Good morning. I'm Brad Shelton [ph]; I would like to welcome you to the Scotts Miracle-Gro First Quarter Earnings Conference Call. I have recently stepped in to lead Investor Relations after 17 years at Scotts in a variety of finance leadership roles. I am grateful to succeed Aimee DeLuca, who will retire from Scotts Miracle-Gro at the end of this month after a 23-year career at the company. I've appreciated the opportunity to meet many of you already and I look forward to meeting all of you over the coming months. Speaking today are Chairman and CEO, Jim Hagedorn; and Interim Chief Financial Officer and Chief Accounting Officer; Mark Scheiwer. Jim will provide a business update, followed by Mark with a review of our financial results. Following the webcast, President and Chief Operating Officer, Nate Baxter; and Executive Vice President and Chief of Staff, Chris Hagedorn, will join Jim and Mark for an audio-only Q&A session. To listen to the Q&A, simply remain on this webcast. To participate, please join by the audio link shared in our press release. As always, today's session will be recorded. An archived version will be published on our website at investor.scotts.com. For further discussion after the call, please email or call me directly. Now, I'm going to turn it over to a special guest that Jim has invited to provide commentary regarding Safe Harbor and forward-looking statements.

All right. SMG Investor; it's me mouse that was killed in the Tomcat commercial Award -- awkward. Miami, Jim Hagedorn, the big cheese of Scotts Miracle-Gro asked me to be here to help introduce this Q1 fiscal earnings call. This whole thing is a little off brand for me but I am a versatile rodent; so today I'm going to be super profession. During today's review, the company will make forward-looking statements and discuss certain non-GAAP financial measures. Please be aware that the actual results could differ materially from what is shared today. Please refer to the company's Form 10-K filed with the SEC for details of the full range of risk factors that could impact the results. I don't know what any of that means. So, I'm going to turn it over to Jim. Yes, my man. This is going to be light [ph].

Good morning. I hope you enjoy the mouse's intro to our call. I'll begin with how pleased I am with our first quarter results. We're off to a very good start. We delivered on the metrics that form the foundation of our fiscal '25 plan and we feel very comfortable with our Q2 sales load-in as retailers prepare for the lawn and garden season. They are just as bullish, if not more, on this year's season. All of this gives us great confidence in our fiscal '25 EBITDA guidance and our outlook through fiscal '27. Mark will walk through the financials as I want to discuss how we're building the company for the future. I've often said we're on a journey. And this one began when we emerged from COVID under severe financial constraints and we're forced into crisis management. We've restored the financial stability of the company and we're set for growth and continued progress. This journey gave us an opportunity to reflect on the future of Scotts Miracle-Gro and what we want our company to be. In the Air Force, we'd say change often results from a significant emotional event and that's what happened to us. We're at an inflection point where we're making changes to transform our organization. Let me tell you where we're going, what it means and how we'll get there. All of our transformation work starts with our core convictions. Many years ago, we developed these core convictions to guide our associates in driving, protecting and nurturing our very special and unique consumer business. Everyone in our company carries the core convictions on their employee badge but we've fallen into the habit of not paying much attention to them. Our future is about bringing them to the forefront again and doubling down on our…

Thank you, Jim and hello, everyone. Before I get into the first quarter financials, I'll add to Jim's comments about the transition and how well it's going. Throughout my 13-year career with Scotts Miracle-Gro, I've worked in many facets of finance for strong relationships with our external partners and collaborated with the executive team and business leads. I'm a believer in being open and transparent and I look forward to developing relationships with the investor community. I've built on this approach in my early tenure and look forward to helping the team make progress towards our fiscal '25 and 3-year growth plans. My passion for growing this business and driving value is rooted in my own lawn and guarding experiences. I'm an avid consumer and I can personally attest that Scotts Miracle-Gro has the best brands in the business. Shifting to the quarter, we are off to a great start. I am pleased that the strong first quarter results are well ahead of expectations. While we're optimistic for the year, we are maintaining our guidance, especially since the first quarter represents less than 10% of our total POS. Our second and third quarters will be the biggest contributors to our full year performance. So you can expect us to revisit guidance later in the fiscal year, as we usually do, once the season is in full swing. What we know from our first quarter performance is that we have positive momentum. And our retail partners are highly engaged. We are positioned to drive consumer takeaway with the right strategies and investments. In addition, our first quarter results reflect the hard work by our supply chain team in order to achieve our full year target of $75 million of cost savings which, as a reminder, is a part of our $150…

[Operator Instructions] Our first question comes from Chris Carey with Wells Fargo Securities.

