Q2 2020 Earnings Call
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Hi, connecting to the Central Garden, and Pet company earnings calls.
So what's your first and listing.
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Mcdaid M.C.D.A.D.
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It's spelled era, sorry, it's Eric spelled AI era.
With all major regional Central does give me one second.
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<unk> said of the fashion oriented pottery product line.
In our pet segment organic sales were up 4% Wild garden organic sales were down 3%.
Excluding the impact of the passion oriented pottery exit garden was roughly flat versus prior year.
Pet gains were driven by consumables and pet distribution.
We saw notable surge in the last few weeks of March due to consumer stocking up on products as the cold it impact became more apparent.
Demand in edibles small animal supplies and animal health more than offset continued headwinds in live fish and pet bedding.
Garden was impacted by last year's pottery line exit as well as a soft start to our grass seed season.
These headwinds were partially offset by growth in our garden distribution business Wild bird feed and live plant product lines.
All in for E. P. S. We delivered 78 cents up five cents compared to 73 cents in the second quarter of 2019.
We're pleased with our EPS growth versus prior year.
Especially given the cobot 19 impact in the latter part of the quarter.
And while the unfavorable impact of cold in 19 began to manifest in portions of our portfolio in March we expect that most of the impact on our financial results will be in our third and fourth quarters.
Obviously, given the unprecedented and rapidly evolving situation. It is impossible for us to predict the effects, we will see in that timeframe.
That said, let me give you some color around what we saw in March and April across our categories. As this crisis impacted both consumer and customer behavior.
What we're dealing with today is unlike any other recessionary environment, we've seen in the past and central is seeing varying impacts to the garden and pet businesses due to cold in 19.
On the Petside, our business was tracking according to plan in January and February.
In March we saw an increase in consumer spending a shelter in place mandates were rolled out.
This was most pronounced in our E Commerce channel, where we have seen dramatic spikes, especially in pet consumables.
Another favorable impact to our pet business has been the record level of dog and cat adoptions from shelters.
Pet ownership is clearly increasing as people plan to spend more time at home and seek the joy and comfort of their companion animals.
This bodes well for the longer term sales of pet habitats supplies and consumables.
Offsetting these favorable impacts we've seen a slowdown in specialty pet brick and mortar retailers.
In addition, many pet retailers have temporarily discontinued their order patterns for small animals pet birds and fish. This negatively impacted our live animal business in March and April.
Now shifting to guard, our Q2 consumption metrics were solid and we were pleased with momentum we saw in the category.
The core garden business finished the quarter roughly in line with prior year.
We saw consumption drop in late March and April due to in store curtailments of foot traffic and limited access to outdoor garden departments, which are impacting some of our garden product lines, particularly our bell nursery life plant business.
Yes.
I also want to note that cobot 19 crisis is coinciding with the peak garden season, which typically takes place from mid March through June.
We are encouraged to see like plant department slowly reopen but our business is feeling the effects of the pandemic. During this important time of the year.
So as you can see across our portfolio, there's an evolving mixture of cold it impacts on our consumers and customers.
Thankfully one of the benefits of having a portfolio like ours is there are some tailwinds to help at least partially offset the headwinds of the pandemic.
Further I firmly believe garden and pet our industries that we'll continue to thrive in the medium and long term.
However, there is obviously unprecedented uncertainty in the near term.
Given the lack of visibility and the pace of change we do not think attempting to give financial guidance is prudent at this time.
Accordingly, like many companies, we are temporarily suspending providing guidance for fiscal twentytwenty until the cobot 19 situation in the U.S. stabilizes.
We will provide updates when appropriate and we'll revisit the guidance question at the end of the third quarter.
As we continue to navigate the daily realities of covert 19, I want to assure you, we're not losing sight of our future.
While in the near term, we have redirected most of our resources to our business continuity efforts and the ongoing health and safety of our employees.
A portion of our time has remained focused on our key longer term enterprise strategic priorities, which as I shared last quarter, we've labeled vision 2025.
