Q3 2025 Scotts Miracle-Gro Co Earnings Call

Programs are working.

And our consumer is highly engaged.

The year is playing out the way we had hoped even though weather was not particularly great in the early season.

The second thing I'll cover is our transformation and where we're headed?

For most of the past 2 years, we've been focusing on internal initiatives to get our cost structure right achieve efficiencies and reorganize around our superpowers.

Our Brands.

Supply chain sales force and R&D.

We put completely new teams in place to lead. Many facets of our business from marketing and sales to supply chain.

And we've made a ton of progress.

Nate Baxter: We continue to adopt technology to drive further productivity and efficiency improvements well into the future. The next thing on our transformation checklist is a shift to outward-facing initiatives involving our brands and our relationships with our consumers. We have the most powerful franchise in lawn and garden, and we're going to make it even better. We're deploying more resources and injecting new thinking into our approaches to marketing, messaging, channel expansion, and innovation. We'll connect with consumers differently, communicate with them differently, and advertise differently. All this transformation work, both internally and externally, is setting us up to create a world-class consumer goods company that brings more consumers into our category and achieves greater levels of growth. Before I dig deeper into the transformation, I want to address our results this year.

We've improved our balance sheet, gotten our leverage to a more normal level increased profitability and given ourselves greater flexibility to reinvest in those superpowers.

We continue to adopt technology to drive further productivity and efficiency improvements well into the future.

The next thing in our transformation checklist is a shift to outward-facing initiatives, involving Our Brands and our relationships with our consumers.

We have the most powerful franchise in lawn and garden and we're going to make it even better.

We're deploying more resources and injecting new thinking into our approaches to marketing messaging Channel expansion and innovation

We'll connect with consumers differently, communicate with them differently and advertise differently.

All this transformation work, both internally and externally is setting us up to create a world-class consumer. Goods company, that brings more consumers into our category and achieves greater levels of growth.

Nate Baxter: With a clear view into the final months of fiscal 25, we're reaffirming our EBITDA guidance and expect to fully deliver on our top and bottom line metrics. US consumer sales are in line with our guidance of low single-digit growth. Year to date, EBITDA increased 9%, EPS rose 24%, leverage improved by more than one and a quarter turns, and gross margin is above 30%. We're accomplishing what we set out to do. As I said, POS is a good story. The POS unit increase so far this year has been led by soils at plus 12%, mulch increased 8%, controls up 3%. Lawns is a special example. POS units for branded lawn fertilizers are up 1%. Hults, our early season fertilizer product, had a 25% unit increase over prior year, while grass seed units were up 16%.

Before I dig deeper into the transformation, I want to address our results this year.

With a clear view into the final months of fiscal, 25 were reaffirming our IBA, dog. Guidance and expect a fully deliver on our top and bottom line metrics.

Us consumer sales are in line with our guidance of low single digit growth.

Year-to-date EBA increased 9% EPS Rose 24%.

Leverage improved by more than 1 and a quarter, turns and gross margin is above 30%.

Or accomplishing what we set out to do.

As I said, POS is a good story.

The POS unit increased so far this year, led by soils at plus 12%. Mulch increased 8%, and controls were up 3%.

Lawns is a special example.

POS units for Branded lawn fertilizers are up 1%.

Nate Baxter: You may recall that I asked the team to hold the line on this high-margin business that's been on a unit volume decline in recent years. They've done a great job of putting together a program to start reversing the trend. There's a regional component underlying these POS numbers. Weather challenges in early Q3 impacted the lawn's business. It was an extremely late-breaking spring in the Northeast, and Texas was saddled with lingering cold and rain. But we're better at navigating this unpredictability. Nate and his planning group have a lot of tools that enable us to adjust and maximize our promotional and advertising activities. If one region is getting bad weather, we strategically shift our media plans to where it's better, and that's what we did in lawns.

Halts are early season. The fertilizer product had a 25% unit increase over the prior year, while grass seed units were up 16%.

You may recall that I asked the team to hold the line on this high margin business. That's been on a unit volume, decline in recent years.

They've done a great job of putting together a program to start reversing the trend.

There's a regional component. Underlying this POS numbers whether challenges in early Q3 impacted The Lawns business.

It was an extremely late-breaking spring in the Northeast and Texas was saddled with lingering cold and rain.

But we're better at navigating this unpredictability Nate, and his Planning Group have a lot of tools and enable us to adjust and maximize our Promotional and advertising activities.

If 1 region is getting bad weather, we strategically shift our media plans to where it's better.

Nate Baxter: When it became clear that challenges in Texas would cause us to miss our bonus S target for POS and consistent poor weather in the Northeast would push back the season, we redirected those resources to the Midwest. Let me take you through those Midwest numbers through Q3. Of the big regions, it had more traditional weather patterns and best reflects the results of the changes that we made. Across the entire branded lawns portfolio, POS units were up 16% in the Midwest region. Lawn fertilizer exceeded expectations at plus 9%, as did grass seed, which increased 23%. Spreader POS units, which often indicate newer users entering the category, also grew by 24%. What lawns was able to drive in the Midwest more than offset what we were dealing with in Texas and the Northeast. Overall, our company's performance demonstrates the strength of our consumer business.

And that's what we did in lawns.

When it became clear that challenges in Texas would cause us to miss our bonus s Target for POS and consistent poor weather in the North East would push back the season. We redirected those resources to the Midwest.

let me take you through those Midwest numbers through, Q3

Of the big regions that had more traditional weather patterns and best reflects the results of the changes that we made.

Across the entire branded Lawns portfolio. P units were up 16% in the Midwest region.

Long fertilizer, exceeded expectations at plus 9%.

as did grass seed, which increased 23%

Spreader. PS units was often indicate newer users entering the category. Also grew by 24%.

What laws was able to drive in the midwest? More than offset, what we were dealing with in Texas and the Northeast

Nate Baxter: Lawn and garden is extremely healthy, and no one can provide the solutions we do, and no one can drive consumer engagement like we can. Here's some more context. Our unit volume growth since 2019 is plus 30%. Lawn and garden is resilient, and there aren't many industries out there that can achieve this kind of growth. US consumer sales are also tracking to one of our longer-term priorities: sustained sales growth averaging 3% annually. In 2024, our consumer sales were up 6%. Add that to this year's growth path, and we're tracking to be where we said we want to be. When we first embarked on our transformation journey, I told my team members we must be willing to challenge the status quo and stop doing things the same way. We had to reprioritize, streamline, and find ways to invest more in our superpowers.

overall, our companies performance demonstrates, the consumer business,

Here's some more context.

Our unit volume growth since 2019 is plus 30%.

Lawn and garden is resilient and there aren't many Industries out there that can achieve this kind of growth.

Us consumer sales are also tracking to 1 of our longer term priorities sustained sales growth averaging 3% annually.

In 2024, our consumer sales were up 6%.

Add that to this year's growth path, and we're tracking to be more. We said we want to be.

when we first embarked on our transformation journey, I told my team members, we must be willing to challenge the status quo and stop doing things the same way.

Nate Baxter: That's the impetus behind the internal transformation work. We have significantly reduced costs and driven efficiencies. At the same time, we're ramping up technology in our supply chain, from automated packaging and advanced assembly robotics to drone technology for inventory control. And we still have more work to do. In fact, a sizable part of our planned capital investment spend from fiscal 25 through 28 is earmarked for transformation-related projects. And we continue to expand our use of AI. Marketing is in the early stages of using it to churn out consumer-facing content, and an AI bot is giving our in-store sales teams fast access to product information. An AI chat agent is on our brand sites and providing consumers with support. As we look to Q4 and fiscal 26, our transformation work will shift outward.

We had to re-prioritize streamline and find ways to invest more in our superpowers.

That's the impetus behind the internal transformation work.

We have significantly reduced cost and driven efficiencies.

at the same time or ramping up technology in our supply chain from Automated, Packaging and advanced assembly robotics to drone technology for inventory control,

And we still have more work to do.

In fact, a sizable part of our planned Capital Investments, spend from fiscal 25 through 28 is earmarked for transformation related projects.

And we continue to expand our use of AI marketing is in the early stages of using it to churn out consumer-facing content.

And an AI bot is giving our in-store sales teams, fast access to product information.

An AI chat agent is on our brand sites, in providing consumers with support.

Nate Baxter: To bring new consumers into SCOTTS MIRACLE-GRO, we must get better at addressing their needs and wants. Here's what our research shows. Lawn and garden is part of a broader wellness lifestyle for more consumers. It's no longer just about outdoor upkeep. It's a source of well-being and expression in outdoor and indoor spaces. Consumers discover and engage brands through digital experiences first. They expect the brands to be where they spend time. Consumers are personalizing lawn and garden purchases based on their values. This includes native plants for biodiversity, container gardens for smaller spaces, and organic herbs for cooking. Today's consumers want options that align with their priorities, and that includes products that are safe around their families and their pets. As part of our continued success, we'll focus on the following: One, we'll meet consumers where they are.

As we look to Q4 and fiscal 26, our transformation work will shift outward.

To bring new consumers in the Scotts Miracle. Grow. We must get better at addressing their needs and wants

Here's what our research shows.

Lawn and garden is part of a broader Wellness lifestyle for more consumers.

It's no longer just about outdoor upkeep.

It's the source of well-being and expression in outdoor and indoor spaces.

Consumers discover and engage with brands through digital experiences first.

They expect the brands to be, where they spend time.

Consumers are personalizing lawn and garden purchases based on their values. This includes native plants for biodiversity container, gardens for smaller spaces and organic herbs for cooking.

Today's consumers want options that align with their priorities. And that includes products that are safe around their families and their pets

As part of our continued success, we'll focus on the following.

Nate Baxter: The retail store is important for most consumers, and we'll continue to invest in driving store traffic through joint retailer programs and television, news, and sports advertising. But we'll also shift more advertising and marketing resources to where younger consumers gather and go for information. This includes streaming services, social media sites, influencers, and places like Substack, YouTube, and Reddit. There's a huge potential in these online venues. The gardening thread alone on Reddit has over 8 million members. Two, we'll develop fresh messaging that speaks to their needs, often building on our work with the OG influencer, Martha Stewart, our chief gardening officer. We're creating a bank of young influencers who inspire consumers to come into our world. Traditionally, our marketing message has centered on product efficacy and results.

1 will meet consumers where they are.

The retail store is important for most consumers and will continue to invest in driving store, traffic through joint retailer programs and television news and sports advertising.

But we'll also shift more advertising and marketing and resources to where younger consumers gather and go for information.

This includes streaming services, social media, sites influencers and places like substack YouTube and Reddit.

There's a huge potential in these online venues. The gardening thread alone on Reddit has over 8 million members.

2 will develop fresh messaging that speaks to their needs often building on our work with the OG influencer Martha Stewart. Our chief gardening officer

We're creating a bank of young influencers who Inspire consumers to come into our world.

Nate Baxter: While that's important, our creative approaches will paint a bigger picture for consumers, one that creates emotional connections to lawn and garden as being integral to their lifestyles. Three, we will expand in e-commerce, including retailer sites, our own e-com platform, and social media. We'll be on Instagram, TikTok, and other places in bigger ways. This year, we made a stronger push to engage consumers through e-commerce, and we've driven a 54% increase in online POS unit sales. This month, we launched Ortho's new mosquito control product for the first time through a TikTok store, and we sold out in one day. We will go further down this digital road in 2026. Four, our R&D pipeline is healthy and leans more heavily to emerging consumers, who will be our core consumer in the next 10 years.

Traditionally, our marketing message you have centered on product, ethics and results.

While that's important, our creative approaches will paint a bigger picture for consumers, 1 that creates emotional connections to lawn and garden as being integral to their lifestyles.

3, we will expand an e-commerce including retailer sites, our own e-com platform and social media.

We'll be on Instagram, TikTok, and other places in bigger ways.

