Q3 2021 Scotts Miracle-Gro Co Earnings Call
Good day and welcome to the Scotts Miracle Gro Company's Church quotient earnings conference call.
As a reminder, today's call is being recorded.
At this time I would like to turn the conference over to Jim King. Please go ahead Sir.
Good morning, everyone and welcome to the Scotts Miracle Gro third quarter Conference call. Joining me. This morning is our chairman and CEO, Jim Hagedorn, Our interim Chief Financial Officer, Cory Miller, as well as our President and Chief Operating Officer, Mike look Myer, and Chris Hagadorn Group President of Hawthorne.
In a moment, Jim and Corey will share some prepared remarks, and then we'll open the call to your questions in the interest of time, we ask that you keep to 1 question and 1 follow up.
I've already scheduled time with many of you. After this call to filling the gaps and anyone else who wants to set up some Q&A time can call me directly at 90, 375785622, and we'll set up some time as quickly as we can 1 quick bit of housekeeping, Corey and I will be participating in the Raymond James Consumer Conference on September <unk>.
14th which will be held virtually.
We will publish more details related to the time and date a couple of weeks in advance.
With that let's move on to today's call as always I'll remind you that we expect to make forward looking statements. So on a caution you that our actual results could differ materially from what we say <unk>.
Investors should familiarize themselves with the full range of risk factors that could impact our results. Those are filed with our form 10-K, which is filed with the securities and Exchange Commission.
I also want to remind everyone that today's call is being recorded an archived version of the call will be available on our website with that let's get started and so I'll turn the call over to Jim Hagadorn Jim.
Thanks, Jim and good morning, everyone. This is an important call today, perhaps the most important call with the investment community over the past year.
It has nothing to do with the fact that we posted another strong quarter and remain on pace for a record year.
Because we're finally at the inflection point, everyone knew was coming.
Yes, we're starting to run up against tough comps in both businesses.
Yes, we're starting to see consumers get back to their normal routines and yes like a lot of consumer companies. The cost pressures, we're seeing from commodities are starting to feel unrelenting.
But as I take a deeper look at our business I can't help but feel positive. If you only look at our quarterly P&L you can't possibly understand what's happening here you have to dig you have to analyze you have to find the answers to questions you've never been thought about asking in the past.
For more than a year I've been telling anyone who would listen that I believe Scotts Miracle Gro would exit COVID-19 as a fundamentally stronger company.
And the deeper we dig the more we analyze the more I am convinced that is exactly what's happened.
Our consumer base today is vastly bigger and more engaged than prior to the pandemic.
Our relationship with those consumers is stronger and more personal than ever thanks to the overhaul of our marketing programs.
Our ability to engage on their terms is better today due to the vast improvements in our direct to consumer initiatives and our ability to provide them. The best possible outcomes has been made even easier by the innovation team that continues to turn out important new innovation our growth engine Hawthorne continues to outperform the market and as.
Positioning itself for long term success.
We built competitive advantages that others in the industry can't match we'd.
We brought science based innovation to this industry.
And we continue to embrace a vision that is driving us to explore new and creative opportunities for growth. In addition to the strength of our businesses our balance sheet gives us more financial flexibility than we've had in a decade.
We have opportunities to invest in immediate growth and we'll pursue those.
We have opportunities to invest in long term growth and we'll pursue that too.
And we have the opportunity to return cash to shareholders, which will also pursue especially given the recent pullback in our share price.
We're not doing everything perfectly here, but when I look for major weaknesses I, just don't see them right now.
We've taken full advantage of the unique opportunity that presented itself over the past 18 months and have put ourselves in a great position.
And so that's the context of how I want to frame up 5 distinct topics I want to cover. This morning first I wanted to discuss the continued strength of our U S consumer business consumer.
Engagement remains strong and by the time, we navigate through the next year, we expect to have retained nearly all of the growth we captured in 2020 I'm not sure. Many other CPG companies can say that.
Second.
Hawthorne again, the trends are extremely strong we were up 48% in the quarter and we continue to expect growth of 40% to 45% on a full year basis.
Third M&A. This morning, we announced a small but strategic bolt on acquisition for Hawthorne.
We continue exploring opportunities that are bigger in scope and we are increasingly committed to finding creative ways to invest in other areas of the cannabis industry.
Fourth I'll share some early thoughts about our view of next year, we're not providing fiscal 'twenty 2 guidance today, but we do have a working thesis about next year and I believe long term shareholders will like what they hear and fifth I wanted to touch on our evolving thoughts about returning cash to shareholders, let's start with U S consumer clear.
We've done a better job on the top line than we expected coming into the year consumer engagement exceeded our expectations and allowed us to call up our numbers twice this season.
Of course, a lot of that benefit in excess of a dollar a share has been offset by commodity pressures that every company in the consumer product space is trying to navigate.
I'll, let corey dive deeper into those details I want to focus my time on the strong underlying foundation of the business. The most critical takeaways. This consumer engagement remains extremely high.
Entering the season, our research suggested about 85% of consumers who came into the category last year would return.
We believe the actual number was probably closer to 75%.
However, we're confident we benefited from a higher overall level of participation as 1 third of all consumers said they increase their participation in our category. This spring.
When we subtract consumers, who did less gardening. This year from those who did more our data suggests participation was up 8% and.
And that aligns pretty well with consumer purchases of our products at our largest retail partners entering August P. O S dollars at our largest 4 retail partners were up 4%.
In units the number is 8%.
There was a story here and it's important to understand.
In most years the GAAP between units and dollars is negligible in 'twenty 'twenty. However, retailers did almost no promotional activity. So P. O S dollars far outpaced units this.
This year retailers promoted more than in 2020, the changing their behavior meant the different swing P. O S dollars a unit swung back in the other direction.
And our soils business, where for for 10 and 5 for 10 promotions were reintroduced P. O S dollars are up 5% year to date, but units a more accurate reflection of our shipments as well as consumer activity are up 8%.
In mulch dollars were up 11% and units up 20%.
And there are other branded categories, where the year over year impact of promotional activity is less pronounced like lawn fertilizer weed control on grass seed P. O S dollars were up 3%, 8% and 14% respectively.
This is the third straight year, we're seeing double digit growth in grass seed so across all categories. The numbers, we're posting would be good in any year. So we're extremely pleased given the tough comps.
We've given up a lot of the P. O S gains we reported on the last call when the year to date number was plus 20.
Most of the reduction was expected because of the difficult comparisons. However, we believe the result would have been better had not been for the weather challenges that undoubtedly drove that number lower in may and June on mother's day weekend historically, the largest weekend of the gardening season. It snowed in some key markets.
Memorial Day brought record cold through most of the Midwest and northeast.
