Q3 2023 Central Garden & Pet Company Earnings Call
[music].
Ladies and gentlemen, thank you for standing by welcome to the Central Garden, and Pet third quarter fiscal 'twenty twenty-three earnings call My.
My name is Doug and I will be conference operator for today.
At this time all participants are in a listen only mode.
Later, we will conduct a question and answer session instead.
Instructions will be given at that time.
If anyone should require assistance during the call. Please press star zero on your Touchtone phone.
As a reminder, this conference call is being recorded.
I would now like to turn the call over to Frederique Edelman.
Vice President Investor Relations. Please go ahead. Thank you. Good afternoon, everyone. Thank you for joining US with me on the call today are Tim Cofer, Chief Executive Officer, Nikola Hannah Chief Financial Officer, J D Walker, President Garden, consumer products, and John Hanson, President Pet consumer products.
As usual, Tim will provide a business update and Nico will discuss the results for our third quarter ended June 24, 2023 in more detail. After the prepared remarks, J D and John will join us for the Q&A, Our press release and related materials are available at IR Dot Center.
<unk> Dot com and contains the GAAP to non-GAAP reconciliation for the non-GAAP measures discussed on this call.
Lastly, unless otherwise stated all gross comparisons made during this call are against the same period in the prior year.
Before I turn the call over to Tim I would like to remind you that statements made during this call, which are not historical facts, including earnings per share and other guidance for fiscal 'twenty three expectations for new capital investments product launches and future acquisitions.
Forward looking statements subject to risks and uncertainties that could cause actual results to differ materially from those implied by forward looking statements.
These risks and others are described in Central's filings with the Securities and Exchange Commission, including our annual report on Form 10-K filed on November 22, 2022 Central undertakes no obligation to publicly update these forward looking statements to reflect new information subsequent events or otherwise.
Now I will turn the call over to our CEO , Tim Cofer Tim.
Thank you Frederica and good afternoon, everyone.
As we exit our fiscal third quarter, where in a fundamentally improved position versus last quarter.
Our main focus all year long has been on cost and cash and the strength of our third quarter performance underscores the good progress our team has made in these areas.
We're pleased with our record results and the momentum we're building on our multi year cost and simplicity program.
With that let me start the call with three key messages.
First our quarterly performance.
Thanks to our financial discipline and the strong execution by team Central we delivered record operating income and earnings per share in Q3.
While expanding gross margin growing market share and significantly improving our cash position.
I want to thank our 7000 associates for their hard work driving this record performance.
Our garden business, which had a challenging start to the season earlier in the year improved in the third quarter with top line growth gross margin expansion and continued market share gains the.
The strong garden performance, coupled with the ongoing strength in pet driven by our consumables brands and our short term actions to cut controllable costs are the key drivers of our third quarter results.
Specifically, our net sales grew 1%.
Our non-GAAP gross margin improved by 160 basis points.
And non-GAAP operating income increased by 20% to $137 million translating into a non-GAAP earnings per share of $1 75.
Our operating income and EPS for the quarter are both all time highs.
On a GAAP and non-GAAP basis.
And importantly, our focus to turn inventory into cash is starting to pay off as demonstrated by more than $300 million of cash on our balance sheet at quarter end.
The second key message relates to the progress, we're making on our cost and simplicity program.
As we've shared on prior calls we've embarked on a journey to simplify our business and improve our efficiency across the organization by rationalizing our footprint streamlining our portfolio and improving our cost structure.
Today, we will update you on the successful closure of our private label Pet bed facility, we announced last quarter.
In addition, we will share details about another important project supporting our cost and simplicity program.
We just announced the sale of our independent Garden Center distribution business.
This sale significantly simplifies our garden business and improves margins, while we continue to serve our top three garden retail partners and select other national accounts.
We're building a pipeline of projects to reduce costs and simplify our business focused on a number of key areas, including procurement logistics manufacturing portfolio optimization and administrative costs and we will share more about our plans for fiscal 'twenty four and our <unk>.
November earnings call.
And finally, our guidance for the balance of the year.
When we updated the market in May we took a prudent approach to guidance given the poor start to the garden season, driven by weather and retailer inventory dynamics.
We were cautiously optimistic that garden could improve in Q3 and indeed, our teams delivered.
