Q3 2024 Scotts Miracle-Gro Co Earnings Call
Good morning and welcome to Scotts Miracle-Gro's third quarter 2024 earnings webcast. I'm Aimee DeLuca, Head of Investor Relations. With me this morning are Chairman, President, and CEO , Jim Hagedorn, and Chief Financial and Administrative Officer, Matt Garth.
Aimee DeLuca: 2024 Earnings Webcast. I'm Aimee DeLuca, Head of Investor Relations.
Aimee DeLuca: I'm Aimee DeLuca, Head of Investor Relations.
Aimee DeLuca: With me this morning are Chairman, President and CEO Jim Hagedorn and Chief Financial and Administrative Officer Matt Garth.
Aimee DeLuca: With me this morning are Chairman, President, and CEO, Jim Hagedorn, and Chief Financial and Administrative Officer, Matt Garth. Jim will provide an overall business update, followed by Matt with a review of our financial results. During our review, we will make forward-looking statements. Please be aware that our actual results could differ materially from what we share today. Please refer to our Form 10-K, filed with the SEC, for details of the full range of risk factors that could impact our results.
Aimee DeLuca: Jim will provide an overall business update, followed by Matt with a review of our financial results. During our review, we will make forward-looking statements and discuss certain non-GAAP financial measures. Please be aware that our actual results could differ materially from what we share today.
Jim will provide an overall business update, followed by Matt with a review of our financial results.
During our review, we will make forward-looking statements and discuss certain non-GAAP financial measures.
Please be aware that our actual results could differ materially from what we share today.
Aimee DeLuca: Please refer to our Form 10-K, filed with the SEC, for details of the full range of risk factors that could impact our results.
Aimee DeLuca: Following the webcast, Chief Operating Officer Nate Baxter and Hawthorne Division President Chris Hagedorn will join Jim and Matt for an audio-only Q&A. Listen to the Q&A. Simply remain on this web page. To ask a question, please join via the audio link shared in our program.
Aimee DeLuca: Following the webcast, Chief Operating Officer Nate Baxter and Hawthorne Division President Chris Hagedorn will join Jim and Matt for an audio-only Q&A session. To listen to the Q&A, simply remain on this webcast. To ask a question, please join via the audio link shared in our press release. As always, today's session will be recorded.
Following the webcast
Speaker Change: To listen to the Q&A, simply remain on this webcast. To ask a question, please join via the audio link shared in our press release.
Aimee DeLuca: As always, today's session will be archived version will be published on our website at investor.scotts.gov. For further discussion after the call, you are invited to email or call me directly. And with that, let's get started with Jim's Business Update. At the start of our fiscal year, we outlined growth targets and financial metrics, with three quarters of the year behind us. We have greater visibility into how we're performing. Clearly, we've accomplished almost everything we've set out.
Aimee DeLuca: An archive version will be published on our website at investor.scots.com.
Speaker Change: As always, today's session will be recorded. An archived version will be published on our website at investor.scotts.com. For further discussion after the call, you are invited to email or call me directly. With that, let's get started with Jim's business update.
Aimee DeLuca: For further discussion after the call, you are invited to email or call me directly.
Aimee DeLuca: With that, let's get started with Jim's business update.
James Hagedorn: Welcome everyone. At the start of our fiscal year, we outline growth targets and financial metrics for Fiscal 24. With three quarters of the year behind us, we have greater visibility into how we're performing against them. It's clear we've accomplished almost everything we've set out to do this year. Despite not even an unsettled weather season, we will improve upon the financial metrics that matter when it comes to driving value and establishing a growth foundation for next year. They include market share, sales, and point of sales at consumer level, free cash flow, debt reduction, leverage improvements, gross margin, and EBITDA.
James S. Hagedorn: Despite none, even an unsettled, we will improve upon the financial metrics that matter. [inaudible] They include market share, sales, and Point of Sale at the consumer level, Free Cash Flow, Debt Reduction, and margin. We've also held the line in expense control. Capable Investing, to that point.
Jim: Free Cash Flow, Debt Reduction, Leverage Improvements, Gross Margin, and EBITDA.
James Hagedorn: We've also held the line on expense control and continue to operate as a leaner, more cost-efficient organization, capable of investing strategically to drive volume and sales. To that point, we not only increased our media spend over a prior year, but we also efficiently focused those dollars to maximize POS opportunities in response to external factors. The peak of the season is a perfect example. To overcome its sluggish start, we injected 33% more into marketing and sales activities. This contributed to POS growth and profitability in Q3. Inventory is another pain point that we dealt with this year.
Jim: We've also held the line on expense control and continue to operate as a leaner, more cost-efficient organization capable of investing strategically to drive volume and sales.
James S. Hagedorn: We have not only increased our media spend over prior years. We also efficiently focus those dollars to maximize POS in response to external factors. The peak of the season is a perfect time to go to the gym. To overcome its sluggish start, we injected 33% more into marketing and sales, which has contributed to POS growth and profitability. Inventory is another pain point that we dealt with. When we came out of COVID, we were significantly over- facing major Committed to drawing down inventory to $600 million this year, and we'll meet. In Q3, we're just north of that number and below pre-COVID levels when it was just. This was a difficult undertaking, but our operating community...
Jim: To that point, we not only increased our media spend over prior year, but we also efficiently focused those dollars to maximize POS opportunities in response to external factors.
Jim: The peak of the season is a perfect example.
Jim: Inventory is another pain point that we dealt with this year.
James Hagedorn: When we came out of COVID, we were significantly over-inventoryed in facing major absorption issues. We committed to drawing down inventory to $600 million this year, and we'll meet that goal. Through Q3, we're just north of that number and below pre-COVID levels when adjusting for inflation. This was a difficult undertaking, but our operating community made it happen. When you look at the totality of our performance, fiscal 24 is a story of considerable progress. We know we have more work ahead of us to achieve sustained growth, significant margin improvement, and further debt reduction. And I'm holding off declaring full victory in our recovery until we've delivered on each of those things.
Jim: When we came out of COVID, we were significantly over-inventoried and facing major absorption issues.
Jim: We committed to drawing down inventory to 600 million dollars this year and we'll meet that goal.
Jim: Through Q3, we're just north of that number and below pre-COVID levels when adjusting for inflation. This was a difficult undertaking, but our operant community made it happen.
James S. Hagedorn: When you look at the totality of our performance, Fiscal 24 is a story of consideration. We know we have more work ahead of us, and I'm holding off declaring full victory in our recovery. I can say with conviction that we're well down the Through the first nine months, U.S. consumer net sales are up. We expect a strong fourth quarter, and are reaffirming our guidance of 5 to 7% net sales. We're also tracking to our company-wide adjusted EBITDA guidance of $530 to $540 million.
Jim: When you look at the totality of our performance, Fiscal 24 is a story of considerable progress.
Jim: And I'm holding off declaring full victory in our recovery until we've delivered on each of those things.
James Hagedorn: But I can say with conviction that we're well down the path to getting there. Through the first nine months, U.S. Consumer net sales are up 2%, and unit POS growth is plus 10%. We expect a strong fourth quarter, and are reaffirming our guidance of 5-7% net sales growth to the lawn and garden business. We're also tracking to our company-wide adjusted EBITDA guidance of 530 to 540 million dollars, a significant profitability swing of plus 20% over the last year. Even though we set our sights on a more ambitious EBITDA target this year, it still was a damn good year.
Jim: But I can say with conviction that we're well down the path to getting there.
Jim: Through the first nine months, U.S. consumer net sales are up 2 percent and unit POS growth is plus 10 percent.
Jim: We expect a strong fourth quarter and are reaffirming our guidance of five to seven percent net sales growth to the lawn and garden business.
Jim: We're also tracking to our company-wide adjusted EBITDA guidance of $530-540 million, a significant profitability swing of plus 20% over the last year.
James S. Hagedorn: Even though we set our sights on a more ambitious EBITDA target this year, it's still, Our growth is enabling us to achieve our two-year goal of generating $1 billion in revenue and pay down at least $350 million in debt for further. One of our highest priorities has been, We know it's a multi-year effort to get back to our historic mid-single digits. So far this year, we've improved gross margin by This compares favorably to our full year target of 200,000, so enabling us to recoup more than a quarter of the thousand base points. A big part of our gross margin decline is attributable to deliberate actions we took in the past two years to drive significant sales.
Jim: Even though we set our sights on a more ambitious EBITDA target this year, it still was a damn good year.
James Hagedorn: Our growth is enabling us to achieve our two-year goal of generating $1 billion in free cash flow by the end of fiscal 24, and we'll pay down at least $350 million in debt for further leverage improvement. Leveraging Q3 was down to 5.5 times adjusted EBITDA, a far cry from the over 7 times we faced less than a year ago. By year-end, our leverage will fall below 5 times. One of our highest priorities has been gross margin recovery. We know it's a multi-year effort to get back to our historic mid-30% range. So far this year, we've improved gross margin by 260 basis points.
Jim: Our growth is enabling us to achieve our two-year goal of generating $1 billion in free cash flow by the end of fiscal 24, and we'll pay down at least $350 million in debt for further leverage improvement.
Jim: Leveraging Q3 was down to 5.5 times adjusted EBITDA, a far cry from the over seven times we faced less than a year ago. By year-end our leverage will fall below five times.
Jim: We know it's a multi-year effort to get back to our historic mid-30% range.
James Hagedorn: This compares favorably to our full-year target of 250 basis points. It will also enable us to recruit more than a quarter of the thousand basis point margin decline. A big part of our gross margin decline is attributable to deliberate actions we took in the past two years to drive significant sales and free cash flow. We had to build the financial wherewithal to navigate our leverage situation during our financial crisis. Those actions involve trading pricing with retailers in exchange for new promotions, listings, and shelf space to drive volume. This cost us margin points, but positioned us for share gains.
Jim: A big part of our gross margin decline is attributable to deliberate actions we took in the past two years to drive significant sales and free cash flow.
James S. Hagedorn: We had to build the financial wherewithal to navigate our leverage situation during our. Those actions involved trading pricing with retailers in exchange for new promotions, listings, and shelving. This cost us margin points, but it positioned us for sharing. The moves we made were the right things for us.
Jim: We had to build the financial wherewithal to navigate our leverage situation during our financial crisis.
Jim: This cost us margin points, but positioned us for share gains.
James Hagedorn: The moves we made were the right things to do, and the benefits of that strategy are evident in our 2024 performance and the foundation for future growth that we've established. Our share gains in the consumer business are a big part of our recovery story. We knew the trade-off with retailers will bring us a listen share, but even we were surprised by the level of these gains. In a flat to declining lawn and garden market this year, we captured nearly 700 basis points of share at our biggest retailers. This spans our entire portfolio, and when you exclude mulch, our share gains remain significant at plus 300 basis points.
James S. Hagedorn: The benefits of that strategy are evident in our 2024 performance, and the Foundation for Futu- Our share gains in the consumer business are a big part of our. We knew the trade-off with retailers would bring us lifts and shifts, but even we were surprised by the level of Flat to Declining Lawn and Garden, captured nearly 700 basis points of share. This spans our entire. Share gains remain significant at plus 300. In my entire career with Scotts Miracle-Gro, I have never seen a time when we took so much share in a single event.
Jim: Our share gains in the consumer business are a big part of our recovery story.
Jim: We knew the trade-off with retailers would bring us lists and share, but even we were surprised by the level of these gains.
Jim: This spans our entire portfolio. And when you exclude mulch, our share gains remain significant at plus 300 basis points.
James Hagedorn: In my entire career, Wisconsin-Miracle Grow, I have never seen a time in which we took so much share in a single year, and I want to thank our retail partners. This is a testament to our brands and our proven ability to execute and adjust to external factors. No one has what we have in terms of firepower. Our sales marketing and supply chain teams are unmatched, and the health of our brands is as strong as ever. A recent study showed that consumer perceptions of trust and safety increased this year with the Scotts and Miracle-Gro brands. Our ability to drive growth through innovation is evident in the new Miracle-Gro organic soils line that was supported by a well-received marketing campaign featuring Martha Stewart.
Speaker Change: In my entire career with Scotts Miracle-Gro, I have never seen a time in which we took so much share in a single year. And I want to thank our retail partners.
James S. Hagedorn: I want to thank our Testament to Our Brands and Our Proven Ability to Execute and Adjust to External Factors. No one has what we have. Our Sales, Marketing, and Supply Team. The Health of our Brands is as strong as ever.
Jim: This is a testament to our brands and our proven ability to execute and adjust to external factors.
Jim: No one has what we have in terms of firepower. Our sales, marketing, and supply chain teams are unmatched. And the health of our brands is as strong as ever.
James S. Hagedorn: Recent studies show that consumer perceptions of trust and safety are important in Scotts Miracle-Gro Co. Our ability to drive growth through innovation is evident in the new Miracle-Gro Organic Soil. Sponsored by a well-received marketing campaign featuring, At the close of Q3, it was the single biggest driver of our unit POS growth and has been the catalyst for capturing significant market share gains overall. Through our retail partnerships, we've created success for them, and our marketing initiatives and joint promotional efforts brought people into the stores in significant numbers. Outperforming Tepid Retail; we do the advertising, and point people to their door. Joint Promotions, and we have our salespeople and products.
Jim: A recent study showed that consumer perceptions of trust and safety increased this year with the Scotts and Miracle-Gro brands.
Jim: Our ability to drive growth through innovation is evident in the new Miracle-Gro Organic Soils line that was supported by a well-received marketing campaign featuring Martha Stewart.
James Hagedorn: At the close of Q3, it was the single biggest driver of our unit, POS growth, and soils, and has been the catalyst for capturing significant market share gains in the overall soils category. Through our retail partnerships, we created success for them and us. Our marketing initiatives and joint promotional efforts brought people into the stores in significant numbers, outperforming tepid retailer foot traffic. We do the advertising, point people to their doors, run joint promotions, and have our salespeople and products on the store floor. Our model works, and no company in Long Garden can match that.
Jim: At the close of Q3, it was the single biggest driver of our unit POS growth in soils and has been the catalyst for capturing significant market share gains in the overall soils category.
Jim: Through our retail partnerships, we've created success for them and us.
Jim: Our marketing initiatives and joint promotional efforts brought people into the stores in significant numbers, outperforming tepid retailer foot traffic.
Jim: We do the advertising, point people to their doors, run joint promotions, and have our salespeople and products on the store floor.
James S. Hagedorn: Our model works, and no company in Long, Now let's talk about it. We're comfortable with where we're at. We expect a strong fall supported by advertising centered on higher margin law. Unknown Speaker, Unknown Speaker, emotional activities will play a key role.
Jim: Our model works, and no company in London Garden can match that.
James Hagedorn: Now let's talk about the fourth quarter. We're comfortable with where we're headed. We expect a strong fall, supported by advertising centered on higher margin lawn and control products, with targeted price reductions on key grass seed skews. Promotional activities will play a key role as well. We'll heavy up on them during the Labor Day weekend. Fourth quarter is also a time when we negotiate with retailers for the spring. Pricing across our portfolio will be a part of that discussion. Inflation has hit everyone hard, and our pricing has not kept pace with our costs. We will be very modest in our approach to pricing next year, given the concerns of our retailers and the pressures they have on their own margins.