Thursday was not much better in fact June as a whole was extremely wet in much of the Midwest.
And of course, the record heat and drought conditions in the Western U S have not helped either.
We believe the impact from weather was magnified this year.
Last year when people working from home, we saw a lot more P. O S happening on weekdays than we're accustomed to seeing so if the weekend weather was lousy. It wasn't a big deal because more people were shopping on weekdays, but this year because weekday foot traffic was closer to normal the weekends have become much more important again, so lousy weather is more difficult.
To overcome this year and we've seen a lot of it.
This is not an excuse it's a reality weather can impact the business and it was a significant headwind this year.
By September 30th I suspect, whether we will have cost us at least 2 points of growth in fiscal 'twenty 1.
Nonetheless, consumer engagement remains encouraging our third quarter historically accounts for about 55% of full year P O S.
In the 13 week period from April through June P. O S was down 1% this year compared to 2020, but it's up 24% in those same weeks compared to 2019.
If we look only at the last 9 weeks of that period. That's when we started to hit tougher comps P. O S was down 12% from 2020 levels. However, it's up 30% from 2019 during that same 9 week window if.
If we extrapolate the current trends for the balance of the year, we expect full year P. O S dollars to be up slightly from last year.
POS units are likely to be up low to mid single digits compared to 2019, we expect P. O S for 2021 to be up more than 25%.
The current consumer trends combined with planned higher retail inventory levels give us a high degree of confidence in our full year sales growth guidance for the U S consumer business, which we set at the range of 7% to 9%.
Behind the numbers there are a lot of great stories I'd love to share details on all of them, but I'm going to turn the page and share some of the highlights from Hawthorne, where we continue to see strength across the board.
Through June sales are 60% higher on a year to date basis as the business continues to build on its market leading position.
In Q3, our lighting business grew 77%.
Within that number our market, leading kavita brand grew at more than twice that rate.
We continued to see new growth facilities come on line across the country and the retrofit market remained an important part of the story and legacy markets in the Western United States are success in lighting continues to be led by innovation in particular, we continue to see great success with our new led lighting products that provide growers a.
1 for 1 replacement for existing high pressure sodium lights.
Outside of lighting, we continue to see strength in the consumable category as well, which is a more accurate reflection of growth in the actual cannabis market.
Nutrient sales were up 54% in the quarter and growing media was up 32%.
Our signature brands significantly outperformed the overall category <unk>.
General Hydroponics grew roughly 30 points more than the total nutrient portfolio.
And our mother Earth and Botanic hair brands grew 3 times faster than the rest of our growing media business.
The across the board strength led to the 48% growth we saw on the quarter, which ended with our largest sales month ever in June.
The growth rate, we expect for the full year is a little more than 2 times higher than our initial guidance.
The upside this year allowed us to upgrade our talent enhance our innovation efforts and improve our marketing we expect those investments will help drive the business again next year and the years to follow.
Obviously, another opportunity to drive growth is through M&A. So let me touch on the deal we announced this morning.
The acquisition of hydrologic is pretty straightforward this isn't easily integrated bolt on deal that is highly strategic.
Hydrologic as a leading provider of products and systems related to water filtration and purification.
That makes it a strong complement to our existing irrigation supply business and a high margin category.
We continue to have more M&A opportunities in the pipeline in both business segments than we can digest right now the challenge for Hawthorne is that many of the charge our small to medium sized businesses you might think that small deals are easy to get done in most cases, it's just the opposite.
The lack of sophisticated I T systems and financial controls makes the due diligence process harder and more time consuming.
And we're not going to rush a deal just to get it done, but I will tell you we're making good progress.
Separately, we remain committed to putting capital to work in areas of the cannabis industry that are closer to the end consumer and to the grower and within the bounds of current federal law as well as the requirements of our lenders.
After months of work by an internal task force, we've created a process that will allow us to make non equity investments in other entities that invest in cannabis brands and operations.
In fact, we've been in discussions with potential partners to bring this strategy to life and hope to see significant movement in the near future.
We've developed a highly successful business in Hawthorne based on the current state authorized marketplace.
Even though we've never been involved with client touching activities, we understand this space as well as anyone perhaps better than anyone.
Our evolving vision is to create the optionality to have an early mover advantage in the broader U S cannabis market when federal law allows.
There is little doubt this industry is poised for significant growth and given our track record I believe we have an absolute right to win here I look forward to sharing more details in the months ahead.
Speaking of the months ahead, I realize everyone wants to know what's in store for fiscal 'twenty..2 so let me change gears and share some high level thoughts.
The easy part of this equation is Hawthorne.
The run rate of this business segment remains strong we just completed an acquisition and hopefully they're more on the horizon.
We continue to extend our leadership in the overall marketplace.
We continue to face the same challenge we've had for several years, we enter fiscal 'twenty 2 against pretty tough comps.
But based on everything we're seeing it's hard to imagine growth being below 10% to 20% next year.
I know that feels like a conservative estimate to many perhaps it is and perhaps our guidance range will be different.
But taking a conservative approach has worked for us over the past several years and we'll continue down that same path I'm not going to overcommit to growth here.
The more challenging questions for next year are related to the growth in the U S consumer business and the continued pressures from higher commodity costs.
The first part Corey will cover the second.
First things first we still have 2 months to go in a year, so Mike and I are working to keep the team focused all the way to the finish line.
As it relates to next year, there are a lot of moving parts. So we're not going to be overly specific this morning that said I like where we are.
I told you a year ago I'd be happy if we could keep the growth we captured in 2020 in our U S consumer segment.
That remains my view.
We're probably going to continue to feel some top line pressure through next April because of the difficult comps. So to some extent fiscal 'twenty 2 will be a mirror image of this year, a tough start it should get easier as the year goes on.
Right now I believe it's prudent to plan for the U S consumer business to decline slightly next year.
Some of you have model, suggesting a double digit decline, we're hoping to do better than that given the expected benefits from pricing, but it's still too early to tell.
Obviously, we won't really know until this time next year, but our consumer business picked up nearly a decade worth of growth in the last year and it feels pretty sticky so far coupled with the changing demographics of the lawn and garden market and a red Hot real estate market. It leaves us in a far stronger position in a post COVID-19 world.
That's why we've been investing so hard on our brands. This season and why we'll do so again next year.
That's a point of view right now not guidance.
We have a lot of work to do over the next 90 days and our thoughts could change we are still finalizing listings and programs with some major retailers for next year.
We also may take a second price increase in January depending on what happens with commodities.
And of course, we need to get through the fall season to understand what retail inventory picture looks like as we prepare for next season.
So we would expect to give you a much clearer picture when we talk again in November.
I said at the outset that it's tough to understand the business by just looking at the P&L.
