Q4 2023 Central Garden & Pet Co Earnings Call

[music].

Ladies and gentlemen, thank you for standing by.

Speaker 1: Ladies and gentlemen, thank you for standing by. Welcome to the Central Garden and Pet Fourth Quarter and Fiscal 2023 Earnings Call. My name is Shomali, and I will be your conference operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session.

Welcome to the Central Garden, and pet fourth quarter and fiscal 2023 earnings call. My name is <unk> 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.

Speaker 1: Instructions will be given at that time. If anyone should require assistance during the call, please press star followed by 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, and Director of Relations. Please go ahead.

Instructions will be given at that time.

If anyone should require assistance during the call. Please press star followed by zero on your Touchtone phone as a reminder, this conference call is being recorded I would now like to turn the call over to you for a two week Edelman Vice President Investor Relations. Please go ahead.

Speaker 2: Good afternoon everyone. Thank you for joining Central's fourth quarter and fiscal year 2023 earnings call.

Good afternoon, everyone. Thank you for joining central's fourth quarter and fiscal year 2023 earnings call.

Speaker 2: With me on the call today are Beth Springer, Interim Chief Executive Officer and Lead Director, Nico Lajanas, Chief Financial Officer, J.D. Walker, President, Garden Consumer Products, and John Hansen, President, Pet Consumer Products. In a moment, Beth will provide our key takeaways from the fiscal year, and Nico will discuss our financial results, our cost and simplicity program, as well as our outlook in more detail.

With me on the call today are Beth Springer interim Chief Executive Officer, and lead Director Nicola Chief Financial Officer, J D. Walker, President Garden consumer products, and John Hanson, President Pet consumer products in a moment basketball provide all key takeaways from the fiscal year.

Carl will discuss our financial results, our cost and simplicity program as well as our outlook in more detail. After the prepared remarks, J D and John will join us for the Q&A.

Speaker 2: After the previous remarks, JD and John will join us for the Q&A.

Speaker 2: Before they begin, I would like to remind you that all forward-looking statements made during this call are subject to risk and uncertainties that could cause our actual results to differ materially from what we share today.

Before they begin I would like to remind you that all forward looking statements made during this call are subject to risks and uncertainties that could cause our actual results to differ materially from what we have shared today.

We described the range of risk factors in our annual report filed with the Securities and Exchange Commission.

Speaker 2: We describe the range of risk factors in our annual report filed with the Securities and Exchange Commission. Central undertakes no obligation to publicly update these forward-looking statements to reflect new information, subsequent events, or otherwise.

<unk> undertakes no obligation to publicly update these forward looking statements to reflect new information subsequent events or otherwise.

Speaker 2: All press release and related materials are available at ir.central.com and contain the gap reconciliation for the non- GAAP measures discussed on the slide.

Our press release and related materials are available at IR Dot central Dot Com and contains the GAAP reconciliation for the non-GAAP measures discussed on this call lastly, all growth comparisons made during this call are against the same players in the prior year unless otherwise stated.

Speaker 2: Lastly, all growth comparisons made during this call are against the same payers in the prior year unless otherwise stated. For further discussion after the call, please reach out to me. And with that, I will turn it over to Beth.

For further discussion after the call. Please reach out to me and with that I will turn it over to Beth.

Speaker 3: Thanks, Frederique, and good afternoon, everyone. It's a pleasure to be here, and thank you for joining our call today.

Thanks, Fredrik and good afternoon, everyone.

It's a pleasure to be here and thank you for joining our call today.

Speaker 3: Let's start with the three themes I'd like you to take away from this call. First, our fiscal year

Let's start with the three themes I'd like you to take away from this call.

First our fiscal year 2023 achievements.

Speaker 3: We are proud of what Team Central was able to achieve in light of a challenging environment, an environment characterized by unfavorable consumer behavior, unfavorable retail dynamics, high inflation, and some extreme weather.

We are proud of what team central was able to achieve in light of a challenging environment, an environment characterized by unfavorable consumer behavior unfavourable retail dynamics high inflation and some extreme weather.

Speaker 3: Most notably, we delivered fiscal year 2023 non-GAAP EPS within our revised guidance.

Most notably we delivered fiscal year 2023, non-GAAP EPS within our revised guidance.

Generated record cash flow.

Speaker 3: generated record cash flow, and grew market shares broadly across pet and garden.

And grew market shares broadly across pet and garden.

Speaker 3: We're grateful to our 6,700 associates for their hard work driving these results.

We're grateful to our 6700 associates for their hard work driving these results.

Speaker 3: Second, I want to speak to the strides we're making on our cost and simplicity program.

Second I want to speak to the strides, we're making on our cost and simplicity program.

Speaker 3: As we've shared on prior calls, we've embarked on a journey.

As we've shared on prior calls we've embarked on a journey to simplify our business and improve efficiency across our organization.

Speaker 3: simplify our business and improve efficiency across our organization.

Speaker 3: We are doing this by rationalizing our footprint, optimizing our portfolio, and improving our cost structure.

We are doing this by rationalizing our footprint optimizing our portfolio and improving our cost structure.

Today, we'll share some of the proof points, we have accomplished in fiscal year 'twenty three including.

Speaker 3: Today, we'll share some of the proof points we've accomplished in fiscal year 23, including

Speaker 3: the closure of our dog bed manufacturing and distribution facility in Texas.

The closure of our dog bed manufacturing and distribution facility in Texas.

Speaker 3: as a result of exiting certain low-margin, private-label, pet-bed product lines.

As a result of exiting certain low margin private label pet bed product lines.

And the successful sale of our distribution business to the fragmented Independent Garden Center channel.

Speaker 3: and the successful sale of our distribution business to the fragmented independent garden center channel, a complex channel to serve that was diluted to our garden operating margin.

<unk> channel to serve it was dilutive to our garden operating margin.

We will also provide more color around our recently announced acquisition of T. D. B B S. A provider of premium natural dog chews and treats.

Speaker 3: We'll also provide more color around our recently announced acquisition of TD BBS, a provider of premium natural dog chews and treats.

Speaker 3: the TD BBS acquisition, ad scale, and e-commerce capabilities to our fast-growing dog and cat platform. And third.

The T D. B B S acquisition adds scale and e-commerce capabilities to our fast growing dog and cat platform.

And third fiscal year 'twenty for guidance.

Speaker 3: We remain committed to our long-term central-to-home strategy.

We remain committed to our long term central to home strategy.

Speaker 3: We are intensely focused on executing our cost and cash agenda and making thoughtful investments to fortify our foundation and to drive growth.

We are intensely focused on executing our cost and cash agenda, and making thoughtful investments to fortify our foundation and to drive growth.

We expect to continue to face a challenging external environment in fiscal year 'twenty four.

Speaker 3: We expect to continue to face a challenging external environment in fiscal year 24.

And guide to non-GAAP.

Speaker 3: and guide to non-GAP EPS of $2.50 or better.

Of $2 50 or better.

Importantly, we remain confident in the health of our business and our categories.

Speaker 3: Importantly, we remain confident in the health of our business and our category.

Speaker 3: and are particularly encouraged by data showing younger households spending more money on their pets and enjoying their time gardening.

And are particularly encouraged by data showing younger households, spending more money on their pets and enjoying their time gardening.

Speaker 3: Before I turn it over to Nico, I want to reiterate that our FY23 achievements underscore our ability to execute in challenging times and the fundamental strength of Central Garden and PET. And with that, I'll now

Before I turn it over to Niko.

Want to reiterate that our FY2023 achievements underscore our ability to execute in challenging times and the fundamental strength of central Garden and pet.

And with that I'll now turn it over to Niko.

Speaker 4: Thank you, Beth. Good afternoon, everyone. Building on Beth's remarks, I'm pleased to walk you through our financial results and share details on our Cost and Simplicity Program, as well as our Outlook for Fiscal 24. Let me start with our Fiscal 24.

Thank you Beth good afternoon, everyone.

Building on best remarks, I am pleased to walk you through our financial results and share details on our cost and simplicity program.

As well as our outlook for fiscal 'twenty four.

Let me start with our fiscal 'twenty three result.

Speaker 4: Net sales were $3.3 billion, in line with prior years.

Net sales were $3 3 billion in line with prior year.

As a reminder, this year, we benefited from an additional 50 <unk> week.

Speaker 4: As a reminder, this year we benefited from an additional 53rd week.

non-GAAP gross profit for the year was $957 million compared to $992 million and our non-GAAP gross margin was 28, 9% compared to 29, 7%.

Speaker 4: non-GAAP gross profit for the year was $957 million, compared to $992 million. And a non-GAAP gross margin was 28.9%, compared to 29.7%.

Speaker 4: The decrease was due to inflation and lower volumes resulting in an unfavorable overhead absorption partially offset by improved pricing and productivity efforts throughout the year.

The decrease was due to inflation and lower volumes, resulting in an unfavorable overhead absorption, partially offset by improved pricing and productivity efforts throughout the year.

Speaker 4: While commodity costs have continued to moderate, the benefit of the lower cost takes more time to be realized as we continue to work through older, higher cost inventory.

