Q1 2025 Central Garden & Pet Co Earnings Call
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Okay.
Ladies and gentlemen, thank you for standing by welcome to the Darden fiscal 2025 first quarter earnings call.
Julian: Welcome to Garden & Pets Fiscal 2025 First Quarter Earnings My name is Julian, and I'll be your conference operator for today. At this time, all participants are in a listen-only mode.
Julian: Name is Julian and I will be operator conference operator for today at this time all participants are in a listen only mode.
Julian: Following prepared remarks, we will hold a question and answer session, and instructions will be given at that time. If you require assistance at any point during the call, please press star zero. on your touch phone keypad.
Following prepared remarks.
Julian: We will hold a question and answer session and instructions will be given at that time. If you require assistance at any point during the call. Please press star zero.
Julian: On your Touchtone keypad.
Julian: As a reminder, this conference call is being I will now turn the call over to Friederike Edelmann, Vice President, Investor Relations. Please proceed.
Julian: A reminder, this conference call is being recorded I would now.
Julian: Now I'll turn the call over to Frederique Edelman, Vice President Investor Relations. Please proceed.
Friederike Edelmann: Good afternoon, everyone, and thank you for joining Central's first quarter fiscal 2025 earnings call. Joining me today are Nicholas Lahanas, Chief Executive Officer, Brad Smith, Chief Financial Officer, John Hanson, President of Pet Consumer Products, and J.D. Walker, President of Garden Consumer Products.
Speaker Change: Good afternoon, everyone and thank you for joining central first quarter of fiscal 2025 earnings call.
Speaker Change: Joining me today are Nicola Chief Executive Officer, Brad Smith, Chief Financial Officer, John Hanson, President of Pet consumer products, and J D Walker President Garden consumer products.
Friederike Edelmann: In a moment, Nico will share today's key takeaways, followed by Brad, who will discuss these in more detail. After their prepared remarks, J.D. and John will join us for our Q&A session.
Speaker Change: In a moment Nico will chair today's key takeaways, followed by Brett who will discuss these in more detail after their prepared remarks, J D and John will join us for our Q&A session.
Friederike Edelmann: Before we begin, I would like to remind everyone that all forward-looking statements made during this call are subject to risks and uncertainties that could cause our actual results to differ materially from what those forward-looking statements express or imply today. A detailed description of central risk factors can be found in our annual report filed with the SEC. Please note that Central undertakes no obligation to publicly update forward-looking statements to reflect new information, future events, or other developments.
Speaker Change: Before we begin I would like to remind everyone that all forward looking statements made during this call are subject to risks and uncertainties that could cause our actual results to differ materially from what those forward looking statements express or imply today.
Speaker Change: A detailed description of central's risk factors can be found in our annual report filed with the SEC. Please note that central undertakes no obligation to publicly update forward looking statements to reflect new information future events or other development.
Friederike Edelmann: Our press release and related materials, including a gap reconciliation for the non-gap measures discussed on this call, are available on irs.central.com. Lastly, unless otherwise specified, all growth comparisons discussed during this call are made against the same period in the prior year.
Speaker Change: Our press release and related materials, including a GAAP reconciliation for the non-GAAP measures discussed on this call are available on IR dot central Dot com.
Speaker Change: Lastly, unless otherwise specified all growth comparisons discussed during this call are made against the same period in the prior year.
Friederike Edelmann: If you have any further questions after the call or any point during the quarter, please feel free to reach out to me directly.
Speaker Change: If you have any further questions after the call or any point during the quarter. Please feel free to reach out to me directly and with that let's begin Nico. Thank you Fredrik and good afternoon, everyone. Thank you for taking the time to join us today.
Friederike Edelmann: And with that, let's begin.
Nicholas Lahanas: Niko? Thank you, Friederike, and good afternoon, everyone. Thank you for taking the time to join us today.
Nicholas Lahanas: I'd like to begin by highlighting the three key takeaways from this call. First, a strong start to the fiscal year, thanks to excellent execution by Team Central. Second, steady progress in simplifying our business and driving efficiency through footprint rationalization, portfolio optimization, and cost structure improvement. And third, confidence in our outlook for the year.
Nico: I'd like to begin by highlighting the three key takeaways from this call.
Nico: First our strong start to the fiscal year, thanks to excellent execution by team central.
Nico: Second steady progress in simplifying our business and driving efficiency through footprint rationalization portfolio optimization and cost structure improvements and.
Nico: And third confidence in our outlook for the year.
Nicholas Lahanas: Now let me expand on these. First Quarter Achievement. We delivered a solid performance in the first quarter, with growth in both earnings per share and net sales. This was driven by timing of shipments across pet and garden categories and channels. Supported by favorable weather conditions for the garden business and timing of promotional activities in our pet Most notably, margins improved due to disciplined cost management and easing inflationary pressure. We're particularly encouraged by the robust continued growth in e-commerce, which reflects our enhanced digital capabilities. These achievements are a testament to the dedication and hard work of Team Central.
Now let me expand on these points.
Nico: Our first quarter achievements.
Nico: We delivered a solid performance in the first quarter with growth in both earnings per share and net sales.
Nico: This was driven by timing of shipments across pet and garden categories and channels.
Nico: Ported by favorable weather conditions for the garden business and timing of promotional activities and our pet business.
Nico: Most notably margins improved due to disciplined cost management and easing inflationary pressures.
Nico: We're particularly encouraged by the robust continued growth in e-commerce, which reflects our enhanced digital capabilities.
Nico: These achievements are a testament to the dedication and hard work of team central.
Nicholas Lahanas: Their grit and unwavering commitment drive our success. And because of them, we're building an even stronger future.
Nico: Their grit and unwavering commitment drive our success and because of them we're building an even stronger future.
Nicholas Lahanas: Second, Custom Simplicity Program. Our Cost and Simplicity Program drives meaningful results. Initiatives implemented in prior periods are yielding tangible benefits, and we continue to roll out new projects. Highlights of the first quarter include distribution optimization, Our new distribution center in Covington, Georgia, has now been operational for over 100 days. This facility replaced seven legacy facilities, significantly reducing our distribution footprint while increasing efficiency.
Nico: Second cost and simplicity program or.
Nico: Our cost and simplicity program drives meaningful result initiatives implemented in prior periods are yielding tangible benefits and we continue to rollout new projects.
Nico: Highlights for the first quarter include distribution optimization.
Nico: Our new distribution center in Covington, Georgia has now been operational for over 100 days.
Nico: This facility replaced seven legacy facilities, signet significantly, reducing our distribution footprint, while increasing efficiency.
Nicholas Lahanas: Safety and Productivity Enhancement. Across all BUs, we've implemented measures to improve safety, particularly within our merchandising. These efforts have boosted productivity and overall output.
Nico: Safety and productivity enhancements across all be use we've implemented measures to improve safety, particularly within our merchandising teams. These efforts have boosted productivity and overall output.
Nicholas Lahanas: eCommerce expansion. We recently expanded our eCommerce operations to Easton, Pennsylvania. This new facility strengthens our ability to manage and fulfill our own direct-to-consumer business, as well as drop shipments for retail partners more effectively. These initiatives are part of our broader strategy to make Central leaner, more agile, and more efficient, positioning us for margin expansion while freeing up resources to support organic growth, strategic M&A, and our commitment to social responsibility and environmental stewardship.
Nico: E Commerce expansion, we recently expanded our e-commerce operations to Eastern Pennsylvania.
Nico: This new facility strengthens our ability to manage and fulfill our own direct to consumer business as well as drop shipments for retail partners more effectively.
Nico: These initiatives are part of our broader strategy to make central leaner more agile and more efficient.
Nico: Listening us for margin expansion, while freeing up resources to support organic growth strategic M&A, and our commitment to social responsibility and environmental stewardship.
Nicholas Lahanas: On that note, we're proud to share some of our business units and teams have collaborated to support several animal welfare organizations assisting communities impacted by the wildfires in the Los Angeles area. Our contributions include essential pet supplies such as dog beds, training pads, food and toys, along with a cash donation to L.A. County Animal Care and Control and Best Friends Animal Society.
Nico: On that note, we're proud to share some of our business units and teams have collaborated to support several animal welfare organizations assisting communities impacted by the wildfires in the Los Angeles area.
Nico: Our contributions include essential pet supplies, such as dog beds training pads food and toys, along with a cash donation to L. A county animal care and control and best friends Animal Society.
Nicholas Lahanas: Third, our outlook for the fiscal year. We're confident in our strategy. Our team and the deliberate actions we're taking to drive sustainable and profitable growth in fiscal 2025 and beyond. As such, we're reaffirming our fiscal 2025 guidance for non-GAAP EPS of $2.20 or higher, maintaining our focus on delivering long-term value. Looking ahead, we'll continue to exercise disciplined cost and cash management while strategically investing in critical capabilities, particularly in e-commerce, digital, and innovation. Our strategic M&A efforts remain focused on enhancing growth priorities, expanding capabilities, and strengthening our portfolio.
Nico: Third.
Nico: Our outlook for the fiscal year, we're confident in our strategy our team and the deliberate actions, we're taking to drive sustainable and profitable growth in fiscal 2025 and beyond.
Nico: As such we are reaffirming our fiscal 2025 guidance for non-GAAP EPS of $2 20 or higher maintaining.
Nico: Our focus on delivering long term value.
Nico: Looking ahead, we will continue to exercise disciplined cost and cash management, while strategically investing in critical capabilities, particularly in E Commerce digital and innovation.
