Q2 2024 Central Garden & Pet Co Earnings Call

Ladies and gentlemen, thank you for standing by welcome to Central Garden, and Pet fiscal 2024 second quarter earnings call.

Operator: Ladies and gentlemen, thank you for standing by. Welcome to Central Garden & Pet's fiscal 2024 second quarter earnings call.

John: My name is John, 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. Instructions will be given at that time. If anyone should require operator assistance during the call, please press star followed by zero on your touchtone phone. And, as a reminder, this conference call is being recorded. I would now like to turn the call over to Friederike Edelmann, Vice President, Investor Relations.

Friederike Edelmann: My name is John and I'll be your conference operator for today.

Friederike Edelmann: 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.

Friederike Edelmann: If anyone should require operator assistance during the call. Please press star followed by zero on your Touchtone phone and.

Friederike Edelmann: And as a reminder, this conference call is being recorded.

Friederike Edelmann: I'd now like to turn the call over to Frederique Edelman, Vice President Investor Relations. Thank you for to Reed. Please go ahead.

Friederike Edelmann: Good afternoon, everyone. Thank you for joining central second quarter fiscal 2024 earnings call.

Friederike Edelmann: Good afternoon, everyone. Thank you for joining Central's second quarter fiscal 2024 earnings call. With me on the call today are Beth Springer, Interim Chief Executive Officer, Nicholas Lahanas, Chief Financial Officer, J.D. Walker, President, Garden Consumer Products, and John Hanson, President, Pet Consumer Products. In a moment, Beth will highlight our key messages, and Nico will provide more details about our results.

Friederike Edelmann: With me on the call today are Beth Springer interim Chief Executive Officer, Nicola Chief Financial Officer, J D Walker, President Garden, consumer product and John Hanson, President Pet consumer products.

Friederike Edelmann: In a moment Beth will highlight our key messages and Nico will provide more details about our results J.

Friederike Edelmann: J D and John will join us after the prepared remarks for Q&A.

Friederike Edelmann: and John will join us after the prepared remarks for Q&A. Comments made during this call include forward-looking statements that are subject to risk and uncertainties. Our actual results may differ materially from what we share today. We've described the range of risk factors in our SEC filings, including in our annual report on Form 10-K. We undertake no obligation to publicly update these forward-looking statements. Our press release and related materials, including the gap reconciliation for the non-gap measures discussed on this call, are available at www.irr.central.com. All growth comparisons made today are against the same period in the prior year, unless indicated otherwise.

Friederike Edelmann: Comments made during this call include forward looking statements that are subject to risks and uncertainties. Our actual results may differ materially from what we shared today.

Friederike Edelmann: We've described a range of risk factors in our SEC filings, including in our annual report on Form 10-K.

Friederike Edelmann: We undertake no obligation to publicly update these forward looking statements our press release and related materials, including the GAAP reconciliation for the non-GAAP measures discussed on this call are available at IR onto central Dot com.

Friederike Edelmann: All growth comparisons made today are against the same period in the prior year unless indicated otherwise if you have further questions. After the call. Please don't hesitate to reach out to me.

Friederike Edelmann: If you have further questions after the call, please don't hesitate to reach out to me. And with that, I will now turn it over to Beth Springer. Beth? Thank you.

Friederike Edelmann: And with that I will now turn it over to Beth Springer Beth.

Mary Beth Springer: Thank you, Friederike, and good afternoon, everyone. Let me begin with the three key themes we'd like you to take away from this call. First, we delivered a solid quarter. Gap earnings per share were $0.93, and non-gap earnings per share were $0.99, well ahead of the prior year. And net sales were just shy of the prior year. Our focus on cost management helped rebuild our margins, we grew e-commerce sales, and we expanded market share across most of our pet and garden categories.

Mary Beth Springer: Thank you Fredrik and good afternoon, everyone.

Mary Beth Springer: Let me begin with the three key themes, we'd like you to take away from this call.

Mary Beth Springer: First we delivered a solid quarter GAAP earnings per share were 93 cents and non-GAAP earnings per share were <unk> 99 sets well ahead of prior year.

Mary Beth Springer: Net sales were just shy of prior year.

Mary Beth Springer: Our focus on cost management helped rebuild our margins we grew ecommerce sales and we expanded market share across most of our pet and garden categories.

Mary Beth Springer: Second word.

Mary Beth Springer: We're particularly pleased with our progress on the Cost and Simplicity Program, which enables us to invest in our business and offset sustained cost increases. Our strategic initiatives to simplify our business and improve efficiency across the organization are paying off, and we're commencing new projects. For example, we recently began the consolidation of four distribution locations into one modern facility, which will drive significant savings and efficiency.

Mary Beth Springer: We're particularly pleased with our progress on the cost and simplicity program, which enables us to invest in our business and offset sustained cost increases.

Mary Beth Springer: Our strategic initiatives to simplify our business and improve efficiency across the organization are paying off and we're commencing new projects. For example, we recently began the consolidation of four distribution locations into one modern facility, which will drive significant savings and efficiencies.

Mary Beth Springer: And third, our outlook for the fiscal year is unchanged. While we announced solid Q2 results today, keep in mind that a large part of the garden season is still in front of us. Q3 last year was a record quarter, and we're back to a 52-week fiscal year. For the balance of the fiscal year, we expect softer consumption in durable pet product categories, lower foot traffic in key retailers, and retailer pressure for price concessions to persist.

Mary Beth Springer: Third our outlook for the fiscal year is unchanged.

Mary Beth Springer: We announced solid Q2 results today keep in mind that a large part of the garden season is still in front of US Q3 last year was a record quarter and we're back to a 52 week fiscal year.

Mary Beth Springer: For the balance of the fiscal we expect softer consumption durable and durable pet product categories lower foot traffic in key retailers and retailer pressure for price concessions to persist.

Mary Beth Springer: Looking ahead, the 6,700 members of Team Central remain focused on executing our long-term strategy with excellence. We are confident in the strength of our business and the positive long-term trends in the pet and garden industries, and we continue to make thoughtful investments that will drive our future performance. With that, I will hand it over to Nico, who will share more details. Nico. Thank you.

Mary Beth Springer: Looking ahead. The 6700 members of team Central remained focused on executing our long term strategy with excellence.

Nico: We're confident in the strength of our business and the positive long term trends in the pet and garden industries, and we continue to make thoughtful investments that will drive our future performance.

Nico: With that let me hand, it over to Niko, who will share more details Nico.

Nicholas Lahanas: Thank you, Beth. Good afternoon, everyone.

Nico: Thank you Beth good afternoon, everyone I'll provide more details on our second quarter results and the progress we are making on our cost and simplicity program and discuss our outlook for the year.