While commodity costs have continued to moderate the benefit of the lower cost. It takes more time to be realized as we continue to work through older higher cost inventory.

non-GAAP SG&A.

With $729 million compared to $732 million, a year ago and was 22% as a percentage of net sales versus 21, 9%.

Speaker 4: was $729 million compared to $732 million a year ago and was 22% as a percentage of net sales versus 21.9%.

non-GAAP, one time charges were approximately $17 million for the year, which are net of the gain of approximately $6 million on the sale of our distribution business into the independent Garden Center channel and related facility closures. The majority of which are part of our cost and simplicity program.

Speaker 4: non-GAAP one-time charges were approximately $17 million for the year, which are netted a gain of approximately $6 million on the sale of our distribution business into the independent garden center channel and related facility closures, the majority of which are part of our cost and simplicity program.

non-GAAP operating income for the year was $227 million compared to $260 million in the prior year and non-GAAP operating margin was six 9% compared to seven 8%.

Speaker 4: non-GAAP operating income for the year was $227 million compared to $260 million in the prior year. And non-GAAP operating margin was 6.9% compared to 7.8%.

The decrease was due to inflation and lower volumes, resulting in unfavorable overhead absorption, which was only partially offset by improved pricing and productivity efforts.

Speaker 4: The decrease was due to inflation and lower volumes, resulting in unfavorable overhead absorption, which was only partially offset by improved pricing and productivity efforts.

Other income and expense was income of $1 5 million compared to expense of $3 6 million in the prior year.

Speaker 4: Other income and expense was income of $1.5 million compared to expense of $3.6 million in the prior year.

Net interest expense was $50 million compared to $58 million, a year ago, driven by higher cash balance and interest income.

Speaker 4: Net interest expense was $50 million compared to $58 million a year ago, driven by higher cash balance and interest income.

Speaker 4: non-GAAP net income was $138 million compared to $152 million a year ago, and non-GAAP EPS came in at $2.59. In line with our revised guidance, GAAP EPS was $2.35.

non-GAAP net income was $138 million compared to $152 million, a year ago and non-GAAP EPS came in at $2 59.

In line with our revised guidance GAAP EPS was $2 35.

Speaker 4: Adjusted EBITDA for the year decreased 7% to $343 million.

Adjusted EBITDA for the year decreased 7% to $343 million.

Speaker 4: Our tax rate for the year decreased by 80 basis points to 22.4% due to the impact of a lower blended state tax rate. Now turning to

Our tax rate for the year decreased by 80 basis points to 22, 4% due to the impact of a lower blended state tax rate.

Now turning to the consolidated financials for the quarter.

Fourth quarter net sales were $750 million up 6%, primarily benefiting from the additional week this year.

Speaker 4: Fourth quarter net sales were $750 million, up 6%, primarily benefiting from the additional week this year.

Speaker 4: Non-gap gross profit for the quarter was $199 million, essentially in line with a year ago. A non-gap gross margin was 26.6% versus 28.2%, as the favorable impact of our pricing actions and productivity efforts was more than offset by inflation and unfavorable overhead absorption due to lower unit volumes.

non-GAAP gross profit for the quarter was $199 million essentially in line with a year ago and non-GAAP gross margin was 26, 6% versus 28, 2% as the favorable impact of our pricing actions and productivity efforts was more than offset by inflation and unfavorable overhead absorption due to.

Lower unit volumes.

non-GAAP SG&A expense for the quarter was $187 million in line with prior year and as a percentage of net sales was 25% compared to 26, 4% as we benefited from the additional week of sales, while managing commercial spend and administrative expense.

Speaker 4: non-GAAP SG&A expense for the quarter was $187 million, in line with prior year, and as a percentage of net sales was 25% compared to 26.4%, as we benefited from the additional week of sales while managing commercial spend and administrative expense.

Speaker 4: non-GAAP operating income for the quarter was $12 million compared to $13 million, and non-GAAP operating margin was 1.6 percent compared to 1.8 percent in the prior year.

non-GAAP operating income for the quarter was $12 million compared to $13 million and non-GAAP operating margin was one 6% compared to one 8% in the prior year.

Speaker 4: Net interest expense was $8 million compared to $14 million a year ago.

Net is net interest expense was $8 million compared to $14 million a year ago.

Speaker 4: non-GAAP income for the quarter was $5 million compared to a loss of $2 million in the prior year. And non-GAAP earnings per share was $0.10 compared to a loss per share of $0.04 a year ago. GAAP EPS was $0.05.

non-GAAP income for the quarter was $5 million compared to a loss of $2 million in the prior year and non-GAAP earnings per share was <unk> <unk>.

Compared to a loss per share of <unk> <unk>, a year ago GAAP EPS was <unk>.

Speaker 4: Weighted diluted shares outstanding decreased to 53.4 million from 54.4 million in the prior year. We bought back approximately 65,000 shares for roughly 2.4 million.

Weighted diluted shares outstanding decreased to $53 4 million from $54 4 million in the prior year.

We bought back approximately 65000 shares for roughly $2 4 million.

Now I'll provide some insights into the fourth quarter of our two segments starting with pet.

Speaker 4: Now I'll provide some insights into the fourth quarter of our two segments, starting with pets.

Net sales for the fourth quarter increased 10% to 483 million, thanks to the extra week and strong consumer demand.

Speaker 4: Pet net sales for the fourth quarter increased 10% to $483 million thanks to the extra week and strong consumer demand.

Our Pos growth was in the high single digits and coupled with improved service levels resulted in share gains in a number of categories.

Speaker 4: Our POS growth was in the high single digits, and coupled with improved service levels resulted in share gains in a number of categories.

Sales continued to grow and our pet consumables business across all categories, including dog and cat, which had a record quarter.

Speaker 4: Sales continue to grow in our pet consumables business across all categories, including dog and cat, which had a record quarter.

Speaker 4: Pet distribution, animal health, small animal, bird, and aquatics all experience growth versus prior year. Pet durables continue to decline.

Pet distribution animal health small animal burden aquatics, all experienced growth versus prior year.

Pet durables continue to decline and high single digits.

Speaker 4: Sales of our pet brands increased low double digits, outperforming private label sales, which were negatively impacted by the purposeful exit of low profit private label product lines and skew rationalization.

Sales of our pet brands increased low double digits outperforming private label sales, which were negatively impacted by the purposeful exit of low profit private label product lines and SKU rationalization.

Speaker 4: Driven by our efforts over the last couple of years to build capabilities around consumer insights, innovation, and category management, we gained or held market share in most of our categories, including dog toys and treats, small animal, bird, aquatics, and equine, reflecting the overall health of our brands. We gained mid-single digits in total distribution points, or TDPs.

Driven by our efforts over the last couple of years to build capabilities around consumer insights innovation and category management, we gained or held market share in most of our categories, including <unk> toys and treats small animal bird aquatics and equine.

Collecting the overall health of our brands, we gained mid single digits and total distribution points or tdp's.

E Commerce continues to drive growth for the segment at the expense of brick and mortar. Thanks.

Speaker 4: E-commerce continues to drive growth for this segment at the expense of brick and mortar.

Speaker 4: Thanks to our investments into online and digital, our e-commerce sales increased low double digits and now represent approximately 25% of total pet sales.

Thanks to our investments in the online and digital or E. Commerce sales increased low double digits and now represent approximately 25% of total pet sales.

Moreover, we grew online market share broadly across many of our categories, including dog toys, equine and animal health small animal and Bert.

Speaker 4: Moreover, we grew online market share broadly across many of our categories, including dog toys, equine and animal health, small animal, and birds.

Speaker 4: non-GAAP operating income per pet was $48 million compared to $40 million and non-GAAP operating margin was 9.9% versus 9.2% a year ago. The increase was driven by productivity efforts and improved pricing partially offset by unfavorable overhead absorption.

non-GAAP operating income for pet was $48 million compared to $40 million and non-GAAP operating margin was nine 9% versus nine 2% a year ago.

The increase was driven by productivity efforts and improved pricing, partially offset by unfavorable overhead absorption.

Speaker 4: PET-adjusted EBITDA increased 15% to $58 million.

Pet adjusted EBITDA increased 15% to $58 million.

Moving on to garden.

Speaker 4: In the fourth quarter, garden net sales were $267 million, in line with the prior year due to softness across most of the garden portfolio, except for garden controls and fertilizer, live goods, and grass.

In the fourth quarter Garden, net sales were $267 million.

In line with the prior year due to softness across most of the garden portfolio, except for garden controls and fertilizer live goods and grass seed.

We continue to grow market share in grass seed and wild bird two important anchor categories and our garden business we.

Speaker 4: We continue to grow market share in grass seed and wild bird, two important anchor categories in our garden business.

Speaker 4: We saw retailers continue to manage their inventory closely, shifting to just-in-time replenishment.

We saw retailers continue to manage our inventory closely shifting to just in time replenishment.

Speaker 4: This, coupled with the declining foot traffic in home centers and mass channel, as well as the extreme weather for the second year in a row, resulted in another challenging quarter for the garden segment.