There was a comment in the press release about strong fall season across all categories and some early retailer load-in for the spring season. Do you envision any timing shift from the March quarter into the December quarter? Are there any implications for the March quarter, number one? And then secondly, as we sit here going into February, maybe expand a bit on early reads that you're seeing in markets that -- I suppose there's no markets that are breaking but how you're feeling across the country right now going into spring? And maybe just sprinkle in any comments on your exposure to the West Coast and Los Angeles County specifically. So, just a little timing shift on the December versus March quarter than some early season reads.

There's a lot of stuff in there, dude. Let's just start with the fall went really well. And actually, there is season happening. We're having a Board meeting in Florida where after this call were headed down there on Thursday and Friday Board meeting there. Where it's forecasted to be like near 80% [ph], I think -- for -- I don't know, the next 5 or 6 days. So definitely, the country is beginning to come away from a lawn and garden point of view and the numbers continue to look good at the POS level. Nate and I were speaking to a senior merchant, very senior merchant. I guess that was last week. And -- what we were talking about was partially in my comments that I made today and did that sound right to them which is sort of discussions about program dollars. But we got into just how POS looks and their view of -- based on the business that they're seeing in the fall. And so far, the spring where markets are opening, did they have data that sort of portends in what to look forward for. And they believe that they did and that -- and it wasn't just lawn and garden. It was just generally their sales and that they felt that this was a good indication that the consumer is alive and well and willing to buy. This is a home improvement retailer; so that that felt pretty good to us. Their biggest concern and this gets to the timing is -- do they have enough inventory deployed at the store level. And so what that said to us is there's no sensitivity on load issues and there's a view -- again, go back to this based on what they were seeing with their POS data, not just in lawn and garden but across the chain. That the consumer appears to be in a good mood to buy stuff. And that historically, that is a good sign. So I believe it, I wanted to believe it, too. So I think that's healthy. I don't know what I've missed, Nate, on what I was...

No, Yes, I'll add a little more color. So coming out of last summer, lot of lung damage in particular. And I think the fall POS really showed the consumers were engaged. We know historically that not all consumers come back and fix in the fall. So I think that gives us a little more confidence in the spring. Coming on the West Coast, really a nonfactor for us. We're obviously deeply concerned about what's happening in those communities. But from a business perspective, not going to be material. And of course, our teams will be out there helping folks when the time is right to rebuild. I would add likewise, this winter weather we've had, especially in the Southeast on the East Coast, I think the conventional wisdom among our retail partners is that will be good for lawn and garden. There will be a lot of necessary repair work in the ring. So overall, between what we saw in the fall, the load-in that's supported by our Q1 numbers from our retail partners, we feel like we're as established as we can be for a decent spring and we'll see what happens.

And then, Chris, just to circle back on kind of phasing of sales, the low single-digit U.S. consumer guide that we've given you. It's -- we would expect the first half and the second half of our fiscal year to be pretty consistent as far as having that similar pattern of sales growth. So there might have been a little bit of earlier load in than maybe some of your models and all that. But I would say that generally, that low single digit, we should see that the first half of the year and then the second half of the year. And as far as traditional sales patterns go, we've kind of gotten back to our pre-COVID norms of the 55% to 45% -- 55% of the first half of the year being sales and then the 45% in the back half. So we've gotten back to a little more normal sales pattern on that front.

Okay, great. Comprehensive. My follow-up is on Hawthorne. Jim, I think the concept of a strategic alternative for Hawthorne has been contemplated for a long while now and there have been logistical challenges with actually getting something done, right? And so I guess, in a way, I think there's always been some desire or increasing desire to do something with the asset over time. And so I guess the question is, are you feeling like the logistical side of actually being able to do something with the asset is getting better? Or are you simply saying you remain committed to finding an alternative for this business?