Jim: Now let's talk about the fourth quarter.
Jim: We're comfortable with where we're headed.
Jim: We expect a strong fall supported by advertising centered on higher margin lawn and control products.
Jim: with targeted price reductions on key grass seed SKUs.
Jim: Promotional activities will play a key role as well. We'll heavy up on them during the Labor Day weekend.
James S. Hagedorn: Heavy up on them during the fourth quarter is also a time when we negotiate with [inaudible] inflation has hit everyone. Explanation inflation has hit everyone, and our pricing has not. We will be very modest in our approach to price, given the concerns of our customers. You expect pricing to contribute at least 1% to net sales.
Jim: Fourth quarter is also a time when we negotiate with retailers for the spring.
Jim: Pricing across our portfolio will be a part of that discussion.
Jim: Inflation has hit everyone hard, and our pricing has not kept pace with our costs.
Jim: We will be very modest in our approach to pricing next year, given the concerns of our retailers and the pressures they have on their own margins.
James Hagedorn: We do expect pricing to contribute at least 1% to net sales in 2025. Longer term, our pricing must keep up with the rate of inflation.
Jim: We do expect pricing to contribute at least 1% to net sales in 2025.
James S. Hagedorn: Longer term, our pricing must keep up with the rate of. Shifting the Hop, business has been a cash flow contributor. Making Money, posting its first profitable quarter. The strategic move from distributing third-party products to focusing solely on its market-leading brands led to a 6% increase in branded sales year-over-year and $145 billion. Hawthorne also continues to develop industry-leading innovation, just launched three new LED products under the, and is leading a turnaround in the industry.
James Hagedorn: Shifting the Hawthorne. The business has been a cash flow contributor and is making money, posting its first profitable quarter in two years. Its strategic move from distributing third-party products to focusing solely on its market leading brands led to a 6% increase in branded sales year-over-year and a 144% increase in profit. Hawthorne also continues to develop industry-leading innovation and has just launched three new LED products under the Gavita brand. Hawthorne is leading a turnaround in the industry supply side, and we're seeing some fast followers try to mimic our business model. Chris and his team have explored numerous options to create partnerships or separate Hawthorne from SMG.
Jim: Shifting the Hawthorne
Jim: Posting its first profitable quarter in two years.
Jim: Its strategic move from distributing third-party products to focusing solely on its market-leading brands led to a 6% increase in branded sales year-over-year and a 144% increase in profit.
Jim: Hawthorne also continues to develop industry-leading innovation and has just launched three new LED products under the Kavita brand.
Speaker Change: Hawthorne is leading a turnaround in the industry supply side, and we're seeing some fast followers try to mimic our business model.
James S. Hagedorn: We're seeing some fast followers try to mimic our... This and his team have explored numerous options to create partnerships or separate Hawthorne. It's been a lot of work on their part. We've concluded it's better to keep Hawthorne where it is for now.
Speaker Change: Chris and his team have explored numerous options to create partnerships or separate Hawthorne from SMG.
James Hagedorn: It's been a lot of work on their part, but we've concluded it's better to keep Hawthorne where it is for now. Especially when it's profitable, while we create the building blocks for a longer-term solution.
Speaker Change: It's been a lot of work on their part, but we've concluded it's better to keep Hawthorne where it is for now.
James S. Hagedorn: We are creating the building blocks for a longer term. At our Investor Day a few weeks back, we discussed our finances. It's all about getting the company back to operating. You can get the details on our investor website, but here's.
Speaker Change: especially when it's profitable, while we create the building blocks for a longer-term solution.
James Hagedorn: At our Investor Day a few weeks back we discussed our financial blueprint for the next three years. It's all about getting the company back to operating on all cylinders. You can get the details on our investor website, but here's the abridged version. Matt and Nate built a three-year plan that is grounded on driving an average of 3% annual growth through innovation, pricing, and expansion of our retail and direct-to-consumer channels. We're targeting above 30% adjusted growth Markins, and adjusted EBITDA of $600 million with further leverage reductions below 3.5 times. These are reasonable goals that will deliver considerable shareholder value, but I believe we can do better.
Speaker Change: At our Investor Day a few weeks back, we discussed our financial blueprint for the next three years.
Jim: It's all about getting the company back to operating on all cylinders.
Speaker Change: You can get the details on our investor website, but here's the abridged version. Matt and Nate built a three-year plan that is grounded on driving an average of 3% annual growth through innovation, pricing, and expansion of our retail and direct-to-consumer channels.
James S. Hagedorn: Matt and Nate built a three-year plan that is grounded in driving an average of 3% annual growth through innovation, price... Further Leverage Reductions Below, These are reasonable goals that will deliver considerable share. But I believe we can, for further top-line and bottom-line growth and outside, will increase investments in our business. Capital Improvement. Next year, we'll put an incremental $25 million into our brands and innovations. And just this month, we announced that Martha Stewart will be our Honorary Chief Guard, to advise us on gardening trends; new gardeners will also be the center of our gardening campaigns in 2020.
Jim: We're targeting above 30% adjusted gross margins and adjusted EBITDA of $600 million with further leverage reductions below 3.5 times.
Speaker Change: These are reasonable goals that will deliver considerable shareholder value, but I believe we can do better.
James Hagedorn: I'm challenging and incentivizing the team to get leverage below three times in this time frame through further top line and bottom line growth and outsize cash flows. We'll increase investments in our business, brands, and capital improvement. Next year, we'll put an incremental $25 million into our brands and innovation. And just this month, we announced that Martha Stewart will be our honorary Chief Gardening Officer to advise us on gardening trends, new gardeners, and products. She'll also be the center of our gardening campaigns in 2025. I view fiscal 24 as the bridge year in the transition from financial strain of the past two years to a state where we can achieve the type of returns that our shareholders deserve.
Speaker Change: I'm challenging and incentivizing the team to get leverage below three times in this timeframe through further top-line and bottom-line growth and outsized cash flows.
Jim: We'll increase investments in our business, brands, and capital improvement.
Jim: Next year we'll put an incremental 25 million dollars into our brands and innovation. And just this month we announced that Martha Stewart will be our honorary chief gardening officer to advise us on gardening trends, new gardeners, and products.
Unknown Attendee: shall also be the center of our gardening campaigns in 2025.
James S. Hagedorn: I view fiscal 24 as the bridge, transitioning from the financial strain of the past two, and I credit the management team, Matt, Nate, and Chris, especially, working together to not only expedite our progress but deliver on our commitments and get us to a great. I want to thank our associates for their resilience. Detailers, and the Board of Directors. The past two years have been the most difficult in the history of Scotts. We're approaching our business with renewed optimism, enthusiasm, and, I welcome the opportunity to have you continue with us on our journey. Now I'll turn it over to you. Thanks, Jim. And good morning from Central Ohio.
Jim: I view fiscal 24 as the bridge year in the transition from financial strain of the past two years
Speaker Change: to a state where we can achieve the type of returns that our shareholders deserve. I credit the management team, Matt, Nate, and Chris especially, for working together not only to expedite our progress, but to deliver on our commitments and get us to a great place for next year.
James Hagedorn: I credit the management team, Matt, Nate, and Chris, especially, for working together not only to expedite our progress, but to deliver on our commitments and get us to a great place for next year. I want to thank our associates for their resilience and our banks, retailers, and the Board of Directors for their support. The past two years have been the most difficult in the history of Scott's Miracle-Gro, but we're approaching our business with renewed optimism, enthusiasm, and determination. I welcome the opportunity to have you continue with us on our journey.
Jim: I want to thank our associates for their resilience, and our banks, retailers, and the Board of Directors for their support.
Jim: The past two years have been the most difficult in the history of Scotts Miracle-Gro.
Jim: But we're approaching our business with renewed optimism, enthusiasm, and determination.
Jim: I welcome the opportunity to have you continue with us on our journey. Now I'll turn it over to Matt.
Matthew Garth: Now I'll turn it over to Matt.
Matthew Garth: Thanks, Jim, and good morning from Central Ohio. Hopefully you're enjoying summertime, the fruits of your spring plantings, and all the benefits your lawns and gardens have to offer with family and friends. As Jim shared, third quarter results excelled in both of our major business segments. The US consumer, lawn and garden business benefited from continued strong consumer engagement, and our Hawthorne division posted adjusted segment profitability for the first time in two years. With year-to-date pre-cash flow approaching $500 million and driving further debt reduction, we ended the quarter with net leverage at 5.45 times, a full term below the covenant maximum.
Matthew E. Garth: Hopefully, you're enjoying summer, The Fruits of Your Spring Plants, and all the benefits your lawns and gardens have to offer with family and friends. As Jim shared, third quarter results excelled in both of our major businesses. The U.S. consumer, lawn, and garden business benefited from continued strong consumer engagement, and our Hawthorne division posted Adjusted Segment Profitability for the first time in two years, year-to-date free cash flow approaching $500 million and driving further debt. Ended the quarter with net leverage at 5.45 times, full term below the Covenant Max.
Matt: Thanks, Jim, and good morning from Central Ohio.
Matt: Hopefully, you're enjoying summertime, the fruits of your spring plantings, and all the benefits your lawns and gardens have to offer with family and friends.
Matt: As Jim shared, third quarter results excelled in both of our major business segments. The U.S. consumer, lawn and garden business benefited from continued strong consumer engagement, and our Hawthorne division posted adjusted segment profitability for the first time in two years.
Speaker Change: With year-to-date free cash flow approaching $500 million and driving further debt reduction, we ended the quarter with net leverage at 5.45 times, a full term below the covenant maximum.
Matthew Garth: These results give us confidence in achieving a strong finish to the year and line with the updated guidance we shared with you in June.
Matthew E. Garth: These results give us confidence in achieving a strong finish, in line with the updated guidance we shared with you in June. With that overview in mind... Let's get into the details of our third quarter performance. U.S. consumer business benefited from additional promotional activity and media, propelling net sales to $1 billion for an 11% increase over the same quarter a year ago. U.S. consumers' year-to-date net sales increased 2% over the prior year to $2.7 billion.
Speaker Change: These results give us confidence in achieving a strong finish to the year, in line with the updated guidance we shared with you in June .
Matthew Garth: With that overview in mind, let's get into the details of our third quarter performance. Our US consumer business benefited from additional promotional activity and media support, propelling net sales to $1 billion for the quarter, an 11% increase over the same quarter a year ago. US consumers a year-to-date net sales increased 2% over prior year to $2.7 billion. Importantly, the third quarter last year benefited from approximately $100 million in replenishment orders for our growing media business that we expect to ship during the fourth quarter this year, yielding nearly 50% sales growth versus last year. This being said, we expect to end the fiscal year with US consumer net sales growth within our revised guidance range of 5% to 7% as order and shipment phasing continue to normalize of the fiscal year.
Matthew E. Garth: Importantly, the third quarter last year benefited from approximately $100 million in replenishment orders for our growing media that we expect to ship during the fourth quarter, yielding nearly 50% sales growth versus last year. As said, we expect to end the fiscal year with U.S. consumer net sales growth within our revised guidance of 5-7% as order and shipment phasing continue to normalize through the balance. In the third quarter, media and promotional activities were centered on our Martha Stewart and Scott for Scotts campaigns, along with a pivot to heavier investment in controls as we responded to consumer needs to combat rising pests and weeds.
Speaker Change: With that overview in mind, let's get into the details of our third quarter performance.
Speaker Change: Our U.S. consumer business benefited from additional promotional activity and media support propelling net sales to $1 billion for the quarter, an 11 percent increase over the same quarter a year ago.
Speaker Change: U.S. consumers' year-to-date net sales increased 2% over prior year to $2.7 billion.
Speaker Change: Importantly, the third quarter last year benefited from approximately $100 million in replenishment orders for our growing media business that we expect to ship during the fourth quarter this year, yielding nearly 50% sales growth versus last year.
Speaker Change: This being said, we expect to end the fiscal year with U.S. consumer net sales growth within our revised guidance range of 5 to 7 percent as order and shipment phasing continue to normalize through the balance of the fiscal year.
Matthew Garth: In the third quarter, media and promotional activities were centered on our Martha Stewart and Scott for Scott's campaigns, along with a pivot to heavier investment in controls as we responded to consumer needs to combat rising pests and weed pressure. Let me reiterate Jim's note on share. The action we have taken in partnership with our retailers helped deliver strong performance at the shelf, with SMG share growing by 7 percentage points even as the lawn and garden category declined year-over-year. Through mid-July, year-to-date unit POS are up 10 percent over last year, led by gains in growing media and controls, while inventory units at our three largest customers are up 2 percent versus prior year.
Speaker Change: In the third quarter, media and promotional activities were centered on our Martha Stewart and Scott for Scots campaigns, along with a pivot to heavier investment in controls as we responded to consumer needs to combat rising pest and weed pressure.
Matthew E. Garth: Let me reiterate Jim's note on share. The action we have taken in partnership with our retailers helps deliver strong performance at the shelf, with SMG share growing by 7%, even as the lawn and garden category declined year over year.
Speaker Change: Let me reiterate Jim's note on share. The action we have taken, in partnership with our retailers, helped deliver strong performance at the shelf, with SMG share growing by 7 percentage points, even as the lawn and garden category declined year over year.
Matthew E. Garth: Through mid-July, year-to-date unit POS is up 10% over last year, led by gains in growing media and controls, while inventory units at our three largest customers are up 2% versus prior. POS dollars year-to-date through mid-July are essentially flat to prior year, reflective of a heavier mix of low-priced mulch versus other product categories. Continued Price and Promo Activity funded by both SMG and our retail partners. Moving to Hawthorne, the change and go-to-market strategy to focus on proprietary versus distributed brands is on track.
Speaker Change: Through mid-July, year-to-date unit POS are up 10% over last year, led by gains in growing media and controls, while inventory units at our three largest customers are up 2% versus prior year.
Matthew Garth: POS dollars year-to-date through mid-July are essentially flat to prior year, reflective of a heavier mix of low-priced mulch versus other product categories, and continued price and promo activity funded by both SMG and our retail partners.
Matthew Garth: I'm moving to Hawthorne. The change in go-to-market strategy to focus on proprietary versus distributed brands is on track. Sales of its signature brands are up 6 percent in the third quarter compared to last year. Total Hawthorne segment sales for the quarter declined 28 percent to $68 million and 33 percent to $214 million year-to-date. Given the discontinuation of third-party distributed brands, this decline in top-line sales was expected and will not negatively impact the total company-adjusted EBITDA target. This is because Hawthorne's signature brand strategy is having the desired positive effect on margins. Hawthorne posted non-GAAP segment profit of $3.8 million in Q3, its first profit in eight quarters, compared with the loss of $8.7 million in the third quarter last year.
Matthew E. Garth: Sales of its signature brands were up 6% in the third quarter compared to last year. However, total Hawthorne segment sales for the quarter declined 28% to $68 million and 33% to $214 million a year to date. Given the discontinuation of third-party distributed brands, this decline in top-line sales, and because Hawthorne's Signature Brand Strategy is having the desired positive effect on marketing, Hawthorne posted a non-GAAP segment profit of $3.8 million in Q3, its first profit in eight quarters, compared with a loss of $8.7 million in the third quarter last year.
Speaker Change: Sales of its signature brands are up 6% in the third quarter compared to last year.