This coupled with the declining foot traffic in home centers and mass channel as well as the extreme weather for the second year in a row resulted in another challenging quarter for the garden segment.

Garden E Commerce sales continued to grow faster than brick and mortar as consumers shift more and more of their purchasing to online.

Speaker 4: Garden e-commerce sales continue to grow faster than brick and mortar as consumers shift more and more of their purchasing to online. Our e-commerce business, while still small, now represents approximately 6% of total garden sales, thanks to our investments in digital and e-commerce capabilities.

Our e-commerce business, while still small now represents approximately 6% of total garden sales, thanks to our investments in digital and e-commerce capabilities.

non-GAAP operating loss for garden was $5 million compared to operating profit of $2 million and non-GAAP operating margin was negative 2% compared to <unk>, 7% a year ago to.

Speaker 4: non-GAAP operating loss for Garden was $5 million, compared to operating profit of $2 million, and non-GAAP operating margin was negative 2 percent compared to 0.7 percent a year ago. The decrease was due to inflation partially offset by improved pricing and productivity.

The decrease was due to inflation, partially offset by improved pricing and productivity efforts.

Garden, adjusted EBITDA was $6 million compared to $12 million in the prior year.

Speaker 4: Garden-adjusted EBITDA was $6 million compared to $12 million in the prior year.

Now turning to the balance sheet and cash flows.

Speaker 4: Cash provided by operations was $382 million in fiscal 23 versus cash used by operations of $34 million in the prior year.

Cash provided by operations was $382 million in fiscal 'twenty three versus cash used by operations of $34 million in the prior year IMAX.

Speaker 4: I'm extremely proud of our team's focus on converting inventories into cash.

Im extremely proud of our team's focus on converting inventory into cash.

Speaker 4: Inventories at year-end were $100 million below prior year, and inventory value is down for total central and across both segments.

Inventories at year end were $100 million below prior year and in the inventory value is down for total central and across both segments.

Capex for the year was $54 million about half of what we invested in the prior year.

Speaker 4: CapEx for the year was $54 million, about half of what we invested in the prior year.

Speaker 4: In the quarter, we invested in automation and expansion of pet and wild bird, aquatics, live plants, and controls and fertilizers.

In the quarter, we invested in automation and expansion of pet and Wild bird Aquatics live plants and controls and fertilizer.

Speaker 4: Depreciation and amortization was $88 million compared to $81 million a year ago.

Depreciation and amortization was $88 million compared to $81 million a year ago.

Speaker 4: Thanks to our focus on turning inventories into cash, we had a record cash flow year.

Thanks to our focus on turning inventories into cash we had a record cash flow year.

Speaker 4: Cash and equivalents, including short-term investments, were $489 million at year-end, compared to $177 million in the prior year.

Cash and equivalents, including short term investments were $489 million at year end compared to $177 million in the prior year.

Speaker 4: Total debt was $1.2 billion in line with prior year.

Total debt was $1 2 billion in.

In line with prior year.

Speaker 4: We ended the quarter with a leverage ratio of 3.1 times compared to 2.9 times a year ago.

We ended the quarter with a leverage ratio of three one times compared to two nine times a year ago.

Well in well in line with our target range of three to three five times.

Speaker 4: well in line with our target range of three to three and a half times.

We had no borrowings under our $750 million credit facility at the end of the year.

Speaker 4: We had no borrowings under our $750 million credit facility at the end of the year.

Given our financial strength and in addition to our recent pet consumables acquisition, we continue to be on the lookout for high growth companies with accretive margins in both pet and garden to build scale in core categories enter adjacent categories and add key capabilities.

Speaker 4: Given our financial strength, and in addition to our recent pet consumables acquisition, we continue to be on the lookout for high growth companies with accretive margins in both pet and garden to build scale in core categories, enter adjacent categories, and add key capabilities. Let me now touch on a few of the things that we've been working on over the last few years.

Let me now touch on our cost and simplicity program.

Speaker 4: As previously communicated, we're on a multi-year journey to reduce costs and simplify how we operate.

As previously communicated we're in a multiyear journey to reduce costs and simplify how we operate.

We have meaningful opportunity to better leverage the scale of our business across a number of areas, including procurement manufacturing logistics portfolio optimization and administrative costs.

Speaker 4: We have meaningful opportunity to better leverage the scale of our business across a number of areas, including procurement, manufacturing, logistics, portfolio optimization, and administrative costs.

We expect to reduce complexity, which means fewer skus increased manufacturing warehouse efficiency as well as fewer facilities.

Speaker 4: We expect to reduce complexity, which means fewer SKUs, increased manufacturing warehouse efficiency, as well as fewer facilities.

Speaker 4: We seek to lower costs through improved logistics costs, better procurement, and lower administrative costs.

We seek to lower cost through improved logistics cost better procurement and lower administrative costs.

Speaker 4: This will be done by leveraging our scale and capabilities across the company.

This will be done by leveraging our scale and capabilities across the company.

We believe this program will drive higher margins and generate more fuel to invest in organic growth and accretive M&A in both pet and garden.

Speaker 4: We believe this program will drive higher margins and generate more fuel to invest in organic growth and accretive M&A in both pet and garden.

Now turning to the progress we've made so far in the different areas first in manufacturing, we continue to pursue a continuous improvement mindset by measuring cost and productivity by manufacturing line by facility, which resulted in major improvements in cost per unit.

Speaker 4: Now turning to the progress we've made so far in the different areas, first, in manufacturing, we continue to pursue a continuous improvement mindset by measuring cost and productivity by manufacturing line by facility, which resulted in major improvements in cost per unit. In Q4, we announced the closure of an outdoor cushion manufacturing warehousing facility in Amarillo, Texas.

In Q4, we announced the closure of an outdoor cushion manufacturing warehousing facility in Amarillo, Texas, moving all manufacturing to essentially located consolidated facility.

Speaker 4: moving all manufacturing to a centrally located consolidated facility.

Speaker 4: Second, logistics. Relying for scale in logistics by expanding our corporate transportation management system and centralizing load planning.

Logistics.

We are aligning for scale and logistics by expanding our corporate transportation management system and centralizing load planning.

Speaker 4: In addition, we are standardizing how we operate our warehouses by reapplying internal best practices across BUs, deploying technology solutions to reduce waste, and implementing voice direct picking in multiple facilities.

In addition, we are standardizing, how we operate our warehouses by reapplying internal best practices across be us deploying technology solutions to reduce waste and implementing voice direct picking in multiple facilities.

Speaker 4: Moreover, we're closing three smaller pet distribution facilities in Kansas and one in Illinois.

Moreover, we're closing three smaller pet distribution facilities in Kansas and one in Illinois.

Third portfolio optimization to become a more focused higher margin consumer products company.

Speaker 4: Third, portfolio optimization. To become a more focused, higher-margin consumer product.

Speaker 4: As a result of the purposeful exit of low-margin, private-label pet bed product lines, we closed a smaller distribution facility in Corsicana, Texas, in December of 22.

As a result of the purposeful exit of low margin private label pet bed product lines, we closed a smaller distribution facility and Corsicana, Texas in December of 'twenty two.

Speaker 4: followed by the closing of our Pet Bedding Manufacturing and Distribution Facility in Athens, Texas in April of 2023.

Followed by the closing of our pet bedding manufacturing and distribution facility in Athens, Texas in April of 'twenty three.

We sold our independent Garden Center distribution business as you recall this channel represents less than 5% of our garden net sales and was dilutive to our garden operating income margin.

Speaker 4: We sold our independent garden center distribution business. As you recall, this channel represents less than 5% of our garden net sales and was dilutive to our garden operating income margin.

As a result of the sale, we plan to close our Portland, Oregon Garden distribution facility.

Speaker 4: As a result of this sale, we plan to close our Portland, Oregon garden distribution facility.

Fortifying central portfolio two weeks ago, we acquired premium natural chews and treats company TD Bbs.

Speaker 4: Fortifying central portfolio two weeks ago. We acquired premium natural chews and treats company TD BBS

Speaker 4: Adding their established brands and digital capabilities solidifies our position in this large and growing category, strengthens our footprint with key customers, and enhances our e-commerce and digital capabilities. We remain committed on this multi-year journey to reduce costs and simplify our business.

Adding the established brands and digital capabilities solidifies our position in this large and growing category strengthens our footprint with key customers and enhances our e-commerce and digital capabilities.

We remain committed on this multiyear journey to reduce costs and simplify our business, we have a pipeline of projects to leverage our scale and deploy our capabilities across the company.

Speaker 4: We have a pipeline of projects to leverage our scale and deploy our capabilities across the company.

Speaker 4: We'll continue to provide regular progress updates on a quarterly basis.

We'll continue to provide regular progress updates on a quarterly basis as always our priority will be on business continuity and minimizing disruption to our operations.

Speaker 4: As always, our priority will be on business continuity and minimizing disruption to our operation.

Speaker 4: As a company that has grown through acquisition and that has the intention of continuing on that path, there's no shortage of opportunity ahead of us.

