Executive Summary / Key Takeaways

• Grove Collaborative is completing a multi-year turnaround, successfully shifting focus from rapid, unprofitable growth to achieving sustainable profitability and strengthening its balance sheet, culminating in positive Adjusted EBITDA for the full year 2024 and significant debt reduction.
• The company returned to sequential revenue growth in Q4 2024 after 10 quarters of decline, a key milestone, though Q1 2025 saw a year-over-year revenue decrease impacted by a major eCommerce platform migration and prior advertising reductions.
• Strategic initiatives, including aggressively expanding third-party product assortment, optimizing the Grove-owned brand portfolio, integrating recent acquisitions (Grab Green, 8Greens), and exiting the unprofitable brick-and-mortar channel, are central to the renewed focus on driving sustainable DTC revenue growth.
• Grove leverages its differentiated sustainability focus, B Corporation status, and unique product vetting standards as competitive moats, aiming to be the trusted destination for conscientious consumers seeking products good for both environmental and human health.
• While management expects Q1 2025 to be the revenue trough, guiding for sequential improvement through Q2 and Q3 and slight year-over-year growth in Q4 2025, risks related to the ongoing eCommerce platform transition, NYSE listing compliance, and tariff impacts warrant close monitoring.

Setting the Scene: A Mission-Driven Retailer's Transformation

Grove Collaborative Holdings, Inc. ($GROV) is a digital-first consumer products innovator built on a powerful mission: to be a force for environmental and human health by creating and curating sustainable, high-performance household, personal care, beauty, and wellness products. Operating primarily through its direct-to-consumer (DTC) platform, Grove.co, the company positions itself as a trusted partner for the estimated 57 million conscientious consumers actively seeking healthier, more sustainable choices. This focus differentiates Grove from mass e-commerce and traditional retailers, aiming to capture a growing market segment that prioritizes product standards and environmental impact.

The company's journey began with rapid growth following the incorporation of its predecessor, Legacy Grove, in 2016. This period saw significant investment in expanding product selection, developing Grove-owned brands (launching over 500 products), and building out its e-commerce platform and marketing capabilities. While this fueled top-line expansion, it also resulted in substantial operating losses and negative cash flows, leading to a significant accumulated deficit, which stood at $652.1 million as of March 31, 2025.

Becoming a publicly traded company in June 2022 marked a turning point. Faced with declining revenues starting that year, Grove embarked on a multi-year turnaround. The strategic imperative shifted dramatically from growth at all costs to achieving sustainable profitability and strengthening the balance sheet. This involved a rigorous focus on cost reduction, operational efficiencies, and a critical evaluation of business channels.

The Foundation: Sustainability, Standards, and Technology

At the core of Grove's value proposition lies its deep commitment to sustainability and its rigorous product standards. As a public benefit corporation and a Certified B Corporation (recently recertified with an improved score of 100.9), Grove is legally mandated and voluntarily committed to balancing financial interests with stakeholder well-being and specific public benefits. This includes ambitious goals around plastic reduction, carbon neutrality, and ingredient transparency.

While the company does not appear to detail proprietary manufacturing technology in the traditional sense (like a unique solar cell architecture), Grove's technological differentiation lies in its e-commerce platform capabilities and its unique product vetting process. The company emphasizes its ability to curate products against high standards, maintaining an "anti-ingredient list" and designing packaging to reduce plastic waste. This vetting process, supported by internal research and development including experienced chemists and formulators, acts as a critical filter for the products offered on its platform, both Grove-owned and third-party. The "Beyond Plastic Impact Tracker," launched in Q3 2024, is a tangible output of this focus, allowing customers to quantify their individual environmental impact by shopping with Grove (e.g., the community has avoided and recovered 24.5 million pounds of plastic since 2020).

This focus on standards and sustainability is a key competitive moat. Management asserts that Grove is "the only retailer that is vetting every brand and product in their assortment against high standards," giving it a "right to win" in the conscientious consumer market. This differentiation is intended to build trust and loyalty, driving customer acquisition and retention on its DTC platform.

Strategically, Grove's pillars reflect this transformation: sustained profitability, balance sheet strength, revenue growth, and environmental/human health. The first two pillars were prioritized initially to build a stable financial foundation, allowing the company to now pivot its primary focus to driving revenue growth while maintaining profitability.

The Turnaround in Action: From Red Ink to Breakeven

The turnaround effort involved significant operational adjustments. Grove optimized its fulfillment network, including relocating its Reno, Nevada facility and ceasing operations at its St. Peters, Missouri center in Q2 2024, aiming for cost and operational efficiencies. Inventory management became a focus, with reductions in Grove-branded inventory contributing to improved working capital and positive operating cash flow in multiple recent quarters.