I'd say both. So -- I think, Matt and I probably were not exactly the same spot if you look back when Matt was here. And I think his view is if it's profitable, some of you guys shared this when you were out at the investor day here last summer, that first of all, it's good news that Hawthorne is back in the black and that's decent for the equity just based on your PE, that I would say PEs are higher in sort of our business than they are in sort of the screwed up public equities that are out there for cannabis. And therefore, it does add value. Where I got to and so I'm leading with my chin a little bit here because this is probably the last 1.5 months were basically -- and we can talk about it during the call but it's not that the market has been so kind to Hawthorne, it's been very much internal work to cut expenses and do everything they can to get where they get to. And I think we're confident in the $20 million. We have on my mandate they are on my Board for Hawthorne. It's a bigger number than Mark is using in our strategic plan numbers, meaning that I think it's going to be hard work for them to get to a number that I would find respectful. It doesn't mean it's impossible and they've done really, really good work but it means it's a relatively small beer. And I think if you look and say, with all the sort of downside of good news, bad news and I think hard on the shareholders. Clarity on what our equity represents that I was talking to some of our external advisers and I just said,…

Our next question comes from Bill Chappell with Truist Securities.

Does have a question, I guess, specifically for Nate and for the whole management team. I mean, we duct over the 20-some years I've covered the company about stepping up marketing and advertising and new R&D and stuff like that to grow sales. But I'm just trying to -- I mean if I look at your business, there's 2 ways to grow top line. One is expanding the number of regular users and two, would be expanding the basket size or the amount they spend per year. And I'm trying to understand, is there a quantifiable opportunity on either and which one has more opportunity? And how are you going about kind of expanding it?

I'm going to jump in just at the beginning part because part of this is revisiting our core convictions and investing in the brand. Bill, I think if we look at sort of market last year, probably, I think, 3%. I think the numbers are worse if in from live goods within total market. We grew at about 3x that. And a lot of -- that was a lot of share gain in there. And so this was coming out of a period where we kind of wanted to get the program dollars back, retailers resisted that. We talked about that have created probably a lot of confusion on this discussion last year. In exchange for leaving that -- those program dollars at the levels they were at and probably actually increasing it a little bit. We picked up a lot more shelf space and promotional percent of promotion that occurred in the departments. And so that was really good for us and we see that occurring pretty much at the same levels this coming year in sort of POS units. Now it's a very fair question to say how long can that keep going, how much share is there to take. I think Nate has been very much focused on where is there additional business where we are under-penetrated. And -- so you want to take that?

Yes. Sure, Bill. It's a great question. And the simple headline is both are important but let me break it down this way. I think as we go into the spring, consumers will see our focus messaging standpoint is on frequency. If we look at lawn fertilizer plant food, for example, we know there's opportunity. We've gotten off message in terms of our multistep and the need to feed. So that will be a big focus this year which we think we can increase that basket size. And we'll do some cross-brand work as well. Jim alluded to our new website and we're working with retailers on programs where liquid controls. For example, we can figure out a way to attach them to some of our fertilizers. But the user thing is important and Jim referenced it in his opening remarks on needing to engage that next segment. If I take a step way back and just look at household penetration overall for lawn and garden, it's less than 50%. And if I look at the trends over the last decade, number of users, whether they're people stepping out of the category or new homeowners who just don't have the confidence they are engaging in the category. Unfortunately, that's rising. I look at that as an opportunity. So while we've gained share in the near term through innovation, listings and retailer programs, we've got to do more than that. We've got to talk about education. We've got to talk about engagement. And it's a big force lever. It's every 1% of household penetration is another $50 million in ferts for us, for example. But every additional 1/10 of a turn of what we call frequency or the average number of applications that's almost an equivalent for us. So the opportunity just to some, they're both there. In the near term, it's focused on, what I'll call, the heating frequency -- and in the mid- to long term, we're absolutely focused on how to engage that consumer that we're not engaged with. And I'll add, I think there's opportunity for us in the do-it-for-me space. And I don't mean from a service standpoint right now. What I mean is getting consumers who choose to use a professional to choose our products and that's an area that we'll be thinking about in the midterm as well.