Nicholas Lahanas: I'll provide more details on our second quarter results and the progress we are making on our cost and simplicity program and discuss our outlook for the year. Let's start with our second quarter results. Net sales were $900 million, or 1% below the prior year. Organic nut cells also declined 1%. Non-GAAP gross profit increased 8.4% to $281 million. Non-GAAP gross margin improved by 270 basis points to 31.3%. Thanks to cost and simplicity projects we initiated a year ago, which included the sale of our independent garden channel distribution business and the exit of some low-margin private label pet product lines, as well as moderating inflation.

Nico: Let's start with our second quarter results.

Nicholas Lahanas: Net sales were $900 million or 1% below prior year.

Nicholas Lahanas: Organic net sales also declined 1%.

Nicholas Lahanas: non-GAAP gross profit increased eight 4% to $281 million.

Nicholas Lahanas: non-GAAP gross margin improved by 270 basis points to 31, 3%, thanks to cost and simplicity projects, we initiated a year ago, which include the sale of our independent Garden channel distribution business and the exit of some low margin private label pet product lines as well as moderating inflation.

Nicholas Lahanas: non-GAAP SG&A expense of 183 million was 1% above prior year and non-GAAP SG&A as a percentage of net sales increased by 30 basis points to 23% mainly due to our recent acquisition.

Nicholas Lahanas: Non-GAAP SG&A expense of $183 million was 1% above the prior year, and non-GAAP SG&A as a percentage of net sales increased by 30 basis points to 20.3%, mainly due to our recent acquisition. Non-GAAP operating income increased $21 million to $99 million, and non-GAAP operating margin increased by 240 basis points to 11%, driven by improved gross margin. Net interest expense was $11 million compared to $15 million in the prior year quarter, driven by higher interest income from higher cash balances and higher interest rates.

Nicholas Lahanas: non-GAAP operating income increased 21 million to 99 million and non-GAAP operating margin increased by 240 basis points to 11% driven by improved gross margin.

Nicholas Lahanas: Net interest expense was $11 million compared to $15 million in the prior year quarter, driven by higher interest income from higher cash balances and higher interest rates.

Nicholas Lahanas: Non-GAAP net income was $66 million, compared to $48 million a year ago. We delivered GAAP EPS of $0.93, up from $0.72, and Nongap EPS of $0.99. Note: The prior year number was adjusted for the February 2024 stock dividend. The adjusted EBITDA was $124 million compared to $107 million. Our effective tax rate was 23.4% compared to 23.9% in the prior year quarter due to a larger tax benefit related to stock compensation in the current year quarter. For the year, we expect a tax rate in the range of 23 to 24 percent.

Nicholas Lahanas: non-GAAP net income was 66 million compared to $48 million a year ago.

Nicholas Lahanas: We delivered GAAP EPS of <unk> 93.

Nicholas Lahanas: From 72.

Nicholas Lahanas: And non-GAAP EPS of <unk> 99.

Nicholas Lahanas: Note. The prior year number was adjusted for the February 2024 stock dividend.

Nicholas Lahanas: Adjusted EBITDA was $124 million compared to $107 million.

Nicholas Lahanas: Our effective tax rate was 23, 4% compared to 23, 9% in the prior year quarter due to a larger tax benefit related to stock compensation in the current year quarter.

Nicholas Lahanas: For the year, we expect the tax rate in the range of 23% to 24%.

Speaker Change: Now, let me add some color on our two segments beginning with pet.

Nicholas Lahanas: Now let me add some color on our two segments, beginning with Pet. Pet segment sales increased 1% to $480 million, driven by our growth in our consumables business and the recent TDBBS acquisition. Organic next sales, which exclude TDBBS, decreased 3% primarily due to declines in durables across our pet businesses in line with the softness in pet adoption. Demonstrating the strength of our brands, branded products once again outperformed our private label, and we grew market share in many consumables and durable categories.

Nicholas Lahanas: Pet segment sales increased 1% to $480 million driven by our growth in our consumables business and the recent TD Bbs acquisition.

Nicholas Lahanas: Organic net sales, which exclude TD Bbs decreased 3%, primarily due to the declines in durables across our pet business businesses in line with the softness in pet adoptions.

Nicholas Lahanas: Demonstrating the strength of our brands branded products once again outperformed our private label and we grew market share in many consumables and durable categories.

Nicholas Lahanas: We also grew our share in e-commerce, and our online business continues to grow faster than other channels, now representing approximately 25% of our pet sales. Let me highlight some of the recent dog and cat innovations supporting future growth. Paul Love, one of the TDBBS brands, introduced a new line of natural dog chews, smoked in small batches over real hickory wood called Simply Smoked. Cadet added new rawhide alternatives and premium treats to its assortment, and Nylabone extended its chew toy lines with new flavors and fun and unique shapes such as a donut, a peanut, and a pretzel.

Nicholas Lahanas: We also grew share in e-commerce, and our online business continues to grow faster than other channels now representing approximately 25% of our pet sales.

Nicholas Lahanas: Let me highlight some of the recent dog and cat innovation supporting future growth.

Nicholas Lahanas: <unk> one of the TD Bbs brands introduced a new line of natural dog chews smoked in small batches over real Hickory wood called simply smoked.

Nicholas Lahanas: <unk> added new rawhide alternatives and premium treats to its assortment.

Nicholas Lahanas: <unk> extended its chew toy lines, with new flavors, and fun and unique shapes, such as a doughnut a peanut and a pretzel.

Nicholas Lahanas: Pet segment operating income improved 13% to $63 million, and operating margin improved by 140 basis points to 13%. Driven by Gross Margin Expansion. Pet segment adjusted EBITDA was $74 million, compared to $66 million a year ago.

Nicholas Lahanas: Pet segment operating income improved 13% to 63 million and operating margin improved by 140 basis points to 13% driven.

Nicholas Lahanas: Driven by gross margin expansion.

Nicholas Lahanas: Pet segment, adjusted EBITDA was $74 million compared to $66 million a year ago.

Nicholas Lahanas: We expect consumables to continue to grow and sustained headwinds for durable through fiscal 'twenty four.

Nicholas Lahanas: We expect consumables to continue to grow and sustain headwinds for durables through fiscal 24, in line with the softness and pet ownership. Pet supply household penetration has stabilized over the last several months and remains above 2019 levels, indicating that consumers remain engaged in the pet category. Long-term, we expect that consumer trends, including premiumization and humanization, health and wellness, the shift to e-commerce, and favorable demographics will support sustainable growth.

Nicholas Lahanas: In line with the softness in pet ownership.

Nicholas Lahanas: Pet supplies household penetration has stabilized over the last several months and remains above 2019 levels, indicating that consumers remain engaged in the pet category.