While favorable weather was hit and Miss during the last few months, we navigated the quarter well across both segments.
Taking a record Q3 performance into account coupled with the early visibility we have into the fourth quarter, we're raising our fiscal year non-GAAP EPS guidance to $2 55 or better.
This implies delivering modest Q4, EPS and what is typically a small quarter, albeit this year benefiting from the 50 <unk> week.
Now, let's look at the quarter from a segment perspective, starting with pet.
Overall, we're pleased with our gross margin operating income and market share performance.
<unk> continued to grow in our pet consumables business across all categories, including dog and Cat bird small animal and equine.
Offsetting the mid single digit increase in pet consumables, we saw ongoing downward pressure on pet durables with declines versus prior years in the teens.
This aligns with the softness the overall industry has experienced in enclosures and other durable supplies driven by the slowdown in pet ownership affecting most species after the COVID-19 spike.
Thanks to our continued work over the last couple of years to build capabilities around consumer insights brand marketing innovation and category management, we took market share in many of our key categories, including dog toys, and treats bird small animal and equine.
E Commerce remains the growth driver for the category at the expense of pet specialty.
Our efforts to lean into online and digital are paying off as demonstrated by a double digit increase of our E Commerce sales, which now represent 25% of total pet sales.
And given our investments in digital marketing excellence and the talent of our E. Commerce teams. We once again grew online market share broadly across many of our categories, including dog treats and toys equine flea and tick small animal and bird.
Our pet brands continued to strengthen with our brands outperforming private label driving positive mix shift in our portfolio to generally higher margin branded products.
Pet ownership data suggests that while total pet ownership is down slightly versus the Covid peak in 2020 pet parents are more engaged than ever in their pets' lives.
Pet parents stated that spending on their pets is the least likely of all spend categories to be reduced over the next 12 months.
Underscoring the resilience of the category, even in a recessionary environment.
All of these dynamics contributed to Pos growth in the low single digits and helped to normalize the inventory dynamics across our pet retail partners.
Moving now to our garden segment.
Following a challenging start to the season, we're pleased with the achievements of our garden business in the third quarter growing versus prior year on all key financial metrics, including net sales gross margin and operating income.
We also continued to grow market share in wild bird and held share in grass seed and the overall garden category.
Our teams executed well and we saw strong performance, particularly in May and early June when the weather was more favorable.
Live goods packet seeds and wild bird were the primary drivers for the sales growth.
Retailers continue to reduce their inventory and are shifting to just in time replenishment as demonstrated by stronger Pos than net sales.
In addition, certain retail partners decreased their lawn and garden off shelf display activity for the season.
Foot traffic across home centers and mass channel remains below prior year, although improving over Q2.
Garden e-commerce sales are growing faster than brick and mortar as consumers shift more and more of their purchasing to online.
While still small our e-commerce business increased more than 20% and now represents over 5% of total garden sales. Thanks to strong improvement in our retail media efforts expanded assortment, winning content and enhanced ship to home options across our.
Top three customers.
Turning now to our cost and simplicity program.
Let me briefly recap.
We're on a multiyear journey to reduce cost and simplify how we operate.
We have a meaningful opportunity to better leverage the scale of our business.
We're building a pipeline of projects across a number of key areas, including procurement manufacturing logistics portfolio optimization and administrative costs.
We expect to reduce complexity, which means fewer skus and fewer facilities.
We seek to lower cost of goods sold through lower logistics costs and better procurement.
Lower administrative costs by leveraging our scale and we plan to shift more of our focus to our branded pet and garden consumer products.
We believe the result of these efforts will drive higher margins and generate more fuel to invest in organic growth and advantageous M&A supporting our long term financial algorithm.
In our Q2 call we shared the first project of our cost and simplicity journey.
Closure of our manufacturing and distribution facility in Athens, Texas.
Our teams executed on plan and on budget.
The Athens production facility is now closed the warehouse is empty and has been returned to the landlord.
Pet bed manufacturing has ramped up and we're now shipping all customers from our Arden facilities.
The entire team has done an amazing job managing the elements of this transition.
We expect this project to deliver a cash on cash payback in less than two years and drive a step up in operating income for our more streamlined pet bed business.
