Q3 2025 Central Garden & Pet Co Earnings Call

Following the prepared remarks, we will hold a question and answer session and instructions will be given at that time. If you require operator assistance at any point during the call. Please press star followed by zero on your Touchtone phone as a reminder, this conference call is being recorded I will now turn the call over to Frederic Edelman Vice President.

Relations. Thank you. Please proceed.

Good afternoon, everyone and thank you for joining central third quarter fiscal 2025 earnings call joining.

Joining me today are Nicola <unk>, Chief Executive Officer, Brad Smith, Chief Financial Officer, John Hanson, President of Pet consumer products, and J D Walker President of Garden consumer product.

Nico will start by sharing today's key takeaways, followed by Brett who will provide a more in depth discussion of our results. After their prepared remarks, J D and John will join us for the Q&A session.

Before we begin I would like to remind everyone that all forward looking statements made during this call are subject to risks and uncertainties that could cause our actual results to differ materially from what those forward looking statements express or imply today.

A detailed description of central's risk factors can be found in our annual report filed with the SEC.

Please note that central on that takes no obligation to publicly update forward looking statements to reflect new information future events or other developments.

Our press release and related materials, including GAAP reconciliation for the non-GAAP measures discussed on this call are available at IR <unk> Central Dot com.

Last but not least unless otherwise specified all comparisons discussed during this call are made against the same period in the prior year. If you have any questions. After the call or at any time during the quarter. Please don't hesitate to contact me directly and with that let's get started Nico.

Thank you Fredrik and good afternoon, everyone.

Let me begin by sharing three key takeaways from today's call.

First we delivered a solid third quarter driven by strong cross functional collaboration disciplined execution and the unwavering dedication of team central across all business units.

Speaker #2: At this time, all participants are in a listen-only mode. Following prepared remarks, we will hold a question-and-answer session. And instructions will be given at that time.

We advanced our operational optimization efforts consolidating our footprint refining our portfolio and improving our cost structure setting the stage for long term growth and.

Speaker #2: If you require operator assistance at any point during the call, please press star followed by zero on your touchtone phone. As a reminder, this conference call is being recorded.

And third we remain confident in our full year outlook, even as we navigate a complex and fluid macroeconomic environment.

Speaker #2: I will now turn the call over to Frederike Edelmann, Vice President of Best Relations. Thank you. Please proceed.

Now let me expand on these points.

Speaker #3: Good afternoon, everyone, and thank you for joining Central's third quarter fiscal 2025 earnings call. Joining me today are Nikola Lahanas, Chief Executive Officer; Brad Smith, Chief Financial Officer; John Hansen, President of Pet Consumer Products; and JD Walker, President of Garden Consumer Products.

First our third quarter achievements, our team's strong execution led to record Q3 and year to date, GAAP and non-GAAP earnings per share <unk>.

Significant margin expansion.

And a major improvement in workplace safety performance within the company.

We achieved these results despite extended cool and rainy weather that negatively impacted the garden season, as well as top line pressure from the recent loss of two product lines in our third party garden distribution business.

Speaker #3: Niko will start by sharing today's key takeaways, followed by Brad, who will provide a more in-depth discussion of our results. After their prepared remarks, JD and John will join us for the Q&A session.

And ongoing assortment rationalization and soft demand in pet durables.

Speaker #3: Before we begin, I would like to remind everyone that all forward-looking statements made during this call are subject to risk and uncertainties that could cause our actual results to differ materially from what those forward-looking statements express or imply today.

These outcomes reflect the dedication teamwork and cross business collaboration across our more than 6000 employees.

Their collective efforts continue to drive our success and paved the way for an even stronger future.

Speaker #3: A detailed description of Central's risk factors can be found in our annual report filed with the SEC. Please note that Central undertakes no obligation to publicly update forward-looking statements to reflect new information future events or other developments.

Second progress on our cost and simplicity program.

Our cost and simplicity program continues to deliver measurable impact highlights from the third quarter include E. Commerce expansion. We are excited about our progress in consolidating two outdated distribution centers into a new modern direct to consumer enabled facility in Salt Lake City, Utah, which is scheduled to start.

Speaker #3: Our press release and related materials including GAAP reconciliation for the non-GAAP measures discussed on this call are available at ir.central.com. Last but not least, unless otherwise specified, all comparisons discussed during this call are made against the same period in the prior year.

Shifting next month.

Footprint optimization.

We recently completed the sale of our UK operations aquatic brands to Sarah group.

And transitioned our U S pet brands to a direct export model to serve UK and select European markets directly from the United States.

Speaker #3: If you have any questions after the call or at any time during the quarter, please don't hesitate to contact me directly. And with that, let's get started.

Speaker #3: Niko?

Streamlining operations with.

Speaker #2: Thank you, Frederike. And good afternoon, everyone. Let me begin by sharing three key takeaways from today's call. First, we delivered a solid third quarter.

With the consolidation of 20 outdated locations and the creation of five efficient DTC enabled hubs, we've reached a major milestone in our simplification and e-commerce expansion efforts.

Speaker #2: Driven by strong cross-functional collaboration, discipline execution, and the unwavering dedication of Team Central across all business units. We advanced our operational optimization efforts. Consolidating our footprint, refining our portfolio, and improving our cost structure set in the stage for long-term growth.

Strengthened operations in our life planner business, which operates within a relatively short selling season, we recently streamlined our assortment exited unprofitable markets and restructured operations to enhance efficiency.

These actions contributed to significantly improved operating results in the third quarter, despite challenging weather conditions.

Speaker #2: And third, we remain confident in our full-year outlook even as we navigate a complex and fluid macroeconomic environment. Now, let me expand on these points.

These initiatives enhance our operational efficiency unlock organic growth potential and support our commitment to environmental stewardship and corporate responsibility.

Speaker #2: First, our third quarter ievements. Our team's strong execution led to record Q3 and year-to-date GAAP and non-GAAP earnings per share. Significant margin expansion, and a major improvement in workplace safety performance within the company.

As part of that commitment we're proud to highlight our recent collaboration between several of our business units and teams to support animal welfare organizations assisting communities impacted by the flooding incur County, Texas.

Speaker #2: We achieved these results despite extended cool and rainy weather that negatively impacted the Garden season. As well as top-line pressure from the recent loss of two product lines in our third-party garden distribution business, and ongoing assortment rationalization and soft demand in pet durables.

Our contributions included essential pet supplies, such as dog beds training pads and treats as well as the cash donation to greater good charities and the hill country Humane Society.

Third.

Confidence in our outlook for the fiscal year.

Speaker #2: These outcomes reflect the dedication, teamwork, and cross-business collaboration across our more than 6,000 employees. Their collective efforts continue to drive our success and pave the way for an even stronger future.

We posted record third quarter and year to date results outpacing the prior year.

As we look to the fourth quarter.

Recent tariff developments and escalated geopolitical tensions have heightened macroeconomic uncertainty and put additional pressure on consumer confidence.

Speaker #2: Second, progress in our cost and simplicity program. Our cost and simplicity program continues to deliver measurable impact. Highlights of the third quarter include e-commerce expansion. We are excited about our progress in consolidating two outdated distribution centers into a new, modern, direct-to-consumer-enabled facility in Salt Lake City, Utah, which is scheduled to start shipping next month.

We continue to anticipate increased consumer value consciousness.

Heightened promotional activity across retail channels and ongoing pressure in the pet specialty brick and mortar space.

Internally, we expect tariff related inflationary pressures to intensify, especially in our pet segment now.

Speaker #2: Footprint optimization. We recently completed the sale of our UK operations aquatic brands to Sara Group. And transitioned our US pet brands to a direct export model to serve UK and select European markets directly from the United States.

Nevertheless, we are reaffirming our fiscal 2025, non-GAAP EPS guidance of approximately $2 60.

This outlook excludes potential impacts from acquisitions divestitures or restructuring initiatives that may arise in Q4, including actions related to our ongoing cost and simplicity program.