Nico: Our strategic M&A efforts remain focused on enhancing growth priorities expanding capabilities and strengthening our portfolio.
Nicholas Lahanas: That said, we recognize the complexity of the external environment, which includes macroeconomic and geopolitical uncertainties, such as potential tariffs. Additionally, we expect ongoing consumer pressure, a competitive marketplace driven by promotions and challenges in the brick-and-mortar retail sector. In the garden business, we anticipate continued volatility from extreme weather patterns as a potential new normal. With the 2025 garden season still ahead of us, we're cautious not to over-interpret first quarter results. especially given the significant benefit from the favorable timing of shipment. As retailers work through existing inventories, we anticipate a softer second quarter than last year.
Nico: That said, we recognize the complexity of the external environment, which includes macroeconomic and geopolitical uncertainties such as potential tariffs.
Nico: Additionally, we expect ongoing consumer pressure, a competitive marketplace, driven by promotions and challenges in the brick and mortar retail sector.
Nico: In the garden business, we anticipate continued volatility from extreme weather patterns as a potential new normal.
Nico: With the 2025 garden season still ahead of US we're cautious not to over interpret first quarter results.
Nico: Especially given the significant benefit from the favorable timing of shipments.
Nico: As retailers worked through existing inventories, we anticipate a softer second quarter than last year.
Brad Smith: With that, I'll turn it over to Brad.
Brad Smith: With that I'll turn it over to Brad.
Brad Smith: Brad? Thank you, Nico.
Nico: Brad.
Brad Smith: Thank you Nico good afternoon, everyone building on Nicos key takeaways I'll provide an overview of our first quarter results, including the results of our two segments and our outlook for the fiscal year, let's start with our first quarter results.
Brad Smith: Good afternoon, everyone. Building on Nico's key takeaways, I'll provide an overview of our first quarter results, including the results of our two segments and our outlook for the fiscal year. Let's start with our first quarter results. Net sales increased 3% to $656 million, driven primarily by timing of shipments, supported by favorable weather on the garden side and timing of promotional activity on the pet side. Consolidated gross profit for the quarter grew $196 million, up from $179 million a year ago. And gross margin improved by 160 basis points to 29.8%, driven by productivity gains and moderating inflation.
Brad Smith: Net sales increased 3% to $656 million driven primarily by timing of shipments supported by favorable weather on the garden side and timing of promotional activity on the pet side consolidated gross profit for the quarter grew $196 million up from $179 million a year ago and gross margin.
Brad Smith: Proved by 160 basis points to 29, 8% driven by productivity gains and moderating inflation.
Brad Smith: SG&A expense of $168 million was 2% below the prior year, and SG&A as a percentage of sales decreased by 140 basis points to 25.5%, reflecting continued cost discipline across our business. Operating income was $28 million, compared to $8 million in the prior year quarter. And operating margin improved by 300 basis points to 4.3%. Below the line, net interest expense was $8 million compared to $10 million in the prior year, driven by higher interest income as a result of larger cash balances. Other expense was $2 million compared to other income of $1 million a year ago.
Brad Smith: SG&A expense of $168 million was 2% below the prior year and SG&A as a percentage of sales decreased by 140 basis points to 25, 5%, reflecting continued cost discipline across our businesses.
Operating income was $28 million compared to $8 million in the prior year quarter and operating margin improved by 300 basis points to four 3%.
Brad Smith: Below the line net interest expense was $8 million compared to $10 million in the prior year driven by higher interest income as a result of larger cash balances other expense was $2 million compared to other income of $1 million a year ago.
Brad Smith: Net income was $14 million compared to $430,000 and earnings per share came in at 21 cents compared to a penny a year ago. Adjusted EBITDA for the quarter was $55 million compared to $37 million, and our tax rate for the quarter was 23.5%.
Brad Smith: Net income was $14 million compared to $430000 and earnings per share came in at 21.
Brad Smith: Compared to a penny a year ago.
Brad Smith: Adjusted EBITDA for the quarter was $55 million compared to $37 million and our tax rate for the quarter was 23, 5%.
Brad Smith: Now I'll provide highlights from our two segments, starting with pets. PetNet sales increased 4% to $427 million, with growth primarily in dog and cat, more than offsetting lower sales in aquatics driven by our decision to exit low margin SKUs. Consumable sales grew mid-single digits, while durable sales saw a single-digit decline, an encouraging improvement compared to the double-digit declines of the past five quarters. Although consumable shipments were strong during the quarter, POS for consumables remained relatively flat. Overall, we held market share with gains in e-commerce successfully offsetting declines in brick-and-mortar channels. eCommerce now accounts for 28% of pet sales, with net sales growing 6% over prior year.
Brad Smith: Now I'll provide highlights from our two segments starting with pet.
Brad Smith: Net sales increased 4% to $427 million with growth, primarily in dog and cat more than offsetting lower sales in aquatics, driven by our decision to exit low margin Skus consumables.
Brad Smith: Consumable sales grew mid single digits, while durable sales saw a single digit decline and encouraging improvement compared to the double digit declines over the past five quarters.
Brad Smith: Although consumable shipments were strong during the quarter Pos for consumables remained relatively flat.
Brad Smith: Overall, we held market share with gains in ecommerce successfully offsetting declines in brick and mortar channels.
Brad Smith: E Commerce now accounts for 28% of net of pass sales with net sales growing 6% over prior year.
Brad Smith: This growth was driven by the addition of new products and further improvements in conversion rates which contributed to share growth across multiple categories online. Operating income for PET was $51 million, up from $43 million in the prior year. Operating margin improved by 140 basis points to 12%, driven by productivity gains resulting from our cost and simplicity program, and moderating inflation. As a result, pet segment adjusted EBITDA increased to $61 million compared to $54 million a year ago.
Brad Smith: This growth was driven by the addition of new products and further improvements in conversion rates, which contributed to share growth across across multiple categories online.
Brad Smith: Operating income for <unk> was $51 million up from $43 million in the prior year.
Brad Smith: Operating margin improved by 140 basis points to 12% driven by productivity gains, resulting from our cost and simplicity program and moderating inflation.
Brad Smith: As a result pet segment, adjusted EBITDA increased to $61 million compared to $54 million a year ago.
Brad Smith: Moving to Garden. GardenNet sales were $229 million, a 2% increase from a year ago. This growth was driven by strong performance in wild bird and controls in fertilizer, which more than compensated for lower sales in our distribution business. Overall, shipments for the quarter exceeded POS, reflecting large initial early season shipments for store sets during the month of December. Garden e-commerce sales, while less developed than pet, had another record quarter, growing double digits across pure play and omni-channel retailers, thanks to new items, optimized content, and centralized retail media efforts that boosted engagement and conversion rates across accounts and business units.
Brad Smith: Moving to garden.
Brad Smith: Garden net sales were $229 million, a 2% increase from a year ago.
Brad Smith: This growth was driven by strong performance in wild bird and controls and fertilizer, which more than compensated for lower sales in our distribution business.
Brad Smith: Overall shipments for the quarter exceeded Pos reflecting large initial early season shipments for store sets during the month of December.
Brad Smith: <unk> e-commerce sales, while less developed and Pat had another record quarter growing double digits across pure play and omni channel retailers, thanks to new items optimized content and centralized retail media efforts that boosted engagement and conversion rates across accounts and business units.
Brad Smith: Operating income for Garden was $2 million, compared to $9 million operating loss in the prior year quarter. Operating margin came in at 1.1%, compared to a negative 3.9% a year ago, driven by moderating inflation and productivity gains. Finally, Garden segment adjusted EBITDA was $14 million, compared to $2 million in the prior year quarter.
Brad Smith: Operating income for garden was $2 million compared to $9 million operating loss in the prior year quarter operating margin came in at one 1% compared to a negative three 9% a year ago, driven by moderating inflation and productivity gains finally garden's segment adjusted EBITDA was 14.
Brad Smith: Compared to $2 million in the prior year quarter.
Brad Smith: As Nico mentioned, Q1 is typically our smallest quarter, particularly for the garden segment where the 2025 season is still ahead of us. While we're pleased with the strong performance in the first quarter, it would be premature to draw conclusions for the full year.
Brad Smith: As Niko mentioned Q1 is typically our smallest quarter, particularly for the garden segment, where the 2025 season is still ahead of us while we're pleased with the strong performance in the first quarter it would be premature to draw conclusions for the full year.
Brad Smith: Let me now address the balance sheet and cash flows. Cash used by operations was $69 million for the quarter versus $70 million in the prior year quarter. Our ongoing focus on working capital management led to further inventory reductions this quarter compared to the prior year across both the pet and garden segments. CapEx for the quarter was $6 million, which was less than the prior year. Depreciation and amortization for the quarter was $22 million, also slightly below the prior year. During the quarter, we repurchased approximately 1. million shares, or $54 million of our stock. As of quarter end, $131 million remains available under the share repurchase programs, with additional shares authorized under the equity dilution plan.
Brad Smith: Let me now address the balance sheet and cash flows.
Brad Smith: Cash used by operations was $69 million for the quarter versus $70 million in the prior year quarter.
Brad Smith: Our ongoing focus on working capital management led to further inventory reduction this quarter compared to the prior year across both the pet and garden segments.
Capex for the quarter was $6 million, which was less than the prior year depreciation and amortization for the quarter was $22 million also slightly below the prior year.
Brad Smith: During the quarter, we repurchased approximately 1 million shares or $54 million of our stock.
