Central Garden & Pet Company (CENT), a leading innovator, producer, and distributor of branded and private label products for the lawn & garden and pet supplies markets, reported a modest increase in net sales and consolidated gross profit for the first quarter of fiscal 2024.
The company announced that net sales rose by 1% to $635 million, with organic net sales also growing by the same margin. Consolidated gross profit improved by 4% to reach $179 million, attributed to effective cost management and moderating inflation. Despite a challenging external environment forecast for the fiscal year, the company maintains its outlook, expecting non-GAAP earnings per share (EPS) for the year to be $2.50 or better.
Key Takeaways
- Net sales increased by 1% to $635 million; organic net sales also grew by 1%.
- Consolidated gross profit rose by 4% to $179 million due to cost management and moderating inflation.
- The Pet segment sales declined by 2%, while the Garden segment grew by 6%.
- The company is committed to its cost and simplicity program to enhance efficiency and reduce expenses.
- Fiscal year outlook remains unchanged with an anticipated challenging environment.
- Non-GAAP EPS expected to be $2.50 or better for the fiscal year.
Company Outlook
- Fiscal '24 outlook remains consistent with previous guidance; non-GAAP EPS anticipated to be $2.50 or better.
- The company predicts a challenging environment with deflationary pressures, softer consumption, and reduced foot traffic.
- Modest carry over pricing included in the outlook to counter inflationary challenges.
- Focus on cost control and cautious investment in consumer growth initiatives.
- Active pursuit of growth and margin accretive acquisitions in Pet and Garden sectors.
- Outlook excludes impacts from potential acquisitions, restructuring, and the recent TDBBS acquisition.
- Optimism for the spring season with early shipments in garden categories.
Bearish Highlights
- Durable pet trends have softened, with the company taking market share in both consumables and durables.
- Pricing concessions in commodity-driven categories and increased promotional activity are in place to boost consumption.
- Wild Bird business softness mainly attributed to unfavorable weather conditions.
Bullish Highlights
- Market share gains in pet and garden categories.
- Improved margins and a strong balance sheet reported for Q1.
- Anticipation of strong promotional support for the upcoming season.
Misses
- The company is without a permanent CEO, which could be seen as a potential leadership gap.
- The decline in the Wild Bird category due to unfavorable weather conditions.
Q&A Highlights
- The company discussed promotional strategies to drive store traffic and consumption.
- Emphasized stable pricing across categories and focus on M&A despite the absence of a permanent CEO.
- Expressed cautious optimism regarding inventory levels and consumer enthusiasm.
- Plans to work through excess inventory over the next year with strong promotional support expected.
Central Garden & Pet's first quarter of fiscal 2024 has shown resilience in the face of external market pressures. With a steady increase in sales and gross profit, the company has demonstrated its ability to manage costs and maintain profitability. While the Pet segment has seen a slight decline, the Garden segment's growth and the company's overall market share gains indicate a strong position in its industry. The company's outlook, though cautious due to the anticipated challenging environment, remains optimistic about its strategic initiatives, including M&A and cost reduction programs. As Central Garden & Pet navigates the fiscal year, it aims to continue leveraging its strong balance sheet and cash flow to support its growth and efficiency goals.
InvestingPro Insights
Central Garden & Pet Company (CENT) has showcased financial resilience in its recent quarterly report, and the insights from InvestingPro provide a deeper understanding of the company's financial health and future prospects.
InvestingPro Tips for CENT reveal that the company's valuation implies a robust free cash flow yield, suggesting that it generates a healthy amount of cash relative to its share price. This is an encouraging sign for investors looking for companies with the potential to fund growth, pay down debt, or return value to shareholders. Additionally, CENT's liquid assets have surpassed its short-term obligations, indicating a strong liquidity position that can help the company weather economic uncertainties and invest in growth opportunities.
The real-time data from InvestingPro further enriches the understanding of CENT's financial performance. The company has a market capitalization of $2.29 billion and a Price to Earnings (P/E) ratio of 17.17, which adjusts to 16.09 when looking at the last twelve months as of Q4 2023. This adjusted P/E ratio suggests a potentially more attractive valuation for investors considering the company's earnings over the past year. Furthermore, CENT's revenue for the last twelve months as of Q4 2023 stands at $3.31 billion, with a Gross Profit Margin of 28.9%, underscoring the company's ability to retain a significant portion of its sales as gross profit.