I don't think we should not bring up the sort of dot com side. I think as we look at the business and I think -- we got a whole new crew running our brands now and they are hungry and enthusiastic and younger and I love what they're doing. On the control side, I think what's really clear is we're very much underpenetrated in these sort of dot coms, whether it's the retailer.com, it's the Amazon -- marketplace, call it and what you're seeing is weirdly, competitors actually live there. And we're very dominant in retail. We're clearly less dominant online. And that means we have to have some products that are redesigned but it's -- a lot of it is in the controls market. And I'm talking hundreds of millions of dollars. And -- so we see competitors in there. You're seeing Procter play a little bit with Evo in there. And you're talking more than $100 million and not just once a couple of times. And -- so this is a clearly low-hanging fruit for us but we have to go after it. And I think the young crew that's working the business under Nate and with Nate's like enthusiastic support. This is a big opportunity. And the part that may be nervous about it is when they define the opportunity, he was talking in like nearly $1 billion of opportunity. And this gets back to your question, Bill. And I said to seriously, I vanished that number. Make it a smaller number so that you don't get out of balance where we're trying to make investments and we're chasing something that's a little bit in the ether; but there's clearly a lot of upside there. So I think that this retailer.com thing is a big deal, particularly with younger people who are very used to buying online, they're not going to brick-and-mortar sites as much. This doesn't go against it. I know that a lot of our biggest retailers are very active on com and enthusiastic about us helping them. But there's a lot of opportunity there and penetration and the screwed up part for me is we're letting people live under there and we need to say that business should be ours. And so we're going to go after it.

And just real quickly, Bill, on the investment side as they've talked about that. I mean, to me, it's very much kind of folds into our superpowers, I don't foresee this being a massive amount of long-term investment. We will continue to invest as part of our longer-term plan. But things that Nate has talked about. I mean we've got incredible supply chain facilities, incredible distribution capabilities. We have a lot of that already in stock that it should be a pretty good return on our investment. Will we have to invest sure but I think it could be easily managed.

That's great. And just the follow-up, tougher for us sometimes to see the changes in market share or whatever at the retail level during the season, we kind of hear it at the end. Is there an area of, be it lawn food? Is it soils, mulch, something where you're super excited about, hey, we've got -- we're really geared up. We can gain big chunks of other and really grow faster? Or is it really kind of broad brush, we've got momentum overall?

Okay. If you don't, we can both answer it. Because it's another one of these, I think, good question. If you look and say, where is the business it's easy to go with the current. Controls and gardens are Hankin and that's good for us, okay? That's high-margin business. It's, I would say, double digit is what we're seeing and we expect to sort of continue. So I think that that's where you're going to see kind of share gains because that were just in the flow and that's good news for us. We're not losing share on lawns. I think we're -- we're in a really, really, really good place. I think that everybody is now basically saying, we need unit buying back, okay? Remember, you don't see a big decrease in dollar sales in loans, mostly because we've been pricing. And I think we were saying we've sort of reached the limit of that, mostly for the consumer. But -- and it's a good profitable business for us. But I think this multistep get bags up, we've got a real plan. And when you talk -- this is the legacy business at this property in Marysville and to have everybody basically be willing and open-minded to sort of critically looking at what's happening in the market and willing to make change. The entire team is in a really good place and very open-minded to change. And I think this is all healthy. I wouldn't do not read anything bad here. This is getting people to be kind of critical of the lawn business here. I don't know it's like criticizing has aged or something. It's tough to do and get away with it. Here, everybody is open-minded and whether it's the brand team, supply chain, R&D, the leadership team, everybody and the board, everybody is interested in that. So we're -- that's probably the most troubled there but I would say it's unit volume is what I would be looking at on that. And I think that would be a good thing for you to look because it's one -- if you said to me, there's Top 2 or 3 things you're working on. I would just say continued recovery, margin investment in our business and lawns and getting resolved getting our Hawthorne assets all put together in a place that adds the most value. That's what I'm looking at.

Our next question comes from Jon Andersen with William Blair.

Boy, there's a lot to chew on here. I did want to say that I didn't have the mouse on my bingo card this morning.

You've got a bingo card. That's cool.

Maybe starting on gross margin, I'd love to hear a little bit more about the cadence that you're expecting of gross margin improvement throughout 2025 but also you've kind of established this 3-year goal of getting back to the mid-30s. And I think maybe, Jim, you've characterized it as that last third which would come post 2025, I believe, will be the hardest yard -- those will be the harder yards to get. And any updated thoughts on that 2027 objective and perhaps those harder yards and how you're feeling about getting back to that level?