Addressing the needs of the pandemic has only reinforced the importance of evolving central's business.
It's more important than ever for us to continue to build core capabilities, including E Commerce digital marketing and innovation.
Invest inorganic growth.
And pursue strategic and opportunistic M&A that create further value for shareholders.
We look forward to a time in the future when we can define our new normal post coven, 19, and refocus our energy and resources on growth and building out our long term strategy.
In closing I could not be more proud of the team here at central.
And how they are persevering and supporting each other through this challenging time.
If further bolsters my strong confidence in the resiliency and long term potential of this great company.
With that let me turn it over to our CFO nichol to share more of the Q2 details of our company and across both garden and pet segments Nico Huh.
Thank you Tim good afternoon, everyone.
Second quarter total company sales increased 4% or 30 million to 703 million from 674 million in the second quarter of last year.
Acquisitions were the primary drivers of the sales game accounting for 26 million of revenues in the quarter.
Organic sales were also up half a point aided by gains in our pet segment.
And as Tim mentioned organic sales were up closer 2% when you exclude the impact of the pottery exit.
Consolidated gross profit for the quarter increased 1 million, while our gross margin decreased 110 basis points to 29.5% negatively impacted by unfavorable mix of sales and the impact of the lower volumes and pottery and life fish businesses.
SGN a expense for the quarter decreased 2% or 3 million versus a year ago.
This decrease was driven by lower administrative spending and transportation costs in the base business.
Partially offset by higher inorganic and corporate spending.
Our corporate expense increase was primarily due to higher health insurance costs.
As a percent of sales SGN, a decreased 130 basis points to 20.1%.
As a reminder.
Included in prior year SGN, a our two noncash items.
2.5 million dollar impairment charge of an intangible assets due to the exit from the life fish business by a major retailer and a $3.2 million write up of our previous minority position in our 100% owned as of February 2019.
Central operating income for the quarter increased to 66 million and operating margin increased 20 basis points to 9.4% due to lower SGN, a expenses and accretion from acquisitions offset by lower gross margin EBITDA for the quarter increased 7% to 79 million.
Turning now to the pet segment.
Pet segment sales for the quarter rose, 7% or $23 million to 361 million and grew 4% on an organic basis.
As Tim mentioned organic sales were aided by strength and late quarter coded related pantry loading in the pet consumables.
We also saw strength in our small and small animal supplies and animal health business.
These gains were partially offset by continued headwinds in life fish and pet bedding.
Pet segment operating income for the quarter increased by approximately 7 million or 25% compared to the prior year to a total of 34 million.
Pet operating margin also increased by 130 basis points to 9%.
These gains were aided by lapping the prior year 2.5 million dollar impairment charge in life fish.
Excluding the impairment pet segment operating margin increased 60 basis points driven by the organic strength mentioned previously.
Pat EBITDA for the quarter increased 20% to 42 million.
Turning to guard.
For the quarter Garden segment sales rose, 2% or 7 million to 342 million driven by inorganic contributions from the ardent acquisition.
Excluding art segment organic sales declined 3% driven by artisan pottery exit and a soft start to our grass seed season, partially offset by strength in garden distribution Wild bird and life plants.
Gardens base business, excluding the exited pottery business was roughly flat.
To provide a little more context on our grass seed results. Currently we are seeing our shipments lag healthily comes consumption.
This was largely due to our inventory position heading into the season as a result of soft fall as well as some order pattern timing.
Garden segment operating income for the quarter was roughly inline with prior year at 53 million and operating margin declined 40 basis points to 15.5%.
Prior year results included a gain of $3.2 million related to the write up of the initial 45% interest in our upon acquisition.
Excluding this gain garden segment operating margin increased 60 basis points.
Garden EBITDA for the quarter was 56 million also roughly flat versus a year ago.
Now getting back to our consolidated results in the second quarter, we had other expense of 1 million compared to other income of 500000 a year ago.
Net interest expense increased 1 million to 9 million due primarily to lower interest income earned on cash balances as a softer market drove interest rate declines.