Matthew Garth: Let's move on to gross margin and cost of goods for the total company. The non-GAAP adjusted gross margin rate for Q3 was 29.2 percent compared to 21.3 percent last year. The increase from prior year is primarily due to lower distribution, material, and ENO costs, as well as increased roundup commissions and improvements in product and segment mix. On a year-to-date basis, the non-GAAP adjusted gross margin rate increased from 27.6 percent to 30.2 percent, driven by the same factors that improved the Q3 rate, partially offset by pricing. With 95 percent of our commodity inputs now locked, we have a clear line of sight to our full-year costs.
Matthew E. Garth: Let's move on to gross margin and cost of goods for the total company. Non-Gap Adjusted Gross Margin Rate for Q3. 29.2% compared to 21.3% last year. The increase from the prior year is primarily due to lower distribution, material, and E&O costs, as well as increased round-up commissions and improvements in product and segment mix. On a year-to-date basis, the non-GAAP-adjusted gross margin rate increased from $27.6 billion to 30.2, driven by the same factors that improved the Q3 rate, partially offset by price.
Speaker Change: Let's move on to gross margin and cost of goods for the total company. The non-GAAP adjusted gross margin rate for Q3 was 29.2% compared to 21.3% last year.
Speaker Change: The increase from prior year is primarily due to lower distribution, material, and E&O costs, as well as increased roundup commissions and improvements in product and segment mix.
Speaker Change: On a year-to-date basis, the non-GAAP-adjusted gross margin rate increased from 27.6% to 30.2%, driven by the same factors that improved the Q3 rate, partially offset by pricing.
Matthew E. Garth: With 95% of our commodity inputs now locked, we have a clear line of sight to our full year call for the full year. Material costs are not expected to have any meaningful impact on gross margin, as we have discussed previously. We expect to unlock the benefits of recent material cost deflation in fiscal 25. SG&A increased $19 million in the quarter, a 15% increase versus the third quarter, due to increased investments in marketing and sales to drive volume, as well as higher variable costs on a year-to-date basis.
Matthew Garth: For the full year, material costs are not expected to have any meaningful impact on gross margin. As we have discussed previously, we expect to unlock the benefits of recent material cost inflation in fiscal 25. SG&A increased $19 million in the quarter, a 15 percent increase versus third quarter 23 due to increased investments in marketing and sales activities to drive volume, as well as higher variable compensation. On a year-to-date basis, SGNA is essentially flat at 14 percent of net sales, with the increases in media spending and variable compensation all set by decreased amortization. Foundation expense, primarily in the Hawthorne segment.
Speaker Change: On a year-to-date basis, SG&A is essentially flat at 14% of net sales, with the increases in media spending and variable compensation offset by decreased amortization expense, primarily in the Hawthorne segment.
Matthew E. Garth: ,,,,,, primarily in the Hawthorne Q3 non-GAAP adjusted EBITDA improved 86% to $237 million from $127 million last year. Year-to-date, non-GAAP-adjusted EBITDA. $607 million; $553 million a year ago. The increases were primarily attributable to affirmation improvements in volume and gross margin. Low Operating Income? The third quarter results include $23 million in equity income from the Bonnie JV compared to $22 million for the same period a year ago. Including the impairment charge recorded in the first quarter of Fiscal 24, equity income was $4,000,000 for both Fiscal 24 and Fiscal 25.
Matthew Garth: Taken together, these adjustments have little impact when calculating year-to-date non-GAAP adjusted EBITDA, as an increase in share-based payments is largely offset by the decrease in amortization expense. Q3 non-GAAP adjusted EBITDA improved 86% to $237 million from $127 million last year. Year-to-date non-GAAP adjusted EBITDA was $60 million versus $553 million a year ago. The increases were primarily attributable to the aforementioned improvements in volume and gross margin rate. The low-operated income, third-quarter results include $23 million in equity income from the Bonnie J.V. compared to $22 million for the same period a year ago. On a year-to-date basis, excluding the impairment charge recorded in the first quarter of fiscal 24, equity income was $4 million for both fiscal 24 and fiscal 23.
Speaker Change: Taken together, these adjustments have little impact when calculating year-to-date non-GAAP-adjusted EBITDA, as the increase in share-based payments is largely offset by the decrease in amortization expense.
Speaker Change: Q3 non-gap adjusted EBITDA improved 86% to $237 million from $127 million last year.
Speaker Change: Year-to-date, non-GAAP-adjusted EBITDA was $607 million versus $553 million a year ago.
Speaker Change: Below operating income, third quarter results include $23 million in equity income from the Bonnie JV compared to $22 million for the same period a year ago.
Speaker Change: On a year-to-date basis, excluding the impairment charge recorded in the first quarter of FY24, equity income was $4 million for both FY24 and FY23.
Matthew Garth: Based on their latest projections, we expect fiscal 24 profitability from Bonnie to end the year flat to fiscal 23. Interest expense declined by $8 million or 18% in the third quarter compared to last year. On a year-to-date basis, interest expense decreased $13 million or 9% from a year ago, due to lower debt levels partially offset by an increase in our weighted average income. Interest rate from 5.3% to 5.9%. Barring as of June 30, we're nearly $600 million lower than a year ago, driven by approximately $500 million in sales of accounts receivable, net of discount, and other free cash flow generation from operations and inventory improvements.
Matthew E. Garth: Based on their latest projections, we expect Fiscal 24 profitability from Bonnie to end the year flat to Fiscal 23. This expense declined by $8 million, or 18%, in the third quarter compared to last year. Interest expense decreased $13 million, or 9% from a year ago, due to lower debt levels, partially offset by an increase in our weighted average interest rate.
Speaker Change: Based on their latest projections, we expect Fiscal 24 profitability from Bonnie to end the year flat to Fiscal 23.
Speaker Change: Interest expense declined by $8 million or 18% in the third quarter compared to last year.
Speaker Change: On a year-to-date basis, interest expense decreased $13 million, or 9% from a year ago due to lower debt levels partially offset by an increase in our weighted average interest rate from 5.3% to 5.9%.
Matthew E. Garth: 5.3% to 5.9%, borrowings as of June 30 were nearly $600 million lower than a year ago. Driven by approximately $500 million in sales of accounts receivable, net of dis- Other free cash flow generation from operations and inventory improvements. Cash on hand increased to $280 million. $27,000,000. We remain on track to deliver the balance of $1 billion in free cash over 2 years by the end of fiscal 24. Interest rates remain approximately 80% fixed as of the end of the third quarter under a combination of long-term fixed rate notes and interest rate swap agreements.
Speaker Change: Borrowings as of June 30 were nearly $600 million lower than a year ago, driven by approximately $500 million in sales of accounts receivable, net of discount, and other free cash flow generation from operations and inventory improvements.
Matthew Garth: Additionally, cash on hand increased to $280 million from $27 million last year. We remain on track to deliver the balance of $1 billion in free cash flow over two years by the end of fiscal 24. Interest rates remain approximately 80% fixed as of the end of the third quarter under a combination of long-term fixed rate notes and interest rate swap agreements. Discount cost associated with the AR sale facility included in other income and expense was approximately $22 million through Q3. Our adjusted tax rate through the third quarter was 26.8% compared to 25.8% last year. The increase relates to the unfavorable impact of higher non-deductible executive compensation expense, partially offset by lower year-to-date discrete tax items. Through Q3, FY24, and consistent with the prior quarter, year-to-date share count increased about 1.2 million shares from a year ago, primarily due to increased share issuance related to short-term and long-term incentive awards, and media purchase was shares for both FY23 and 24.
Speaker Change: Interest rates remain approximately 80% fixed as of the end of the third quarter under a combination of long-term fixed rate notes and interest rate swap agreements.
Matthew E. Garth: Account Costs Associated with the AR Sale Facility, included in Other Income, and was approximately $22 million through Q3. Our adjusted tax rate through the third quarter was 26.8% compared to 25.8% last year. The increase relates to the unfavorable impact of higher non-deductible executive compensation.
Speaker Change: The increase relates to the unfavorable impact of higher non-deductible executive compensation expense partially offset by lower year-to-date discrete tax items.
Matthew E. Garth: Partially offset by lower year-to-date discrete time. Q3 FY24, and consistent with the prior quarter, year-to-date share count increased about 1.2 million shares from a year ago, primarily due to increased share issuance related to short-term and long-term incentives, and Media Purchase with shares for both FY 23 and 24. Through the end of Q3, more than 80% of our full-year POS is behind us, providing strong visibility through the remainder of the year. We expect to finish the year in line with our goal of, and are poised for further growth and margin improvement in FY25 and beyond.
Matthew Garth: Through the end of Q3, more than 80% of our full-year POS is behind us, providing strong visibility through the remainder of the year.
Matthew Garth: We expect to finish the year in line with our guidance and are poised for further growth and margin improvement in FY25 and beyond. targets outlined at our recent Investor Day. Over the next three years, we expect to return to mid-30s gross margin rates and a more balanced capital allocation as we benefit from continue strong free cash flow and an improved balance sheet.
Speaker Change: We expect to finish the year in line with our guidance and are poised for further growth and margin improvement in FY25 and beyond.
Matthew E. Garth: I invite you to visit our investor site to review the high-level midterm financials outlined at our recent inves, Over the next three years, we expect to return to mid-30s gross margin rates and a more balanced capital out of the..., as we benefit from continued strong free cash flow and an improved balance. With that, we can now move on to the Q&A. Operator, please open the line to ask questions. Press 1-1 on your telephone and wait for your name to be announced.
Unknown Executive: With that, we can now move on to the Q&A. Operator, please open the line for questions. To ask a question, please press star 11 on your telephone and wait for your name to be announced. Do a draw your question, please press star 11 again. In the interest of time, yes, that you please them yourself to one question and one follow-up. Please stand by while we compile the Q&A roster.
Speaker Change: Please stand by while we compile the Q&A roster.
Joseph Altobello: Our first question comes from Joe Altobello with Raymond James; your line is open. Thank you, guys. Good morning.
Operator: To withdraw your question, please press star 1-1 again. In the interest of time, we ask that you please limit yourself to one question and one follow-up while we compile. Our first question comes from Joe Altobello with Raymond James. Your line is open. Thanks. Hey, guys. Good morning.
Speaker Change: Our first question comes from Joe Altobello with Raymond James. Your line is open.
Matthew Garth: First question: I want to go back to the three-year target that you gave us a couple of weeks ago. The three-percent annual revenue grows and the 230-based points of the annual Blitz-Marx expansion. Is there anything unusual in FY25 as we think about the key to the target? I guess what I'm asking is, should that be our base case at this point as we think about next year?
Unknown Speaker: So, first question, I want to go back to the 3-year targets that you gave us a couple of weeks ago, the 3% annual revenue growth and the 250 basis points of annual gross margin expansion. Is there anything unusual in FY25 as we think about the cadence of those targets? I guess what I'm asking... Unknown Speaker, Unknown Speaker. Good morning.
Joseph Nicholas Altobello: Thanks. Hey guys, good morning. So, first question, I want to go back to the three-year targets.
Joseph Nicholas Altobello: that you gave us a couple weeks ago, the 3% annual revenue growth and the 250 basis points of annual gross margin expansion.
Speaker Change: Is there anything unusual in FY25 as we think about the cadence of those targets? I guess what I'm asking is, you know, should that be our base case at this point as we think about next year?
Matthew Garth: Good morning. I think, as we detailed to you at the investor day, Nate and I gave you a vision of how that would roll out over the next couple of years. It was prudent to say that that might be just spread across three years. But, as we know, that could be a little lumpy. As you look at 25, coming out of 24, we said we wouldn't get some of the raw material savings in our cost structure in 24. There's a little bit, but that was going to come in 25. So you might see a bit more of that margin recovery in 25 versus 6 and 7.
Matthew E. Garth: And I think as we detailed to you at Investor Day, Nate and I gave you a vision of how that would roll out over the next couple of years. And it was prudent to say that that might be just spread across three years. But as we know, that could be a little lumpy. As you look at 25, coming out of 24, right, we've said, we wouldn't get some of the raw material savings in our cost structure in 24. There's a little bit, but that was going to come in 25.
Speaker Change: Good morning, and
Speaker Change: I think as we detailed to you at the Investor Day, Nate and I gave you a vision of how that would roll out over the next couple of years. And it was prudent to say that that might be just spread across three years. But as we know, that could be a little lumpy. As you look at 25,
Speaker Change: Coming out of 24, right? We've said...
Speaker Change: We wouldn't get some of the raw material savings in our cost structure in 24.
Matthew E. Garth: So you might see a bit more of that margin recovery in 25 versus six and seven. But again, not going deep into guidance for 25 yet; we'll detail that for you at the end of the fourth quarter. But I think it's okay to start to think about it as maybe a little bit more than 25, 26, and 27 also continuing on that recovery path.
Speaker Change: There's a little bit.
Speaker Change: But that was going to come in 25, so you might see...
Speaker Change: A bit more of that margin recovery in 25 versus six and seven. But again, not going deep into guidance on 25 yet. We'll detail that for you at the end of the fourth quarter. But I think it's okay to start to think about it as...
Matthew Garth: But again, not going deep into guidance on 25 yet.
Nate Baxter: We'll detail that for you at the end of the fourth quarter. But I think it's okay to start to think about it as maybe a little bit more in 25, 26, and 27, also continuing on that recovery path.
Speaker Change: But it may be a little bit more than 25.
Speaker Change: 26 and 27 also continuing on that recovery path. And then the other component is pricing and what the team has been doing and what Jim alluded to in the prepared remarks.
Nate Baxter: And then the other component is pricing. And what the team has been doing and what Jim alluded to in the prepared remarks was working with retailers. You know that takes place now and through the fourth quarter. And so maybe, Nate, if you want, you can just talk about how that's looking and how you're thinking about the next couple of years. Thanks, Matt. Like you said, we're in the middle of that process right now with our retailers. I would say we see nothing that indicates we're not going to start from a solid base of how we finished 24.
Nate Baxter: And then the other component is pricing, and what the team has been doing, and what Jim alluded to in the prepared remarks was working with retailers, you know, that takes place now and through the fourth quarter. And so maybe Nate, if you want, you can just talk about, you know, how that's looking and how you're thinking about the next couple of years. Yeah, Matt.
Speaker Change: was working with retailers. You know that takes place.
Speaker Change: Now and through the fourth quarter.
Nate: And so maybe, Nate, if you want, you can just talk about, you know, how that's looking and how you're thinking about the next couple of years. Yeah, thanks, Matt. Like you said, you know, we're in the middle of that process right now with our retailers. I would say we see nothing that indicates we're not going to start from a solid base of how we finish 24. I think Matt's right. We probably have a little bit more opportunity in 25, but we're also being aggressive with our not only our cost outs, but our innovation and our pricing for 26 and 27. So I think it's a little early to tell the full story, but I think, you know, you're on the right track.
Nate Baxter: Like you said, we're in the middle of that process right now with our retailers. I would say we see nothing that indicates we're not going to start from a solid base of how we finished 24. I think Matt's right; we probably have a little bit more opportunity in 25. But we're also being aggressive with not only our cost outs but our innovation and our pricing for 26 and 27. So I think it's a little early to tell the full story.