Speaker #2: Streamlining operations. With the consolidation of 20 outdated locations and the creation five efficient DTC-enabled hubs, we've reached a major milestone in our simplification and e-commerce expansion efforts.

As Brad and I approach, our one year milestone and our roles.

We remain confident that our central to home strategy is not only the right one but the foundation for long term success.

Speaker #2: Strengthened operations. In our live plants business, which operates within a relatively short selling season, we recently streamlined our assortment, exited on profitable markets, and restructured operations to enhance efficiency.

We see our unique opportunity and responsibility of blending the agility of a startup with the scale of a large enterprise empowering our teams to act locally test quickly and scale winning ideas.

At the same time, we leveraged central scale to accelerate innovation and market share growth.

Speaker #2: These actions contributed significantly improved operating results in the third quarter despite challenging weather conditions. These initiatives enhance our operational efficiency, unlock organic growth potential, and support our commitments to environmental stewardship and corporate responsibility.

Breaking down silos, and sharing tools data and talent across our organization, we create a powerful advantage that will compound over time.

Looking ahead, we remain focused on disciplined cost and cash management, while making targeted investments to drive organic growth, especially in E Commerce digital technology and innovation.

Speaker #2: As part of that commitment, we're proud to highlight a recent collaboration between several of our business units and teams to support animal welfare organizations assisting communities impacted by the flooding in Kerr County, Texas.

While innovation is still an emerging capability for us we are encouraged by the early momentum we're seeing from several recent launches. These.

Speaker #2: Our contributions included essential pet supplies, such as dog beds, training pads, and treats, as well as a cash donation to Greater Good Charities and the Hill Country Humane Society.

These include Zelle, a turtle sticks made with black soldier fly larvae and shrimp meal free from artificial colors and preservatives and.

In Adam's botanical spray.

<unk> solution proven to kill fleas and ticks.

Speaker #2: Third, confidence in our outlook the fiscal year. We posted record third quarter and year-to-date results outpacing the prior year. As we look to the fourth quarter, recent tariff developments and escalated geopolitical tensions have heightened macroeconomic uncertainty and put additional pressure on consumer confidence.

We also introduced Aqua on smart led lights, with App control and Ocwen on smart clean filtration system, which makes water changes faster and easier.

<unk> Ocean Chew toys crafted from 30% reclaimed fishing nets, and our vet approved best bully sticks with college and offer a natural alternative to ride for active aging insensitive dogs.

Speaker #2: We continue to anticipate increased consumer value consciousness, heightened promotional activity across retail channels, and ongoing pressure in the pet specialty brick-and-mortar space. Internally, we expect tariff-related inflationary pressures to intensify.

Finally, our K T brand launched the all about the little things campaign.

Celebrating the importance of everyday care for small animals and pet birds.

We continue to view M&A as a strategic lever to complement our internal innovation agenda and drive long term shareholder value.

Speaker #2: Especially in our pet segment. Nevertheless, we are reaffirming our fiscal 2025 non-GAAP EPS guidance of approximately $2.60. This outlook excludes potential impacts from acquisitions, divestitures, or restructuring initiatives that may arise in Q4, including actions related to our ongoing costs and simplicity program.

While the overall environment is showing signs of improvement deal activity in our core categories remains muted.

Nevertheless, we remain disciplined in our pursuit of margin accretive opportunities, particularly in consumables and are cautiously optimistic that the pipeline will strengthen.

We plan to accelerate our M&A efforts in 2026 as conditions continue to become more favorable.

Speaker #2: As Brad and I approach our one-year milestone in our roles, we remain confident that our Central to Home strategy is not only the right one but the foundation for long-term success.

With that I'll turn it over to Brad.

Thank you Nico expanding our Nikos key takeaways I'll share an overview of our third quarter results, including the performance of our two segments now, let's start with our third quarter performance net sales were $961 million a decline of 4% gross profit of $332 million increase.

Speaker #2: We see our unique opportunity and responsibility of blending the agility of a startup with the scale of a large enterprise empowering our teams to act locally, test quickly, and scale winning ideas.

Speaker #2: At the same time, we leverage Central's scale to accelerate innovation and market share growth. By breaking down silos and sharing tools, data, and talent across our organization, we create a powerful advantage that will compound over time.

<unk>, 5%, while gross margin expanded by 280 basis points to 34, 6%.

Margin improvement was driven primarily by the successful execution of our cost and simplicity program the impact on tariffs on our third quarter results was relatively limited thanks to adequate pre tariff inventory levels.

Speaker #2: Looking ahead, we remain focused on discipline cost and cash management while making targeted investments to drive organic growth, especially in e-commerce, digital technology, and innovation.

SG&A expense of $197 million was 2% below the prior year, reflecting continued cost discipline across our businesses. However, given the lower sales SG&A as a percentage of net sales increased by 30 basis points to 24, 5%.

Speaker #2: While innovation is still an emerging capability for us, we're ouraged by the early momentum 're seeing from several recent launches. These include Zilla Turtle Sticks, made with black soldier fly larvae and shrimp meal.

Speaker #2: Freed from artificial colors and preservatives, and Adam's botanical spray, a plant-based solution proven to kill fleas and ticks. We also introduced Aqueon Smart LED lights with app control and Aqueon Smart Clean filtration system which makes water changes faster and easier.

non-GAAP operating income increased 9% to 139 million and non-GAAP operating margin expanded by 170 basis points to 14, 5%.

non-GAAP adjustments in the garden segment are related to the consolidation of two older distribution facilities in Ontario, California, and Salt Lake City, Utah into a larger modern facility in Salt Lake City. As a result, we incurred a charge of $2 2 million most of which is in SG&A.

Speaker #2: Nylobones Ocean Chew Toys crafted from 30% reclaimed fishing nets and our vet-approved Best Bully sticks with collagen offer a natural alternative to raw hide for active aging and sensitive dogs.

Speaker #2: Finally, our KT brand launched the All About the Little Things campaign. Celebrating the importance of everyday care for small animals and pet birds. We continue view M&A as a strategic lever to complement our internal innovation agenda and drive long-term shareholder value.

In the pet segment non-GAAP adjustments are related to the strategic wind down of our UK operations and moving to a direct export only model of cost and simplicity initiative, we launched in the second quarter. As a result, we incurred an additional charge of $1 7 million again, most of which was in SG&A.

Speaker #2: While the overall environment is showing signs of improvement, deal activity in our core categories remains muted. Nevertheless, we remain disciplined in our pursuit of margin-accretive opportunities particularly in consumables and our cautiously optimistic that the pipeline will strengthen.

Below the line net interest expense was $9 million compared to $10 million in the prior year driven by higher interest income as a result of larger cash balances.

Other income was $1 1 million compared to 225000 a year ago.

non-GAAP net income totaled $98 million, an increase of 11%.

Speaker #2: We plan to accelerate our M&A efforts in 2026 as conditions continue to ome more favorable. With that, I'll turn it over to Brad. Thank you, Niko.

We delivered GAAP earnings per share of $1 52, an increase of 28%.

Speaker #2: Expanding on Niko's key takeaways, I'll share an overview of our third quarter results, including the performance of our two segments. Now, let's start with our third quarter performance.

non-GAAP EPS rose, 18% to $1 56.

These record third quarter results underscore the strength of our operations and the positive momentum we are maintaining across the business.

Speaker #2: Net sales were $961 million, a decline of 4%. Gross profit of $332 million, increased 5%. While gross margin expanded by $280 basis points to $34.6%.

Adjusted EBITDA was $167 million, an increase of $11 million our tax rate for the quarter was 25, 1% now I'll provide highlights from our two segments starting with pet.

Speaker #2: Margin improvement was driven primarily by the successful execution of our cost and simplicity program. The impact on tariffs on our third quarter results was relatively limited thanks to adequate pre-tariff inventory levels.

Net sales for the pet segment totaled $493 million down 3%.