Tax rate for the quarter was 22.7% as compared to 21.3% in the second quarter a year ago.
Turning to our balance sheet cashless payments cash at the end of second at the end of the second quarter increased to 332 million up from 330 million at the end of the second quarter last year.
For the quarter net cash used by operations was 75 million versus net cash used of 86 million in the second quarter, a year ago due to favorable changes in working capital primarily in inventory as well as increased EBITDA.
Capex increased to 10 million from 6 million in the second quarter of 2019.
Total debt.
694 million down 4 million from the same time last year.
Our gross leverage ratio at the end of the quarter decreased to two to 2.9 times within our target range.
At the end of the second quarter, we had no borrowings under our $400 million credit line. However in April we drew down 200 million to increased financial flexibility as we navigate as we navigate and uncertain coated 19 economic environment.
Depreciation and amortization for the quarter was 13 million up from $12 million a year ago and the increase was largely acquisition related.
During the quarter, we repurchased approximately 988000 shares or $25 million of our stock.
The remains 100 million under the Board's previously authorized share repurchase program, an additional 800000 shares under the board's equity dilution authorization.
As Tim mentioned earlier, given the uncertainties of the current covet 19 crisis, we have withdrawn our previously issued guidance on 2020 earnings and we will revisit upon completion of our third quarter.
Now operator, please open the line for questions.
Hi, Thank you we will now be conducting a question answer session. If you would like to answer the question.
Star one on your telephone keypad, a confirmation total indicate your line is in the question Q you May Press Star too if you would like to remove your question from the kit.
Participants season speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please what we pull for questions.
Your first question comes from the line of Bill Chappell with Suntrust. Please proceed with your question.
Thanks, Good afternoon Hope you and your families are safe.
Thanks, Bill Thank you barely Phil.
Well I guess first question just is there any way you can kind of quantify.
As we look at March and April the percentage of both pet and Garden base. It was closed because I understand like because it compared to two like pet food companies or.
Or even to Scotts Miracle Gro you have a higher exposure to the small pes, especially pet and what have you. So any kind of color there would be helpful.
Yes, Bill this is Tim Koper, good to talk to you again.
When you when you say closed I just want to clarify do you mean.
Our facilities do you mean, the retailer customer footprint the region yeah. The retailer customers. So there are no pest specialties.
Yeah. So what we saw on on the pet side. It was most acute obviously on brick and mortar versus E com and in particular, we saw in small independents and we saw in.
Our live small animal business. So you would know we've got a small animal business small mammal live fish bird and in particular, we saw.
The small.
Independent pet stores temporarily closed down during shelter in place and we saw large Pat national stores begin to curtail traffic and in particular for a period of time stop accepting live animals. So it was that part of the business that was most impact.
When you look across our business units and then it was that channel. In addition, broadly what I'd tell you is that.
Our consumables side of the pet business, you don't think dog treats as one example.
I have fared very well throughout this time, whereas our slightly more durables hard goods think pet bedding.
Faired less well during this cobot period.
Got it got it and then.
Switching to.
I don't know if you gave any update or have any update I'm kind of what Pos looks like for the month of April or for both businesses or in any early read there.
Sure, Yes from up from a Pos standpoint, a consumer consumption. It remains strong on both of our businesses, both pet and garden.
We see obviously as you breakdown channel where customer we see.
Robust quite honestly explosive growth on E. Commerce, we have seen some triple digit growth weeks on E commerce, particularly on our pet side.
And.
Our garden side off a smaller base is growing.
Very strongly on ecommerce.
On the garden side, there is some foot traffic differences across our big retailers, particularly the big three given slightly different customer policies in terms of how they maybe have changed either opening hours or certain departments and here again, what I'd guide you too.
Is that it is our lives plant business that we've seen.
Some of the biggest challenges given.
One of the big retailers.
Limiting access to the live outdoor area for a period of time.
Broadly, though I would tell you that from a consumption Pos standpoint, both on the pet and garden standpoint. We are are encouraged by continued consumer demand in both pet and garden.
