Q1 2024 Central Garden & Pet Co Earnings Call
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Central Garden & Pet first quarter fiscal 2024 earnings call. My name is Paul, and I will be your conference operator. At this time, all participants are to listen only to the audio.
Ladies and gentlemen, thank you for standing by welcome to the Central Garden and Pet first quarter fiscal 2024 earnings call. My name is Paul 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 and instructions will be given at that time.
Operator: Later, we will conduct a question and answer session. Instructions will be given at that time. Anyone should require operator assistance during this session, please press star zero on your touch screen. As a reminder, this conference call is being recorded. I would now like to turn the call over to Frederic Edelman, Vice President, Investor Relations, and Sustainability. Please go ahead.
Paul: Once you require operator assistance during the call. Please press star zero on your Touchtone phone.
Paul: As a reminder, this conference call is being recorded I would now like to turn the call over to Frederic Edelman, Vice President Investor Relations and corporate sustainability sustainability. Please go ahead.
Frederic Edelman: Good afternoon, everyone. Thank you for joining Central's first quarter fiscal 2024 earnings call. With me on the call today are Beth Springer, Interim Chief Executive Officer, Nicholas Lahanas, Chief Financial Officer, Joan Hanson, President, Pet Consumer Products, and J.D. Walker, President, Garden Consumer Products. In a moment, Beth will provide our key messages, and Nico will discuss these in more detail. After the prepared remarks, J.D.
Frederic Edelman: Good afternoon, everyone. Thank you for joining central first quarter fiscal 2024 earnings call.
Frederic Edelman: With me on the call today are Beth Springer interim Chief Executive Officer, Nicola Chief Financial Officer, John Hanson, President Pet consumer products, and J D. Walker President Garden consumer product in a moment Beth will provide all key messages and Nico will discuss these in more detail.
Frederic Edelman: After the prepared remarks, J D and John will join us for the Q&A.
Frederic Edelman: and John will join us for the Q&A. Before I 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 shared today. We've described the range of risk factors in our annual report filed with the SEC. Central undertakes no obligation to publicly update these forward-looking statements to reflect new information, subsequent events, or otherwise.
Frederic Edelman: 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 shared today.
Frederic Edelman: We've described the range of risk factors in our annual report filed with the SEC.
Frederic Edelman: Central undertakes no obligation to publicly update these forward looking statements to reflect new information subsequent events or otherwise.
Frederic Edelman: Our press release and related materials are available at www.ir.central.com and contain the gap reconciliation for the non-gap measures discussed on this call. Lastly, all gross comparisons made during this call are against the same period in the prior year, unless otherwise stated. If you have further questions after the call or anytime during the quarter, please don't hesitate to reach out to me. And with that, I will now turn it over to Beth Springer. Beth?
Frederic Edelman: Our press release and related materials are available at IR adult central Dot Com and contains the GAAP reconciliation for the non-GAAP measures discussed on this call.
Frederic Edelman: Lastly, all growth comparisons made during this call are against the same period in the prior year.
Frederic Edelman: Otherwise stated.
Frederic Edelman: Have further questions after the call or any time during the quarter. Please don't hesitate to reach out to me and with that I will now turn it over to Beth Springer Beth.
Beth Springer: Thank you, Frederique, and good afternoon, everyone. Let me begin with the three themes I hope you'll take away from our call today. First, the fiscal year is off to a solid start. We delivered earnings per share of one cent and modestly grew net sales. Most importantly, we saw margins improve thanks to our cost management and moderating inflation. Our market shares and total distribution points were up across most of our pet and garden businesses in tracked channels. We're particularly pleased to see our continued strong growth in e-commerce. Second, we're making progress on our multi-year journey to simplify our business and improve efficiency across our organization by rationalizing our footprint, optimizing our portfolio, and improving our cost structure. We are intensely focused on this cost and simplicity program and continue to reap benefits from initiatives we implemented previously, as well as kick off new projects.
Beth Springer: Thank you Fredrik and good afternoon, everyone.
Beth Springer: Let me begin with the three themes I hope you'll take away from our call today.
Beth Springer: First the fiscal year is off to a solid start we delivered earnings per share of one cent and modestly grew net sales. Most importantly, we saw margins improving thanks to our cost management and moderating inflation.
Beth Springer: Our market shares in total distribution points were up across most of our pet and garden businesses in tracked channels were particularly pleased to see our continued strong growth in e-commerce.
Beth Springer: Second, we're making progress on our multiyear journey to simplify our business and improve efficiency across our organization.
Beth Springer: By rationalizing our footprint optimizing our portfolio and improving our cost structure.
Beth Springer: We are intensely focused on this cost and simplicity program and continue to reap benefits from initiatives, we implemented previously as well as kick off new projects some.
Beth Springer: Some examples of recent initiatives are the closure of a live plant facility and the implementation of an enhanced treasury management system. And third, our outlook for the fiscal year is unchanged. The vast majority of our garden season is still in front of us, and we continue to expect a challenging external environment for the balance of the year. Rest assured that all 6,700 members of us on Team Central are working hard to meet or exceed that guidance.
Beth Springer: Some examples of recent initiatives are the closure of our lives plants facility and the implementation of an enhanced Treasury management system.
Beth Springer: And third our outlook for the fiscal year is unchanged. The vast majority of our garden season still in front of us and we continue to expect a challenging external environment for the balance of the year rest assured that all 6700 members of us on team central are working hard to meet or exceed that guidance.
Beth Springer: Looking beyond the first quarter, we remain confident in our central-to-home strategy, the long-term viability of the pet and garden industries, and the competitive strengths of our business. And we continue to make thoughtful investments for the future. With that, I will turn it over to Nico, who will share with you more details.
Beth Springer: Looking beyond the first quarter, we remain confident in our central the home strategy for long term vibrancy of the pet and garden industries and the competitive strengths of our business and we continue to make thoughtful investments for the future.
Beth Springer: With that let me turn it over to Niko, who will share with you more details.
Nicholas Lahanas: Thank you, Beth. Good afternoon, everyone. Expanding on Beth's key themes, I'll cover details of our first quarter results, the strides we are making on our cost and simplicity program, and our outlook for the year. Let's start with our Q1 results. Net sales increased 1% to $635 million. Organic net sales also grew 1%. Consolidated gross profit increased 4% to $179 million.
Beth Springer: No.
Niko: You bet good afternoon, everyone.
Niko: Banding on best key themes I'll cover details of our first quarter result, the strides we are making on our cost and simplicity program and our outlook for the year.
Niko: Let's start with our Q1 results.
Niko: Net sales increased 1% to $635 million.
Niko: Organic net sales also grew 1%.
Niko: Consolidated gross profit increased 4% to 179 million gross margin improved 80 basis points to 28, 2% driven by our laser focus on cost management and moderating inflation.
Nicholas Lahanas: Gross Margin improved 80 basis points to 28.2%, driven by our laser focus on cost management and moderating inflation. We've successfully controlled what we can control. SG&A expense of $170 million was in line with the prior year, and SG&A as a percentage of net sales decreased 40 basis points to 26.9%.
Niko: We've successfully control what we can control.
Niko: SG&A expense of 170 million was in line with prior year and SG&A as a percentage of net sales decreased 40 basis points to 26, 9%.
Nicholas Lahanas: Operating income increased by $8 million to $8.4 million, and operating margin increased 120 basis points to 1.3%. The increase was driven by improved gross margin and our focus on cost and cash, resulting in lower SG&A as a percentage of net sales. Net interest expense was $10 million compared to $14 million in the prior year, driven by higher cash balances and higher interest rates.