This was primarily due to our strategic decision to exit lower margin durable products and customers. We accelerated this move at the end of last fiscal year in response to softer demand heightened pricing pressure and the onset of new tariffs. This year. These.

Speaker #2: SG&A expense of $197 million was 2% below the prior year, reflecting continued cost discipline across our businesses. However, given the lower sales SG&A as a percentage of net sales increased by 30 basis points to 24.5%.

These headwinds were partially offset by growth in our professional and pet distribution businesses.

Speaker #2: Non-GAAP operating income increased 9% to $139 million, and non-GAAP operating margin expanded by 170 basis points to 14.5%. Non-GAAP adjustments in the Garden segment are related to the consolidation of two older distribution facilities in Ontario, California, and Salt Lake City, Utah, into a larger, modern facility in Salt Lake City.

Consumable sales remained stable, while durables declined by double digits overall point of sale or Pos trends were in line with shipments.

Importantly, consumables now represent 82% of total pet sales.

Up from 79% a year ago. This marks a significant increase from approximately 65% four years ago underscoring our success in building out the higher margin more resilient consumables portfolio, while thoughtfully, reducing our exposure to durables.

Speaker #2: As a result, we incurred a charge of $2.2 million most of which is in SG&A. In the pet segment, non-GAAP adjustments are related to the strategic wind-down of our UK operations and moving to a direct export-only model across in simplicity initiative we launched in the second quarter.

We held market share overall and delivered gains in several key consumer categories, such as dog, chews, flea and tick and pet bird as well as in our professional portfolio.

Speaker #2: As a result, we incurred an additional charge of $1.7 million, again most of which was in SG&A. Below the line, net interest expense was $9 million compared to $10 million in the prior year, driven by higher interest income as a result of larger cash balances.

E Commerce remains an important part of our channel mix accounting for 27% of total pet sales consistent with the prior quarter, albeit slightly below the same period last year.

non-GAAP operating income for the segment came in at $78 million down, 6% compared to our record third quarter last year non.

Speaker #2: Other income was $1.1 million compared to $225,000 a year ago. Non-GAAP net income totaled $98 million, an increase of 11%. We delivered GAAP earnings per share of $1.52, an increase of 28%.

non-GAAP operating margin contracted by 60 basis points to 15, 8% largely due to lower volume.

Lastly, pet segment, adjusted EBITDA totaled 88 million, reflecting a $6 million decline year over year.

Speaker #2: Non-GAAP EPS rose 18% to $1.56, these record third quarter results underscore the strength of our operations and the positive momentum we are maintaining across the business.

Now moving to garden.

Net sales for the garden segment were $468 million, representing a 4% decline.

Speaker #2: Adjusted $167 million, an increase of 11 million. Our tax rate for the quarter was 25.1%. Now, I'll provide highlights from our two segments starting with Net sales for the pet segment totaled $493 million.

This was primarily driven by the exit of two product lines in our Garden third party distribution business following over ownership changes.

Additional pressure came from extended periods of cool and rainy weather, which impacted seasonal categories, such as controls and <unk> plants.

These headwinds were partially offset by continued momentum in our wild bird fertilizer and packet seed businesses, each delivering strong broad based performance across channels.

Speaker #2: Down 3%. This was primarily due to our strategic decision to exit lower margin durable products and customers. We accelerated this move at the end of last fiscal year in response to softer demand heightened pricing pressure, and the onset of new tariffs this year.

While overall shipments declined overall Pos grew in the low single digits for the quarter and consequently year to date. Despite the headwinds noted earlier in aggregate, we grew share with gains in several categories, including wild bird grass seed packaged seeds and fertilizer.

Speaker #2: These headwinds were partially offset by growth in our professional and pet distribution businesses. Consumable sales remained stable, while durables declined by double digits. Overall point-of-sale (POS) trends were in line with shipments.

Our guard E Commerce channel continued to gain momentum achieving yet another quarter of double digit growth.

Speaker #2: Importantly, consumables now represent 82% of total pet sales. Up from 79% a year ago. This marks a significant increase from approximately 65% four years ago underscoring our success in building out the higher margin, more resilient consumables portfolio while thoughtfully reducing our exposure to durables.

Results were especially strong in wild bird and grass seed with sustained category leadership and robust growth across both pure play and omni channel partners.

non-GAAP operating income for garden rose to $85 million up $12 million non-GAAP operating margin expanded by 310 basis points to 18, 2%, reflecting solid productivity gains.

Speaker #2: We held market share overall and delivered gains in several key consumer categories. Such as dog chews, flea, and tick, and pet bird as well as in our professional portfolio.

Adjusted EBITDA for this segment was 96 million an improvement of $11 million year over year.

Let me now address the balance sheet and cash flows.

Speaker #2: E-commerce remained an important part of our channel mix. Accounting 27% of total pet sales, consistent with the prior quarter albeit slightly below the same period last year.

Cash provided by operations was $265 million for the quarter versus $286 million a year ago.

Our continued emphasis on working capital management resulted in an additional $67 million reduction in inventory during the third quarter spending both segments of our business.

Speaker #2: Non-GAAP operating income for the segment came in at $78 million, down 6%. Compared to a record third quarter last year. Non-GAAP operating margin contracted by 60 basis points to 15%.

Capex for the quarter was $14 million in line with the prior year, reflecting disciplined investments primarily in productivity enhancing initiatives and essential maintenance projects.

Speaker #2: Largely due to lower volume. Lastly, pet segment adjusted EBITDA totaled $88 million, reflecting a $6 million decline year over year. Now, moving to Garden.

Depreciation and amortization of $21 million was 5% below the prior year.

During the quarter, we repurchased approximately one 7 million shares or $55 million of our stock.

Speaker #2: Net sales for the Garden segment were $468 million, representing a 4% decline. This was primarily driven by the exit of two product lines in our Garden third-party distribution business following ownership changes.

As of the quarter and $46 million remained authorized under the share repurchase program.

Cash and cash equivalents at the end of the third quarter were $713 million, an increase of $143 million.

Speaker #2: Additional pressure came from extended periods of cool and rainy weather which impacted seasonal categories such as controls and live plants. These headwinds were partially offset by continued momentum in our wild bird, fertilizer, and packet seed businesses each delivering strong broad-based performance across channels.

Total debt of $1 2 billion was in line with the prior year, we ended the quarter with a gross leverage ratio of two nine times in line with the prior year and below our target range of 3% to three five times.

Factoring in our strong cash position, our net leverage ratio was around one two we continue to have no borrowings under our $750 million credit facility.

Speaker #2: While overall shipments declined overall POS grew in the low single digits for the quarter and consequently year-to-date despite the headwinds noted earlier. In aggregate, we grew share with gains in several categories including wild bird, grass seed, packet seeds, and fertilizer.

Turning to our fiscal 'twenty five outlook.

As an ego pointed out we are reaffirming our guidance for non-GAAP EPS of approximately $2 60, a share for the full fiscal year.

Speaker #2: Our Garden e-commerce channel continued to gain momentum achieving yet another quarter of double-digit growth. Results were especially strong in wild bird and grass seed with sustained category leadership and robust growth across both pure play and omnichannel partners.

And with that we'd like to open the line for questions.

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Speaker #2: Non-GAAP operating income for Garden rose to $85 million, up 12 million. Non-GAAP operating margin expanded by $310 basis points to $18.2%, reflecting solid productivity gains.

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One moment, while we poll for questions.

Speaker #2: Adjusted EBITDA for the segment was $96 million, an improvement of 11 million year over year. Let me now address the balance sheet and cash flows.

And our first question comes from the line of Brad Thomas with Keybanc Capital markets. Please proceed with your question.

Speaker #2: Cash provided by operations was $265 million for the quarter. Versus $286 million a year ago. Our continued emphasis on working capital management resulted in an additional $67 million reduction in inventory during the third quarter spanning both segments of our business.

Good afternoon, and thank you for taking my question.

Nico My first question for you was around the strong profitability and the momentum that <unk> had in our cost and simplicity program I was wondering how investors should think about the opportunity.