Nicholas Lahanas: Long term, we expect that the consumer trends, including premium position and Humanization health and wellness the shift to e-commerce and favorable demographics will support sustainable growth.

Nicholas Lahanas: Garden segment sales declined 3% to $420 million. Recall that we sold the independent Garden Channel Distribution business, which represented approximately 5% of our garden sales. Organic net sales increased 2%, driven by growth in live plants, grass and controls, and fertilizer, offsetting lower sales in wild birds. Non-GAAP garden segment operating income was $62 million compared to $50 million a year ago. Non-Gap Garden Segment Operating Margin improved by 340 basis points, 14.8%, driven by our gross margin. Garden segment adjusted EBITDA was $73 million compared to $60 million in the prior year.

Nicholas Lahanas: Moving now to guard.

Nicholas Lahanas: Garden segment sales declined 3% to $420 million recall that we sold the independent Garden channel distribution business, which represented approximately 5% of our garden sales.

Nicholas Lahanas: Organic net sales increased 2% driven by growth in life plants grass and controls and fertilizer offsetting lower sales 'n' wild bird.

Nicholas Lahanas: non-GAAP Garden's segment operating income was $62 million compared to $50 million a year ago.

Nicholas Lahanas: non-GAAP Garden segment operating margin improved by 340 basis points to 14, 8% driven by our gross margin expansion.

Nicholas Lahanas: <unk> segment, adjusted EBITDA was $73 million compared to $60 million in the prior year.

Nicholas Lahanas: Consumers remain engaged in the garden category, as demonstrated by the sustained higher household penetration and buy rate since the onset of COVID. While foot traffic at key retailers is down versus a year ago, it has modestly improved since the fall of 2023. Our targeted investments in consumer insights, branding, and digital capabilities support our growth. Branded products outperform private label in the majority of our categories.

Nicholas Lahanas: Consumers remain engaged in the garden category as demonstrated by the sustained higher household penetration and by rate since the onset of Covid.

Nicholas Lahanas: While foot traffic at key retailers was down versus a year ago. It is modestly improved since the fall of 2023.

Nicholas Lahanas: Our targeted investments in consumer insights branding and digital capabilities support our growth.

Nicholas Lahanas: <unk> products outperformed private label and the majority of our categories. We grew e-commerce sales double digits versus prior year now representing 5% of the total garden sales.

Nicholas Lahanas: We grew e-commerce sales double digits versus the prior year, now representing 5% of total garden sales. One of the highlights of our Selective Investments into our Consumer Growth Agenda is our new Amdral Packaging. Pest control is a fragmented category where consumers are overwhelmed with choices.

Nicholas Lahanas: One of the highlights of our selective investments into our consumer growth agenda, as our new Andrew packaging pet.

Nicholas Lahanas: Control is a fragmented category, where consumers are overwhelmed what choices are new Amgen portfolio takes the guesswork out of pest control the new Eyecatching designed as bold get clean and short and simple names and relevant claims make it clear what each product up.

Nicholas Lahanas: Our new Amdro portfolio takes the guesswork out of pest control. The new eye-catching design is bold yet clean, and short and simple names and relevant claims make it clear what each product does. Close to 80% of shoppers that purchase Amzero via our Amazon display are new to the brand on Amazon, a significant KPI.

Nicholas Lahanas: Close to 80% of shoppers that purchase <unk> via our Amazon display are new to the brand on Amazon a significant kpis.

Nicholas Lahanas: Turning to the Balance Sheet and Cash Flow, Our balance sheet remains strong, and our teams have done an excellent job decreasing inventories by 53 million despite the added inventory from TDBBS. Cash and cash equivalents at the end of the second quarter were $301 million compared to $61 million a year ago. Net cash used by operations was $25 million for the quarter, compared to $34 million a year ago. CapEx was $9 million for the quarter, 25% less than a year ago.

Nicholas Lahanas: Turning to the balance sheet and cash flows our balance sheet remains strong and our teams have done an excellent job decreasing inventories by $53 million. Despite the added inventory from TD Bbs.

Nicholas Lahanas: Cash and cash equivalents at the end of the second quarter were $301 million compared to $61 million a year ago.

Nicholas Lahanas: Net cash used by operations was $25 million for the quarter compared to $34 million a year ago.

Nicholas Lahanas: Capex was $9 million for the quarter, 25% less than the prior year.

Nicholas Lahanas: This quarter, we invested in maintenance and productivity initiatives in dog and cat, small animal, live goods, wild bird, and grass. Total debt of $1.2 billion was in line with the prior year. Our leverage ratio was 2.9 times at the end of the quarter compared to 3.3 times a year ago, below our target range of 3 to 3.5 times. We had no borrowings under our credit facility at the end of the second quarter. Depreciation and amortization for the quarter was $23 million compared to $22 million in the prior year quarter. We did not repurchase any of our stock during the quarter.

Nicholas Lahanas: This quarter, we invested in maintenance and productivity initiatives and dog and cat small animal live goods wild bird and graph.

Nicholas Lahanas: Total debt of $1 2 billion was in line with the prior year.

Nicholas Lahanas: Our leverage ratio was two nine times at the end of the quarter compared to three three times a year ago below our target range of three to three five times.

Nicholas Lahanas: We had no borrowings under our credit facility at the end of the second quarter.

Nicholas Lahanas: Depreciation and amortization for the quarter was $23 million compared to $22 million in the prior year quarter.

Nicholas Lahanas: We did not repurchase any of our stock during the quarter.

Nicholas Lahanas: Now, let me share a few highlights of the progress we are making on our Cost and Simplicity Program, consisting of a number of strategic projects across procurement, manufacturing, logistics, portfolio optimization, and administrative costs, allowing us to create the capacity to invest and offset sustained cost increases. In manufacturing, we are building capabilities in safety, quality, as well as our overall cost acumen at all levels of the organization. Additionally, we have commenced our first pilot of Centers of Excellence at three manufacturing sites, applying common methodology to drive improvement.

Nicholas Lahanas: Now, let me share a few highlights of the progress we are making on our cost and simplicity program consisting of a number of strategic projects across procurement manufacturing logistics portfolio optimization and administrative cost, allowing us to create the capacity to invest and offset sustained cost increases.

Nicholas Lahanas: In manufacturing, we are building capabilities and safety quality as well as our overall cost acumen at all levels of the organization.

Nicholas Lahanas: Additionally, we have commenced our first pilot of centers of excellence at three manufacturing sites applying common methodology to drive improvements.

Nicholas Lahanas: We further announced the closure of a manufacturing facility in Chico, California, as part of our ongoing network optimization.