Niko: Operating income increased by 8 million to $8 4 million and operating margin increased 120 basis points to one 3%.
Niko: The increase was driven by improved gross margin and are focused on cost and cash resulting in lower SG&A as a percentage of net sales.
Niko: Net interest expense was $10 million compared to $14 million in the prior year, driven by higher cash balances and higher interest rates.
Nicholas Lahanas: Our net income was $430,000, compared to a net loss of $8 million a year ago. Our earnings per share were 1 cent, compared to a loss per share of 16 cents. Adjusted EBITDA was $37 million compared to $29 million. From a tax standpoint, we realize an outsized tax benefit for the quarter, larger than our small loss, due to stock compensation. For the year, we expect an effective tax rate in the range of 22 to 24%, similar to 2023.
Niko: Net income was 430000 compared to a net loss of $8 million a year ago.
Niko: Our earnings per share were one cents compared to a loss per share of <unk> 16 cents.
Niko: Adjusted EBITDA was $37 million compared to $29 million.
Niko: From a tax standpoint, we realized an outsized tax benefit for the quarter larger than our small loss due to stock compensation.
Niko: For the year, we expect an effective tax rate in the range of 22% to 24% similar to 2023.
Nicholas Lahanas: I'll now provide some color on our two segments, starting with Pet. Pet segment sales declined 2% to $409 million as growth in health and wellness in aquatics and reptiles was more than offset by double-digit declines in durables across pet beds, small animals, and our distribution business. In line with the softness and pet ownership after the COVID spike, we expect the headwinds for durables to continue. Organic net sales, which exclude the TD BBS acquisition, declined 5%.
Speaker Change: I'll now provide some color on our two segments starting with pet.
Speaker Change: Pet segment sales declined 2% to $409 million as growth in health and wellness and Aquatics, and reptile was more than offset by double digit declines in durables across pet bed small animal and our distribution business.
Speaker Change: In line with the softness in pet ownership after the Covid spikes, we expect the headwinds for durables to continue.
Speaker Change: Organic net sales, which exclude the T D B B S acquisition declined 5%.
Nicholas Lahanas: Underscoring the health of our business, we grew market share and total distribution points, or TDPs, in the majority of our categories, including dog toys, small animal, pet bird, and aquatics, and health and wellness. Our e-commerce business continues to grow and now represents approximately 26% of our pet sales. Pet segment operating income improved by 10% to $43 million, and operating margin improved 110 basis points to 10.6%, driven by recently implemented initiatives under our Cost and Simplicity Program and lower commercial spend. Pet Segment Adjusted EBITDA was $54 million compared to $50 million a year ago.
Speaker Change: Underscoring the health of our business, we grew market share in total distribution points or T. D piece and the majority of our categories, including dog toys small animal pet bird in Aquatics, and health and wellness.
Speaker Change: Our E Commerce business continues to grow and now represents approximately 26% of our pet sales.
Speaker Change: Pet segment operating income improved by 10% to $43 million and operating margin improved 110 basis points to 10, 6% driven by recently implemented initiatives under our cost and simplicity program and lower commercial spend.
Pet segment, adjusted EBITDA was 54 million compared to $50 million a year ago.
Nicholas Lahanas: Turning now to Garden. Garden segment sales grew 6% to $225 million, driven by early season shipments of controls and fertilizer, grass, and packet seeds. Unfavorable warmer weather negatively impacted sales in wild bird. Recall that we recently sold the independent Garden Channel business distribution business, which represented approximately 5% of garden sales and was margin dilutive. Organic net sales increased 11 percent. The garden segment operating loss was $9 million compared to a loss of $11 million a year ago.
Speaker Change: Turning now to garden.
Speaker Change: Garden's segment sales grew 6% to $225 million driven by early season shipments and controls and fertilizer grass and packet seats.
Speaker Change: Unfavorable warmer weather negatively impacted sales 'n' wild bird recall that we recently sold the independent Garden channel business distribution business, which represented approximately 5% of garden sales and it was margin dilutive.
Speaker Change: Organic net sales increased 11%.
Speaker Change: Garden segment operating loss was $9 million compared to a loss of $11 million a year ago.
Nicholas Lahanas: Garden segment operating margin improved by a negative 3.9%, driven by improved growth margin and favorable overhead absorption, partially offset by higher commercial spend. Garden segment adjusted EBITDA was $2 million compared to break-even a year ago. While garden performance was strong in the first quarter, it is not indicative of the year, as our first quarter typically represents only 15% of annual garden sales. The prior year's quarter ended on Christmas Eve. This year we had a more favorable timing with the quarter ending a week later. In addition, select retailers have been loading their stores earlier in anticipation of the season. We gained market share in grass, fertilizer, and insecticides thanks to our investments in Consumer Insights and brand building. And although it's still a small part of our garden business, our e-commerce sales grew double digits versus the prior year.
Speaker Change: Garden segment operating margin improved to negative three 9% driven by improved gross margin and favorable overhead absorption, partially offset by higher commercial spend.
Speaker Change: Garden's segment, adjusted EBITDA was $2 million compared to breakeven a year ago.
Speaker Change: While garden performance was strong in the first quarter. It is not indicative for the year as our first quarter typically represents only 15% of annual garden sales.
Speaker Change: The prior year quarter ended on Christmas Eve. This year, we had a more favorable timing with the quarter ending a week later.
Speaker Change: In addition, select retailers have been loading their stores earlier in anticipation of the season.
Speaker Change: We gained market share and graph fertilizer and insecticides, thanks to our investments in consumer insights and brand building.
Speaker Change: And although still a small part of our garden business. Our E Commerce sales grew double digits versus prior year.
Nicholas Lahanas: Now moving on to the balance sheet and cash flows, we are pleased with the strength of our balance sheet and the progress we made decreasing inventories by $76 million, despite the added inventory from the TDBBS acquisition. Cash and cash equivalents at the end of the first quarter were $341 million, compared to $88 million a year ago, an increase of $254 million after paying for the TDBBS acquisition and our usual Q1 working capital bill. Net cash used by operations was $70 million for the quarter, compared to $63 million a year ago.
Speaker Change: Now moving onto the balance sheet and cash flows we are pleased with the strength of our balance sheet and the progress we made decreasing inventories by 76 million. Despite the added inventory from the <unk> acquisition.
Speaker Change: Cash and cash equivalents at the end of the first quarter were $341 million compared to $88 million a year ago, an increase of $254 million after paying for the TD Bbs acquisition and our usual Q1 working cap build.
Speaker Change: Net cash used by operations was $70 million for the quarter compared to $63 million a year ago Capex.
Nicholas Lahanas: CapEx was $10 million for the quarter, 43% below the prior year. This quarter, we invested in maintenance and productivity initiatives in dog and cat, small animal, bird, grass, and life goods. Total debt of $1.2 billion was in line with the prior year. Our leverage ratio was 3 at the end of the quarter compared to 3.1 times a year ago, well within our target range. We had no borrowings under our credit facility at the end of the first quarter.
Speaker Change: Capex was $10 million for the quarter, 43% below prior year.
Speaker Change: This quarter, we invested in maintenance and productivity initiatives and dog and cat small animal bird grass and light goods.
Speaker Change: Total debt of $1 2 billion was in line with prior year or.
Speaker Change: Our leverage ratio was three <unk> at the end of the quarter compared to three one times a year ago well within our target range, we had no borrowings under our credit facility at the end of the first quarter.