Speaker #2: CapEx for the quarter was $14 million, in line with the prior year, reflecting disciplined investments primarily in productivity-enhancing initiatives and essential maintenance projects. Depreciation and amortization of $21 million was 5% below the prior year.

Keep improving margins in what's been a difficult environment should that persist.

And then if we think about a recovery, where you think perhaps margins might be able to go for the company. Thank you.

Sure.

Speaker #2: During the quarter, we repurchased approximately $1.7 million shares or $55 million of our stock. As of the quarter end, $46 million remained authorized under the share repurchase program.

Well, what I would say is.

The company has done just an excellent job around cost and simplicity, we've been at this for some time.

And I think it's it's really been ingrained here and everyone is onboard and looking for ways to take cost out.

Speaker #2: Cash and cash equivalents at the end of the third quarter were $713 million, an increase of $143 million. Total debt of $1.2 billion was in line with the prior year.

There's also the simplification piece of this which.

We think about every day, how do we simplify the company. The company has really grown through acquisition. So with that comes a lot of complexity.

Speaker #2: We ended the quarter with a gross leverage ratio of 2.9 times in line with the prior year and below our target range of 3 to 3.5 times.

Like 24, B use out there that.

That really.

Speaker #2: Factoring in our strong cash position, our net leverage ratio was around 1.2. We continue to have no borrowings under our $750 million credit facility.

Operate independently to a large degree we give a lot of autonomy to or be used that's sort of part of our secret sauce, but with that comes complexity. So we're constantly looking to two.

To simplify the business.

Speaker #2: Turning to our fiscal 25 outlook, as Niko pointed out, we are reaffirming our guidance for non-GAAP EPS of approximately $2.60 a share for the full fiscal year.

Both from logistics from procurement and a lot of different areas. So that's ongoing I think we've made a lot of progress we feel great about our distribution centers as we mentioned in the prepared remarks.

Speaker #2: And with that, we'd like to open the line for questions.

We we've accomplished a lot of rationalization there. So we feel great about that I think theres other areas, where we can continue to improve margins and that's around.

Speaker #4: Thank you. We will now be conducting a question and answer session. If you'd like to ask a estion, please press star one on your telephone keypad.

Speaker #4: A confirmation tone will indicate that your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, there may be necessary to pick up the handset before pressing the star keys.

Portfolio optimization SKU rat.

Going to continue to.

To take cost out we still have a ways to go there and then there's also innovation, which we touched on as well where.

Speaker #4: One moment while we poll for questions. And our first question comes from the line of Brad Thomas, with KeyBank Capital Markets. Please proceed with your estion.

We can we can really start ramping up that innovation muscle similar to what we've done with cost and simplicity and of course, you always want to innovate with first of all great products, but you want them to be margin accretive. So we feel like we can influence margin and a lot of different ways.

Speaker #5: Good afternoon, and thank you for taking my question. Niko, my first question for you was around the strong profitability and the momentum that you've had in the cost and simplicity.

Lastly, youre going to be disappointed with the answer, but we don't give a target.

We keep it open ended on margin and we just come come at it from a continuous improvement mindset.

Speaker #5: Program, and I was wondering how investors should think about the opportunity to keep improving margins in what's been a difficult environment should that persist.

Legal one thing I'd add to that you said that we've made great progress on cost and simplicity will and we have we still have a lot of runway in front of US. There you have a lot of opportunity for further consolidation simplification, which should lead to margin enhancement.

Speaker #5: And then if we think about a recovery, where do you ink perhaps margins might be le to go for the company? Thank ou.

And the work is really never done here, because we do intend to acquire more businesses and those will we'll have to be integrated and we're really building that muscle as well. So we go into acquisitions, knowing exactly where they're going to fit.

Speaker #2: Sure. Well, what I would say is the company's done just an excellent job around cost and simplicity. We've been at this for some time.

Speaker #2: And I think it's it's really been ingrained here. And everyone is on board and looking for ways to take cost out. I think there's also the simplification piece of this which we think about every day.

And in many cases, it's into one of our platforms I think a great example is the TD Bbs.

Acquisition, we did over a year ago.

That fits squarely into our dog and cat platform and that's an extremely well run business that.

Speaker #2: You know, how do we simplify the company? The company's really grown through acquisitions. So with that comes a lot of complexity. We have like 24 BUs out there that really operate independently to a large degree.

We will up the game of that that company in a very big way and we're excited to see that down the road.

That's really helpful.

Knowing that you're probably not going to give us too many numbers behind all of this just to ask maybe more.

Speaker #2: We give a lot of autonomy to our BUs. That's sort of part of our secret sauce. But with that comes complexity. So we're constantly looking to simplify the business, both from logistics and procurement in a lot of different areas.

Near term question on margins and thinking about the tariff implications.

I think you mentioned this quarter benefit from having inventory that had not been exposed to tariffs wondering if you could just share with share with us a little bit more about how to think about the timing of incremental inventory flowing through what the implications for margins might be and how much you've needed pushed through in price to customers. Thanks.

Speaker #2: So that's ongoing. I think we've a lot of progress. We feel great our distribution centers. As we mentioned in the prepared remarks, you know, we've accomplished a lot of rationalization there.

Yes, so we're expecting.

Speaker #2: So we feel great about that. I think there's other areas where we can continue to improve margins, and that's around portfolio optimization, SKU rat, we're ing to continue to take cost out.

Most of it hit to really start to surface. In Q4, we are working on pricing actions right now, it's obviously, a very challenging market and so we would expect some bumping us along the way in terms of taking pricing but.

Speaker #2: We still have a ways to go there. And then there's also innovation which we touched on as well where you ow we can really start ramping up that innovation muscle similar to what we've done with cost and simplicity.

We are looking at doing that.

Where we where we can't fully mitigate cost increases through other measures.

Speaker #2: And, of course, you always want to innovate with, first of all, great products, but you want them to be margin-accretive. So we feel like we can influence margin in a lot of different ways.

<unk>.

We're not going to give a number on pricing impact what I can tell you is that the expectation is first of all a couple of things first of all we are already the most of the benefit that we're going to accrue from all the work that we're doing to change sourcing destination SKU rat and whatnot are really going to bear fruit next.

Speaker #2: Lastly, you know you're going to be disappointed with the answer, but you know we don't give a target. We keep it open-ended on margin and we just come at it from a continuous improvement mindset.

Speaker #2: Yeah.

Speaker #6: Niko, one thing I'd add to that. You said that you know we've made great progress on cost and simplicity. And we have. But we still have a lot of runway still in front of us.

Year.

We're already starting to see benefits.

Through for example, our China distribution, where our China sourcing, where we've actually reduced purchases by almost 50% in Q3, a year over year, which is which is significant for us that was our largest.

Speaker #6: There's still a lot opportunity for further consolidation, simplification, which should lead to margin enhancement.

Speaker #2: Yeah. And the work's really never done here because we do intend to acquire more businesses. And those will have to be integrated. And we're really building that muscle as well.

Yeah.

Our country in terms of.

Tariff terrible imports. So we are we've already done quite a bit to take exposure out of China through sourcing elsewhere through SKU rat and whatnot and we will continue to see benefits through our broader initiatives.

Speaker #2: So we go into acquisitions knowing exactly where they're going to it. And in many cases, it's into one of our platforms. I ink a great example is the TDBBS acquisition we did over a year ago.

Really bear fruit, mostly next year, our expectation is that bleeding through pre tariff inventory and considering that most of the pricing benefits won't kick in until next year, we're probably going to end up running around roughly $10 million. This year in terms of total tariff impact with the bulk of that hitting in Q4.

Speaker #2: That fits squarely into our dog and cat platform and that's an extremely well-run business that will up the game of that company in a very big way and we're excited to see that down the road.

Speaker #6: That's really helpful. Well, knowing that you probably not going to give us too many numbers behind all this, just to ask maybe a more near-term question on margins and thinking about the tariff implications.