As a company that has grown through acquisition and that has the intention of continuing on that path. There is no shortage of opportunity ahead of us now.

Speaker 4: Now turning to our fiscal 24 outlook, we currently expect non-GAAP EPS for the year to be $2.50 or better.

Now turning to our fiscal 'twenty four outlook.

We currently expect non-GAAP EPS for the year to be $2 50 or better.

Let me provide some color around our assumptions.

We expect a challenging retail environment with customers continuing to manage their inventories closely and consumers face with high prices and interest rates reigning in their spending.

Speaker 4: We expect a challenging retail environment, with customers continuing to manage their inventories closely, and consumers faced with high prices and interest rates reigning in their spending.

Speaker 4: While our team has done a great job managing inventories, higher value inventory is going to put pressure on margins for some part of the fiscal year. The benefit of the lower cost is taking more time to realize as we continue to work through

While our team has done a great job managing inventories higher value inventory is going to put pressure on margins for some part of the fiscal year.

The benefit of the lower cost is taking more time to realize.

As we continue to work through existing high cost inventory.

Speaker 4: Our pet segment continues to perform well, especially in the consumables business, such as dog treats and chews, small animal and bird.

Our pet segment continues to perform well, especially in the consumables business, such as dog treats and chews small animal and bird.

Speaker 4: Conversely, in line with the softer pet ownership, durables continue to present a challenge for the industry and sentry.

Conversely in line with the softer pet ownership durables continue to present, a challenge for the industry and central <unk>.

Speaker 4: In addition, we remain cautious about the 24-garden season after two years of unfavorable weather and continued declines in foot traffic at retail.

In addition, we remain cautious about the 24 garden season. After two years of unfavorable weather and continued declines in foot traffic at retail.

As we look at Capex, we're planning to invest approximately $70 million, most of which is required maintenance and productivity initiatives across both our segments.

Speaker 4: As we look at CapEx, we are planning to invest approximately $70 million, most of which is required maintenance and productivity initiatives across both our segments.

While the near term.

Speaker 4: external environment remains challenging, we remain committed to our central-to-home strategy as it relates to our consumer growth agenda, and we continue to selectively invest in our digital marketing, brand building, and innovation to drive profitable long-term organic growth, as well as investments to enable future cost and simplicity savings.

Sternal environment remains challenging we remain committed to our central to home strategy as it relates to our consumer growth agenda, and we continue to selectively invest in our digital marketing brand building and innovation to drive profitable long term organic growth as well as investments to enable future cost and simplicity savings are.

Our guidance reflects our belief in the long term health of our business our teams execution and the long term trends that support the pet and garden industries.

Speaker 4: Our guidance reflects our belief in the long-term health of our business, our team's execution, and the long-term trends that support the pet and garden industries.

Fiscal 'twenty for us.

Speaker 4: back to 52 weeks, whereas fiscal 23 benefited from an additional week.

Back to 52 weeks, whereas fiscal 'twenty three benefitted from an additional week.

Speaker 4: As always, our outlook excludes any impact from acquisitions, divestitures, or restructuring activities that may occur during fiscal 24, including any such project under the cost and simplicity program.

As always our outlook excludes any impact from acquisitions divestitures or restructuring activities that may occur during fiscal 'twenty, four including any such project under the cost and simplicity program.

Speaker 4: It also excludes the impact of our recent pet consumables acquisition as we're still in the early stages of the integration process.

It also excludes the impact of our recent pet consumables acquisition as we're still in the early stages of the integration process.

Speaker 4: We expect the acquisition to be accretive over time, however, it will have a minimal impact on fiscal 24.

We expect the acquisition to be accretive over time, however, it will have a minimal impact on fiscal 'twenty four.

Speaker 4: Now, as we look forward to the first quarter of fiscal 24, I want to remind you that Q1 is typically one of our smallest quarters and not indicative of the full year. We expect Q1 non-GAAP loss per share to be in the range of $0.15 to $0.20 for the quarter.

Now as we look forward to the first quarter of fiscal 'twenty four I want to remind you that Q1 is typically one of our smallest quarters and not indicative of the full year.

We expect Q1 non-GAAP loss per share to be in the range of 15 to 20 for the quarter.

To summarize 23 was a challenging year for our industries and central Nevertheless, we delivered fiscal 'twenty three non-GAAP EPS within our revised guidance turn inventories into cash generated record cash flow and grew market share broadly across pet and garden.

Speaker 4: To summarize, 23 was a challenging year for our industries and Central. Nevertheless, we delivered Fiscal 23 non-GAAP EPS within our revised guidance, turned inventories into cash, generated record cash flow, and grew market share broadly across Pet and Garden.

We continue to believe in the fundamental trends that support long term growth in the pet and garden industries.

Speaker 4: We continue to believe in the fundamental trends that support long-term growth in the pet and garden industry.

Speaker 4: Our company remains strong, well-capitalized, and well-positioned to grow both organically and through acquisitions in the coming years. And with that, I'd like to open the line for questions.

Our company remains strong well capitalized and well positioned to grow both organically and through acquisitions in the coming years.

And with that I'd like to open the line for questions.

Thank you and at this time, we will be conducting a question and answer session.

Speaker 1: If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your phone.

We would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue you.

You May press Star two if you would like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.

Speaker 1: Participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button.

Oh.

Our first question comes from the line of Brad Thomas with Keybanc Capital markets. Please proceed with your question.

Speaker 1: Our first question comes from the line of Brad Thomas with KeyBank Capital Markets.

Speaker 5: Hi, good afternoon. Thanks for taking the question. I wanted to ask Nico a couple of questions as we think about the fiscal year ahead of you. And maybe starting first with margins, I was hoping you could talk a little bit about, you know, some of the puts and takes, some of the opportunities and headwinds that you have as you think about margins for this year.

Hi, good afternoon, thanks for taking the question.

Wanted to ask Nico couple of.

Questions as we think about the fiscal year ahead of you and maybe starting first with margins I was hoping you could talk a little bit about <unk>.

Some of the puts and takes some of the opportunities and headwinds that you have as you think about margins for this year.

Sure Brad.

Speaker 4: Sure, Brad. I've said this almost every year. We go into every year planning to expand margin. I mean, that's our goal. That's how our financial algorithm works.

I've said this almost every year, we go into every year planning to expand margin I mean, that's our that's our goal.

That's how our financial algorithm works I think this year is going to be unlike the last three years and that I think we're heading into a little bit of a deflationary environment. So.

Speaker 4: I think this year is going to be unlike the last three years in that I think we're heading into a little bit of a deflationary environment.

Speaker 4: So I think we're going to benefit from some commodity downdraft. However, I think it's going to be a much more promotional environment as well.

I think we're going to benefit from some commodity downdraft. However, I think it's going to be a much more.

Promotional environment as well.

Speaker 4: The other piece of this is what we, you know, discussed in the prepared remarks that we do still have some higher cost inventory to roll through. So that's going to create a little bit of pressure. The question will be, you know, how promotional does it get, you know, what our product mix is because the margins there are kind of all over the map and that becomes a wild card as well. So that's sort of how we're thinking about it, but we are going into the year expecting to expand margins.

The other piece of this is what we <unk>.

<unk> discussed in the prepared remarks that we do still have some higher cost inventory to roll through so that's going to create a little bit of pressure the question will be.

How promotional does it get.

What our product mixes because the margins there are kind of all over the map and that becomes a wildcard as well.

So.

That's sort of how we're thinking about it but we are going into the year expecting to expand margin.

That's helpful and understanding this is such a challenging environment to forecast sales can you help us think in broad strokes, what youre starting to plan for in terms of organic trends in the segments and what level of growth or potentially maybe modest <expletive>.

Speaker 5: That's helpful. And understanding this is such a challenging environment to forecast sales, can you help us think in broad strokes what you're starting to plan for in terms of organic trends in the segments and what level of growth or potentially maybe modest decline you might be able to go through and still have flatter-up operations?

Klein you might be able to go through and still have flatter up operating margins, yes, I mean, if we the way we're looking at it is keep in mind, we had a 50 <unk> week. So if I if I look at it in absolute terms, we're going to be down year over year because of the 50 <unk> week. We also sold off the garden distribution business, which also.

Speaker 4: Yeah, I mean, if we you know, the way we're looking at it is, you know, keep in mind, we had a 53rd week. So if I if I look at an absolute terms, we're going to be down year over year because of the 53rd week. We also sold off the garden distribution business.

Speaker 4: which also will draft down. Now, the upside is we bought TDBBS, so that's going to help on the top line.

It will drop down now the upside as we we bought TD Bbs. So that's going to help on the top line if.

Speaker 4: If I look at it apples to apples, we think that, you know, flattish to modestly up, in absolute terms, I think we'll be down. But again...

If I look at it apples to apples, we think that flattish to modestly up.

Absolute terms I think we will be down but again.

Speaker 4: We have to see how it all plays out because the deflationary environment, you know, could put pressure on the top line. I think that's going to be a real wild card. And, you know, I think it's going to be a very competitive environment in 24 as well.

We have to see how it all plays out because the deflationary environment could put pressure on the topline.