Got it and then just last one for me on back on the Garden side.
Just kind of.
It sounds like on grass seed.
You are just rented out of stocks and we've kind of past the grass seed season. So those those looked like I guess lost sales.
As for skin is that the right way to look at and then on on the Bell business, what exactly happened I imagine you're you're growing plans to be a certain size for the break at the season and then you missed the break at the season in certain areas those plants get too big or how does that work or do you get to destroy the inventory I mean, how does how does that work.
Yes, let's ask JD Walker.
It is your bill I'll pick of the first part of your question the with the grass seed business the.
In terms of the season, you said it well past the grass seed portion of the season were path in the southern markets, but the northern markets many of them Havent broken yet so we're still seeing fairly robust grassy consumption. We carried some inventory its and I believe that was in the script equal mentioned that we carried some inventory in from a pretty poor fall.
All season and fall if you recall was unseasonably hot late into the season until late October. So we missed a lot of the fall grass seed season carried heavy inventories into the spring and taken some time to unwind those inventories.
And then another factor for the graphic business was you know cobot related the export market has pretty much dried up it's been a difficult export market, we do export some other exporters' have.
Decided not to sit on that seat and they've sold it off into independent channel or in the pro turf channel that's affected our business as well so the combined factors of.
Going to a or a negative headwind for the grass seed business.
Then on the Bell business.
You hit on it if they grow for specific period of time now those we can maintain those plants in the stores for a period of time, but overtime, they either have to sell or we end up scrapping that material.
Now Fortunately a lot of that season still remains in front of us as well. So we had a headwind in the month of April but the peak for that business is main we're seeing strong consumption wonder whether it's favorable.
The good news here is the underlying demand for all of our categories and and Tim touched on this Pos has been incredibly robust when the weather favorable and that has been quite favorable and when the customer has access to our product. So there's no limitations on head count in the store and and free access to areas of the store like outside garden.
So the underlying health of the businesses incredibly confident.
Got it thanks, so much please thanks.
Thanks.
Thank you. Our next question comes from the line of Peter Graham with JP Morgan. Please proceed with your question.
Thanks, Good afternoon, and I Hope you all are doing well.
Thank you Peter here.
So Tim I wanted to ask a bit of a bigger picture question around vision 2025 I.
I think we all recognize that this year was set up to be.
Investment year to drive stronger topline growth and I know you discussed the topic topic briefly in your prepared remarks, but.
How do you handle the near term challenges, while maintaining some of that focus on the longer term has.
Okay outbreak influence or change your game plan at all maybe some areas of focus are now more important than they were a few months ago, just anything you'd be willing to offer on the topic I think would be helpful. Thanks.
Thanks, Peter Yes, well.
First I do want to reinforce right now our number one focus and my number one focus is continuing to be on the safety and well being of our employees and ensuring business continuity and running running a good business.
That said, we can't lose sight of our future and our efforts around vision 2025 are aimed at that is really charting the course and and laying out some.
Some evolved moves and and evolve strategy that will take this company into the next many years.
During these last couple of months, we have changed our approach a bit as it relates that body of work as you might imagine the daily priority quickly shifted to business continuity and safety around this pandemic and so we did slow down a few things Peter and we did re purpose.
Some of that team activity.
Having said that I can tell you a portion of our time, including mine as CEO has remained on the longer term.
Enterprise strategic priorities.
To your question, specifically if anything as a result of this co bid environment. There are aspects that we were beginning to work on as as it relates vision 2025 that if anything our more pronounced and more urgent and.
Ill side, a couple of those now I mean, one is clearly our need to continue on or digital transformation as a company and accelerate our efforts in the ecommerce channel I mentioned per the last question from Bill that we've had some triple digit growth weeks and I'm actually very pleased.
At our team's ability to quickly respond to that type of spike in demand and capture those consumptions and I will say our ability in the last six weeks to see that explosive growth and to maintain share in that in that ecommerce channel.