Brad Smith: As of quarter end $131 million remains available under the share repurchase programs with additional shares authorized under the equity dilution plan.
Brad Smith: Total debt of $1.2 billion was in line with the prior year. We ended the quarter with a gross leverage ratio of 2.9 times compared to three times a year ago, below our target range of 3 to 3.5 times. We had no borrowings under our $750 million credit facility at the end of the first quarter. Cash and cash equivalents at the end of the first quarter were $618 million compared to $341 million in the prior year, an increase of $277 million after our usual Q1 working capital bill. Given our strong financial position, we remain actively focused on identifying high-growth consumable companies with accretive margins.
Brad Smith: Total debt of $1 2 billion was in line with the prior year. We ended the quarter with a gross leverage ratio of two nine times compared to three times a year ago below our target range of 3% to three five times, we had no borrowings under our $750 million credit facility at the end of the first quarter.
Brad Smith: Cash and cash equivalents at the end of the first quarter were $618 million compared to $341 million in the prior year, an increase of $277 million. After our usual Q1 working capital built.
Brad Smith: Given our strong financial position, we remain actively focused on identifying high growth consumable companies with accretive margins. Our goal is to build scale in core categories strategically enter adjacent categories and enhance keybanc key capabilities to drive long term growth and value creation.
Brad Smith: Our goal is to build scale and core categories, strategically interadjacent categories, and enhance key capabilities to drive long-term growth and value creation.
Brad Smith: Turning to our fiscal 25 outlook. As Nico mentioned, our guidance remains unchanged from November. Given our first quarter performance benefited from favorable timing of shipments and promotional activities, we expect a softer second quarter compared to last year. However, we remain confident in achieving non-GAAP EPS of 220 or better for the fiscal year. This outlook underscores our confidence in the strength of our strategy and action plans and in the resilience of our team as we navigate near-term macroeconomic, geopolitical, and weather uncertainties. As we look at CapEx, we plan to invest approximately $60 to $70 million this fiscal year.
Brad Smith: Turning to our fiscal 'twenty five outlook.
Brad Smith: As Niko mentioned, our guidance remains unchanged from November given our first quarter performance benefited from favorable timing of shipments and promotional activities. We expect a softer second quarter compared to last year. However, we remain confident in achieving non-GAAP EPS of $2 20 or better for the fiscal year.
This outlook underscores our confidence in the strength of our strategy and action plans and in the resilience of our team as we navigate near term macroeconomic geopolitical and weather uncertainties.
Brad Smith: As we look at Capex, we plan to invest approximately $60 million to $70 million this fiscal year.
Brad Smith: These investments will be focused on productivity-enhancing initiatives and essential maintenance across both our segments. Our fiscal year outlook assumes the currently proposed tariffs, but excludes potential impacts from acquisitions, defestatures, or restructuring activities, including initiatives under the Cost and Simplicity Program that may arise during fiscal 25.
Brad Smith: These investments will be focused on productivity enhancing initiatives and essential maintenance across both of our segments.
Brad Smith: Our fiscal year outlook assumes the currently proposed tariffs that excludes potential impacts from acquisitions divestitures or restructuring activities, including initiatives under the cost and simplicity program that may arise during fiscal 'twenty five.
Julian: We would now like to open the line for questions. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star key. One moment while we poll for questions.
I'd now like to open the line for questions.
Speaker Change: Thank you we will be can now be conducting a question and answer session I would.
Speaker Change: I'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two to remove yourself from the queue for participants using speaker equipment and may be necessary to pick up the handset before pressing the star keys.
Speaker Change: While we poll for questions.
Speaker Change: Okay.
Bill Chappell: And our first question comes from Bill Chappell with Truist Securities. Please proceed with your question.
Speaker Change: And our first question comes from Bill Chappell, What's true Securities. Please proceed with your question.
Bill Chappell: Good afternoon. Hey, Bill.
Bill Chappell: Well good afternoon, Hey.
Speaker Change: Hey, Bill.
Nicholas Lahanas: Nico, I don't really know, am I supposed to say congratulations on the quarter or was this all a pull forward and so everything's just exactly as you expected? I wouldn't say it was exactly how we expected, otherwise we would have guided you a little better. Yeah, we had some timing. I wouldn't call it pull forward. I think it was more of a timing of shipments. We had some businesses that just loaded in a little bit earlier than prior year. I would say, but it's a combination as well, right? We had some favorable mix, good weather, a little bit of timing, and some great execution.
Speaker Change: Nishu I don't really know him I supposed to say congratulations on the quarter or was this all a pull forward and so everything is just exactly as you expected.
Speaker Change: I wouldn't say it was exactly how we expected otherwise.
Speaker Change: Would've guided you a little better.
Speaker Change: Yes, we had some timing I wouldn't call. It pull forward I think it was more of a timing of shipments.
Speaker Change: We had some businesses that just loaded in a little bit earlier than prior year.
Speaker Change: I would say, but it's a combination as well right.
Speaker Change: We had some favorable mix good weather.
Speaker Change: A little bit of timing.
Nicholas Lahanas: So all of it kind of came together. I think you'll see some of that come out of Q2, though, as we stated in the prepared remarks. And I guess we're trying to understand is how much of that, I mean... is that majority upside and also with that, you know, kind of a bigger question, I understand the timing of shipments on garden just and usually that's a bullish sign that the retailers are getting ready earlier for the season. But I haven't, I don't remember seeing the timing of shipments on pet change that much. So maybe you could help us there.
Speaker Change: And some great execution. So all of it kind of came together I think youll see some of that come out of Q2.
Speaker Change: As we stated in the prepared remarks.
Speaker Change: And I guess, we're trying to understand is how much of that I mean.
Speaker Change: Is that.
Speaker Change: The majority of side and also with that kind of a bigger question.
I understand the timing of shipments on garden, just and usually thats a bullish sign that the retailers are getting ready earlier for the season.
Speaker Change: I don't remember seeing the timing of shipments on pet change that much. So maybe you can help us there.
Nicholas Lahanas: Yeah, so we do have some seasonal pet businesses, one of which is our cushion business, Arden, and that loaded in a little bit earlier as well. That's also obviously outdoor cushions, so very much a springtime type business, and we had some earlier orders. So a few of the pet businesses got pulled along as well.
Speaker Change: So.
Speaker Change: We do have some seasonal pet businesses, one of which is our cushion business Arden.
Speaker Change: And that loaded in a little bit earlier as well. That's also obviously outdoor cushions. So very much as spring time type business and we had some earlier orders. So a few of the pet business is got pulled along as well John do you have anything to add.
John Hanson: I don't know, John, do you have anything to add? We had some promotional activity early Q2 that got pulled into Q1 that, honestly, we just hadn't planned for. Yeah.
Speaker Change: Had some promotional activity.
Speaker Change: The early Q2 that got pulled into Q1.
Speaker Change: Honestly, we just hadn't planned for.
Brad Smith: I mean, this is Brad. I mean, the timing of when the customer needs shipments to go out to plan for those promotional activities can move around on fairly short notice as well, so we were expecting more of the shipments to hit in Q2 that actually ended up hitting sooner in Q1. But this was all normal year-over-year activity in terms of there were no big new promotions. It was fairly consistent with the prior year, and there was certainly, we just underscore, there was not a situation where we were intentionally trying to pull forward. No, not at all, and, you know, even the seasonal businesses that pulled forward, honestly, we view that as a good thing because customers are excited about the season, they want to take the inventory early, which is a good thing.
Speaker Change: Yes, I mean on the this is Brad I mean, the timing of when the customer needs shipments to go out to plan for those promotional activities Ken can move around on fairly short notice as well. So we were expecting more of the shipments that hit in Q2 that actually ended up hitting sooner in Q1.
Speaker Change: But this was all normal year over year activity in terms of if there were no big new promotions. It was fairly consistent with the prior year and there was certainly.
Speaker Change: We just underscore there was not a situation where we were intentionally trying to pull forward no not at all and even the seasonal businesses that pulled forward honestly, we view that as a good thing because customers are excited about the season I want to take the inventory early which is a good thing.
Nicholas Lahanas: Got it.
Speaker Change: Got it and then.
Nicholas Lahanas: And then, somewhat surprisingly, you said in the release that you have accounted for some tariff activity in your guidance, maybe you can give us some more color of what you've accounted and where you might expect to see issues. Yeah, so I mean, we've been obviously, like everyone watching very closely, where things are heading with tariffs, obviously, this week, it's been quite a wild ride, to say the least. But, you know, we've, we've looked at the potential, we sized up the potential impact of the 10% tariff on China, as well as 25% on Canada and Mexico.
Speaker Change: Somewhat surprisingly you said in the release that you have accounted for some tariff activity in your guidance, maybe you could give us some more color on what you've accounted and where you might expect to see issues.
Speaker Change: Yes, so I mean, we've been obviously like everyone watching very closely where things are heading with tariffs. Obviously this week has been quite a wild ride to say the least but.
Speaker Change: We've looked at the potential we sized up the potential impact of the 10% tariff on China, as well as 25% on Canada, and Mexico and.
Nicholas Lahanas: And we were able to get comfortable that, given our exposure and the timing of when that would hit, some of the mitigation strategies we've got in place, that we'd be able to tackle those, absorb those, and still, based on everything we see in front of us, stay within our guide.
Speaker Change: We were able to get comfortable that given our exposure on the timing of when that would hit some of the mitigation strategies, we've got in place that.
Speaker Change: We'd be able to tackle those absorbed still.
Speaker Change: Just on everything we see in front of us stay within our guide.