For investors interested in exploring additional InvestingPro Tips, CENT has 5 more tips listed on InvestingPro, which can be accessed by visiting https://www.investing.com/pro/CENT. These tips could provide further insights into the company's profitability, historical performance, and dividend policy.
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Full transcript - Central Garden & Pet Co. (CENT) Q1 2024:
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Central Garden & Pet First Quarter Fiscal 2024 Earnings Call. My name is Paul, and I will be your conference operator for today. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Friederike Edelmann, Vice President, Investor Relations and Corporate Sustainability. Please go ahead.
Friederike Edelmann: Good afternoon, everyone. Thank you for joining Central's first quarter fiscal 2024 earnings call. With me on the call today are Beth Springer, Interim Chief Executive Officer; Niko Lahanas, Chief Financial Officer; John Hanson, President Pet Consumer Products; and J.D. Walker, President Garden Consumer Products. In a moment, Beth will provide our key messages, and Niko will discuss this in more detail. After the prepared remarks, J.D. and John will join us for the Q&A. Before they begin, I would like to remind you 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 we share today. We describe the range of risk factors in our Annual Report filed with the SEC. Central undertakes no obligation to publicly update these forward-looking statements to reflect new information, subsequent events, or otherwise. Our press release and related materials are available at ir.central.com, and contain the GAAP reconciliation for the non-GAAP measures discussed on this call. Lastly, all growth comparisons made during this call are against the same period in the prior year unless otherwise stated. If you have further questions after the call or anytime during the quarter, please don't hesitate to reach out to me. And with that, I will now turn it over to Beth Springer. Beth?
Beth Springer: Thank you, Friederike, and good afternoon, everyone. Let me begin with the three themes I hope you'll take away from our call today. First, the fiscal year is off to a solid start. We delivered earnings per share of $0.01 and modestly grew net sales. Most importantly, we saw margins improving, thanks to our cost management and moderating inflation. Our market shares and total distribution points were up across most of our Pet and Garden businesses in track channels. We're particularly pleased to see our continued strong growth in e-commerce. Second, we're making progress on our multi-year journey to simplify our business and improve efficiency across our organization by rationalizing our footprint, optimizing our portfolio, and improving our cost structure. We are intensely focused on this cost and simplicity program and continue to reap benefits from initiatives we implemented previously as well as kickoff new projects. Some examples of recent initiatives are the closure of a live plants facility and the implementation of an enhanced treasury management system. And third, our outlook for the fiscal year is unchanged. The vast majority of our Garden season is still in front of us and we continue to expect a challenging external environment for the balance of the year. Rest assured that all 6,700 members of us on Team Central are working hard to meet or exceed that guidance. Looking beyond the first quarter, we remain confident in our Central to Home strategy, the long-term vibrancy of the Pet and Garden industries, and the competitive strengths of our business, and we continue to make thoughtful investments for the future. With that, let me turn it over to Niko, who will share with you more details. Niko?
Niko Lahanas: Thank you, Beth. Good afternoon, everyone. Expanding on Beth's key themes. I'll cover details of our first quarter results, the strides we are making on our cost and simplicity program, and our outlook for the year. Let's start with our Q1 results. Net sales increased 1% to 635 million. Organic net sales also grew 1%. Consolidated gross profit, increased 4% to 179 million, gross margin improved 80 basis points to 28.2% driven by our laser focus on cost management and moderating inflation. We've successfully controlled what we can control. SG&A expense of $170 million was in line with prior year and SG&A as a percentage of net sales decreased 40 basis points to 26.9%. Operating income increased by $8 million to $8.4 million, and operating margin increased 120 basis points to 1.3%. The increase was driven by improved gross margin and our focused on cost and cash resulting in lower SG&A as a percentage of net sales. Net interest expense was $10 million compared to $14 million in the prior year, driven by higher cash balances and higher interest rates. Net income was $430,000 compared to a net loss of $8 million a year ago. Our earnings per share were $0.01 compared to a loss per share of $0.16. Adjusted EBITDA was $37 million compared to $29 million. From a tax standpoint, we realized an outsized tax benefit for the quarter larger than our small loss due to stock compensation. For the year, we expect an effective tax rate in the range of 22% to 24%, similar to 2023. I'll now provide some color on our two segments. Starting with Pet. Pet segment sales declined 2% to $409 million as growth in health and wellness and aquatics and reptile was more than offset by double-digit declines in durables across pet beds, small animal and our distribution business. In line with