Very helpful. Thank you.

Thank you.

Our next question comes from the line of Bill Chappell with <unk> Securities. Please proceed with your question.

Speaker #6: Brad, I think you ioned this quarter benefit from having inventory that had not been exposed to tariffs. Wondering if you could just share with us a little bit more about how to think about the timing incremental inventory flowing through, what the implications for margins might be, and how much you've needed to push through in price to customers.

Hey, Good afternoon. This is David <unk> on for Bill Chappell.

Just wondering if you could maybe share a little bit on pet trends.

For like the category and for your business and if they're like as we head into the end of the year and if things are kind of unfolding.

Speaker #6: Thanks.

Speaker #2: Yeah. So we're expecting you ow most of the hit to really start to surface in Q4. We are working on pricing actions right now.

As you all had been expecting.

Yes, I can take that this is John.

No.

We certainly have a challenged consumer out there.

Speaker #2: It's obviously a very challenging market and so we would expect some bumpiness along the way in terms of taking pricing. But we are looking at doing that where we can't fully mitigate cost increases through other measures.

And we have a challenged customer base with pet specialty.

Two two traffic.

Uses we're seeing ownership stabilizing.

Live animal business.

We've got alignment animal business and that is stabilizing as well.

Speaker #2: We're not going to get a number on pricing impact. What I can tell you is that the expectation is, first of all, a couple of things.

That said our consumable business.

Central we were lapping a record top and bottom line Q3, a year ago, our consumable business is flat and our durable business really is a declining Brad mentioned double digits.

Speaker #2: First of all, we are already though most of the benefit that we're going to accrue from all the work that we're doing to change sourcing destinations, SKU rat, and whatnot, are really going to bear fruit next year.

There's two pieces of that one is category softness.

Speaker #2: We're already starting to see benefits through, for example, our China distribution or our China sourcing where we've actually reduced purchases by almost 50% in Q3.

Still seen durables.

Mid to high single digit declines.

And the second piece of that is our assortment rationalization.

Speaker #2: A year over year, which is significant for us. That was our largest country in terms of tariffable imports. So we've already done quite a bit to take exposure out of China through sourcing elsewhere, through SKU rat, and whatnot.

And we've been proactive about that.

Low margin Skus.

As tariffs kind of come into play here and something we have to continue to look at.

And we're going to have a little bit of time within central to lap that.

<unk> mentioned, we started in Q4, but it's been an ongoing process through this year.

Speaker #2: We're going to, and we'll continue to see benefits through our broader initiatives really bear fruit mostly next year. Our expectation is that leading through pre-tariff inventory and considering that most of the pricing benefits won't kick in until next year, we're probably going to end up running around roughly $10 million this year in terms total tariff impact with the bulk of that hitting in Q4.

But we're also 82% consumables on the 18% durable and we feel really good about that mix.

Yes in our our consumables also tend to be higher margin. So.

That's had an effect on our margins as well as that durable peace shrinks.

It's actually accretive to.

So our business, which in a weird way is good so.

Speaker #6: Very helpful. Thank ou.

Or is that.

Okay.

Speaker #4: Thank you. And our next question comes from the line of Bill Tapple with Trua Securities. Please proceed with your question.

Thanks appreciate the color there.

<unk>.

Could you maybe like.

Elaborate a little bit on if there are any particular categories for for.

Speaker #7: Hey, good afternoon. This is Davis Holcomb on for Bill Tapple. Just wondering if you could maybe share a little bit on pet trends, both for the category and for your business, and if they’re like, as we head into the end of the year, if things are kind of unfolding as you all had been expecting.

For garden drove EPS upside.

Yes. This is J D. David.

Say that the categories that have driven our business overall this year.

And what was a challenging year from a weather standpoint, yet we had certain <unk>.

Speaker #2: Yeah, I can take that. This is John. We certainly have a challenging consumer out there, and we have a challenging customer base with pet specialty relative to traffic.

Categories certain business units it delivered.

Extremely well and I would say that wild bird food has been a driver this year for us our fertilizer business, which is primarily private label.

Contracts that we've picked up this year as.

Speaker #2: Now, the good news is we're seeing pet ownership stabilizing. And our live animal business which you know we've got a live animal business and that is stabilizing as well.

As well as grass seed.

Strong consumption for the grassy category.

And our packet seed business those categories would be the strongest.

Producers for us this year.

Speaker #2: That said, you know our consumable business, you know at Central, we are lapping a record top and bottom line Q3 a year ago. Our consumable business is flat.

I would pile on to what J D said, we talked about the live goods business, which was really challenged a year ago.

In the prepared remarks, we talked about the change there.

The team there has just done an incredible job of improving the operational efficiency, there taking cost out SKU rat all the right things they could be doing.

Speaker #2: And our durable business really is declining. Brad mentioned double digits. You know there's two pieces of that. One is category softness. So we're still seeing durables, kind of in that mid to high single digit declines.

The business is still not where we want it to be but but just a huge improvement.

Year over year, there and the weather was actually probably worse. This year for live goods during that sort of contracted season that they have it's really three months.

Speaker #2: And the second piece of that is our assortment rationalization. We've been proactive about that. You know it's low-margin SKUs. But, you know, tariffs kind of come into play here.

And even maybe even less than that so big shout out to them did did a really fantastic job there of improving that business.

Speaker #2: You know it's something we have to continue to look at. And you know we're going to a little bit of time within Central to lap that.

Speaker #2: Brad mentioned we started at Q4, but it's been an ongoing process through this year. But we're 82% consumable now and 18% durable. And we feel really good about that mix.

Excellent. Thanks for the color I'll go ahead and pass it on.

Thank you.

And our next question comes from the line of Jim <unk> with <unk> Crespi Hardt. Please proceed with your question.

Speaker #6: Yeah. And our consumables also tend to be higher margin. So that's had an effect on our margins as well as that durable piece shrinks.

Hi, Thanks for taking my question.

Could you quantify the impact of the exited product lines.

Third quarter and year to date sales for both pet and garden.

Speaker #6: It's actually accretive to our business which in a weird way is good. So there is that.

I don't think we've got those numbers don't want front of US I don't think we could probably follow up with you on that.

Speaker #4: Thanks. I appreciate the color there. Could you elaborate a little bit on whether there were particular categories for Garden that drove EPS upside?

That's right.

With.

What I would say.

On the pet side it was significant.

And also the assortment rationalization we did.

We said that was a big driver in the categories are soft and durables.

Speaker #2: Yes. This is JD David. I would say that you know the categories that have driven our business overall this year and what was a challenging year from a weather standpoint, yet you know we had certain categories, certain business units that delivered extremely well.

The assortment rationalization was a bigger impact than the category decline.

I mean on the pet side, I mean, durables with substantially all of that.

All of the decline for the slower simple math that would be.

Speaker #2: And I'd that wild bird food has been a driver this year for us. Our fertilizer business, which is primarily private label contracts that we picked up this year, as well as grass seed very strong consumption for the grass seed category.

A number of yeah, that's where a lot of that wasn't aquatics and.

And it's hard to quantify on the garden side, as well and live goods and Eagle was just talking about the the team there has done a nice job we exited some unprofitable.

Speaker #2: And our packet seed business. Those categories would be the strongest producers for us this year.

Markets, some unprofitable skus, but again can't quantify it at this point in time, and then the pottery business, which we we signaled that exit over a year ago by the end of this year, we'll be working through the residual inventory there and we'll be out of that category altogether and then the vendor partner, yes exactly right.

Speaker #6: And I would pile onto what JD said. You know we talked about the live goods business which was really challenged a year ago. And in the prepared remarks, we talked about the change there.

Speaker #6: And the team there has just done an incredible job of improving the operational efficiency there. Taking cost out, SKU rat, all the right things.

Those two yes I mean.

What what everyone's summing up here, though is what I would say is we're not losing high margin businesses here.