I think that's going to be a real wildcard and I think it's going to be a very competitive environment in 'twenty four as well.

Speaker 5: That's that makes sense. Certainly what we're hearing out there as well. Great. Thanks so much. Nico. Appreciate it.

Yes that makes sense certainly what we're hearing out there as well great. Thanks, so much Nick I appreciate it.

Speaker 1: Our next question comes from the line of Bill Chappell with Chula Securities. Please proceed with your question.

Our next question comes from the line of Bill Chappell with <unk> Securities. Please proceed with your question.

Yes, thanks, good afternoon.

Hey, Bill.

Speaker 6: I guess first, any update on the CEO search?

I guess first could you any update on the CEO.

Search at this stage.

Hey, Bill, it's Beth Springer and nice to hear your voice again.

Speaker 3: Hey Bill, it's Beth Springer. Nice to hear your voice again. Hi, before we talk about that, I do want to take a moment to reiterate that we have a really experienced leadership team.

Lewis.

Hi.

Before we talk about that I do want to take a moment to reiterate that we have a really experienced leadership team and.

An engaged board and a clear direction and are central to home strategy. So we're very focused on continuing to execute that.

Speaker 3: an engaged board, and a clear direction in our central to home strategy. So we're very focused on continuing to execute that. As we look ahead to new leadership, our board is committed to finding the best possible successor, and our goal specifically is to recruit a world-class leader who can champion Central's culture of entrepreneurship, collaboration and partnership, and drive our company's positive trajectory.

As we look ahead to new leadership, our board is committed to finding the best possible successor.

And our goal specifically is to recruit a world class leader, who can champion Central's culture of entrepreneurship collaboration and partnership and drive our company's positive trajectory obviously.

Speaker 3: Obviously, Bill, we'd like to finish that sooner rather than later, but the most important thing is to find the right long-term leader. So when we have an update, we'll provide it to you.

Obviously, bill we'd like to finish that sooner rather than later, but the most important thing is to find the client the right long term leader. So when we have an update we'll provide it to you.

Got it thank you.

And then.

Speaker 6: Nico, I guess, is there any way you could just, for modeling, just trying to understand kind of what the, almost the pro formas were for 2023 in terms of pet and garden, taking out, you know, the business exits, taking out the distribution exits, stuff like that, because it's tough to handicap unless we kind of understand what you've exited.

I guess is there any way you could just.

For modeling it just trying to understand kind of what's the almost the pro forma is where.

For 2000, 2023 in terms of pet and garden ticking.

The business exits taking out the.

The distribution exits the hope that it goes.

It's tough to do.

Handicap, unless we cannot understand what you exited.

Yeah.

Speaker 6: But what I would say is, like I said, I think, you know, overall, top line is going to be down if you look at it apples to apples. The the.

What what I would say is like I said I think overall top line is going to be down if you look at it apples to apples.

The TD bvs.

Speaker 4: business and the exit of distribution are sort of a wash but then you got you have the extra week so that you know in absolute terms would cause us to be down year over year.

<unk> and the exit of distribution or sort of a wash, but then you've got you have the extra week, so that in absolute terms would cause us to be.

Down year over year.

Got it.

Speaker 6: Got it, but I mean, I just just trying to quantify the distribution exit in terms of revenue in terms and the pet bed exit in terms of revenue, maybe more specific.

Just trying to quantify the distribution exit in terms of revenue in the pit bit exited in terms of revenue you're going to be more specific.

Yes.

Speaker 4: Yeah, we we haven't given that out, Bill, and I don't I don't think we will.

We haven't given that out bill and I don't I don't think we will.

Going forward.

Okay.

Speaker 6: Okay, and then just trying to understand, you know, I, the, the garden outlook in particular. I mean, I understand it's November and you want to be conservative, but.

And then just trying to understand.

Hi.

The garden outlook in particular, I mean, I understand it's November and you want to be conservative but.

Speaker 6: It seemed that there was, certainly from your pre-announcement back in early April , it was a much more impactful on the negative side for the business than normal. And so, are you just assuming that the abnormal happens again this year, or do you expect some recovery? Because I mean, that was 20, 30 cents out of your guidance that doesn't appear to be coming back.

It seemed that there was.

Certainly from your pre announcement back in early April it was a much more.

Impactful on the negative side.

The business than normal and so are you just assuming that the abnormal happens again this year or do you expect some recovery because I mean that was 2030 <unk> out of your guidance it doesn't appear to be coming back.

Speaker 4: Hey Bill, it's JD. I'll take a shot at that. You know, I would say that we're taking a very cautious approach to our outlook for fiscal 2024. After the last two years, we're still

Hey, Bill, it's J D I'll take a shot at that.

I would say that we're taking a very cautious approach to our outlook for.

Fiscal 2024 after the last two years, we're still as most companies are still trying to understand consumer behavior in a post pandemic period.

Speaker 7: as most companies are still trying to understand consumer behavior in a post-pandemic period.

Speaker 7: Household penetration has been down over the last couple of years. Nico referenced in his script that foot traffic at retail has been down in our largest channels.

Household penetration has been down over the last couple of years Nico referenced in his in his script that foot traffic at retail has been down and our largest channels, it's down 8% in home centers and 2% and mass channels. So.

Speaker 7: It's down 8% in home centers and 2% in mass channels, so.

Given all of that and two years of challenging weather.

Speaker 7: Given all of that and two years of challenging weather, it's a little bit difficult to get too aggressive in terms of looking at next year. I will say this, when we look at the controllable causal factors

It's a little bit difficult to get too aggressive in terms of looking at next year I will say this when we look at the controllable causal factors things like total points of distribution. They are up mid single digits, we feel great about the level of support that we're going to get from our retailers next year.

Speaker 7: Things like total points of distribution, they're up mid single digits. We feel great about the level of support that we're gonna get from our retailers next year. We have a long list of cost and simplicity initiatives, and those will fund some of our strategic investments in the business. So there's a lot to like here. However, while we're optimistic, we think that taking a more measured approach to planning for the year is appropriate.

We have a long list of cost and simplicity.

<unk> and those will fund some of our strategic investments in the business. So there's a lot to like here. However, while we are optimistic we think that taking a more measured approach to planning for the year is appropriate.

Okay.

Speaker 6: Okay, and just last one on that. Are you seeing anything different from the competitive landscape in Garden? Certainly, as you have a competitor that's kind of get excess inventory and maybe it's some excess inventory going into early next year, do you see it being more promotional than normal or that's just kind of all factored in?

Just last one on that.

Are you seeing anything.

From the competitive landscape in garden, certainly is as you have.

Competitor Thats kind of get the excess inventory and maybe some excess inventory going into early next year do you see it being more promotional than normal or that's just kind of all factored in.

Speaker 7: It's all factored in bill, but I just as Nico said earlier, we expect it to be more promotional next year. We expect the retailers to be trying to drop footsteps into the stores in the spring season. Our competitors, we expect to continue to be very competitive and aggressive in that area. And we will as well.

It's all factored in Bilbao.

As Nico said earlier, we expect it to be more promotional and next year, we expect our retailers to be trying to drop footsteps into the stores in the spring season, our competitors, we expect to continue to be very competitive and aggressive in that area and we will as well.

Great. Thanks, so much.

Speaker 1: And our next question comes from the line of Jim Chartier with Mondez Crespi and Hart. Please proceed with your question.

And our next question comes from the line of Jim Chartier with <unk>.

<unk> Crespi Hardt. Please proceed with your question.

Hi, Thanks for taking my questions.

Speaker 8: First on a garden business, can you tell us what POS trends were in fourth quarter and for the year?

First of all can you tell us what Pos trends were in fourth quarter and for the year.

Hi, Jim It's J D. Pos was flattish down slightly less than 1%.

Speaker 7: Hi, Jim. It's JD. POS was flattish, down slightly, less than 1%.

Speaker 7: and Q4. For the quarter? For the quarter and up for the year. Up low single digits.

In Q4, the quarter for the quarter and up for the year.

Up low single digits.

Great.

In terms of the.

Speaker 8: Um, promotional activity, are you seeing?

Promotional activity or you see it.

Speaker 5: increased promotions today? Have the retailers communicated to you already that they, you know, that they expect lower pricing? Or is this just something that you're expecting will happen? And embedding that in the guide?

The increased promotions today.

Taylor's communicated to you already.

Yes.

Well look I expect lower pricing or is this just something you're expecting will happen.

Bob on the guidance.

Jim It's something we're expecting will happen. So the retailers are very much in their planning stages right. Now. So we don't have hard evidence that it'll be more aggressive, but we're expecting that we're not seeing any unusual activity at the moment.

Speaker 7: Jim, it's something we're expecting will happen. So the retailers are very much in their planning stages right now. So we don't have hard evidence that it'll be more aggressive, but we're expecting that. We're not seeing any unusual activity at the moment.

Okay.

Speaker 7: And then Nico, can you just tell us what the sales and earnings impact was from the extra week for both the garden and pet segment?

<unk> could you just tell us what the.

Sales and earnings impact was from the extra week for both regarding my point sorry.