Nicholas Lahanas: We further announced the closure of a manufacturing facility in Chico, California, as part of our ongoing network optimization. We are right-sizing our logistics footprint and simplifying our work processes and fulfillment strategies. We've begun to consolidate four locations across Georgia, Alabama, and Virginia into a new facility in Covington, Georgia, enabling significant savings and efficiencies due to the optimized configuration and streamlined material flow. This step will also considerably improve our in-season, on-time service and enable future growth in the Southeast region.

Nicholas Lahanas: We are right sizing, our logistics footprint and simplifying our work processes and fulfillment strategy.

Nicholas Lahanas: We've begun to consolidate four locations across Georgia, Alabama, and Virginia into a new facility in Covington, Georgia <unk>.

Nicholas Lahanas: Enabling significant savings and efficiencies due to the optimized configuration and streamline material flow.

Nicholas Lahanas: This step will also considerably improve our in season on time service and enable future growth in the southeast region.

Nicholas Lahanas: Related to the Chico Facility closure and the consolidation in the Southeast, we incurred $5.3 million of one-time costs, including $2.5 million in cost of goods sold and $2.8 million in SG&A, the majority of which were non-cash.

Nicholas Lahanas: Related to the Chico facility closure and the consolidation in the southeast we incurred $5 3 million of onetime costs, including $2 5 million in cost of goods sold and $2 8 million in SG&A, the majority of which were noncash.

Nicholas Lahanas: We're staying focused on this multi-year journey to reduce costs, simplify our business, and improve efficiency while minimizing disruption to the business. We'll continue to provide quarterly updates on the progress we're making. The pipeline of projects to leverage our scale and deploy our capabilities across our two segments remains strong. As always, our goal is to augment organic growth with acquisition. And we believe there will be plenty of opportunities to reduce costs ahead of us. And finally...

Nicholas Lahanas: We're staying focused on this multiyear journey to reduce costs and simplify our business and improve efficiency, while minimizing disruption to the business.

Nicholas Lahanas: We will continue to provide quarterly updates on the progress we're making.

Nicholas Lahanas: The pipeline of projects to leverage our scale and deploy our capabilities across our two segments remained strong.

Nicholas Lahanas: As always our goal is to augment organic growth with acquisitions and we believe there will be plenty of opportunity to reduce costs ahead of us.

Nicholas Lahanas: And finally.

Nicholas Lahanas: Turning to our 24 Outlook, which is unchanged from the guidance we gave in November, we continue to expect non-GAP EPS for the year of $2 or better, post our February 2024 stock dividend. For the remainder of the fiscal year, we assume moderating inflation, softer consumption in a number of categories, and lower foot traffic in key retailers, and an environment of macroeconomic and geopolitical volatility. Our outlook includes modest carryover pricing to help mitigate continued inflationary headwinds.

Nicholas Lahanas: Turning to our 24 outlook, which is unchanged from the guidance we gave in November.

Nicholas Lahanas: We continue to expect non-GAAP EPS for the year of $2 or better.

Nicholas Lahanas: Post our February 2024 stock dividend.

Nicholas Lahanas: For the remainder of the fiscal year, we assume moderating inflation softer consumption and a number of categories and lower foot traffic in key retailers and an environment of macroeconomic and geopolitical volatility.

Nicholas Lahanas: Our outlook includes modest carryover pricing to help mitigate continued inflationary headwinds.

Nicholas Lahanas: Additionally, our expectation for CapEx remains at about $70 million across both segments, driven mostly by maintenance and productivity initiatives. Our guidance reflects our belief in the competitive strength of Central Garden & Pet Co., our long-term strategy, and the positive consumer trends supporting sustainable growth in the pet & garden industry. Thanks to our strong financial position and the amount available on our credit facility, we continue to be 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 Simplicity Program and our recent TD BBS acquisition.

Nicholas Lahanas: Additionally, our expectation for Capex remains at about $70 million across both segments.

Nicholas Lahanas: Driven mostly by maintenance and productivity initiatives.

Nicholas Lahanas: Our guidance reflects our belief in the competitive strength of central our long term strategy and the positive consumer trends supporting sustainable growth in the pet and garden industries.

Nicholas Lahanas: Thanks to our strong financial position and the amount available on our credit facility. We continue to be on the lookout for great growth and margin accretive acquisition targets in both pet and garden.

Nicholas Lahanas: This outlook excludes any impact from potential acquisitions or restructuring activities undertaken during the year, including any projects under the cost simplicity program and our recent TD Bbs acquisition.

Nicholas Lahanas: And with that, we'd like to open the line for questions.

Speaker Change: 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.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the queue. You may press star 2 to remove a question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start key.

Operator: I'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the queue. You May press star two to remove a question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.

Operator: One moment, please, while we poll for questions. And the first question comes from the line of Bill Chappell with Truist Securities. Please proceed with your question. Apologies, Bill. Please proceed with your question.

Operator: One moment, please pull for questions.

Operator: And the first question comes from the line of Bill Chappell with <unk> Securities. Please proceed with your question.

William Bates Chappell: Apologies Bill. Please proceed with your question.

William Bates Chappell: Yeah, thanks. Good afternoon. Just looking at the results and maybe trying to pair them with what you were expecting, particularly in the pet category, and I know you were expecting softness and continue to expect softness, but have you seen anything different over the first four or five months where you feel like maybe things won't be as soft this year?

William Bates Chappell: Yes, thanks, good afternoon.

William Bates Chappell: Yes.

William Bates Chappell: Just looking at the results and just maybe trying to pair it with.

William Bates Chappell: What you were expecting from particularly the pet category and I know you were expecting softness and continue to expect softness but have you seen anything different over the first four five months.

William Bates Chappell: Where you are where you feel like maybe doing some will be as soft through this year.

John: Bill This is John.

John Edward Hanson: Bill, this is John. You know, it's pretty much the way we expected. Consumables are outperforming durables. Durables remain very soft. We feel very good about our share performance, especially in EECOM, which is the highest growth channel.

John: It's pretty much the way we expected consumables are outperforming durables and durables remained very soft we feel very good about our share performance, especially in E com, which is the highest growth channel.

John Edward Hanson: You know, as Nico stated, in pet supplies, we're seeing a flattening of household penetration, which we think is a good sign as we move forward. We do expect durables to decline, though, for the balance of fiscal 24. And, you know, it's hard to call it, right, but at some point, you know, it will moderate in the long term. We believe in the categories. We believe in, you know, low to mid single-digit growth.

Speaker Change: As <unk> stated and pet supplies, we're seeing a flattening of household penetration, which we think is a good sign as we move forward.

John Edward Hanson: We do expect durables to decline for the balance of fiscal 'twenty four.

John Edward Hanson: It's hard to call It road put at some point.

John Edward Hanson: Moderate and long term, we believe in the categories. We believe in.