Nicholas Lahanas: Depreciation and amortization for the quarter was $23 million, compared to $22 million in the prior year quarter. During the quarter, we repurchased approximately 40,000 shares, or 1.4 million of our stock. Now turning to some of the strides we are making on our cost and simplicity program. As a reminder, we've identified a series of projects across procurement, manufacturing, logistics, portfolio optimization, and administrative costs. Let me share a few highlights from the first quarter.
Speaker Change: Depreciation and amortization for the quarter was $23 million compared to $22 million in the prior year quarter.
Speaker Change: During the quarter, we repurchased approximately 40000 shares or $1.4 million of our stock now.
Speaker Change: Now turning to some of the strides we're making on our cost and simplicity program.
Speaker Change: As a reminder, we've identified a series of projects across procurement manufacturing logistics portfolio optimization and administrative costs, let me share a few highlights from the first quarter we.
Nicholas Lahanas: We see procurement as one of the largest opportunities. We have projects underway to further centralize the purchasing of items such as pallets, corrugated cardboard, and containers. We are improving our capabilities with training in best practices and are investing in software solutions to lay the groundwork for future savings in procurement. Following the closure of our Outdoor Cushion Manufacturing and Warehousing Facility in Amarillo, TX, we just closed a Live Goods Greenhouse in Burtonsville, MD. In addition, we continue to reduce our skew count across our pet and garden business and are deploying technology solutions to reduce waste and increase manufacturing yields. As a result of the recent sale of our independent garden center distribution business, we closed our Portland, Oregon, garden distribution facility.
Speaker Change: We see procurement as one of the largest opportunities we have projects underway to further centralize the purchasing of items, such as palates corrugate and containers, we are improving our capabilities with training and best practices and are investing in software solutions to lay the groundwork for future savings in procurement.
Speaker Change: Following the closure of our outdoor cushion manufacturing and warehousing facility in Amarillo, Texas, We just closed our live goods greenhouse and Burtonsville, Maryland.
Speaker Change: In addition, we continue to reduce our SKU count across our pet and garden businesses and are deploying technology solutions to reduce waste and increase manufacturing yields.
Speaker Change: As a result of the recent sale of our independent Garden Center distribution business, we closed our Portland, Oregon Garden distribution facility.
Nicholas Lahanas: Additionally, we are in the initial stages of integrating our recent acquisition of the dog treat-and-chew company TD BBS, and we are pleased with their performance thus far. Lastly, we are implementing an enhanced treasury management system to streamline our treasury process, reduce costs and complexity of bank connectivity, minimize interest expense, and improve forecasting and cash returns.
Speaker Change: Additionally, we are in the initial stages of integrating our recent acquisition of the dog treat and shoe company TD Bbs, we are pleased with their performance thus far.
Speaker Change: Lastly, we are implementing an enhanced treasury management system to streamline our treasury process reduce cost and complexity of bank connectivity minimize interest expense and improved forecasting and cash returns.
Nicholas Lahanas: We remain focused on this multi-year journey to reduce costs, simplify our business, and improve efficiency, and will continue to provide quarterly updates. Our pipeline of projects to leverage our scale and deploy our capabilities across the company is strong, and we will continue to prioritize business continuity and minimize disruption to our operations. As in the past, our goal is to supplement organic growth with acquisitions, and we expect there will be plenty of opportunities ahead of us. As announced in December, our Board of Directors approved a stock dividend to increase the liquidity in our Class A common shares. We believe the enhanced liquidity will benefit our stockholders and provide Central with more flexibility to pursue our growth objectives tomorrow at the close of business. Each shareholder will receive one additional Class A common share for every four shares of any class of shares held on the record date of January 8.
Speaker Change: We remain focused on this multiyear journey to reduce costs and simplify our business and improve efficiency and will continue to provide quarterly updates our pipeline of projects to leverage our scale and deploy our capabilities across the company is strong and we will continue to prioritize business continuity and minimized.
Speaker Change: Disruption to our operations as in the past our goal is to supplement organic growth with acquisitions and we expect there will be plenty of opportunity ahead of us.
Speaker Change: As announced in December our board of directors approved a stock dividend to increase the liquidity in our class a common shares.
Speaker Change: We believe the enhanced liquidity will benefit our stockholders and provides central with more flexibility to pursue our growth objectives.
Speaker Change: Tomorrow at the close of business each shareholder will receive one additional class a common share for every four shares of any class a shares held on the record date on January eight.
Nicholas Lahanas: Trading will begin on a dividend-adjusted basis the day after, February 9th. And finally, turning to our Fiscal 24 Outlook, which is unchanged from the guidance we gave in November, we continue to expect non-GAAP EPS for the year of $2.50 or better, translating to non-GAAP EPS of $2 or better after the stock dividend. For the remainder of the fiscal year, we assume a challenging environment with deflationary cost pressures in certain commodity businesses, softer consumption in a number of categories, and lower foot traffic in key retailers. Our outlook includes modest carryover pricing to help mitigate inflationary headwinds. While we've done an excellent job managing inventories, higher-value inventory continues to put pressure on margins. The benefit of the lower cost is taking more time to realize as we continue to work through on-hand high-cost inventory. Additionally, our expectation for CapEx remains unchanged at about $70 million across both segments, driven mostly by maintenance and productivity initiatives.
Speaker Change: Trading will begin on a dividend adjusted basis the day after February 9th.
Speaker Change: And finally, turning to our fiscal 'twenty four outlook, which is unchanged from the guidance. We gave in November we continue to expect non-GAAP EPS for the year of $2 50 or better.
Speaker Change: Translating to non-GAAP EPS of $2 or better after the stock dividend.
Speaker Change: For the remainder of the fiscal year, we assume a challenging environment with deflationary cost pressures in certain commodity businesses softer consumption and a number of categories and lower foot traffic in key retailers.
Speaker Change: Our outlook includes modest carryover pricing to help mitigate inflationary headwinds.
Speaker Change: Well, we've done an excellent job managing inventories higher value higher value inventory continue to put pressure on margins the benefit of the lower cost is taking more time to realize as we continue to work through on hand high cost inventory.
Speaker Change: Additionally, our expectation for Capex remains unchanged at about $70 million across both segments, driven mostly by maintenance and productivity initiatives.
Nicholas Lahanas: Our guidance reflects our belief in the competitive strength of Central, our Central-to-Home strategy, and the long-term trends supporting growth in the pet and garden industry. In the near term, we will continue to focus on cost and cash and will take a more deliberate approach to investments in our consumer growth agenda. Thanks to our strong financial position and the amount available on our credit facility, we are always on the lookout for great growth and margin-accretive acquisition targets in both pet and garden. This outlook excludes any impact from potential acquisitions or restructuring activities undertaken during the year, including any projects under the Cost and Simplicity Program.
Speaker Change: Our guidance reflects our belief in the competitive strength of central are central to the home strategy and the long term trends supporting growth in the pet and garden industries.
Speaker Change: In the near term, we will continue to focus on cost and cash and we will take a more deliberate approach to investments in our consumer growth agenda.
Speaker Change: Thanks to our strong financial position and the amount available on our credit facility. We are always on the lookout for great growth and margin accretive acquisition targets in both pet and garden.
Speaker Change: This outlook excludes any impact from potential acquisitions or restructuring activities undertaken during the year, including any projects under the cost and simplicity program.
Operator: The outlook also excludes the impact of our recent TD BBS acquisition, given we're still in the initial stages of the integration process. And with that, we'd like to open the line to questions. Thank you. We will now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone cable. The confirmation tone will indicate your line is in the, You may press star 2 if you'd like to remove your..., participants using speaker equipment, it may be necessary to pick up your handset before pressing the button.