the softness and pet ownership after the COVID spike, we expect the headwinds for durables to continue. Organic net sales, which exclude the TDBBS acquisition, declined 5%. Underscoring the health of our business, we grew market share and total distribution points or TDPs in the majority of our categories, including dog toys, small animal, pet bird, aquatics, and health and wellness. Our e-commerce business continues to grow and now represents approximately 26% of our pet sales. Pet segment, operating income improved by 10% to $43 million, and operating margin improved 110 basis points to 10.6%, driven by recently implemented initiatives under our cost and simplicity program and lower commercial spend. Pet segment adjusted EBITDA was $54 million compared to $50 million a year ago. Turning now to Garden. Garden segment sales grew 6% to $225 million, driven by early season shipments in controls and fertilizer, grass and packet seeds. Unfavorable warmer weather, negatively impacted sales in Wild Bird. Recall that we recently sold the Independent Garden Channel business distribution business, which represented approximately 5% of garden sales and was margin dilutive. Organic net sales increased 11%. Garden segment operating loss was $9 million compared to a loss of $11 million a year ago. Garden segment operating margin improved a negative 3.9%, driven by improved growth margin and favorable overhead absorption, partially offset by higher commercial spend. Garden segment adjusted EBITDA was $2 million compared to break even a year ago. While Garden performance was strong in the first quarter, it is not indicative for the year as our first quarter typically represents only 15% of annual Garden sales. The prior year quarter ended on Christmas Eve. This year, we had a more favorable timing with the quarter ending a week later. In addition, select retailers have been loading their stores earlier in anticipation of the season. We gained market share in grass, fertilizer and insecticides, thanks to our investments in consumer insights and brand building. And although still a small part of our Garden business, our e-commerce sales grew double-digits versus prior year. Now, moving on to the balance sheet and cash flows, we are pleased with the strength of our balance sheet and the progress we made decreasing inventories by $76 million. Despite the added inventory from the TDBBS acquisition. Cash and cash equivalents at the end of the first quarter were $341 million compared to $88 million a year ago, an increase of $254 million after paying for the TDBBS acquisition and our usual Q1 working cap build. Net cash used by operations was $70 million for the quarter compared to $63 million a year ago. CapEx was $10 million for the quarter, 43% below prior year. This quarter, we invested in maintenance and productivity initiatives in dog and cat, small animal, bird, grass, and life goods. Total debt of $1.2 billion was in line with prior year. Our leverage ratio was 3x at the end of the quarter compared to 3.1x a year ago. Well, within our target range, we had no borrowings under our credit facility at the end of the first quarter. Depreciation and amortization for the quarter was $23 million compared to $22 million in the prior year quarter. During the quarter, we repurchased approximately 40,000 shares or $1.4 million of our stock. Now turning to some of the strides we're making on our cost and simplicity program. As a reminder, we've identified a series of projects across procurement, manufacturing, logistics, portfolio optimization, and administrative costs. Let me share a few highlights from the first quarter. We see procurement as one of the largest opportunities. We have projects underway to further centralize the purchasing of items such as pallets, corrugates, and containers. We are improving our capabilities with training in best practices and are investing in software solutions to lay the groundwork for future savings in procurement. Following the closure of our outdoor cushion manufacturing and warehousing facility in Amarillo, Texas, we just closed a live goods greenhouse in Burtonsville, Maryland. In addition, we continue to reduce our SKU count across our Pet and Garden businesses, and are deploying technology solutions to reduce waste and increase manufacturing yields. As a result of the recent sale of our independent Garden Center distribution business, we closed our Portland, Oregon Garden distribution facility. Additionally, we are in the initial stages of integrating our recent acquisition of the dog treat and chew company, TDBBS. We are pleased with their performance thus far. Lastly, we are implementing an enhanced treasury management system to streamline our treasury process, reduced costs and complexity of bank connectivity, minimize interest expense, and approve forecasting and cash returns. We remain focused on this multi-year journey to reduce costs, simplify our business, and approve efficiency, and we'll continue to provide quarterly updates. Our pipeline of projects to leverage our scale and deploy our capabilities across the company is strong, and we will continue to prioritize business continuity and minimize disruption to our operations. As in the past, our goal is to supplement organic growth with acquisitions and we expect there will be plenty of opportunity ahead of us. As announced in December, our Board of Directors approved a stock dividend to increase the liquidity in our Class A common shares. We believe the enhanced liquidity will benefit our stockholders and provide central with more