John Edward Hanson: Low to mid single digit growth.

Speaker Change: Got it and then.

William Bates Chappell: Got it. And then...

John D. Walker: If I'm looking at the garden category, your largest competitor said their start of the season was very strong, and they grew 8%. They said category growth was flat, implying they grew meaningful market share in all their categories. Is that the case for you? And maybe you could, you know, did you lose meaningful market share? Because I know grass seed is a big start of the season and big for you. And then maybe a little bit of color on what, because it's within the garden, the wild bird declines and what caused that.

William Bates Chappell: If I'm looking at the garden category I mean, your largest competitor.

John D. Walker: They are started the season was very strong they grew 8%. They said the category grew was flat implying the group through meaningful market share in all of our categories.

John D. Walker: Is that the case for you and maybe you should.

John D. Walker: Did you lose meaningful market share because I know grass seed is a big started the season in big for you and then maybe a little bit color on what because within garden of the.

John D. Walker: While bird declines and what caused that.

John D. Walker: Sure, Bill, it's JD. I'll take that question. With regard to, you know, year-to-date performance, I'd say that ours is, as you well know, our portfolio is a little different than our competitors'. So their early season businesses, particularly growing media and mulch, we don't participate in a meaningful way there. We have some other categories where they don't participate in a big way. You mentioned one, bird feed.

James Andrew Chartier: Sure Bill, it's J D I'll take that question.

John D. Walker: Yeah with regard to year to date performance I'd say that ours is as you well know our portfolio is a little different than our competitor. So theyre early season businesses, particularly growing media and mulch, we don't participate in a meaningful way there we have some other categories, where they don't participate in a big way.

John D. Walker: You mentioned, one bird feed and year to date, we've seen consumption and bird feed lag prior year. So our overall Pos for the quarter was flattish flat and plus us low single digits. If you exclude bird feed the warm weather during the quarter.

John D. Walker: And year-to-date, we've seen consumption of bird feed lag the prior year. So our overall POS for the quarter was flattish, flat, and plus low single digits if you exclude bird feed. The warm weather during the quarter, and really during the first half of the year, was not conducive to a strong bird feed season.

John D. Walker: And really during the first half of the year.

John D. Walker: Was not conducive to a strong bird feed season, so that.

John D. Walker: That category has.

John D. Walker: <unk> struggled a bit in the rest of our categories and many of them still are in front of us the peak consumption for those categories are still in front of us.

John D. Walker: So that category has struggled a bit. In the rest of our categories, and many of them are still in front of us, the peak consumption for those categories is still in front of us, we saw decent consumption. Overall, warmer weather for the quarter. I think that for a brief period in mid-March, for about 10 days to two weeks, we saw perfect weather, and we saw strong consumption. I think most people in our categories will do so.

John D. Walker: We saw decent consumption overall warmer weather for the.

John D. Walker: For the quarter I think that.

John D. Walker: For a brief period in mid March for about 10 days to two weeks, we saw perfect weather and we saw strong consumption I think most people in our categories did that tells us that the consumer is still very much engaged in our categories and gives us confidence going forward.

John D. Walker: That tells us that the consumer is still very much engaged in our categories and gives us confidence going forward. Yeah, we're pleased with the quarter and the first half of the year, but a meaningful part of the season still lies in front of us. So, that makes us somewhat cautious in our approach and outlook for the year. There are still many unknowns around weather and competitive activity and footsteps at retail. But I will say this, you know; there's a lot to like, too.

John D. Walker: Yeah, we're pleased with the quarter and the first half of the year, but a meaningful part of the season is still lies in front of us. So.

John D. Walker: That makes us somewhat cautious in our approach and outlook for the year still many unknown knowns around weather and competitive activity in footsteps at retail, but I will say this there's a lot to like to our distribution points of distribution or total distribution points are up mid single digits versus.

John D. Walker: Our distribution points of distribution, or total distribution points, are up mid-single digits versus the prior year. We are gaining share, to your question, in both insecticides and grass seed. Two categories that aren't measured are packet seeds and live goods, and we know just through distribution gains that we're picking up share there as well. We have strong promotional support with the partnership of our retail partners. So that gives us, you know, quite a bit of optimism looking forward. Inventory levels at retail are in good shape, so we're feeling cautiously optimistic, I'd say.

John D. Walker: Prior year, we are gaining share to your question in both insecticides and grass seed to categories that arent.

John D. Walker: Measured or packaged seeds and live goods and we know just through distribution gains that we're picking up share there as well.

John D. Walker: Strong promotional support with the partnership of our.

John D. Walker: Retail partners.

John D. Walker: So that gives us quite a bit of optimism looking forward.

John D. Walker: Inventory levels at retail are in good shape. So so we're feeling cautiously optimistic I would say about the future about the random.

John D. Walker: And bird seed is just the old, if there's not snow on the ground, consumers think the birds can find their own food.

John D. Walker: And the bird seed is just the old theres not snow on the ground consumers think the birds can find their own food.

John D. Walker: Exactly. That's the leading driver of the issue there, for sure.

Speaker Change: Xylem, that's still getting driver of the issue there for sure Chad. Thanks, So much Greg.

Operator: God, thanks so much. Great.

John D. Walker: Thanks so much.

John D. Walker: Yes.

John D. Walker: And the next question comes from the line of Brad Thomas with Keybanc Capital markets. Please proceed with your question.

Bradley Bingham Thomas: And the next question comes from the line of Brad Thomas with KeyBank Capital Markets. Please proceed with your question.

Bradley Bingham Thomas: Good afternoon, and thanks, Thanks, so much.

Bradley Bingham Thomas: Good afternoon. Thanks so much.

Bradley Bingham Thomas: Just a follow up here with JD, that's okay I.

Bradley Bingham Thomas: I guess two observations number one can you talk a little bit about inventory in the channel and just the timing of shipments if theres anything we should think about.

John D. Walker: Just to follow up here with J.D., if that's okay, I guess I have two observations. Number one, can you talk a little bit about inventory in the channel and just the timing of shipments, if there's anything that we should think about as we look to this all-important fiscal third quarter for you? And then just as we think about the comparisons, I mean, it's interesting that your garden organic growth was positive in the quarter you're up against here versus being much easier earlier on. How are you thinking about that affecting the growth rate that we see in the category in the quarter ahead here? Thanks.

John D. Walker: As we look to this all important fiscal third quarter for you.

John D. Walker: And then just as we think about the comparisons and then it's interesting in the garden or organic growth was positive in the quarter youre up against here versus being much easier early wrong. How are you thinking about that affecting the growth rate that we see.

John D. Walker: And the category in the quarter here. Thanks.

John D. Walker: Thanks, Brad. I appreciate the question.