And I hope, it's clear that we're feeling bullish and it's in that vein I want to briefly cover 1 more subject returning cash to shareholders.
As we look at the pullback on our equity price since early June its clear that the uncertainty about next year is creating a drag on our value.
I've said repeatedly that I think about this business with a long term perspective, and I don't worry about quarter to quarter fluctuations I like our strategy.
I like how we're set up to execute.
And I believe in this team.
And though I've hinted at the possibility of a special dividend multiple times this year I'm, a big fan of buying our shares at these prices.
I told Cory I'm comfortable allocating upwards of $250 million to share repurchase in the months ahead under our existing authorization. So look for us to do that.
Before I turn things over to Korea, I, just wanted to add 1 last bit of perspective.
I was walking around our campus in Ohio last week and came across a group of our R&D associates.
Scientists conducting field research.
Their enthusiasm for their work and their belief and what it could mean for our future was inspiring.
It reminded me of why I love working here.
There is an optimism here that I don't think you'll find that many other companies.
It's what carried us through the early days of Covid and has helped US drive the record results, we've been posting every quarter since.
So we aren't worried about the difficult comps, we continue to face or the fact that we're likely to see a couple of negative quarters coming up.
And we aren't worried that our consumers will disappear on the world goes back to normal.
We believe in our vision here, we believe in the mission we're executing against.
We believe our business does make the world a better place and we believe the opportunities have never been more plentiful and that the future has never been brighter with that let me turn things over to Corey for a brief overview of the numbers and to share some of his own early thoughts about next year.
Thanks, Jim and good morning, everyone.
I agree with Jim Q3 was another strong quarter from my New vantage point in the CFO seat I've had the opportunity to watch our team navigate a pretty unusual marketplace, they're doing a great job.
Leveraging the opportunities in front of us, while managing and overcoming the challenges there.
Their efforts have manifested themselves in the performance, we've seen all year and the solid results, we announced again this morning.
Company wide sales were up 8% in Q3 and are now up 29% year to date, we remain on pace to deliver our guidance on both the topline and Bottomline.
Although we're likely to see even more gross margin rate pressure than we expected when we talked last.
We're also seeing some unexpected pressure below the line from Bonnie.
I'll get to those items on a few minutes.
But overall I want to spend my time, providing a clear understanding of 3 things what we've seen in the recent months, what we expect to see for the balance of the year and how we expect some of the current trends to spill over into next year.
Let's start with the U S consumer business, where sales declined 4% in the quarter.
But are 19% higher year to date.
That leaves us right on track with the guidance I provided back in June when we said, we expect a sales growth of 7% to 9%.
As Jim already said consumer engagement has remained extremely solid throughout the season.
Retailer inventory levels have also increased over the past several months.
This is getting inventory levels back to where they needed to be.
You've already heard the details of what we've been seeing at Hawthorne. So theres no need to elaborate on Q3, we remain confident in our growth outlook for the year on that business too.
So in both major reporting segments in order to maintain our sales guidance you have to see a pretty dramatic change in the trajectory in Q4.
To get to our guidance means shipments in the U S consumer would decline by 40% to 50% year over year in Q4.
If our Hawthorne guidance to hold means a range of flat growth to plus 15%.
Which is obviously lower than what we've been seeing over the past year, but those lower growth rates have nothing to do with the underlying strength of either business. So let me break that down for you.
Remember that in 'twenty 'twenty the U S consumer business grew 92% in Q4 and Hawthorne grew by 64%.
So the comps are extremely high.
That's the first headwind.
The second is the shift in our fiscal calendar in 2021 that we talked about in Q1.
On a year to date basis through Q3, we've had more days than a year ago, while the shift had a negative impact of approximately $115 million on company wide sales in Q3.
It has added approximately 50 million on a year to date basis.
Which is pretty evenly divided between U S consumer and Hawthorne.
Of course that means we'll have fewer days in Q4.
So that $50 million would come out of Q4 in order for the shift to be neutral on a full year basis.
In U S consumer we're in the midst of shipping fall products and continue replenishing and other categories to keep the stores at the right level of inventory.
We've got good line of sight here, which gives us a high degree of confidence in our guidance barring any unforeseen events.
In Hawthorne the other major year over year headwind in Q4 is the 82% comp we're up against in California.
Which accounts for about 45% of our annual sales in the U S.
We would expect the growth rate in California to be significantly lower this Q4 for a few reasons.
First obviously is the difficult comps that we're up against.
Second is the fact that weather has had a strange impact on the outdoor growing season out west this year, which is an important part of that business.
Good weather early in the year allowed outdoor growers to get off to a good start and many of them have already turned their crops for a second time.
For those who haven't the heat and drought over the past handful of weeks have negatively impacted their business and the need for some of our products.
Third is simply a timing issue and the fact that we believe we saw a pull forward of some sales into June.
When we reset guidance at the beginning of June we said, we plan to reinvest some of the upside in both U S consumer and Hawthorne to continue driving growth in Hawthorne that met some previously on planned promotions in June which contributed to a record performance for the month that Jim referenced.
So we expect to give up some of that year to day growth over the balance of the year, but net net we still expect Hawthorne to finish the year with 40% to 50% growth on top of last year's 60% growth in.
In fact, our sales after 9 months this year are already 7% higher than all of 'twenty 'twenty. This business continues to thrive.
Let's move down the P&L and focus on gross margins, where we continue to feel the impact from inflation co.
Nearly this isn't issue debt all of you have been hearing about from other companies that you cover.
For Scotts Miracle Gro, we've seen a steady increase in the commodities like urea diesel.
In resin that are easy for all of you to track yourselves.
Typically we would expect to see some relief in urea prices over the summer, but that's not happening as global demand has kept prices stubbornly elevated.
We're also now seeing pressure from inputs you can't track as easily such as grass seed is fagnant peat Moss.
<unk> has probably moved further than any of our commodities over the past year due to a supply and demand imbalance most of that seed is harvested in the Pacific northwest. So the harsh weather conditions out there the summer will likely impact plant yields and certainly aren't going to do anything to moderate the cost pressure.
In the third quarter. These issues led to an adjusted gross margin rate of 30.8% a decline of 530 basis points from a year ago I expect.
Another significant decline in the fourth quarter.
Which would likely result in a full year decline of approximately 275 basis points.
Through 9 months, the adjusted gross margin rate is 280 points lower than last year.
Year to date.
Higher distribution costs impacted the gross margin rate by 260 basis points and higher material costs put another 130 points of pressure on that rate.
Those pressures were partially offset by more than 100 basis points of fixed cost leverage.
However of the 390 points of downward rate pressure about 235 basis points were on plan.