Well, let me just take before Mark starts off. Is there's been a lot of pressure from my board to have a longer strategic plan out view than through '27. I've resisted pretty hard largely because of exactly what you said, like first, I believe that which is that I want to get to kind of our new spot before we start sort of confusing ourselves with a lot of long-term objectives that I think it's not that they're not important but I think we're not completely done fixing this business and getting it to where what I talked about. I'm not sure that I buy that it's a lot harder because I think the team and I'm going to give credit to our rookie here, Shire [ph] who's doing an absolutely fabulous job. And largely, he's just working really well with the rest of his finance team and the operating group. And -- so I think there's a line of sight to almost everything we're talking about here. So I don't think it's as hard as you think. I think it is going to require us to do some more hard things. But I don't think we -- but believe me when I tell you, we have line of sight to the numbers. We're obviously pushing to a higher number than where you guys are at. And I think that's not unusual and that's, I think, what we should be doing. It's harder than you think a little bit, largely because incentive kicks in and just makes a harder number harder because we -- the number we tell you has got the incentive already built into it. So -- but people are pretty motivated and they're chasing it. So, I guess that's really what I would say is not…

Jon, just a follow-up just very specific on your 2 questions, phasing and long term. So for phasing for this year on gross margin, so we've talked about $75 million of cost out. We very much have line of sight to that. And as Jim said, the team is pushing to get more in the fiscal year as well. But at the end of the day, that in my prepared remarks and all that, it's about 2/3 first half of the year. That $75 million will get put in for the for the fiscal year. And then the other 1/3 will go through the back half of the year. So the 2/3, the reason it's more front loaded, obviously, is commodities. Inventory; we've done a nice job, obviously, acquiring inventory at lower prices. Year-over-year, we've seen the commodity, deflation. And so we're now working through that cheaper inventory to where we're now on a good level playing field for the balance of the year. So year-over-year, we were still working through some higher cost of inventory last year. The first half of the year -- and so that's why you'll see that year-over-year benefit from the lower cost of inventory. So I would foresee additional gross margin improvement in Q2 versus prior year. Again, about 2/3 like I said. And then third quarter, probably pretty close and then we'll get into Q4. In Q4, we'll begin to lap the E&O charges we took around $29 million which will be a year-over-year comparison benefit. So that's kind of how the phasing for this year goes. As far as long term, I would just tell you, we were landing around 30% on a full year. If you look at the core business, it's north of that, the lawn and garden business gross…

Yes, not to [indiscernible] but I think a few details, Jon. So I've got my business units looking at 3 main things. First of all, Jim referenced in simplification. I guess, we'll call it a SKU effectiveness project. But basically, I think it's been a long time since we've taken a hard look at the margins on a SKU by SKU level. And I'm not a buying we're going to massively strip the portfolio down but I think my GMs need to know where their margins are. So that's the first piece. Innovation look innovation will drive margin accretion and we've been trying to get that innovation and turn back on. During the pandemic and our challenges afterwards, we were really focused on cost out. We've made some nice additions to the team to think out 5, 10 years and then, of course, the supply chain efficiencies. And the other comment I want to make is we're not going to do this at the expense of retailer margins. They're our partners and we're going to work with them to make sure that programs we put in place drive win-win for both of us. So it is all task but I told Jim, he asked me, can we get to 35% [ph] and I don't think I skip a beat. I think we'll get there. I don't have every step in the way mapped out but directionally, I'm pretty confident.

I mean I'll just add, pricing will be a part of this, not all of it but pricing will be a part of this. Remember, Hawthorne out I'm going to say it's worth at least 100 basis points.

Our next question comes from Eric Bosshard with Cleveland Research.

I guess to start, Nate or Jim, I'm curious, strategically, as you're thinking about price and market share and gross margin and connecting those 3 things. You've got commodity savings this year which is funding some gross margin expansion. Jim, you mentioned a consumer that's price sensitive. And then you also talked about market share progress. And so I'm curious, do you feel the need as we work through this year to be more promotional to spend money to -- you talked about this innovative multistep program of being more aggressive with discounts to drive consumer traffic. Is that part of it? And obviously, there's some more private label competition out there or do you feel like the investment in the brand and marketing is sufficient that you can power through all of that which is basically what you did last year. How do you think about connecting those points?