Speaker #6: They could be doing the business is still not where we want it to be, but just a huge improvement year over year there. And the weather was actually probably worse this year for live goods during that sort of contracted season that they have.

These are very intentional moves the vendor partner piece was not within our control, but again, that's a distribution business that tends to be lower margin.

The tanks in Aquatics is a little bit lower margin and then pottery is.

Speaker #6: months and even maybe even less than that. So big shout out to them. Did a really fantastic job there of improving that business.

Is also.

Our high energy, what I would say high energy low margin business. So.

We're not we're not shedding a tenant tiers on those types of losses in terms of volume that you can see that in the P&L right, yeah topline pressure.

Speaker #4: Excellent. Thanks the color. I'll go ahead and pass it on. Thank you. And our next question comes from the line of Jim Cheriker. With Monas Crespi and Hart.

Margin has improved nicely and it's flowing through to operating margin.

And when you get into Q4.

Speaker #4: Please proceed with your question.

We'll be that'll be the first quarter were <unk>. The business that we sold is is out of the mix and so there will be no revenues.

Speaker #7: Hi. Thanks for taking my question. Could you quantify the impact of the exited product lines on third quarter and year-to-date sales for both pet and garden?

Flowing unrelated to that business. So that is going to be a meaningful impact for Q4, but only from a top line perspective.

Speaker #2: I don't think we've got those numbers in front of us. I don't think we do either.

Okay I'm just trying to understand is the.

The underlying trend for sales closer to flat for the company.

Speaker #6: Probably follow up with you on that.

Speaker #2: That's right. I mean, with what I would say on the pet side, you know it was significant, right? You know, so the assortment rationalization we did on pet, you know we said that was a big driver.

Excluding kind of it didn't.

<unk>.

Yeah.

I don't know if its flat.

We'd have to get back to you on that.

Speaker #2: And the categories are soft and durables. The assortment rationalization was a bigger impact than the category decline.

Okay.

And then the new ecommerce facility does that add any revenue enhancement capabilities to you.

Speaker #7: I mean, on the pet side, I mean, durables was substantially all of the.

I don't know if it's incremental in any way it gives us a greater amount of flexibility improves our service levels.

Speaker #2: All of the decline, yeah.

Speaker #7: Yeah. For simple math, that would be as good a as any.

Speaker #2: Yeah.

Speaker #7: Yeah.

Speaker #2: That's fair.

Speaker #6: A lot of that wasn't aquatics, right? Yeah.

It does a lot for our simplifies our logistics footprint.

Speaker #2: Yeah.

Speaker #7: And it's hard to quantify on the garden side as well. And live goods, Niko was just talking about the team there has done a nice job.

It's very similar to what we did in Covington, Georgia will.

Speaker #7: We exited some unprofitable markets, some unprofitable SKUs, but again, can't quantify it at this point in time. And then the pottery business, which we we signaled that exit over a year ago.

Will we folded a bunch of facilities into a more modern type facility. So I think the way we think about it is it's really more of a cost out initiatives as opposed to instrumentality, but a lot of times when you become more efficient and fill rates go up it could lead to a little bit of a lift in sales I think from a service standpoint.

Speaker #7: By the end of this year, we'll working through the residual inventory there and we'll be of that category altogether.

Speaker #6: And then the vendor partner.

And we will be covering over 95% of the country.

Speaker #2: Yeah. Exactly.

Speaker #6: Right. Those two were.

Two days so from that standpoint, I think it will be a benefit yes.

Speaker #2: Yeah.

Speaker #6: I mean, what everyone's summing up here, though, what I would say is we're not losing high margin businesses here. These are very intentional moves.

Great. Thank you.

Okay.

Thank you.

Next question comes from the line of Bob <unk> with CJS Securities. Please proceed with your question.

Speaker #6: The vendor partner piece was not within our control. But again, you ow that's a distribution business that tends to be lower margin. The tanks and aquatics is a little bit lower margin and then pottery is also a high-energy, what I would say, high-energy, low-margin business.

Good afternoon, and thanks for taking our questions.

On the Garden side I believe you won some you know some private label business year.

Just hoping you could give us a sense of.

Speaker #6: So we're not shedding a ton of tears on those types of losses in terms of volume.

How much of an impact from that win was this year should that carryover in and drive incremental sales next year or is it.

Speaker #2: I think you can see that in the P&L, right?

Speaker #6: Yeah.

Fully into this year and and likewise on the third the product lines that you exited from sale is that all worked out this year and no hangover next year or is there still some loss next year.

Speaker #2: Top line pressure.

Speaker #6: Yeah.

Speaker #2: But gross margin has improved nicely and it's flowing through to operating margin as well.

Speaker #6: Yeah. And when ou get into Q4, we'll that'll the first quarter we're in our pet. The business that we sold is out of the mix.

And garden from that change.

Speaker #6: And so there will be no revenues. Flowing in related to that business. So that is going to be a meaningful impact for Q4. But only from a top line perspective.

Yeah, Bob It's J D I'll speak to that so first of all on the private label gains that we picked up at two major retailers.

We saw some of the benefit this year and we will see benefit next year as well they have to work through existing inventories of the previous supplier. So we saw some of the benefit and then and then there'll be carryover and then we picked up some additional stores with one of those two retailers for next year as well so we'll see that benefit.

Speaker #7: Okay. Yeah. I'm just trying understand is the underlying trend for sales, you know closer to flat for the company, you know if you exclude kind of the you know, the intentional exits.

Speaker #6: I don't know if it's flat. We'd to get back to you on that.

And then the second part of the question was.

Speaker #7: Okay. And then on the

Speaker #6: Yeah.

Speaker #7: new e-commerce facility, does that add any you know revenue enhancing capabilities to you?

The vendor partner losses of the vendor partner losses will we see that next year.

Most of them will be will stop shipping.

Those products this year, but we will have a comp a difficult comp carrying into next year.

Speaker #6: I don't know if it's incremental in any way. It gives us a greater amount of flexibility improves our service levels. Does a lot for a simplifies our logistics footprint.

We start to lap that loss of its two product lines this quarter Q4.

Okay and by the way. The reason we were awarded more stores is because of great execution fantastic execution. It's a beautiful business, we were glad to pick that up and it's.

Speaker #6: It's very similar to what we did in Covington, Georgia. Where we folded a bunch of facilities into a more modern type facility. So I think you know the way we think about it is it's really more of a cost-out initiative as opposed to incrementality.

Yes.

Our in store execution of the team there is doing a phenomenal job.

And gaining market share in this category and the retailers recognize that and awarded us additional business.

Speaker #6: But a lot of times when you become more efficient and you ow fill rates go up, it could lead to a little bit of a lift in sales.

That's great well congratulations on that.

Speaker #6: I think from a service standpoint, and we'll be covering over 95% of the country in less than two days. So from that standpoint, think it'll be a benefit.

And you spoke to this a little bit, but I guess again thinking about next year in general how much.

No longer do you expect to see.

Speaker #2: Yeah.

Speaker #7: Great. Thank ou.

Kind of a top line I guess self imposed headwind from the mix.

Speaker #4: Thank you. And our next question comes from the line of Bob Lebick with CJS Securities. Please proceed with your question.

SKU rationalization.

Is that a full year next year as well or when will you lap that.

We don't know yet.

Speaker #8: Good afternoon. Thanks for taking our estions. On the garden side, I believe you won some you know, some private label. Business here. I was just hoping you could give a sense of how much you know of an impact you know from that win was this year.

We're we still need to put the plans together for next year and really get our arms around what that top line looks like.

We also have to take into account.

What the what the.

Speaker #8: Should that carry over and and drive incremental sales next year? Or is it like you know fully into this year? Or and and likewise on the the third the product lines that you exited from sale, is that all like out this year and no hangover next year?

The estimate is on innovation and other things that we're doing.

We have to look at all the puts and takes around businesses that we won that we lost innovation SKU rat.

So we just don't have clarity on that just yet as we are in the middle of putting our plans together, we'll certainly give everybody more guidance on that come November.