It is something I'm really encouraged with there's more for us to do though and John Hanson, our head of pet would agree to that Theres. Some additional hiring we'd like to do some additional capability build some additional investment. So that's one example.
Another would be obviously, our continued focus on cash and liquidity.
Our balance sheet, well, we feel good about that and that continues to be a sharp focus for Nico for me for our business unit operators.
Managing cash conversion cycle well.
Working capital.
And then I'd say, a third is consumer orientation.
That's a that's something that I think it's still an opportunity for our company to grow in and understanding how the consumer is evolving his or her shopping behavior and.
Preferences as it relates garden and pet in this in this covert pandemics so.
There's a lot we've been working on that if anything have a sharper focus.
And I would tell you Peter that we are still I had mentioned in our last call an ambition to be out by summer to share a more comprehensive view of that work, we're still working hard on that given cobot.
Not ready to commit to a date here, but we will be back in due course, providing a more robust review with you on vision 2025.
Thanks, I was very helpful.
And on stay safe.
Thank you. Our next question comes from the line of Brad Thomas with Keybanc Capital markets. Please proceed with your question.
Hi, good afternoon, Thanks for taking my question.
My first question was going to be just around.
How you maybe think about.
The discretionary nature of some of your products and potentially the risk that may be ahead.
Even after consumer behavior starts to get back to normal stores reopened.
We may be facing a period of elevated unemployment.
Tim as you've had a chance to reflect on the business look at.
The different brands and categories. How are you thinking about the level of risk to sales I just from that discretionary aspect of the business as we think about the quarter's had here.
Sure. Thanks, Brad.
You know overall I think we feel pretty good that we're going to.
Good industries in both pet and garden that you wouldn't say I don't think you can say are completely recession proof, but there certainly recession resistant and I would say that while there was a.
A spike.
As we look at weekly Pos right at that time of that transition to shelter ends in place.
I think to Bill's earlier question Pos remains strong and so we've got obviously Pos through through the end of April and sit now seeing kind of shipments of early may and consumption remains strong.
You would know that for the most part our portfolio. It does not skewed to what you call a super premium price I think the underlying drivers that you look at.
Favre mid term strength in these two industries it starts with.
Pets themselves and as I mentioned in the prepared remarks, we have seen and you probably read about.
Shelters all over this country from New York to Houston to California.
Running out of pets, and so we're seeing adoptions coming in really at record levels that bodes well for the corresponding needs of that.
I think on the on the garden side with a shift of of a normal that is going to be spending more time at home.
Consumers are going to be looking for those.
Simple ways to improve their home improve their gardens, and I think a lot of our categories lend themselves to that.
Like grass seed like controls like life plants.
And these aren't huge dollars rings, so again.
Very difficult to predict the depth of it we certainly see the same unemployment numbers and projections that you see.
But overall you know certainly versus.
Airlines restaurants in other industries, I think pet and garden can be fairly resilient, even in a downturn and while I wasn't here and Oh wait till nine I've certainly as part of our leadership team Weve look back on lessons learned from wholly owned nine and I think central.
And the overall consumption.
Held up pretty well during those difficult periods.
That's very helpful. Tim if I could ask a follow up.
Around Capex, Nick I apologize I missed it but how are you thinking about capex for the year and any changes in and how and what you will be spending on here.
Yes so.
If you recall, we had guided to $45 million to $50 million Capex number for the year.
Year to date, we're at about 20 million.
We are reassessing.
All all cash expenditures be it be capex.
Stock buybacks all of that stuff, we're going to be looking at next week with the board.
Because as you know right now in this environment cash is king and we'll probably be sharpening our pencils around around some of those.
Some of those initiatives. So, we'll probably give an update a little later on that but.
But we are reassessing all of those all those things.
Gotcha. Thank you so much.
Thank you. Our next question comes from the line of William Rotor with Bank of America Merrill Lynch. Please proceed with your question.
Good afternoon.
It sounds like a lot of the softness or some of the softness in the lawn and garden segment was based upon channel disruption with I guess some of the smaller lawn and garden retailers as well as one of the larger ones.