J.D.: Alright, Thanks, Brad I appreciate the question. So first of all with regard to retail inventories, we feel like we're in a good position.

J.D.: At the end of the quarter inventories are down low single digits at the end of the quarter. So we feel like we're in a good position as last year, we talked all year long about inventory destocking at retail I think what we've seen is some correction of that this year as retailers brought inventory in in the first six months of the year in anticipation.

John D. Walker: So, first of all, with regard to retail inventories, we feel like we're in a good position at the end of the quarter. Inventories are down low single digits at the end of the quarter, so we feel like we're in a good position. Now, last year we talked all year long about inventory destocking at retail. I think what we've seen is some correction of that this year as retailers brought in inventory in the first six months of the year in anticipation of the season.

John D. Walker: Of the season, so actually shipments have outpaced consumption year to date for us, but inventory still arent in a heavy level at retail. So we feel like we're in a good position, we're seeing a lot more off shelf activity off shelf display activity, which drives the category at this time of year, So again going back to my earlier comment.

John D. Walker: So, actually, shipments have outpaced consumption year-to-date for us, but inventories still aren't at a heavy level at retail, so we feel like we're in a good position. We're seeing a lot more off-shelf activity, and off-shelf display activity, which drives the category at this time of year. So, again, going back to my earlier comments, I think that that bodes well for us going forward. Now, May's a critical month, and it's difficult to – I don't want to make any forward-looking statements, but we still have a lot of – a meaningful part of the season still in front of us. The first six months we feel good about it, but the next six weeks or so will determine a lot about our fate for the year.

John D. Walker: I think that that bodes well for us going forward now major critical months in it's difficult to want to make any forward looking statements, but we still have a lot of a meaningful part of the season still in front of us. The first six months, we feel good about but.

John D. Walker: The next six weeks or so will determine a lot about our fate for the year.

Speaker Change: Very helpful. Jamie we're already pretty good spring here and really start to summer.

Nicholas Lahanas: Very helpful, J.D. We're all rooting for a good spring here and an early start to summer. Nico, maybe I could ask one Financial Outlook question for you. The first half of the year has been very strong from a margin standpoint, and if there's some momentum there, it would certainly seem like earnings could be strong in the second half. Maybe you could give us a little more color on the puts and takes on margins in the second half of the year?

Nicholas Lahanas: Nico maybe I could ask.

Nicholas Lahanas: One financial outlook question for you the first half of the year has been very strong from a margin standpoint.

Nicholas Lahanas: And if there is some momentum there would certainly seem like earnings could be strong in the second half maybe could you give us some more color on the puts and takes on margins in the second half of the year.

Nicholas Lahanas: Sure. I mean, just to, you know, recap: first half margins were really driven by our cost and simplicity program. You know, the moves we're making there are significant. I would also say they are, you know, moderating inflation. And then third, we had a pretty good product mix here in this quarter. I think going forward, you know, we still feel great about margins. We, you know, our inflationary outlook hasn't changed. We think it's still moderating going forward.

Nico: Sure I mean, just to recap first half margin is really driven by our cost and simplicity program.

Nicholas Lahanas: The moves we're making there are significant.

Nicholas Lahanas: I would say also moderating inflation and then third we had pretty good product mix here in this quarter I think going forward, we still we still feel great about margins.

Nicholas Lahanas: We are inflationary outlook Hasnt changed we think it's still moderating going forward.

Nicholas Lahanas: We're continuing to work on our cost and simplicity program. I think the wild card is going to be product mix, so we have to see how that plays out in Q3 and Q4. So far, it's been very favorable. So I think as long as that plays out, we're feeling very good about margins going forward.

Nicholas Lahanas: We're continuing to.

Nicholas Lahanas: To work on our costs and simplicity program I think the wildcard is going to be product mix. So we have to see how that plays out in Q3 and Q4.

Nicholas Lahanas: So far it's been very favorable so I think as long as that that plays out.

Nicholas Lahanas: We're feeling very good about margins going forward.

Nicholas Lahanas: Really helpful. Thank you Nico.

Nicholas Lahanas: Really helpful. Thank you, Nico. Sure.

Nicholas Lahanas: Sure.

Nicholas Lahanas: And the next question comes from the line of Jim Chartier with modest Crespi Hardt. Please proceed with your question.

James Andrew Chartier: And the next question comes from the line of Jim Chartier with Monis, Crespi, and Hart. Please proceed with your question.

James Andrew Chartier: Good afternoon. Thanks for taking my question. On the pet side, what would the POS trends look like in the quarter? If you could break that up by consumables and variables, that'd be great.

James Andrew Chartier: Good afternoon, Thanks for taking my questions.

James Andrew Chartier: On the pet side.

James Andrew Chartier: POS trends look like in the quarter, if you could break that up by consumables durables that'd be great. Thanks.

John Edward Hanson: Yeah, on the pet side, overall, the category, you know, was down on POS. We were down about with the category and essentially held the share, right? And think about it this way: it's down, you know, low to mid single digits.

Speaker Change: Yeah on the pet side.

John Edward Hanson: Overall the category.

John Edward Hanson: <unk> down on <unk>, we were down about with the category and essentially held the share right and think about.

John Edward Hanson: It's down.

John Edward Hanson: Low to mid single digits.

John Edward Hanson: Consumables outperformed durables. Durables were down double digits, but durable declines in Q2 were actually better compared to Q1.

John Edward Hanson: Consumables outperformed durables and durables were down double digits.

John Edward Hanson: <unk> declines in Q2 were actually improved versus Q1.

John Edward Hanson: And therefore that combined with some moderate and household penetration.

John Edward Hanson: It makes us steel.

John Edward Hanson: Cup half full on durables.

John Edward Hanson: And that's on track. Our biggest customer, by the way, is Costco, which is not in the channel. That's right. And we feel like we really are.

John Edward Hanson: And Thats tracked.

John Edward Hanson: Channels are biggest carrier or by the way is Costco, which is which is not ensure our channel that's correct and we feel like we really outperformed in that channel and just to give you. Some color. We did take share in aquatics, flea and tick pet bed small animal wild bird and dog choice in the quarter. So.

John Edward Hanson: We feel like we really outperformed on that channel.

John Edward Hanson: Did a pretty good job.

John Edward Hanson: Great. And then, in terms of the distribution facility consolidation that you announced this morning or this evening, when should we expect to see the benefits of that start to flow through the income statement?

John Edward Hanson: Right.

John Edward Hanson: And then it took a bit of a distribution facility consolidation that you announced this morning or this evening.

John Edward Hanson: When should we expect to see the benefits of that start to flow through the income statement.