Bill Chappell: Great. Thanks so much. Thank you.
Speaker Change: Great. Thanks, so much.
Speaker Change: Thank you.
Speaker Change: Thank you and our next question comes from Brad Thomas with Keybanc Capital markets. Please proceed with your question.
Andrea Teixeira: Hi, thanks for taking my question. Nico, I was hoping to follow up just on that topic of some of the policy changes and was wondering if you could talk about your opinion on the de minimis exemption and it potentially being closed or substantially reduced and just how much impact you think that may be having on your pet category right now, for example. Yeah, I'll kick it off.
Brad Thomas: Hi, Thanks for taking my question.
Speaker Change: Nicole I was hoping to follow up just on that topic of some of the policy changes and was wondering if you could talk about your opinion on.
Speaker Change: The de minimus exemption.
Brad Thomas: And then potentially being <unk>.
Brad Thomas: <unk> substantially reduced in and just how much impact do you think that may be having on your pet category right now for example.
Brad Thomas: Yes, I'll kick it off and I'll, let John fill in he knows a hell of a lot more than I do about it but.
Nicholas Lahanas: I'll let John fill in. He knows a hell of a lot more than I do about it. But we're very pleased that that, you know, Washington finally decided to address the issue. We'll have to see how it plays out. I think it's going to probably affect the durable category the most going forward. But I think we still have to see how that plays out. I think, you know, if you dig a little bit deeper, you know, we'd still love to see, you know, live animal and pet adoptions really take off and see that household penetration rate increase.
Brad Thomas: We're very pleased that that.
Speaker Change: Washington, Finally decided to address the issue.
Brad Thomas: We'll have to see how it plays out.
Speaker Change: I think it's going to probably.
Brad Thomas: The durable category the most.
Speaker Change: Going forward, but I think we still have to see how that plays out I think.
Brad Thomas: If you dig a little bit deeper.
Brad Thomas: Still love to see live animal and pet adoptions really take off and see that household penetration rate increase.
John Hanson: And I think with that, you'll see the durables pick up, but certainly it should level the playing field. Yeah, you know, just to build on that a little bit, you know, we've seen durable declines, you know, in Q1, I think there were Low double digits, sequentially, you know, improvement versus prior quarters. So think around that 12% range for the category. You know, it's really difficult for us to say, hey, how much of that is, you know, soft pet ownership, or soft pet acquisition, you know, versus what is coming out of, of Asia, you know, via econ and low priced goods.
Brad Thomas: Increase and I think what that Youll see the durables pick up but certainly it should level the playing field.
Brad Thomas: Yeah, just to build on that a little bit we've seen durable declines.
Brad Thomas: In Q1, I think they were.
Brad Thomas: Low double digits.
Brad Thomas: Sequentially improvement versus prior quarters, so think around that 12% range.
Brad Thomas: For the category, it's really difficult for us to say how much of that is soft pet ownership or soft pet acquisition.
Brad Thomas: Versus what is coming out of Asia.
John Hanson: We know it's having an impact, no doubt about it, because you can just go on the webpage, and you can look and see what they're offering, the prices they're offering. So we think it's a really good thing going forward. And we're just gonna have to wait and see how that impacts the back half. I appreciate it.
Brad Thomas: E Comm and low price goods, we know, what's having an impact no doubt about it because you can just go on the webpage and you can look and see what they're offering the prices are offering.
Brad Thomas: So we think it's a really good thing going forward and we're just going to have to wait and see how that impacts the back half.
Brad Thomas: I appreciate it and if I could follow up on on the live goods category I know that better weather is a really big opportunity for you all.
John Hanson: And if I could follow up on the live goods category, I know that better weather is a really big opportunity for you all, you know, fingers crossed here for the spring. But just as you think about retail doors that you're in and placements, any color that you could share on just what the underlying business would look like on kind of a like-for-like basis if weather doesn't change. Are you up or down, you know, as we think about live goods? Actually think about that.
Brad Thomas: <unk> crossed here for the spring, but just as you think about <unk>.
Brad Thomas: Retail doors that you're in and placements.
Brad Thomas: Any color that you could share on just.
Brad Thomas: What's the underlying business would look like on kind of a like for like basis, if weather doesn't change.
Brad Thomas: Are you up or down as we think about life goods, how should we think about that.
J.D. Walker: A great question, Brad. This is JD. I'll take that the so first of all, you know, regarding live goods, obviously, they had a material impact on our performance last year. The live goods business turned in a very solid quarter in Q1 and proud of the business unit. I think they delivered on their financial commitment. And it reflects a lot of the good work that they've done in getting this, the business to... a better business model and overall better business performance. So they've rightsized SG&A, rationalized the product offering, and that includes exiting some unprofitable geographies or unprofitable SKUs.
Brad Thomas: Yes, Great question, Brad This is J D I'll take that.
Brad Thomas: So first of all.
Brad Thomas: Regarding lab goods, obviously, it had a material impact on our performance last year the lab goods business.
Brad Thomas: <unk> turned in a very solid quarter in Q1 and proud of the business unit I think they delivered on their financial commitments and it reflects a lot of the good work that they've done and getting the business too.
Brad Thomas: A better business model and overall better business performance, so they've right sized SG&A rationalized the product offering and that includes exiting some unprofitable geographies are unprofitable skus.
J.D. Walker: They've optimized facilities, at least started that process, so getting the footprint right. Obviously, you know, that's Q1, and this is this business or the season is still in front of us. It's mainly a Q3 season, but we really like the operating cadence and the rhythm that they're in right now. And if weather cooperates, if Mother Nature does her role here, I think that this business turns in a much better business performance year over year. So we feel much better about it. That's great.
Brad Thomas: Optimize facilities at least started that process, so getting the footprint right.
Brad Thomas: Obviously, that's Q1 and this is this businesses are the season is still in front of US it's mainly a Q3 season, but we really like the operating cadence and the rhythm that they are in right now and if weather cooperates. If mother nature does her role here I think that this business turned in a much better business performance year over year.
Brad Thomas: So we feel much better about it.
Speaker Change: That's great and maybe if I could squeeze the last one in just on the new distribution facility that you have can you think help us think about the capacity of that facility.
Nicholas Lahanas: And maybe if I could squeeze the last one in just on the new distribution facility that you have. Can you think of help us think about the capacity of the of the facility and perhaps how it might fit into acquisitions and growth going going forward? Yeah, I mean, it's a large, what I would call, more state-of-the-art facility than what we had before. And we've taken, you know, roughly seven other facilities and folded them in there. It's got high ceilings, you know, more doors than we've ever had before, and some room to grow. Largely, right now, you can think of this as a garden project, where we've put mainly garden products in there.
Brad Thomas: Facility, and perhaps how it might fit into acquisitions and growth going going forward here.
Brad Thomas: Yes.
Brad Thomas: It's a large what I would call more state of the art facility than what we had before and we've taken.
Brad Thomas: Roughly seven other facilities and folded them in there.
Brad Thomas: It's got high ceilings.
Brad Thomas: More doors than than we've ever had before and some room to grow.
Brad Thomas: Largely right now you can think of this as a a garden project.
Brad Thomas: We've put mainly garden products in there, but we had our entire pet segment coming toward the facility.
Nicholas Lahanas: But we had our entire pet segment come and tour the facility. I think, you know, we're very close to seeing us begin to distribute product, both pet and garden products, out of one facility. We continue to, you know, really shrink the footprint of the business in total, not just garden or pet, but really thinking through mixing centers and what that looks like across the country and consolidating, becoming more efficient. And I think it just allows us to be more agile, particularly on the garden side, where, you know, we're dealing with more just-in-time. This allows us to stage, you know, shipments better and just be a more agile, fast-moving org going forward.
Brad Thomas: We're very close to seeing us begin to distribute product, both pet and garden products out of one facility.
Brad Thomas: We continue to really shrink the footprint of.
Brad Thomas: Of the business in total not just Gardner pet, but really thinking through mixing centers and what that looks like across the country.
Brad Thomas: And consolidating becoming more efficient and I think it just allows us to be more agile, particularly on the garden side, where we're dealing with more just in time. This allows us to stage.
Brad Thomas: Shipments better and just be a more agile fast moving org.
Nicholas Lahanas: So we're pretty excited about it. Very helpful. Thanks, Nico. Yep.
Brad Thomas: Going forward, so we're pretty excited about it.
Speaker Change: Very helpful. Thanks Niko.
Brad Thomas: Yes.
Julian: Thank you.
Brad Thomas: Thank you.
Jim Charter: And our next question comes from Jim Charter with Maness, Crespi & Hart.
Brad Thomas: Our next question comes from Jim Chartier with Ms.
<unk> Crespi Hardt. Please proceed with your question.
Nicholas Lahanas: Please proceed with your question. Hi, thanks for taking my question. On the tariff, can you just remind us, you know, what percentage of your product is sourced from China, Mexico, and Canada?
Jim Chartier: Hi, Thanks for taking my questions.
Speaker Change: On the tariffs can you just remind us what percentage of your product is sourced from China, Mexico and Canada.
Nicholas Lahanas: Yeah. We've got about, I think, 4% of it that is coming from China. Canada and Mexico are in combination about 2%, roughly. And then we've got another 8%, roughly, of our inputs that are coming from other countries.
Yes.
Jim Chartier: We've got about 4% of it that is coming from China.
Jim Chartier: Canada, and Mexico are in combination of about 2% roughly.
Jim Chartier: And then we've got another 8% roughly of our prana of our inputs that are coming from other countries.