And while a significant price increase has gone live this week and will help for the final 8 weeks of the year. There really have been few other offsets to those higher costs all year long.
As we look ahead to next year only about 25% of our costs are locked right now that's lower than normal for 2 reasons first it's been harder to lock in rates on some commodities, especially RASM and.
And second we've paused our hedging efforts for a few weeks with a hope of seeing some relief.
I'll reinforce Jim's point that our goal is to take enough pricing for fiscal 'twenty 2 to offset the commodity pressure.
The pricing that just took effect in the U S consumer was a little more than 5%, but if costs don't begin to moderate by the end of the counter year. Our plan is to take another round of pricing in January.
And we've already communicated that intent to our retail partners setting those issues. Aside we still expect to make additional supply chain investments and we will continue to see negative segment mix as Hawthorne will grow at a much higher rate than U S consumer.
So we're likely to see the overall rate decline again next year, though I can't give you a good range right now.
The team has done a great job over the past several months offsetting the margin pressure by staying focused on reductions in SG&A.
In June I said, we expected full year SG&A to be flat to slightly higher than 'twenty 'twenty. We've made some adjustments in the recent weeks and I now expect the number to be flat to slightly down there are a couple of items below the operating line I won't explain as well both of which are putting some downward pressure on EPS. The first.
As the impact of body plants. If you recall, we originally said Bonnie would add 12 to 15 cents to earnings this year by the time, we get to June they had begun seeing lower profits than we expected because they had built too much inventory.
So when we reset the guidance in early June our assumption was that Bonnie would have a neutral year over year impact on our adjusted EPS.
Since then we saw further erosion of their results, which is now leading to about a 20 cent headwind for the full year, while participation rates in edible gardening remained strong Bonnie planned for a higher level of growth may.
May and June came in light in part because of multiple challenging weekends due to weather, which Jim explained earlier that meant they wound up growing more plants than they needed a critical difference between that business and our other 2 major segments is the inability to carry finished goods inventory.
If we build too much fertilizer inventory, we carry into the next year no big deal.
If bonnie inventory doesn't sell and get stuck in a greenhouse it gets destroyed and theres no way to offset that cost so.
So the gross margin hit will flow straight to their bottom line and that obviously means the benefit we expected from equity income will be lower as.
As you think about your models for next year, it's important to remember that we've always expected Bonnie to be a year over year headwind in fiscal 'twenty..2 it has nothing to do with the state of the business remember our results. This year exclude bonnie's first quarter due to the timing of when we struck our 50.50 JV with them.
Fiscal 'twenty 2 will include body's first quarter, which as of last quarter.
The result of this year from Bonnie is frustrating, we remain absolutely committed to live goods, especially edible plants.
It remains critical to our strategy and we are working with the Bonnie team on improving the planning process to better navigate the NCS and volatility that naturally comes with this business there.
There could be another pressure point on EPS from higher interest expense.
We currently are contemplating another bond offering to lock in longer term bonds, probably with a 10 to 12 year maturity at.
At roughly 4%.
If we decided to execute on that plan over the next few weeks you could add a few more sense of headwind by the end of the year.
This will allow for flexibility on liquidity and lock in strong borrowing rates for the next decade bring.
Bringing things down to the bottom line GAAP earnings were $4 per share on the quarter and $9.90 year to date, an increase of 12% at 47% respectively on a non-GAAP adjusted basis, which is how we provide guidance EPS in the quarter improved 5% to $3.
And 98 cents per share and 39% to $10.04 per share year to date.
Before we open the call to your questions I want to build on a theme you heard from Jim We believed a year ago that we could come out of Covid, a better and stronger company and I share. His conviction that this is exactly what happened.
In the U S consumer business, we've made investments in traditional marketing direct to consumer sales supply chain and R&D that leave us exceptionally well positioned for the future.
And at Hawthorne, where I spent the previous 6 years.
We have built competitive advantages that continued to propel that business forward too.
In addition, our low debt leverage which was less than 2.2 times at the end of the quarter gives us an enormous amount of financial flexibility to continue funding acquisitions and infrastructure improvement while also returning cash to shareholders.
I'll admit to perhaps not being the most objective person on this call, but I'm convinced we have put our business in a tremendous place as we look to the future and if we've taken the right steps for the business that means we've taken the right steps for our shareholders with that let me conclude my remarks and open the call for your questions.
Thank you.
To ask a question please.
And 1 on your telephone keypad.
He is a speaker phone please make sure you're on mute function is turned off to allow your signal to reach our equipment.
Again press Star 1 to ask a question.
We will now take our first question from Jeff Zekauskas from J P. Morgan. Please go ahead.
Thanks very much.
A quick just said debt hi, good morning, I think you said you were raising your prices and your consumer business by 5%.
That doesn't sound like it's enough to offset raw material price inflation.
Is that true and when you try to raise from 5 you get 5.
This is Mike look buyer we ask.
We go in with a higher number so that this is a net across and so in some categories. We actually are higher than 5 so you got to look at the mix.
And it'll be a variety.
It's early on.
Yes.
It goes down but as we said.
Monitoring this with our retail partners.
It continues.
Continues to stay high and we're going to make another adjustment.
Jim Hagedorn here I think it's 1 of those things were.
I think we got to a really good place and not on the pressure.
From our retailers I think we got to a place of saying this thing right. If you look at the headlines like in the journal just this last week.
Investors I think was the headline on the front page.
I think commodities are coming down I don't think anybody knows.
I think the retailers are.
Trying to understand.
We're not unique.
You think our response to them.
Was fairly unique and saying look we'll do.
This now and if it eases we're good if it doesn't mean, he's we're taking more on January and that was 1 that I thought.
I think across the board the retailers thought was a very fair and.
Reasonable position to take so it depends on what happens with.
Commodity pressure if it goes if it comes down then the 5% should be enough. If it doesn't come down and then we will take more than the retailers are aware of that and agreeing to it.
I think we ended up on a really good place actually.
So how much urea are you now in terms of your urea like how much do you want to have bought by the end of the calendar year. So in other words, you've got to buy it all on the fourth quarter of the fourth calendar quarter to catch up.
We don't generally have it all in the fourth quarter. So it will be we like to be around 50% hedged.
We've chosen not to do that we expect that the prices generally softened.
We're monitoring that right now.
Okay great.
Okay. Thank you very much.
You bet.
Sure.
We will now take our next question from Peter Grom from UBS. Please go ahead.
Hey, good morning, everyone. So thank you so much from the commentary on fiscal 'twenty, 2 but I guess.
Yeah, historically when I go through what you said initially versus kind of what is ultimately ultimately played out your.
Comments have proven to be prudent so I just wanted to understand it is that is how investors should kind of look at your initial fiscal 'twenty 2 commentary today and then maybe building on that like within the U S. Consumer does that assume some sort of catch up from normal weather or is that just kind of the underlying trajectory.