flexibility to pursue our growth objectives. Tomorrow at the close of business, each shareholder will receive one additional Class A common share for every four shares of any class of shares held on the record date on January 8th. Trading will begin on a dividend adjusted basis the day after February 9th. And finally, turning to our fiscal ‘24 outlook, which is unchanged from the guidance we gave in November. We continue to expect non-GAAP EPS for the year of $2.50 or better translating to non-GAAP EPS of $2 or better after the stock dividend. For the remainder of the fiscal year, we assume a challenging environment with deflationary cost pressures in certain commodity businesses, softer consumption in a number of categories and lower foot traffic in key retailers. Our outlook includes modest carry over pricing to help mitigate inflationary headwinds. While we've done an excellent job managing inventories, higher value inventory continue to put pressure on margins. The benefit of the lower cost is taking more time to realize as we continue to work through on hand high cost inventory. Additionally, our expectation for CapEx remains unchanged at about $70 million across both segments, driven mostly by maintenance and productivity initiatives. Our guidance reflects our belief in the competitive strength of Central, our central to home strategy, and the long-term trends supporting growth in the Pet and Garden industries. In the near-term, we will continue to focus on cost and cash, and we'll take a more deliberate approach to investments in our consumer growth agenda. Thanks to our strong financial position and the amount available on our credit facility, we are always on the lookout for great growth and margin accretive acquisition targets in both Pet and Garden. This outlook excludes any impact from potential acquisitions or restructuring activities undertaken during the year, including any projects under the cost and simplicity program. The outlook also excludes the impact of our recent TDBBS acquisition, given we're still in the initial stages of the integration process. And with that, we'd like to open the line for questions.
Operator: [Operator Instructions] Our first question is from Bill Chappell with Truist Securities.
Bill Chappell: Hi, just wanted to talk a little bit more on the Garden side. I mean, you said in the quarter there was some earlier shipments of some garden categories, and that's kind of -- and I know December quarter is not indicative of the full year, but I thought the trend had largely been more just in time ordering for everything from the retailers, especially as we go into this season. So is that any different? Are you expect even more tightening of orders closer to time of sale or is it loosening, any kind of color you can give on that would be great.
J.D. Walker: I think it's too early to determine if this is a long term trend or not. Last year, we definitely saw orders moving closer to consumption just in time this year. We mentioned in the script that our quarter ended a week later. So last year it ended just before Christmas this year. It was a week later, 1230 that week after really helped with shipments. The retailers start to load the stores in anticipation of the season. We also saw a couple of select retailers decide to move their shipments forward. And I don't know that that's going to be a long-term trend or not. And not all retailers did that, but a couple of key retailers did, and it impacted our sales for the quarter.
Bill Chappell: In general, where would you say the enthusiasm we've heard kind of mixed results out of the DIY retailers right now to start the year anyways? How do you think they're set up or, or looking for this the upcoming season?
J.D. Walker: They're all saying the right things. I'd say that they're all signaling that they're eager for the season. Obviously, lawn and garden drives a lot of footsteps into the store during the spring, and they're in a much better inventory position this year than they were a year ago. So I do believe that they're looking forward to the upcoming season to get back on track, if you will. Last year was a bit of an anomaly with heavier inventories and the weather never fully cooperated. This year, they're saying that they're excited about the season and I think their actions are backing that up. We're seeing a lot more promotional activity, a lot more engagement from the customer, and we're looking forward to the season as well. So I think that we're cautiously optimistic at this point.
Bill Chappell: And then switching just to Pet, you had kind of sound the concern bell about just overall pet trends, especially for durable. As we move into ‘24, I mean, certainly saw some of that on the durable in 1Q. Are you seeing that bleed over into any of the other segments of pet in terms of just overall consumer demand or trade down or a bad term? Destocking of pets?
John Hanson: The biggest place we're seeing is where we mention that's durables double digit declines in durables softening pet ownership from the COVID highs. And keep in mind, in the category, approximately 75% of the category is consumables and 25% durables. With our business, we run 80/20 and the good news for us is we're taking market share on both consumables and durables. So we feel good about that but the category does remain soft. We're seeing some moderate growth in consumables, as well. But I wouldn't -- we're in the categories we compete. I wouldn't say we've seen trade down per se.
Operator: Our question is from Brad Thomas with KeyBanc Capital Markets.