Nicholas Lahanas: So it's totaled like 15% of cost of goods, 14-15, that's coming from abroad.
Jim Chartier: So its total like 15% of cost again in 2015 were $2 15, thats coming from abroad.
Jim Chartier: Got it thank you.
Brad Smith: And then, can you give us a little more color on kind of what a softer 2Q means, you know, sales down, EPS down year over year, and then if EPS is down, like, you know, given the margin performance in first quarter, you know, why would we think that the operating margin would be down year over year? Well the margin may not be down.
Speaker Change: And then could you just give us a little more color on kind of what a softer Q means.
Jim Chartier: Sales down EPS down year over year. This EPS is down like you.
Speaker Change: Given the margin performance in the first quarter.
Jim Chartier: Why would that.
Jim Chartier: The operating margin will be down year over year second quarter.
Jim Chartier: Well the margin may not be down.
Brad Smith: What I would just say is, so first of all, I want to get away from guiding every quarter because as we've said in the past, we're going to be wrong a lot. So I would just say directionally, it's not going to be what last Q2 was. If you remember last Q2 was pretty strong and we'll probably be below last year's Q2 EPS. With the timing of the shipments, I think we'll look at the top line could be down low single digits into the quarter. But beyond that, product mix is going to play a big role.
Jim Chartier: I would just say is so first of all I wanted to get away from high teens every quarter because as we said in the past.
Jim Chartier: We're going to be wrong, a lot. So I would just say directionally, it's not going to be what last Q2 was if you remember last Q2 was pretty strong.
Jim Chartier: And we'll probably be below last last year's Q2 EPS.
Jim Chartier: With the timing of the shipments I think.
Jim Chartier: We'll look at the top line could be could be down low single digits into the quarter.
Jim Chartier: But beyond that.
Jim Chartier: Product mix is going to play a big role.
Brad Smith: We have every intention of expanding margin and really having a great quarter in Q2 and then weather is going to play a role there as well. So that's sort of when the garden season starts to really kick off. And then we want to see what POS does early on in Q2.
Jim Chartier: We have every intention of expanding margin.
Jim Chartier: And really having a great quarter in Q2, and then whether it's going to play a role there as well.
Jim Chartier: So that's sort of when the garden season starts to really kick off.
Jim Chartier: And then we want to see what Pls does.
Jim Chartier: Early on in Q2.
Brad Smith: Thank you.
Jim Chartier: Alright, thank you.
Jim Chartier: Yes.
Jim Chartier: Thank you and our next question comes from Bob <unk> with CG CJS Securities. Please proceed with your question.
Bob Labick: And our next question comes from Bob Labick with CJS Securities. Please proceed with your question.
John Hanson: Good afternoon, thanks for taking our question. I wanted to stick with the pet durable side. You've talked about it a little bit. Maybe we can just dig down a little further. The hard goods sales, obviously, there was an impact from the pandemic and pet ownership. talked about. competition. What's the line of sight for recovery? Is there innovation that you can introduce that can drive sales or? How do you see this, you know, getting back to, you know, flat to growth over time, or is that... Yeah.
Bob <unk>: Good afternoon, Thanks for taking my question.
Jim Chartier: Okay.
Speaker Change: I wanted to stick with the pet durable side, you've talked about it a little bit maybe we can just dig down a little further the hard goods sales. Obviously, there was an impact from the pandemic in pet ownership and you've talked about some potential competition. What's the line of sight for recovery is there innovation that you can introduce that can drive sale.
Jim Chartier: <unk> or <unk>.
Jim Chartier: How do you see this getting back to flat to growth over time or is that.
Jim Chartier: Yeah.
Nicholas Lahanas: Well, you know, certainly I'd kick it off by saying we believe in these categories long term. You know, we believe in a load of mid single digit growth in these categories. And if you think about COVID, it was a huge pull forward in live animals, right? And we're still working through that. There's no doubt about it. And we see that, you know, in all the pet ownership and new pet acquisition numbers that that we get, you know, there's there's categories like small animal, which include, you know, rabbits and guinea pigs that we're still seeing declines.
Jim Chartier: Technician, well certainly kick.
Jim Chartier: Kick it off by saying we believe in these categories long term.
Jim Chartier: We believe low to mid single digit growth in these categories and if you think about COVID-19. It was a huge pull forward in live animals, and we're still working through that there is no doubt about it and we see that when all of the pet ownership in new pet acquisition numbers that we do.
Jim Chartier: There's categories like small animal which include <unk>.
Rabbits, and Guinea pigs that we're still seeing declines.
Nicholas Lahanas: So we got to work through that. Durables often go with the live animal, because when you buy the live animal, you buy an enclosure, you buy feeding, watering, you know, filtration, if you're in aquatics. So we got to work through it, I don't have a crystal ball to say, hey, when that's going to recover. But I do see durables sequentially, the declines are improving. And then we had this wild card thrown at us, you know, with e commerce, direct imports coming in from Asia. And those goods were cheap, really, really cheap. And they got around that, you know, the minimus tariff, and that's been closed.
Jim Chartier: So we got to work through that.
Jim Chartier: Durables often go with the live animal because when you buy the live animal you buy didn't closure you by feeding ordering filtration if youre in aquatics.
Jim Chartier: So we got to work through it I don't have a crystal ball.
Jim Chartier: Hey, one thats going to recover.
Jim Chartier: What I do see durables.
Jim Chartier: Sequentially. The declines are improving and then we had this wildcard thrown at us.
Jim Chartier: With.
E Commerce direct imports coming in from Asia, and those goods were cheap really really cheap and they get around the de minimus tariff and thats been closed. So I do think that is going to have an impact as we go forward and then certainly as live animals pick back up which it will.
Nicholas Lahanas: So I do think that is going to have an impact as we go forward. And then certainly as live animals pick back up, which it will, history says it will, and I believe it will, and we all believe it will, um, you know, you're going to see durables recover as well. And we are innovating with durables where it makes sense. So if you think of sort of the razor razor blade type of concept with our fish tanks, we've got the, you know, the blue IQ app that goes along with that, we've got some proprietary filtration, that, you know, you have the cartridges, which is the consumable, but they only fit our, our, our filtration system.
Jim Chartier: History says it will and I believe it will.
Jim Chartier: I believe it will.
Jim Chartier: Youre going to see durables recover as well and we are innovating with <unk>.
Jim Chartier: <unk>, where it makes sense. So if you think of sort of the razor razorblade type of concept with our fish tanks, we've got the.
Jim Chartier: The Blue IQ App that goes along with that we've got some proprietary filtration that you have the cartridges, which is the consumable, but they only fit our our filtration system. So we're doing some good innovation there we're not just walking away from durables because they are important.
Nicholas Lahanas: So we're doing some good innovation there, we're not just walking away from durables, because they are important. And again, you know, we try to be smart about how we go into the categories with respect to the durables, and try to take, you know, really the viewpoint of more of a razor razor blade type mentality there, where we can.
Jim Chartier: And again, we try to be smart about how we go into the categories with respect to the durables and try to take really the viewpoint of more of a razor razorblade type mentality, there where we can.
Nicholas Lahanas: Okay, great, appreciate that. And speaking of the crystal ball, you obviously have a very strong balance sheet. And so I was just curious if you could give us, you know, you'd like to make, you know, as you said, a creative acquisitions, margin growth, etc. What's the M&A environment like out there now, given all of the crew, economic events, everything else. I'm not going to ask you if you're going to do something this year, but how has the environment changed? How has your pipeline, how do things look? Yeah, I mean, we were in discussions with a few deals.
Jim Chartier: Okay, Great I appreciate that and speaking of the Crystal ball.
Jim Chartier: We see a very strong balance sheet.
Jim Chartier: And so I was just curious if you could give us.
Speaker Change: You'd like to make you know as you said accretive acquisitions margin growth et cetera, what's the M&A environment like out there now given all of that.
Jim Chartier: Macroeconomic events and everything else.
Jim Chartier: I'm not going to ask you. If you can do something this year, but how has the environment changed how is your pipeline how things look from an M&A perspective.
Jim Chartier: Yes, I mean, we.
Jim Chartier: We were in discussions with a few deals we currently still sort of <unk>, but it's been more.
Nicholas Lahanas: We currently still sort of are, but it's been more kind of anticipatory right now. I think everyone's waiting for the deal flow really to kick off and get going. There's been a lot of discussions with bankers. I think the activity level's up. We just haven't seen a ton of deals come across our desk as of yet, but I certainly think that there's a lot of anticipation in the market. I think sellers are starting to take a hard look. We're hearing from banks and others that pipelines are being formed.
Jim Chartier: Kind of anticipatory right now I think everyone's waiting for the deal flow really to kick off and and.
Jim Chartier: And get going.
Jim Chartier: There's been a lot of discussions with bankers I think the activity levels up we just haven't seen a ton of deals come across our desk as of yet, but I certainly think that.
Jim Chartier: There's a lot of anticipation in the market I think.
Jim Chartier: Sellers are starting to take a hard look we're hearing.
Jim Chartier: From banks and others that pipelines are being formed we just haven't seen it yet but.
Nicholas Lahanas: We just haven't seen it yet, but it feels like it's starting to come together, and hopefully we'll have more to share as the year progresses. Okay, great. Thanks.
Jim Chartier: It feels like it's starting to come together and hopefully you will have more to share as.
Jim Chartier: As the year progresses.
Jim Chartier: Okay, great. Thanks.