The earnings were de Minimis. It was very is very small.

Speaker 4: The earnings were de minimis. It was very small. Top line, I mean, what I would do is just use straight math on the quarter and calculate it that way.

Top line I mean, what I would do is just use straight math.

On the quarter.

<unk> calculated that way.

Okay.

Speaker 4: Okay, yeah, it's really it's really like, you know, that that part of the year, there's not a lot going on in garden. It's sort of counter seasonal. So we're not throwing off a lot of.

Okay. So.

It was really it's really like that that part of the year, there's not a lot going on in garden, it's sort of counter seasonal so.

Throwing off a lot of EBIT.

Okay.

Speaker 4: And then how should we think about interest income next year? You know, your cash balance is up nicely. Yeah. What are you forecasting for interest expense and income next year?

And then how should we think about interest income.

Next year again, the cash balance is up nicely.

What are you forecasting for interest expense and income next year, yes.

Speaker 4: Yeah, we're, you know, it's always tricky, right? Because we've got a working cap build.

Yes.

It's always tricky right because we've got a working cap build.

That really starts now and then goes into March and then it's going to also depend on what type of M&A, we do.

Speaker 4: that really starts now and then goes into March, and then it's going to also depend on what type of M&A we do. It certainly is going to be, you know, probably lower than it is this year. I think this year we printed around 50 million. So, you know, I would guide somewhere, you know, 45 to 50 in that range. But again, there's a lot of variability there just based off of M&A activity and what sort of working cap bill we end up with.

It certainly is going to be probably lower than it is this year I think this year, we printed around $50 million.

So I.

I would I would guide somewhere 45 to 50 in that range, but again theres a lot of variability there just based off of M&A activity and what sort of working cap build we end up with.

Okay.

Speaker 9: then on the pet business, did you see the POS was up high single digits and then kind of if so what what's kind of informing your caution on that business? Is there anything unusual that drove the strong POS in the

Okay.

Pulp business did you see the POS was up high single digits, and then kind of if so what whats kind of informing your caution on that business was there anything unusual that drove that.

Strong Pos and this quarter, yes. This is John Yes Q4.

Speaker 9: Yeah, this is John . Yeah, Q4 POS was up, you know, mid high single digits along with sales. So we, you know, felt good about that. You know, the big thing going on for us is, you know, the mix between consumables and durables, right? You know, durables, you know, I think we started communicating back in Q2, you know, durables are about 25% of the category 20% of centrals business. Um,

It was up mid high single digits, along with sales.

Felt good about that the big thing going on for Us is.

Joe on the mix between consumables and Durables Road.

Durables.

I think we started communicating back in Q2.

Durables are about 25% of the category, 20% of Central's business.

Back in Q2, we started seeing the declines the declines accelerated in Q3 and Q4.

Speaker 10: Back in Q2, we started seeing the declines, declines accelerating in Q3 and Q4. So we feel like we've got a couple quarters ahead of us to lap that. And then hopefully, it moderates and we see some flattening of it.

So we feel like we've got a couple of quarters ahead of us.

That and then hopefully it moderates and we see some flattening of it.

Speaker 4: Well, and also live animals, I would add to, you know, we've seen a little bit of a drop off and penetration, particularly in dog.

Well and also live animals I would add too.

We've seen a little bit of a drop off in penetration, particularly in dog.

Speaker 4: Cat seems to be doing pretty well, and aquatics and small animals are holding up pretty well.

Cat seems to be doing pretty well.

And Aquatics and live animal or a <unk>.

While animal excuse me are holding up pretty well.

Speaker 4: But that's going to be another driver, and we have a small live animal business as well, and that's been down because of, you know, you're just not seeing the adoption rate from the COVID high. So that's going to drive, you know, the durables and then also the consumables downstream.

But that's going to be another driver and we have a small live animal business as well and that's been that's been down.

Because of you're just not seeing the adoption rate.

From the Covid high so that's going to that's going to drive.

The durables and then also the consumables downstream.

Speaker 4: The other thing, you know, I would say is what we have to be mindful of, too, is the consumer trading down.

The other thing.

I would say.

Is what we have to be mindful of too as the consumer trading down.

Now on the garden side like.

Speaker 4: Sorry, we put it on mute there for a sec in in.

Alright, we put it on mute there for a SEC.

In in.

And wild Bird, we have good better best.

Speaker 4: In Wild Bird, we have good, better, best. And so we can cover up the consumer if they decide to trade down. And we have to see how that plays out in PET as well, particularly in our treats business, in terms of the consumer feeling a little bit stressed and wanting to trade down from, say, natural trues to all the way down to biscuits. And that's something we don't even make are biscuits. But so far, it's held up pretty well. But we do have to be a little bit cautious there.

And so we can cover off the consumer if they decided to trade down and we have to see how that plays out in pet as well, particularly in our treats business.

In terms of the consumer feeling a little bit stressed and wanting to trade down from say natural choose to all the way down to biscuits.

And that's something we don't even make our biscuits, but so far it's held up pretty well, but we do have to be a little bit cautious there.

Alright, thank you.

Okay.

Our next question comes from the line of Bob <unk> with CJS Securities. Please proceed with your question.

Speaker 1: Our next question comes from the line of Bob Labick with CJS Securities. Please proceed with your question.

And Bob Your line is live.

Alright, it seems.

Speaker 1: All right, it seems as if Bob's line is having some technical difficulties. We'll go ahead and proceed to the next question.

As if Bob's line is having some technical difficulties.

Go ahead and proceed to the next question.

Our next question comes from the line of Andrea <unk>.

Speaker 1: Our next question comes from the line of Andrea Teixeira with J.P. Morgan. We're here to proceed with your question.

Syria with J P. Morgan Chief proceed with your question.

Thank you operator, and good afternoon, everyone.

Speaker 11: And good afternoon, everyone. A question on the top line, the flat to modest up, I think underlying you mentioned. Are you assuming better POS? You just discussed, obviously, strong POS for the pet business.

A question on the top line flat to modest.

I think underlying you mentioned are you assuming better.

You just discussed obviously strong tos for the test business.

Speaker 11: and more modest on the garden. So it was just trying to parse out what are your expectations in terms of real POS data.

And more modest on the guidance. So I was just trying to parse out what are your expectations in terms of my <unk> Pos data.

Speaker 11: from a volume perspective. So I'm assuming in your transcript or not in your transcript, your release you talk about

From a volume perspective, assuming a transcript a noninterest with Dr. We need you talk about.

Speaker 11: modest pricing into 2024. So I wanted to see what your assumption in terms of the shipments in 2024.

Modest pricing into 2024, so I wanted to see what are your assumptions in terms of the.

Our shipments in 2024.

Speaker 11: And then also, if I add on the mid-single-digit GDP growth you mentioned, is that additional, that you're coming on spring, on the spring, your visibility for the shelf-life cycle to the spring. And then your outlook

Then.

And then also if I add on the mid single digit GDP growth. You mentioned is that additional that you're coming on screen on the screen you visibility for our Florida the software stack into the spring.

And then your outlook for it.

So likely operating margin can you update us on how much you expect from your program. The savings program is there anything any update on those savings.

Speaker 11: Slightly Apple for any margin. Can you update us on how much you expect from your program the savings program? If there is any update on on those savings?

And finally, sorry for all these questions, but the clarification on the gain that you had a $6 million in the quarter.

You had just paid out all the expenses from the programs that I think the game is added back to the EBIT. So just to see if they adjusted GAAP number and just a non-GAAP number includes the gain but excellent. Thanks, Matt. Thank you.

Okay.

Speaker 4: Okay, I'm going to take a crack at it. As far as

Okay, I'm going to take it.

<unk> at it.

As far as.

Speaker 4: POS and into 24, I think, you know, we go into every year assuming, you know, again, a fairly normal weather on the garden side. On the pet side, I think, you know, given we feel great about where inventories are, I think in both segments.

POF and into 'twenty four.

I think we.

We go into every year, assuming again fairly normal weather.

On the garden side.

On the pet side I think.

Given we feel great about where inventories are I think in both segments.

Speaker 4: we feel like, you know, POS should be pretty stable. So we feel like there's good equilibrium there in terms of our ships and then sales going forward to the consumer.

We feel like.

Pos should be pretty stable so we.

We feel like there's good equilibrium there in terms of our ships and then sales.

Sales going going forward to the consumer.

Nicole I think there was also a piece of that that patent TDP. When we would see the lift from that and that would be in the spring retailers set their shelves tip.

Speaker 5: I think there was also a piece of that that was tied to TDP when we would see the lift from that. Yeah. And that would be in the spring. Yeah. So the retailers set their shelves typically in the January time frame for the coming season. So that's when we'll start to see the impact from that. Yeah. Yeah. And that's included in your guide, I'm sorry.

Typically in the January timeframe for the coming season. So that's when we'll start to see the impact from that yeah. Yeah.

Based off included in your guide I'm, sorry, Yeah, Yeah, absolutely, yeah, and we've seen some on the pet side, we've seen some TDP growth as well.