Well, I think they're all connected but I'll start there. Again, this is like my word evolution. So it doesn't mean it's where everybody else is around the table. There's a lot of people here. But I would say -- we looked and I think we've talked about it with you guys that as we went through our most challenging years, there was a lot of incentive dollars to make sales happen when we wanted them and needed them. And the retailers did it and they were big boys and girls and it was all voluntary. But I think what you saw is our margin go down and theirs go up. And now [indiscernible] and troubles over and I want my money back. That's kind of where I got to. The more I've looked at it though and the more I thought about it competitively and this is one of the reasons I've been chatting with retailers at the senior level about it, is what we're seeing is they're working so hard to get consumers into the store that for every program dollar we put in, they're spending more than that of their money, driving our products and our brands. And all of a sudden, I started thinking of myself if we can make our margin goals and I don't want that money back. I just want it working hard for me. That was part of the discussion which is I'm cool with this but I think talking to Josh Meals, I don't know, a couple of weeks ago, he just said we got to have very sharp elbows then, because those programs got to work and they don't always work and sometimes they do a lot of times they do. But that was really the discussion and the sort…

No. I think I second everything you say promotions, Eric worked for us last year. We've leaned into the more this year. And I think the art is in sort of working from top of funnel, our media down to consumer conversion at the shelf. And making sure along that entire path to purchase, we're spending those dollars appropriately. So I would say as we evolve and I have a new team here, we're spending more time thinking about from top to bottom, how those dollars work for us. Our retail partners have been great. And just to touch on the private label, it's an important part of the business for our retailers. And of course, we support that business for them in a lot of areas. I don't see it as a threat. I see it as part of a good, better, best. And just taking a step back, if I look at private label share since 2019, it's been declining. So it's part of the equation here. I don't see it as something that's going to derail our focus on growth and margin.

The only other thing, Eric, I'll circle back on is margin. All of what they said drives volume drive fixed cost leverage, it just allows us greater flexibility. It's why you're seeing that we can do what we can do on the gross margin line this fiscal year and beyond. So I think they all play nicely the finance team here will be focused on making sure we get the proper eye on that and margin recovery but balance that with the longer-term vision of the company.

Okay. And then a second question, if I could. I think you talked about that your POS was up 9% or 10% [ph] last year and an up 3 market and you sound more optimistic going to the '25 than you did '24 for a whole host of reasons. Is the reason why both those numbers can be better in '25?

Well, first of all. I think every time we get in our head that we can do better. We bucket up, to be honest. And so I think the biggest risk factor Nate has probably in his numbers is consumer takeaway. And so it's not a shy number. It might roll up to kind of low single digits but it's not go. Do I think we could do better, particularly if we had a good year which would be nice. I think the answer is yes. But I think it's a little bit like Nate saying, I think there's $1 billion of upside in all these other channels, including dot-com. We are deeply in recovery in a good way. And I don't want to start chasing stuff that sounds good. But do I think there could be -- Yes, I think yes, I do. I think the last year suck dude it's like we -- why did we pick up some much because we have a lot more shelf space. That's fundamentally it. And I think we did a really good job on some of our marketing programs. The fall was fabulous and for a lot of reasons, right? The weather was great, lawns have been kind of burnt up. We had just great programs put together so the consumers were seeing our product like a lot of control stuff happening, including Tomcat. So just, it really came together. And I think that shows the power of the franchise. We just got to string it all together now. So do I think there's continued upside. I don't know if I need double digit because I think it's crazy to say that, even though maybe I think if we can just keep this going longer which I think is the best…

Our next question comes from William Carter with Stifel.

This is Andrew [ph] on for William. Just wanted to ask, first off, with the kind of gross margin guidance that you gave for the year, just to understand it's got the bulk of improvement, I think, 2/3 in the first half. then you have the fourth quarter lap which -- and you're kind of implying 3Q is flat and I know you don't want to get into the granulars of it. But if I go back to 3Q of last year, that's 29.2% which was 700 basis points below 3Q '19. So I guess, I'm asking in your plan here, is there just -- is there a lot of flexibility here for the mix performance, particularly this is a lawns quarter and perhaps a more normalized lawn year or better performance could be upside the margin but just anything in there as I'm digging in?

Yes. So we would still expect -- I think maybe I misspoke a little bit on saying it was completely flat. But it will be -- it should be up a little bit. And you are right, we should have some flexibility there with our with our product line-up and as we progress into Q4.

Perfect. Second question, I guess, I would ask is just to step back and level set where kind of cost savings are over the next year? Go 30% gross margins in hand. You want to go towards mid-30s, getting rid of Hawthorne or I'm sorry, removing Hawthorne from the P&L will obviously help from that. you've got line of sight to about half of that, you said before. And then, there's a -- hey, go get it. And I think you also mentioned a challenge of $30 million this morning to Nate. I assume that's incremental to the $150 million. And then kind of a final question is you've taken kind of all these costs out, it's clear you're putting dollars back into advertising. But as you think about the supply chain and the potential stressors on it, do you see any risk there of not being able to meet the demand and I don't think -- I hope we'll never have a COVID again. But that was a -- fill rates were below and that really stressed. But just anything you can give on kind of driving the comfort that there's not going to be a -- get to '28 [ph]. Hey, we need to reinvest this in the supply chain?