Brad Thomas: Wanted to follow-up with J.D. just about the all-important spring selling season here. And was wondering, if you could give us some color about how the promotional backdrop and competitive backdrop may be affecting things as you think about the months ahead here.
J.D. Walker: Sure. Thanks Brad. Thanks for the question. I'd say that it's -- we don't have clarity in terms of some of the competitive and the competitive environment for the future. I'd say that we feel good about the promotional aspect of it. So I think, what we're seeing is customers are going to be more promotional. We're getting our fair share there. They are bringing in inventory as we expected them to. So loading the stores, setting the stores, I think all of the controllable aspects of the in front of us, we feel good about that. All the controllable causal factors, if you will. It's the uncontrollables that we don't know about, right. Weather and so on. But we've had two tough weather years. That's why we're taking a cautious approach, a more measured approach to the year. But as I told Bill, the customers are very engaged, our retail customers, everything we can control in terms of product availability, promotional activity, we feel good about. I hear a lot of chatter about competitive environment, but we're not seeing it translate yet. I think that's still in front of us. And our approach will be that we'll react to that as needed to defend share, to defend our share shelf. We'll certainly react, but right now, the season's still in front of us and I don't think anyone's completely tipping their hand at this point in time. We do feel good about expanded distribution this year. So our points of distribution have grown year-over-year. So there's a lot to like about where we sit right now with the season still in front of us.
Brad Thomas: That's great to hear. And a follow up for Niko. Niko, you mentioned just the timing of selling through some of the higher cost inventory, taking a little bit longer, but as we think about gross margin for the year, is there anything different to think about in terms of how you think about gross margin for the year? Or just -- is this just timing within the year?
Niko Lahanas: Yes, it's more timing. I think, we're still feeling good about gross margin for the year overall. The other thing to take into account, we're going to continue along our cost and simplicity program too. So we're continuing to take cost out, and that should help. If you look at this last quarter, one of the biggest drivers was our cost out initiatives in terms of expanding margin, and then the moderating inflation definitely helped as well.
Brad Thomas: Very helpful. Thanks so much and good luck this spring.
Operator: Our next question is from Jim Chartier with Monness Crespi and Hardt.
Jim Chartier: Could you first talk about POS by business, how it trended and what were the key drivers behind that?
John Hanson: Yes, I can start. This is John, Jim. On the Pet side, POS trended pretty similar to shipments. Our inventory on the pet side are in pretty good place. And again, the durable POS was significantly that's where the declines were consumables held pretty solid.
J.D. Walker: And Jim on the Garden side, POS was down slightly for the quarter. Now, our portfolio is a little different than most of our competitors. We have a big Wild Bird business Wild Bird feed, and that usually drives our business in Q1. The unfavorable weather that Niko referenced in the script, impacted our Wild Bird business. So that POS or consumption was off. If you factor out Wild Bird, our POS was up mid to high single-digits for the quarter on all of our other businesses.
Jim Chartier: And then Niko, just trying to understand kind of the impact of the cost out initiative this year. Is there any way for you to kind of quantify the savings that are embedded in your guidance or what the expected savings are from initiatives that have already been implemented or kind of in the process of being implemented?
Niko Lahanas: No, we're going to stick with what we said before, Jim. We're going to give quarterly updates. I think in many cases these things take time. So we have to lap a lot of these initiatives. So timing is going to play a role too. So, really hard for us to quantify all of these things going on at once. So, we're not going to focus on giving you a yearly forecast on cost out, because I'm pretty sure we'd be wrong. Rather we want to focus on what we're actually doing, and sort of the costs behind those initiatives similar to what we did a year ago.
Operator: Our next question is from Bob Labick with CJS Securities.
Pete Lucas: It's Pete Lucas for Bob. You covered a lot of my questions here. Just sticking with the Garden business or going back to it here, what are you seeing or expecting this year in terms of pricing versus last year? And do you think somewhat lower pricing could drive higher demand or kind of your thoughts on what you're thinking for this season?
J.D. Walker: I'll take that one as well. So what we're seeing in some of our categories, we've seen some pricing -- we've made some pricing concessions, where we have commodity driven categories, commodities have softened, we've made some concessions to the retailers, and they're in turn passing that on to the consumers. But that's on some of the business. I'd say the bigger opportunity here is where we're passing on promotional savings to the consumer. We're being much more promotional and I think that ultimately will drive more footsteps into the store, more consumption in the categories. In general, across our categories, we're seeing fairly stable pricing. Certainly not escalating like it was a year or two, but not dramatic drops either.
