Grove Collaborative Holdings, Inc. (GROV) Q3 2026 Earnings Call Transcript

Welcome to the call. Good morning, everyone.

Good afternoon, and thank you for standing by. Welcome to Grove Collaborative Holdings, Inc.'s third quarter 2026 earnings conference call. At this time, all lines have been placed on listen-only mode to prevent any background noise. Following the speaker's remarks, we will open up your lines for questions. As a reminder, this conference call is being recorded. Hosting today's call are Grove's CEO, Jeff Yerkeson, and Principal Financial Officer, Flip Van Den Bosch. Some of the statements made today about future prospects, financial results, business strategies, industry trends, and Grove's ability to successfully respond to business risk may be considered forelooking, including statements relating to Grove making it easier for customers to see why each product earns its place on the Grove platform and to swap for healthier options, the plan to reinvest part of Grove's savings into acquiring and reactivating customers, The expectation that inventory comes down in the fourth quarter, the launch of Grove's AI Shopping Assistant and its features, improvements to auto ship. The expectation that Grove's Amazon sales will grow in the fourth quarter. Projected higher lifetime value in a platform Grove can use to scale advertising on to acquiring new customers efficiently. Grove's guidance for 2026, including guidance for full year 2026 net revenue and adjusted EBITDA. Fourth quarter net revenue being modestly below the third quarter. The expectation that Grove's DTC channel will be approximately flat in the fourth quarter compared to the third. Continued stabilization of the DTC business. Such statements are based on current expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results differ materially, including those risks discussed in Grove's filings with the Securities and Exchange Commission. All of these statements are based on Grove's views today, and Grove assumes no obligation to update any forelicking statement, whether as a result of new information, future events, or otherwise, except as may be required under applicable securities laws. During today's call, Grove will also discuss certain non-GAAP financial measures, which adjust GAAP results to eliminate the impact of certain items. You will find additional information regarding these non-GAAP financial measures and a reconciliation of these non-GAAP items to the most directly comparable GAAP financial measures in Grove's earnings release, which is also available on Grove's Investor Relations website. I would now like to turn the call over to Jeff Yerkesen to begin.