This year we made a stronger push to engage consumers through e-commerce.

and we've driven a 54% increase in online POS unit sales,

This month, we launched, oro's, new mosquito, control product, for the first time through a Tik Tok store.

And we sold out in 1 day.

We will go further down this digital Road in 2026.

Nate Baxter: It includes more natural and organic solutions, along with products that are simpler to use. We also have a team committed to the future development of biological solutions as an alternative to synthetics. MIRACLE-GRO organic demonstrates how effective this can be. It's now about one-fifth of our total soil sales, and it's increasing. Much of the engagement with this product line has come from new consumers. All of this transformation talk takes me back to lawns. The team established a foundation this year by simplifying promotions and refocusing marketing efforts around the value of feeding, not just once, but multiple times, to get the best results, and it's working. This is a down payment on the future of this business. The team is now remaking the entire portfolio, starting in fiscal 26, and I've asked John Sass, our Senior Vice President of Lawns, to tell you about it.

4, our R&D pipeline is healthy and leans more heavily to emerging consumers, who will be our core consumer in the next 10 years.

Includes more natural and Organic Solutions, along with products that are simpler to use.

We also have a team committed to the Future development of biological Solutions as an alternative to synthetics.

Google. Organic demonstrates, how effective this can be.

It's now about 1/5 of our total soil sales, and it's increasing.

Much of the engagement with this product. Line has come from new consumers.

All of this transformation talk takes me back to lawns.

The team established a foundation this year by simplifying promotions and refocusing marketing efforts around the value of feeding.

Not just once but multiple times to get the best results and it's working.

This is a down payment on the future of this business. The team is now remaking. The entire portfolio starting in fiscal, 26. And I've asked John, sass our senior vice president of Lawns to tell you about it.

Mark Scheiwer: Thanks, Jim, and hello, everyone. As you just heard, we're in the middle of a radical transformation of our lawns business, and the early success we are seeing this year is just the first step in remaking of our turf builder portfolio. Now, I don't use the word transformation lightly when it comes to what we're doing on lawns. We have hit the reset button, challenging every aspect of this business and our conventional way of thinking. Now, I could tell you this has been an all-hands-on-deck effort, and the result is going to be an entirely new product line, laser-focused on the needs for the next generation of consumers. Simply put, consumers want to have a great lawn they can enjoy with their family and pets, and that's what we're going to give them. So what are we doing?

Thanks, Jim, and hello everyone. As you just heard, we're in the middle of a radical transformation of our Lawns business. The early success we are seeing this year is just the first step in the remaking of our Turf Builder portfolio. Now, I don't use the word "transformation" lightly when it comes to what we're doing online. We have hit the reset button, challenging every aspect of this business and our conventional way of thinking.

Mark Scheiwer: Well, I'll boil it down to these three major work streams. First, a completely revamped product line. This new lineup will have new, enhanced formulas that perform better and will give consumers an incredible result. We're standardizing the sizes, and we're going to roll out a fresh new packaging design as well. But here's the best part: lower retail price points. Our supply chain is the best in the business, and their efforts have enabled us to build an entirely new pricing structure that's going to be hard for others to match. With a new product lineup like that, it requires an entirely new media and advertising strategy, which is our second major work stream. You see, having a great lawn is easy as long as you feed on a regular basis. Our shift in media will evolve and expand beyond just a heavy spring campaign.

Now, I can tell you. This has been an all hands on deck effort and the result is going to be an entirely new product line laser focused on the needs for the next generation of consumers. Simply put consumers, want to have a great lawn. They can enjoy with their family and pets and that's what we're going to give them. So what are we doing? Well, I'll boil it down to these 3, major work streams. First a completely revamped product line. This new lineup will have new enhanced formulas that perform better and will give consumers an incredible result, where standardizing the sizes, and we're going to roll out a fresh new packaging design as well. But here's the best part, lower retail price points. Our supply chain is the best in the business and their efforts have enabled us to build an entirely new pricing structure, that's going to be hard for others to match.

with a new product lineup like that it requires an entirely New Media, and advertising strategy, which is our second major workstream

you see, having a great lawn is easy as long as you feed on a regular basis.

Mark Scheiwer: You're going to start to hear and see our messages pulsing throughout the entire year, reminding consumers when it's time to feed. We will continue with our Citizens of the Lawn campaign, highlighting the lawn enjoyment and the fact that it is safe to use our products around kids and pets. And thirdly, as we get consumers excited about the category, we're working closely with our retail partners to build promotional programs that incentivize consumers for multiple feedings. So as you can see, we are transforming this entire business, and we're excited about where we're taking this category. This approach will give consumers an incredible lawn, one that they can feel just as good about what they're putting on it as they do playing on it. Thanks, John. The performance of our lawns business is very important to the SMG P&L and our overall financial health.

Our shift and media will evolve and expand Beyond. Just a heavy spring campaign. You're going to start to hear and see our messages pulsing throughout the entire year. Reminding consumers when it's time to feed.

We will continue with our citizens of the lawn campaign highlighting, the lawn enjoyment, and the fact that it is safe to use our products around kids and pets.

And thirdly, as we get, consumers, excited about the category, we're working closely with our Retail Partners to build promotional programs. That incentivize consumers for multiple feedings.

So as you can see, we are transforming this entire business and we're excited about where we're taking this category. This approach will give consumers, an incredible launch 1 that they can feel just as good about what they're putting on it is they do playing on it.

Thanks John.

Mark Scheiwer: John and the team have made tremendous progress, and I'm really comfortable where they're taking us. I want to go back and emphasize something for our retailers. Our partnerships are essential to both our success and their success. While we will expand our channels and marketing approaches, we view our retail activation programs as powerful tools in driving consumer takeaway. Retailers who leaned in with us this year took market share and grew their lawn and garden business by double digits. Those who didn't go all in did not see the same level of growth. It's a winning formula, and it has to be a team effort. We'll continue to fund future investments in retailer activations, which exceed our advertising spend, as long as the participating retailers help drive our POS. Shifting to Hawthorne, divesting this business is transformation too.

The performance of our Lawns. Business is very important to the SMG pnl and our overall Financial Health.

John and the team have made tremendous, progress. And I'm really comfortable where they're taking us.

I want to go back and emphasize something for our retailers.

Our Partnerships are essential to both our success and their success.

While we will expand our channels and marketing approaches, we view our retail activation programs as powerful tools in driving consumer takeaway.

Retailers who leaned in with us, this year, took market, share and grew their Lawn and Garden business by double digits.

Those who didn't go all in, did not see the same level of growth.

It's a winning formula and it has to be a team effort.

We'll continue to fund future investments in retail or activations, which exceed our advertising spend as long as the participating retailers help Drive our POS.

Shifting the Hawthorne.

Mark Scheiwer: We'll continue to work toward a solution, and I expect to make progress on this front by the close of Q4. As I stated before, the divestiture would put us where we need to be: the consumer lawn and garden leader with consistent earnings, less share price volatility, and enhanced ability to invest in growth. In the meantime, Hawthorne continues to do the right things to move the business forward. They've now delivered three straight quarters of profitability. When you're looking at what we're doing across our business, we're building a world-class consumer goods company with financials to match. This includes delivering greater shareholder returns and achieving these three high-level targets we've established to start the year: annual sustained US consumer sales growth of at least 3%, a gross margin rate of 35% or higher, and EBITDA gains in the mid to high single-digit percentages.

The best thing. This business is transformation, too.

We'll continue to work toward a solution, and I expect to make progress on this front by the close of Q4.

As I stated before the destitute would put us where we need to be the consumer lawn and garden leader with consistent. Earnings less share price volatility and enhance the ability to invest in growth.

In the meantime, Hawthorne can continue to do the right things to move the business forward. They've now delivered 3 straight quarters of profitability.

when you're looking at what we're doing across our business,

We're building a world-class consumer goods company with financials to match.

This includes delivering greater shareholder returns and achieving these 3 high-level targets we've established to start the year.

A gross margin rate of 35% or higher.

Mark Scheiwer: That leads me to fiscal 26. Our plans are coming together, and as usual, we'll tell you more about that in our Q4 call. It is our intent to take pricing next year, and these discussions are happening now with our retailers. We've held the line on pricing the past few years while our costs, like everyone else's, have risen. Pricing helps us drive the business and is not purely about making more money. It will give us more resources to invest in innovation and activation too. I'll close with this: we're doing exactly what we said we would do. We've improved our financials and strengthened our balance sheet. We're investing in our superpowers and the fundamentals that make our consumer franchise unique. And we're making all the right moves that will result in a premium valuation of our equity.

In ebitda gains in the mid to high single-digit, percentages.

That leads me to fiscal 26.

Our plans are coming together and as usual, we'll tell you more about that in our Q4 call.

It is our intent to take pricing next year and these discussions are happening now, with our retailers.

We've held the line on pricing the past few years while our costs like everyone else's have risen.

Pricing helps us drive the business and is not purely about making more money.

It will give us more resources to our best and Innovation and activation too.

I'll close with this.

We're doing exactly what we said, we would do.

We've improved our financials and strengthened our balance sheet.

We're investing in our superpowers and the fundamentals that make our consumer franchise unique.

Mark Scheiwer: I appreciate the work of our leadership team and our associates and the support and guidance of our board of directors. I also want to thank our banks and our retailers for their partnership. As always, I appreciate our shareholders for being part of our company. Thank you. Thank you, Jim, and hello, everyone. We delivered a strong quarter, continuing the momentum we've built through the year. Jim discussed the substantial progress we've made on the financial metrics that are foundational to our fiscal 25 plan. When you look at our performance, we are well positioned to deliver on the fiscal 25 guidance for US consumer sales, gross margin, EBITDA/EPS, free cash flow, and leverage. We have momentum, and you can expect us to drive continued improvements in our financial performance through fiscal year-end and well into the future as we increase confidence in our growth plans.

And we're making All the Right Moves that will result in a premium valuation of our equity.

I appreciate the work of our leadership team and our Associates in the support and guidance of our board of directors.

I also want to thank our banks in our retailers, for their partnership. As always, I appreciate our shareholders for being part of our company. Thank you.

Thank you, Jim, and hello everyone. We delivered a strong quarter, continuing the momentum, we've built through the year, Jim discussed the substantial progress. We've made on the financial metrics that our foundational to our fiscal 25 plan.

Mark Scheiwer: With this background, I'll review the financial details. The overarching story is the power and health of our US consumer business. For the quarter, US consumer net sales were 1.03 billion versus 1.02 billion last year, an increase of 1%. When you exclude the non-reoccurring aerial garden and bulk raw material sales from fiscal 24, US consumer sales increased 2% over the prior year quarter. Year to date, through our third quarter, US consumer net sales were 2.68 billion, down 1% versus 2.7 billion in the corresponding period last year. However, when you exclude the non-reoccurring sales I just mentioned, US consumer sales increased 1% over prior year. These gains were driven by organic volume growth, along with continued strong performance of new products such as the expanded MIRACLE-GRO organics line that were initially listed in fiscal 24.

When you look at our performance, we are well positioned to deliver on the fiscal 2025 guidance for U.S. consumer sales, gross margin, EBITDA, EPS, free cash flow, and leverage. We have momentum, and you can expect us to drive continued improvements in our financial performance through fiscal year-end and well into the future as we increase confidence in our growth plans.

With this background, I'll review the financial details.

The overarching story is the power and health of our us consumer business.

For the quarter us consumer, net sales were 1.03 billion versus 1.02 billion last year.

An increase of 1%.

When you exclude the non-recurring arrow garden and bulk raw material sales from fiscal 24. Us consumer sales increased 2% over the prior year quarter.

Year to date. Through our third quarter us consumer. Net sales were 2.68 billion down, 1% versus 2.7 billion and the corresponding period last year.