Pete Lucas: And then just one more for me in terms of the M&A outlook, I think you mentioned in the prepared remarks, seeing lots of opportunity. Is that something that you're still actively pursuing now or is that waiting for a new CEO or how should we kind of think about that for the near-term?
J.D. Walker: No, we're all in on M&A. In fact, we had some turnover in that group and we're adding resources once again to really pursue that activity. And I think, you have a proof point. Just a few months ago we did the TDBBS acquisition and under best leadership as interim CEO. So, we're not having not having a CEO or permanent CEO call it what you want will not slow us down. We're aggressively pursuing that initiative because it's important, as I mentioned in the prepared remarks we want to grow organically and then supplement that growth with some robust M&A activity.
Operator: Our next question is from William Reuter with Bank of America.
William Reuter: I have a couple. So the first, in terms of the Wild Bird being down, do you think that was based upon weather on some level, or do you think this is just based upon weak consumer spending and some consumers not being willing to feed birds when prices are really high?
J.D. Walker: William, this is JD (NASDAQ:JD). I'd say that it was almost completely driven by weather. So that business performs best when there's in the winter months when there's snow cover on the ground. It's one of the categories that performs best for us over the last couple of years when we saw the consumer in some categories exiting the categories or household penetration wasn't as great as it was during the pandemic, while bird actually has been strong throughout that period of time. So I don't think it's had to do with the economy and had almost entirely, it was a result of the unfavorable weather.
John Hanson: Just to pile on to J.D. remarks, we had a soft first quarter in Wild Bird, and then when we got the Arctic freeze in January, we saw the POS pick up right away. And so you saw the snow on the ground and the consumer run in to buy that Wild Bird food.
William Reuter: Got it. That's helpful. And then, in terms of -- it wasn't entirely clear to me if there is any destocking that continues to happen in lawn and garden or pet in the categories in which you participate, are there, is there any more destocking that continues to go on or are inventories in good shape across all channels?
J.D. Walker: Well, speaking for Garden, I'd say that overall we're in good shape. Are there pockets, where there will be some continued destocking pockets? It's a little bit lumpy, they can't get it perfect in all stores across the country, but I'd say by and large, we feel good about where the inventory levels are now.
John Hanson: Yes. And on the Pet side, very similar, we feel the retailer inventories are in very good shape. There may be some pockets, but it's very -- it's small scale.
J.D. Walker: Kind of took our medicine about a year ago, right, John?
John Hanson: Yes, we did. We took our medicine last year.
William Reuter: And then just lastly for me, I think given where public equities in the pet space have traded, I've heard that most private companies believe their valuations are hoping to achieve valuations in the sale of their businesses that are in excess of the public markets. Do you think that continues to be the case, or are those expectations returning to reality?
John Hanson: It's a mixed bag. It depends on the categories. It's like almost any business where you, if you've got a lot more IP proprietary type of technology, higher barriers, entry, you're going to pay a higher premium on those. But yes, I mean, typically what we've seen is the private market does follow the public. You always have that going on and, and then when the public markets come down, you typically see the, the private markets follow. We've seen no slowdown in terms of higher multiples on the pet side. That said, I think, we did a nice job on our last acquisition. In terms of valuation, we feel great about that. But yes, I think the pet multiples, particularly in the consumer space, dog and cat, I think you can expect those to be pretty high.
Operator: Our next question is from Andrea Teixeira with JPMorgan.
Andrea Teixeira: Thank you, operator, and good afternoon, everyone. I was hoping if you can elaborate a little bit more on the cost out initiatives. I understand that you don't want to give precise numbers, but just to get some sense of what are the sources or buckets of those expenses, and if those who accelerate through the year or you're budgeting some reinvestment as they go through, I'm just thinking of your 80 basis points improvement in margin. I was trying to think if that's related to TDBBS acquisition. And then on that, just as a fine print here, I believe if I did the math correctly on that division, the acquisition contributed to about 3%. If we bridge organic, I guess total sales, is that correct?