Thank you, operator, and thank you all for joining us. Inside Grove, we've started calling this moment a new day one. After years of transforming and stabilizing the business, we're entering a new chapter, and the results are starting to show it. Revenue grew sequentially for the second straight quarter, and we've delivered positive GAAP net income alongside positive adjusted EBITDA, the first time we've done both in the same quarter as a public company. Today, I want to focus on where Grove is headed, and that starts with human and environmental health. This new day one is about doubling down on human health. We believe 57 million consumers want a trusted guide to healthier products, and Grove is uniquely positioned to be that guide. With ingredient standards we believe are among the highest in our industry, a curated assortment, and years of customer trust. Planetary health will always be a part of who we are, but our focus is helping customers build healthier homes for the people they love. In September, we published the Grove Standard, developed with guidance from our Independent Science Council. Every product we sell is screened against thousands of restricted chemicals, including PFAS, phthalates, and bisphenols. We do the hard work on ingredients so our customers don't have to. And the standard isn't static. Our Science Council reviews it as the research evolves. Our customers want more than a list of what's been left out. They want to know what's actually good for their family. Parents are reading labels on everything from dish soap to snacks, and concerns about chemicals like PFAS are now mainstream, not niche. That's why we're expanding from a clean home to the health of the whole household with the same standards and the same trust. Over the coming quarters, we plan to make it easier for customers to see why each product earns its place on the Grove platform and to swap what's in their home for healthier options. Building on product pages, we relaunched this quarter to educate, not just sell. That trust is our advantage. In a Grove survey this year, 94% of more than 1,000 Grove customers said they trust Grove more than Amazon to sell products that are safe for their families. And it shows up in how they shop. Customers who buy wellness products from Grove have had 33% higher average order values and purchased twice as often based on an internal analysis of Grove customer orders in 2025. We're not trying to be everything to everyone. We're building a business that matters in the lives of a highly valuable group of customers, people who trust us with their homes and their families. That's the foundation durable growth is built on. Before turning to the other three pillars of our turnaround, profitability, balance sheet strength, and revenue growth, I want to talk about what's accelerating our progress, artificial intelligence. Let me start with a story. A colleague on our people team who supports our fulfillment centers and has no engineering background used Claude to build a tool that replaced seven manual workflows. The initial build took her about 10 minutes, and the whole project took a couple of hours. She estimates it will save roughly 1,000 hours of work a year across our two fulfillment centers. That's an extraordinary return, and it reflects a broader shift at Grove. Our teams can increasingly turn their own ideas into working solutions. We are truly changing how we work. Smaller, more autonomous teams are improving the customer experience faster than we could have imagined even three months ago. And we're getting better at the fundamental job of retail, putting the right product in front of the right customer at the right time. With the correction of the issues we experience in connection with our platform migration, we have the platform and the team ready to accelerate into this new era. Now, let's get to our remaining pillars. Sustainable profitability. Grove recorded positive net income this quarter, together with positive adjusted EBITDA, which is the first time we've achieved both as a public company. This quarter included a $1.2 million tariff refund, but adjusted EBITDA was positive, even excluding the refund. A profitable quarter doesn't happen by accident. It reflects years of resetting our cost structure. Operating expenses fell 22% year-over-year to $20.3 million, driven by lower personnel costs and lower fulfillment and shipping costs from our updated carrier strategy. We plan to stay disciplined, reinvesting part of those savings in acquiring and reactivating customers where the returns support it. Balance sheet strength. We ended the quarter with $11.1 million in cash, cash equivalents in restricted cash, compared with $11.4 million at the end of the second quarter. Operating cash flow was positive $0.2 million, including the tariff refund, compared with negative $1 million a year ago. We achieve that while rebuilding in stock levels and bringing in holiday assortment, and we expect inventory to come down in the fourth quarter as that assortment sells through. The modest decline in cash reflects investments in our web and app infrastructure and payments on financing agreements. Revenue growth. Net revenue was $36.8 million, down 15.8% year-over-year, but up 0.7% from the second quarter. Sequential growth has always been our first step back to year-over-year growth. QVC drove the increase, partly offset by a slight decline in D to C. The year-over-year decline still reflects a smaller active customer base, the compounding effect of lower advertising in prior years, and attrition from our 2025 platform disruptions. We're working four levers to turn that around. First, a broader assortment. Our dropship assortment recorded its first sales this quarter. It lets us offer healthier options in categories where holding inventory doesn't make sense, such as air and water filtration, whose replacement filters fit naturally into replenishment. By offering customers more options to shop throughout their home, we believe Dropship will enable more frequent orders and larger basket sizes. Second, a better experience. Since July, we've shipped six iOS app releases, relaunched our homepage and product pages around health, and released a redesigned cart. Customers are noticing. Since September 1st, we have averaged 4.9 stars on our app reviews and we're seeing gains in conversion and subscription penetration. In the fourth quarter, we plan to launch our AI Shopping Assistant, which answers questions using our product knowledge, real customer reviews, and the Grove standard, personalized to each customer's cart, orders, and subscriptions. We'll also make auto ships simpler and more transparent. Third, bringing customers back. More than 5 million customers have shopped with Grove. They know the brand. And we often know why they left. This quarter, we began testing reactivation offers, including membership trials and rewards, to show them a faster app, a broader assortment, and our Grove Rewards program. Early signs are encouraging. Fourth, Amazon. We added selection, refined pricing and promotion, and we expect Amazon to grow in the fourth quarter. It extends our brands to shoppers who want trusted, healthier products but start their shopping on Amazon. All four points to the same outcome. Higher lifetime value from a loyal customer base and a platform we can scale advertising on to acquire new customers efficiently. It is a new day one at Grove. We have a clear mission in human health, a more efficient cost structure, and a team building faster than ever. I will now turn it over to Flip to review our financial results for the third quarter in more detail.

Thank you, Jeff, and welcome, everyone. Our third quarter results reflect continued cost discipline and a stabilizing top line. We grew revenue sequentially, our cost structure is leaner, and we delivered positive adjusted EBITDA for the fourth consecutive quarter, along with positive net income. Before I walk through the details, I will start with the tariff refund,

because it affects several of the lines I will cover.