However, when you exclude the non-recurring sales, I just mentioned us consumer sales increased 1% over prior year.

Mark Scheiwer: At the start of the year, Jim outlined his priorities for our business. That included driving sustained average annual sales growth of 3%. When looking at our combined sales growth over fiscal 24 and 25 for US consumer, we are on pace to deliver on this target. US consumer sales for both the quarter and the year are tracking to the guidance we provided for fiscal 25, which is low single-digit increase, excluding the non-reoccurring aerial garden and bulk raw material sales from fiscal 24. From a trend perspective, I want to call out a shift this year. Many retailers have modified their replenishment activities to align more closely with the POS sales curve as they balance their inventories, not just in lawn and garden, but across multiple categories.

These gains were driven by organic volume growth along with continued strong performance of new products, such as the expanded Miracle Grow Organics line that were initially listed in fiscal 24.

at the start of the Year, Jim outlined his priorities for our business that included driving sustained, average, annual sales growth of 3%,

When looking at our combined sales, growth over fiscal 24 and 25 for us consumer, we are on Pace to deliver on this target.

Us consumer sales for both the quarter and the year are tracking to the guidance. We provided for fiscal 25, which is low single digit increase. Excluding the non-recurring hero Garden. In bulk raw material sales from fiscal 24.

From a trend perspective, I want to call out a shift this year.

Mark Scheiwer: Our supply chain and sales teams are working closely with retailers to navigate this adjusted approach and ensure we are positioned to capture all sell-through opportunities through the fall season. This said, as we prepare to close July, our order book is strong, giving us confidence in steady retailer replenishment as we load in for the fall season. Now, let's look at Hawthorne and our total company net sales. For the quarter, Hawthorne net sales were 31 million, down from 68 million in the prior year, but roughly flat to last quarter. Year to date, through Q3, Hawthorne net sales were 116 million versus 214 million a year ago. The decline is a result of the continued hydroponic market softness, combined with the expected impact of our exit from third-party distribution last year.

Many retailers have modified their replenishment activities to align more closely with the POs sales curve as they balance their inventories, not just in lawn and garden but across multiple categories.

Our supply chain and sales teams are working closely with retailers to navigate this adjusted approach and ensure we are positioned to capture all sell through opportunities Through The Fall season.

This said, as we prepare to close July, our order book is strong giving us confidence in steady retailer replenishment, as we load in for the fall season.

Now, let's look at Hawthorne and our total company. Net sales.

For the quarter hawthore, net sales were 31 million down from 68 million in the prior year, but roughly flat to last quarter year to date. Through Q3, Hawthorne, net sales were 116 million versus 214 million a year ago.

Mark Scheiwer: It's worth noting that Hawthorne continues to be positive EBITDA levels for the past three quarters, and year to date has earned around 6 million in adjusted EBITDA. Total company net sales for the third quarter were 1.19 billion, down 1% versus 1.2 billion a year ago. Year to date, total net sales were 3.03 billion versus 3.14 billion, a decline of 3.6%. The decline is attributable to the lower Hawthorne sales combined with the non-reoccurring aerial garden and bulk raw material sales for fiscal 24. Getting back to the US consumer business, POS is strong, and in the third quarter, POS units exceeded prior year by 6%. Year to date, POS units were up 8%. Excluding mulch, POS units increased 10% in the third quarter and 8% through the first nine months of our fiscal year. E-commerce sales are a good story as well.

The decline is a result of the continued hydroponic Market softness combined with the expected impact of our exit from third-party distribution last year.

It's worth noting that Hawthorne continues to be positive, even out levels for the past 3 quarters and year to date has earned around 6 million in adjusted ibida.

Net sales for the third quarter were 1.19 billion down 1% versus 1.2 billion a year ago.

Year-to-date total net sales were $3.03 billion versus $3.14 billion, representing a decline of 3.6%.

The decline is attributable to lower Hawthorne sales combined with the non-recurring Arrow Garden bulk raw material sales for fiscal 2024.

Getting back to the US consumer business, PS is strong. And in the third quarter P units exceeded prior year by 6% year to date. Posos units were up 8%.

Excluding mulch, PS units, increased 10% in the third quarter and 8% through the first 9 months of our fiscal year.

Mark Scheiwer: Year to date, POS through online and retailer e-com sites are up 24% versus prior year, a reflection of our proactive efforts to drive more business through these channels. E-commerce sales now reflect approximately 10% of our total POS dollars, with plenty of room to grow in the future. As for specific categories, a 1% POS unit gain year to date in branded lawn fertilizers reversed a multi-year downward trend. Other POS unit bright spots include grass seed up 16%, soils up 12%, mulch up 8%, and controls up 3% all year to date. Within the controls category, selective and non-selective weed control products were down versus the same period last year due to cooler and wetter weather extending into the spring and early summer, along with competitive pressures. This trend has reversed as heat impacting much of the country is now contributing to elevated weed and insect pressure.

E-commerce sales are a good story as well year to date posos through online. And retailer Ecom, sites are up 24% versus prior year.

A reflection of our proactive efforts to drive more business through these channels.

E-commerce sales now reflect the 10% of our total posos dollars. With plenty of room to grow in the future.

as for specific categories, a 1% POS unit, gain year to date, and branded, lawn fertilizers reversed, a multi-year downward trend,

Other POS unit, bright spots, include grass, seed up 16%, soils up, 12% mulch, up 8% and controls up 3%. All year to date.

Within the controls category selective and non-selective weed control products were down versus the same period last year.

Due to cooler and wetter weather extending into the spring and early summer, along with competitive pressures.

Mark Scheiwer: As a result, beginning in late June and continuing in July, we've seen double-digit increases in POS units for key controls products. Looking at POS dollars, they were flat in the quarter, and through the first nine months, we're up 1%. The difference between our POS unit and dollar growth is primarily a reflection of strong POS for our soils and mulch products, which have lower unit dollar values, combined with the increase in joint promotional activities with our retailers. These promotions, along with our continued strong investment in advertising, have played a critical role in driving increased consumer engagement in an environment of macroeconomic volatility and uncertainty. Moving to gross margin, we delivered strong improvement for the quarter.

This trend has reversed, as heat impacting much of the country is now contributing to elevated weed and insect pressure.

As a result, beginning in late June and continuing in July, we've seen double-digit increases in POS units for key controls products.

looking at posos dollars, they were flattened the quarter and through the first 9 months were up 1%

The difference between our POS unit and dollar growth is primarily a reflection of strong PS for our soils and Mulch Products which have lower unit dollar values.

Combined with the increase in joint promotional activities with our retailers.

These promotions along with our continued strong investment in advertising. Have played a critical role in driving increased consumer engagement in an environment of macroeconomic, volatility and uncertainty.

Mark Scheiwer: The non-GAAP adjusted gross margin rate improved nearly 300 basis points, and we are on track to achieve our target of a 30% non-GAAP adjusted gross margin rate for the full fiscal year. Primary drivers of the third quarter increase are improved product mix and lower material, manufacturing, and distribution costs. The impact of tariffs on our fiscal 25 gross margin is minimal, as 90% of cost of goods sold is domestically sourced, and our total cost of goods is greater than 95% locked for the current fiscal year. As you might recall, we planned for this improvement, which included 75 million of US consumer supply chain cost savings and material cost deflation this year. And our supply chain team has more than delivered on this goal, so a big shout out to the team for their outstanding execution.

Moving to gross margin, we delivered, strong Improvement for the quarter.

The non-gaap adjusted gross margin rate. Improved nearly 300 basis points.

And we are on track to achieve our Target of a 30% non-gaap adjusted gross margin rate for the full fiscal year.

Primary drivers of the third quarter, increase our improved product, mix and lower material, manufacturing, and distribution costs.

The impact of tariffs on our fiscal 25 gross margin is minimal as 90% of cost of goods. Sold is domestically sourced.

And our total cost of goods is greater than 95% locked for the current fiscal year.

As you might recall, we planned for this Improvement, which included 75 million of us, consumer supply chain, cost savings and material cost. Deflation this year.

Mark Scheiwer: Looking ahead, as a reminder, our supply chain team is working hard on delivering an additional 75 million of cost savings over the course of fiscal 26 and 27 as part of our previously communicated long-term commitment to gross margin recovery and reinvestments in our brand. Lastly, as we look to our fourth quarter, we will lap one-time inventory write-off of 29 million recorded in last year's fiscal fourth quarter. For the third quarter, the GAAP gross margin rate was 31.8% versus 29.5% in prior year, and the non-GAAP adjusted gross margin rate was 32.1% versus 29.2%. Year to date, the GAAP gross margin rate was 33.7% versus 28% in prior year, and the non-GAAP adjusted gross margin rate was 34.3% versus 30.2%.

Looking ahead as a reminder, our supply chain team is working hard on delivering an additional 75 million of cost savings over. The course of fiscal 26 and 27. As part of our previously, communicated long-term commitment to gross margin recovery and reinvestments in our brands.

Lastly, as we look to our fourth quarter, we will lap, 1-time inventory right off of 29 million recorded in last year's fiscal, fourth quarter.

For the third quarter, the gaap gross margin rate was 31.8% versus 29.5% in Prior year.

And the non-gaap adjusted gross margin rate was 32.1% versus 29.2%.

Year to date, The Gap's gross margin rate was 33.7% versus 28% in the prior year.

Mark Scheiwer: Looking down the P&L, SG&A for the quarter increased 4% from 148 million to 153 million, and year to date, SG&A increased 6% from 441 million to 467 million. This increase was planned and is attributable to performance incentive accruals, incremental investments in our brand, and transformation-related investment. We continue to expect our current year SG&A to be approximately 17% of net sales versus 16% last year. Moving to EBITDA in the third quarter, adjusted EBITDA improved from 237 million to 256 million. Through the first nine months, adjusted EBITDA increased over 9%, a $56 million improvement from 607 million in fiscal 24 to 663 million this year. This year-over-year gain reflects our strong gross margin improvement, partially offset by higher SG&A. As we've consistently stated, we reaffirmed our adjusted EBITDA guidance of 570 million to 590 million. Below the line, we are outperforming on all key metrics.

And the non-gaap adjusted gross margin rate was 34.3% versus 30.2%.

Looking down the P&L SG&A for the quarter, it increased 4% from $148 million to $153 million.

Year to date, SG&A increased 6% from $441 million to $467 million.

Our Brands and transformation related Investments.

We continue to expect our current year SGA to be 17% of net sales versus 16% last year.

Moving to ibaa in the third quarter, adjusted ibaa improved from 237 million to 256 million.

Through the first 9 months adjusted ibida increased over 9% of 56 million improvement from 607 million in fiscal 24 to 663 million this year.

This year-over-year gain, reflects our strong growth margin Improvement partially offset by higher sgna.

As we've consistently stated, we reaffirmed our adjusted EBITDA guidance of $570 million to $590 million.

Mark Scheiwer: For the quarter and year to date, interest expense continued to fall as we lowered debt balances and benefited from more favorable interest rates. In the quarter, interest expense declined 7 million, and through the first nine months, interest expense was 102 million, down from 126 million, a 19% decline over prior year. Leverage is also a very good story. We are more than comfortable with where we are, and even more importantly, where we're headed. We ended the quarter at 4.15 times net debt to adjusted EBITDA, a more than one and a quarter turn improvement from last year's 5.46 times. We are well below our covenant maximum of five times.

Below the line we are outperforming on all key metrics.

For the quarter and year to date interest expense continue to fall. As we lowered debt balances and benefited from more favorable interest rates.

In the quarter interest, expense declined, 7 million. And through the first 9 months interest expense was 102 million down from 126 million. A 19% decline over prior year

Leverage is also a very good story. We are more than comfortable with where we are and, even more importantly, where we're headed.

We ended the quarter at 4.15 times net debt to adjust the debt.