Brian McNamara: Thank you. And our next question comes from Brian McNamara, Canaccord Genuity.
Jim Chartier: Thank you.
Jim Chartier: Next question comes from Brian Mcnamara Canaccord Genuity. Please proceed with your question.
Brian McNamara: Please proceed with your question.
Nicholas Lahanas: Hey, good afternoon, guys. I guess this one's for Nico. If I'm an investor looking at the stock, you guys have had a lot of stuff go wrong, or I guess out of your control over the last few years. You've had weather, you've had pet ownership, you've had the durables issue. What would you say to investors kind of kicking the tires on the stock for the first time? It sounds like things are starting to get a little bit better here, but I want to put words in your mouth. Yeah, I mean, I would I would say that that's exactly right.
Brian McNamara: Hey, good afternoon, guys I guess this one is for Niko if I'm an investor looking at the stock you guys have had a lot of stuff go wrong or.
I guess out of your control over the last few years, you've had whether you've had pet ownership you've had the durables issue.
Speaker Change: What would you say to investors kind of kicking the tires on the stock for the first time it sounds like things are starting to get a little bit better here.
Brian McNamara: And your mouth.
Brian McNamara: Yeah, I mean, I would I would say that that's exactly right. We have had a few rough weather years.
Nicholas Lahanas: We have had a few rough weather years. We had the big pull forward, as John mentioned, via COVID on on some of the pet categories. I would say if you look at the business, the teams here have done an incredible job of executing both through the pandemic and post pandemic. So if you look at our margin profile compared to a lot of the other consumer companies out there, we've done a really good job. And I think our balance sheet reflects that. If you look at our cash position, that's really a sign of great execution around working cap, profitability, things like that.
Brian McNamara: We had the big pull forward as John mentioned the of Covid on some of the pet categories.
Brian McNamara: I would say if you look at the business.
Brian McNamara: The teams here have done an incredible job of executing both through the pandemic and post pandemic. So if you look at our margin profile compared to a lot of the other.
Brian McNamara: Consumer companies out there.
Brian McNamara: We've done a really good job and I think our balance sheet reflects that if you look at our cash position, that's really a sign of great execution around working cap profitability things like that.
Nicholas Lahanas: I would say right now we're in a bit of a cycle, but to your point, and if you look at the numbers, it feels like we're starting to come out of that. We feel very good about the business. We love our categories. And I would say we have a we have a very strong management team that's incredibly focused on on the future. So really love the organic business and then a strong balance sheet to go after some accretive M&A. To me, that's pretty exciting.
Brian McNamara: I would say right now we're in a bit of a cycle, but to your point and if you look at the numbers. It feels like we're we're we're starting to come out of that we feel very good about the business, we love our categories and I would say we have a we have a very strong management team that's incredibly focused on the future. So.
Brian McNamara: Really loved the organic business and then a strong balance sheet to go after some accretive M&A.
Brian McNamara: To me that's pretty exciting.
Nicholas Lahanas: Great, thank you.
Brian McNamara: Alright, thank you.
Nicholas Lahanas: Thank you.
Andrea Teixeira: And our next question comes from Andrea Teixeira with J.P. Morgan.
Speaker Change: Thank you and our next question comes from Andrea Sure J P. Morgan. Please proceed with your question.
Andrea Teixeira: Please proceed with your question. Thank you. Good afternoon. I hope you are all well.
Andrea Sure: Thank you good afternoon, I hope, you're all well I have a question and then two clarifications. Please one is on the cost and simplicity of program I understand you don't provide outlook on that program, but your margin expansion was notable in the quarter. Obviously, you had some operating leverage listing here.
Andrea Teixeira: I have a question and two clarifications, please. One is on the cost and simplicity program, I understand you don't provide Outlook on that program, but your margin expansion was notable in the quarter. Obviously, you had some operating leverage with the shipments being earlier, but what was the magnitude, would you say, of the savings in Q1, and how much more do you anticipate in savings for the remainder of the fiscal? And the two follow-ups, one is that, what is actually doing better than expected that offset the impact of the tariffs, or are you planning to take pricing against the impact and leading to a neutral model line?
Andrea Sure: With the shipments being earlier, but what was the magnitude I would just say if the savings in Q1.
Andrea Sure: And how much more do you anticipating savings for the remainder of the fiscal.
Andrea Sure: And the two follow ups.
Andrea Sure: One is that what is actually doing better than expected that offset the impact of the tariffs or are you planning to take pricing against that.
Andrea Sure: The impact in leading showing neutral.
Andrea Sure: Natural bottom line and in seconds.
Nicholas Lahanas: And second, on the upside for the Q1 quarter, would you say that there was about, I think if my math is correct, it's about $20 million that was the beat against our estimates and consensus that should probably come out from Q2, just as a cadence it's important to model. Thank you very much for all of those. Yeah, I would say you're right on the cost and simplicity. A big part of our margin expansion was due to us continuing to take costs out. We're going to continue down that road, and Andrea, we're not going to guide on the year and how much we're going to take out because, again, just like us guiding the quarter, we're going to be wrong.
Andrea Sure: Upside for the Q1 quarter, we just say that there was about I think if my math is correct is about $20 million that was the beat against our estimates and consensus that should probably come out. Some Q2, just as a cadence stayed some quite Vincent model. Thank you very much for all of those.
Speaker Change: Yes, I would say youre right on the cost and simplicity of big part of our margin expansion was due to us continuing to take cost out.
We're going to continue down that road wear and Andrea we're not going to guide.
Speaker Change: On the year and how much we're going to take out because.
Speaker Change: Again, just like us guiding the quarter, we're going to be wrong.
Nicholas Lahanas: And so we're going to instead tell folks about it, and you're going to see it in the margins as we go forward, and we're going to continue to really optimize the footprint and the business. In terms of tariffs, I would say that, you know, pricing is going to be very difficult to go into retailers and try to take price. I think that's going to be a real challenge. So really, the onus is going to be on us to, you know, either work with the suppliers out there to see about some cost cutting. We have our own efforts here where we're taking cost out in our cost and simplicity program.
Speaker Change: So we're going to instead tell folks about it and youre going to see it in the margins as we go forward and we're going to continue to really optimize the footprint and the business.
Speaker Change: In terms of tariffs I would say that.
Speaker Change: Pricing is going to be very difficult to go into retailers and try to take price I think that's going to be a real challenge. So really the onus is going to be on us to.
Speaker Change: Either work with the suppliers out there to see about some cost cutting.
Speaker Change: We have our own efforts here, where we're taking cost out in our costs and simplicity program. So we have a way to expand margin that way, but I think.
Nicholas Lahanas: So we have a way to expand margin that way. But I think taking price, you know, we guided, I think, back in November, we said we were going to be net negative on the year in pricing by about $14 million. And I think we were net negative in this quarter. So really, it's being made up on volume and cost savings and just really good execution. And I think that's going to have to continue forward. I just, I really don't see us going in with a ton of price this year. And I would just echo that, you know, I think working with our suppliers to minimize is a high priority for us.
Speaker Change: Taking price.
Speaker Change: We guided I think back in November we said, we're going to be net negative on the year in pricing by about $14 million and I think we were net negative in this quarter. So really it's.
Speaker Change: It's being made up on volume and cost savings and and just really good execution and I think that's going to have to continue forward.
Speaker Change: I, just I really don't I really don't see us going in with with a ton of price this year.
Speaker Change: I would just echo that.
Speaker Change: Think.
Speaker Change: Working with our suppliers to minimize as a high priority for us.
Nicholas Lahanas: You know, we've looked and continue to look at country of origin, you know, for our suppliers. But, you know, as Nico said, pricing is going to be very difficult to take. And on the upside for the quarter, just like thinking. 20 million is a good number, as Bill was starting on the call asking, like, you know, it's not a pull forward, but obviously it has been the calendar. I understand, like, Easter is actually going to fall in your third quarter from what a lot of companies are starting to talk about it because of the calendar shift.
Speaker Change: We've looked and continue to look at country of origin.
Speaker Change: For our suppliers.
Speaker Change: But as Niko said pricing is going to be very difficult to take.
Speaker Change: Mhm.
Speaker Change: And then the upside for the quarter just like thinking so.
Speaker Change: Joining me then is a good number as <unk> stated on the call asking like you know, it's not a pull forward, but obviously it has been the calendar I understand Mike Easter.
Speaker Change: It's actually going to fall in your third quarter. Some money a lot of companies are starting to talk about it because of the calendar shift.
Nicholas Lahanas: I'm not sure if that, you know, for the seeds for the gardening side will make any impact because folks will be more, I'm assuming there's more consumption occasions if they are not on a holiday. I mean, is that anything that impacts maybe, maybe the gardening is going to be...
Speaker Change: Not sure if that's for the seats for the gardening signed will make any impact because folks will gain more.
Speaker Change: So neither more consumption occasions, if they are not on a holiday.
Speaker Change: Is that anything that impacts may be it may be the garden he is going to be.
Nicholas Lahanas: Okay, um... We're going to continue at the same pace. Yeah, I think weather will be a bigger component to Q2 and Q3 than where Easter falls. I think you're right, it'll probably affect garden more than anything and probably live goods. But I would say, getting back to your question on the top line, I think conservatively, you could take that out of Q2, even though we really don't want to get into the habit of guiding the quarters. And then, last but not least, you know, the weather will play a role in Q2, and also our POS, the performance, as the quarter goes.
Speaker Change: Okay.
Speaker Change: They're going to continue the same pace.