Matthew Garth: I think Matt's right. We probably have a little bit more opportunity in 25, but we're also being aggressive with our not only our cost outs, but our innovation and our pricing for 26 and 27. So I think it's a little early to tell the full story, but I think you're on the right track. Got it.
Unknown Speaker: But I think, you know, you're on the right track. Okay, and then let me just follow up on that. One point you're expecting from Mac. Maybe help us understand what you're looking at from an M&A standpoint. [inaudible] Look, I can describe the qualities.
Matthew Garth: Okay. And then let me just follow up on that.
Matthew Garth: The one point you're expecting from acquisitions. Maybe help us understand what you're looking at from an emanated standpoint. I can describe sort of the qualities both on law and garden acquisitions that have very low risk on the innovation side. and partners who I think would largely accept equity in Scotts' payment. So that's kind of how we're thinking about it.
Speaker Change: Got it. Okay, and then maybe just to follow up on that, the one point you're expecting from acquisitions, maybe help us understand what you're looking at from an M&A standpoint.
Speaker Change: Ken... Not happening... Yeah, I mean... Kate Wells...
Kate Wells: Look, I can describe...
Kate Wells: Sort of the qualities.
Kate Wells: both on lawn and garden acquisitions that have very low risk on the integration side
Kate Wells: partners who I think would largely accept equity in Scotts' payment. So that's kind of how we're thinking about it.
Matthew Garth: Okay, perfect. Thank you, guys. Thank you.
Kate Wells: Okay, perfect. Thank you guys.
Unknown Speaker: Both on lawn and garden acquisitions that have very low risk on the integration side, partners who I think would largely accept equity in Scotts' payment. So that's kind of how we're thinking about it. Perfect. Thank you, guys. Thank you. And our next question comes from Peter Grom with UBS. Your line is open. Thanks, operator. Good morning, everyone. Hope you're doing well.
Peter Grom: And our next question comes from Peter Grom with UBS. Your line is open. Thank you, operator. Good morning, everyone. Hope you're doing well.
Speaker Change: Thank you and our next question comes from Peter Grom with UBS. Your line is open.
Matthew Garth: You know, maybe going back to the margin question that Joe has asked. But just, you know, Matt, can you maybe just, when we maybe taking a step back, when we think about the margin compression and the different drivers of the margin compression over the last several years, there's no way to kind of frame how big the raw material savings opportunity is. Just going back to the comment around 25, you're going to recapture more of that. So just any way to think about where we are in that process, what I think would be helpful just to start.
Peter K. Grom: Thanks, operator. Good morning, everyone. Hope you're doing well.
Peter K. Grom: You know, maybe going back to the margin question that Joe asked, but just, you know, Matt, can you maybe just take a step back, when we think about the margin compression and the different drivers of the margin compression over the last several years, is there any way to kind of frame how big the raw material savings opportunity is? Just going back to the comment around 25, you're going to recapture more of that.
Peter K. Grom: You know, maybe going back to the margin question.
Speaker Change: that Joe has asked, but just.
Peter K. Grom: You know, Matt, can you maybe just, when we, maybe taking a step back, when we think about the margin compression and the different drivers of the margin compression over the last several years.
Speaker Change: Is there any way to kind of frame how big the raw material savings opportunity is? Just going back to the comment around 25, you are going to recapture more of that. So just any way to think about where we are in that process I think would be helpful just to start.
Peter K. Grom: So just any way to think about where we are in that process would be helpful just to start. We've been really consistent and thanks for the opportunity to talk about the framing over the past couple of years because I think Jim, Nate, and myself have all reiterated the viewpoint that we've lost 1000 basis points in gross margin. And that's come as a result of the inflationary period. It's come as a result of some kind of price inability moving through to the consumer over that time period.
Matthew Garth: We've been really consistent, and thanks for the opportunity to talk about the framing over the past couple of years because I think Jim, Nate, myself, we've all reiterated the viewpoint that we've lost a thousand basis points in gross margin. And that's come as a result of the inflationary period. It's come as a result of kind of price in ability on moving through to the consumer over that time period. And we find ourselves now sitting again, coming out of 24 recovered about 250 basis points plus 260 through the third quarter. And when you look at the remaining frame of that, that 700 basis points, what we have said is that you are looking now at a lot of that geared towards the recovery in pricing against those inflationary factors that have impacted us.
Speaker Change: We've been really consistent and thanks for the opportunity to talk about the framing over the past couple of years because I think Jim, Nate, myself, we've all reiterated the
Jim: The viewpoint that we've lost a thousand basis points in Gross margin and and that's come as a result of the inflationary period. It's come as a result of kind of price
Peter K. Grom: And we find ourselves now, sitting again, having recovered about 250 basis points plus 260 through the third quarter. And when you look at the remaining frame of that, that 700 basis points, what we have said is that you are looking now at a lot of that geared towards the recovery in pricing against those inflationary factors that have impacted us. So where have those inflationary factors impacted us?
Jim: Inability on moving through to the consumer over that time period and we find ourselves now sitting again coming out of 24 recovered about 250 basis points plus 260 through the third quarter.
Jim: And when you look at the remaining frame of that.
Jim: That's 700 basis points. What we have said is that you are looking now at a lot of that geared towards
Jim: The recovery in pricing against those inflationary factors that have impacted us. So where have those inflationary factors impacted us?
Matthew Garth: So where have those inflationary factors impacted us? Yes, raw materials, which is roughly a little more than half of that. But then also in our cost structure, where we've taken positions in our distribution network, in our labor force, where you've seen inflation impact us, those are additional areas for us to regain pricing against that have come through over the past couple of years. So that means, as we look over the next three years, that pricing that we're going to recapture is, again, we told you 1% plus. And then the cost takeouts also come into helping that with the roughly one and a half percent each year.
Matthew E. Garth: Yes, raw materials, which is roughly a little more than half of that, but then also in our cost structure where we've taken positions in our distribution network, in our labor force, where you've seen inflation impact us, those are additional areas for us to regain pricing against that have come through over the past couple of years. So that means as we look over the next three years, that pricing that we're going to recapture is, again, we've told you 1% plus, and then the cost takeouts also come into helping that with the roughly one and a half percent each year.
Speaker Change: Yes, raw materials.
Jim: which is roughly a little more than half of that.
Speaker Change: But then also in our cost structure where we've taken positions in our distribution network.
Speaker Change: In our labor force where you've seen inflation impact us.
Speaker Change: Those are additional areas for us to regain pricing against that have come through over the past couple of years.
Speaker Change: So that means, as we look over the next three years, that pricing that we're going to recapture
Speaker Change: is, again, we've told you 1% plus. And then the cost takeouts also come into helping that with the roughly one and a half percent each year. And again, we just gave you the caveat at the beginning of this call of how that might be a little more lumpier. But that that
Matthew Garth: And again, we just gave you the caveat at the beginning of this call of how that might be a little more lumpier, but that really solves the 750 basis points as we move forward combination of regaining pricing. And then also, as we talked about some of those supply chain costouts, that is also going to be recovering pricing and gaining efficiencies over that time frame. Okay, great. That's really helpful.
Matthew E. Garth: And again, we just gave you the caveat at the beginning of this call of how that might be a little more lumpier, but that really solves the 750 basis points as we move forward, combination of regaining pricing. And then also, as we talked about some of those supply chain cost outs, that is also going to be recovering pricing and gaining efficiencies over that timeframe. Okay, great. That's really helpful.
Speaker Change: really solves the the 750 basis points as we move forward. Combination of regaining pricing and then also as we talked about some of those supply chain cost outs, that is also going to be recovering pricing and gaining efficiencies over that time frame.
Matthew E. Garth: And then maybe just to follow up, Matt, I think you mentioned an incremental investment of $25 million next year. Is that going to be offset by maybe incremental savings? So you say within kind of your long-term SG&A target range, or would you say that that is coming, you know, the extra gross margin expansion or the profit dollars that you anticipate? Is that going to be offset by that incremental investment?
Matthew Garth: And then just maybe just a follow-up, Matt, I think you mentioned an incremental investment of $25 million next year. Is that going to be offset by maybe incremental saving? So you say, within kind of your long-term estimate target range, or would you say that that is coming the extra gross margin expansion or the profit dollars that you anticipate? Is that going to be offset by that incremental investment? So we're going to end this year on a total SG&A basis, middle to the high end of that 15 to 16 percent range. As we look at 25, again, not getting into guidance, but we've told you we're going to spend 25 million dollars more.
Speaker Change: Okay, great. That's really helpful. And then just maybe just a follow-up, Matt. I mean, I think you mentioned, you know, an incremental investment of $25 million.
Speaker Change: Next year, I mean, is that going to be offset by maybe incremental savings?
Speaker Change: So you stay within kind of your long-term SG&A target range, or would you say that that is coming, you know, the extra gross margin expansion or the profit dollars that you anticipate, is that going to be offset by that incremental investment?
Matthew E. Garth: So we're going to end this year on a total SG&A basis, middle to the high end of that 15 to 16% range. As we look at 25, again, not getting into guidance, but we've told you we're going to spend $25 million more. I think it's prudent to say that we're going to be at the top end of that 15 to 16% range. But what does that mean?
Speaker Change: So we're going to end this year on a total SG&A basis, middle to the high end of that 15 to 16% range. As we look at 25, again, not getting into guidance, but we've told you we're going to spend $25 million more. I think it's prudent to say that we're going to be at the top end of that 15 to 16% range.
Matthew Garth: I think it's prudent to say that we're going to be at the top end of that 15 to 16 percent range. But what does that mean? And this is where the full team will come into this. Everything that we are doing, whether it's last year, this year, it is all positioning towards a much stronger support for our brands, for innovative products to our consumers. All of that is what we are gearing towards and creating additional flexibility for this company as we move into the future. That 25 million dollars on top of the additional media spend we did this year in 24 has immediate results that we feel very good about.
James S. Hagedorn: And this is where the full team will come into this. Everything that we are doing, whether it's last year, this year, it is all positioning towards a much stronger support for our brands, for innovative products for our consumers. All of that is what we are gearing towards and creating additional flexibility for this company as we move into the future. That $25 million on top of the additional media spend we did this year in 24 has immediate results that we feel very good about. I'll pass it over to Jim. Hey Peter.
Speaker Change: But what does that mean? And this is where the full team will come into this.
Speaker Change: everything that we are doing whether it's
Speaker Change: Last year, this year, it is all positioning towards a much stronger support for our brands, for innovative products to our consumers. All of that is what we are gearing towards and creating additional flexibility for this company as we move into the future. That $25 million
Jim: on top of the additional media spend we did this year in 24 has immediate results that we feel very good about. So I'll pass it over to Jim and, you know, probably Aimee. I'll take it for a second.
James Hagedorn: So I'll pass it over to Jim, and probably I'll take it for a second.
James Hagedorn: Hey Peter. What I would say is I got board meeting Friday. And one of the things I've asked Nate and his team to do is say, what do you need to run this business properly?
James S. Hagedorn: You know, what I would say is I have a board meeting Friday. Okay. One of the things I've asked Nate and his team to do is say, "What do you need to run this business properly?" I think it's the perfect time to say to the new guy, "Ahem, excuse me, ahem, it's got a new marketing team. What do you really need to support this brand?"
Jim: Hey Peter, what I would say is I got a board meeting Friday.
Speaker Change: Okay.
Speaker Change: One of the things I've asked Nate and his team to do is say...
James Hagedorn: I think it's the perfect time to say to the new guy. Excuse me. This got a new marketing team. What do you really need to support this brand or the line of products that we have are multiple brands? And part of it is looking at the competitive environment. And I don't think Zivo is joking; he is really going after us, as it is our partner, SEJ. I think they are doing what we do. Support their business with advertising and marketing funds, working with the retailers. And that's their franchise. And you know, we don't need lessons in that.
Speaker Change: What do you need to run this business properly? I think it's the perfect time to say to the new guy.
Speaker Change: Excuse me. It's got a new marketing team.
Speaker Change: What do you really need to support this brand or the line of products that we have are multiple brands?
James S. Hagedorn: You know, part of it is looking at the competitive environment and, Well, I don't think... Zevo, excuse me, I'm choking here, is really going after us as it is our partner, SCJ. Um, I think they're doing what we do, supporting their business with consumers, you know, with advertising and marketing funds, working with the retailers. And that's their franchise, and you know we don't need lessons in that. We, we, we know that. So what do I think it's going to be? Ahem, excuse me, um..., long-term, I think that they're going to show up with a wish list. And I don't mean that in a casual sense.
Speaker Change: You know, part of it is looking at the competitive environment and
Speaker Change: Well, I don't think...
Speaker Change: Zeebo is, excuse me, I'm choking here.
Speaker Change: is really going after us as it is our partner, SEJ.
Speaker Change: I think they're doing what we do.
Speaker Change: support their business with consumer, you know, with advertising and marketing funds, working with the retailers.
Speaker Change: That's their franchise, and you know, we don't need lessons in that. We know that.
James Hagedorn: We know that. So what do I think it's going to be? Excuse me. Long term. I think that they're going to show up with a wish list, and I don't mean that in a casual sense. That's probably double what we're spending today. Now we got a business to run, and we got to figure out how to do that profitably. And sort of remember, we are investors; maybe the biggest investors in the company are sitting at this table. And so we get that part that is we have to do this in time. But I think what you're going to see is that the need to spend behind this business, which we're going to have to throttle as fast as we can.
Speaker Change: So, what do I think it's going to be?
Speaker Change: Excuse me, um...
Speaker Change: Long-Term
Speaker Change: I think that they're going to show up with a wish list, and I don't mean that in a casual sense.
James S. Hagedorn: That's probably double what we're spending today. Now we have a business to run, and we got to figure out how to do that profitably. And sort of, remember, we are investors, too. Maybe the biggest investors in the company are sitting at this table.
Speaker Change: That's probably double what we're spending today.
James S. Hagedorn: And so we get that part that we have to do this in time, but I think what you're going to see is the need to spend behind this business, which we're going to have to throttle as fast as we can. And this gets back to the board meeting, which isn't just, What do you guys think you need to run the business?
Speaker Change: and so we get that part that is we have to do this.
Speaker Change: Time. But I think what you're going to see is that the need to spend behind this business, which we're going to have to throttle as fast as we can. And this gets back to the board meeting, which is it's not
James Hagedorn: And this gets back to the board meeting, which is it's not just what do you guys think you need to run the business. And that's I think the biggest area that I think we feel like we need is sort of brand support, which is directed at the consumer plus some incremental innovation money. And do that while driving margins back historically where they've been called 35%. And that margin will go a long way to helping pay for this stuff. But I think my challenge to them is going to be, can we within our planning horizon get to that point of call 200 million or so in direct media, which we think is a sort of righteous number.
Speaker Change: Just what do you guys think you need to run the business?
James S. Hagedorn: And that's, I think the biggest area that we feel like we need is sort of brand support, which is directed at the consumer, plus some incremental innovation money. Do that while driving margins back to historically where they've been and call it 35%. And that margin will go a long way to helping pay for this stuff, but I think my challenge to them is going to be, can we, within our planning horizons, get to that point of call it 200 million or so in direct media, which we think is a sort of righteous number?
Speaker Change: And that's, I think, the biggest area that I think we feel like we need is sort of brand support, which is directed at the consumer, plus some incremental innovation money.