Mark Scheiwer: We continue to deploy free cash flow to debt reduction, and our borrowings at the end of the third quarter were approximately 300 million lower versus prior year, as we're on track to deliver our free cash flow guidance for fiscal 25 of around $250 million. Our non-GAAP adjusted tax rate for the quarter and first nine months was 29% and 27.4% respectively. For the full year, the tax rate is still expected to be in the 27 to 29% range. Speaking of tax policy, I do want to address favorable tax implications resulting from the recently passed One Big Beautiful Bill signed into law by President Trump. The restoration of these key TCJA provisions that include a bonus depreciation, R&D expensing, and increasing the deductible interest limitation will provide us with meaningful cash tax benefits going forward.

A more than 1 and a quarter. Turn improvement from last year's 5.46 times. We are well below our covenant maximum of 5 times.

We continue to deploy free cash flow to debt reduction in our borrowing. At the end of the third quarter, we're approximately $300 million lower versus the prior year.

As we're on track to deliver our free cash flow, guidance for fiscal, 25 of around 250 million.

Our non-gaap adjusted tax rate for the quarter and first 9 months was 29% and 27.4% respectively.

For the full year, the tax rate is still expected to be in the 27% to 29% range.

Speaking of tax policy. I do want to address favorable tax implications resulting from the recently passed 1, big beautiful Bill signed into law by President Trump.

Mark Scheiwer: These changes will allow us to drive further investment in our business for years to come. The third quarter GAAP net income was $149.1 million or $2.54 per share, compared with the prior year of $132.1 million or $2.28 per share. The non-GAAP adjusted net income for the quarter was $151.5 million or $2.59 per share versus prior year of $133.8 million or $2.31 per share a year ago. On a year-to-date basis through the third quarter, GAAP net income was $297.1 million or $5.07 per share, compared with the prior year of $209.1 million or $3.64 per share. Non-GAAP adjusted net income year to date was $332.7 million or $5.68 per share versus $263.5 million or $4.58 per share a year ago. For the full year, we are on track to deliver non-GAAP adjusted net income of greater than $3.50 per share.

The restoration of these key tcja Provisions, that include a bonus depreciation R&D expensing and increasing the deductible interest. Limitation will provide us with meaningful cash tax benefits going forward.

these changes will allow us to drive further investment in our business for years to come,

The third quarter gaap, net income was 149.1 million or $2.54 per share compared with the prior year of 132.1 million or $2.28 per share.

The non-gaap adjusted net income. For the quarter was 151.5 million or $259 per share versus prior year of 133.8 million or $2.31 per share a year ago.

On a year-to-date basis, through the third quarter gaap, net income was 297.1 million or $57 per share compared with the prior year of 209.1 million or $3.64 per share.

Non-gaap adjusted net income year, to date was 332.7 million or $5.68 per share versus 263.5 million or 4 dollars per share a year ago.

Mark Scheiwer: Looking ahead to our final quarter, we will continue to make progress against our financial objectives for fiscal 25 and are reaffirming our guidance across all metrics. These include delivering sustainable net sales growth, driving margin recovery, and strengthening our balance sheet. As Jim explained, we are in negotiations with retailers on pricing for fiscal 26, which will be a contributor to our growth strategy for next year. We are fine-tuning other elements of our growth plans aimed at enhancing our core consumer business and building greater shareholder value. At the center of these plans is the transformation initiative that Jim addressed. From an internal standpoint, we are investing in technology, AI tools, automation to drive operational and cost efficiencies. Outward-facing, we will market SCOTTS MIRACLE-GRO and our leading brands in new ways to bring younger and newer consumers into our business.

For the full year, we are on track to deliver non-gaap adjust. The net income of greater than $3.50 per share

Looking ahead to our final quarter, we will continue to make progress against our financial objectives for fiscal, 25 and are reaffirming our guidance across all metrics.

These include delivering sustainable, net sales, growth driving margin recovery and strengthening our balance sheet.

We are finding other elements of our growth plans aimed at enhancing our core consumer business, and building Greater shareholder value.

At the center of these plans is the transformation initiative, that Jim addressed.

From an internal standpoint. We are investing in technology AI tools automation to drive operational and cost efficiencies.

Mark Scheiwer: We have much to look forward to, and we are confident in our trajectory and excited about the opportunities ahead as we plan to finish the year strong. Thank you, and I'll turn it over to the operator for the Q&A.

Our business.

We have much to look forward to and we are confident in our trajectory and excited about the opportunities ahead as we plan to finish the Year Strong.

Jim Hagedorn: All right, guys, Jim Hagedorn here. I'm going to just rant a little bit, not for kind of any reason except I want to look back at the last quarterly call we had where the shares, I think, went down about 15%. So we had a great result. I think I'm so proud of the company with what we're doing and the progress we've made that you're seeing today. But it was the same in the last quarter call, and there were like nonsense, like headlines that came out that we pulled guidance, that we didn't make our numbers, and the stock reacted to that. The next day, it went up 15% back to where it was.

Thank you. And I'll turn it over to the operator for the Q&A.

all right guys, Jim hoggan on here I'm gonna just um rant a little bit um not for kind of any reason except I want to look back at the last

quarterly call, we had where the sheriff's. I think went down about 15%.

So, we had a great result. I think I'm so proud of the company with what we're doing. And the progress we've made that you're seeing today, but it was the same in the last quarter call. Um, and there were like nonsense, like headlines that came out that we pulled guidance. Um, that we didn't make our numbers and the stocks, the stock reacted to that the next day it went up.

Jim Hagedorn: About a third of our shares traded, and I have not been able to get the SEC or the New York Stock Exchange to show any interest in compliance against who is behind that. And I don't think it's orderly, and I don't think it's right for the New York Stock Exchange or the US public markets to sort of allow that kind of stuff. You know, I'm really talking to Cleveland Research here where you know I view Eric as one of the best analysts traditionally in our space. But if I look at sort of what he's saying about private label, we are not losing share. As long as I've been the CEO, guys, we have been reducing the share of private label and gaining share in our marketplace.

15% back to where it was about a third of our, our shares traded. And I have not been able to get the SEC or the New York Stock Exchange to show any interest in compliance against who's behind that.

And um, I don't think it's orderly and I don't think it's right for the New York Stock Exchange or the US public markets.

to sort of allow that kind of

stuff. Um,

You know, the, you know, I'm really talking to Cleveland research here where, you know, I I view Eric as 1 of the best analysts traditionally in in our space.

But if I look at sort of what he's saying, um, you know about,

Jim Hagedorn: And so this sort of nonsense about private label, I think there is a retailer out there that is playing with private label. I'm not going to name them, mostly because they're friends of mine, but I can tell you it doesn't work. You know the news about being sort of my age and having been in this industry as long as I've kind of seen it all. And look, it's a tough time out there with Amazon and non-traditional marketplaces and looking where there's going to be growth. You know, I think our biggest retailer has, and almost all of our retailers have gotten behind our programs. Part of what you see when you look at our numbers is, you know, lower dollar unit gain, you know, increases, much more substantial increases in our unit volume.

Private label, we are not losing share as long as I've been the CEO guys. Um, we have been reducing the share of private label and gaining share in our Marketplace.

And so this sort of nonsense about private label. Um I think there is a retailer out there that is playing with private label. I'm not going to name them mostly because they're friends of mine.

But, but I can tell you it, it doesn't work, you know, that the the news about being sort of my age and having been in this industry as long as I've kind of seen it all.

and,

Look, it's a tough time out there with Amazon and non-traditional marketplaces and looking where there's going to be growth.

you know, I think

Jim Hagedorn: That's a result of effectively taking price down by taking money with retailers and putting it into, you know, what we're calling activation dollars. And it's worked, and we've taken share. To have gains we had last year, to have the market share gains of 200 basis points this year, it's just kind of the most amazing time since I've been running this business as far as taking share. And we're not losing to private label. And a strategy that says, "I'm going to rely more on private label," it is not going to work, and it's not going to work for that retailer. And it didn't work, and they lost share. Inventories are down at retail. They're not hurting us. We're going to make our numbers, and it's a really nice tailwind for us next year coming into the season then.

Our, our biggest retailer has, in in most of almost all of our retailers have gotten behind our programs part of what you see, when you look at our numbers is, you know, lower dollar unit gain, you know, increases much more substantial increases in our unit Vine. That's a result of effectively taking price down by taking money with retailers and putting it into, you know, what? We're calling activation dollars.

And it's worked. And we've taken share to have gains. We have last year to have the market share gains of 200 basis points this year. It's just kind of the most amazing time since I've been running this business as far as taking share, um, and we're not losing to private label and a strategy that says um,

I'm going to rely more on private label. Um, it it is not going to work and it's not going to work for that retailer and it didn't work and they lost share. Um,

Inventory.

Uh, inventories are down at retail.

They're not hurting us. We're going to make our numbers. And it's a

Jim Hagedorn: So, you know, there is not any kind of disruptive inventory motion here. Pricing, we are going to get pricing. You know, there's probably a little room for Nate to play on pricing in his economics for next year, but pricing is important, and we're taking it. And it's what we need to do to get our margins up. But if you look at the increase in margin rate, I mean, this year, I don't know, it's north of 3, probably south of 4% gain in our gross margin this year. So we are making progress against all the things, leverage down by one and a quarter turns. I'm just really happy with the business. And when I look at some of the headlines out there, I just kind of wonder what it's about. Nate, anything you want to add on this?

Really nice, um, Tailwind for us next year, coming into the season then. So you know there is not any kind of disruptive inventory motion here. Um,

Pricing, we are going to get pricing.

You know, there's there's, you know, there's probably a little room for Nate to play on, on pricing, um, in his economics for next year. But pricing is important and we're we're taking it and it's what we need to do to get our margins up. But if you look at the increase in in margin rate,

I mean this year, I don't know. It's north of 3 probably south of 4% uh gain in our gross margin this year. So we are making progress against all the things leverage down by 1 and a quarter turns. I I'm just really happy with the business and when I look at some of the headlines out there I just kind of Wonder like

Nate Baxter: Yeah, I mean, I'll just echo Jim. I think it certainly is frustrating. You know, I'm really pleased with our performance, and more importantly, I'm pleased with the partnership we've got with our retailers. I think given the macroeconomic backdrop of the last two years to see both the lawn and garden category grow as well as our share gains, I think it says a lot. And I think, you know, for me, the last two quarters have been a success story, and you know, I think from an investor standpoint, we'll continue to build on that and deliver just like Mark said in his prepared remarks. So from my perspective, I think we've got momentum behind us, and I think we've got retail partners that are leaning in. To Jim's point, we all recognize e-commerce is an important part of the business.

Nate Baxter: By the way, the biggest growth we saw this last quarter has been with our biggest retail partners. And I'll speak personally. You know, I had mulch delivered by pallet through one of our retail partners. It was cheaper and faster to get it than it was in bulk. And I think once we get that message out there with consumers and maybe even some of the small to medium-sized professional outfits, there is real opportunity for us. So, you know, again, we talk about household penetration, lawns, it's low. We've got a lot of organic growth, not only for us as a company, but in the industry. And I'm really bullish on where we're headed. So again, it's frustrating to see those headlines when we know we've got opportunities and given where we are macroeconomically to have delivered the performance we've been delivering.

And I think, you know, for me, the last 2 quarters have been a success story and um you know, I think from an investor standpoint we'll continue to build on that and deliver just like Mark said in his prepared remarks. So from my perspective, I think we've got momentum behind us and I think we've got, uh, Retail Partners that are leaning in, uh, to Jim's point. We all recognize e-commerce is an important part of the business. By the way, the biggest growth, we saw, uh, this last quarter, uh, has been with our biggest Retail Partners, um, and I'll speak personally. Uh, you know, I, um, had mulch delivered by pallet through 1 of our Retail Partners, it was cheaper and faster to get it than it was in bulk. Um, and I think once we get that message out there with consumers, and maybe even some of the uh, small to medium-sized professional outfits, there is real opportunity for us. So, you know, again, we we talk about household penetration Lawns, it's low. Um, we've got a lot of organic growth, not only for us as a company, but in the industry. Um, and I'm, I'm really bullish on where we're headed. So, I again, it's frustrating to see those headlines. When we know we've got

Nate Baxter: All right, Victor, we'll turn it over to you to run the Q&A, please.