Speaker Change: Yes, I think I think whether it'll be a bigger.
Speaker Change: Component two Q2, and three then where Easter falls I think.
Speaker Change: You are right it will probably affect garden more than anything and probably live goods, but.
Speaker Change: I would say to you getting back to your question on the topline I think conservatively.
Speaker Change: You could you could take that out of Q2, even though we really don't want to get into the habit of guiding the quarters.
Speaker Change: And then last but not least the weather will play a role in Q2 and also our pls the performance as the quarter goes so things could change as that quarter progresses.
Nicholas Lahanas: So things could change as that quarter progresses. Yeah, Nico, just building on that. It is favorable to us when we have an earlier Easter. So, you know, last year, Easter was at the end of Q2 in late March. That's more preferable than the third week of April like it is this year. But having said that, Nico's right, weather far outweighs the impact of having a later We are getting into peak season in that time though, late April, early May will be peak.
Speaker Change: Niko just building.
Speaker Change: It is favorable to us when we have an earlier Easter So last year Easter was at the end of Q2 and.
Speaker Change: In late March that's more preferable than the third week of April like it is this year, but having said that need goes right whether far outweighs the impact of having a later Easter we are getting into peak season in that time, though late April early may will be peak season for us.
Nicholas Lahanas: And then, just as obviously the disaster of the fires, is there anything we should be cognizant of? Of course, like, you know, the human impact is, and obviously the patch impact, I appreciate that you donated a fair amount, as you put it in the prepared remarks, but anything we should be aware of in terms of the impacts here? Yeah, we can't really think of anything other than a lot of unfortunate, you know, people were displaced. But, you know, we're doing everything we can to try to try to help folks down in Southern California.
Speaker Change: Mhm.
Speaker Change: And then that's it.
Speaker Change: Very helpful and then just this.
Speaker Change: As obviously the disaster so like the fires is that any.
Speaker Change: Anything we should be cognizant of August of course, like you know that.
Speaker Change: The human impact and obviously the tax impact I. Appreciate that you donated a fair amount as you as you put it in the prepared remarks, but anything we should be OLS.
Speaker Change: In terms of the impacts here.
Speaker Change: Yes, we can't really think of anything other than a lot of unfortunate piece.
Speaker Change: <unk> were displaced but.
Speaker Change: We're doing everything we can to try to try to help folks down in southern California.
Nicholas Lahanas: Okay, fair enough. Thank you very much.
Speaker Change: Okay fair enough. Thank you very much for peso.
William Reuter: And our next question comes from William Reuter with Bank of America. Please proceed. Hi guys, good afternoon.
And our next question comes from William Reuter with Bank of America. Please proceed.
Rob Break: Hi, guys. Good afternoon. This is rob break beyond for Bill.
William Reuter: This is Rob Rigby on for Bill. So, first question from us, you know, appreciate the commentary around M&A. But moving forward, you know, given a large cash balance that you do have, I guess, absent M&A, what are you expecting any uses of cash to be? Or should we expect a similar level or similar cadence of share purchases moving forward? It'll, it'll, so the way we look at the share purchase, well, first of all, I would say we still want to invest in the business. So that's always going to happen. We, we have a big balance.
Speaker Change: So first question from us.
Speaker Change: I appreciate the commentary around M&A.
Speaker Change: But moving forward given the large cash balance that you do have.
Speaker Change: I guess absent M&A, what are you expecting any.
Speaker Change: Uses of cash to be or should we expect a similar level or similar cadence of share repurchases moving forward.
Speaker Change: It'll it'll so the way we look at the share repurchase.
Speaker Change: First of all I would say, we still want to invest in the business. So that's always going to happen.
Speaker Change: We have a big balance and when you have a balanced that size really the first place you're going to look as M&A secondly.
Nicholas Lahanas: And when you have a balance that size, really, the first place you're going to look is M&A. Secondly, is, is really internally around CapEx, as well as demand creation, brand building, marketing, things like that. Third is, we always look at stock buybacks, a lot of that has to do with where our own stock is trading. So you saw us buy back pretty aggressively back in October, where the stock had dropped, and we went in to support it, because at the time, we viewed that as really a great value, and an excellent way for us to return, you know, money and value to shareholders.
It's really internally around capex as well as.
Speaker Change: Demand creation and brand building marketing things like that.
Speaker Change: Third is we always look at.
Speaker Change: Stock buybacks a lot of that has to do with where our own stock is trading. So you saw us buy back pretty aggressively back in October.
Speaker Change: Where the stock had dropped and we went in to support it because at the time, we view that as really a great value.
Speaker Change: And an excellent way for us to return.
Speaker Change: Money and value to shareholders. So I think those are really going to be our three three areas. They continue to be those three.
Nicholas Lahanas: So I think those are really going to be our three, three areas. They continue to be those three. And I, I truly believe that M&A will pick up. Again, you know, right now, it's, it's, it's a little bit, you know, there's a lot of anticipation, but I think that we're going to see it pick up.
Speaker Change: I truly believe that M&A will pick up again right now it's it's.
It's a little bit.
Speaker Change: There's a lot of anticipation.
Speaker Change: But I think that we're going to see it pick up.
Nicholas Lahanas: Great, that's super helpful.
Speaker Change: Great. That's Super helpful. And then just second from Us.
Nicholas Lahanas: And then just second from us, I guess maybe, you know, appreciate some of the color around timing of shipments, but maybe if you could touch on, you know, sentiment and maybe optimism that you might be seeing, I guess, first around, you know, the garden segment, favorable weather, you know, going into peak season, and then as well, you know, any commentary around the sentiment from your pet retailers. Thank you. So this is J.D. I'll go first and talk a little bit about, you know, outlook for the season. You know, I'd say that, you know, we're out of the gates well, you know, a great start to the year.
Speaker Change: I guess maybe.
Speaker Change: I appreciate some of the color around.
Speaker Change: Timing of shipments, but maybe if you could touch on.
Speaker Change: Sentiment, maybe optimism that you might be seeing I guess first around.
Speaker Change: The garden segment and favorable weather.
Speaker Change: Going into peak season, and then as well any commentary around your statement from your pet retailers. Thank you.
Speaker Change: So this is J D. I'll go first and talk a little bit about outlook for the season.
Speaker Change: I would say that we are out of the gates well.
Speaker Change: Great start to the year.
J.D. Walker: We're pleased with the financial performance of the garden segment, but we have to keep it in perspective. As we've said many times, we still have the season and 85% of our year still in front of us. I am pleased that our team is executing at a really high level. So, you know, our fall inventory build, gaining support from the retailers for the upcoming season, display and promotional support, execution at retail. All of those things are happening and we're executing with excellence. So I feel very good about that. I feel like we're ready for the. The retailers are also, you know, highly engaged, very excited about the season.
Speaker Change: We're pleased with the financial performance of the Garden segment, but we have to keep it in perspective as we've said many times, we still have the season and 85% of our year still in front of us.
Speaker Change: I am pleased that our team is executing at a really high level. So our fall inventory build gaining support from the retailers.
Speaker Change: Coming season display and promotional support.
Speaker Change: Execution at retail all of those things are happening and we're executing with excellence so I feel.
Speaker Change: Very good about that and feel like we're ready for the season the.
Speaker Change: The retailers are also.
Speaker Change: Highly engaged very excited about the season, they drive an awful lot of their.
J.D. Walker: They drive an awful lot of their spring foot traffic through the Lawn and Garden Department. So, they're very much engaged, and I'd say that our relationships with those retailers have never been better. So, kudos to our sales teams for that. You know, I expect it to be a very competitive marketplace in the upcoming spring, but that's no surprise, and I think we're ready for that with that promotional display support that I spoke to. So, I think in general, we feel very good about the controllable causal factors. Those things are within our control. We feel great about it, and we're ready.
Speaker Change: Spring foot traffic through the lawn and garden departments. So they're very much engaged and I would say that our relationships with those retailers have never been better so kudos to our sales teams for that.
Speaker Change: I expect it to be a very competitive marketplace in the upcoming spring.
Speaker Change: But that's no surprise and I think we're ready for that with that promotional and display support.
Speaker Change: Oak too so.
Speaker Change: I think in general we feel very good about the controllable causal factors those things are within our control we feel great about it and we're ready and I think that if I said this earlier, but if mother nature does her part and we have decent weather it doesn't have to be stellar and it was a challenge last year. So I think just normal weather.
J.D. Walker: And I think that if, you know, I said this earlier, but if Mother Nature does her part, and we have decent weather, it doesn't have to be stellar. It was a challenge last year, so I think just normal weather this year, whatever that looks like, will be an improvement year over year, and should lead to better results for the garden segment. So, we're cautiously optimistic.
Speaker Change: This year, whatever that looks like will be an improvement year over year and should lead to better.
Speaker Change: Results for the for the Garden segment, So we're cautiously optimistic.
Nicholas Lahanas: And on the pet side, you know, I'd say something pretty similar. You know, we're off to a really good start. We feel good where we're at. You know, we've got strong relationships with our customers. You know, we've done a really nice job, our sales force working with our business units to identify, you know, gaps and opportunities with our customers to drive more distribution. And I think we're going to see some nice distribution gains in the back half. So we feel, you know, really good where we're at to be able to, you know, have a really good year.
Speaker Change: And on the right.
Speaker Change: Syed.
Speaker Change: See something pretty similar.
Speaker Change: So a really good start we feel good where we're at.
Speaker Change: We've got strong relationships with our customers.
Speaker Change: We've done a really nice job of our sales force working with their business units.