Well Peter welcome aboard first of all.
The <unk> hanging on here.
Hi.
I think prudent prudent equivalent on sandbagging.
Yes, I think on Hawthorne, we were prudent.
<unk>.
Hello.
I think.
If I look back and say what was the biggest mistake sort of Ive made in recent history with.
Expectations.
You're saying I didn't think.
Harpoon neighbor heavy year less than 15% growth at least in the near future and then I got hammered in 18.
So.
I would say prudent is a good answer for for Hawthorne.
On the consumer side.
I'd go back to a little bit, which is this idea and I sort of set the expectations here on the management team.
If we can hang on sort of the call to 25% growth we had last year.
I'd be happy as Hell with that and then.
Basically try to hang onto our margins.
That's been more challenging this year.
So I feel actually really pretty good about where we are with the consumer.
We actually sold more units this year then.
Then even last year.
The margins have been a challenge.
No.
And we weren't pricing wasn't optional it was 1 of those things we sort of had to take.
So I don't really know what a normal year for the consumer is.
I do personally.
And this is where maybe I'm being optimistic.
If you take a look at sort of 2 things that I think drive the businesses, what's the current inventory level, which is higher at retail that is true.
The thing is we're not actually having discussions with retailers about margins being higher than last year I think everybody is so.
Paranoid about having inventory.
I don't think theres going to be a lot of pressure to sort of correct inventory I think people really want the shelves full again.
Going into next year, and I think that that should be helpful for us in Q4.
On call it the beginning of Q1 for us.
The weather.
I mean, it's like I think it's something that you're looking at.
Really good about the business as we went through like.
I don't know how many iterations, we did in the script, but something like 10 I think.
Where are we we were on this.
On.
Yes.
I think that's a really good story for Scotts and something about the stability of our business from the stickiness that the consumer has debt if.
If you look and say mother's day father's day.
Morial day.
Yeah.
The fourth of July they were all really challenging at least if you look sort of in Ohio, East, which is probably.
40, plus.
The percent of our business.
So I think the fact that we said probably a cost of 200 basis points of growth.
I think that there's something about the strength of the business day.
Because I normally say just look out the window. So I actually feel like normalized weather next year is a positive for us and I'm less concerned about inventory correction coming into the coming into next year.
I'm pretty optimistic on the consumer side.
For next year, and I think probably prudent.
The right answer for Hawthorne.
Does that makes sense.
That's incredibly helpful.
I guess, maybe just building on some of that commentary I guess.
The Q4 guidance for the U S consumer is a pretty wide range, but it does kind of imply a step up on a 2 year stack. So and maybe this is more of a core but I think where you mentioned back in June when you kind of range. This guidance that you were pleased were pleased with the results, but you didn't see much upside to that 7% to 9% figure.
Does that comment still hold true or do you feel like there could be upside given what has been on lease versus our expectations of stronger Q3.
Hey, it's Corey.
Yes.
The last time, we gave guidance the 79% that we had talked about at that point.
Realistic view of where we thought the year was going to come in.
Here today.
Our Q4.
Numbers look like they're going to.
Kind of be flattish to get to a full year back on that 7 to 9 range I don't see a ton of upside above that I don't see a ton of risk to those numbers I think thats, probably still a good range.
Okay. Thank you so much I'll pass it on.
We will now take our next question from Jon Andersen from William Blair. Please go ahead.
Good morning, everybody.
Hi, John.
Jim.
You mentioned you know.
Your preliminary commentary at least around 2022.
For U S consumer business should be slightly down.
Yeah.
Is.
Are you contemplating a.
A second price increase in that view.
Based on kind of where commodities sit today.
It might be the cash.
The magnitude of that price increase on that if you can just talk a little bit more about some of the.
Assumptions that you know the team is working with.
Around retention.
Of new consumers.
Some of the specific efforts that you're going to be making whether it be new products whether it be.
More direct marketing.
That you referred to on the transcript that will.
Just with that effort.
Alright.
What.
Okay.
In that question.
I'm going to start by.
Expressing a little bit of a lack of commitment.
The.
Part of what I got to do is Kerry on the water.
The operating team and.
In finance.
I got to say.
Mike is much different than me.
We made a real effort here not to sort of overcommit.
<unk>.
That's important to kind of how we manage.
I'm going to say the investment community is do not over promise.
I will say that.
You know.
Looking at it.
POS has been pretty good I would say.
Lee.
Other is definitely.
<unk> I think it's the biggest factor for us is whether and I think we've proven that we can hang onto those customers.
We've done that.
So I'm, probably more optimistic in my heart than the numbers.
We're talking.
You.
Yes.
As we look at the year and manage our budgeting, which is not complete yet.
I've been very clear with Mike debt.
And Mike and I very much aligned on this.
I can speak for himself which is that.
We looked at all of the years and I think we.
We've said this repeatedly on these calls.
Recently.
Given the channel so sort of more promotional dollars or more.
Immediate slash marketing dollars.
In the past, Mike Might've said I can.
Cut deals with retailers and bill promotion that way and that's where I'd like to go.
Randy back in his days.
We're bringing this company why are we like continue to be tight on marketing dollars.
Why is that occurring.
And.
What happened then in Covid is an opportunity to very much put money behind sort of are.
Direct efforts using a lot of social media with a whole new approach that.
We're doing with <unk>.
And I think we felt really good about that last year.
Mike you've now lever and I think came out of last year, saying.
I was wrong.
And so what I'm, saying to you in this sort of roundabout way is our commitment to our marketing efforts on our brand building efforts is high end.
It is not like a voluntary thing it is what makes us different we sell branded products.
So Mike Doolin on yes.
Yeah, I would say.
Yes.
I'm always more bullish, but I still and we were holding on to customers I think we're going to be more targeted on.
Localization and partnering with our retailers and using our marketing and the balance between promotional activity and.
Marketing will we be even stronger next year.
We're seeing that even here in August August right now it looks like we're starting off on like 7 or 8% or 35.
Consumer is still there.
And I think balancing that with weather and targeted marketing I'm bullish on pls activity for next year, I think shipments as a matter of timing catch up.
From we were so far behind that we're in a better position on balancing shipment activity. So I don't most disconnect shipments from.
But the consumer.
Consumer is still there and there is still alive and there is some upside to that and so I think youll hear that from some of our retailers.
Alright.
Okay, Mike how would you handicap the need for another around up round of pricing in January.
Are you willing to Andy kept that at this point.
Yes, yes, yes.
I think every day is a new.
I'm worried about rather than supply and I'm not seeing the cost relief. So I'd say, it's profit congrats Keith grass seed harvest has been bad and there's actually a shortage.