Speaker Change: The outlook also excludes the impact of our recent TD Bbs acquisition, given we're still in the initial stages of the integration process and with that we'd like to open the line for questions.
Speaker Change: Thank you we will now be conducting a question and answer session. If you'd 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 May press star two if you'd like to remove your question from the queue for participants.
Speaker Change: Speaker equipment, it may be necessary to pick up your handset before pressing the star keys one.
Bradley Thomas: One moment, please, while we pull for... Our first question is from Bill Chappell with Truist. Please proceed with your question. Thanks. Good afternoon.
Speaker Change: One moment, please while we poll for questions.
Speaker Change: Okay.
Thank you. Our first question is from Bill Chappell with <unk> Securities. Please proceed with your question.
Bradley Thomas: Thanks. Good afternoon, just wanted to talk a little bit more on the garden side. I mean, you you said in the quarter. There was some earlier shipments of some garden categories and that's kind of.
J.D. Walker: He just wanted to talk a little bit more on the garden side. I mean, you said in the quarter that there were some earlier shipments of some garden categories. And that's kind of, and I know the December quarter is not indicative of the full year, but I thought the trend had largely been more just-in-time ordering for everything from the retailers, especially as we go into this season. So is that any different? Are you expecting even more tightening of orders closer to time of sale? Or is it loosening? Any kind of color you can give them, that would be great. Hi Bill, it's JD.
No.
Bradley Thomas: December quarter is that indicative of the full year, but.
Speaker Change: I thought the trend has largely been.
Speaker Change: More just in time ordering for everything from the retailers and especially as we go into this season. So is that any different are you expect even more tightening of orders closer to the time of sale or is it loosening any kind of color you can give them that would be great.
Speaker Change: Hi, Bill it's J D. Thanks for the question is I think it's too early to to determine if this is a long term trend or not last year, we definitely saw.
J.D. Walker: Thanks for the question. I think it's too early to determine if this is a long-term trend or not. Last year, we definitely saw orders moving closer to consumption just in time. This year, we mentioned in the script that our quarter ended a week later. So last year, it ended just before Christmas. This year was a week later, 12:30.
J D: Orders moving closer to consumption just in time this year, we'd mentioned in the script that our quarter ended a week later so last year. It ended just before Christmas this year it was a.
J D: A week later 12 30.
J.D. Walker: That week after really helped with shipments. The retailers started to load the stores in anticipation of the season. We also saw a couple of select retailers decide to move their shipments forward. And I don't know if that's going to be a long-term trend or not, but a couple of key retailers did, and it impacted our sales for the quarter. I understand that.
J D: That week after really helped with shipments the retailers start to load the stores in anticipation of the season. We also saw a couple of select retailers.
J D: Decided to move their shipments forward and I don't know that that's going to be a long term trend or not and not all retailers did that but a couple of key retailers did in and impacted our.
J D: Sales for the quarter.
Speaker Change: Got it so in general where would you say the <unk>.
J.D. Walker: So in general, where would you say the enthusiasm we've heard kind of mixed results from the DIY retailers right now to start the year anyway? How do you think they're set up or looking for the upcoming season? Well, Bill, they're all saying the right things. I'd say that they're all signaling that they're eager for the season. Obviously, lawn and garden attracts a lot of footsteps into the store during the spring, and they're in a much better inventory position this year than they were a year ago. So I do believe that they're looking forward to the upcoming season to get back on track, if you will. Last year was a bit of an anomaly with heavier inventories, and the weather never fully cooperated. This year, they're saying that they're excited about the season, and I think their actions are backing that up.
Speaker Change: <unk> we have here.
Speaker Change: <unk> results out of the DIY retailers right now to start the year anyways, how do you think theyre set up or looking for the upcoming season.
Speaker Change: We'll build they're all saying the right things I'd say that they're all signals that they're they're eager for the season, obviously lawn and garden drops a lot of footsteps into the store during the spring and they are in a much better inventory position. This year than they were a year ago. So I do believe that they are looking forward to the upcoming season too to get.
Speaker Change: Back on track if you will last year was a bit of an anomaly.
Speaker Change: With heavier inventories and the weather never fully cooperated.
Speaker Change: This year Theyre, saying that they're excited about the season and I think their actions are backing that up we're seeing a lot more promotional activity a lot more engagement from the customer.
J.D. Walker: We're seeing a lot more promotional activity, and a lot more engagement from the customers. And, you know, we're looking forward to the season as well. So I think we're cautiously optimistic. Got it. And then switching just to pet, you know, you would kind of sound concerned, Bill, about just his overall pet trends, especially for durable pets, as we move into 24. I mean, certainly saw some of that on a durable in one cue.
Speaker Change: And yeah, we're looking forward to the season as well so I think we're cautiously optimistic at this point.
Speaker Change: Got it and then.
Switching just to peg you had kind of.
Speaker Change: Sandy concern Bell about just overall pet trends, especially for durable as we move into 'twenty four I mean, certainly saw some of that on the durable and <unk> are you seeing that bleed over into any of the other segments of pet in terms of just overall consumer demand or trade down or.
Joan Hanson: Are you seeing that bleed over into any of the other segments of the pet industry in terms of just overall consumer demand or trade down or, worse yet, the bad term destocking of pets? Yeah, Bill, this is John. You know, the biggest place we're seeing is where we mentioned that it's durables, double-digit declines in durables, softening pet ownership from the COVID highs. You know, and keep in mind that, in the category, approximately 75% of the categories are consumables, and 25% are durables. With our business, we run 80-20.
Speaker Change: Or or.
Speaker Change: A bad term destocking of pets.
Speaker Change: Yeah Bill this is John the biggest place we're seeing that's where we mention that's durables you know double digit declines in durables softening pet ownership from the Covid highs and keep in mind you know in the category.
John Hanson: Approximately 75% of the categories consumables and 25% <unk>.
John Hanson: With our business.
John Hanson: Run 80 20.
Joan Hanson: You know, and the good news for us is that we're taking market share in both consumables and durables. So we feel good about that. But the category does remain soft. We're seeing some moderating growth in consumables as well. But I wouldn't say we're in the categories we compete in.
Speaker Change: And the good news for US is we're taking market share in both consumables and durables. So we feel good about that.
But the category does remain soft we're seeing some moderating growth in consumables as well, but I wouldn't.
Speaker Change: In the categories, we compete I wouldn't say we've seen.
Joan Hanson: I wouldn't say we've seen a, you know, trade down per se. Thanks for the color.
Speaker Change: You know trade down per se.
Speaker Change: Yeah.
Speaker Change: Great. Thanks for the color.
Speaker Change: Yeah.
Speaker Change: Our next question is from Brad Thomas with Keybanc Capital markets. Please proceed with your question.
Bradley Thomas: Our next question is from Brad Thomas with KeyBank Capital. Hi, good afternoon. Thanks for taking my question. I wanted to follow up with JD just about the all-important spring selling season here, and was wondering if you could give us some color about how the, you know, promotional backdrop and competitive backdrop may be affecting things as you think about the months ahead here. Sure. Thanks, Brad.
Bradley Thomas: Hi, good afternoon, Thanks for taking my question.
Bradley Thomas: Wanted to follow up with with with J D. Just about the all important spring selling season here and was wondering if you could give us some color about how the promotional backdrop and competitive backdrop, maybe affecting things as you think about the months ahead here.
J D: Sure. Thanks.
J D: Thanks, Brian Thanks for the question.