Speaker Change: To identify.
Speaker Change: Gaps and opportunities with our customers to drive more distribution.
Speaker Change: And I think we're going to see some some nice distribution gains in the back half. So we feel really good where we're at to be able to.
Speaker Change: You don't have a really good year.
Nicholas Lahanas: You know, I think, you know, the challenge with the pet side is, hey, does this new pet acquisition, you know, pick up? And when does it pick up? And if it does, you know, we get super excited where we're headed. I'd just add on the pet side, I mean, just exceptional execution on e-com. Yeah. It continues to be a key growth area. You know, on e-com, we have invested, we build capability around content, retail, media. Our data and analytics are much stronger than they were before. You know, we built additional fulfillment capabilities to give us more flexibility about how we get our product direct to the consumer.
Speaker Change: Thank you.
Speaker Change: The challenge with the Pet side is hey, does this new pet acquisition pick.
Speaker Change: Pick up and when does it pick up and if it does we get Super excited where we're headed.
Speaker Change: Just to add on the pet side.
Speaker Change: I mean just exceptional.
Speaker Change: Execution on E com.
Speaker Change: <unk> to be.
Speaker Change: Yes growth area on E. Comm, we have invested we build capability around content retail media, our data and analytics are much stronger than they were before we built additional fulfillment capabilities to give us more flexibility about how we get our product direct to the consumer.
Nicholas Lahanas: You know, so we're doing all the right things and feel really good where we're at.
Speaker Change: So we're doing all the right things and feel really good where we're at.
Nicholas Lahanas: Great, thank you guys very much.
Speaker Change: Great. Thank you guys very much.
Speaker Change: Okay.
Carla Piseo: And our next question comes from Carla Piseo with JPMorgan. Hi, most of my questions have been answered, but I'm just wondering if you could give us a little more color on the pet side about whether you're seeing any. more stability in that pet specialty channel or if you're still seeing that channel mix shift? towards math and other.
Speaker Change: And our next question comes from Carlos <unk> with J P. Morgan. Please proceed.
Carlos: Hi, Ann most of my questions have been answered, but I'm just wondering if you could give us a little more color on the pet side about whether youre seeing any.
Speaker Change: Yeah.
Speaker Change: More stability in that pet specialty channel or if you're still seeing that channel mix shift.
Speaker Change: Towards mass and.
Speaker Change: Sure.
John Hanson: Yeah, this is John. You know, it's a challenged channel right now, honestly, and a lot of that's driven by new pet acquisition. A lot of the consumers, when they're looking for new pets, you know, both to understand and get advice from retailers, as well as make the purchase, they go into pet specialty. So traffic related to that new pet acquisition has been a bit soft. We stay really close. We've got great relationships, you know, with the customers in that channel. And, you know, but in the near term, it is challenging. Okay, great.
Speaker Change: Yes. This is John.
Speaker Change: It's a challenge channel right now honestly.
Speaker Change: A lot of that's driven by new pet acquisition, a lot of the consumers when they are looking for new pets.
Speaker Change: Both to understand and get advice from retailers as well as make the purchase.
Speaker Change: Go into pet specialty.
Speaker Change: So traffic related to that new pet acquisition has been a bit soft we stay really close we've got great relationships with the customers in that channel.
Speaker Change: But in the near term.
Speaker Change: It is challenged.
Speaker Change: Okay, great. Thank you.
Julian: Thank you.
Hale Holden: And our next question comes from Hale Holden with Barclays, please proceed.
Hale Holden: And our next question comes from Hale Holden with Barclays. Please proceed.
Hale Holden: Hi, good afternoon. I just had two real quick ones. On the sequential improvement in pet durables. You know, how does that look like on a two year basis? Are we really seeing start to flatten out towards a stabilized, you know, trend line that you can grow from? Or is it just same rate of decline against easier year over year comps? You know, it's it's it's less of a decline on a sequential basis, right, but it's still a year on year decline. And you know, again, you know, talking about the pet ownership, but also this de minimis tariff exception, you know, it's a bit hard to quantify how much of that is related to inexpensive products coming out of Asia.
Hale Holden: Hi, Good afternoon, I, just had two real quick ones.
Hale Holden: On the sequential improvement in pet durables.
Hale Holden: How does that look like on a two year basis are we really seeing start to flatten out.
Hale Holden: Towards that stabilized trend line that you can grow from or is that just same rate of decline I guess.
Hale Holden: Easier year over year comps.
Hale Holden: Yes.
Hale Holden: It's less of a decline on a sequential basis, but it's still year on year decline.
Hale Holden: And <unk>.
Hale Holden: Again.
Hale Holden: Talking about the pet ownership, but also this de Minimis tariff exception, it's a bit hard to quantify how much.
Hale Holden: That is related to inexpensive products coming out of Asia.
John Hanson: You know, you can go on to some of these websites and look at, you know, like a pet bed, and it's very inexpensive coming out of Asia. You know, that is going to You know, I don't know if it's going to stop but it certainly is going to be more challenging for that to happen. And I do believe that is going to have a, you know, a positive impact on our business. It's just hard to say how much right now. Yeah, okay.
Hale Holden: You can go onto some of these websites and look at it.
Hale Holden: Like a pet birds, and it's very inexpensive coming out of Asia.
Hale Holden: That is going to.
Hale Holden: I don't know if its going to stop but it certainly is going to be more challenging for that to happen and I do believe that it's going to have.
Hale Holden: Positive impact on our business, it's just hard to say how much right now.
Hale Holden: Okay.
J.D. Walker: And then the second question I had is, I know you guys have covered this a little bit on the call, but just really simplistically, what why why was the pull forward in garden this quarter? Some of the things I heard was maybe the weather was better in December, maybe your customers were loading up a little bit earlier than normal, but I'm sure you got some pretty direct feedback from from your larger customers and what drove it. Sure, Hale, this is JD. The, I think that for the most part during the quarter, consumption and shipments tracked very closely to one another.
Hale Holden: And then.
Speaker Change: The second question I had is I don't know if you guys covered this a little bit on the call, but just really simplistically, what why why was the pull forward and garden this quarter.
Speaker Change: Some of the things I heard was maybe the weather was better than December maybe your customers were loading up a little bit earlier than normal, but I'm sure you've got some pretty direct feedback from from your larger customers on what drove it.
J D: Sure. This is J D.
Speaker Change: I think that for the most part during the quarter consumption and shipments tracked very closely to one another but historically right at the end of December.
J.D. Walker: But historically, right at the end of December, we always have a number of shipments that go to our larger customers to set the stores for the upcoming spring season. So they, they move from Christmas in their stores right into lawn and garden. And that usually starts setting the first week in January. The initial shipments are scheduled to go late December. Now, most of our customers pick up at our DC's distribution centers. So it's difficult to predict exactly when those trucks are going to show up. They may show up a day or two before Christmas, some, a lot of them show up between Christmas and New Year's.
Speaker Change: We always have a number of shipments that go to our larger customers to set the stores for the upcoming spring season. So they move from Christmas and their stores right into the lawn and garden and that usually starts setting. The first week in January the initial shipments are scheduled to go late December.
Speaker Change: Or are customers pick up at our Dcs distribution centers. So it's difficult to predict exactly when those trucks are going to show up they may show up a day or two before Christmas. Some a lot of them show up between Christmas and new year, So it's difficult for us to predict.
J.D. Walker: So it's difficult for us to predict. We got more shipments out than we anticipated. We had the orders, their trucks showed up, and we were able to get those out in two less shipping days than what we had the prior year. So all of those variables came into play. It made us, you know, cautious in what we were predicting for the end of December. We actually got a lot more shipments out than we were anticipating. Kudos to our supply chain team. But that's what drove a lot of the shipments. Now, it's strictly timing. So it's whether that ships the last week of December, the first week of January, it's for the same purpose, and it's not consumption driven.
Speaker Change: Got more shipments out than we anticipated we had the orders there truck showed up we were able to get those out and two less shipping days than what we had the prior year. So all of those variables came into play it made us.
Speaker Change: Cautious in what we were predicting for the end of December we actually got a lot more shipments out than we were anticipating kudos to our supply chain team but.
Speaker Change: That's what drove a lot of the shipments now it's strictly timing. So it's whether that ships. The last week of December or the first week of January it's for the same purpose and it's not consumption driven it's just.
Hale Holden: It's to set the stores for the coming spring season. So the early shipments in December, most likely normalize and come out of Q2 shipments. So not a net gain, just a timing difference. That's all. Does that make sense? It makes total sense. I'm going to still give Nico credit for the meat this quarter, though. So thank you, guys. Thank you. Absolutely.
Speaker Change: Set the stores for the coming spring season. So the early shipments in December most likely normalize and come out of.
Speaker Change: Q2 shipments so not a net gain just a timing difference that's all does that makes sense.
Speaker Change: It makes total sense, so I'm going to still give.
Nico credit for the beat this quarter, though so thank you guys. Thank you.
Speaker Change: Absolutely.
Speaker Change: Yeah.
Julian: This was our last question.
Speaker Change: This was our last question. Thank you everyone for joining us today.
Julian: Thank you everyone for joining us today. We're available to answer any additional questions you might have after this call. Thank you.
Speaker Change: Available to answer any additional questions you may have after this call.
Speaker Change: Thank you.
Speaker Change: Thank you.
Julian: This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.
Speaker Change: This does conclude today's teleconference. We thank you for your participation you may disconnect your lines at this time.
Speaker Change: Okay.
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