Opportunities and given where we are macroeconomic lead to have delivered the performance. We've been delivering

Operator: Thank you. At the same, we'll conduct a question and answer session. To ask a question, you will need to press star 11 on your telephone and wait for a name to be announced. To withdraw your question, please press star 11 again. Please limit yourself to one question and one follow-up in the interest of time. Please stand by while we compile the Q&A roster. One moment for our first question. Our first question will come from the line of Eric Beauchard from Cleveland Research Company. Your line is open.

All right. Victor, we'll turn it over to you to run the Q&A please.

Thank you at the time, we'll conduct a question and answer session.

To ask a question, you will need to press *1 1 on your telephone and wait for a name to be announced to withdraw your question. Please press *1 1 again.

Please leave yourself to 1 question and 1 follow-up in the interest of time. Please stand by while we compare the Canna roster 1 moment for our first question.

Our first question will come from the line of Eric barred from Cleveland research company. Your line is open,

Eric Bouchard: Good morning. Thanks. Two questions. First of all, I'm curious on price and price mix in 25, how that has performed relative to your expectations and what the strategy is for 26 and the expectations in 26.

Good morning. Thanks. All right. Two questions. First.

of all, uh,

I'm curious on price.

And price mix in 25.

Nate Baxter: So hey, Eric, this is Nate. Yeah, you know, listen, for 25, like we've said previously, we took net, you know, call it just under a percent and a half pricing. We invested almost all of that back into the business, mostly through activation with retail partners. So I think for 26, as Jim said, we're still looking to go after pricing just because we have commodities and other things that we need to take into account. It's a little early for me to say our strategy and how we'll reinvest those dollars, but we will. I don't know if we'll reinvest all of them because we're definitely looking to grow top line. But you know, look, my view is this: I'm not going to spend any less on activation with retail partners.

How that has performed relative to your expectations and what the strategy is for 26 in the expectations and 26.

Hey Eric, this is Nate.

Nate Baxter: I think at this point in the season, the only question is who am I spending it with and what programs am I spending it on? It worked for us significantly to our benefit this past year, and we'll figure out a way to do it for next year. Mark, any thoughts?

You know, listen for 25, like we've said, previously, we we took net, um, you know, call it just under a percent and a half pricing. We invested almost all of that back into the business, mostly through activation with Retail Partners. Um, so, I, I think for 26, uh, as Jim said, we're still looking to go after pricing, just because we have Commodities and other things that we need to take into account. Um, it's a little early for me to say our strategy and how we'll reinvest those dollars. Uh, but we will, um, I don't know if we'll reinvest all of them because, uh, we're definitely looking to grow Top Line. But, you know, look my my view is this. I'm not going to spend any less on activation with Retail Partners I think at this point in the season. The only question is who am I spending it with and what

Mark Scheiwer: Eric, this is Mark Scheiber. Just as it relates to our expectations going into the year, we were expecting a difference between unit and dollar growth from a POS mix being a big piece of it. And then I think I've said in the past about two-thirds of it and one-third price. Those have held in line with our expectations. And the only thing I'll call out versus some of the remarks at the beginning, you know, we've had some great innovation this past year and past two years on MIRACLE-GRO organics, which has helped with our volume and a lot of our great activity and unit volume growth. So from an expectation standpoint, it was in line from a sales guidance.

Mark Scheiwer: And then as we look to next year, we're still in the early planning phases, but as that business like soils and mulch continue to grow and do well, there might be a continued disconnect, but we'll see. We'll give you guidance in Q4.

Programs, am I spending it on? Um, it worked for us um, significantly to our benefit this past year and and we'll figure out a way to do it for next year. Mark, any thoughts? Uh, Eric? This is Mark Shyer. Just uh, as it relates to our expectations going into the year. Uh, we were expecting, uh, a difference between uh, unit unit and dollar, uh, growth from a POS, uh, mix being, uh, uh, a piece, a big piece of it. And then, I think I've said in the past about 2/3 of it and 1/3 price, uh, those have held in line with our expectations, um, and the only thing I'll call out versus versus some of their remarks at the beginning. Um, you know, we've had some great Innovation that this past year and, and past 2 years on Miracle Grow Organics, which has helped, which has helped with our volume and a lot of our, our great activity in unit volume growth. So uh, from an expectation standpoint, we it was in line uh, from a sales guidance. And then as we look to next year, um, we're still in the early planning phases, but as that as that, uh, business

Eric Bouchard: Great. And then secondly, in the neighborhood of Jim's comments, the comment about the category growth and you gaining share this year, what do you think the category growth is at retail in 25, and what have your numbers you compare to that?

Business, like, soils, and mulch. Continue to grow and do well, there might be a continued disconnect, but we'll see. We'll give you guidance in Q4.

Nate Baxter: Yeah, so Eric, our calculus using our external sources is we see the year-to-date market for lawn and garden has grown about five points, and we've gained about two points of that share.

Great. And then and then secondly in in the neighborhood of Jim's comments, the the comment about the category growth and you gaining share this year. What do you think the category growth? Is it retail and in 25? And what what have your numbers you compared to that?

Eric Bouchard: And so within that, is this dollars or units? I'm sorry.

Yeah. So Eric our, our calculus, um, using our external sources as we see the year to date market for lawn and garden has grown about 5 Points. Um, and we've gained about 2 points of that share.

Nate Baxter: Dollars.

And So within that, that's is this dollars or units. I'm sorry.

Eric Bouchard: Okay, so the market up 5% and your dollars up 7% year to date. Okay. Very good. That's all I have. Thank you.

Uh, dollars.

Okay, so the market is up 5% and your dollars are up 7% year to date.

Operator: Thanks. One moment for our next question. Our next question will come from the line of John Anderson from William Blair. Your line is open.

Very good. That's all I have. Thank you.

1 moment for our next question.

Eric Bouchard: Good morning. Thank you for the questions. For.Two

Our next question comes from the line of John Anderson from William. Blair. Your line is open

Nate Baxter: questions. First is you commented about the performance of some of the customers that leaned in with you on your traffic driving strategy this year and their relative outperformance. Could you talk about how that is influencing your 2026 line reviews, specifically those retailers planning to kind of re-up and lean in again with you and maybe those customers that didn't to the same extent, rethinking that given their relative underperformance? And then the second question is on margins. Great gross margin improvement last year. Looks like you're set up for another significant improvement this year. If you get to 30 and then you have kind of the target in the mid-30s, can you talk a little bit about your visibility into getting to mid-30s over the next couple of few years and what the cadence of that might look like 26 versus 27? Thank you.

Good morning, thank you for the questions. Um,

2, 2 questions. Uh, first is um,

With you, uh, on your traffic driving strategy this year and their relative outperformance, could you talk about how that, uh, is influencing your 2026 line reviews? Um, you know, specifically,

Jim Hagedorn: All right. Hi, John. Hagedorn here. I'm going to sort of take the first part on kind of programs and activation dollars. Remember, we talked about this, which was coming out of kind of our shit show. We use discounting pretty heavily, and as things turned around, we wanted that money back. Retailers basically said, "Look, man, customer count's down. Our margins are down. We'd like to keep that money." And we decided to put that money to work saying, "You know what?" And when you look at a lot of our retailers, most of our retailers, they're spending more than that pushing our products and pushing along the garden.

Um, those retailers planning to kind of reopen and lean in again with you. And maybe those that, that customers, that didn't to the same extent, uh, rethinking that, uh, given their relative underperformance and then the second question is, is on margins. Um, great growth margin Improvement. Last year, looks like you're set up for another significant Improvement this year. Um if you get to 30 and then you know you have kind of the Target in the mid-30s. Can you talk a little bit about your visibility into getting to mid-30s over the next couple few years and what the Cadence of that. Um might look like, you know, 26 versus 27. Thank you.

All right. Hi John how are you? I'm going to sort of take the first part on kind of programs and and activation dollars. Um,

Remember we, we, we talked about this, which was

Coming out of kind of our s*** show. Um,

we use discounting pretty heavily, and as

Things turn around, we wanted that money back. Um retailers basically said look man we customer counts down our margins are are down um

We'd like to keep that money and we decided to put that money to work saying you know what?

and when you look at a lot of our retailers, most of our retailers,

Jim Hagedorn: So we basically said, "Look, if you use that money for our benefit and your benefit together, we'll do that." You know, I'm trying to, in my head, figure out kind of what that's worth, but I'm going to say that's probably worth at least 5%. And you know Nate made a comment, which is, "We're not reducing our spend. We're not looking to bring that back. We can make our margin numbers without that." And the work that's happening in the supply chain and on the sort of operating units is really, really good at that. But what he did say is, "We're going to spend more doing that with people who are using that money.

They they're spending more than that, um, pushing our products and pushing along a garden. So um,

We basically said, look, if you use that money for our benefits and your benefit together, we'll do that.

You know, I'm trying to in my head figure out kind of what.

That's worth. But I'm, I'm going to say that's probably worth at least 5%.

And you know, Nate made a comment which is, um, we're not reducing our spend, we're not looking to bring that back. We can make our margin numbers without that and the work that's happening in the supply chain. And on the sort of operating units is is is really, really good at that. But what he did say,

Is.

We're going to spend more doing that.

Jim Hagedorn: And people who are not going to be part of that program are not going to have access to that money." And I think that, you know, for people who are listening, you know who you are. And I don't think we want to go down that path. So we're looking to spend that money. It definitely works. And we saw it this year, and we saw it last year. So you know the question is on back to this program dollars.

With people who are using that money.

And people who are not going to be part of that program are not going to have access to that money. And I I think that, you know, for people who are listening, you, you know, who you are. And um, I don't think we want to go down that that path. So, um,

We're looking to spend that money. It definitely works. And we saw this year, um, and we saw it last year.

Nate Baxter: Yeah. And I guess I would say, John, it's a little early for us to project. We're in the middle of those discussions with retailers. So whether those programs look the same and each retailer takes the same approach or not is still a TBD, and we'll add more color to that next quarter. Hey, I do want to correct myself. I said I told Eric dollars I really meant units when we talked about the market share. So just I want to stay uncorrected on that.

Mark Scheiwer: John, just to follow up, this is Mark Scheiwer. Just following up on your comment on gross margin in the phasing. So what you saw year to date has been outstanding performance by our supply chain team and the organization broadly. So we've been able to overdeliver a year to date on our gross margin, including those 75 million to savings. We've overperformed year to date. We've realized those, and we've got a good line of sight for the balance of this year. As I look to next year in '26 and '27, the team's already been doing a lot of planning around this.

So, you know, the question is on back to this program in dollars. Yeah, and I, I guess I would say John, um, it's a little early for us to project we're in the middle of those discussions with retailers. So, whether those programs look the same and each retailer takes the same approach or not is still a TBD and we'll add more color to that. Um, next quarter. Um, hey, I do want to correct myself. I said, I told Eric dollars, I really meant units when we talked about the market share. So just I want to stand corrected on that.

Uh John just to follow up, this is Mark shy we're just following up on your comment on gross margin in the phasing. Um so what you saw here today it has been outstanding performance by our supply chain team and and the organization broadly so we've been able to over deliver on a year to date on our gross margin. Uh including those 75 million of savings. We we've overperformed year to date, we've realized those. Um, and we've got good line of sight for the balance of this year. As I looked as I Look to next year, um, in 26 and 2.