And as I mentioned earlier today, we're pleased to share yet. Another example of our cost and simplicity program in action.
Just yesterday, we closed the sale of our independent Garden Center distribution business to be FG supply, a leading national garden distributor specializing in the independent garden channel and regional chains.
The independent Garden centers channel is highly complex to serve.
With 4500, Skus 4400 customers and over 6000 stores. This channel represented less than 5% of our garden net sales and was dilutive to our garden operating income margin.
Going forward BFG will distribute our branded garden products to the independent Garden Center channel.
This partnership will allow both companies to focus on their core strengths.
While we are exiting the fragmented independent Garden Center channel, we will retain our third party distribution business with our largest three retail partners and select other national accounts.
This is an important step to meaningfully simplify our garden business as it enables us to accelerate our cost and simplicity program and optimize our customer service footprint.
As a consequence of this sale, we also intend to close our Portland, Oregon Garden distribution facility by the end of this calendar year.
We are extremely proud of the men and women, who have built and grown this business throughout the years and thankful for their many contributions and we're pleased that many of them will continue to service this channel as they transition to BFG.
This sale aligns to our strategy to be a more focused higher margin branded consumer products company and it's just one of many projects on our journey.
Now before I turn the call over to Nicole Let me say a few words about our outlook for the remainder of the year.
The fourth quarter is off to a good start and we expect our focus on cost and cash to continue to yield benefits.
This gives us confidence in delivering fiscal year, 2023, non-GAAP EPS of $2 and 55 or better.
So to summarize we remain confident in the competitive strength of central and our central the home strategy.
Our record Q3 results underscore our team's ability to execute and navigate in challenging times and we remain bullish on the fundamental trends that support long term pet and garden industry growth.
And with that let me turn it over to Niko, who will share more details of our Q3 results Nico.
Thank you Tim Good afternoon, everyone building on Kims remarks, I'll share with you details of our record third quarter results for fiscal 'twenty three.
Net sales increased 1% to $1 $23 million with the largest contributions coming from dog and cat live goods and packet seats.
The cash on cash payback in less than two years and more importantly, a material step up and operating income contribution from our streamlined pet bed operations.
non-GAAP operating income increased by 20% or $23 million to a record $137 million in a non-GAAP operating margin increased by 220 basis points to 13.4% driven by our pricing actions productivity efforts and lower commercial spent.
Net interest expense of $13 million was $1 million below the prior year quarter non.
<unk> net income increased by $18 million to $94 million or non-GAAP earnings per share grew 36 cents to an all time high of $1.75 from 139 in the prior year quarter <unk>.
<unk> was one one dollar and 56 cents, an adjusted EBITDA increased to $166 million up from $141 million.
Our tax rate was $24, 4% compared to 23.7% in the prior year quarter, primarily due to a lower tax benefit from stock based compensation and a higher impact of non-deductible executive compensation versus a year ago.
Turning now to the segments starting with pet.
Pet segment sales of $503 million, where essentially in line with our prior year or.
Our dog and cat treat and toys as well as our wild bird businesses performed strong offsetting lower sales and or durable pet products across several categories.
Big fish tanks, small animal enclosures, and pet beds, as well as rather weather related softness and our outdoor cushions.
non-GAAP pet segment operating income increased 18% to $74 million <unk>.
non-GAAP pet operating margin expanded by 230 basis points to 14.7%, thanks to our pricing actions and cost management initiatives.
Pet segment, adjusted EBITDA was $84 million compared to $72 million a year ago.
Now, let's switch to garden.
Our garden segment had a great third quarter with sales growing 2% to $520 million driven by our live plants packet seed and wild bird businesses, offsetting lower sales and distribution and grass seed.
Garden segment operating income increased 17% to $88 million and garden segment operating margin expanded by 210 basis points to 16.9%.
Driven by improve pricing favorable product mix and our focus on cost.
Gardens segment, adjusted EBITDA grew to $99 million from $85 million a year ago.
Now moving to the balance sheet and cash flows <unk>.
Cash and cash equivalents at the end of the third quarter increased by $137 million to $333 million.
Thanks to our financial discipline, and our focus on turning inventory to cash net cash provided by operations was 325 million for the quarter compared to $190 million a year ago. This is a record for central for pet and total company. Our inventory is down while for garden. It is up in dollar value and <unk>.