Yes, our those disruptions still in place, meaning I have a lot of those retail customers reopened their doors at this point or do they remain closed.
Good day.
The security sure I'll speak to that the.
We are seeing some of the smaller independent.
Lawn and garden centers that had closed for a period of time, we're starting to see them come back on board.
We opened and engage again, where we were where we had some state and local authorities that closed off some garden centers were seeing those reopen again, Vermont and Michigan or for two areas that come to mind.
We are starting to see retailers increased or store hours again and increase the number of people consumers customers that they are allowing in the store. So all positive trend, we're starting to see them reengage. Once again the retailer so I think that bodes well for our business.
I think that.
What we saw with short term headwinds in late March through part of April, but as Tim said, our Pos still remains strong in April which gave gives us great encouragement and more recently here, we've seen strong demand for our products. So like historically strong demand for our products. So we feel very good about.
That's good to hear and when you were mentioning the challenges I didn't hear anything really around supply chain and you certainly we're kind of talking about how strongly year team had performed I guess did you experience any meaningful amounts of downtime or are you experiencing elevated operating cost and if so how much.
Yes.
We have been fortunate overall as I said in my remarks that a very small percentage of of our employee base tested positive I'm also pleased to report that.
With we've got about 100 sites across the US. If you include our manufacturing distribution offices et cetera, and as of right. Now. There is there is only one that is not fully operational.
We did over the course of these six weeks have temporary disruption in some of our facilities.
Based on either you know a local jurisdiction.
Order at the time or based on our proactive measures given coal bid to do a temporary close deep clean and then reopened.
So again everyday is a new day.
But at this point as you look across our supply chain manufacturing distribution centers merchandising et cetera, we feel good.
We weren't to immune to issues.
But.
We're certainly in I would say overall good shape.
And then let's see the second part of your question was.
The up whether operating costs elevated again and I. Thank you, yes and on this one I would say yes.
Obviously, it starts with PE and we have.
As you would expect Marshall to quite a bit of incremental PE to all of our facilities, both manufacturing and distribution. This would be masks clubs sanitizers et cetera on top of what would be normal course of business infra red thermometers as well as.
[music].
Some changes in the structure to include greater separation to include some temporary shielding in between some of the plan to employees and obviously all of these do bring a higher cost.
Exact value, obviously not going to comment on at this stage, but it is fair to say that there are incremental cost in our supply chain as we evolve in this new environment.
And just one last one if I can a couple of years ago. When you raised equity I think you had hoped that there may be some M&A opportunities, which I think valuations weren't where you hope that they would be do you expect to try and take advantage of potentially some lower multiples in this environment or will you move forward with a more cautious just get through.
This environment, that's all for me thanks.
Well I think it depends on the opportunities.
Our balance sheet as everybody knows remains rock solid fortress balance sheet.
We feel like the business is performing well through the crisis we're.
Feeling very good about our day to day operations. So I think it the right opportunity came up.
I don't I don't think we would we would dismiss it we would certainly have to look at that and.
And maybe lean into something there. So yes, we would be open to looking at the right opportunity at the right time.
Thank you.
Thank you. Our next question comes from the line of Jim cardiac with Montes for PC at Heart. Please proceed with your question.
Okay.
Hi, good afternoon, thanks for taking my questions.
Tim I just wanted to follow up on some of the earlier questions about the investment spending.
Your plan this year for significant step up in investment spending.
How much of that is continuing.
This year was there any spend related to that and second quarter and then go you are you taking any measures.
Revenue initiatives in place to manage expenses.
Given the near term uncertainty and then just relate to that other people have talked about pulling back on advertising as stores are closed what if you don't with your advertising almost a plan going forward. Thanks.
Sure I'll start Jim and pass over an eco to build.
As you said part of our.
An initial guidance back at the beginning of this year coming out of Q4 last year did contemplate incremental investments.
And I think I highlighted a number of those.
You know in marketing and brand building and innovation in digital and ecommerce initiatives select additional personnel in some key areas et cetera.