Speaker Change: Do that while driving margins back to historically where they've been and call it 35%.
Speaker Change: And that margin will go a long way to helping pay for this stuff. But I think...
Speaker Change: My challenge to them is going to be, can we, within our planning horizon,
Speaker Change: get to that point of call it 200 million or so in direct media, which we think is a sort of righteous number. But that, the trick is, and this is where the tension exists between
James S. Hagedorn: But the trick is, and this is where the tension exists between you know, the operating community and the finance community, is how to do that without trashing our P&L. So, and a key component to that, and Nate, if you want to stomp on it.
James Hagedorn: But that, the trick is, and this is where the tension exists between, you know, the operative community and the finance community here, is how to do that without crashing our P&L. So, and a key component to that, and Nate, maybe you want to stop into it, that's been, and we've seen it the past two years, consumers respond, and we do get the growth that we are looking for in those investments. And so, yes, a growing top line will provide us more percent of SGNA that we can spend. And so, that's what James is talking about; those dynamics.
Speaker Change: You know the the operating community and the finance community here is how to do that without Trashing our P&L so and a key component to that and and they want to stomp into it
Nate Baxter: That spend, and we've seen it the past two years; consumers respond, and we do get the growth that we are looking for in those investments. And so, yes, a growing top line will provide us with more percent of SG&A that we can spend. And so that's what Jim is talking about, those dynamics. And so we'll maintain the discipline on all of our lines, but clearly there is a path towards growth and improving the overall..., and I think that's the way to use that as a sort of guide to where we're going. All right. Thank you so much.
Speaker Change: That spend, and we've seen it the past two years, consumers respond, and we do get the growth that we are looking for in those investments.
Speaker Change: And so, yes, a growing top line will provide us more percent of SG&A that we can spend. And so that's what Jim is talking about, those dynamics. And so we'll maintain the discipline on all of our lines, but clearly there is a path towards growth.
James Hagedorn: And so, we'll maintain the discipline on all of our lines, but clearly, there is a path towards growth and improving the overall. I think the good news that came out of it is, you know, we cut about 400 million of expenses so far, of which a quarter of it went back into the business. And I think that's the, that's, use, use that as a sort of guide to where we're going to.
Jim: and Improving the Overall... Look, I think the good news that came out of it is, you know, we cut about $400 million of expenses.
Speaker Change: that's good so far of which a quarter of it went back into the business and I think that's the that you use that as a sort of guide to where we're going yeah
Unknown Executive: All right, thank you so much. Appreciate it. Thank you.
Speaker Change: Alright, thank you so much. Appreciate it.
Unknown Speaker: I appreciate it. Thank you. And our next question comes from Jon Andersen with William Blair. Your line is now open. Hey, good morning, everybody.
John Anderson: And our next question comes from John Anderson with William Blair; your line is now open.
Speaker Change: Thank you. And our next question comes from Jon Andersen with William Blair. Your line is now open.
John Anderson: Very good morning, everybody. Could you help us just, or help me with the bridge on point of sale. You said it's up in units 10% through mid-July, but flat in dollar terms. And you've given your kind of outlook for five to seven percent growth in the US consumer business. How do, how do we kind of connect the five to seven percent revenue growth with the flat point of sale dollars through mid-July? And I know there are some things that you control, and there are some investments that the retail are making, but can you walk us through that?
Jon Robert Andersen: Could you help us just or help me with the bridge on point-of-sale? You said it's up in units by 10% through mid-July, but flat in dollar terms, and given your kind of outlook for 5 to 7% growth in the US consumer business, how do we kind of connect the 5 to 7% revenue growth with the flat point-of-sale dollars through mid-July? And I know there are some things that you control, and there are some investments that the retailer is making, but can you walk us through that? Yeah, very clean.
Jon Robert Andersen: Hey, good morning, everybody.
Jon Robert Andersen: Could you help us just or help me with the bridge on point of sale. You said it's up in units 10% through mid-July, but flat in dollar terms and
Speaker Change: Given your outlook for 5-7% growth in the U.S. consumer business, how do we connect the 5-7% revenue growth?
Speaker Change: with the the flat point of sale dollars through through mid-july and I know there are some things that you control and there's some Investments that the retailer are making but can you walk us through that?
Matthew Garth: Yeah, very clean. And, and thank you for the, the little bit of leading the witness there because you are correct. Point of sale dollars, that's what happens at the register. Not always necessarily tied to our dollar revenue unit. Right, that comes through our shipments. When you look at the POS dollars flat versus POS up 10%, what we said in the prepared remarks, and let me just detail it here a little more for you, about 50% of that is mixed. So that is we are selling through a lot of mulch, a lot of soils, and those are all good things, really good strategic positions with our partners.
Matthew E. Garth: And thank you for the little bit of leading the witness there because you are correct. Point of sale dollars, that's what happens at the register, not always necessarily tied to our dollar revenue unit, right? That comes through our shipments. When you look at the POS dollars flat versus POS up 10%, as we said in the prepared remarks, and let me just detail it here a little more for you, about 50% of that is mixed.
Speaker Change: Yeah, very clean. And thank you for the little bit of leading the witness there because you are correct.
Speaker Change: Point of sale dollars. That's what happens at the register not always necessarily tied to our dollar revenue unit
Speaker Change: Right, that comes through our shipments.
Speaker Change: When you look at the POS dollars flat versus POS up 10%, what we said in the prepared remarks, and let me just detail it here a little more for you, about 50% of that is mixed.
Matthew E. Garth: So that is, we are selling through a lot of mulch, a lot of soils, and those are all good things, really good strategic positions with our partners. The other piece of the other 50% is the extended promotional activity that we have. And also, our retail partners have, so they can be taking prices at the shelf that will result in a lower POS dollar.
Speaker Change: So that is, we are selling through a lot of mulch, a lot of soils, and those are all good things. Really good strategic positions with our partners.
Matthew Garth: The other piece of the other 50% is extended promotional activity that we have and also our retail partners have. So they can be taking price at the shelf that will result in a lower POS dollar. And that's what happened there versus the two to three percent that you've seen us so far this year. Now looking at the five to seven percent for the rest of the year, John, really simple. Yes, there was an anomaly in Q3 last year, and we talked to you about it. Just a shipment component that went into Q3 versus Q4. So our Q4 normally has about 300-ish million dollars in it.
Speaker Change: The other piece, so the other 50%, is extended promotional activity that we have.
Matthew E. Garth: And that's what happens there versus the two to 3% that you've seen us so far this year. Now looking at the five to 7% for the rest of the year, Jon, really simple. Yes, there was an anomaly in Q3 last year, and we talked to you about it. Just a shipment component that went into Q3 versus Q4.
Speaker Change: and also our retail partners have so they can be taking price at the shelf that will result in a lower POS dollar and that's what happens there versus the two to three percent that you've seen us so far this year.
Jon Robert Andersen: Now, looking at the 5-7% for the rest of the year, Jon, really simple.
Speaker Change: Yes.
Jon Robert Andersen: There was an anomaly in Q3 last year, and we talked to you about it.
Matthew E. Garth: So our Q4 normally has about $300-ish million in it. This year, you will see roughly a 50% increase in sales year over year, just based on the normal timing of those shipments taking place in Q4. And so that's what helps you, as you do the math, get to that 5-7% for the full year. If you don't mind, I'll just add a little color, Jon. You know, it's a very strategic play with our retailers that resulted in flat POS dollars. And that is driving footsteps, right?
Speaker Change: component that went into Q3 versus Q4.
Jon: So our Q4 normally has about 300-ish million dollars in it.
Matthew Garth: This year you will see roughly a 50% increase in sales year over year, just based on the normal timing of those shipments taking place in Q4. And so that's what helps you as you do the math. Get to that five to seven percent for the full year. If you don't mind, I'll just add a little color, John. You know, it's a very strategic play with our retailers that resulted in flat POS dollars, and that is driving footsteps, right? So if you look at retailer traffic, it's flat, up 1%, but if you look at law and garden, it's up 6%.
Jon: This year, you will see roughly a 50% increase in sales year over year, just based on the normal timing of those shipments taking place in Q4. And so that's what helps you, as you do the math, get to that 5% to 7% for the full year.
Nate Baxter: So if you look at retailer traffic, it's flat up 1%. But if you look at lawn and garden, it's up 6%. So that's the value we bring to the market. And a lot of those incentive programs, whether we fund them or retailers fund them, are based on driving those footsteps and, you know, creating larger baskets for the consumers that go into the retailer. That's helpful. And that kind of ties into my second question.
Speaker Change: And if you don't mind, I'll just add a little color, Jon. You know, it's a very strategic play with our retailers that resulted in flat POS dollars. And that is driving footsteps, right? So if you look at retailer traffic, it's flat up 1%. But if you look at lawn and garden, it's up 6%. So that's the value we bring to the market. And a lot of those incentive programs, whether we fund them or retailers fund them, are based on driving those footsteps and, you know, creating larger baskets for the consumers that go into the retailers.
Matthew Garth: So that's the value we bring to the market, and a lot of those incentive programs, whether we fund them or retailers fund them, are based on driving those footsteps and creating larger baskets for the consumers that go under the retailers. That's helpful, and it kind of ties into my second question. So, you know, here we are 80% of the way through the season in 24, at least on a POS basis, and you're starting discussions, or having discussions with major accounts regarding 25. How are your customers sizing up the success of the 24 season because they did make commitments to Scotts in terms of additional listings and additional shelf space?
Nate Baxter: So, you know, here we are 80% of the way through the season and 24, at least on a POS basis, you know, in your starting discussions or having discussions with major accounts regarding 25. How are your customers sizing up?
Jon Robert Andersen: That's helpful and it kind of ties into my second question. So, you know, here we are 80% of the way through the season in 24, at least on a POS basis.
Jon Robert Andersen: You know, in your starting discussions or having discussions with major accounts regarding 25, how are your customers sizing up?
James S. Hagedorn: the success of the 24th season because they did make commitments to Scotts in terms of additional listings and additional shelf space. How are they viewing the success or lack thereof of the season, and what does that imply about your ability to retain those new listings and shelf space or maybe extend them in 2025? Thanks. That's a big question. To start with, I think, generally, the season was fairly disappointing, to be honest.
Speaker Change: The success of the 24th season because they did make commitments to Scotts in terms of additional listings and additional shelf space How are they kind of viewing the?
James Hagedorn: How are they kind of viewing the success or lack thereof of the season? And what does that imply about your ability to retain those new listings in shelf space or maybe extend them in 2025? Thanks.
Speaker Change: the success or lack thereof of the season and what does that imply about your ability to retain those new listings in shelf space or maybe extend them in 2025. Thanks.
James Hagedorn: That's a big question. I start with, I think generally the season was fairly disappointing, to be honest. I think we did quite a bit better, thankfully, than that. But I think if you look at live goods and sort of everybody else, it was a, you know, probably down market. I think the Northeast really dragged everything down, and, you know, if you look at live goods, which I think is a pretty good barometer for it, I think there were significant double-digit declines in market for live goods at, you know, it called the home center business. And I think that's actually a pretty good indication of what happened for the season.
Speaker Change: That's a big question. I start with...
Speaker Change: I think generally the season was fairly disappointing, to be honest. You know, I think we did quite a bit better, thankfully, than that.
James S. Hagedorn: You know, I think we did quite a bit better, Thankfully, than that. But I think if you look at live goods and sort of everybody else. It was a, You know, probably down market; I think the Northeast really dragged everything down. And, you know, if you look at live goods, which I think is a pretty good barometer for, I think there were significant double-digit declines in the market for live goods at what was called the home center.
Speaker Change: But I think if you look at live goods and sort of...
Speaker Change: everybody else. It was a
Speaker Change: You know probably a down market. I think the Northeast really dragged everything down and You know if you look at live goods, which I think a pretty good barometer for it I think they were significant double-digit declines in market for for live goods at
James S. Hagedorn: And I think that's actually a pretty good indication of what happened during the season. I honestly, I'm trying to use this call a little bit as I know our partners listen to these calls.
Speaker Change: You know, it caught the home center business.
Speaker Change: And I think that's actually a pretty good indication of what happened for the season.
James Hagedorn: Honestly, I'm trying to, so I can use this call a little bit as a. I know our partners listened to these calls. I think what we did really worked. I think what they did with us really worked. And I think the numbers would have looked a lot worse if we hadn't been promoting the hack out of, you know, our joint businesses together. And I do think it comes at the price of margin, it does. And I think our partners have to remember that what we were all trying to do is get customers to come and buy stuff at a time when a lot of major durable categories are more challenged.
James S. Hagedorn: I think what we did really worked. I think what they did with us... really worked. And I think the numbers would have looked a lot worse if we hadn't been promoting the heck out of our joint businesses together. And I do think it comes at the price of margin. It does.
Speaker Change: I think what we did really worked. I think what they did with us...
Speaker Change: really worked. And I think the numbers would have looked a lot worse if we hadn't been promoting the heck out of, you know,
Speaker Change: are our joint businesses together.
Speaker Change: And I do think it comes at the price of margin, it does. And I think our partners have to remember what we were trying, all trying to do is get customers.
James S. Hagedorn: And I think our partners have to remember what we were all trying to do is get customers to come in and buy stuff at a time when a lot of major durable categories are more challenging. And I think we were highly successful at that. And I think that they need to remember that when it's because it goes back to this question. How do they look at the season? They should be pretty happy, I think, about how the season went, and not focus so much on margin, focus on footsteps, and I think Lone and Garden had a major effect, and I think we bucked the trend, in part with their help, but at a, you know, modestly substantial cost to us in margin, as we helped, you know, call it so-called cost-outs. And for 25.
Speaker Change: to comment and buy stuff.
Speaker Change: at a time when a lot of major durable categories are more challenged.
James Hagedorn: And I think we were highly successful at that. And I think that they need to remember that when it goes back to this question, how did they look at the season? They should be pretty happy, I think, about how the season went. And not focus so much on margin, focus on footsteps. And I think Longingarden had a major effect. And I think we bought the trend in part with their help. But it had, you know, modestly sustained so-called to us in margin as we helped, you know, call it so-called cost-outs. As far as I know, and this is my expectation because programs will change if they're not, is those programs are intact.
Speaker Change: And I think we were highly successful at that, and I think that they need to remember that when it's because it goes back to this question, how do they look at the season?
Speaker Change: They should be pretty happy I think about how the season went and
Speaker Change: Not focus so much on margin focus on footsteps, and I think Lone and Garden had a major effect And I think we bucked the trend
Speaker Change: in part with their help, but at a modestly substantial cost to us in margin.
Speaker Change: as we helped, you know, call it so-called cost outs.
James S. Hagedorn: As far as I know, and this is my expectation because programs will change if they're not, those programs are intact. You know, the numbers that we thought we would get, and this goes a little bit back to sort of a call down, our call down earlier this year. What we expected from the deals we did with retailers. We expected a pretty substantial revenue increase from that. And it was much more challenging than that, but it was not because the retailers didn't do what they were supposed to do. They did it.
Matthew E. Garth: and Matthew Garth. Um...