And units.
Additionally, the spread versus prior year has narrowed significantly so we're clearly trending in the right direction.
Capex was 11 million for the quarter, 54% below prior year. This.
This quarter, we invested in automation and expansion of our life plants dog and cat small animal in our outdoor cushion businesses.
Total debt of 1.2 billion was in line with the prior year, our gross leverage ratio was three one times at the end of the quarter compared to 2.9 times, a year ago, well within our target range of three to three and a half times we.
We had no borrowings under a credit facility at the end of the third quarter.
Depreciation and amortization for the quarter was $22 million compared to $20 million in the prior year quarter, primarily driven by higher depreciation due to our recent investments and capacity expansion across our businesses.
During the quarter, we repurchased approximately 466000 shares or $16.7 million of our stock and.
And finally, turning to our fiscal twenty-three outlook as we've previously said this fiscal we've tightened our belts and as we've demonstrated this quarter. Our teams are working hard on converting inventory into cash.
In addition, we are advancing are cost and simplicity program to simplify our business and improve our efficiency across the organization to drive higher margins and generate more fuel to invest in both organic growth and M&A and a support our long term algorithm.
And as Tim said, we will share more details on our queue for earnings call in November .
We are now planning for Capex in the range of $60 million to $70 million much less than the prior year, the majority of which is carryover and required maintenance.
Thanks to our strong financial position with more than $330 million of cash on our balance sheet at quarter end and an unused 750 million dollar credit facility. We remain on the lookout for great growth and margin accretive companies and both Patting garden.
We expect the tax rate of approximately 24% for the year.
Given our queue three record performance and early visibility we have in the fourth quarter, we are raising our outlook and now expect non-GAAP EPS for the year to be $2 55 or better.
This implies delivering modest EPS in the fourth quarter.
Our guidance reflects our belief in the competitive strength of central and the longterm trend supporting growth in the patent Garden industries.
Fiscal 2023 will have 53 weeks compared to 52 weeks in fiscal 2022.
As always this outlook excludes any impact from potential acquisitions divestitures or restructuring activities undertaken during the year.
And with that we would like to open the lines for questions.
Thank you ladies and gentlemen at this time, we will be conducting a question and answer session.
If you'd like to ask you a question you May press star one on your telephone keypad.
A confirmation tunnel indicate your line is in the question queue you.
You May press Star too if you would like to remove your question from the Q4.
Four participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
One moment, while we poll for questions.
Our first question comes from the line of Bill Chapel with true Securities. Please proceed with your question.
Thanks, Good afternoon.
A bill pay bill.
He just wanted to zero in a little bit on the.
The exit of part of the distribution business maybe.
And I just.
I assume it will happen at fiscal year in and so it's not in this year's numbers.
Any kind of idea I guess I'm trying to understand how it works of still distributing for three large retailers, but but I guess that a different warehouses to the other ones and then.
You look to do anything like this on the pet side going forward.
A village J D. Thanks for the question the the distribution business that where you are exiting as the distribution business to the independent Garden Center channel, which first of all it's a big move for US. This is a business that we've been in since the since central was founded in 1980. So it was Ah.
It's a business that we know well as near near to our heart, but I think this is us acknowledging that it's far too complex and this will allow us to focus on our core competencies. The independent garden channel that we're talking about here. This is your nurseries garden centres across the country 6000 stores altogether.
Another 4000, roughly 4000 customers 4500.
Skews altogether, and just a complex business and represents.
5% less than 5% of the overall garden business.
We will continue to distribute to the big three is Tim said in his script and some other select national accounts.
The SKU count to those larger customers is actually much smaller and the volume is much higher.
We will continue district to distribute out of those same distribution centers. We mentioned in the script also that we are exiting one of our distribution centers will continue to distribute for the big three out of the existing.
Distribution centers.
So that will change.
The sale is effective immediately so we saw that.
That deal this week and we will be in that transitional services agreement with the acquiring company for the next several months until they start to service and fulfill from their own distribution centers.
And Bill this is Tim or build on everything J D said.
Look I think this is first of all a real win win deal for both central and for BFG BFG is a great.