It would be a shortage on grass seed.
So John we asked that question.
Our sales force.
Before the call.
And.
I don't I think the way, it's looking now it feels like its near certain but there is.
There was months between here and there and.
I think we've been surprised by the pressure and.
The good news is retailers are aware.
It wasn't a compromise this was a sensitive plan.
All with the retailers, where we said can we to step it and can we sort of.
From time and to see relief on commodities, which I continue to believe in the long term are.
Temporary.
Ed.
I don't know I think probably the fed believes that too.
But we will see but I would say from my cash to sort of if you were in the room before this call I think we would have said it's near certain based on what we know now.
Okay. Thanks, Thanks very much.
Got it.
We will now take our next question from Joe on Palo from Raymond James. Please go ahead.
Thanks, Hey, guys good morning.
I'll follow up on John's question.
We ended up doing another let's say, 5% price increase in January on top of the 5% you just took what do your internal models tell you in terms of the potential impact on volume because.
I think historically the risk has been that consumers don't necessarily trade down they trade out of the category if pricing gets too high so how much of a risk is that Oh is that if pricing next year ends up being double digits.
Uh huh.
No.
Okay.
<unk> bin.
Now I've spoken I think.
I think this inflationary pressure is bad for the American economy period and.
I think the.
If you look at sort of when things get crappy out there.
I think we are for less.
And that kind of environment.
If you look at during the housing crisis, and I'm not predicting a housing crisis here, what I'm, saying is during that period, which we all remember.
Some people will call on like the Great Depression.
No.
If you looked at the projects people did at home they were doing.
Lawn and garden projects and kind of painting projects and I think it's a very sticky category. We have a lot more customers than we had for I think the housing market is great.
But do I think everything.
Everything that people buy every day.
Going up like our stuff and you know true from my point of view.
It's like what do you look at this not seeing it.
I am sensitive to the fact that.
I don't understand why some people are pricing the way they are meaning commodities.
They're doing it because they can and I think it's to some extent irresponsible we're trying to be responsible on how we price I don't know what's going to change anything.
But I.
You know what do I think I think it's bad for America and.
I think we're probably not completely immune from that meeting if prices go up double digits.
Do I think demand could be impacted I think lesson on other people, but I think the answer is probably yes.
And I think that's an honest answer.
I'm not sure what else you can say well I mean.
What do you think.
Uh huh.
It depends a lot of things obviously subcategory.
Subcategories, you know, we're seeing some pretty strong price increases and the consumer is handling it pretty well on others not so much. So I think historically your category and you would do a lot better than I would it seems like you where demand is pretty inelastic.
I would think the impact on volume would be fairly negligible.
Yes, I mean, the only thing I would say is that we sort of talked about this year.
Okay.
What we really got into it which is what is happening with retail promotion, Mike and I spent a lot of time on this.
You know in our <unk>.
You got to remember that pricing last year was up to the consumer double digit because zero promotion. Okay. Today, I think you see probably promotion levels, they've kind of 50% on what you saw I think thats kind of Mike and my best guess.
Which is it didnt stay the way it was during COVID-19.
We talk about.
Particularly in sort of soils and mulch.
It's very promotional.
We think it went back to about half of that so I think that basically pricing is probably down to the consumer.
5.8 points.
This year, so that some of that is going to get muted, but you can look at what happened last year and I know, there's a lot of complicating factors because people are at home and they have nothing else to do but they were very tolerant of I don't know I think the math, we did it looks like a lot of 11% or something like that was actually what it consumers paid more.
Then they had the year before across the entire loans.
No.
Okay got it thank you guys.
Sure.
Well now take our next question from Andrew cash or from Stifel. Please go ahead.
Hey, Thanks, Good morning, I wanted to ask about Hawthorne business from kind of the margin profile trailing 12 months, it's 12% 100 basis points over last year same time your 2 ex the sales of your original expectations given all the investments you highlighted so I guess my question is you talked about the sales growth, but could you lean on that business in the subsequent years for grading.
Earnings power, perhaps go beyond your 100 basis points of margin exploring expansion kind of expectations you've laid out.
Corey you'll take this yes I'll take that.
As you look at the.
Earnings rates up to half of our business makes.
Made a conscious effort to kind of increase debt by 100 basis points a year. So we can balance the growth we wanted to have in that business with the investment.
We wanted to put into the into the category.
We've stated that 100 basis points.
I think you can look at that business is going.
Higher from a margin rate perspective, it would be a trade off in growth, we have a lot of competitor from space.
A lot of different competitors with different pricing models. So we are up against that on a on a regular basis.
Certainly the long term view on Hawthorne just to get us through earnings raise debt.
We're comfortable with that we continue to increase.
On the short term, we continue to want to look at the growth we're putting on that business. We've had multiple quarters at over 50%. We want to continue that pace for investing in our distribution centers to allow that pace of growth.
To continue but there was a thought that we want to continue.
Wrapping up the earnings rate.
We'll weigh those 2 things obviously go into next year.
Thanks, and then switching gears a little bit just kind of confused on the guidance about Bonnie you're now expecting a 20 cent headwind for the year 10 to 15, originally if I heard correctly, you had expected a headwind for FY 'twenty 2 there's a lot of moving parts here, but could.
Could we expect any kind of leaf for Bonnie is year over year in FY 'twenty, 2 or is that just going to be kind of neutral as you're thinking about next year. Thanks.
If you go into 'twenty, 2.1 call out for 'twenty, 2 will be that because of the timing of when we entered into the JV. Our Q1 is going to be a headwind.
Yes, I agree with you on.
Your line business, which is a headwind to us due to the timing of when we entered that JV.
But the other life business.
If we look at the.
<unk>.
Sales growth that we're expecting that business to have.
Yes.
Balancing act between what we think if we want the business to grow and what we want to push that business to grow.
<unk> different from the body business as I said in my script is that if you.
There will be inventory and it doesn't sell it as a bad guy that drops to the bottom line is you write that inventory off so we need to have measured growth in body, we need to build the inventory to achieve that measured growth and be willing to give up a little bit on volume.
To make sure that we ended the year in the right spot from a from an inventory perspective, and we don't have issues that we have to eliminate.
If we plan.
Appropriately on Bonnie I'm going to give.
We can.
T from increase in the earnings we want to make sure that we're fighting appropriately then executing.
Yeah, and I wanted to give them a little bit of.
Cover.
You know I think.
Coming out of.
Co.
Covid and the sort of need to build product, including live product.
I think we pushed pretty hard to be prepared for the year and I think you have to go back sort of.
Into last year and.
Sort of.
For full year of Covid, and say, you know who knew what was going to happen.