Mark Scheiwer: And the walk generally from 30 to 35 is going to include about a point, I call it about a point of 1% gross margin benefit or 100 basis points from supply chain savings, and then about 100 basis points from net pricing, net of any kind of commodity inflation. So those are kind of the key step-ups as we go from here. And I would say that the team on the sales side is working hard on those pricing and programs, and we'll provide you more color at your end. I can definitely tell you as well, the supply chain team, we have a long history and track record of delivering at least 1% of cost outs in our business. And I've been already seeing the laddering up of projects. The team's doing a great job. It will be a little bit phased.

Mark Scheiwer: Like I said, 1%, 1% is generally the nerdy account to me. It's phased, but the team's got to execute on CapEx projects. We've got a lot of great, we've got a lot of great CapEx projects we're working on that we spoke in our prepared remarks around automation activities that are going to deliver a lot of those future savings. So it will be kind of a staggered measured approach.

7, the team's already been doing a lot of planning around this and, um, and I, and, and the walk generally, uh, from uh, from 30 to to 35, is going to include, um, about a point, I call it about a point of 1% benefit. Um, gross margin benefit or 100 basis points, uh, from supply chain savings, um, and then about a hundred 100 basis points, uh, from net pricing, net of, uh, any kind of commodity inflation. So those are kind of the, the key steps as we go from here. Um, and and I would say that the team on the sales side, is working hard on those pricing and programs and we'll provide you more color at your end. I can definitely tell you as well. The supply chain team, we have a long history and track record of delivering at least uh, 1% of of cost outs. Um, you know, in our business. And uh I've been already seeing the latering up of projects, the team's doing a great job, it will be a little bit phase. Like I said, 1% 1% is General.

Nate Baxter: And I would just add innovation. I think John Sass talked about it in the introductory remarks. You know, as we really go to full launch of the new fertilizer program in '27, that innovation will bring margin increase in with it as well.

Jim Hagedorn: Yeah. Look, I also think that there's a lot of enthusiasm at retail on lawn and garden. You know, you look at our unit volume increase over two years at 17%. Yeah. So I think there's a lot of enthusiasm, and I don't want anybody to get the idea that there's any trouble kind of in paradise. It's a really good category. It's growing really well. Retailers are highly enthusiastic, and I'm not really hearing any sort of pullback from their sort of outlook on, which is positive for lawn and garden.

So it's it's phase but um the team's got to execute on capex projects. We've got a lot of great. We've got a lot of great, um, capex projects, we're working on that, that we spoke and are prepared remarks around automation activities that are going to deliver a lot of those future savings. So it will be kind of a staggered measured approach and I would just add Innovation. I think John SAS talked about it in the introductory remarks. You know as we really go to full launch of the new fertilizer program in 27, that Innovation will bring margin increase with it as well. Yep look I also think that

There's a um there's a lot of enthusiasm at retail um on on lawn and garden. You know, you look at our unit volume increase over 2 years. That's 17%. Yeah.

Nate Baxter: Yeah. All right. Thank you. One moment for our next question. And our next question will come from the line of Chris Carey from Wells Fargo Securities. Your line is open.

So I I think there's a lot of enthusiasm and I I don't want anybody to get the idea that there's any trouble, uh, kind of in Paradise. It's a really good category. It's growing really well. Retailers are highly enthusiastic, um, and I'm I'm not really hearing um, any sort of pullback from their sort of outlook on which is positive for longer Garden. Yep.

All right, thank you. One moment for our next question.

And our next question will come from line of Chris Carey from Wells, Fargo, Securities. Your line is open.

Jim Hagedorn: Hey, guys. Hey, Chris. Just regarding a more of a mixed question, and this is really more strategic, longer term. Can you just give maybe a State of the Union on how you feel about the lawn's business, you know, delivery versus expectations this year, and really how it informs your thought process over the next one to two years as you look to perhaps improve the mix between some of the growing median mulch businesses relative to lawns over the medium-term horizon?

Hey guys. Um, hey Chris

Just regarding a, uh, like more of a mixed question. And this is really more strategic longer term.

Jim Hagedorn: Yeah. I'll start because I am really pleased with where the lawn's business is. You know, they had originally come in, I think, with like a minus five, I think, with the number.

Can you just give um, maybe a state of the union, on on how you feel about the laws business. Um you have delivery versus expectations this year and and really how it informs your thought process over the next 1 to 2 years. As you look to perhaps, um, you know, improve the mix between um, some of the the growing media and mulch businesses relative to to to Lawns. Um, you know, over the medium-term horizon.

Yeah, I, I, I, I'll, I'll start because...

I am really pleased with.

Nate Baxter: Yeah. First look was minus five.

Jim Hagedorn: Which, you know, this is one of those meetings where I said, "Just get out of my office right now and rethink your words here carefully." And John and his team, you know, with a lot of support from Nate, have done really well. You know, we called the Midwest numbers out because of the two big regions in the Northeast and the Midwest. The Midwest had the most normal weather. So, you know, I don't know what those numbers were. They were like a plus 15 or something like that, which I think is way above. You know, if you look at the Northeast was just really late, and Texas really never came to fire, and they still held the line. They were still positive. They had a huge increase in crabgrass control products. So that halt business, that is no joke.

where the lawn's business is, you know, they had originally come in I think with like a minus 5 I think with the number of like or something First, Look was minus um, which you know, you know I this is 1 of those meetings where I said just get out of my office right now and rethink your

Your your words here carefully. Um,

and,

John and his team. Um and you know, with a lot of support from Nate um

Have done really well. You know, we called the Midwest numbers out because of the the 2, big regions in the Northeast and Midwest uh the Midwest had the most normal weather. So, you know, I don't know what those numbers were. They were like plus 15 or something like that, which I think is

Way above.

you know, if you look at

Jim Hagedorn: To be up, I think it was 25. I'm just looking at people. They've given me the thumbs up. To be up 25%, it doesn't just do good for multi-bag. You know, there's always a lot of reserves, you know, when we do it because a lot of retailers have return rights on that product because it's kind of a short season. So faithfully, we sold everything that was in the street. And so I'm going to say that, you know, you might look and say plus one or whatever we said across the line and say, "Well, you know, that doesn't look that great." Compared to where they showed up, compared to the sort of regional weather effects and sort of picking and saying, "Did it work?" And it's advertising method. It's really early days with this multi-step.

The the Northeast was just really late and Texas, really never came to Fire and they still held the line. They were still positive, um, they had a huge increase, um, in crabgrass control products so that that halts business

That isn't like no joke to be up. I think it was 25 like I'm just looking at people, they give me the thumbs up to be up 25%. It it doesn't just

Do good for multi-bag. Um,

You know, there's always a lot of reserves um you know when we do it because a lot of retailers have returned rights on that product um because it's kind of a short season. Um, so

Basically, we sold everything that was in the street. Um, and so I'm going to say that.

You know, you might look and say plus 1 or whatever. We said across the line and say, well, you know, that doesn't look that great compared to where they showed up.

Compared to the sort of regional weather effects and sort of picking and saying, did it work?

Jim Hagedorn: But you know, there's a lot of research that our folks have done on what consumers take away from the new advertising as far as safety of their kids and pets and their willingness to use and do multi-bag and understand the need for multi-bag. I think it's really going well. And so so much of what we're talking about is go forward. John and the group, you know, this transformation stuff that's happening here, you know, I don't know. I don't think I'm being irresponsible, but my encouragement to Nate is, "You can burn this whole place down. I don't care.

And it's advertising. That's, it's really early days, um, with this multi-step, but...

You know, there's a lot of research that our folks have done on what consumers take away from the new advertising as far as safety of their kids and pets and their willingness to use and do multi bag and understand the need for multi bag. I think it's really going. Well and so, so much of what we're talking about is go forward.

Um, John in the group. Um,

You know.

This transformation stuff that's happening here, you know?

I am.

I don't know. I don't think I'm being irresponsible.

Jim Hagedorn: You know, we'll do what we have to do to make this business the sort of consumer powerhouse that it needs to be." And one of those things, you know, where I don't know what that facility is worth across the street, our lawn fertilizer, say it's a billion dollars, that better be a competitive advantage. And one of the things I told Nate and John is, "You know, if Marysville can't produce fertilizer at a price that you can sort of handle with how you want to go to market, close it down. I don't care." And you know, I think that was a revelation for the guys across the street in the supply chain.

You can burn this whole place now, I don't care. You know we'll do what we have to do to make this business, the sort of consumer Powerhouse.

That it that it needs to be and 1 of those things.

You know where. I don't know what that facility is worth across the street. Our law firm says it's a billion dollars. That better be a competitive advantage. One of the things I told Nate and John is...

You know, if Marysville can't produce fertilizer at a price that you can sort of handle with how you want to go to market,

Closed it down. I don't care.

Jim Hagedorn: And the work that the business team and the supply chain did, you know, when John says, "You have no idea how competitive we're going to be going forward on fertilizer pricing and without affecting our margins." And so, you know, what I'm telling you is we have made huge progress in how we think about it. And I think even the trajectory of that business just in this one year, it's hidden a little bit by the regionality of the Northeast and sort of Texas. But if you look particularly at like the Midwest, which is one of our gigantor regions that had more normal weather, the results were like astounding. And so I'm really pleased.

and, you know, I think that was a revelation for the guys that cross the street and the supply chain, and the work that the business team, and the supply chain did,

You know, when John says, like,

you have no idea how competitive we're going to be going forward on. Fertilizer pricing and without affecting our margins.

and so, you know what I'm telling you is

Jim Hagedorn: And I think from a competitive, you know, this issue of lethality, you know, maybe going a little bit back to sort of private label, John can be incredibly lethal even in private label. Like, I mean, I would not want to be like they have taken that plant and turned it into a huge competitive advantage. And you're going to see that rolling out really next year and the year after that. It's going to be really fun to watch. And then the other brand teams, you know, this is a whole new crew. We got a board meeting coming up, I guess, starting tomorrow for two days up in Vermont. And this is a very important SCOTTS 2.0 discussion that Nate is really going to be leading with the board. And his brand teams are insanely on fire.

We have made huge progress in how we think about it. And I think, even the trajectory of that business, just in this 1 year, it's hidden a little bit by the regionality of the Northeast and sort of Texas. But if you look particularly at, like, the Midwest, which is 1 of our giganto regions that had more normal weather, the results were astounding. And so, um, I'm really pleased and I think.

From a competitive.

You know, I I this this issue of lethality.

Um, you know, maybe going a little back back to sort of private label.

Jon can be incredibly lethal even in private label, you know, like, I mean, I it, I would not want to be like, they have taken that plant and turned it into a huge competitive advantage, and you're going to see that rolling out really next year. And the year, after that, it's going to be really fun to watch. And then the, the other brand teams

You know, this is a whole new group. We got a board meeting coming up, um, I guess tomorrow, starting tomorrow, um, for two days up in Vermont.

And this is a very important, um,

Scott's 2.0 discussion indicates that Nate is really going to be leading with the board and his brand teams.

Jim Hagedorn: They have a high degree of aggression and appetite on the control side. DAVIT is just, he's got a big list of stuff. And Nate and I are all about it, where he's going. And it's going to be good. Sadie, who runs our gardens business with Martha Stewart, Sadie not only has the biggest business in the company, but you just look at what's happening with sort of her soils business. It's some amazing stuff to watch. And Martha's a part of that. And Sadie's attack on the business is a part of it. And so, you know, this is not commodity, you know, soil work. This is premium branded high-margin soil stuff. And so the gardens business is in really good shape. And so what do I think? I think all the brand teams are all about it.

Are insanely on fire. Um, they have a high degree of aggression and appetite. Um, on the control side. Um, David is

Just, he's got a big list of stuff, and Nate and I are all about it. Where he's going, it's going to be good. Satie, who runs our Gardens business with Martha Stewart, is just...

Sadie, not only does she have the biggest business in the company, um, but.

