Release Date: April 30, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- The Scotts Miracle Gro Co (SMG, Financial) reaffirmed its full-year guidance of $570 to $590 million of EBITDA, indicating confidence in its financial outlook.
- The company reported a nearly 500 basis-point recovery in gross margin and a $36 million EBITDA increase, showcasing significant financial improvement.
- SMG achieved a 12.1% increase in POS units, with notable growth in its garden and mulch businesses, reflecting strong consumer demand.
- The company is making strategic investments in innovation, such as expanding the Miracle-Gro organic line and introducing new products in the controls portfolio.
- SMG is on track to achieve more than $75 million in supply chain cost savings this year, contributing to its long-term goal of $150 million by fiscal '27.
Negative Points
- Total company net sales declined by 7% in the quarter, with US consumer net sales down 5%, partly due to a colder start to the lawn and garden season.
- Hawthorne's net sales declined 51% due to hydroponic market softness and strategic exits from low-margin distribution, impacting overall revenue.
- The company faces challenges in communicating its value proposition to the investment community, as reflected in its current equity price.
- SG&A expenses increased by 5% in the quarter, driven by higher performance-based incentives and investments in technology and e-commerce.
- The company is experiencing a competitive consumer landscape, with heavy retailer promotions impacting the difference between POS dollars and units.
Q & A Highlights
Q: Can you explain the difference between the 12% growth in units and the low single-digit growth in dollars for point of sale (POS)?
A: James Hagedorn, CEO, explained that the difference is largely due to a competitive consumer landscape where retailers are heavily promoting products, leading to strong unit sales but not necessarily translating into equivalent dollar growth. The promotions are driving consumer traffic and sales, which is a positive sign of consumer engagement. Mark Scheiwer, CFO, added that the mix of products, such as soils and mulch, and heavy customer promotions are key drivers, with a 60/40 split between mix and promotions.
Q: How does the company view the potential trade-down from DIFM (Do It For Me) to DIY (Do It Yourself) among consumers?
A: James Hagedorn, CEO, sees it as a trade-up rather than a trade-down, as consumers can achieve better results with DIY at a lower cost. Nathan Baxter, COO, noted that while 25% of consumers surveyed indicated a shift to DIY, this is not factored into current sales guidance. Historically, 20-25% of consumers fluctuate between DIY and DIFM, and there could be a tailwind from this shift.
Q: What is the company's stance on private label competition and pricing gaps?
A: James Hagedorn, CEO, stated that the competitive landscape has narrowed the pricing gap between branded products and private labels due to heavy promotions. The company is focusing on driving foot traffic and leveraging its brands, while private labels still play a role for retail partners. The pricing gap remains in the 20-30% range, but promotions have closed this gap in certain categories.
Q: How is the company managing its focus on unit growth while also aiming for a 35% gross margin?
A: Nathan Baxter, COO, explained that focusing on units is crucial, especially in the lawns category, where pricing increases masked unit declines. The company is aligning its supply chain to support unit growth, which is essential for gross margin improvement. Mark Scheiwer, CFO, added that unit growth helps with asset utilization and cost savings, contributing to the gross margin goal.
Q: What is the company's approach to leverage and potential M&A activities?
A: James Hagedorn, CEO, indicated a preference for maintaining leverage between 3 to 3.5 times, which allows for favorable debt pricing and flexibility. The focus is on organic growth rather than M&A, with potential for small tuck-in acquisitions if opportunities arise. The company aims to reduce share count and prioritize shareholder-friendly actions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