A major strategic decision was the planned exit from the brick-and-mortar retail channel, announced in Q3 2024 and expected to be completed by the end of the first half of 2025. This channel constituted less than 4% of the business and was consistently unprofitable. Winding it down is expected to strengthen the bottom line and allow the company to concentrate resources on the higher-potential DTC segment, which serves a customer base with higher household income seeking a premium, curated experience.

These efforts, coupled with strict expense discipline across the organization (including reductions in personnel and professional fees), led to a significant achievement: positive Adjusted EBITDA for the full year 2024, the first time in the company's history. This demonstrated the viability of a profitable business model at a reduced scale.

Despite achieving profitability, the company faced a prolonged period of top-line contraction, experiencing 10 consecutive quarters of sequential revenue decline. This trend began to reverse in Q4 2024, when Grove reported its first sequential quarterly revenue increase in three years, a critical milestone signaling potential stabilization.

Recent Performance and Operational Headwinds

The first quarter of 2025, however, presented new challenges. Revenue for the quarter was $43.5 million, an 18.7% decrease compared to $53.5 million in Q1 2024. This decline was primarily driven by lower repeat order volume, a direct consequence of a smaller active customer base. The reduction in active customers is largely a lagging effect of lower advertising spend in 2024 and prior years, a deliberate choice made during the turnaround to prioritize profitability over aggressive, potentially inefficient customer acquisition.

Adding to the Q1 2025 pressure was a major operational undertaking: the migration of Grove's e-commerce platform from its legacy internally-developed solution to third-party service providers (Shopify), which began in early March 2025. While intended to provide enhanced scalability, flexibility, and access to advanced functionalities for future growth, this transition caused temporary disruptions to platform operations, including user experience, inventory management, fulfillment, and payment processing. Management estimated this migration resulted in a $2 million to $3 million revenue headwind in Q1 2025.

Despite the overall revenue decline, there were some positive signs. The decrease was partially offset by higher revenue from new customer orders, supported by improved advertising efficiency and stronger first-order economics. This allowed Grove to responsibly increase customer acquisition spend in the quarter. DTC Net Revenue Per Order saw a slight increase (0.3% year-over-year) to $66.49, driven by shifts in order mix towards higher-priced items, particularly from the expanded third-party assortment, partially offset by the elimination of certain customer fees in 2024.

Gross margin in Q1 2025 decreased to 53.0% from 56.0% in Q1 2024, reflecting the absence of previously charged customer fees, a smaller benefit from the sell-through of previously reserved inventory, and an increase in product costs as a percentage of revenue. Operating expenses saw notable reductions, with Product Development down 51% year-over-year ($1.8M vs $3.6M) due to severance and reduced amortization of fully depreciated software, and Selling, General and Administrative expenses down 11% ($22.0M vs $24.6M) driven by lower fulfillment costs, stock-based compensation, and headcount reductions, partially offset by the absence of a $3.1 million gain on lease modification from Q1 2024. Interest expense decreased significantly (92%) to $0.3 million due to the extinguishment of term debt in 2024.

Adjusted EBITDA for Q1 2025 was negative $1.6 million (-3.7% margin), a step back from positive $1.9 million (3.5% margin) in Q1 2024, primarily reflecting the impact of lower revenue and the platform transition disruption. Net cash used in operating activities was $6.9 million in Q1 2025, mainly due to increased working capital related to recent acquisitions and the net loss.

Competitive Landscape: Niche Player vs. Giants

Grove operates in a competitive consumer products market, facing a diverse set of rivals across its product categories and sales channels. Its primary competition comes from:

• Large CPG Companies with Sustainable Lines: Giants like Procter & Gamble (PG) and Clorox Company (CLX) offer eco-friendly product lines (e.g., Tide Eco-Box, Green Works) and benefit from immense scale, established distribution networks (wider retail availability), and significant marketing budgets. PG, for instance, boasts significantly higher gross margins (around 50% TTM) and operating margins (around 22% TTM) compared to Grove's 53.08% TTM gross margin and -9.81% TTM operating margin, reflecting superior operational efficiency and pricing power derived from scale. CLX also shows stronger margins (43% TTM gross, 13% TTM operating). Grove's disadvantage here is its smaller scale, which results in higher operating costs per unit compared to these giants.
• Direct Sustainable/Eco-Friendly Brands: Companies like The Honest Company (HNST) focus specifically on the eco-conscious consumer segment. HNST competes directly in baby, beauty, and household products. While HNST has struggled with consistent profitability (TTM net margin -2%), its brand recognition, particularly among millennial parents, poses a challenge. Grove's competitive edge against these players lies in its specific plastic-neutral focus, its B Corp certification, and its unique vetting standards, which aim to build a deeper level of trust with the most environmentally conscious consumers. Grove's subscription model also aims to drive higher customer retention (targeting ~70%) compared to more transactional competitors.
• Indirect Competitors: This includes zero-waste brands (like Blueland) offering alternative product formats and large e-commerce platforms (like Amazon (AMZN)) with private-label eco-brands. These players can pressure pricing and offer convenience, impacting Grove's market share potential.