J.D. Walker: Thanks for the question. You know, I'd say that we don't have clarity in terms of some of the competitive and the competitive environment for the future. But I would say that we feel good about the promotional aspect of it. So I think what we're seeing is customers are going to be more promotional. We're getting our fair share there.
J D: I would say that it's dip.
Speaker Change: Don't have.
Speaker Change: Clarity in terms of some of the competitive.
Speaker Change: And the competitive environment for the future I'd say that we feel good about the promotional aspect of it so I think.
What we're seeing is customers are going to be more promotional we're getting our fair share there.
Speaker Change:
Speaker Change: They are.
J.D. Walker: They are bringing in inventory as we expected them to. So loading the stores, setting the stores, I think all the controllable aspects of the, you know, in front of us, we feel good about that. All the controllable causal factors, if you will. It's the uncontrollables that we don't know about, right?
Speaker Change: Bringing in inventory as we expected them to so loading the store setting the stores I think all the controllable.
Speaker Change: Aspects of that in.
Speaker Change: In front of US we feel good about that all the controllable causal factors. If you will it's the uncontrollable that we don't know about right weather and so on but we've had two tough weather years. That's why we're taking a cautious approach a more measured approach to the year.
J.D. Walker: Weather and so on. But, you know, we've had two tough weather years. That's why we're taking a cautious approach, a more measured approach to the year. But, as I told Bill, you know, our retail customers are very engaged. Everything we can control in terms of product availability and promotional activity, we feel good about. I hear a lot of chatter about the competitive environment, but we're not seeing it translate yet. I think that's still in front of us.
Speaker Change: But as I told bill the customers are very engage our retail customers.
Speaker Change: Everything we can control in terms of product availability promotional activity, we feel good about.
Speaker Change: I hear a lot of chatter about competitive environment, but we're not seeing it translate yet I think that's still in front of us and our approach will be will react to that is needed to defend share to defend our share of shelf, we'll certainly react but right now the season still in front of us and I don't think anyone's completely.
J.D. Walker: And, you know, our approach will be, we'll react to that as needed. To defend our share, to defend our share of the shelf, we'll certainly react. But right now, you know, the season's still in front of us, and I don't think anyone's completely tipping their hand at this point.
Speaker Change: Tipping their hand at this point in time, we do feel good about <unk>.
Nicholas Lahanas: We do feel good about expanded distribution this year. So our points of distribution have grown year over year. So there's a lot to like about where we sit right now with the season still in. That's great to hear. And a follow-up for Nico.
Speaker Change: Expanded distribution this year, so our points of distribution have grown year over year, So theres a lot to like about.
Speaker Change: Where we sit right now with the season still in front of us.
Speaker Change: That's great to hear.
Niko: And a follow up for Niko Niko you mentioned, just the timing of selling through some of the higher cost inventory, taking a little bit longer.
Nicholas Lahanas: Nico, you mentioned just the timing of selling through some of the higher cost inventory taking a little bit longer. But as we think about gross margin for the year, is there anything different to think about in terms of how you think about gross margin for the year? Or is this more about timing within the year? Yeah, it's more timing.
Niko Niko: But as we think about gross margin for the year is there anything different to think about in terms of how you're thinking about gross margin for the year or was this just timing within the year.
Niko Niko: Yes, it's more timing.
Nicholas Lahanas: I think, you know, we're still feeling good about gross margin for the year overall. The other thing to take into account is that we're going to continue with our cost and simplicity program too. So we're continuing to take cost out, and that should help. If you look at this last quarter, you know, one of the biggest drivers was our cost out initiatives in terms of expanding margin, and then the moderating inflation definitely helped as well. Very helpful. Thanks so much and good luck this spring.
Speaker Change: Thank you.
Speaker Change: We're still feeling good about gross margin for the year overall.
Speaker Change: The other thing to take into account, we're going to continue along our cost and simplicity program too. So we're continuing to take cost out.
Speaker Change: And that should help if you look at if you look at this last quarter one of the biggest drivers was our cost out initiatives.
Speaker Change: In terms of expanding margin and then the moderating inflation definitely helped as well.
Speaker Change: Very helpful. Thanks, So much and good luck for spring.
Speaker Change: Our next question is from Jim Sharp Chartier with <unk> Crespi Hardt. Please proceed with your question.
Bradley Thomas: Our next question is from Jim Chartier with Monas Crescent, www.globalonenessproject.org. Hi, thanks for taking my question. Could I just, uh... First talk about POS by business, you know, how it trended, and what were the key drivers behind that? Sure. I mean, yeah, I can start. This is John, Jim.
Speaker Change: Hi, Thanks for taking my question.
Speaker Change: Could you just.
Speaker Change: First talk about Pos business, how it trended and what were the key drivers.
Speaker Change: Find out.
Speaker Change: Yeah.
Speaker Change: Sure.
Speaker Change: Can start this is John Jim on.
Joan Hanson: You know, on the pet side, POS trended pretty similar to shipments. You know, our inventories on the pet side are in a pretty, pretty good place. And again, the durable POS was, you know, significantly...that's where the declines were, right? Consumables held pretty solid. And Jim, on the garden side, POS was down slightly for the quarter.
John Hanson: On the pet side, Pos trended pretty similar to shipments in our inventory.
John Hanson: Tories on the pet side are in pretty pretty good place.
John Hanson: And again.
John Hanson: The durable Pof's was.
John Hanson: Significantly that that's where the declines were consumables held pretty solid.
John Hanson: And Jim on the Garden side.
John Hanson: POS was down slightly for the quarter now.
J.D. Walker: You know, our portfolio is a little different than most of our competitors. We have a big wild bird business, and wild bird feeding, and that usually drives our business in Q1. The unfavorable weather that Nico referenced in the script impacted our wild bird business.
John Hanson: You know our our portfolio portfolio is a little different than most of our competitors. We have a big wild bird business Wild bird feed and that usually drives our business in Q1, the unfavorable weather that Nico referenced in the script impacted our wild bird business, so that Pos or consumption was off if you factor.
J.D. Walker: So that POS or consumption was off. If you factor out wild bird, our POS was up mid to high single digits for the quarter on all of our other. Right, thank you. And then Nico, just trying to understand kind of the impact of the cost out initiatives this year. Is there any way for you to kind of quantify the savings that are embedded in your guidance?
John Hanson: Our wild bird, our Pos was up mid to high single digits for the quarter on all of our other businesses.
Speaker Change: Great. Thank you and then Niko.
Niko Niko: Just trying to understand kind of the impact of the cost out initiatives. This year is there any way for you to kind of quantify.
Niko Niko: The savings that are embedded in your guidance.
Nicholas Lahanas: Or, you know, what the expected savings are from initiatives that have already been implemented or kind of in the process of being implemented? Now we're going to stick with what we said before, Jim; we're going to give quarterly updates. I think, you know, in many cases, these things take time, so we have to re-engineer a lot of these initiatives, so timing is going to play a role too, so it's really hard for us to quantify all of these things going on at once. So, we're not going to focus on giving you a yearly forecast on cost, because I'm pretty sure we'd be wrong. Rather, we want to focus on what we're actually doing and the costs behind those initiatives, similar to what we did a year ago. Okay, thank you. Our next question is from Bob Lavin. Please participate. Yes, hi. It's Pete Lucas on behalf of Bob.
Niko Niko: Or what do you expect these savings are from from initiatives that have already been implemented or kind of in the process has been implemented.
Speaker Change: No we're going to.
Speaker Change: We're going to stick with what we said before Jim we're going to give quarterly updates I think in many cases.