During the third quarter, we received a refund of approximately $1.2 million in tariffs we had previously paid. We recorded it as a reduction in cost of goods sold. It is included in reported gross margin and reported adjusted EBITDA. We have not adjusted it out of adjusted EBITDA, consistent with how we treated tariff costs when they were incurred. The gross margin, NED income, adjusted EBITDA, and operating cash flow figures I cite today include this refund. Starting at the top line, NED revenue for the third quarter was $36.8 million. Down 15.8% year-over-year, but an increase of 0.7% quarter-over-quarter. The year-over-year decline was primarily driven by a smaller active customer base than a year ago, reflecting the compounding effects of lower advertising investment in prior periods and customer attrition tied to the e-commerce platform disruptions experienced throughout 2025. This was partially offset by an increase in D2C net revenue per order. The sequential increase was driven by QVC revenue. Including $1.2 million from a today's special value program, partially offset by a slight decline in B2C med revenue. Active customers totaled $458,000 as of September 30, 2026, a decrease of 30.6% year-over-year. These declines reflect the lightning effects of reduced advertising investment and customer attrition tied to the e-commerce platform disruptions we experienced throughout 2025. D-to-C total orders were $473,000, a decline of 23.6% year-over-year as an increase in frequency of orders per active customer partially offsets the decline in active customers. D-to-C net revenue per order was $70.85, an increase of 6.1% year-over-year. The improvement was primarily driven by continued efficiency in promotional spend following the launch of our new loyalty program in the fourth quarter of 2025. And a larger mix of higher-priced items and customer orders, reflecting continued category expansion into higher-priced assortment, in addition to an increase in shipping revenue per order. The gross margin was 55.8%, an increase of 250 basis points compared to the 53.3% in the third quarter of 2025. The increase was driven by the tariff refund and more targeted promotional spend. Partially offset by a higher mix of QVC revenue during the quarter, which contributed a lower margin than our DTC business. Turning to advertising, we invested $1.8 million in the quarter, a 43.3% decrease year over year, but an increase compared to the second quarter, increasing advertising spend from 3.4% of revenue to 4.9. With an enhanced customer experience in place, We are increasing advertising spend with discipline, including testing new channels for new customer acquisition, re-engaging left customers, and supporting growth on Amazon. Product development expense was $1.5 million, down 8.6% year-over-year, reflecting lower personnel spend on own-brand development. At present, we have been more selective in own-brand innovation, prioritizing resources towards improving our customer experience. SG&A was $17 million, a 19.9% decrease versus the prior year. The decrease was driven by improvements to our personnel cost structure, lower fulfillment costs from fewer orders, and lower outbound shipping rates tied to our carrier change, as well as continued ongoing cost optimization across the organization. Net income was $0.1 million, or a 0.3% net income margin. Compared to a net loss of $3 million, or a 6.8% net loss margin in the prior year. The year-over-year improvement reflects lower operating expenses and the tariff refund, offset by the decline in revenues. Adjusted EBITDA was positive $1.4 million, or a 3.7% margin, compared to negative $1.2 million, or a negative 2.7% margin in the prior year period. This marks the fourth consecutive quarter of positive adjusted EBITDA and reflects continued operating discipline while investing in the customer experience. Turning to the balance sheet on liquidity, we ended the quarter with $11.1 million in cash, cash equivalents, and restricted cash, a decrease from $11.4 million at the end of the second quarter. Primarily reflecting capitalized expenditures as a result of continued investment in e-commerce platform enhancements and payments on financing agreements, partially offset by positive operating cash flow. Operating cash flow was positive $0.2 million for the quarter, reflecting positive net income, net of non-cash expenses, inclusive of the tariff refund, Partially offset by net use of working capital, primarily from the timing of inventory purchases, as an increase in inventory was largely offset by an increase in accounts payable. This compares to negative $1 million in the prior year period. Now turning to our outlook. We are narrowing our full year 2026 guidance. We now expect full year net revenue of approximately $144 million to $146 million. Within our prior range of $142.5 million to $152.5 million, and adjusted EBITDA of approximately $1 million to $2 million, within our prior outlook of break-even to positive low single-digit millions. Last quarter, we said that we expected sequential revenue improvement in each remaining quarter of 2026. We now expect fourth-quarter net revenue to be modestly below the third quarter. Third quarter net revenue included $1.2 million from a today's special value program on QVC. We do not expect a comparable program in the fourth quarter. We expect our D2C channel to be approximately flat in the fourth quarter compared to the third quarter, reflecting continued stabilization of the D2C business. In closing, we are continuing to see progress on stabilizing the top line while executing with the financial discipline we committed to at the start of the year. Our cost structure is more efficient, the unit economics continue to improve, and we are managing cash flow consistent with our liquidity. I am encouraged by the discipline we've built and the foundation we are putting in place to support profitable, durable growth in 2027. With that, I will turn the call back over to Jeff for closing remarks.