Grove's estimated market share is relatively small (likely 1-2% in its niche segments) compared to the giants. However, its growth strategy focuses on expanding its third-party assortment (brands up 41% YoY, products up 54% in Q1 2025) in high-potential categories like wellness, beauty, and pantry, leveraging its platform's curated nature and customer trust. The recent acquisitions of Grab Green (strengthening home cleaning) and 8Greens (entering wellness) are part of this strategy, aiming to add accretive revenue and expand the product offering. Management believes the margin gap between Grove-owned and third-party products is narrowing, allowing for profitable growth through assortment expansion.

Strengthening the Balance Sheet and Outlook

A significant achievement in the turnaround was the strengthening of the balance sheet. In Q4 2024, Grove fully eliminated its $72 million term debt facility, partly funded by investments from Volition Capital ($10M in Aug 2023, $15M in Sep 2024). This reduced outstanding debt to $7.5 million under the Siena Revolver as of March 31, 2025. Subsequent to the quarter end, on May 8, 2025, Grove amended the Siena Revolver, extending its maturity to April 10, 2028, and removing the minimum liquidity covenant, enhancing financial flexibility. Additional borrowing capacity under the Siena Revolver was $1.7 million as of May 14, 2025. The company was in compliance with debt covenants as of March 31, 2025.

Management believes existing cash and cash equivalents ($9.6M unrestricted cash as of March 31, 2025) are sufficient to fund operations for at least one year from the filing date (May 14, 2025). However, the long-term operating plan requires additional financing, which may be sought through the Standby Equity Purchase Agreement (SEPA) with Yorkville (potential to raise ~$6.9M as of April 30, 2025, subject to conditions) or other debt/equity financings.

Looking ahead, management provided revised guidance for fiscal year 2025. Revenue is expected to decline approximately mid-single-digit to low double-digit percentage points year-over-year. This forecast incorporates the estimated full-year impact of the eCommerce platform transition, including potential ongoing effects from customer attrition, and the impact of exiting the brick-and-mortar channel. Adjusted EBITDA is expected to be in the negative low single-digit to positive low single-digit millions range. This guidance includes the impact of lower revenue and platform disruption but assumes most tariff impacts can be offset through mitigation strategies (pricing, renegotiations, sourcing shifts).

Despite the expected full-year decline, management emphasized that Q1 2025 is anticipated to be the lowest revenue quarter of the year and going forward. They project sequential revenue improvement through Q2 and Q3 2025, leading to slight year-over-year growth in Q4 2025. This trajectory is expected to be driven by stabilizing customer trends, improving advertising efficiency, the integration of acquisitions, and leveraging the capabilities of the new e-commerce platform.

Risks to the Outlook

Several risks could impact Grove's ability to achieve its outlook. The ongoing eCommerce platform migration, while strategic, could continue to cause disruptions affecting user experience, operations, and customer retention. Compliance with NYSE listing standards is a concern, as the company received a notice on May 15, 2025, regarding non-compliance with market capitalization and stockholders' equity requirements. An ongoing investigation by California prosecutors into automatic subscription renewal practices could result in a material loss, though the amount is not yet estimable. The evolving tariff landscape presents uncertainty regarding product costs and gross margins if mitigation efforts are insufficient. The need for additional long-term financing poses a risk if capital is not available on acceptable terms, potentially limiting growth investments. Competition from larger, more efficient players and agile niche brands remains intense.

Conclusion

Grove Collaborative is navigating a critical phase, transitioning from a successful financial turnaround focused on profitability and balance sheet repair to a renewed push for sustainable revenue growth. The achievement of full-year positive Adjusted EBITDA in 2024 and significant debt reduction underscore the progress made in building a more resilient business model. While the first quarter of 2025 reflected the short-term pain of a major platform migration and the lingering effects of prior strategic decisions, management's outlook points to sequential improvement and a return to year-over-year growth by Q4 2025. The investment thesis hinges on Grove's ability to leverage its differentiated sustainability focus, unique vetting standards, and the enhanced capabilities of its new e-commerce platform to profitably acquire and retain conscientious consumers, expand its curated assortment, and successfully integrate recent acquisitions. Key factors to watch include the smooth stabilization and performance optimization of the new platform, the company's ability to navigate NYSE listing requirements, manage tariff impacts, and secure necessary long-term financing to fuel its growth ambitions in a competitive market. The path forward requires continued execution discipline to translate its mission and operational improvements into consistent, profitable top-line expansion.