James Hagedorn: You know, the numbers that we thought we would get, and this goes a little bit back to sort of a call down earlier this year. What we expected from the deals we did with retailers, we expected a pretty substantial revenue increase from that, and it was much more challenged than that. But it was not because the retailers didn't do what they were supposed to do. They did. It was just a market with down. And so, you know, my expectation, and I think this is from discussions with them, is those problems are intact and might even be enhanced.
Matthew E. Garth: You know, the numbers that we thought we would get, and this goes a little bit back to sort of a call down, our call down earlier this year,
Speaker Change: What we expected from the deals we did with retailers...
Speaker Change: We expected a pretty substantial...
Speaker Change: revenue increase from that. And it was much more challenged than that. But it was not because the retailers didn't do what they were supposed to do. They did. It was just the market was down.
James S. Hagedorn: It was just that the market was down. And so my expectation, and I think this is from discussions with them, is that those programs are intact. They might even be enhanced.
Speaker Change: And so, you know, my expectation, and I think this is from discussions with them, is those programs are intact and...
Speaker Change: It might even be enhanced.
Nate Baxter: Yeah, I'll comment on that, Jim. From where I sit, and again, we're still in the middle of developing these programs with our retailers, I'm very comfortable that we're going to build on what we started last year. We'll do some optimization around some of the new skews that maybe didn't sell through as much as we would have liked. But remember, we've got a bunch of innovation coming in 25. So, I think it's more of the same story. And I'll hold further comment until we get through the fourth quarter and finalize our plans. But I'm feeling pretty good about where we are right now.
Nate Baxter: Yeah, I'll comment on that, Jim. From where I sit, and again, we're still in the middle of developing these programs with our retailers, I'm very comfortable that we're going to build on what we started last year. We'll do some optimization around some of the new SKUs that maybe didn't sell through as much as we would have liked. But remember, we've got a bunch of innovation coming in 25. So I think it's more of the same story.
Speaker Change: Yeah, I'll comment on that, Jim. You know, from where I sit, and again, we're still in the middle of developing these programs with our retailers.
Speaker Change: I'm very comfortable that we're going to build on what we started last year. We'll do some optimization around some of the new SKUs that maybe didn't sell through as much as we would have liked. But remember, we've got a bunch of innovation coming in 2025. So I think it's more of the same story. And I'll hold further comment until we get through the fourth quarter and finalize our plans. But I'm feeling pretty good about where we are right now.
Nate Baxter: And I'll hold further comment until we get through the fourth quarter and finalize our plans. But I'm feeling pretty good about where we are right now. Great, thanks so much.
Andrew Carter: Thanks so much.
Speaker Change: Great, thanks so much.
Andrew Carter: Thank you.
Unknown Speaker: Thank you. And our next question comes from Andrew Carter with Stiefel. Your line is open. Hey, thanks. Good morning.
Andrew Carter: And our next question comes from Andrew Carter with Steffold. Your line is open. Hey, thanks. Good morning. I want to ask. Now, you've kind of said that, hey, you expect to get 1% pricing next year. And I know that that's a portfolio average. So, specifically, when you get into kind of lawns and firts, you know, that's the higher margin category. It's been under pressure. Could you think about putting more into that category specifically with what inputs are doing. I know site one mentioned that grass seed was down; pricing was down 20% this year on top of last year.
Speaker Change: Thank you. And our next question comes from Andrew Carter with Stiefel. Your line is open.
William Andrew Carter: I wanted to ask you kind of said that, hey, you expect to get 1% prices next year. And I know that that's, that's a portfolio average. So specifically, when you get into kind of lawns and flowers, you know, that's the higher margin category; it's been under pressure. Could you think about putting more into that category, specifically with what inputs are doing? I know SiteOne mentioned that grass seed was down and prices were down 20% this year on top of last year. Thanks.
William Andrew Carter: Hey, thanks. Good morning. I wanted to ask, now you've kind of said that, hey, you expect to get 1% pricing next year, and I know that that's a portfolio average. So specifically, when you get into kind of lawns,
Speaker Change: and Fertz, you know, that's the higher margin category. It's been under pressure. Would you think about putting more into that category specifically with what inputs are doing? I know SiteOne mentioned that grass seed was down, pricing was down 20% this year on top of last year. Thanks.
Matthew Garth: Thanks. You know, maybe I'll take a step at that. I look at Andrew. I would look at it this way. We're not going to take pricing in areas where we know the consumers aren't going to respond well to that. And we're going to have to make adjustments on the back end from a cost perspective to be able to play there and drive the margin we want. But there's a lot of category opportunity, I would say. And it may not all be in lawns and firts and seeds in particular to go take selective pricing. And that's what we've said.
Nate Baxter: You know, maybe I'll take a stab at that. Look, Andrew. I would look at it this way. We're not going to take pricing in areas where we know the consumer isn't going to respond well to that. And we're going to have to make adjustments on the back end, from a cost perspective, to be able to play there and drive the margin we want. But there's a lot of category opportunity, I would say.
Speaker Change: You know, maybe I'll take a stab at that. Look, Andrew, I would look at it this way. We're not going to take pricing in areas where we know the consumer isn't going to respond well to that. And we're going to have to make adjustments on the back end from a cost perspective.
Speaker Change: to be able to play there and drive the margin we want. But there's a lot of category opportunity, I would say. And it may not all be in lawns and ferts and seeds in particular to go take selective pricing. And that's what we've said. It's going to be surgical. It's going to be done in partnership with our retailers.
Matthew Garth: It's going to be surgical. It's going to be done in partnership with our retailers. I am comfortable that we will get there. You know, Jim, as you know, has pushed us for more pricing in 25. We think 1% is achievable. I still see 25 as a little bit of a transition. You're given where the consumer is. But I'm confident we'll be able to work with our retailers to get that pricing.
Nate Baxter: And it may not all be in lawns and fertilizer and seeds, in particular, to go selective pricing. And that's what we've said, it's going to be surgical, it's going to be done in partnership with our retailers. I am comfortable that we will get there. Jim, as you know, has pushed us for more pricing in 25. We think 1% is achievable.
Speaker Change: I am comfortable that we will get there, you know.
Jim: Jim, as you know, has pushed us for more pricing in 25. We think 1% is achievable. I still see 25 as a little bit of a transition year, given where the consumer is. But I'm confident we'll be able to work with our retailers to get that pricing. Andrew, I want to go a little bit into...
James S. Hagedorn: I still see 25 as a little bit of a transition year given where the consumer is, but I'm confident we'll be able to work with our retailers to get that. Andrew, I want to go a little bit into thank you for digging into the weaknesses, Grassi and Longford, you know, the grass seed market for everybody was disappointing. I personally think a little bit of elasticity, but mostly just poor weather in the Northeast.
James Hagedorn: Andrew, I want to go a little bit into, you know, I think since thank you for digging into the weaknesses, grass seed and lawn firts. You know, the grass seed market for everybody was disappointing. I personally think a little bit of a lot of diversity, mostly just poor weather in the Northeast. and kind of a cool at the beginning of the season. We'll see how the fall comes, and that'll be a really great thing for us to see, because I am seeing, as I aviate back and forth to the East Coast, some pretty brown lawns. It's been pretty warm.
William Andrew Carter: You know, I think, since, thank you for digging into the weaknesses, Grassi and Longford, you know, I
William Andrew Carter: The grass seed market for everybody was disappointing. I personally think a little bit of elasticity, mostly just poor weather in the Northeast.
James S. Hagedorn: And, you know, kind of a, I hate to say it, but it's kind of a cool, Beginning of the Season. We'll see how the fall comes, and that'll be a really great thing for us to see, because, you know, I am seeing, as I fly back and forth to the East Coast, some pretty brown lawns. It's been pretty warm.
Andrew: and, you know, kind of a...
William Andrew Carter: I, you know, I hate to say it, but it's kind of a cool what...
James S. Hagedorn: So we'll see what, you know, part of the issue for us is that we have multi-year purchasing agreements with our suppliers on grass seed. So we've got a lot of grass seed inventory, and I think, I'm not as clear to me what happened other than the weather was bad, and maybe grass was getting expensive. But I do think that we're going to be playing around with price on grass seed, and so there's going to be opportunity for grass seed because I'd like to see the inventory go away, and we'll invest behind it. You know, we saw some slight market share erosion on grass seed in the first half of our fiscal year.
Andrew: Beginning of the Season.
Andrew: We'll see how the fall comes, and that'll be a really great thing for us to see, because I am seeing, as I aviate back and forth to the East Coast, some pretty brown lawns.
James Hagedorn: So we'll see what part of the issue for us is that we have multi-year purchasing agreements with our suppliers on grass seed. So we've got a lot of grassy inventory, and I think I'm not as clear to me what happened in other than the weather was bad, and maybe it's grass was getting expensive with grass seed. But I do think that we're going to be playing around with price on grass seed, so it's going to be opportunity on grass seed, because I'd like to see the inventory go away, and we'll invest behind it. We saw some slight market share erosion on grass seed in the first half of our fiscal year.
Speaker Change: It's been pretty warm. So we'll see what you know, part of the issue for us is that we have multi year purchasing agreements with our suppliers on grass seed. So we've got a lot of grassy inventory. And I think
Speaker Change: I'm not as clear to me what happened other than the weather was bad and maybe grass was getting expensive, grass seed.
Speaker Change: But, I do think that...
Speaker Change: We're going to be playing around with price on grass seed, so there's going to be opportunity on grass seed because I'd like to see the inventory.
Speaker Change: Go away, and we'll invest behind it. You know, we saw some slight market share erosion on Grass Seed in the first half of our fiscal year. We've seen recovery in the second half, although that's in the face of an overall declining market. But we're starting to find some levers we can pull, and I think we'll just continue to explore that.
James Hagedorn: We've seen recovery in the second half, although that's in the face of the overall declining market. But we're starting to find some levers we can pull, and I think we'll just continue to explore that, and we're optimistic about the fall season for lawns. So I think there's deals to be had on grass seed, because I personally, I hope Matt agrees with me, we'd like to see that inventory get used.
James S. Hagedorn: We've seen recovery in the second half, although that's in the face of an overall declining market. But we're starting to find some levers we can pull, and I think we'll just continue to explore that. We're optimistic about the fall season for lawns. So I think there are deals to be had on grass seed because I, you know, personally, I hope Matt agrees with me. We'd like to see that inventory get used. On Longford's, we were talking before the call started about how we felt about it, and I think, You know, nobody's satisfied here that we completely figured out what's happening with it. So I would probably put it into as a category.
Speaker Change: We're optimistic about the fall season for lawns. So I think there's deals to be had on grass seed because I, you know, personally, and I hope Matt agrees with me, we'd like to see that inventory.
Matthew Garth: On lawnfirts, we were talking before the fall started with how do we feel about it, and I think nobody's satisfied here that we've completely figured out what's happening on it. So I would probably put it into, as a category, it's an area we have more work to do. It's an important one for us because it's high margin. We're not giving up, but I think we're going to be having our green eye shades on as we think about level of investment behind lawns, which is can we get sort of unit volume up, and that would be the objective.
Speaker Change: Get used.
Speaker Change: On Longford's, we were talking before the call started. How did we feel about it?
Matt: You know, nobody's satisfied here that we've...
Matt: completely figured out what's what's happening on it so I would probably put it into as a category it's an area we have more work to do it's an important one for us because it's high margin
James S. Hagedorn: It's an area we have more work to do. It's an important one for us because it's high margin. We're not giving up, but I think we're going to be having our green eye shades on as we think about the level of investment behind lawns, which is, can we get sort of unit volume up? And that would be the objective.
Speaker Change: We're not giving up, but I think we're going to be...
Andrew: having our
Speaker Change: What are the green eye shades on as we think about level of investment behind lawns, which is can we
Matthew Garth: And if we decide we can't, then it'll be a different approach to how we support the brand. But let me add this, Jim, on furt specifically, we came into the year after a terrible 23 relative to sort of what our plan was saying. If we could just maintain our share in that category. Take grass seed out of the equation; it's not good enough, I agree. But we did pretty good; we roughly held it flat. So it's the beginning of how do we reimagine that business and engage the consumer. We think the consumers got a little athletic on lawns, and that’s going to be a big focus of our overall media point.
Andrew: Get sort of unit volume up
Andrew: And that would be the objective. And if we decide we can't, then it'll be a different approach to how we support the brand. But, you know, let me add this, Jim, on Fertz specifically, we came into the year after a terrible 23 relative to sort of what our plan was saying, if we could just maintain our share in that category.
James S. Hagedorn: And if we decide we can't, then it'll be a different approach to how we support the brand. But, you know, let me add this, Jim, specifically: we came into the year after a terrible 23 relative to sort of what our plan was saying if we could just maintain our share in that category. Take grass eat out of the equation.
Nate Baxter: You know, it's not good enough. I agree. But we did pretty good. You know, we roughly held it flat.
Speaker Change: Take grass heat out of the equation, you know
Andrew: It's not good enough, I agree, but we did pretty good, you know, we roughly held it flat. So it's the beginning of how do we re-imagine that business and engage the consumer. We think the consumer's gotten a little apathetic on lawns, and that's going to be a big focus of our overall media push. I didn't remember.
Nate Baxter: So it's the beginning of how do we reimagine that business and engage the consumer? We think consumers got a little apathetic about lawns, and that's going to be a big focus of our overall media. I didn't remember.
Matthew Garth: I remember we had interim people in our controls, in our lawn business, and we're going to be looking to bring outside counting to bring a new look to both control category, which is actually vibrant right now, and lawns. So I would say, stand by for words on that, and we'll keep you up to date. Sounds good.
Nate Baxter: We have interim people in our controls in our lawn business, and we're going to be looking to bring outside talent in to bring a new look to both controls categories, which are actually VibrantWriting and Lon. So I would say stand by for word on that, and we'll keep you up to date. Sounds good.
Andrew: We have interim people in our controls in our lawn business.
Andrew: And we're going to be looking to bring outside talent in to bring a new look to both controls category, which is actually.
Andrew: vibrant right now and and lawns so I would say stand by for words on that and we'll keep you up to date
William Andrew Carter: A second one I wanted to ask, and I mean, earnings recovery is taking hold now. When you think about what your expectation demands from Bonnie's, I mean, where could that be? I know that's going to be a volatile business because it's a nursery. And then also to remind us, Bonnie's is just beyond just the business itself. It does create incremental touch points with people in the store, and that is a strategic benefit that I don't think you're willing to sacrifice. Thanks.
Andrew Carter: A second one I wanted to ask, and I mean the earnings recovery is taking hold now. When you think about what your expectation demands from Bonnie's, I mean where could that be? I know that's going to be a volatile business because it's a nursery. And then also remind us, Bonnie's is just beyond just the business itself. It does create the incremental touch points of people in the store that is a strategic benefit that I don't think you're willing to sacrifice. Thanks. That's totally right, Andrew. We love live goods. Look, we went into the year optimistic.
Speaker Change: Sounds good. A second one I wanted to ask, and I mean, the earnings recovery is taking hold now. When you think about what your expectation demands from Bonnie's, I mean, where could that be? I know that's going to be a volatile business because it's a nursery. And then also remind us, Bonnie's is just beyond just the business itself. It does create the incremental touch points.
Speaker Change: of people in the store that is a strategic benefit that I don't think you're willing to sacrifice. Thanks.