Thank you, Flip. Three quarters into 2026, we're seeing our discipline translate into results. Two consecutive quarters of sequential revenue growth, four consecutive quarters of positive adjusted EBITDA, and a customer experience where we've meaningfully transformed, including category expansion, loyalty program, the improved platform experience, and an up-to-dated subscription experience. As we looked at 2027, our goal is to return to year-over-year net revenue growth. We've already delivered an improved web and app experience in the growth standard, a health standard customers can see and trust. In the fourth quarter, we plan to launch our AI-powered shopping assistant and a further enhanced auto-ship experience, building on the infrastructure launch through the end of the third quarter. We're continuing to broaden selection through Dropship, driving targeted re-engagement with customers who have elapsed, and with a stronger platform in place, reinvesting in customer acquisition where the return is supported. We seek continued opportunity to optimize our cost structure by leveraging internal AI capabilities, and we're building Grove into a durable, profitable business with human health at the center. These are the foundations we're building on as we will work to return Grove to revenue growth in 2027. That ends my prepared remarks. Let me turn it over to the operator.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. Our first question comes from the line of Susan Anderson with Canaccord Genuity. Please proceed with your question.

Hi, good evening. Thanks for taking my questions. I was wondering if maybe you can give some color, I guess, looking out to next year, how you're thinking about the sales growth. Should we expect continued sequential growth in sales continue? And then, I guess, do you have any thoughts around when you think you'll get back to year-over-year growth? Thanks.

Thank you, Susan. Yes, like we always knew that sequential growth was the first step, and that's what we're delivering this year. I would say when we look forward into 2027, we're really planning for year-over-year growth. We're not at a point where we'll lay out quarter by quarter what that looks like, but we see the business truly turning. We think that we have delivered a new customer experience, and we are really shifting our priorities towards human health, and we're seeing the right type of return on that. So across the board, I would just say that we're planning on 27 returning to year-over-year growth.

Okay, great. And then maybe if you could just talk about how you're thinking about marketing expense in the fourth quarter and into next year, I guess, should we think about it increasing as we kind of move forward or kind of staying the same? And then I guess just on the tariff refunds, I think you said there was a million or two in there. I guess, is there more to come or was that all of it? Thanks.

Thank you, Susan. Let me address the tariff first. It was $1.2 million. It all arrived in Q3, and we're not expecting any additional refunds. The first question was more tied towards the drivers of revenue growth next year. Is that right? Oh, no, marketing spend. Apologies. So this is exactly like you're hitting on the way we think about our business, which is we obviously need to increase marketing spend to drive the right type of growth. We always will increase when it makes the right type of payback sense. At times, we pull back over the last year. And when we've pulled back, that has a lingering impact on total active customers, but we are proud of the type of 90-day active customers that we're seeing in our business, and we are still focused on investing where we're seeing the right returns. What is notable is that a year ago, we thought almost all of that was in new customers that we were introducing our brand to. And now we're seeing some returns on going after customers who've been inactive for over a year, two years with us, but understand the brand. And we're seeing some returns and going back and addressing and targeting them. And we also see an opportunity to accelerate the Amazon business, which we had intentionally for years been positioned as a second channel to growth. And now we're willing to meet prime customers where they may be, which is on the Amazon platform. So I think when you think about the total marketing spend as a percentage of revenue, we would hope that increases in 27. We also see it going to inactive and reactivating customers and some on other platforms like Amazon.

Okay, great. And then maybe last one for me, just maybe if you could give a little bit of color on, I guess, the breakout by category now in sales, I guess, you know, with all the different categories such as wellness and VMS that you've added to your website. I guess I'm just kind of curious, you know, what percent of sales do those new categories make up versus kind of like the legacy categories?

Yeah, I don't think we have specific kind of percentages to kind of share at this moment. But what I would say is what Dropship has enabled is the ability to translate the trust that we've earned from customers into more reasons to shop and more relevant assortment to them. And this makes particular sense when it comes to larger items or items like water filters or air filters are great examples that we've seen thus far. Or even like yoga mats, we're finding an easy ability to extend that assortment. What you are going to see is we think of human health not just being vitamins, minerals, and supplements, which, of course, are a double-digit percent of all of our shipments have those. But, like, we see it as helping customers find the healthy things for their home. And that can include things like bedding, and it could even include mattresses, and of course, water filters, and vitamins, and supplements, and like... All of the cleaning supplies that we're known for. But I think what you will see in the coming years is a continued focus on the human health element and making sure that customers, we enable them to have the healthiest home for the people they love.

Okay, great. Thanks so much. Good luck for the rest of the year.

Thank you, Susan.

Thank you. And we have reached the end of the question and answer session, and therefore I'll now turn the call back over to Jeff Yurkosin for our close remarks.

Thank you, operator. I want to thank everyone for joining the call. I hope you have a great night. Thank you.

Thank you. This concludes today's conference, and you may disconnect your lines at this time, and we thank you for your participation.