Partner and distributor and they've been in this space a long time really this is about playing to each company's strengths and that's what BFG is that they are.
Distributor a full line distributor, that's what they do and they do it well for US. This obviously represents bill another important step in our cost and simplicity program towards simplifying our company.
Towards shifting our portfolio to a higher margin branded consumer products.
It's also an accelerant for our supply chain in network optimization program and as you heard me say in the prepared remarks, one of the immediate consequences as we will close another facility.
In Portland, Oregon, So it's a nice move for US that is also a nice move for BFG. Obviously, so we're quite pleased with that and I think a strong indication of our seriousness in our commitment to continue to evolve this portfolio in favor of.
Our strengths, which is <unk>.
Consumer products are great brands and great margins with regard to the second half of your question in terms of any read across per pet our pet distribution business is very different than the portion of garden that we sold.
It's a larger business.
More profitable business and the business, we sold and as we sit today with that business. We continue to be happy with it at the same time Bill we're going to continue to kick the tires on our portfolio.
Looking for opportunities for optimization in line with our long term strategy to to build value.
Got it and then just.
One more on garden.
I think it will.
Ah No Scott said this morning that they felt like.
Oh S or the category was up kind of mid single digits for the year and they also talked about.
Weakness.
<unk> I just wanted to see kind of compare notes of what you're seeing in it maybe it seemed it seemed like your grass seed business Gainshare and so maybe that was just the opposite but any kind of color around that would be great.
Sure J D again here build your right grassy gainshare for the first half of the year in in Q3, we held share so overall for.
Fiscal year 2003, we took share in the category.
In terms of overall pass we're in the same range mid single digits for the full year.
Great. Thank you.
Our next question comes from the line of Brad Thomas with Keybanc Capital markets. Please proceed with your question.
Hi, good afternoon, and nice nice quarter here Uhm. My first question was just gonna be around around the gross margin is.
As I go back in our model and look at the past decade.
Third quarter gross margin here really really coming in it at one of the strongest levels.
And history, and so hoping you could just add a little bit more context too.
Where pricing is today versus how much of this is mixed versus some of the the productivity initiatives that you have in place and how you were thinking about gross margin going forward.
Yeah, Brad So the majority of it was was pricing units continue to still be down.
But again, our cost savings initiatives have played out as well.
If you look at you know we've been laser focused on cost and caches as Tim and I have.
Have mentioned last few quarters, and then and then you hit the nail on the head. The last piece of it was was favorable mix. It helped our margins there.
Going forward and I've said this a bit like a broken record you know, we're always looking to expand margin. So.
We're very focused on it and we're going to continue to drive that.
You know going forward so.
Look for more to come.
That's great. Thanks.
And then just to follow up on kind of the question Bill, especially around are talking about sort of volume trends.
I guess you know we're seeing some green green shoots if you will and many home related areas.
It had tough pandemic comparisons and I guess I was hoping you could just talk a little bit more about maybe your optimism that were through the toughest part of things and and May I have better growth prospects on the horizon.
Yeah Brad.
Look no doubt about it these last couple of years, we saw.
You know I would say three dynamics the third being on garden, meaning one you had kind of a post COVID-19 consumer behavioral shift going on.
Two you had really unprecedented inflation back to back two consecutive years, which of course, we matched with pricing in order to protect our margins and still deliver value to our consumers and then certainly on the garden side. We've had a couple of years of less than optimal weather and so all that has put <unk>.
Russia on unit takeaway.
You know I think is you'll start to look forward you see that inflationary cost envelope getting more and more benign. So this year the inflation still hit us and we had the price and we priced kind of mid single digits across the the enterprise obviously category by category differed.
And we saw a corresponding decay in volume kind of mid single digits.
We're now at a point, where we're seeing that cost inflationary pressure begin to mitigate and so that sets up a different dynamic next year really in all three of those variables. One is I think a lot of that post COVID-19 consumer behavior starts to roll off and we can get to a little bit more normal as opposed to an unfavorable.
Asian versus during Covid.
I mean, who knows on the weather, but it's hard to think three years in a row of rough weather and then I think you're not going to have as much price elasticity going on the one other call out on our business is on the <unk> side and it's related to durables versus consumables durable says you know our most closely aligned with pet ownership and adoption in here.