Yes. Maybe I'll just -- I'll touch on the supply chain, Andrew. Good question.

Let me just throw in there. Andrew, Chris was giving you the finger when get rid of [indiscernible] it was in a good natured way.

Thanks, Chris. Appreciate that.

No. Listen, you highlight exactly something that sort of framed as we embarked really starting more than a year ago on our supply chain transformation which is build it with the most flexibility possible. So I am not concerned about capacity either in the short term or the mid to long term. Jim talked about the incremental $25 million in CapEx. A lot of that is going into technology. To help us be more efficient and give us the capacity we need. I mean I'm just proud of the team. We're down to like 6 distribution centers from, I think, a peak of '18 [ph] or something like that. So -- we are definitely making sure that we are not overcutting when it comes to those optimizations. And you'll see the investments. In fact, I'll be talking at the conference in March, just about our manufacturing strategy.

So, could you just talk maybe just a second about just the crew that's down there kind of...

Yes. We've got -- so the great thing about our supply chain is led by Dave for a long time, just a lot of inherent knowledge there. But Dave's done a great job hiring and we've got some young VPs really technology forward that if you were at our conference in July last year, you may have met David Husky. But we've got some really smart people just completely helping us reimagine this, everything from fully automated forklifts we've -- probably the biggest thing we did is this core distribution center. It's a mile down the road from our Marysville manufacturing plant. All of our fertilizers distribute out of that and it's picked up by our retailers. We've saved $0.5 million [ph] -- or sorry, like 0.5 million miles of truck driving over a year between distribution centers. So -- we've got a really good crew. You'll see more coming out of us in supply chain, that $3 million, Jim asked for I would say the bulk of it probably comes out of supply chain but it's all going to be based on a foundation of investing in technology, whether it's supply chain, field sales force, etcetera.

I'd also say Andrew, that the entire corporation is going to contribute. And that's a little bit like let people get back after Board meeting and start sharpening the pencils but there's a lot of teams working right now. This is I mean a lot of that -- it's not just Nate has been contributing. When you look at the sort of 400 out 100 back into the business, a lot of that's come from the operating side. And God bless but that's where a lot of money gets spent. So it's not inappropriate. The corporate is going to participate here too. And we're asking real big questions about who we want to be and how we add value here. So, I -- listen, Mark can say because he's the most important bean-counter and sort of keep the score. But I don't think that number is scary at all. Do you?

No, not at all. And I think to your point, it will come also at corporate and SG&A. And so some of it might get reinvested as Jim talked about on super power, some might drop to the bottom line. I think it just allows us some flexibility as we continue to do our '26 planning which we already have started and have been focused on even while we're in season. So yes, we'll all participate in that process. There's plenty of opportunity there. I think there's a lot of technology over the past 5, 7 years that have allowed us to do our jobs a lot easier and I think get more efficient. I think we've got some good ideas.

Our next question comes from Jonathan Matuszewski with Jefferies.

Nice results. First one was on innovation. In your prepared remarks, you referenced natural fertilizers and liquids. As part of the product road map ahead. So just curious how you see those contributing to the 3% sales growth over the medium term and how you think about innovation as a contributor to U.S. consumer segment growth ahead relative to history?

Yes. Jim, I'm going to steal the beginning of that. It's really Nate's subject matter. But here's what I would tell you -- this goes back to one of my main priorities which is seeing progress on unit volume and loans. Remember, we're not losing share. This is a category-wide issue. One of the things, I think, is concerned by younger people on chemicals used in the yard. And so I do think that organic is one way to avoid people being sensitive. So we know how to do this. This is not hard. So getting or we just -- a lot of times, you just -- you believe in organic you put it in the field, it just doesn't sell that well consumers. But I think that one of the reasons people don't feed is their concern of our chemicals. And so we want to have -- we want to make sure we're looking hard at that. And so we're going to do that. Nate can speak formulation changes, except I would say it's a very tough place to innovate when you're dealing with controls. There's not that many controls. There's not a lot of innovation in ag chemicals, to be honest. And so you tend to be using the same actives. And so I'm trying to infuse to everybody here that if this was Procter and we were talking Tide, I think they would assume the cleaning power convenience of cleaning for homemakers, all this stuff gets better over time. What world are we living in where we're sort of dealing with 30-year-old technology and thinking it's okay. EPA is trying to push us to because they're looking at total exposure that consumers have over a lifetime, including food they eat and their exposure to pesticides [ph] there.…