J.D. Walker: Well first, let me start at the beginning. So, we've got the cost and simplicity program. We've got five primary drill sites, so it's procurement, manufacturing, logistics, portfolio optimization, and then admin costs. Last year, we kind of kicked that off. We talked about it. You've seen several initiatives happen over last year. And then we're going to continue with that here into to ‘24 and ‘25. Again, we're going to give quarterly updates in terms of what we're doing. We talked this quarter about a greenhouse that we'd shut down as well as a Garden distribution facility that was sort of on the tail end of last year's sale of the independent Garden distribution business. So more to come there. In terms of the margin, accretion or expansion this last quarter largely driven by our cost initiatives as well as moderating inflation. I'll tell you, TDBBS was actually a drag on margin because we have to go through the purchase accounting there. When we inherit that inventory we have to market up. So it actually did not help us much or at all. In fact, it was a drag, so on margin. As far as top line, it had a de minimis effect on the top line as well. So it was so far not a huge impact by the acquisition.
Operator: Our next question is from Hale Holden with Barclays.
Hale Holden: I had two. You mentioned that you gained distribution share in the Garden segment for the upcoming spring season, and that's actually what your primary public competitor said this morning. So I was wondering if you think, it's just different categories or potentially that your retail partners are expanding the category sets this spring or somebody who's losing share, I guess is the other alternative.
J.D. Walker: I heard that as well. I did not hear them speak about specific categories, but I will tell you that we grew share in grass, seed and fertilizers and insecticides. And while it's not tracked by syndicated data, we know that we also grew share in packet seeds. So, I didn't hear anyone else claim a category, but I will tell you that in those categories we took share and we feel good about it.
Hale Holden: The second question I had was at the risk of sounding like I'm asking a fed watching question your consumer outlook is pretty dour and hasn't changed in a quarter or two in terms of how you're underwriting to the full fiscal year. And do think there's some conservatism given how the consumer's turned out? Or are you still sensing that there's some reluctance out there?
Niko Lahanas: Well, we're taking more of a wait and see attitude. If you look at our last two years, we did miss our guide, and if you rewind to November, we talked about being a little bit more conservative in our outlook. After missing guide two years in a row. So I think, we want to see how the weather plays out, how the Garden season plays out. I think the early signs, we feel good. We feel great about the business. Q1 came in to a solid start. I think, we took market share in like eight categories across pet and garden. We expanded margin, balance sheet is in great shape. So we feel really good about the business. We just need to see it play out kind of real time. And before that happens, we're a little remiss to get overly enthusiastic about the consumer.
J.D. Walker: And Niko, just building on that point, you said in the script, 15% of the Garden season is Q1, so we 85% of the year in front of us, we're not going to celebrate too early, but we do feel good about where we are right now.
Operator: Our next question is from Karru Martinson with Jefferies.
Karru Martinson: Some of the headwinds that you referenced was working through that higher value inventory. How long do you feel that it would get, will take for us to get through that? And kind of tying into that what should we think about the working capital benefits this year, on that front, given the benefit that we had this year?
Niko Lahanas: Yes, so great question. We've got a few businesses that are extremely long on inventory and we think that that's going to play out through this year and even into ‘25 a little bit. As far as working cap, we did a great job last year of converting that inventory into cash. We are going to continue to do that. Our work is not done as far as really working that aspect of the business. So we're expecting a nice free cash flow number this year as well. So work is not done. I think, anywhere from $50 million to $100 million of inventory that we can lower throughout this year.
Operator: Our next question is from Michael Copla [ph] with JPMorgan.
Unidentified Analyst: One thing that we wanted to ask about was that, if you think that the fair share of promotions that you guys are getting is making some of your product maybe priced pretty attractively and kind of how that stacks up versus the competitors that you see out there.
J.D. Walker: Michael, J.D. again here. I'd say from it is early to tell. We don't know what all they're going to do from a promotional standpoint. Like I said earlier, we feel very good about our promotional support that we've secured for the year. They've signaled a very strong second half of the year. So I think a lot of that, we will have to react to as we get into the season. But they haven't tipped their hands fully in terms of promotional pricing things like that. I'd say that going into it, just based on the way the market's been the last couple of years, we feel like we're well-positioned. We feel like we've got great promotional and display support and we'll have strong execution in the stores, but difficult to draw any conclusions. Here we are in early February with the season, still say 60 days away.
Operator: Thank you. There are no further questions at this time. I'd like to hand the floor back over to Friederike Edelmann for closing comments.
Friederike Edelmann: Thanks everyone for joining our call today. Our IR team is available to answer any question you may have. Thank you and have a good rest of the day.
Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
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