<unk>, we did we are seeing and I set up my prepared remarks more downward pressure in the teens under durables again, thank fish tank small animal closures pet beds et cetera, I think that probably still hangs with us through the front half of 24.
Given pet ownership dynamics, but with the exception of that I think we get to a more favorable environment on on unit takeaway as we roll into 2004.
That's very helpful. Thanks, so much time.
Our next question comes from the line of gym shorts here with a bonus crispy and heart. Please. Please proceed with your question.
Hi, Thanks for taking my question.
Where do you feel like you are in terms of your inventory destocking at retail for both businesses.
Okay.
You want to go sure I'll jump in first it's J D gym, and then I'll turn it over to John the <unk>.
We've seen significant destocking over the course of the year and a few different ways.
One they are they the retailers devoted less space.
Four off shelf displays this year. They also we're seeing a difference in the way they stop the stores at the beginning of the year.
Their initial orders and then also on replenishment they move to more of a just in time type replenishment model, which was the first for us when we were adjusting on the fly during the course of the year, but now our units.
Are are in store inventories of units are down versus prior year down.
Hi single digits, let's call.
So we feel like now that the correction has taken place and we're in a good position going into.
Fiscal 24 John .
John .
Yeah, four first pet on the pet side, you know if you go back to Q1, I would say destocking.
Was was did happen as.
As we got through Q2, I think we still saw some Q3 were normal X I would say so we're.
Really good about where retail inventories are.
Pets.
We would come out of Q3 and throughout Q3.
Yeah, and I would I would just add our own our own inventories are down.
Total company about 2%.
Garden gardening up 7.6, but flat and unit so we still see some inflationary pressure.
In within our cost.
And then pet was down like 13% year over year, So we're working ours down as well.
And feel like it's really headed in the right direction Jim.
If they're just.
Sure sure.
Yeah <unk> it seems like there's like a seven or eight per cent difference between garden pier, where some in your shipments right and so as we kind of lap that next year do you feel like that becomes a tailwind where P. O S is positive, but you're laughing you know shipments that were were lower.
Because the Destocking and so was there you know kind of a mid single digits tailwind to sales in those businesses next year shipments in M. P. O S are more aligned.
Jim I don't have a crystal ball, so that when we would be a tough to predict what the future looks like but I will say this you are absolutely right. There is a.
I call it <unk>.
6% to 7% gap between pass.
And and shipments so you're right about that we've seen destocking. We think we're in good position going into next year, but in terms of projecting that as a tailwind.
I'll stop short of that.
Okay, and then just Nico you're you guys makes it $330 million of cash on the balance sheet.
How were you thinking about the pace of share repurchases going forward and then what is kind of a good interest rate to use on the cash balance.
Yeah, So we're going to be.
Continue to be pretty opportunistic on share repurchase will meet with our board next week and probably discuss.
Where and how much we Wanna buy we have a matrix that we we submit during the open trading period.
And then as far as the cash goes you know.
We're earning you know and that four 4.5%.
Range.
In terms of our investments there so I would use for four and a half.
Great. Thank you yeah.
Our next question comes from the line of Andrea took Sarah with J P. Morgan. Please proceed with your question.
Hi, This is Savannah choudhury on for Andrea how are you.
Good doing well.
Congrats on the good Carter I'm very quick claim a couple of questions.
Top line trends now that drag setting gardening season. It seems like you are passing on the.
The beat into Carter, and but then again it seems at the same time.
Category has been decelerating a little bit. So if you could just give us more color on that and secondly, I just wanted to clarify something your physical twenty-three guidance now EPS non-GAAP EPS, South dot $2 and 55 can you give us the gap P. P. S <unk>.
A previous the bench just 235 for the gap EPS just two breached the <unk>. Thank you.
Okay. So.
I'll start with you I'm sure if you're 35 is actually non-GAAP Roswell Yep, so that matches up with the 255 Grace.
Yes, 2000 cent raise.
And that was largely because when you look at our first half we were behind prior year about 74.
And we felt it was the right thing to do to Guy down because the first half of the year was was a real challenge.
The third quarter has ended up being a record.
We've seen a nice extension.
In terms of weather in the garden season, this sort of played out.
Late.
Because of the weather it's state miles so we had that play out well, but.