You just look at what's happening with sort of her soils business. It's some amazing stuff to watch, and Martha's a part of that. And Sadhus' attacks on the business are a part of it. And so, you know, this is not commodity.

Nate Baxter: Yeah. I'll just, listen, Chris, I'll just add just back to your question on lawns. You're focused on the right thing. And we talked about this at the last earnings call. We have so much potential. Remember, our household penetration there is about 11, 12 percent. So if you just look at a combination of focusing on frequency, which John talked about, and household penetration increase, there's a lot of organic growth that's possible there. So what Jim talked about in his opening remarks, addressing the consumer in a different way, making sure we have solutions, whether they're time constrained or budget constrained, you'll start to see that. Now, the challenges, you know, we have a transition that'll be coming in '26, '27 with this product. So we've got to work with retailers on that.

You know soil work. This is premium branded, high-margin soil stuff. And so, the garden’s business is in really good shape. And so, what do I think? I think all the brand teams are all about it.

Yeah, I'll just listen, Chris. I'll just add, just back to your question on lawns. Um, you're focused on the right thing, and we talked about this at the last earnings call. We have so much potential. Remember, our household penetration there is about 11% to 12%. Um, so if you just look at a combination of focusing on frequency, which John talked about,

And household penetration increase. There's a lot of organic growth, that's possible there. So what Jim talked about in his opening remarks, addressing the consumer in a different way, making sure we have Solutions whether they're time, constrained or budget, constrained,

Nate Baxter: But you get through that transition, we're going to be competitive to a point where I don't think, you know, there'll be a distant second.

Mark Scheiwer: And Chris, this is Mark Scheiwer just on some of the modeling related to MIX. So this fiscal year, year to date, we actually have had positive results from MIX, not only because Hawthorne MIX is obviously lower, but we saw some good momentum and movement within our US consumer business. You know, the quality of the earnings related to the mix of our products has really improved. And as I look out over the next couple of years, the innovation that's coming and the activities we're doing in the lawns category, I view them to be margin accretive, but you know, I'm not even factoring them into my, as I consider my walk to 35 or mid-30s. You know, I'm more focused on cost savings, things we can control like that, and then the pricing activities.

You'll start to see that now, the challenges, you know, we have a transition that will be coming in 2026 and 2027 with those products. So we've got to work with retailers on that. But you get through that transition, we're going to be competitive to a point where I don't think, you know, they'll be a distant second. And Chris, this is Mark Scheiwer. We're just on some of the modeling related to mix. So this fiscal year, to date, we actually had positive.

Mark Scheiwer: But MIX definitely, as we see the lawns business continue to grow and perform and get those higher frequencies, you know, that is a very high-margin business that should help us in the future.

As my as I consider my walk to 35 or mid-30s you know I'm more you know I'm more focused on things. Um, cost savings things. We can control like that um and then the pricing activities but mix mix definitely as we see the Lawns business continued to grow and perform and and get those higher frequencies. You know, those that is a very high margin business that should uh, should help us in the future.

Nate Baxter: Okay. All right. I'm going to leave it there. Thanks so much.

Jim Hagedorn: Thanks, Chris.

Nate Baxter: Thank you. One moment for our next question. Our next question will come from the line of Joe Altobello from Raymond James. Your line is open.

Okay, all right. I'm going to, I'm going to leave it there. Thanks so much.

Thanks Chris.

Thank you. 1 moment for our next question.

Nate Baxter: Hey, good morning. This is Martin on for Joe. Earlier, you had mentioned that many of the retailers have shifted their replenishment to match the POS curve. Would you mind giving a little bit more details as to what's going on there and sort of what's the shape of the retail inventories?

Our next question will come from line of Joe Alto from Raymond James. Your line is open.

Nate Baxter: Sure. Look, I think if you go back to the pandemic and the peak when all of our patterns got completely sideways, we were at peak sort of 60-40 in terms of first half, second half load-in. Prior to the pandemic, we were roughly 50-50, plus or minus a point, I think, year over year. So what we're seeing now is this natural trend back towards the 50-50. By the way, we're supportive of it. I don't worry too much about retailer ending inventories. We definitely lean in with retailers as they want to make those adjustments. And I, by the way, from my point of view, it helps our supply chain. You know, we're probably the only supply chain that can deliver almost just in time. So from my perspective, it actually helps, and I can level load production more.

Hey good morning. This is Martin on. For Joe earlier. You had mentioned that many of the retailers have shifted their replenishment to match the PS curve. Would you mind give me a little bit more details as to what's going on there and sort of what's the shape of the retail in inventories

Sure. Look, I think if you go back to the pandemic and the peak when all of our patterns got completely sideways, we were at peak sort of 60/40 in terms of first half, second half load in.

Nate Baxter: And I think, you know, each retailer is in a different place. A couple of our retailers this year have been more aggressive on that. And I think that's good. And I suspect we'll see more of that as we sort of get back to call it 50-50. I don't know, Mark, you want to.

Mark Scheiwer: And then just to follow up, Martin, Mark Scheiwer again. As far as the going into the year, retailer inventories, we did expect to have an impact from a retailer activity just being down a little bit as far as inventories go. So we had planned that into our sales guide. So that has kind of shown up as we've navigated. And as I look to next year, as Nate spoke, as that first half, second half dynamic changes, you would expect probably some shifting mostly between Q2 and Q3, less to do about like a year-end long term. It's more of a shifting between Q2 and into Q3.

Prior to the pandemic, we were roughly 50/50, you know, plus or minus a point I think, um, year-over-year. So what we're seeing now is this natural Trend back towards the 50/50. Um, by the way, we're supportive of it, um, I don't worry too much about retailer ending inventories. Um, we definitely lean in with retailers as they want to make those adjustments. Um, and I, from, by the way, from my point of view, it helps our supply chain. Um, you know, we're probably the only supply chain that can deliver almost just in time. Um, so from my perspective, it it, it actually helps and I can level load production more. Um, and I and I think, you know, each retailer is in a different place. Um, a couple of our retailers this year have been more aggressive on that, um, and I think that's good and I suspect, we'll see more of that as we sort of get back to call it 50/50. I don't know. Mark, you want to and then uh just to follow up Martin Mark Shyer again. Um

Jim Hagedorn: But I think what we're seeing, and people were correcting me this morning as we were talking about it, I think is excluding commodity, retail inventory is down about 10%. Is that?

As far as the going into the year retailer, inventories, we did expect to have a impact from a retailer act activity. Just being down a little bit, uh, as far as inventories go. So we had planned that into into our sales guide, so that that has kind of, um, has shown up, uh, as we've navigated. And as I Look to next year, as as Nate spoke, um, as that first half, second half, uh, Dynamic changes you would expect, um, probably some shifting mostly between Q2 and Q3, um, less to do about like a year end, uh, long term. It's more of a shifting between Q2

In Q3, but I think what we're seeing—and people were correcting me this morning as we were talking about it—I think it's excluding commodities.

Nate Baxter: I think down about four, yeah, if you take out mulch. Yeah. So I think they're healthy. You know, it depends on the retailer. But again, you know, this, I think shifting quarter to quarter doesn't bother me. What I really look at is the underlying consumer health. And if you just look at those POS gains last year, where we are this year, 8% year to date, you know, the consumer is healthy. So adjusting inventory buys to be closer to the curve, I think it's just, it's where we're headed as an industry, and we're totally fine with that.

Retail inventory is down about 10%.

I think that's down about 4. If you take out mulch,

Yeah, so I think they're healthy and, you know, it depends on the retailer. Um, but again, I you know this, I think shifting quarter to quarter, doesn't bother me what what I really look at, as the underlying consumer health. And if you just look at those POs gains, last year, where we are this year 8% year to date, you know, the consumer is healthy. So adjusting um inventory buys to be closer to the curve. I think it's it's just it's where we're headed as an industry and we're we're totally fine with that.

Nate Baxter: Great. Thank you. That's all for me.

Yep.

Nate Baxter: One moment for our next question. Our next question will come from the line of Peter Graham from UBS. Your line is open.

Great. Thank you. That's all from me.

1 moment for our next question.

Nate Baxter: Thanks, Albert. Good morning, guys. Mark, I just want to ask a follow-up question on gross margin. It's more of a clarification. So just 100 basis points of cost savings, 100 basis points in price desk for each year and for both drivers. So I guess all else equal, that bridge would assume kind of going from 30% in fiscal '25 to 32% in fiscal '26, and then building from there. And if something happens with Hawthorne, you could see another, call it, 100 basis point challenge. Is that the right way to think about it? I just wanted to clarify that.

Our next question will come from the line of Peter. Graham from UBS. Your line is open.

Uh thanks operator. Good morning guys. Mark I just want to ask a follow-up question on. Uh gross margin. I I I it's more of a clarification. So just a 100 basis points of cost savings is 100 basis points in price that's for each year and for both drivers so I guess all else equal.

Um that bridge would assume kind of going from 30% in 1525 to 32% in fiscal 26. Uh and then building from there, and if something happens with Hawthorne you could see another

Mark Scheiwer: Yeah. So that would be how the simple math works, Peter. I would just tell you year to date, we're overperforming from a supply chain perspective. So I feel confident when I say the 30, could we be above that? Absolutely. And so that's the, as we kind of keep working on these additional supply chain savings projects and work through our pricing activities, you know, those will also be a little bit of a tailwind as we navigate up to '35.

Uh, call 100 basis. Point calendar. Is that the right way to think about it? I just wanted to clarify that

Yeah. So

Jim Hagedorn: And then we'll be, by the way, we should be pretty close to that next year, I think.

that would be how the, the simple math Works. Peter. I would just tell you a year to date. Um, we're over performing from a supply chain perspective. So I feel confident when I say the third, could we be above that? Absolutely. Um and and so that's the as we kind of keep working on these additional, uh, supply chain, savings projects, um, and work through our pricing activities. Um, you know, those will also be a little bit of a Tailwind as we uh as we navigate up to 35.

Mark Scheiwer: Yeah, it'll be not 35, but yeah, we'll definitely make progress and we'll be on a good trajectory, absolutely.

Nate Baxter: Okay. That's really helpful. And I guess just to the prior question, right, I think in your response to Chris's question, you kind of mentioned that you weren't really including benefits from MIX and innovation in this bridge. So are there any guardrails you can provide in terms of what that benefit could look like? And is this something that actually could start to show its teeth in kind of the P&L next year, or is that kind of more of a multi-year process?

Will be on a good trajectory, absolutely.

Okay, that's really helpful. And I guess just uh, to to the prior question, right? I think in your response to Chris's question, you kind of mentioned that you weren't really including benefits or mix and Innovation, you know, in this bridge. So are are there any guard rails? You can provide in terms of what that benefit could look like? And is this something that actually could start to to show its teeth in kind of the p&l next year or is that kind of more of a multi-year process

Mark Scheiwer: Peter, this is Mark Scheiwer. At least for me, from a financial modeling, I would view it more as a multi-year process. The team has done a great job, you know, coming out of COVID, firing up our innovation funnel again. And so we're doing some cool things there. And you know this in the retail space, what you know, as we roll those programs out and build out the advertising, it'll be a multi-year approach as we kind of navigate that.

um,

Nate Baxter: Yeah. I guess I'll just say that a different way. I think, you know, again, we had a very cost-out focus, you know, call it three, four years ago. We've shifted. It takes a little bit of time to get that spun back up, but I think MGO is a great story. We've got new innovation.

Jim Hagedorn: I don't know what that means.

Nate Baxter: Oh, sorry. Miracle-Gro Organics. You know, that organics line went from nothing to 100 million in two years. So it's, from our perspective, been a success story. I would say we're biased towards more innovation coming out in '27, but here's a difference, Peter. And you saw it with the mosquito product that was featured on the prepared remarks or the prepared video. We're going to, as innovation becomes available, we're going to introduce it through digital channels. We're not going to wait for sort of traditional seasonal with the retailers. And by the way, we're not leaving them out of this. We'll do it through their digital channels as well. So you know, you're going to see us turn on to more of a 365. When we have something ready to go to the market, we're going to take it to market.

