SCOTTS MIRACLE-GRO CO Q2 FY2025 earnings call

• Jim reaffirmed EBITDA guidance of $570M to $590M and noted the company is well-positioned in a tough macro environment. POS units saw double-digit growth, with gains in garden, mulch, and insect control products. Gross margin improved nearly 500 basis points. The company is focused on cost savings, supply chain improvements, and divesting Hawthorne. - Mark discussed net sales, gross margin, EBITDA, interest expense, and leverage, noting continued progress towards financial goals and reaffirmed full-year guidance.

U.S. Consumer: Q2 net sales were $1.31 billion vs. $1.38 billion last year, down 5% due to a colder, slower lawn and garden season and non-repeating sales. YTD U.S. consumer net sales were $1.65 billion, down 2% excluding non-repeating items. POS units were up 12.1%, with garden +16%, mulch +46%, and Tomcat/Ortho outdoor insect +14%. Hawthorne: Q2 net sales were $33 million vs. $66 million last year, down 51%, and YTD net sales were $85 million vs. $147 million last year, down 51% due to hydroponic market softness and exit from third-party distribution.

• Reaffirmed adjusted EBITDA guidance of $570M to $590M. - Full-year U.S. consumer net sales guidance: low single-digit growth excluding non-repeating fiscal '24 sales. - Target of 35% gross margin by fiscal year end, with Hawthorne contributing to this goal.

• Tariffs: Largely unaffected in fiscal '25 but potential impact in future. - Macroeconomic uncertainty: Volatility and consumer sentiment could affect sales. - Inventory and seasonality: Potential for shipments shifting between quarters. - Competition: Pressure from private label and other competitors. - Cannabis sector volatility: Impact on Hawthorne's performance and share price.

Q: Could you help us understand the delta between 12% growth in units and low single-digit growth in dollars, and confidence in mid-single-digit growth for U.S. consumer?

A: Jim and Mark discussed mix, retailer investments, promotions, and confidence in unit growth driving future sales.

Q: About 25% of consumers planning to trade down to DIY, any benefit or upside?

A: Jim and Nate noted it's seen as trade up, with pride in gardening, and no immediate impact on guidance but potential tailwind.

Q: Pressure from private label, pricing gap?

A: Jim and Josh mentioned price gaps reduced due to promotions, with everyday gaps still 20-30% but promotions closing gaps.

Q: Shift of sales from Q2 to Q3, and Hawthorne EBITDA guidance?

A: Mark couldn't quantify sales shift, and Hawthorne fell short of EBITDA target but full-year guidance remains.

Q: Incremental promotional spend, units vs gross margin?

A: Jim and Mark said spend is on budget, units and gross margin don't conflict, with units driving volume and margin improvement.