Nate Baxter: That's totally right, Andrew. You know, we love live goods. Look, we went into the year optimistic. I would say this: Bonnie had some structural things they needed to fix from a service level perspective. That was probably the biggest area that we as a co-owner supported them on. I think they did very well, and that's based on feedback from the retailers. Bonnie needs to grow.
Speaker Change: That's totally right, Andrew. You know, we love live goods.
Andrew Carter: I would say this. Bonnie had some structural things they needed to fix from a service level perspective. That was probably the biggest area that we, as a co-owner, supported them on. I think they did very well, and that's based on feedback from the retailers. Bonnie needs to grow. And so they have a plan to grow organically 20%, but we're also starting to look at M&A for Bonnie. That will sort of accrete on their top and bottom line. Absolutely not giving out. We love live goods. There is a strategic attachment for us. But it was a very tough year for live goods.
Speaker Change: Look, we went into the year optimistic. I would say this, Bonnie had some structural things they needed to fix from a service level perspective. That was probably the biggest area that we as a co-owner supported them on. I think they did very well, and that's based on feedback from the retailers.
Nate Baxter: And so they have a plan to grow organically by 20%, but we're also starting to look at M&A for Bonnie that will, you know, sort of accrete on their top and bottom lines. So absolutely not giving up.
Speaker Change: Bonnie needs to grow. And so they have a plan to grow organically 20%, but we're also starting to look at M&A for Bonnie that will, you know, sort of accrete on their top and bottom line.
Nate Baxter: We love live goods. There is a strategic attachment for us. But it was a very tough year for live goods.
Andrew: Absolutely not giving up. We love LiveGoods. There is a strategic attachment for us, but it was a very tough year for LiveGoods. Things really fell apart in RQ3. And I'll say what Jim said, you know, earlier, which is,
Nate Baxter: Things really fell apart in our Q3. And I'll say what Jim said earlier, which is that they actually outperformed the other live goods retailers, even though everybody's down, call it double digits. So I'm happy with the investment. We can always do better. And part of this changing of the guard that's happening in marketing with Sadie Oldham coming in on gardens, she's going to directly own Bonnie as part of that, and we're going to make sure it's an integrated part with our gardens team. So Andrew, just step up one level, maybe two levels.
Andrew Carter: Things really fell apart in RQ3. And I'll say what Jim said earlier, which is they actually outperformed the other live goods retailers, even though everybody's down and call it double digits. So I'm happy with the investment. We can always do better, and part of this changing of the guard that's happening in marketing with Sadie Oldham coming in on gardens. She's going to directly own Bonnie as part of that, and we're going to make sure it's an integrated play with our gardens team. So Andrew just stepped off one level. Maybe two levels. And remember what we say at every conference: what are we in the business of doing?
Speaker Change #109: They actually outperform the other live goods retailers, even though, you know, everybody's down, call it double digits. So I'm happy with the investment, we can always do better. And you know, part of this changing of the guard that's happening in marketing with Sadie Oldham coming in on gardens.
Speaker Change: She's going to directly own Bonnie as part of that, and we're going to make sure it's an integrated play with our gardens team. So Andrew, just step up one level. Maybe two levels. And remember, what we say at every conference,
Matthew E. Garth: And remember what we say at every conference: What are we in the business of doing? Whether it's growing more food, whether it's bringing gardening to people's doorsteps and allowing them to enjoy the fruits of an investment and time and love in creating great vegetables or great herbs or great flowers, or just enjoying time in their backyard with their families on a great lawn that allows you to play sports and dig in and just really feel a part of the outdoor space. That's what we do, too. And so I'm just reacting to the sacrificing Bonnie comment, which is, and you heard it from Nate, absolutely not.
James Hagedorn: Whether it's growing more good, whether it is bringing gardening to people's doorsteps and allowing them to enjoy the fruits of an investment of time and love and creating great vegetables or great herbs or great flowers. Or just enjoying time when they're back yard with their families on a great lawn that allows you to play sports and dig in and just really feel a part of the outdoor space. That's what we do. And so I'm just reacting to the sacrificing Bonnie comment, which is, and you heard it from the absolutely not. It's straight down the pipe with what we do, and I'll go even one step further, which I hope you're open to.
Andrew: What are we in the business of doing?
William Andrew Carter: Whether it's grime or good.
William Andrew Carter: Whether it is bringing gardening to people's doorsteps and allowing them to enjoy.
Andrew: The fruits of an investment in time and love.
Andrew: and creating...
Andrew: Great vegetables or great herbs or great flowers.
Andrew: or just enjoying time in their backyard with their families on a great lawn that allows you to play sports and dig in and just really feel a part of the outdoor space. That's what we do.
Andrew: And so, I'm just reacting to the sacrificing Bonnie comment, which is, and you heard it from Nate, absolutely not. It's straight down the pipe with what we do, and I'll go even one step further, which I hope you're open to.
Matthew E. Garth: It's straight down the pipe with what we do, and I'll go even one step further, which I hope you're open to. The performance in Hawthorne and what that team has been able to do in a very volatile environment is exceptional. And I know we've had a lot of discussions, meaning we the company with all investors, all analysts, over the trajectory of that business and where it fits in our portfolio. This is a very good outcome to say; we've been able to do what we said we were going to do in a business whose environment is very challenging. But remember, it's straight down the pipe with what we do; we help people grow, make great products, get great results, and do it in a manner that provides them with the greatest satisfaction.
James Hagedorn: The performance in Hawthorne and what that team has been able to do in a very volatile environment is exceptional. And I know we've had a lot of discussion, meaning we, the company, with all investors, all analysts, over the trajectory of that business and where it fits in our portfolio. This is a very good outcome to say we've been able to do what we've said we were going to do in a business whose environment is very challenged. But remember, it's straight down the pipe with what we do. We help people grow great products, get great results, and do it in a manner that provides them the greatest satisfaction.
Speaker Change: The performance in Hawthorne and what that team has been able to do in a very volatile environment is exceptional
Speaker Change: And I know we've had a lot of discussion, meaning we, the company, with all investors, all analysts, over the trajectory of that business and where it fits in our portfolio.
Andrew: This is a very good outcome to say we've been able to do what we said we were going to do in a business whose environment is very challenged. But remember, it's straight down the pipe with what we do. We help people grow.
Andrew: great products, get great results, and do it in a manner that provides them the greatest satisfaction. So the whole entire portfolio, all the way from lawns
James Hagedorn: So the whole entire portfolio all the way from lawns to growing media to controls to Hawthorne is centered around that vision and that satisfaction with our consumers. And then Jim said earlier to the question on M&A, there's more brands that we should own. There's more. So, straight down the pipe positions that we should have, and there are ways for us to get them. So, just keep that in mind as you think about the greater Scotts in our mission. There's great opportunity, great profitability in everything that we do. We're going to maximize that, and these positions that we have today are strengths that we're going to further lovers.
Matthew E. Garth: So the whole entire portfolio, all the way from lawns to growing media to controls to Hawthorne, is centered around that vision and that satisfaction with our consumers. And as Jim said earlier in the question on M&A, there are more brands that we should own. There are more straight-down-the-pipe positions that we should have.
Andrew: to Growing Media to Controls to Hawthorne is centered around that vision and that satisfaction with our consumers and as Jim said earlier to the question on M&A There's more brands that we should own. There's more
Matthew E. Garth: And there are ways for us to get them. So just keep that in mind. As you think about the greater scope of our mission, there's great opportunity, great profitability in everything that we do; we're going to maximize that. And these positions that we have today are strengths that we're going to further leverage. Thanks. I'll pass it on.
Jim: Straight down the pipe positions that we should have and there are ways for us to get them. So just keep that in mind as you think about the greater Scots in our mission. There's great opportunity, great profitability in everything that we do. We're going to maximize that and these positions that we have today are strengths that we're going to further leverage.
Unknown Executive: Thanks, I'll pass it on. Thank you.
Speaker Change: Thanks, I'll pass it on.
Unknown Speaker: Thank you. Our next question comes from Chris Carey with Wells Fargo Securities. Your line is open. Good morning, everyone.
Christopher Carey: Our next question comes from Chris Carey with Wells Fargo Securities. Our line is open. Good morning, everyone.
Speaker Change: Thank you. Our next question comes from Chris Carey with Wells Fargo Securities. Your line is open.
Christopher Michael Carey: Hey, good morning everyone.
Andrew: Um
James Hagedorn: Maybe just simply put, what do you need to see in your lawn business in Q4? It's kind of hit the POS numbers. Sorry if I missed it earlier, but I guess, you know, in general, there's been a little bit of a mix. And when you're today, and just just remind me your visibility on that Q4, this is going to be recapturing some of that gap between POS and your outlook. I know it's been covered, but I'm still getting questions. So maybe just a little bit more context on that. Thanks. Yeah, Chris. Chris is his name.
Christopher Michael Carey: [inaudible] Maybe just simply put, what do you need to see in your lawn business in Q4 to kind of hit the POS numbers? Sorry if I missed it earlier. But I guess, you know, in general, there's been a little bit of a mixed headwind year to date. And just just remind me of your visibility on that Q4, specifically recapturing some of that gap between POS and your outlook. I know it's been covered, but I'm still getting questions.
Andrew: Can...
Christopher Michael Carey: Maybe just simply put, what do you need to see in...
Speaker Change: In your lawns business in Q4 to kind of hit the POS numbers. Sorry if I missed it earlier, but I guess, you know, in general, there's been a little bit of a mixed headwind year to date. Just just remind me.
Speaker Change: Your visibility on that Q4, specifically recapturing some of that gap between
Speaker Change: POS in your Outlook. I know it's been covered, but I'm still getting questions, so.
Speaker Change #105: Maybe just put it out more context, Don.
James Hagedorn: Look, I think we've said this before. You know, the fall-long businesses call it 20 to 25% of our business. I think it's generally too. We're feeling optimistic, given the fairly brutal summer of heat and humidity. Wands are not looking great. We're starting to see response, you know, on the first side in particular, and we've already addressed the grass seed, and we're going to lean into that with better price points for consumers in the fall.
Nate: Thanks. Yeah, Chris, this is Nate. Look, I think we've said this before, you know, the fall lawns businesses call it 20 to 25% of our business. I think as Jim alluded to, we're feeling optimistic given the fairly brutal summer of heat and humidity.
Nate Baxter: So maybe just a little bit more, you know, the fall lawn businesses call it 20 to 25% of our business. I think, as Jim alluded to, we're feeling optimistic given the fairly brutal summer of heat and humidity. Lawns are not looking great.
Nate Baxter: We're starting to see responses, you know, on the FERT side in particular, and we've already addressed the grass seed, and we're going to lean into that with better price points for consumers in the fall. So, you know, I think I'll stop short of predicting where we're going to end up, but we feel like we've got things positioned, and we know there's a need, and it's really about getting the messaging out there in front of the consumer.
Speaker Change: Wands are not looking great. We're starting to see response, you know, on the FERT side in particular, and we've already addressed the grass seed, and we're going to lean into that with better price points for consumers in the fall. So, you know, I think I'll stop short of predicting where we're going to end up, but we feel like we've got things positioned, and we know there's a need, and it's really about getting the messaging out there in front of the consumer.
Matthew Garth: So, you know, I think I'll stop short of predicting where we're going to end up, but we feel like we've got things positioned, and we know there's a need, and it's really about getting the messaging out there in front of the consumer.
Matthew Garth: The second question is, just given the strength that you're seeing in gross margin or the better gross margins or its expectation, you think you're maybe pulling forward some of the goodness that you're expecting over the next couple of years. I feel maybe about, you know, the base for this year relative to maybe expectations a month or two ago, and what you think you can do maybe next year and specifically next year, but the sort of speed of gross margin recapture. Yeah, so we answered this at the beginning of the Q&A, but let me reiterate it this way and frame it for 24.
Nate Baxter: The second question is, just given the strength that you're seeing in gross margin or the better gross margin versus expectation, do you think you're maybe pulling forward some of the goodness that you're expecting over the next couple years? Just how do you feel maybe about, you know, the base for this year relative to maybe expectations a month or two ago? And what do you think you can do maybe next year?
Speaker Change #100: The second question is, just given the strength that you're seeing in gross margin, or better gross margin versus expectation,
Speaker Change #113: You think you're maybe pulling forward some of the goodness that you're expecting over the next...
Matthew E. Garth: And specifically next year, but the sort of speed of gross margin recapture? Yeah, so we answered this at the beginning of the q&A. But let me reiterate it this way, and frame it for 24.
Speaker Change: A couple years, just how do you feel maybe about, you know, the base for this year?
Speaker Change: Relative to maybe expectations a month or two ago.
Speaker Change: and what you think you can do maybe next year and specifically next year but but the sort of speed of gross margin recapture that's it for me.
Matthew E. Garth: What we said for 24 is that we were going to have a margin recovery of 250 basis points plus, and we are on track to deliver that. So we feel good about that. That means that we're not pulling forward from 25 to be able to deliver 24. And that is not a conscious effort.
Speaker Change: Yeah, so we answered this at the beginning of the Q&A, but let me let me reiterate it this way.
Matthew Garth: What we said for 24 is that we were going to have a margin recovery of 250 basis points; plus, we are on track to deliver that. So, we feel good about that. That means that we're not pulling forward from 25 to be able to deliver 24, and that is not a conscious effort. That was the planning and discipline that we put in place, and we're getting that margin recovery as we move through the year. That sets up like we've said to get the balance of the roughly 700 basis points that we feel we're missing over the next three years.
Speaker Change: and frame it for 24. What we set for 24 is that we were going to have a margin recovery of 250 basis points plus.
Speaker Change: We are on track to deliver that. So we feel good about that. That means that we're not pulling forward from 25 to be able to deliver 24. And that is not a conscious effort. That was the planning and discipline that we put in place, and we're getting that margin recovery as we move through the year.
Matthew E. Garth: That was the planning and discipline that we put in place, and we're getting that margin recovery as we move through the year. That sets up, like we've said, to get the balance of the roughly 700 basis points that we feel we're missing over the next three years. And to your question on timing, what we said is, while two weeks ago, I think three weeks ago at Investor Day, we said, think of it as kind of evenly spread. There may be some opportunity to have a bigger 2025 based on some of the raw material impacts, but that noise, we will give you more indication of as we move into 2025.
Speaker Change: That sets up, like we've said, to get the balance of the roughly 700 basis points that we feel we're missing over the next three years. And to your question on timing, what we've said is...
Matthew Garth: And to your question on timing, what we said is, while two weeks ago, I think three weeks ago at the investor day, we said, think of it as kind of evenly spread. There may be some opportunity to have a bigger 2025 based on some of the raw material impacts, but that noise we will give you more indication of as we move into 2025. So, let's get through Q4; you know, to Nate's point earlier, our POS trajectory intact for fulfilling our guidance. That includes the way that we've talked about the fall for the past couple of years related to lawns, normal, not necessarily outsized.
Speaker Change: While two weeks ago, I think three weeks ago at the investor day. We said think of it as kind of evenly spread
Speaker Change: There may be some opportunity to have a bigger 2025 based on some of the raw material impacts, but
Speaker Change: That noise we will give you more indication of as we move.
Matthew E. Garth: So let's get through Q4. To Nate's point earlier, our POS trajectory intact for fulfilling our guidance, that includes the way that we've talked about the fall for the past couple of years related to lawns, normal, not necessarily outsized. And then as we look at whether you're going to go down the path of retailer inventories, feeling very good about those positions. And remember, there is a timing difference.