John Edward Hanson: Probably not till next year when we go through the season because we, you know, we didn't want to disrupt the garden season. It's primarily a garden initiative. And so we'll start moving product in there in July or August, I think, J.D.? That's right. We've taken possession of the new facility, and we're starting to move.

Speaker Change: Probably not until next year when we go through the season, because we didn't want to disrupt the garden season, it's primarily at a garden initiative.

J.D.: And so we will start moving product in there in July August I think J D. That's right. We've taken possession of the new facility and we are starting to move product in starting this month actually but we won't start shifting from that facility until July August.

John Edward Hanson: We've taken possession of the new facility, and we're starting to move product in, starting this month actually, but we won't start shipping from that facility until July or August. You're right.

Speaker Change: Alright, thank you.

John Edward Hanson: And the next question comes from the line of Bob <unk> with CJS Securities. Please proceed with your question.

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

Bob Labick: Yes, hi, good afternoon, it's Pete Lucas for Bob <unk>.

Bob Labick: Yeah, hi, good afternoon. It's Pete Lucas. Bob covered most of my questions, but can you maybe remind us and give us a little color on the extent of the

Pete Lucas: Covered most of my questions, but can you maybe remind us and give us a little color on the extent of the SKU rationalization and what has been the impact so far in 'twenty four.

Pete Lucas: And how do you kind of think about what to keep what the end.

Speaker Change: Yes, we'd like to get rid of the low margin stuff and keep the high.

John D. Walker: Yeah, we like to get rid of the low margin stuff and keep the high margins, so that's kind of where we start. But I think if you go back to what we did a year ago with our vendor partner business on the garden side, we took out almost 5 million. So that kind of gives you 5,000, or 5,000, excuse me. Yeah, thanks, J.D. So 5,000.

John D. Walker: So that's kind of where we start but I think if you go back to what we did a year ago with our vendor partner business on the garden side.

John D. Walker: We took out almost 5 million skus, so that kind of gives you $5 or 5000 excuse me, yes. Thanks, Jamie.

John D. Walker: So 5000, Skus very very quickly.

John D. Walker: And we're that's an ongoing process so.

John D. Walker: It's really never done, particularly as we're always acquiring other businesses and we need to right size them as well so that that rationalization process continues on but that.

John D. Walker: That gives you an idea of the magnitude that we're talking about and really when you talk about kind of SKU proliferation, it's really relegated to our distribution businesses, because they're full service distribution businesses and so you do have to have a full assortment and thats, where really the skus can get away from you. So.

John D. Walker: It was a really strong move for us on the garden side and on the pet side, we look at that every day so.

John D. Walker: I get that every day. So... And Nico, just building on that, the downstream implications of removing those 5,000 SKUs, that's one of the reasons why we can take four distribution centers and collapse them into one now. It's removed a lot of complexity from our business and allowed us to focus on the efficiencies of a smaller assortment and execute against that.

John D. Walker: And Niko just building on that the downstream implications of removing those 5000 Skus. That's one of the reasons why we can take four distribution centers all absent into one now it's removed a lot of complexity.

John D. Walker: From our business and allow us to focus on the efficiencies of a smaller assortment and execute against that.

Nico: Very helpful. Thanks.

Bob Labick: Very helpful, thanks.

Bob Labick: And the next question comes from the line of Brian Macneal <unk> with Canaccord Genuity. Please proceed with your question.

Brian McNamara: And the next question comes from the line of Brian McNamara with Canaccord Genuity. Please proceed with your question.

Brian McNamara: Hey, good afternoon. Thanks for taking my questions here. So I am curious whether is plagued you are healthier a lot over the last more players in the last couple of years.

Brian McNamara: Good afternoon. Thanks for clicking the questions here. So I'm curious, you know, whether it's plagued you or helped you a lot over the last couple of years, you know, over the last three to four years. So I'm curious, you know, you have weather a bit cooler in the Northeast, but perhaps a bit normal elsewhere. How did that impact the quarter in your garden? And how does that inform your guidance?

Brian McNamara: Over the last three to four years. So I'm curious you know you have weather got cooler in the northeast, but perhaps a bit normal elsewhere, how does that impact the quarter in garden and how does that inform your guidance.

Speaker Change: Sure. Thanks, Brian.

John D. Walker: Sure. Thanks, Brian.

Brian McNamara: So whether it.

Speaker Change: As much as it's a huge causal factor the biggest causal factor that impacts our business and it's completely out of our control as you know I would say that for the quarter weather was overall not favorable for Q2 and thats because of the headwind that it presented for our our wild bird business some of our traditional garden.

John D. Walker: So weather is a huge causal factor, the biggest causal factor that impacts our business, and it's completely out of our control, as you know. I'd say that for the quarter, weather was overall not favorable for Q2, and that's because of the headwind that it presented for our wild birds. Some of our traditional garden businesses, the warmer weather, that was a benefit there, but the strong sales that we saw in live goods and our packet seed business and our controls and grass seed business did not offset what we lost in grass seed. And that's why POS ended up flat. So weather's difficult to predict, but I'd say that that's why we have a broad portfolio and one that includes counter-seasonal businesses.

John D. Walker: Businesses, the warmer weather that was a benefit there, but the the strong sales that we saw in live goods and our packet seed business and our controls and grassy business did not offset what we lost in grass seed.

John D. Walker: And Thats why Pos ended up flat, so whether it's difficult to predict but I would say that that's why we have a broad portfolio and one that has a counter seasonal businesses like a bird feed so that if weather impacts one category negatively it often impacts on other positively.

Nicholas Lahanas: And in terms of guidance, I think that's why you saw us not move on guidance. We're going to hold for now because we've got the better part of the garden season ahead of us and there's a bit of uncertainty with the weather, as JD had outlined. So again, you know, we feel great about the start to the year. The first half has been good, I would say solid, but more to come and really not definitive yet in terms of, you know, what the full year outlook looks like. So I think that's why we felt good about just holding guidance for now.

John D. Walker: And in terms of guidance I think that's why you saw us.

Nicholas Lahanas: Not move on guidance, we're going to hold for now because we've got the better part of the garden season ahead of us and there is a bit of uncertainty with the weather as J D had outlined so.

Nicholas Lahanas: Again, we feel great about the start to the year. The first half has been good I would say solid but more to come.

Nicholas Lahanas: And really not definitive yet in terms of what the full year outlook looks like so I think thats why we felt good about just holding guidance for now.

Nicholas Lahanas: Alright, that's helpful and then on pet I mean with durables down another double digit again is there any line of sight to that category and do you believe anything has structurally changed in terms of pet ownership with it.

Brian McNamara: Great, that's helpful. And then on pets, I mean, with durables down another double digit again, is there any line of sight to that category bottoming? And do you believe anything has structurally changed in terms of pet ownership with it apparently back to pre-pandemic levels, you know, for some time now? How should we think about that, at least durables returning to growth, like the timeframe?