Speaker Change: These things take time, so we have to lap a lot of initiatives so timing.
Speaker Change: Is going to play a role too so really hard for us to quantify all of these things going on at once so we're not going to we're not going to focus on giving you a yearly forecast on cost out because I'm pretty sure we'd be wrong.
Speaker Change: Rather we want to focus on what we're actually doing.
Speaker Change: And sort of the costs behind those initiatives similar to what we did a year ago.
Speaker Change: Okay. Thank you.
Speaker Change: Our next question is from Bob <unk> with CJS Securities. Please proceed with your question.
Speaker Change: Yes, Hi, it's Pete Lucas for Bob.
J.D. Walker: You covered a lot of my questions here. Just sticking with the garden business or going back to it here, what are you seeing or expecting this year in terms of pricing versus last year? And do you think somewhat lower pricing could drive higher demand, or kind of your thoughts on what you're thinking? Yes, this is JD. I'll take that one as well.
You covered a lot of my questions here, just sticking with the garden business or going back to it here or what are you seeing are expecting this year in terms of pricing.
First last year, and do you think somewhat lower pricing could drive higher demand or kind of your thoughts on what youre thinking for this season.
Speaker Change: Yeah.
Speaker Change: Yes. This is J D I'll take that one as well.
J.D. Walker: So what we're seeing in some of our categories, we've seen some pricing, we've made some pricing concessions, you know, where we have commodity-driven categories, commodities have softened, we've made some concessions to the retailers, and they're, in turn, passing that on to the consumers. But that's on some of the business; I'd say the bigger opportunity here is where we're passing on promotional savings to the consumer; we're being much more promotional. And I think that ultimately will drive more footsteps into the store and more consumption in the cat. In general, across our categories, we're seeing fairly stable pricing, certainly not escalating like it was a year or two ago, but not dramatic drops. Very helpful, thanks. And then just one more for me, in terms of the M&A outlook, I think you mentioned in the prepared remarks that you see lots of opportunity. Is that something that you're still actively pursuing now?
J D: So what we're seeing in some of our categories we've seen.
J D: Some pricing we've made some pricing concessions, where we have commodity driven categories commodities have softened we've made some concessions to the retailers and they are in turn passing that onto the consumers, but that's some of the business I'd say the bigger opportunity here is where we.
J D: We're passing on promotional savings to the to the consumer we're being much more promotional and I think that ultimately will drive more footsteps into the store and more consumption in the categories.
J D: In general across our categories, we're seeing fairly stable pricing certainly not escalating like it was a year or two but not dramatic drops.
J D: Either.
Speaker Change: Oh very helpful. Thanks, and then just one more for me in terms of the M&A outlook. I think you mentioned in the prepared remarks seeing lots of opportunity.
Is that something that you're still actively pursuing now or is that waiting for a new CEO or how should we kind of think about that for the near term.
Nicholas Lahanas: Or is that waiting for a new CEO? Or how should we kind of think about that for the near term? No, we're, we're all in on M&A. In fact, we had some turnover in that group.
Speaker Change: No. We're we're all in on M&A in fact, we had some turnover in that group and we're adding resources once again too to really pursue that activity.
Nicholas Lahanas: And we're adding resources once again to really pursue that activity. And, and I think, you know, you have a proof point: just a few months ago, we did the TD BBS acquisition under Beth's leadership as interim CEO, so we don't have to have a CEO or a permanent CEO, call it what you want; it will not slow us down. We're aggressively pursuing that initiative because it's important, you know, as I mentioned in the prepared remarks, we want to grow organically and then supplement that growth with some robust M&A activity. Very helpful, thanks. I'll jump back in the queue. Our next question is from William Reuter with Bank of America. www.larryweaver.com. Good afternoon. I have a couple.
Speaker Change: And I think you have a proof point just a few months ago, we did the TD Bbs acquisition.
Under <unk> leadership as interim CEO, so we're not having not having a CEO a permanent CEO call. It what you want we will not slow us down.
Speaker Change: We're aggressively pursuing that initiative, because it's important as I as I mentioned in the prepared remarks, we want to grow organically and then supplement that growth with some robust M&A activity.
Speaker Change: Very helpful. Thanks, I'll jump back in the queue.
Speaker Change: Our next question is from William Router with Bank of America. Please proceed with your question.
Good afternoon.
William Reuter: I I have a couple so first in terms of the wild bird being down do you think that was based upon whether I'm on some level or do you think this is just based upon weak consumer spending and you know some consumers not being willing to feed birds when prices are really high.
William Reuter: So the first point, in terms of the wild bird being down, do you think that was based upon weather on some level? Or do you think this is just based upon weak consumer spending and, you know, some consumers not being willing to feed birds when prices are really high? William, this is JD. I'd say that it was almost completely driven by weather.
William Reuter: William This is J D. I would say that it was it was almost completely driven by weather. So that business performs best when there is in the winter months when there's snow cover on the ground.
J.D. Walker: So that business performs best when it's in the winter months when there's snow cover on the ground. It's one of the categories that has performed best for us over the last couple of years when we saw the consumer in some categories exiting the categories or household penetration wasn't as great as it was during the pandemic, wild bird actually has been strong throughout that period of time. So I don't think it's had to do with the economy and had almost entirely. It was a result of the unfavorable weather.
William: It's one of the categories that performed best for us over the last couple of years. When we saw the consumer in some categories exiting the categories. Our household penetration wasn't as great as it was during the pandemic.
William: While bird actually has been strong throughout that period of time. So I don't think it had to do with the economy and had almost entirely a it was a result result of the.
William: Unfavorable weather.
Nicholas Lahanas: Just to pile on to JD's remarks, you know, we had a soft first quarter in Wild Bird, and then when we got the Arctic freeze in January, we saw the POS tick up right away. So you saw the snow on the ground, and the consumer ran in to buy that wild bird food.
Speaker Change: Okay. Thanks.
Speaker Change: The pylon to Jd's remarks, you know, we had a soft first quarter and wild Bird and then when we got the Arctic freeze in January we saw the Pls tick up right away.
Speaker Change: And so you saw the snow on the ground in the consumer run into bio that wild bird food.
William Reuter: That's helpful. And then, in terms of, it wasn't entirely clear to me if there is any de-stocking that continues to happen in lawn and garden or pet products in the categories in which you participate. Are there any more de-stocking that continues to go on, or are inventories in good shape across all GMS? Well, speaking for garden, I'd say that overall, we're in good shape. Are there pockets, you know, where there will be some continued destocking, pockets, you know, it's a little bit lumpy, they can't get it perfect in all stores across the country. But I'd say, by and large, we feel good about where the inventory is. Yeah, and on the pet side, very similar. We feel the retailer inventories are in very good shape. You know, there may be some pockets, but it's very, you know, it's small.
Speaker Change: Got it that's helpful. And then in terms of it wasn't entirely clear to me. If there is any destocking that continues to happen and lawn and garden or pet in the categories in which you participate are there is there any more destocking that continues to go on or our inventories in good shape across all channels.
Speaker Change: Well speaking for garden, I'd say that overall, we're in good shape.
Speaker Change: Are there pockets, where there will be some continued.
Speaker Change: Continued destocking pockets you know, it's a little bit lumpy they can't get it perfect in all stores across the country, but I'd say by and large we feel good about where the inventory levels are now.
Speaker Change: Yes.
Speaker Change: Pet side.
Speaker Change: Very similar you feel the retailer inventories are in very good shape.
There may be some pockets, but it's very.
Speaker Change: It's small it's.
