG this year. and we're very satisfied with both those acquisitions. So it's not that we've been that quiet this year. We have done some acquisitions and store openings. But right now, we're balancing the two. And if something comes by our desk that we believe makes sense and it's for the right price, we certainly will take a hard look at it.

We'll take our next question from Ryan Meyers, Lake Street Capital Markets.

First one for me. So the 3 to 4 stores that you plan on opening. Just kind of curious what your level of confidence is that you're going to be able to generate some solid business out of these in the near term? And really, any color around those 3 to 4 openings would be helpful.

Yes, a couple of things. They are new markets, Ryan, and we do feel quite comfortable. We have business in those markets already. We have a very vibrant commercial team out there. So these aren't new states for us. They're just new states for us with location to better serve the cultivators and growers in those states. The stores that we're building in New Jersey, Virginia and Missouri are smaller than our average stores. So we will definitely supply them to our supply chain. But we're quite confident that we'll get these stores profitable as we did with Ardmore, Oklahoma about 6 months ago.

Great. That's helpful. And then, Darren, you kind of alluded to this on the call, but given the tough cannabis market, what kind of opportunities are you guys seeing out there within EA -- vertical growing, indoor growing -- for agriculture? And do you have really anything in the pipeline there?

It's still been very slow. We see certain transactions on the hemp side of it. But on the other side of it, we're starting to see -- we're starting to sell some products into the colleges that are starting to build greenhouses on premises, but it's been a very, very slow uptake. We think it's going to be a 2023 project for GrowGen. We've certainly been working on our business this year, and 95% of what we do right now is into the cannabis space. So we have plenty of work to do on our other side of the business. But we do believe in the next couple of years, you'll see that industry starting to gain some traction.

We'll take our next question from Andrew Carter with Stifel.

I guess the first thing I wanted to ask and backing up on the initiatives, I want to have kind of an understanding of where you are in terms of harmonizing. Number one, are all your stores and distribution centers kind of integrated from a back-office perspective, ERP, where you have visibility? And then on the new distribution centers, are they in the place where they're starting to enable the company's supply chain? Or is it still kind of test and learn and not really benefit until kind of 2023? First one.

Jeff, I'm going to send it over to you.