Yes. I mean, look, I'll break it down to sort of how we look at innovation which is easy use for the consumer effectiveness, value and safety. And depending on your consumer, those things, the rank order of importance changes but I think Jim talked about it. This year, we've got our full Miracle-Gro Company, organics line coming out. That's been a big hit in gardening and we know that, that's important. We have some new innovation and lawns coming out. We have our OM Scotts sort of our heritage line, pesticide, herbicide free, straight food, straight seeds, it's going to be in a curve recyclable bag. So we're playing around with the new form factors. I mean, I certainly would like to see less plastic in the world but it got to work. we've got an all-natural that sort of is going to compete with the P&G offering coming out this summer. And here's the thing I want to be able to offer to whatever the consumer wants. And if we want to have a consumer that wants to be all natural, we'll have products but we're also going to have really smart products that are effective and safe to use that contain active ingredients. And we'll talk a little bit with consumers. This goes to the education piece and I can't stress it enough. We can invent all the great things we want. If we don't talk to the consumer, help them understand how to use these things, it will fail. So that's going to be a big piece of it. And then I'll just end with -- I think we're the only player in the category that has the horsepower to engage with some of our active suppliers, some of the big ag companies I mean we are looking 10 years out. We are looking at biologicals. We are engaging in sort of some of the crystal research they're doing looking for more natural ways to improve the performance, whether it's controls product, whether it's a fertilizer plant food. So -- it will take time to build that but it will absolutely -- as long as we stick to, is it easy to use? Is it effective? Does it bring value? And is it safe? I'm pretty confident that we'll be leading the pack with innovation.

Went announce your new partner on innovation committee.

So Rob Candalino [ph], outstanding new board member. He will be taking over for Tom Kelly. My team has a lot of respect for him. He's probably given us more insights in the last few months than we've had in a long time just because he's a working CEO and he's still out there fighting the good fight. So just a really great add to the board. And while I'm deeply sorry to see Tom Kelly go. And I think we need to give Tom a lot of credit for this company's been over the last couple of decades. We've got an all-new team and I'm pretty excited about that.

That's great color. And just a quick follow-up. A lot of references to the opportunity in the dot-com channel with some of your major retail partners. Is there any way to dimensionalize kind of where you stand today in terms of penetration? And just help clarify the step for executing on that opportunity. I think it was referenced maybe some optimization of product sizes to work in that channel but is there any?

Yes. I'll just say broadly, in DIY brick-and-mortar, on a unit basis, we're, call it, 40% market share across sort of all our categories. we're barely in the double digits when it comes to the e-comm play. So a tremendous amount of opportunity. Here's the thing. And I hate to pick on my old company, Intel but I worked for them a long time ago and I joined them when I thought they were the most sort of forward-looking tech company in the world. I think we all know their challenges today. One of the things that they tried to do and I think they've learned from this is they built a perfect formula around building, designing, manufacturing, marketing and selling CDUs. And any time they try to get into adjacent businesses, they try to impose that same formula on them. I think we have to look at it the same way. We've built a beautiful franchise around DIY, brick-and-mortar lawn and garden. We are not at all giving up on that. There is growth. But for us to operate effectively, whether it's in the e-com or omnichannel, where you need smaller, lighter packaging, you're not going to pick up a Roundup or ortho in a grocery store but you might pick up an easy-to-use apartment size form factor. We've got to be there. And so the team is already working on that. The other end of it is on the Pro side. We need to be able to cost effectively provide product on large scale to engage with small and medium-sized professionals. So yes, we absolutely have to re-imagine it. And my only mandate for my team is that we don't impose sort of the way we do things today on those growth opportunities.

Jonathan, maybe just to dimensionalize. Just a follow-up on that. You talked about around like 10% or so; it ranges single digits for some categories, slightly above into the low double digits. Above 10% in other categories; so it just depends category to category. But to his point, a lot of great opportunity that we can do there, especially on the form factor and just different type of offerings and all that good stuff.

Thank you. Best of luck.

Ladies and gentlemen, does conclude today's presentation. We thank you for your participation. You may now disconnect and have a wonderful day.