Speaker Change: Small scale.
Speaker Change: Our medicine about a year ago.
Speaker Change: We took our medicine last year.
Speaker Change: Got it.
Joan Hanson: And then, just lastly for me, I think given where public equities in the pet space have traded, I've heard that most private companies believe their valuations are hoping to achieve valuations in the sale of their businesses that are in excess of the public markets. Do you think that continues to be the case, or are those expectations returning to reality? It's a mixed bag. It depends on the categories. So, you know, it's like almost any business where you, if you've got a lot more, you know, IP, proprietary, you know, type of technology, higher barriers to entry, you're going to, you're going to pay a higher premium for those. But yeah, I mean, typically, what we've seen is the private market does follow the public. So, you know, you always have that going on.
Speaker Change: Then just lastly for me I think given where public equities in the pet space have traded I have heard that most private companies believe their valuations are are hoping to achieve valuations and the sale of their businesses that are in excess of the public markets. Do you think that continues to be the case or are those expect.
Speaker Change: Patients returning to reality.
Speaker Change: It's a mixed bag it depends on the categories.
Speaker Change: So.
Speaker Change: Its like almost any business, where you if you've got a lot more.
Speaker Change: <unk> proprietary <unk>.
Speaker Change: Of technology higher barriers to entry Youre going to youre going to pay a higher premium on those.
Speaker Change: But yes, I mean typically what we've seen is the private market does follow the public.
Speaker Change: So you always you always have that going on and then when the public markets come down you typically see the private markets follow so we've seen no slowdown in terms of higher multiples on the pet side.
Nicholas Lahanas: And then when the public markets come down, you typically see the private markets follow. So we've seen no slowdown in terms of, you know, higher multiples on the pet side. You know, that said, I think we did a nice job on our last acquisition. In terms of valuation, we feel great about that. But yeah, I think the pet multiples, particularly in the consumer space, dog and cat, you can expect those to be pretty high.
Speaker Change: That said I think we did a nice job on our last acquisition.
Speaker Change: In terms of valuation, we feel great about that.
Speaker Change: But yes, I think the pet multiples, particularly in the consumer space Dog and Cat I think you can expect those to be to be pretty high.
Speaker Change: Great. Okay. That's all for me thank you.
Andrea Teixeira: Great. Okay, that's all for me. Thank you. Our next question is from Andrea Teixeira with J.P. Morgan. Please proceed with your question. Thank you, operator. And good afternoon, everyone. I was hoping you could elaborate a little bit more on the cost out initiatives. I understand that you don't want to give precise numbers, but just to get some sense of what are the sources or buckets of those expenses.
Speaker Change: Our next question is from Andrea Teixeira with Jpmorgan. Please proceed with your question.
Andrea Teixeira: Thank you operator.
Andrea Teixeira: Good afternoon, everyone.
Andrea Teixeira: I was hoping if you can elaborate a little bit more on the cost out initiatives I understand that you don't want to give precise numbers, but just to get some sense of what are the sources of buckhead stuff those expenses.
Nicholas Lahanas: And if those will accelerate through the year or you're budgeting some reinvestment as they go through, I'm just thinking of your 80 basis points improvement in margin. I was trying to think if that's related to the TDBBS acquisition. And then on that, just as a fine print here, I believe if I did the math correctly on that division, the acquisition contributed to about three percent of, I guess, total sales. Is that correct?
Speaker Change: Those who accelerate through the year.
Speaker Change: Are you budgeting some reinvestment as they go through.
Speaker Change: I'm just thinking of your 80 basis points improvement in margin I was trying to think if that's related to TTP at did the bps acquisition.
Speaker Change: And then on that just as a fine print here.
Speaker Change: I believe if I did the math correctly on that division.
Speaker Change: Acquisition contributed to about 3%.
Speaker Change: If we bridge organic I guess total sales is that correct.
Speaker Change: Okay.
Nicholas Lahanas: Well, first, let me start at the beginning. So we've got the cost and simplicity program. We've got five primary drill sites. So it's procurement, manufacturing, logistics, portfolio optimization, and then admin costs.
Speaker Change: Well first let me let me start at the beginning.
Speaker Change: So we've got the cost and simplicity program, we've got five primary drill sites.
So it's procurement manufacturing logistics portfolio optimization, and then admin costs.
Nicholas Lahanas: Last year we kind of kicked that off, we talked about it, you saw several initiatives happen over the last year, and then we're going to continue with that here into 2024 and 2025. Again, we're going to give quarterly updates in terms of what we're doing. We talked this quarter about a greenhouse that we'd shut down as well as a garden distribution facility that was sort of on the tail end of last year's sale of the independent garden distribution business. So more to come there. In terms of the margin accretion or expansion this last quarter, largely driven by our cost initiatives as well as moderating inflation, I'd tell you TDBBS was actually a drag on margin because we have to go through the purchase accounting there. When we inherit that inventory, we have to mark it up. So it actually did not help us much or at all. In fact, it was a drag.
Speaker Change: Last year, we kind of kick that off we talked about it <unk> seen several initiatives.
Speaker Change: Happen over over last year, and then we're going to continue with that here into 'twenty four and 'twenty five.
Speaker Change: Again, we're going to give quarterly updates in terms of what we're doing we talked this quarter about a.
Speaker Change: Greenhouse that we'd shut down as well as a garden distribution facility that was sort of on the tail end of last year's sale of the independent garden distribution business.
Speaker Change: So more to come there in terms of the margin accretion.
Speaker Change: Accretion our expansion this last quarter.
Largely driven by our cost initiatives as well as moderating inflation I'd tell you TD Bbs was actually a drag on margin because we have to go through the purchase accounting there when we inherited that inventory we have to mark it up so it actually did not help us.
Speaker Change: Much or at all in fact, it was a drag so on margin.
Nicholas Lahanas: So on margin. As far as, you know, top line, it had a de minimis effect on the top line as well. So it was, so far, not a huge impact from the acquisition. Okay, thank you very much. Our next question is from Hale Holden, and please proceed with your question. Thank you. I had two.
Speaker Change: As far as.
Speaker Change: Top line it had a de minimis.
Speaker Change: On the top line as well.
Speaker Change: So it was so far.
Not a huge impact by the acquisition.
Speaker Change: Okay. Thank you very much.
Uh huh.
Speaker Change: Our next question is from Hale Holden with Barclays. Please proceed with your question.
Hale Holden: Thank you I had two.
Hale Holden: You mentioned that you gained distribution share in the garden segment for the upcoming spring season, and that's actually what your primary public competitor said this morning. So I was wondering if you think it's just different categories or potentially that... Your retail partners are expanding the category sets this spring. Or somebody's losing share, I guess, is the other alternative. Yes. So Hale, this is JD.
Hale Holden: You mentioned that you gained distribution share.
In the garden segment for the upcoming spring season, and that's actually what your primary public competitors at this morning.
So I was wondering if you think.
Hale Holden: Just different categories or potentially that.
Hale Holden: Your retail partners are expanding the categories sets.
Hale Holden: This spring.
Hale Holden: Or somebody who's losing share I guess is there an alternative.
Hale Holden: Yes.
Hale Holden: So hey, this is J D I heard that as well I did not hear them speak about specific categories, but I will tell you that we grew share in grass seed and fertilizers and insecticides and while it's not tracked by syndicated data. We know that we also grew share in packet seats.
J.D. Walker: I heard that as well, but I did not hear them speak about specific categories. But I will tell you that we grew share in grass seed, fertilizers, and insecticides. And while it's not tracked by syndicated data, we know that we also grew share in packet seed. So I didn't hear anyone else claim a category, but I will tell you that in those categories, we took share, and we feel good.