Speaker 10: Yeah, yeah, absolutely. Yeah, and we've seen some, you know, on the pet side, we've seen some TDP growth as well, you know, and

And.

Speaker 10: You know, the good news for pet, you know, even with the softness and pet acquisition and pet ownership, and we talked a little bit about durables, you know, we feel really good about our share position. You know, we've taken market share in consumables, in durables, brick and mortar, and Ecom, and we feel very good about that and feel very good about continuing that in fiscal 24.

The good news for put even with the softness.

That acquisition on pet ownership, and we talked a little bit about durables, we feel really good about our share position.

We've taken market share in consumables, and durables brick and mortar and E com and we feel very good about that and feel very good about continuing that in fiscal 'twenty four.

Yes.

Speaker 11: That's very helpful. And then on the operating margin and the gain in the quarter.

That's very helpful and then on the operating margin and again in the quarter.

Okay helpful.

Speaker 4: Yeah, so the number we gave you, so the non gap of I think total year was like 16 million. Now that was net of the game. So we netted all that out.

Yes. So the number we gave you so the non-GAAP of I think total year was like 16 million now that was net of the game. So we netted all that out.

And we non-GAAP. It so if you look at garden.

Speaker 12: And we non-gapped it. So, if you look at garden, I think their gap number in the quarter is actually higher because of the gain. That's correct. So, just like we took out the expenses, trying to non-gap, we deducted the...

I think theyre GAAP number in the quarter is actually higher because of the gain is correct. So just like we took out the expenses trying to the non-GAAP.

We deducted the gain our non-GAAP results.

Okay perfect that helps and then just early that's super helpful. Thank you for clarifying and then the operating margin Ultimate walk right that you were expecting.

Speaker 11: Okay, perfect. Does that help? And then just, oh, that's super helpful. Thank you for clarifying. And then the operating margin outlook, right, that you're expecting on the Save Beach program, which obviously you did make a lot of efforts on a bunch of facilities that you closed and also warehouses. How we should be expecting embedded in your 250 and better outlook? What is the, what is we're expecting in embedding there?

On the savings program, which obviously make a lot of experts on a bunch of facilities that you closed in there also.

Warehouses.

We shouldn't be expecting embedded in your 250 and better outlook what is the.

What is we're expecting embedding there in terms of savings, yes, as I mentioned in the prepared remarks, we're not going to guide on the total savings number it's in the guide.

Speaker 4: Yeah, as I mentioned in the prepared remarks, we're not going to guide on the total savings number. It's it's in the guide.

Speaker 4: We also feel that there will be a lot of promotional activity. We need to see how the consumer and the retailers react in the year.

We we also feel that there will be a lot of promotional activity, we need to see how how the consumer and the retailers react in the year.

Speaker 4: If you look at the last few years too, we took savings every year, however, a lot of those savings were overshadowed by runaway inflation.

If you look at the last few years too we took savings every year. However, a lot of those savings were overshadowed by by runaway inflation. So.

Speaker 4: That's why we're a little reluctant to guide on an absolute number because we may not be able to see it given the competitive environment in the marketplace in the coming year. That's why we're opting to be a little bit more accurate and give specific data points on projects every quarter and actions that we're taking every quarter.

That's why we're a little reluctant to guide on an absolute number because we know we may not be able to see it.

Given the competitive environment in the marketplace in the coming year, that's why we're opting to be a little bit more accurate and give specific data points on on projects every quarter and actions that we're taking every quarter.

Okay, that's fair okay.

Our next question comes from the line of William Reuter with Bank of America. Please proceed with your question.

Speaker 1: Our next question comes from the line of William Reuter with Bank of America. Please proceed with your question.

Good afternoon.

Speaker 13: Good afternoon. The first is you've made a bunch of comments kind of with regard to your expectations of promotions. And it wasn't clear to me whether these comments were across both Lawn and Garden as well as Pat. I think it was clear that they were part of the Lawn and Garden commentary. But if you could talk a little more about that.

The first is you've made a bunch of comments kind of with regard to your expectations of promotions in.

It wasn't clear to me whether these comments were.

Across both lawn and garden as well as Pat.

I think it was clear that they were part of the lawn and garden commentary, but if you could talk a little more about that.

Speaker 4: Yeah, I think it's it's across the entire business.

Yes, I think it's across the entire business.

Speaker 4: You know, if you if you look at what's going on right now, you know, the macro environment is, you know, it's flashing a little bit red right now. And you've got higher interest rates. You've got

If you if you look at what's going on right now.

The macro environment is it's flashing a little bit red.

Right now and you have got higher interest rates you've got.

Speaker 4: CPG companies as well as retailers really working their working cap down.

CPG companies as well as retailers really working they're working cap down.

Speaker 4: because of the higher cost of capital. We think that, you know, it's going to be a bit of a dogfight in 24 and trying to take share here and there. And everyone's going to be doing kind of the margin grab. So we think it's going to be a lot more promotional, in particular in a deflationary environment. So we think it's going to be across the board, it's going to be a pretty tough year.

Because of the higher cost of capital we think that.

It's going to be a bit of a dogfight in 'twenty, four and trying to take share here and there.

And everyone's going to be doing kind of the margin grab. So we think it's going to be a lot more promotional.

In particular in a deflationary environment. So we think it's going to be across the board, it's going to be pretty tough year.

Speaker 13: Got it. And then I want to make sure I, um...

Got it and then I wanted to make sure I.

Got the previous point.

Speaker 4: got the previous point correct. But I think you said that inventory levels across both segments you believe to be in good position. So sell-in and sell-through should be pretty well aligned. Is that correct? Yeah, the spread's been narrowing throughout the year. So we feel pretty good about that sort of state of equilibrium right now.

Correct, but I think you said that inventory levels across both segments, you believe to be in good position.

Selling and sell through should be pretty well aligned is that correct yes.

They have been.

The spreads are narrowing throughout.

Throughout the year, so we feel pretty good about that sort of state of equilibrium right now that said our inventory levels.

Speaker 4: That said, our inventory levels, you know, if you ask me, I'd like to see us drive them down a little more, you know, I think we still have some work to do there and in particular, the higher the higher cost inventory. But but we're going to we're going to keep at it. I think we made great progress this last year, decreasing by 100 million. And I think our our cash flow from operations really reflect that.

If you ask me I would like to see us drive them down a little more.

I think we still have some work to do there and in particular, the higher the higher cost inventory, but.

But we're going to we're going to keep at it I think we made great progress this last year.

Creasing by $100 million and I think our cash flow from operations really reflect that.

Speaker 13: Got it. And then lastly, you brought up M&A towards the end of the prepared remarks. I feel like there's been a disconnect in valuations of public companies and a lot of private seller expectations over the last handful of years, particularly in PET. Do you believe that disconnect still exists? Do you think that sellers are becoming more rational? Are you more optimistic about the ability to find suitable targets at good valuations?

Got it and then lastly, you brought up M&A towards the end of the prepared remarks I feel like there's been a disconnect in valuations of public companies and a lot of private seller expectations over the last handful of years, particularly in pet.

Do you believe that this cannot disconnect still exist do you think that sellers are becoming more rationale are you more opportunity.

Optimistic about the ability to find.

<unk> targets at good valuations.

We are I mean, we're very value driven so we are value buyers of growth businesses.

Speaker 4: We are. I mean, we're very value driven. So we're value buyers of growth business.

Speaker 4: And you're right, you know, the last few years, the pet businesses were, were, you know, very, very high multiples. And that's why you, you didn't see us doing a lot of pet acquisitions. This is our first one in a while, we feel like we got a great business.

And Youre right. The last few years, the pet businesses, where we are.

Very very high multiples and Thats why you you didn't see us doing a lot of pet acquisitions.

This is our first one in a while we feel like we got a great business.

Speaker 4: Fits in really well into our dog and cat platform. We're seeing a lot more activity, I would say, in the last few weeks, so we're seeing a lot more deal flow. I do believe the valuations are more realistic right now than they were in the last few years. So I'm quite optimistic about the M&A pipeline and our ability to identify and get deals done. Great. That's it for me.

Fits in really well into our dog and cat platform.

We're seeing a lot more activity I would say in the last few weeks. So we're seeing a lot more deal flow.

I do believe the valuations are more realistic.

Right now than they were in the last few years, so I am quite optimistic about the M&A pipeline and our ability to identify and get deals done.

Great. That's it for me thank you.

Speaker 1: Our next question comes from the line of Hale Holden with Barclays. Please proceed with your question.

Our next question comes from the line of Hale Holden with Barclays. Please proceed with your questions.

Alright.

Speaker 4: I just have two questions. The pet treats business that you guys just announced the acquisition of, does that meaningfully change the mix of hard goods and consumables in the pet segment?

Two questions.

The pet treats business that you guys just announced the acquisition of does that mean.

Meaningfully change the mix of hard goods from consumables.

In the pet segment.

Speaker 4: No, I mean, it's it's it's a bit of a bolt on it'll it'll slide right into our dog and cat platform. So it's not going to meaningfully change, change, you know, the mix between consumable and durable. But what I would point out, I think if there's anything I want folks to take away from the call.