But the 255 is is apples to apples with it with the 235.
Thanks for clearing that yep.
The headwind that we're facing durables road and if you think about the category at 75% consumables twenty-five percent durables, the consumable business for the category.
<unk> was roughly flat, but durables was down.
Double digits.
You think about central are businesses more 82000, you think about it we're actually 82% in the late latest the latest quarter, but thank 80 20.
Consumables, we're up mid single digits, and our durables were down high single digits right and that's a that's a headwind for the category ties to the overlap and pet adoption.
<unk> inflation plays a little bit of rural and that some.
Some of these sort of discretionary spend.
But as we look forward. It certainly is a near term headwind.
But but I think.
As we get through the first half we feel much better about the category and we also feel very good about the long term projections for the category.
Thank you for that and I will pass it on.
Our next question comes from the line of William writer with Bank of America. Please proceed with your question.
Alright, I just have a couple so to make sure I understand that the business that you're exiting of the independent garden retailer's that will be 5% of the garden sales that are going away, but essentially that wasn't really profitable. So maybe you actually it's additive to your EBITA.
Is that right.
Yeah, that's right I would say it was profit challenged segment of the business.
Say that that's that's fairly accurate.
Okay, and then with with the exit of this relationship or the transition where the proceeds from the the buyer or the entity that if you have to you that's taking this.
There were and at this point, we're not disclosing the sale price there was a sale price what we can say is.
I think.
A fair and good when when proposition for both sides and as you noted in J D. Confirmed this was a this was a business from a sales side less than 5% of total garden and <unk> on the on the operating margin side.
Okay, and then when you were discussing the outlook for hard goods on the pet side.
You kind of said that I think that it could be a couple more quarters of weakness is that more based upon weakness it P O S or.
Is it more that you think you're shipments are going to be weak because inventory levels remain high in those categories.
It's more <unk>.
<unk> data that we do.
Our inventory.
<unk> Tori levels, we made a ton of progress on inventory levels. We can continue to make progress on the pet side, yeah really.
John said, absolutely right, what I would 0.2 is really the underlying consumer fundamentals.
Supporting that unfavorable trend right. So we have seen off the COVID-19 highs of 2021, we've seen pet ownership dropdown a couple of points and these hard goods are most correlated with the App and so you've just got a built in tailwind we've seen this book.
In the past in in other recessions in times square pet ownership tips, there tends to be you know a.
Four to six quarter lag on or impact on the durable side and we're just cycling through that so it is more of a pass thing fueled by that underlying consumer behavior.
We don't have a complete crystal ball, but I would think by by the middle of next year, we've worked through that.
Okay, but I guess inventory levels at retail in those categories of your products. They are not out of line that's kind of okay. At this point so your salad.
That's that's that's correct that's correct.
Alright, that's all for me thank you.
Thanks.
Our next question comes from the line of Hell holding with Barclays. Please proceed with your question.
Okay afternoon, I just tried two questions. The first one was related to a comedy made around some of the garden fails moving online this season and.
I was wondering what categories that was in the second one is if you could just give us a sort of updated thoughts around what do you have any environment looks like.
Sure. This is janey I think the first part of that question around E. Commerce. So overall ecommerce continues to grow and garden, it's growing at a faster rate than our bricks and mortar business. It's.
It's still overall.
Relatively small percentage of our business, but growing 5% and growing but quarter to quarter that business is growing it plus 20% each each quarter. So it's one of the fastest growing segments. The fastest growing segment, you at at which skews, which which products, it's really across our entire portfolio, we're finding that the <unk>.
Consumer, especially during the pandemic some consumer started the shop online I'm, we're seeing that become very sticky and they're continuing to do that postpay endemic.
The second part of the question down so I can take that this is nico yeah as far as you know M&A.
It's been slow the last few quarters, we're seeing a little bit of a pickup and I think it's also reflected in the in the public markets, you're starting to see a little bit more IPL activity.
But it's still much slower than what we've become accustomed to.
During the pandemic.
But it's okay, we're going to be patient and we're going to we're going to look for the right deal to do and we will just continue to accumulate cash on our balance sheet to get those deals done the firepower there yes for sure.
Our powers are four and a half per cent I got it. Thank you very much guys.
And.
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