Speaker Change: into 2025. So let's get through Q4. You know, to Nate's point earlier, our POS trajectory
Nate: intact for fulfilling our guidance.
Nate: That includes the way that we've talked about the fall for the past couple of years related to lawns.
Matthew Garth: And then, as we look at, if you're going to go down the path of retailer inventories, feeling very good about those positions. And remember, there is a timing difference. RQ4 is the beginning of fall, and retailers' Q4 is actually RQ1. So, you will see a load-in that takes place in RQ4 for the fall, selling, and then that fall actually happens in RQ1.
Nate: Normal, not necessarily outsized and then as we look at if you're going to go down the path of retailer inventories feeling very good about those positions and remember there is a timing difference RQ4
Matthew E. Garth: RQ4 is the beginning of fall, and retailers' Q4 is actually RQ1. So you will see a load-in that takes place in RQ4 for the fall sell-in, and then that fall actually happens in RQ1. But Chris, I haven't seen a number that anybody's thrown at me as we're sort of getting close to ending our budgeting work for next year, which is less than like 200 basis points of margin improvement for next year. So I think we're going to continue with that. I think they have more than that.
Nate: is the beginning of fall and Retailers Q4 is actually RQ1. So you will see a load-in that takes place in RQ4 for the fall sell-in, and then that fall actually happens in RQ1.
Unknown Executive: But Chris, I haven't seen a number that anybody's thrown at me; we're sort of getting close to ending our budgeting work for next year. This lets them, like, 200 basis points of margin improvement for next year. So, I think we're going to continue down that. I think they have more than that, but I think that's what they're willing to sort of pony up on a piece of paper, right? Thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. Again, that is star 11 to ask a question.
Nate: But Chris, I haven't seen a number that anybody's thrown at me as we're sort of...
Speaker Change #103: Getting close to ending our our budgeting work for next year It's less than like 200 basis points of margin improvement for right for next year So I think we're we're going to continue down that I think they have more than that But I think that's what they're willing to sort of
Tony: Tony up in the on the piece of paper right now
James S. Hagedorn: But I think that's what they're willing to sort of pony up on a piece of paper right, Okay, thanks guys. Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced.
Speaker Change #102: Okay. Thanks, guys.
Operator: Again, that is star number one to ask a question. Our next question comes from William Reuter with Bank of America. Your line is open. Hi, good morning.
Speaker Change #118: Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. Again, that is star 11 to ask a question.
William Reuter: Our next question comes from William Reuter. Thanks for America, your line is open. Hi, good morning. I have a question on the industry weakness. I've always felt like this was a relatively nondiscretionary, recession-resistant business. Clearly, there are housing challenges in terms of lack of existing home sales. I'm sure when people buy new homes, they're a little bit more excited to spend on improving that out of the appearance. Do you believe that the housing market has been the contributor to the weakness this year? Do you think it really was just the weather and the Northeast? To what do you attribute the market weakness?
Speaker Change #102: Our next question comes from William Reuter with Bank of America. Your line is open.
William Michael Reuter: I have a question on the industry's weakness. I've always felt like this was a relatively non-discretionary recession-resistant business. Clearly, there are housing challenges in terms of, you know, the lack of existing home sales. I'm sure when people buy new homes, they're a little bit more excited to spend on, you know, improving the appearance. Do you believe that the housing market has been a contributor to the weakness this year, or do you think it really was just the weather in the Northeast?
William Michael Reuter: Hi, good morning. I have a question on the industry weakness.
Speaker Change #114: I've always felt like this was a relatively non-discretionary, recession-resistant business.
Speaker Change #110: Clearly there are housing challenges in terms of
Speaker Change #112: You know lack of existing home sales. I'm sure when people buy new homes. They're a little bit more excited to spend on
Speaker Change: Do you believe that the housing market has been the contributor to the weakness this year? Do you think it really was just the weather in the Northeast? To what do you attribute the market weakness?
James Hagedorn: I'll speak for myself.
William Michael Reuter: To what do you attribute the market weakness? So I- I'll speak for myself. I start with I think it was mostly weather. You know, I think people never want to hear that, you know, it's like, you know, I think the street things. But I tell people, you know, in season, it's easy to predict our business, you know, look outside. If you can go out in a t-shirt in the spring, it's a good day for us.
James Hagedorn: I start with I think it was mostly weather. I think people never want to hear that. It's like the street things. But I tell people in season, it's easy to predict our business. Look outside. If you can go live in a t-shirt in the spring, it's a good day for us. I do think pricing did become an issue. I think if you look at just earnings that's coming out now, whether it's Starbucks, McDonald's, I think the consumer is not as flush as the Democrats think. I do think that if you look at, we know last year, when we reprised long fertilizer and grass seed last year, we knew we could see instantly that unit volume went up.
Speaker Change: Bye. Bye.
Speaker Change: I'll speak for myself. I start with, I think it was mostly weather. You know, I think people never want to hear that, you know, it's like, you know, I think the street things.
James S. Hagedorn: I do think pricing did become an issue. And I think if you look at just the earnings that are coming out now, whether it's Starbucks or McDonald's, I think the consumer is not as flush as the Democrats think. So I do think that, If you look at last year when we priced lawn fertilizer and grass seed last year, we knew we could see instantly that unit volume went up. So I'm part of our Q1 outperformance. Yeah, and that was great for us.
Speaker Change: But I tell people, you know...
Speaker Change #104: In season, it's easy to predict our business.
Speaker Change #104: You know, look outside. If you can go out in a t-shirt in the spring, it's a good day for us. I do think pricing did become an issue. And I think if you look at just
Speaker Change #101: earnings that's coming out now, whether it's Starbucks, McDonald's, I think the consumer is not as flush as the Democrats, you know, think.
Speaker Change #101: And, um, I, so I do think that
Speaker Change: If you look at, we know last year when we
Speaker Change: repriced lawn fertilizer and grass seed last year we knew we could see instantly
James Hagedorn: Part of our Q1 outperformance. That was great for us, great for the retailers. But I think what it said to us is I'm generally pretty skeptical of this elasticity thing when you say do. It's a couple percent. Somebody's not going to buy. But the problem is some of the stuff got to the point where I don't think it was a hundred bucks, but you were getting sort of near a hundred hours for a bag of grass seed or a bag of long fertilizer. And I think that unless the long looks terrible, I think people are just saying, you know, I don't know.
Speaker Change #106: that unit volume went up. Part of our Q1 outperformance. Yeah, and that was great for us, great for the retailers.
James S. Hagedorn: Great for the retailers, but I think what it says to us is, and I'm generally pretty skeptical of this elasticity thing, when you say, dude, it's a couple percent, like, somebody's not going to buy. But the problem is some of these stuff got to the point where, you know, I don't think it was 100 bucks, but you're getting sort of near 100 hours for a bag of grass seed or a bag of lawn fertilizer.
Speaker Change #108: But I think what it said to us is, and I'm generally pretty skeptical of this elasticity thing when you say, dude, it's a couple percent, like
Speaker Change: Somebody's not going to buy. But the problem is, some of this stuff got to the point where, I don't think it was $100, but you're getting sort of near $100 for a bag of grass seed or a bag of lawn fertilizer. And I think that
Speaker Change: Unless the lawn looks terrible, I think people are just saying, eh, you know, I don't know. So I think mostly weather, but I do think pricing contributed. I think long term, the demographics of our business are fabulous. You know, you know, I think.
James Hagedorn: So I think mostly weather, but I do think pricing contributed. I think long term, the demographics of our business are fabulous. I think houses need to be built. Young people need to buy them. I think interest rates need to come down. I mean, personally, I think it's hard for young people to buy a home today. And so I think if the Fed can start reducing rates, I personally am good with that. But I think if you look at demographics long term for us, I think it's pretty healthy out there. Great. You go.
James S. Hagedorn: And I think that unless the lawn looks terrible, I think people are just saying, you know, I don't know. So I think mostly weather, but I do think pricing contributed. I think, long term, the demographics of our business are fabulous. Yeah, you know, you know, I think houses need to be built. Young people need to buy them. I think interest rates need to come down. Personally, I think it's hard for young people to buy a home today.
Speaker Change: Houses need to be built, young people need to buy them, I think interest rates need to come down. I mean, personally, I think it's hard for young people to buy a home today.
James S. Hagedorn: And so I think if the Fed can start reducing rates, I personally am good with that. But I think if you look at demographics long term for us, I think it's pretty healthy out there. Great. I was just going to support what Jim said, you know, with science being the geek I am, you know, we're building models, and weather was the biggest factor for sure. Agreed pricing, you know, consumer confidence.
Speaker Change: And so I think if the Fed can start reducing rates, I personally am good with that. But I think if you look at demographics long-term for us, I think it's pretty healthy out there.
James S. Hagedorn: I think there's a scale of discretionary spending, and as long as the prices look okay, and consumers feel pinched, they definitely sort of blinked when they looked at prices, but weather was... But they didn't move the private label, they just wouldn't buy it.
James Hagedorn: I was just going to support which instead, you know, with the science being the geek I am, you know, we're building models. And weather was the biggest factor, for sure. Agreed pricing, you know, consumer confidence. I think there's a scale of discretionary spending, and, you know, as long look okay and consumers feel pinched. They definitely sort of blinked when they look at prices, but weather was different. But they didn't move to private labels. They just would outpeat. Yeah, you know, just sort of. Paul is on the category, so. Okay. Yeah, so you mentioned whether is the primary issue than, you know, pricing and elasticity.
Speaker Change: Great.
Speaker Change #121: I was just going to support what Jim said, you know, with the science being the geek I am, you know, we're building models and weather was the biggest factor for sure.
Speaker Change #120: Agree pricing, you know, consumer confidence. I think there's a scale of discretionary spending and, you know, as long as it looks okay and consumers feel pinched, they definitely sort of blinked when they look at prices, but whether it was the... But they didn't move to private label, they just wouldn't feed. Yeah, they just sort of...
Nate Baxter: Yeah, you know, just sort of paused on the category, so. Okay, well, yeah, so you mentioned weather is the primary issue, then, you know, pricing and elasticity. Historically, has there been any correlation to existing home sales or new home sales?
Speaker Change #120: paused on the category, so.
Speaker Change #111: Okay, yeah so you mentioned weather is the primary issue then you know pricing and elasticity. Historically has there been any correlation to existing home sales or new home sales?
James Hagedorn: Historically, has there been any correlation to existing home sales or a new home sale? For sure. There is. Okay. So that would make that. So that, I mean, those being depressed could be a third component of the weakness. Yeah. I mean, we've seen that over the past couple of years. And there's been stories and various publications on that, right? So if existing home sales are slower, people are doing less projects to beautify their home pre-sale. That it's inside small projects and outside small projects. And so one of the things that we talked about last year was, even in that environment, we had seen $500 projects continue.
William Michael Reuter: For sure. There is. Okay. So that would maybe be, I mean, those being depressed could be a third component of the weakness. Yeah, I mean, we've seen that over the past couple years.
Speaker Change #107: For sure.
Speaker Change #117: Hey, there is. Okay. So that would maybe that so that I mean, those being depressed could be a third component of the weakness.
Matthew E. Garth: And there have been stories and various publications on that, right? So if existing home sales are slower, people are doing fewer projects to beautify their homes before sale, that it's inside small projects and outside small projects. And so one of the things that we talked about last year was even in that environment, we had seen $500 projects continue as people were working on their front yards, their entranceways to their homes, but they weren't necessarily extending throughout the rest of the home or into the backyard.
Speaker Change #119: Yeah, I mean, we've seen that over the past couple of years, and there's been stories and various publications on that, right? So if existing home sales are slower, people are doing less projects to beautify their homes pre-sale. That is, inside small projects and outside small projects.
Matthew E. Garth: And so that's continuing. You know, I think if you look back in the history of these calls, this would go back some years. We started to convince ourselves that young people were going to live in condos and not want yards. We hired some demographers who basically said, dude, like, there are so many people who are sort of getting into their threes and having families, and You know, I had this debate with Craig Minear when he was But he said, Jim, we have the best data on homes in the world. And it's because people have a couple of kids and a dog. And they want a yard.
Speaker Change: And so one of the things that we talked about last year was even in that environment, we had seen $500 projects continue.
James Hagedorn: As people were working on their front yards, their entry. There's a lot of different ways to their homes, but they weren't necessarily extending throughout the rest of the home or into the backyard. And so that's continuing.
Speaker Change: As people were working on their front yards, their entranceways to their homes, but they weren't necessarily extending throughout the rest of the home or into the backyard. And so that's continuing. You know, I think if you look back in the history of sort of these calls, this would go back some years.
James Hagedorn: You know, I think if you look back in the history of sort of these calls, and this would go back some years, we started to convince ourselves that, like, young people, we're going to live in condos and not want yards. And we hired some demographers who basically said, did. Like, there is so many people who are sort of getting into their threes and having families.
Speaker Change: We started to convince ourselves that, like, young people were going to live in condos and not want yards, and, um...
Speaker Change #122: We hired some demographers who basically said, dude, like, there is so many people who are
Speaker Change: sort of getting into their threes and having families and
James Hagedorn: And, you know, I had this debate with Craig Manero when he was CEO of Depot and a really good guy, but he said, "Jim, we have the best data on homes in the world." And it's, people have a couple of kids and a dog, and they were on a yard. And so I, there's death. And that was important for us to convince ourselves that we were a sort of zero to pricing call it company. We were a sort of GDP plus a couple. And I think generally that's what we've seen. Awesome. That brought to me.
Jim: You know, I had this debate with Craig Minear when he was CEO of Depot and a really good guy. But he said, Jim, we have the best data on homes in the world. And it's
Speaker Change #116: People have a couple kids and a dog.
James S. Hagedorn: And so I there's debt. And that was important for us to convince ourselves that we were a sort of zero to pricing call it company. We were a sort of GDP plus a couple, and and I think generally that's what we've seen. Awesome.
Speaker Change #116: And they want a yard. And that was important for us to convince ourselves that we weren't a sort of zero-to-pricing company, we were a sort of
Speaker Change #116: GDP plus a couple and and I think generally that's that's what we've seen
William Michael Reuter: That's all for me. Thank you. Thank you. I'm showing no further questions at this time. This concludes today's conference call. Thank you for participating. You may now disconnect, https://www.youtube.com.uk ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Copyright © 2020 Mooji Media Ltd. All Rights Reserved. No part of this recording may be reproduced without Mooji Media Ltd.'s express consent. ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Copyright © 2020, New Thinking Allowed Foundation
Unknown Executive: Thank you.
Speaker Change: Awesome. That's all for me. Thank you.
Unknown Executive: I'm showing no further questions at this time. This concludes today's Congress call. Thank you for participating. You may now disconnect. Thank you. 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know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I
Speaker Change #124: Thank you. I'm showing no further questions at this time. This concludes today's conference call. Thank you for participating. You may now disconnect.
Speaker Change #123: Go to Beadaholique.com for all of your beading supply needs!
Speaker Change #125: ?? ?? ?? ?? ??
Speaker Change #125: [inaudible]
Speaker Change #126: www.thevenusproject.com www.thevenusproject.com