And what I'd tell you is in some cases, we have already made those investments because they're absolutely the right thing to do and in others. Jim We are reassessing and in the third bucket is in some cases, we have pulled back and we have decided that in today's environment.
Today is not the Dave for that investment all in and so we're taking a very.
Measured and thoughtful approach.
To each of those a growth initiatives back at the I would say in the in the January timeframe, I sat with Niko and John and JD among others.
Did a very detailed review kind of line by line on those incremental growth oriented investments had a plan and a gating throughout the balance of the year since the coven 19 hit.
We have reassessed each of those book one by one and what I'd tell you. It's a mixture we're not going to blindly just go do what we said what we thought was right in January given the new environment. So we're taking up a measured and thoughtful approach on that and I'll quickly touch on the second one and pass it to Nico answers second one is absolutely.
We are we are business unit by business unit looking at what I would call belt tightening.
Initiatives.
To offset some of the the headwinds in some views obviously they are greater than others I mentioned some of those earlier in the call.
But both at a at a business unit level and at a corporate level. We are we are tightening the belt.
Nicolini builds on that yeah, just just to build on what Tim It said like a lot of companies. We've done extensive scenario planning on the business to look at what what we would need to take out if we had.
Volume declines of 2%, 5% 10 to 20.
So we have those in place I think what we seem to what Tim was alluding to earlier is we've seen a few of our businesses get hit really hard in light of animal life plan and to a lesser extent, our bedding business. So we have made cuts in those areas areas already they've been very very surge.
Nicole.
But as a company I think what we've really focused on is cash cash is king right now.
We are doing things as I mentioned earlier, you know reevaluating our capex looking at the stock buyback program, we're really looking at receivables and credit worthiness, particularly in independent channel. So we have weekly calls reviewing.
How how that how healthy that channel is.
We've had a number of.
Actually larger customers come to us and one.
More dating.
So we're dealing with all that and I think really the key for US is preservation of cash and cash conversion and we're very focused on that.
And then also looking at at the business and you know the fixed and variable cost there, but so far we've been fortunate because we've largely remained intact and we surgically.
Downside some areas, but I would say so far so good and and the other thing I would say is just looking out the Pos on on both sides, both pet and garden.
It looks good so we're going to we're going to continue for John but but.
No really micro manage the expense and the cash side.
Great and then if I could ask the question.
You mentioned the spike in pet dog and cat adoption rates does that does that correlate with small animals and the disruption small animals and just the stores being closed and what is your research tells you in terms of.
Consumers wanting to adopt maybe a small animal in lieu of a cat or or dog.
Then on on fish, one of the competitors spoke to some increased interest in life fish as well what are you seeing there. Thanks.
Sure John you want to take those Pat.
Sure, Yes, we've seen no the majority in dog and cat adoption for sure.
We do believe there's some pent up demand for lot for live animals small animal.
The pet specialty channel certainly is a prime employees the.
Shoppers have gotten those in the past and we will continue to do so.
And general as Tim mentioned, we've seen suspended shipments there and we've seen suspended shipments on the small animal as well as we're fish business.
But going forward.
It's a little harder to predict right now bhutto's spot pet specialty continues to.
Opened an extended hours, we fully expect that was a regaining traffic or will we getting that business.
Does that answer your question, yes, that's helpful. Thanks, and best of luck.
Thank you. Our next question comes from the <unk> line of Crim, Martin said with Jefferies. Please proceed with your question.
Good afternoon.
Strong Pos that you're seeing how is inventory at retail and given the controls that retailers of institution or are there any bottlenecks in terms of getting supply too.
Yes.
I think our inventory positions a little different of course across our two big businesses.
I'd say, the kind of the the alignment of consumption and shipments or of sales and Pos on the pet side is closer and we're seeing you know, we're seeing high velocity, but.
Both at at the consumer level and.
Through our through our supply chain and at present, we are fortunate in that we don't have any major.
Bottlenecks or I would say real disconnects.