Peter, this is Mark shy, or at least from me from a financial modeling. I, I would view it more as a, as a multi-year process. Uh, the team has done a great job, you know, coming out of Co, um, firing up our Innovation funnel again and so we're doing some cool things there. Um, and and you know this in the retail space what you know, as we roll those programs out uh and build out the advertising it'll it'll be a multi-year uh approach as we kind of navigate that. Yeah, I guess I'll just say that a different way I think, you know. Again, we had a very cost out focus, you know, call it 3, 4 years ago. Um, we've shifted, it takes a little bit of time to get that spun back up, but I think MGO is a great story. We've got new um, Innovation, I don't know what that means. Oh, sorry, Miracle Grow Organics. Um, you know that Organics line went from nothing to a 100 million in 2 years. So it's um from our perspective and a success story. Um, I would say we're biased towards more Innovation coming out in

Nate Baxter: And we'll do it in a way where we're targeting consumers. And I think it takes a little bit of the, you know, when you think about weather in the spring and you think about people going to a garden center or a retailer on a nice sunny day, you know, I think what some of our retailers are seeing is, you know, people on e-comm, they'll order it on a rainy day and they'll wait till the next nice day to apply. So I do think we've got sort of cultural shifts that will favor us as we work with our retail partners to sort of figure out how to address consumers wherever they are, as Jim said.

Jim Hagedorn: Okay. And I think one of the things that we haven't talked about is, you know, Bonnie's done really well this year. So, you know, I think continued progress there and Hawthorne also helping out. So, you know, not being a drag.

7 but here's here's a difference, Peter, and you saw it with the mosquito product, that was featured on the on the prepared remarks or the prepared video. We're we're going to as as Innovation becomes available. We're going to introduce it through digital channels, we're not going to wait for sort of traditional um seasonal um with the retailers and it and by the way, we're not leaving them out of this. We'll do it through their digital channels as well. Um, so I you know, you're going to see his turn on to more of a 365. When, when we have something ready to go to the market, we're going to take it to Market um, and we'll do it in a way where we're targeting consumers. Um, and I think it takes a little bit of the, you know, when you think about whether in the spring and you think about people going to a garden center or a retailer on a nice sunny day. You know, I think what some of our retailers are seeing is, you know, people on Ecom. They'll order it on a rainy day, and they'll wait till the next nice day to apply. So, I, I do think we've got sort of cultural shifts, uh, that will favor us as we work with our Retail Partners, to sort of figure out how to address consumers, wherever they are. As Jim said, look. And I think 1 of the things that we have

Talked about is.

You know Bonnie's done really well this year. So, you know,

Nate Baxter: Yeah, that makes sense, Jim. I guess one last question for me then I'll pass it on. Just, Jim, taking all of the comments you've made are just around the top line, the category, the retail activation, the innovation, you know, clearly just a lot of momentum, a lot of enthusiasm. And I know your comment, you know, in the prepared remarks around the long-term algorithm, you know, for certain components in the multi-year target. But as you look out to next year, is there any sort of reason why the US consumer business wouldn't see that 3% level of growth that you kind of outlined previously? Thanks.

I think continued progress there and Hawthorne um also uh helping out. So, you know, not being a drag

Jim Hagedorn: The answer is no. You know, here's our issue. You know, I'm looking in, this has been up probably six months on my big whiteboard in my office, which is kind of what I'm trying to get everybody's head around is 2% unit volume, sort of 1% pricing. I'm talking not next year. I'm talking kind of long-term, 1% cost out. And I think those are safe numbers. You know, the issue is if all the stuff we're doing, I would, if I was any of the people running businesses, those are embarrassingly low numbers based on, I think, what we know we can do. So I think the challenge is if you look at just marketing money that Nate wants, that was probably 150 this year or something like that, which is a big increase from last year.

Yeah, that makes sense. Jim I, I guess 1 last question for me and then I'll pass it on. Um, just Jim taking all of the comments you've made or just around, you know, the Top Line, you know, the category, the retail, activation The Innovation, you know, clearly just a lot of momentum, a lot of enthusiasm and I know your comment, you know, in the prepare remarks around the long-term algorithm, you know, for certain components of the multi-year target. But, but as you look out to next year, is there any sort of reason why the US consumer business wouldn't see that 3% level of growth that you kind of outlined previously, thanks,

The answer is no. Um you know here here's our, here's our, our our issue. Um you know I'm looking in this has been up.

probably 6 months in my big whiteboard in my office, um, which is kind of

what I'm trying to get everybody head around. Um,

Is.

2% unit volume, um, sort of 1% pricing. I'm, I'm talking not next year. I'm talking kind of long term. Um,

1% cost out.

and um,

I, I think those are safe numbers.

Jim Hagedorn: I think what Nate's going to show up tomorrow and Friday is say, "I want 300." And so the question is, and I know this is a lot of pressure on Mark, is he wants to be safe, okay? And I totally get it. So, but it is the kind of square corner we're going to run into where we don't want to tell you guys numbers that we can't make. I think that's a bad day. But we think we can do more. But Nate wants a lot more investment in the business. And I think the brand teams, I think, need that money. They want that money. They can put that money to use.

You know, the, the issue was, if all the stuff we're doing I I would if if I was any of the people running businesses, those are embarrassingly, low, low numbers, based on. I think what we know we can do. So, I think the the challenge is if, if you look at just marketing money, that that Nate wants that, that was probably 150 this year or something like that, which is a big increase from last year.

I think what Nate's going to show up tomorrow and Friday is say I want 300.

and,

so the the question is, and I know this is a lot of pressure on Mark is

He wants to be safe, okay? And I totally get

It. Um, so

But it is, it is the kind of square Corner. We're going to run into where um

Don't want to tell you guys numbers that we can't make. I think that's a that's a bad day.

Um,

but we think we can do more.

but they want a lot more investment in the business, and I think the brand teams

Jim Hagedorn: And that's a little bit the sort of challenge in the budgeting for, you know, multi-year budgeting that we're kind of running into is if we use a low enough number, it's not going to justify the investment that Nate's going to want to make in his business. And it's not just in sort of marketing. I think it's innovation. There's a lot of places where Baxter wants to put money. And I know Mark and I want to give it to him. We're providing that guardrail that you guys were talking about as far as limiting top line growth to a number that we believe is achievable kind of all day long. And that's the difference is I think that the natural growth rate of this business should be higher than sort of 2% unit volume growth. And we've seen that.

I I think need that money. They want that money. They they can put that money to use and that's a little bit, the, the sort of challenge in the budgeting for, you know, multi-year budgeting that we're kind of running into is

If we use a low enough number, it's not going to justify the um, investment that Nate's going to want to make in his business. And it's not just in sort of marketing, I think it's Innovation, there's a lot of places where, um, Baxter wants to put money and I know Mark and I want to give it to him.

We're providing that guardrail that you guys were talking about as far as limiting Topline growth to a number that we believe is achievable kind of

Jim Hagedorn: So we just have to figure out how to budget through it. And because I think what's important is for Nate to make numbers that are higher, he needs the investment that's higher. We want to give it to him. But Mark and I are trying to be safe on sort of what we tell you guys.

All day long. And and that's the difference is I I think the the natural growth rate of this business should be higher than than sort of 2% unit volume growth and we, we've seen that. So it's

we just have to figure out how to budget through it and because I think what's important is

For Nate to make numbers that are higher. He needs the investment. That's higher. We want to give it to him.

Nate Baxter: And I think this year stands as a proof point. We made significant incremental investments in the brands and the business, and you know we're on track to deliver per guidance.

Mark Scheiwer: And Peter, again, Mark Scheiwer. So as our margins continue to improve and what you saw this year, we'll continue to invest in the business from that standpoint. And those would be sales, you know, volume driving activities, whether it be incremental advertising or investments from an IT perspective, e-comm, things like that. So it kind of becomes circular, but we're making great progress on the gross margin activities. And I think those will help fuel growth. And we'll give you sales guidance in Q4.

Nate Baxter: Yeah. And we'll do it in a measured and responsible way.

Nate Baxter: Oh, I don't know.

Mark Scheiwer: Makes a lot of sense.

Um, but Mark and I are trying to be safe on on sort of what we tell you guys. I think this year stands as a proof point, we made significant incremental investments in the brands and the business and you know we're on track to deliver programs and Peter again, Mark Shyer. So as as our margins continue to improve and what you saw this year, we'll continue to invest in the business uh, from that standpoint. And and and those would be sales, you know, volume, uh, driving activities, whether it be an incremental advertising, um, or uh, Investments, uh, from an IT perspective, Ecom things like that. Um, so it, you know, it, it kind of it becomes circular. Um, but we're making great progress on the gross margin activities and I think those will help fuel growth and we'll give you a sales guidance in Q4. Yeah, we'll do it in a measured and responsible way.

Jim Hagedorn: I don't know. I don't know. I think that I personally very much believe in where Nate and his crew are going. I want to invest hard behind it. And I also understand the need to sort of safety in our outlooks with the street that, you know, overpromising and under delivering where we still produce a great number, but people say, "Well, it's less than you said." And we do have to figure it out. You know, we were going through just headcount here, you know, because we're getting ready for a board meeting. We're talking about this issue of transformation or call it, dude, this company from a headcount point of view is a lot lower. I don't know what our cuts have been. I think we said just 400 million in cuts, 100 million investment. That's what we said kind of last year.

I don't know, it makes a lot of sense, I don't know, man, I don't know. I I I think that um,

I personally very much believe in where Nate and his crew are going. Um, I want to invest hard behind it.

and,

I also understand the need to sort of

safety in our, our outlooks with the street that, you know, overpromising and under delivering, where we still produce a, a great number of people say. Well, it's less than you said. And

We we do have to figure it out. I, you know, I I

we were going through just headcount here, you know, because we're getting ready for a board meeting. We're talking about this issue of transformation or call it.

um,

Dude this company from a headcount point of view is a is a lot lower. I don't know what our Cuts have been. I think we said just

400 million in cuts.

Jim Hagedorn: You know, I think Nate's pulled out probably another $100 million, if not more. And.

100 million investment. That's what we said. Kind of last year.

You know, I I think Nate's pulled out.

Nate Baxter: But I would distinguish just one important point, which is, you know, springboard were cuts, but what we've done, call it over the last 12 to 18 months, has been just strategic transformation. You know, just eliminating workflows that don't need to be eliminated, automating things. You know, it's, yes, there's a net result in terms of cost, but from my perspective, the long-term health of the business, it's about efficiency, and it's about doing more with less and leveraging the technology around us. I mean, that's the real story there. All right. Thank you. One moment for our next question. Our next question comes from the line of Andres Padilla from Jefferies. Your line is open. Andres, your line might be on mute.

probably another hundred million dollars, um, if not more um, and

But I would distinguish just 1 important point, which is, you know, springboard were Cuts. But what we've done call it over the last 12 to 18 months has been just strategic transformation, you know just eliminating workflows that don't need to be eliminated automating things you know. It's yes there's a net result um, in in terms of cost but from my perspective, the long term health of the business it's about

Efficiency and it's about doing more with less and leveraging, the technology around us. I mean, that's the real story there.

All right, thank you. 1 moment for our next question.

Our next question will come from the line of Andres Padilla from Jefferies. Your line is open.

Undress, your line might be on mute.

Mark Scheiwer: Oh, that's easy then.

Nate Baxter: All right. And that actually concludes our question and answer session for today. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.

Well, that's easy to

and I actually concludes our question answer session for today. Thank you for your participation. In today's conference, this does conclude the program. You may now disconnect everyone have a great day.