No I mean, it's.

It's a bit of a bolt on.

Slide right into our dog and cat platform.

So it's not going to meaningfully change change.

Mix between consumable durable, but what I would point out and I think if there's anything I want folks to take away from the call is really the kind of the real time evolution of our portfolio. So if you think about what we did a quarter ago. We sold the garden distribution business and then we turnaround and we buy a pet consumable business that as much better.

Speaker 4: is really the kind of the real time evolution of our portfolio. So if you think about what we did a quarter ago, we sold the garden distribution business and then we turn around and we buy a pet consumable business that has much better consumer tailwinds.

<unk>.

Speaker 4: is, you know, faster growth, higher margin, consumable, and really not seasonal. So you can see kind of what's going on there real time in terms of our portfolio. And I think if there's anything to take away from the call, it would be that.

Faster.

Growth higher margin consumable and really not seasonal.

So you can see kind of what's going on there real time in terms of our portfolio and I think if there's anything to take away from the call would be that.

Speaker 4: Great, thank you. And the second question was on the skew reduction efforts for this upcoming 12 months. Do you have a, or would you be able to get a range in terms of what

Great. Thank you and the second question was.

On the SKU reduction efforts for this upcoming 12 months.

Do you have a or would you be able to give a range in terms of what.

In aggregate what.

Speaker 4: You know, in aggregate, what levels are you taking out? Is it low single digits or much higher, where that could help on margins going forward in the future?

Level of Skus, you're taking out is low single digits are much higher.

Sure.

To help on margins going forward in the future.

Speaker 4: I won't quantify it, it's going to vary BU by BU. So we're going to look at all the businesses. We're going to have to make judgment calls, too. That kind of work is not free. Sometimes you have to get rid of SKUs and sometimes you don't get full price. So we're going to have to weigh each BU and look at the SKU count and look at what the contribution of those SKUs are. So very hard for me to quantify right now.

I won't quantify it.

It.

It's going to vary Bu by Bu, So we're going to look at all the businesses.

We're going to have to make judgment calls too.

That kind of work is not free sometimes you.

You have to get rid of Skus and sometimes you don't get full price. So we're going to have to weigh.

Each bu and look at the SKU count and look at what the contribution of those Skus are so.

Very hard for me to quantify right now.

Speaker 4: Fair enough. I appreciate the time. Thank you.

Yes.

Fair enough I appreciate the time. Thank you. Thank you.

Yes.

Mortgages.

Our next question comes from the line of.

Speaker 1: Our next question comes from the line of Carla Casella with J.P. Morgan. Please proceed with your question.

Carla Casella with Jpmorgan. Please proceed with your question.

Okay.

And Carlos your line is now live.

Hi can you hear me now.

Hey, Carlos.

Speaker 14: Hi, Carla. Yes. Hi. So, following on some of the prior questions, the inventory you mentioned is a little bit heavier on your books. How long do you think to work through some of that excess and high cost inventory?

Hi.

So following on some of the prior questions. The inventory you mentioned a little bit heavier on your books, how long do you think he worked through some of that excess.

And high cost inventory.

I think probably.

Anywhere from 12 to 18 months I think.

Speaker 12: anywhere from, you know, 12 to 18 months, I think.

And that in that area.

Okay, Great and then on the just garden distribution business that you sold.

Speaker 14: Okay, great. And then on the garden distribution business that you sold, did you give the total price or I'm wondering if there's any connection between that, any ties between that business and any other pieces of your business?

Did you give the total price or I'm wondering if there's any connection between that any ties between that business and then the other pieces of your business.

Okay.

Speaker 12: I'm not quite following that, Carla. Could you repeat that question? I want to make sure I answer it properly.

I'm not quite following that Karla could you could you repeat that question I want to make sure I answer it properly.

Speaker 14: Yeah, so the garden distribution business that was sold. Yeah. Yeah. Did that did that? Did that business interact to any of your other arms? Like there? Is there any? Oh, sure. Yeah, this synergies that you lose?

So the garden distribution business that was sold yes.

Yes did that did that did that business interact to any of your other arms like there is there any oh sure fees or dis.

<unk>.

Sure Carlos this is J D. It did so this was a distribution of third party vendor items to the independent channel to the independent Garden nurseries.

Speaker 7: Sure, Carla, this is JD, it did. So this was a distribution of third party vendor items to the independent channel, to the independent garden nursery.

Speaker 7: And we also, through that same distribution organization, sold our branded products as well. Now, the beauty of the deal that we have with BFG Supply, they are a national distributor, and this is their core competency. They will continue to distribute our branded products to that channel, to the independent channel as well. So really, it's both companies focusing on their core competencies.

And we also through that saying distribution organization sold our branded products as well now the beauty of the deal that we have with BFG supply. They are a national distributor and this is their core competency. They will continue to distribute our branded products to that channel to the <unk>.

Independent channel as well so really it's both companies focusing on their core competencies and it was incredibly complex business for US 4500, Skus distributing to 4000 customers that had 6000 stores. So we're reducing the complexity significantly by exiting that business and as <unk>.

Speaker 7: And it was an incredibly complex business for us, 4,500 SKUs distributing to 4,000 customers that had 6,000 stores. So we're reducing the complexity significantly by exiting that business. And as Nico said before, it was a marginally profitable business. We will maintain our distribution business to our larger big box customers.

<unk> said before it was a marginally profitable business, we will maintain our distribution business to our larger big box customers and they're here again, our branded products right along with those products to the stores.

Speaker 7: And there, here again, are our branded products right along with those products to the store.

Yes.

Speaker 14: Okay, great. And then did you give the sale price or the impact on revenue or EBITDA? I may have missed, I missed a little bit of the beginning.

Okay, Great and then did you give the sale price or the impact on revenue or EBITDA I may have missed I missed a bit little bit at the beginning.

No we havent done that.

Speaker 12: No, we we haven't done that. It it it's fairly diminished.

It's fairly de Minimis.

Speaker 12: Okay, 5% of garden revenue is what we gave out, but it was it was margin diluted to the garden business overall.

Okay, 5% of Garden revenue is what we gave out but.

It was it was margin dilutive to the garden business.

Overall.

Okay, great. Thank you.

Okay.

And our next question comes from the line of <unk> Martinson with Jefferies. <unk> Company. Please proceed with your question.

Speaker 1: And our next question comes from the line of Carol Martinson with Jeffries Company. Please proceed with your question.

Speaker 15: Good afternoon. Apologies if I missed it. Did we break out what the TD EBS acquisition costs us and what it's gonna add to the top and bottom line?

Good afternoon apologies if I missed it did we break out what the TD PBS acquisition costs us on what it's going to add to the top and bottom line.

Speaker 15: No, no, we don't give that information out. But, you know, if you look at the cash flow statement next quarter, you probably can figure it out. Okay. And certainly working capital, nice source of cash. I mean, I hear your commentary that there's still some inventory that you guys would like to move out. But how should we think about working capital this year, you know, certainly compared to the past?

No no we don't give that information out.

But if you look at the cash flow statement next quarter, you probably can figure it out okay.

And certainly working capital nice source of cash.

Your commentary that there is still some inventory that you guys would like to move out, but how should we think about working capital this year.

Certainly compared to this.

This past year that was certainly a benefit to our bottom line yes.

Yes, I don't think it'll be quite as dramatic but I think there is still work, we can do as far as converting.

Speaker 12: Yeah, I don't think it'll be quite as dramatic, but I think there's still work we can do as far as converting, you know, inventories into cash, working on payables, receivables. I think it's, you know, and everybody's doing it. It's not just us. So we're going to we're going to stay after it. I really love the progress we've made, but there's still more work

Inventories into cash working on payables receivables.

Thank you.

And everybody is doing it it's not just us so.

We're going to we're going to stay after it I really loved the progress we've made but there's still more work to do.

Okay, and then when we look at.

Speaker 15: And then when we look at the opportunity for M&A, it certainly does sound like, you know, value buyers of growth businesses, tuck-ins, things of that nature. It doesn't sound like it.

The opportunity for M&A. It certainly it does sound like value buyers growth businesses tuck ins things of that nature. It doesn't sound like these are transformative.

Speaker 15: transformative transactions, but for the right one, where are you guys coming from?

Transactions, but for the right one.

Are you guys comfortable taking leverage to.

Speaker 6: We'll go over four for the right deal. We're happy going over four and then de-levering as quickly as possible back to our stated range of three to three and a half. So willing to lean into the right deal for sure. Thank you very much, guys. Appreciate it.

We will go over for.

For the right deal.

We're happy going over four and then dealer.

Delevering as quickly as possible back to our stated.

The range of three to three and a half so willing to lean into to the right deal for sure.

Thank you very much guys I appreciate it thank you.

Speaker 2: And that was our last question. And with that, I would like to thank you everyone for attending our call today and have a wonderful Thanksgiving. If there are any questions later on, please reach out to me.

And that was our last question and with that I would like to thank you everyone for attending our call today and have a wonderful Thanksgiving. If there are any questions later on please reach out to me.