Speaker #8: Or is there still some loss next year you know in garden from that change?

Speaker #2: Yeah, Bob. It's JD. I'll speak to that. So first of all, on the private label, gains that we picked at two major retailers, we saw some of the benefit this year and we'll see benefit next year as well.

When we do that year end call.

We'll have more color and that's not unusual typically the line review process. We don't know until late August sometime September.

What line review listings will look like for the following year.

Speaker #2: They had to work through existing inventories of the previous supplier. So we saw some of the benefit and that and then they'll be carryover.

Okay, Great last one for me is.

Given the I guess current iteration of the de Minimis tariff.

Speaker #2: And then we picked up some additional stores with one of those two retailers for next year as well. So we'll see that benefit. And then the second part of the question was.

You know hold or exemption or whatever you want to call it.

Now putting the tariffs back on all goods coming in might that help you in any way on the pet side are you seeing anything from that or is it.

Speaker #6: The vendor partner losses.

Speaker #2: Oh, the vendor partner losses. Well, we see that next year. Most of

Speaker #6: Yeah.

Speaker #2: that will be we'll stop shipping the those products this year, but we'll have a comp, a difficult comp carrying into next year.

Now that.

Durables is such a small part of the portfolio, it's not really.

Yes, or that you are watching.

Speaker #6: Yeah. We start

Speaker #2: Right?

Yes, we are watching it it's frankly, it's really hard to get good data on it but we arent seeing any meaningful impact at this point related to it.

Speaker #6: to lap that loss of those two product lines this quarter, Q4. So.

Speaker #2: Yeah.

Speaker #8: Okay.

Speaker #6: And by the way, the reason we were awarded more stores is because of great execution.

No we're not.

Hum.

Speaker #2: Fantastic execution. That's a beautiful business. We were glad to pick that up. And it's you know our in-store execution, the team there is doing a phenomenal job.

There is potential that it could be a tailwind.

Diluted historical I read in the Wall Street Journal was the end of August.

It was going to be broad based.

Speaker #2: And gaining market share in this category. And the retailer recognized that and awarded us additional business.

So we're going to stay super close to it.

But it could be we could have a tailwind from.

Speaker #8: That's great. Well, congratulations on that.

Speaker #2: Thank ou.

Speaker #8: And you spoke to this a little bit, but I ess again, thinking about next year in general, how much you know longer do you expect to see kind of a top line I guess self-imposed headwind from the SKU rationalization?

Alright, thanks very much.

Thank you.

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

Hi, This is Madison County, and Entre, Brian Thanks for taking our questions.

Speaker #8: You know is that a full year? Next year as well? Or when will you lap that?

What would it take for garden to return to the consistent modest growth.

Speaker #2: We don't know yet. We're

Understanding weather was a factor.

Speaker #6: we still need to put the plans together for next year and really get our arms around what that top line looks like. We also have to take into account what the what the what the you know the estimate is on innovation and other things that we're ing.

With industry participants, saying it consumers engaged kicking in a little more color on why it isn't showing up in your results.

Hi, Madison This is J D.

Weather is a factor as you said, it's the largest factor that usually impacts our garden business. So.

Speaker #6: You know we have to look at all the puts and takes around businesses that we won, that we lost. Innovation SKU rat. So we do we just don't have clarity on that just yet as we're we're in the middle of putting our plans together.

We need some favorable weather, particularly in season, and when I say in season and our Q late.

<unk> Q2, and Q3 next year that would be.

Beneficial of the last couple of years of weather Hasnt exactly cooperated.

Speaker #6: We'll tainly give everybody more guidance on that come November. When we do that year-end call, we'll more color. And that's not unusual. Typically, the line review process we don't know until late August, sometimes September.

We play in lawn and garden consumables, it's a good space to be in I think there is still great consumer engagement here and our retailers are very engaged.

I think that.

Some of the metrics on the garden.

Speaker #6: What line review listings will look like for the following year.

P&L look very favorable our gross margins look great. Our operating margins look great and we're getting topline pressure. This year, mainly from what we've talked about a few times today and that is the two vendor partner of distributed products.

Speaker #2: Yep.

Speaker #8: Okay. Great. Last one for me is you know given the I ess current iteration of the de minimis tariff you ow hold or exemption or whatever ou want to call it, trying you ow now putting the tariffs on all goods coming in, might that help you in any way?

Were acquired by another company and they ended up going direct with our retailers. So we lost that top line, having said that we've seen nice growth across our branded business or private label business. It hasnt been able to make up for the full top line. The revenue loss, but you can see that flowing down through our P&L, which has been.

Speaker #8: And on the pet side, are you seeing anything from that? Or is it you know now that durables is such a small part of the portfolio, it's not really a you ow factor that you're watching?

Speaker #2: Yeah. Yeah. We are watching it. It's frankly, it's really hard to get good data on it. But we aren't seeing any meaningful impact at this point related to it.

Then.

Actually quite strong in a difficult environment. So we still feel very optimistic about this will work through the losses of these vendor partner businesses.

Speaker #6: No. We're . You know I think there's potential that it could be a tailwind. I think the latest article I read in the Wall Street Journal was the end of August that that it was going to broad-based.

And I am encouraged by the fact that our our manufactured products are branded businesses growing nicely. So.

Still a good business from our perspective and one that has.

Speaker #6: So you know we're just going to stay super close to it. But it could be we could have a tailwind from it.

Better days ahead.

And I would say to that.

J D as being modest on a garden side of our business the relationships with the larger customers has never been better. So those teams are just doing a great job and I think you see that with us picking up private label business. So theres some growth there.

Speaker #2: Yeah.

Speaker #8: Super. All right. Thanks very much.

Speaker #4: Thank you. And our next question comes from the line of Brian McNamara. With Canacor Genuity. Please proceed with your estion.

The other the other part two is when we look at the data and we actually have good days in the northeast and other areas you see really tremendous pls, so that speaks to a very engaged consumer.

Speaker #9: Hi. This is Madison County and on for Brian. Thanks for taking our estions. What will it take for garden to return to a consistent modest growth?

Speaker #9: Understanding whether it's a factor with industry participants saying that the consumers engaged. Can you give a little color on why it isn't showing up in results?

The weather. This this year in our key markets has been was incredibly rainy in the spring.

Speaker #9: Thanks.

Probably more rain than even last year so.

Speaker #2: Hey, Madison. This is JD. Weather is a factor, as ou said. It's the largest factor that usually impacts a garden business. So you know we need some favorable weather, particularly in season.

It could look to some like Oh boy, it's a horrible category, but.

There's a lot of good momentum here within our business and also with the customers and the consumers. So we actually feel quite good about our guidance, we do and there's a lot of talk about an uncertain economic environment right and this category Garden Lawn and garden has performed very well in prior.

Speaker #2: And when I say in season, in our Q late Q2 and Q3 next year, that would be beneficial. The last couple of years, weather hasn't exactly cooperated.

Speaker #2: We play in a lawn and garden consumables. It's a good space to be in. You know I think there's still great consumer engagement here in our retailers are very engaged.

<unk> down economic downturns, and Thats, because we play again and consumables thats relatively small cash outlay. So consumers. They may forego large capital projects, but they're going to do maintenance projects around their house and oftentimes that includes beautifying the yard so still a good space to be in in this quarter has started.

Speaker #2: And I think that you will see some of the metrics on the garden P&L look very favorable. Our OSS margins look great. Our operating margins look great.

Speaker #2: And we're getting top line pressure this year, mainly from what we've talked about a few times today. And that is the two vendor partner or distributed products that were acquired by another company.

Good from a shift perspective <unk> perspective.

Yes.

Our retailers have remained engaged them given up on the season by any means so we think there's still runway in this year as well.

Speaker #2: And they ended up going direct with the retailers. So we lost that top line. Having said that, we've seen nice growth across our branded business, our private label business.

Great. Thank you so much and just like we were looking at when you pre purchased over 150 million stock over the last three quarters.