Hale Holden: So.
J D: I didn't hear anyone else claim a category, but I will tell you that in those categories. We took share we feel good about it.
Nicholas Lahanas: Okay. The second question I had was, you know, at the risk of sounding like I'm asking a Fed watching question, your consumer outlook is pretty dour and hasn't changed in a quarter or two in terms of how you're underwriting for the full fiscal year. And do you think there's some conservatism, given how the consumers turned out?
J D: Sure.
Speaker Change: The second question I had was Uh huh.
Speaker Change: At the risk of sounding like I'm, asking a fed watching question.
Speaker Change: Your your consumer outlook, it's pretty dour and it hasn't changed in a quarter or two in terms of.
Speaker Change: How you're underwriting for the full fiscal year.
Speaker Change: Do you think there is some conservatism given how the consumers turned out or are you. So sensing that there is some reluctance out there.
Nicholas Lahanas: Or are you still sensing that there's some reluctance out there? Well, we're taking more of a wait and see attitude. If you look at our last two years, we did miss our guide.
Speaker Change: Well, we're taking more of a wait and see attitude.
Speaker Change: If you look at our last two years, we did Miss our guide.
Nicholas Lahanas: And if you, you know, rewind to November, we talked about being a little bit more conservative in our outlook after missing Guy two years in a row. So, I think, you know, we want to see how the weather plays out, how the garden season plays out. I think the early signs are good. We feel great about the business. You know, Q1 came in with a solid start. I think, you know, we took market share in like eight categories across pet and garden. We expanded margin The balance sheet is in great shape, so we feel really good about the business. We just need to see it play out, you know, in kind of real time.
Speaker Change: And if you if you rewind to November.
Speaker Change: Talk about.
Speaker Change: Being a little bit more conservative in our outlook.
Speaker Change: After after missing guide two years in a row. So I think we want to see how the weather plays out how the garden season plays out I think the early signs we feel good we feel great about the business.
Speaker Change: Q1 came in to a solid start I think we took.
Speaker Change: Market share in like eight categories across pet and garden, we expanded margin balance sheet is in great shape. So we feel really good about the business, we just need to see it play out kind of real time and before that happens, we're a little remiss to get overly enthusiastic about the consumer.
Nicholas Lahanas: And before that happens, you know, we're a little remiss to get overly enthusiastic about the consumer. Fair enough. I appreciate it. Thank you. Yep. And Nico, just building on that point, you said in the script, you know, 15% of the garden season is Q1.
Speaker Change: Fair enough I appreciate it thank you.
Speaker Change: Yes.
Speaker Change: And Niko just building on that point, you said in the script, 15% of the garden season is Q1, 85% for the year in front of US we're not going to celebrate too early but we do feel good about where we are right now yes.
J.D. Walker: So we have 85% of the year in front of us, we're not going to celebrate too much early, but we do feel good about where we are. Our next question is from Karru Martinson with Jeffreys. Please proceed with your question. Good afternoon.
Karru Martinson: Our next question is from Peru, Martinsen with Jefferies. Please proceed with your question.
Karru Martinson: Good afternoon, and some of the headwinds that you referenced was working through that higher value inventory.
Karru Martinson: Some of the headwinds that you referenced were working through that higher-value inventory. How long do you feel that it will take for us to get through that, and kind of tying into that, you know? What should we think about the working capital benefits this year on that front, given the benefit that we had? Yeah, so great question.
Karru Martinson: How long do you feel that it would get will it take for us to get through that and kind of tying into that you know what what should we think about the working capital benefits. This year on that front given the benefit that we had this year.
Speaker Change: Yes, so great question.
Nicholas Lahanas: You know, we've got a few businesses that are extremely long on inventory, and we think that that's going to play out through this year and even into 2015 a little bit. As far as working capital goes, you know, we did a great job last year of converting that inventory into cash. We are going to continue to do that. Our work is not done as far as really working that aspect of the business. So we're expecting a nice free cash flow number this year as well. So work is not done.
Speaker Change: We've got a few businesses that are extremely long on inventory and we think that that's going to play out through this year and even into 'twenty five a little bit.
Speaker Change:
Speaker Change: As far as working cap, we did a great job last year of converting that inventory into cash.
Speaker Change: We're going to continue to do that our work is not done as far as.
Speaker Change: Really working that that aspect of the business. So we're expecting a nice free cash flow number this year as well. So work is not done I think.
Karru Martinson: I think anywhere from $50 to $100 million of inventory that we can lower throughout this year. Thank you very much, guys; I appreciate it. Our next question is from Michael Coppola with J.P. Morgan. Please proceed with your question. Hi, thanks for taking our question. One thing that we wanted to ask you about was whether you think that the fair share promotions that you guys are getting are making some of your products maybe priced pretty attractively, and how that stacks up. Competitors at UCI. Thank you. Michael J. D.
Speaker Change: Anywhere from $50 million to $100 million of inventory that we can lower throughout this year.
Speaker Change: Thank you very much guys I appreciate it.
Speaker Change: Yeah.
Speaker Change: Our next question is from Michael Coppola with J P. Morgan. Please proceed with your question.
Michael Coppola: Hi, Thanks for taking our question one thing that we wanted to ask about was that.
Michael Coppola: If you think that the fair share promotions that you guys are getting is making some of your product maybe priced pretty attractively.
Michael Coppola: How that stacks up versus the competitors that you see out there.
Speaker Change: Michael J D again here so.
Michael Coppola: again here. So I'd say from, it's early to tell, we don't know what all they're going to do from a promotional standpoint. Like I said earlier, we feel very good about the promotional support that we've secured for the year. They've signaled a very strong second half of the year, so I think a lot of that, you know, we'll have to react to as we get into the season. They haven't tipped their hands fully in terms of promotional pricing, things like that. I'd say that going into it, just based on the way the market has been in the last couple of years, we feel like we're well positioned. We feel like we've got great promotional and display support, and we'll have strong execution in the stores, but it's difficult to draw any conclusions. You know, here we are in early February with the season still, say, 60 days away.
Speaker Change: I'd say, it's early to tell we don't know what all they're going to do from a promotional standpoint like I said earlier, we feel very good about our promotional support that we've secured for the year.
Speaker Change: They've signaled a very strong second half of the year. So I think a lot of that will have to react too as we get into the season.
Speaker Change: I haven't tipped their hands fully in terms of promotional pricing things like that I would say that going into it just based on.
Speaker Change: The way the market has been the last couple of years, we feel like we're well positioned we feel like we've got great promotional and display support and will have strong execution in the stores, but difficult to draw any conclusions here.
Speaker Change: Here, we are in early February with the season still say 60 days away.
J.D. Walker: Gotcha. Thank you. Thank you. There are no further questions at this time. I'd like to hand the floor back over to Frederique Edelman for closing. Thank you, everyone, for joining our call today. Our IR team is available to answer any questions you may have. Thank you, and have a good rest of the day. This concludes today's conference; you may disconnect your lines at this time. Thank you for your participation. 2012 University of Georgia College of Agricultural and Environmental Sciences UGA Extension Office of Communications and Creative Services
Speaker Change: Gotcha. Thank you.
Speaker Change: Thank you there are no further questions at this time I'd like to hand, the floor back over to Frederic Edelman for closing comments.
Frederic Edelman: Thanks, everyone for joining our call today, our IR team is available to answer any question. You may have thank you and have a good rest of the day.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
Frederic Edelman: Okay.