You know we've got some businesses that are flying like dog and cat treats.
That are I would say you know, we're having to really keep up with that demand, but overall in the pet side, it correlates pretty well and feeling pretty good on the garden side, it's a little different.
In terms of inventory, particularly on grass seed and maybe JD Walker you'd want to comment a little on inventory and Pos and the garden side.
Sure I'd say that in aggregate ARPU, our inventories in great shape, just I would call at a low single digits increase year over year and that includes new new items that we shipped in this year. So in aggregate I think it looks great and in a environment like we're in right now with robust consumption.
Shipments and replenishment as following as we would expect so we feel good about that as Tim mentioned there are some there's some lumpiness there, particularly in grass seed and we're still working through in parts of the grassy monitor perfectly fine, but we do have some varieties of grassy where were heavy at retail and we're working through those still but I'd say that overall in AG.
But as I mentioned inventories in great shape and in this with this type of Pos shipments will follow and we're not having any issues to answer the second part of the question and getting that supply to the retailers.
Okay, Great and then yes, I think bill Bill touched on this but are you seeing any.
Retailers already succumbing to the shutdowns in terms of just trying to get out what the health of the consumer base is especially the smaller independent channels for both pad and.
Gordon.
You guys want to quickly comment.
And John on your two businesses.
I think the question was around the shut the complete closure of retailers, we havent seen that no we've seen some clothes temporarily but.
And then we have literally thousands of customers. So there may be one or two single store chains out there that could have closed and we expecting to reopen and they may not but we haven't seen that I would have confirmation of that and and.
With a large percentage of our business still flowing through three customers, we have the confidence that they're not going anywhere. So we feel good about that.
And from the Petside very similar we've seen very limited closures, we've seen some pullback in Howard some reduction hours, but we would expect that the change in open up as well.
Okay, and then just lastly, where does liquidity stand today or thereabouts.
Since quarter end.
Yes, so we have about 332 million of cash on the balance sheet and then we drew down 200 million of the 400 million on our Abbeel, so roughly $552 million of cash when you include two.
All right. Thank you very much guys I appreciate it.
So I wonder ladies.
Yes, operator are we at the hour now.
We are just now that the hour.
Okay.
Let me know if you want to continue with the Q1 session or close out the call.
Yes.
Yes.
Okay. We have time for one more operator perfect. Our last question is from the line of Carla Casella with JP Morgan. Please proceed with your question.
Hi, Thank you for squeezing me in.
Just on your comments in the quarter, you mentioned that there was a negative mix chest and that pressured gross margin and you did talk a bit too category, but can you just say how that.
The what drove the most of the next shift and then how that trended after quarter end.
Sure this is mikko.
If you look at the mix a big a big portion of it was on the garden side, where again, we mentioned we had a little bit of a slow start to the grass seed season that tend to be higher margin.
The other piece of it was getting rid of the the pottery business, which had a higher gross margin not a great operating margin, but it but it's dilutive to the gross and then if you pivot down to the to the pet side. Our live animal business has a very high gross margin as well and as we mentioned allow the retailers were not take.
Being orders of live animals. So so thats been that's been sort of the biggest movers as far as our mix shift.
And then the second part was as it relates to Pls the mix.
That the question.
Yeah.
Yeah.
So.
We're seeing a pick up I mean, we as I as I look at the Pls, it's not that long of a timeframe. So I don't want to lead anyone to false conclusions, but we are very positive on the mix of the Pls I will say on the live animals side.
We still have yet to see those orders resumed so that's been a little bit slower and then on the life plant side.
We have to see how these next few weeks go the season typically peaks out this weekend and.
The weather holds up and consumers have access to that outdoor area. Then we're very optimistic.
So we'll have to wait and see but again, our Pos data is only going out about.
Four weeks and we have.
12, 12, 13 weeks in a quarter so.
More to come Okay, great. That's helpful. Thanks very much.
Thank you. Thank you I want to thank everyone for joining our call today. We appreciate your time and everyone stay healthy stay safe and stay healthy.
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