Retailers, we're super optimistic we were super optimistic.
We have been.
Investing a lot of money behind building capacity for the Scotts business.
You know if you say.
It's an important point is the.
We picked up 25% of volume and Covid and you know I think.
We're calling it like a decade's worth of growth.
We were pretty tight on capacity.
Before Covid hit.
Well balance that where you wanted to put it.
And you know, we were where we want to be in.
And.
We've taken a look and said you know we need to build some flex capacity in EBIT if growth rates to come back to sort of more normal and we hang on to most if not all of the customers we picked up that.
Kind of what we're doing when we look at Bonnie.
We did encourage production.
And.
I think there is more sensitive to sort of the weather I think really.
We are.
But I think if you look at the cost of inventory and I, just will probably make people on comfortable here.
Is.
What do we think the earnings would have been if they hadn't had the eat.
That inventory Mike.
And do we if the business does not sort of make that are going into.
Next year, what's the benefit of that 2 things there 1 we bet on a 10% growth. So we made $11 million of investments on top of what we made the previous year.
Net trade wise.
Historically is around 40%.
Last year, we probably were around 30, because we sold just about every unit. We made so you got on let's start with the business at a 40 shrank.
On hitting the volume and the investments.
This fall we could've made another.
12 or $13 million.
And so.
And that's what we're going to be a little bit smarter on so.
I don't apologize for being aggressive on the.
The weighted and if that on it and I think it's a great business.
But I think we're a little bit smarter on how hard we push so it would be like a little bit like the bread business.
First on wireless.
Experiencing food.
I think we were a little bullish on their activity. So we'll make that adjustment and I think that business.
And we will continue to work on shrink and we're learning a lot about that business as far as what the consumer needs in retail so.
So I think what we're saying is should be a net positive just because to some extent.
We build we build numbers based on our view of what's have inventory on hand.
And you know I think in retrospect, what Mike is saying as you know when you have something that.
That day.
States out.
We probably need to be a little more careful but I think coming out of you know there was a bit of aggression coming out of Covid and I don't I don't think that was wrong I think like Mike said, I'm not going to apologize for sort of running the business on.
But I would say that.
You know call it $10 million to $15 million benefit from when I do that we won't do that again now we all know that again I mean I would tell you in March we were actually beating the 10% from land. So this is Hal.
This 1 is you've really got to stay on it week by week much.
Much more so than EBITDAR.
Consumer business.
Yeah.
Thanks, I'll pass it on.
We will now take our next question from William Reuter from Bank of America. Please go ahead.
Good morning.
Just got a quick 1 on capital allocation you mentioned the potential bond deal I guess, what type of scale or size or are you thinking there and then in terms of use of proceeds you mentioned returning cash to shareholders versus M&A. I guess, you know maybe anything about the size of that M&A and if the 3 and a half.
Total leverage target kind of still remains in the context of all of this I know, there's a bunch of questions there sorry.
Yeah, I don't think it's a.
Choice of M&A I think it was a special dividend debt you know I think we have.
Always lead with shareholder friendly.
I think our bias for a lot of the times, we've been talking about that which is probably the last 5 plus years has been.
Reduce the share count.
<unk>.
I think.
At the prices, we saw you know over the last year, we basically said well just special it out it seems like a reasonable approach.
I think at these prices.
The decision, we made as far as shareholder friendly as we would do that.
Share repurchase.
And that's.
That choice.
On the M&A side, you know, we it's a very rich environment.
I think the.
But notionally I would say that 3 and a half.
Target is still a good range for us.
We do believe at least I believe and I think Cory does and our advisers and board.
Net.
If you could lock rates in.
You know call it 4.
For the next decade that would be a reasonable debt.
So.
We've we've made a decision to do that.
I don't know I think that's.
Pretty much it.
I think that.
Where.
We're very busy on evaluating.
<unk> opportunities at the moment, it's you.
You know.
I don't I wouldn't call. It a scary time I would say, it's an extremely exciting time.
And sort of Hawthorne.
And sort of other initiatives related to sort of adjacencies to Hawthorne on.
I think we spoke about sort of more words to follow on that.
And even on the core business.
There is opportunities, but I think the bottom line is yeah, we're comfortable with sort of the leverage we've talked about in the past we think that.
Interest rates are an opportunity right now if you compare it to what I think a lot of people think the future holds.
I think that's pretty much it and then the choice of.
And regarding shareholder friendly or our our view is that we'd rather buy shares back at this price then we would.
Just send money out the door, that's that's kind of where we're at yes.
Hey, there on why we didn't cover was the size.
About 400 day.
Perfect. That's all I needed. Thank you.
Okay.
Moving now take our last question from Eric <unk> from Cleveland Research. Please go ahead.
Good morning.
Hey, Dude.
2 are 2 things first of all.
You commented a little bit I'd love to expand on.
Your thoughts on inventory at retail and also your own inventories are.
Notably high coming out of this quarter.
I characterize them, notably high but how do you think about retail inventories at your own inventories on your on balance sheet at this point.
Well I think about them as people want to have supply.
Number 1.
So I would say.
There is a shortage on RASM I think retailers don't want to be out we don't want to be out.
So there was a little bit of that I also would say that we are holding on to those consumers didn't actually retail inventory is going to be higher to support that business. So and then the third thing is we were way behind last year.
Part of that is also catching up so and I wouldn't even say that we are fully caught up certain categories and I was at a retailer event.
On Monday, and they basically said.
You're 1 of the few that kept up.
So they actually gave us a complement and I would probably be harder on us.
So.
So when I look at that I think I think they're it's safe to the.
Continue on global supply issue that's out there that there's not enough inventory in stores across the board when you look at it holistically.
And the concern about getting keeping supply so I'm not really you know I'm not sure exactly what mikes.
Build plan as you know through the.
The fall and winter, we're probably slightly I think Mike's operating plan was higher than that.
The business is turning out I don't view that as a bad thing. If you say you know unit volume of what we said 79%.
So.
Nothing to be ashamed of their I think Michael is building to a higher.
Plan. So I don't know what is the oldest going on like and I think retail inventories.
Embedded in kind of our numbers here.
I think was.
Our concern, particularly in kind of a planners and finance debt retail inventory levels are higher than.
I'd say, we wanted to see them.
The thing is the more we talk to retailers the more we look at the environment out there the more Eric the more paranoia I think there is a not being out of stock. So we're is not under any pressure on the inventory side from retailers, even though their retail inventories are higher.
They are more concerned with.
Being ready to go for next season, and not have outages because you know the era of Covid was.
You know, it's it's it's burned into People's brains and not the end.
There's just there's a lot of shortages I mean, you know when part of the ability to sort of not hedge.