Brian McNamara: Apparently back to pre pandemic levels for some time now kind of kind of how should we think about that.

Brian McNamara: At least durables returning to growth.

Speaker Change: Timeframe, yes first of all I'd say, it's hard to pinpoint the timing of a return to growth I would say, we saw pet ownership peak in 2021, and we've seen some modest decline since then.

John Edward Hanson: Yeah, first of all, I'd say it's hard to pinpoint the timing of the return to growth. I would say we saw pet ownership peak in 2021, and we've seen some, you know, modest declines since then. And if you look at the household penetration of our pet supply category, it tracks really close, right?

John Edward Hanson: And if you look at the household penetration of our pet supply category attracts really close right. So we saw a peak in 2021, we've had modest decline. Since then we've had leveling off though this last quarter, which.

John Edward Hanson: So we saw it peak in 2021, and we've had modest declines since then. We've had a leveling off, though, you know, this last quarter, which, you know, again, we think that's, you know, cup half full. As we look forward, I do believe the declines will moderate. Q2 was less than Q1, actually. And you know, as we look into fiscal 25, I think, you know, cup half full, we'll see some stabilization, you know, and at some point, it will return to growth.

John Edward Hanson: Again, we think Thats a cup half full.

John Edward Hanson: We look forward I do believe the declines will moderate Q2 was less than Q1 actually.

John Edward Hanson: As we look into fiscal 'twenty, five I think cup.

John Edward Hanson: <unk>, we will see some stabilization.

John Edward Hanson: And at some point it will return to growth.

John Edward Hanson: Yeah, we feel like, you know, we're encouraged by the rate of change, which is getting smaller. The other thing to keep in mind is that most folks are buying their live animals in the pet specialty channel, which has been a little bit challenged in terms of footfall. So we feel like that definitely correlates, and once that channel starts to get healthier, we feel like there could be an uptake, but we are encouraged by the rate of change declining. That's really helpful.

John Edward Hanson: We feel like we're encouraged by the rate of change.

John Edward Hanson: Getting smaller.

John Edward Hanson: The other thing to keep in mind, most folks are buying their live animals in the pet specialty channel, which has been a little bit challenged in terms of the footsteps. So.

John Edward Hanson: We feel like there is that that definitely correlates and once that channel starts to get healthier.

John Edward Hanson: We feel like there could be an uptake, but we are encouraged by the rate of change declining.

Speaker Change: That's really helpful. Thanks, very much guys best of luck.

Brian McNamara: That's really helpful. Thanks very much, guys. Best of luck.

Speaker Change: Thank you.

Brian McNamara: And the next question comes from the line of Shabaneh chat <unk> with J P. Morgan. Please proceed with your question.

Shobana Chowdhury: And the next question comes from the line of Shobana Chowdhury with J.P. Morgan. Please proceed with your question.

Shobana Chowdhury: Hi. Thank you for taking my question. I have a quick clarification. You mentioned that shipments outpace consumption near-to-date, but your inventory levels are down low single-digit and in a good position. I just wanted to confirm that there is no pull-forward from your important fiscal third quarter as a result of this?

Shobana Chowdhury: Hi, Thank you for taking my question I wanted I have a quick clarification, you mentioned that shipments outpace consumption here today, but your inventory levels are down low single digit any like good position just wanted to confirm that there is no pull forward from very important fiscal third quarter as a result of that.

Shobana Chowdhury: Yes. This is J D that is correct I think some of this is a correction from last year, where there was significant destocking in the categories. So we're seeing inventories returned to a more normal level in anticipation of the season, but we did not have any significant pull forward from Q2 excuse me Q3 into Q2.

John D. Walker: Yes, this is JD. That is correct.

John D. Walker: I think some of this is a correction from last year where there was significant destocking in the categories. So we're seeing inventories returned to a more normal level in anticipation of the season. But we did not have any significant pull forward from Q2 and, excuse me, Q3 into.

Shobana Chowdhury: Thank you for clarifying that. Like all the companies that have been reporting, they've been talking about a generally higher level of value-seeking behavior amongst consumers, understandably given the higher cost of living. So I wanted to ask you, are you seeing a greater level of promotion in the environment than what you baked into your guidance or what you had anticipated starting out?

Speaker Change: Thank you for clarifying that.

Shobana Chowdhury: I wanted to ask you like all the companies that had been reported <unk> been talking about generally higher level of value seeking behavior amongst consumers understandably given the.

Shobana Chowdhury: Higher cost of living.

Shobana Chowdhury: Wanted to ask you are you seeing a greater level of promotions in the environment, then what you baked into your guidance or what you had anticipated.

Shobana Chowdhury: Starting out.

Speaker Change: Well I think thats one of the reasons, we held guidance as well because we're going into the deeper part of the garden season, and there could be more promotional activity.

Nicholas Lahanas: Well, I think that's one of the reasons we held guidance as well, because, you know, we're going into the deeper part of the garden season, and there could be more promotional activity. You know, I'm not, J.D., have you seen it as yet? I think it's been, there's been pockets of it, right? There have been.

Nicholas Lahanas: Yeah.

Nicholas Lahanas: Im not J D have you seen it as of yet I think it's been there's been pockets of it right. There have been so we're starting this week, we started to see more promotional activity towards the end of Q2 and now into Q3 I know our competitors are signaling deeper promotions, we're seeing I mentioned this earlier more off shelf activity off shelf display activity.

John D. Walker: So we're starting to see more promotional activity toward the end of Q2 and now into Q3. I know our competitors are signaling deeper promotions. We're seeing, I mentioned this earlier, more off-shelf activity, off-shelf display activity, not just for our brands but across the lawn and garden department. So we're anticipating a competitive environment in Q3 and beyond, and we'll react appropriately. I think that's one of the reasons for our conservatism in our forecast, but I can't say that it's been anything that we did not anticipate. Thank you all.

John D. Walker: <unk> not just for our brands, but across the lawn and Garden Department. So we're anticipating a competitive environment in Q3 and beyond and we will react appropriately it is.

John D. Walker: I think thats one of the reasons for our conservatism in our forecast but.

John D. Walker: I can't say that it's been anything that we did not anticipate.

Shobana Chowdhury: Thank you. I'll pass that on.

Speaker Change: Thank you I'll pass it on.

Speaker Change: And this was our last question. So thanks for joining our call today, we're available for questions afterwards.

Operator: And this was our last question. So thanks for joining our call today. We're available for questions afterwards.

Speaker Change: Have a good day.

Operator: Ladies and gentlemen, that does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Speaker Change: Ladies and gentlemen that does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.