Can you add anything about your view.

The shares are undervalued relative to M&A opportunities or lack thereof, or anything around that thank you.

We always think our shares are undervalued.

But in particular.

During those first three quarters.

We felt like our shares where the best value out there and we.

We do we do want to be mindful.

And thoughtful around our shareholders and returning money to those shareholders and at that point in time, given the lack of M&A activity that we're seeing or the lack of quality M&A activity I should say.

We felt our stock was probably the best value out there. So we went pretty aggressively.

Two to buyback.

Great. Thank you.

Thank you and our next question comes from the line of William Reuter with Bank of America. Please proceed with your question.

Good afternoon, just a couple the first you mentioned that the aggregate amount of tariffs.

In the fourth quarter would be $10 million.

Yes.

That's full year.

Okay.

I think that you've mentioned there really wasn't much in the second quarter and you don't expect much in the third quarter.

I guess is that right.

Yes, I mean, roughly kind of say $3 million in Q3, and the balance would be Q4.

Got it.

I guess, if we think about what the run rate implies for next year I guess, if the fourth quarter was $7 million and most of this is Pat.

Um, the other, the other part, too, is when we look at the data and we actually have good days, um, in the Northeast and and other, uh, areas. You see really tremendous PS. So that speaks to a very engaged consumer, um, the weather this this year, in our key markets has been was incredibly rainy, uh, in the spring. Um, probably more rain than even last year. So, um, it it, it could look to some like, oh boy, you know, it's a, it's a horrible category but uh, there's there's a lot of good momentum here, um, within our business and also, with the customers and the consumers. So we actually feel quite good about regardless of business, we do. And, you know, there's a lot of talk about in uncertain economic environment, right? And, and this category garden, lawn and garden has performed very well in in Prior down economic downturns, and that's because we play again and consumables. It's a relatively small cash app.

Does that kind of imply that we would be at a run rate of maybe something like $30 million for next year on a non <unk>.

Unmitigated basis.

Not really I think I mean honestly I think we need to come back to you.

After after year end and talk about it in a bit more detail because the situation is very fluid and these rates could change by the time, we finish this call.

So consumers, they may forgo large capital projects but they're going to do maintenance projects around their house and often times that includes beautifying the yard so. Yep, still a good space to be in and this quarter has started off good, from a ship perspective, in POS perspective. Yes, our our retailers are remained engaged, they haven't given up on the season by any means. So we, we think they're still runway in this year as well.

Alright.

Good morning.

We're doing a lot of work on the supply side, we're working with our customers and.

We are certainly not going to sit on our hands.

And we can to mitigate tariffs vendor concessions moving the country of origin on SKU rationalization that we talked about.

Great, thank you so much. Just like we were looking at when you purchased over $150 million in stock over the last three quarters. Um, can you add anything about your view, like that the shares are undervalued relative to M&A opportunities, or lack thereof? Anything around that? Thank you.

And it's likely we're going to have to work with our customers and partner with our customers.

Limited pricing.

And suppliers everything you said so what.

Kind of similar to when we gave the answer on top line. We've got a lot of work to do as far as our 26 plan and where we are in the process of doing that and we'll be back to everybody with with more guide for that year, including commentary around tariffs and pricing and all that stuff.

Got it and then multiple times, you've mentioned private label and how your strong relationships with some of your customers have allowed you to pick up share are they changing the percentage of their floor space allocation to private label versus branded or I mean are you. I guess are you just I don't know how are you picking up.

We always think our Shares are undervalued. Um, but, but in particular, um, you know, during those first 3 quarters, uh, we, we felt like our shares were the best value out there and, um, we do, we do want to be mindful, um, and thoughtful around our shareholders and returning money to those shareholders. And at that point in time given, you know, the lack of m&a activity that we were seeing, or the lack of quality m&a activity. I should say, um, we felt our, our stock was, probably the best value out there. So we we went pretty aggressively um, to, to buy it back.

All right, thank you.

Thank you. And our next question comes from the line of William Rudder with the Bank of America. Please proceed with your question.

Private label that was being produced by competition, how should we think about that.

It's a combination of both we are picking up private label.

Produced by competition and at the same time I mentioned are our field team, our retail merchandising team and.

Good afternoon. Um just a couple the first um you mentioned that the aggregate amount of tariffs uh in the fourth quarter would be 10 million um on I think that's on

that's full year.

And they execute with excellence in the stores, which gets.

Okay. I I think that you mentioned there really wasn't much in the second quarter and you don't expect much in the third quarter is is I guess, is that, right?

Off shelf activity.

So it's a combination of us picking up.

Yes, the product from that was previously manufactured by others and then better execution in store.

Got it.

And then my last question do you have a kind of long term growth rate expectation for pet consumables.

There are numbers that a lot of <unk>.

Different participants in this category throw out there for their expectations and I was wondering if there was something which you guys have kind of tried to center youre planning around.

4 got it. Um, I guess if we think about what the Run rate implies for next year, I guess if the fourth quarter was 7 million and most of this is Pets, um does that kind of imply that we get a run rate of maybe something like 30 million for next year on a non um, or on an unmitigated basis?

Well the good news, what I mentioned about the category is worse.

Ownership stabilize and we're actually seeing our live animal business stabilizing as well.

Long term, we believe this category can grow.

Low to mid single digits.

It has historically and there is no reason to think it wont in the future.

Got it alright, that's very helpful. Thanks, that's all from me. Thank you.

This was our last question thanks, everyone for joining our call today. The IR team is available for any questions that may arise after this call.

Thank you.

Um, not really. I think, I mean, honestly, I think we need to come back to you, um, after, after year round and talk about it in a bit more detail, because the situation is very fluid and um, these rates could change, but by the time we finish this call and we're all right. Yeah, it changes this morning. Yeah, I mean, we're we're doing a lot of work on the supply side working with our customers. And, um, you know, we we are certainly not going to sit on our hands. So I wouldn't know we're doing everything we can to mitigate terrorist vendor concessions, moving the country of origin, SKU rationalization that we talked about, you know. And, and it's it's like we were going to have to work with our C customers and partner with our customers and and limited pricing.

Thank you and with that this does conclude today's teleconference. We thank you for your participation you may disconnect your lines at this time.

And, and suppliers everything you said. So what, you know,

Kind of similar to when we gave the answer on Topline, we, we've got a lot of work to do as far as our our 26 plan and we're we're in the process of doing that, and we'll be back to everybody with with, um, more guide, um, for for that year, including commentary around, tariffs and pricing, and all that stuff.

Got it. And then multiple times, you've mentioned private label and how your strong relationships with some of your, um, customers have allowed you to pick up share. Are they changing the percentage of their floor space allocation to private label versus branded? Or, I mean, are you, I guess? Are you just? I don't know. Are you picking up private label that was being produced by competition? How should we think about that?

It's a combination of both. We are picking up private labels which produced by competition and at the same time I mentioned our our, our field team our, our retail merchandising team. Uh and they execute with excellence in the store which gets off shelf activity before. So it's a combination of us picking up the uh the product from uh that was previously manufactured by others and then better execution in store.

Got it. Um and then my last question, do you have a kind of long-term growth rate expectation, for pet consumables? Um, there are numbers that a lot of uh, different participants in this category, throw out there for their expectations and I was wondering if there was something which you guys had kind of trying to tried to Center your, uh, your planning around.

Well.

You know, the good news that I mentioned about the categories is that we're seeing pet ownership stabilize, and we're actually seeing our live animal business stabilizing as well. You know, long term, we believe this category can grow low to mid single digits. Um, it has historically, and there's no reason to think it won't in the future.

Got it. All right. That's very helpful. Thanks uh it's all from me. Thank you.

Um this was our last question. Thanks everyone for joining our call today. The IR team is available for any questions uh that may arise after this call.

Thank you.

Thank you. And with that, this does conclude today's teleconference we thank you for your participation. You may disconnect your lines at this time.