Is when you have supplier to call up and say look I'm doing this as a courtesy to you. This is what the price is tell me how much you want.
And.
I'm just going down the list if you don't want to pay this price then I'm just moving down the list and there will there will be no.
Product free.
That that's what the environment looks like its pretty crappy.
So the ability to hedge in a market where people are saying this is how much I got you want it yes or no.
We're we're sort of buy in that environment youre not hearing a lot of people including us.
You know kind of Whinging about inventory levels I think everybody just wants to.
To get through this period and there's people that actually you talk to you about pre buy on your capacity.
Taylor's retailers, so that's the environment that.
They're in.
And so right.
Right now you know I would tie it really a little bit with commodities.
Total global supply chain to get fixed.
It's kind of a unknown world out there for retail or is that for us and so we're trying to balance that to stay in stock.
And supply and keep it out.
Keep their stores, but are you feeling too fat right now on your inventory actually a little bit nervous after it.
Conversations on that with retailers this week.
Good luck.
What's left on them on Monday so.
Right.
So related to this you talked in June about stepping up capex, adding capacity.
And obviously, there's a lot going on in the business right now and a lot of it quite good but.
Your appetite and plans for adding capacity in the consumer side of the business.
With.
You know where you are on inventory, where you are for growth expectations next year, just remind us of.
Or what the plan is in terms of adding consumer capacity.
We're adding more growing media capacity.
And then we're looking at.
You know our capacity on liquids.
<unk>.
Fertilizer. So that we don't have we can be more spontaneous but I would tell you our inventories are leaning more on the raw material side of making sure that I have bottles caps.
Stag compete.
The convert so I have more outages from on the manufacturing side from not having components.
I did from our actual capacity so.
That's a balance that we're going through Red Oak I think that you know look or.
Lessons learned coming out of Covid.
And I'd say, they're not disapproved.
On.
Yeah.
Which is that.
We were I would say pretty optimal for kind of zero to 2% growth for our manufacturing footprint.
You pick up 25%.
And then you add to it this year.
I think you look at it you say that thoughts on huh.
And this is not because we're saying Oh, we're crazy we have to build all kinds of capacity and then you know.
Normal consumer behavior, let's just say, you'll lose that EBIT, but if you go back to a more normal kind of mid single to low single digit growth rates.
We just can't operate in a world where everything is beyond capacity.
No.
This is let's just go back on a people issue.
You know I would say our employee base is pretty PTSD it out.
You know it is not helpful to be honest I will make a pitch for.
People should be vaccinated.
But a lot of our Midwestern facilities have below national average vaccination rates and so we're basically back to.
Protective gear.
You know pretty reasonable infection rates again, and so it's like nothing.
Just it's a really and so we can operate our plants that hard and we can operate our people that hard and so we.
We do have debt I think responsibly add some capacity and you know I would say you.
I put a lot of pressure on Mike and I'm going to say that people that deal with capital allocation to say.
We don't have to go Crazy here, where do we really have to put the money and it's not a huge amount I think were I don't know notionally, what capex has gone from.
Before so now it's about 2 ex but I think it's like <unk>.
75 to $1.50, or something like that it's not I can't tell them money, but it's absolutely critical.
To where the business is today.
And then if I could ask just 1 more the promotion you're laughing because I always go on all day, if you want.
I don't know I could take you up on that if the promotional spend you characterized it the retailers went halfway back to.
Normal and the retailers and you would both say it it's an easier category. If there's not these promotions I do think the consumer probably has a different opinion I think consumers like promotions they'd like a deal.
Where do you think it goes in 'twenty, 2 and how does that impact you in terms of your participation on that.
Well, it's it's it's up from the retailers partnered up so I think you can.
Everybody's got a budget for that and we did I think Mike pretty much said it.
1 is you know I I am a believer and I think every 1 of our large retailers is.
You know.
Some of our general merchandise people were just everyday low price people so that it's.
Not a big issue there is the home center crowd.
But this.
This is a major source of debate.
On everybody.
This 50.50 World is right I think if you look at it this.
This is my view continues to be my view, it's more informed or rather than lessened formed surf on.
Is that the majority of Black Friday events are inefficient too expensive and too early in the season and to likely to have whether Mrs.
You know when it's you know sort of April.
And my view of the Miss rate on that is like 80%, okay ill call it more than 50%.
And that's that's expensive and wasteful.
And I think the retailers absolutely based on the experience we've had the last 2 years agree with that number.
Nobody wants to go back to the way it was before.
On the other hand.
Some of those retailers.
Were more promotional than others.
<unk>.
This year.
And I think gained share. So you know this idea that you say that consumers like it I think that's proven true this idea of targeted and weather dependent.
It's not an issue of whether youre in a promote mulch or soils you know.
Through the year, you're going to.
The question is do you have to do it on a certain day that you design 6 to 8 months in advance early in the season, where you just likely to end up with weather issues. I think the answer is that's a terrible idea and but.
I think if you say I'm not going to do it at all.
I think youre going on here and I think because consumers do want that and it is an exciting category to shop, that's a once a year and a lot of energy created in part by us.
And in part by the retailer so.
What do I think I think 50.50 is a righteous number.
I think that on the highly promotional categories.
They tend to be early season.
There is 100% certainty that consumers do respond to this.
And then it tends to bring consumers into the store and once the consumer comes into the store they buy other things.
And they tend to be more loyal throughout the year.
Therefore, I think that there is risk to say, it's it's unnecessary or that everyday low pricing.
Is.
Yeah.
I, you know I like sort of a bizarre nature of it and I think.
Pet fair or probably was the best free you know I I Dunno merchandiser.
Sure Merchandiser in history, and I think believes that promotion does matter and so I agree with you.
I think 50.50, but much more targeted.
And it doesn't matter and Mike anything you'd add though I would say, it's probably similar to this year, which on them.
We're targeting.
In certain areas, where there was some weaknesses in the promotion so but I wouldn't say go went back to pre Covid days.
I'm, not saying that from any retailer.
So, but if you got 10 discounts on Black Friday, you may only have 3.
That's the type of thing.
It's more specific to bring the consumers and then convert.
Using the marketing can be localized.
That's what we're seeing.
Okay. That's helpful perspective, thank you.
Yeah.
That concludes today's question answer session I would now like to turn the conference back to Mr. King for any additional or closing remarks.
Thank you Tracy and thanks, everybody for joining today again as a reminder, Corey and I will be at the Raymond James event on September 14th.
I'll provide an update on just kind of general business trends on strategy then.
In the meantime, any questions or follow ups from this call feel free to call me directly I'll be at 90.375785622. Thanks for joining US everybody. We'll talk to you again in early November.
This concludes today's call. Thank you for your participation you may now disconnect.
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