Adam Jackson
Top indoor and hydroponic growing products maker The Scotts Miracle-Gro Company (NYSE: SMG) reported U.S. Consumer net sales of $1.73 billion for the first half of fiscal 2023, which is on par with the record sales achieved in the prior two years.
The company’s fiscal second quarter ending April 1, 2023, resulted showed GAAP earnings per share (EPS) of $1.94 and non-GAAP adjusted EPS of $3.78. Scotts Miracle-Gro CEO, Jim Hagedorn, expressed confidence in the company’s performance, attributing it to strong partnerships with retailers, efficient execution by the company’s team, and reliable cash generation.
“The bigger story is we’re moving toward the transition phase of our recovery with more freedom to operate,” Hagedorn said.
The company experienced a 9% decline in overall sales, amounting to $1.53 billion. The U.S. Consumer segment saw a 2% drop in sales, falling to $1.36 billion from the previous year’s record high of $1.38 billion.
Still, in the face of an uncertain macroeconomic environment and extreme weather conditions in the West, the company said it has continued to see improved consumer demand overall. Scotts Miracle-Gro’s promotional activities, such as the DayLawn Saving and Scott for Scotts marketing campaigns and in-store events like Spring Black Friday and SpringFest, have helped drive early consumer engagement.
Despite a slow start through March, the company expects full-year point of sale volume to meet original expectations based on stronger performance in growing media and premium lawn fertilizers, offset by lower volumes in grass seed and private-label fertilizers. The total company gross margin rate is still expected to approximate a 100 basis point decline year over year due to the shift in category mix and increased trade investments.
Hawthorne
The Hawthorne segment, which focuses on the hydroponic industry, faced a substantial 54% decrease in sales, totaling $93 million compared to $203 million in the same timeframe last year. This significant decline highlights the ongoing difficulties within the hydroponic sector.
To address issues with its hydroponics sector, Hawthorne has been working on cost control and restructuring efforts. They’ve closed four distribution centers and sold a non-core business related to branded fans. The company recorded a pre-tax restructuring charge of $141 million during the quarter as a result of these actions.
The company last year revealed its Project Springboard initiative, with the aim of increasing profit margins, enhancing free cash flow, and fortifying the balance sheet. The initial stage of this plan successfully yielded $100 million in annual savings split between fiscal 2022 and 2023, mostly through reducing personnel and variable SG&A expenses.
Now, the company has initiated the next phase, Project Springboard 2.0, which seeks to achieve an additional $85 million in cost savings during fiscal 2023 and 2024.
The team said it has over-delivered on the original Project Springboard targets and remains focused on strategic execution. The company now expects a mid-single-digits percentage decline in total company operating income and a low single-digits percentage decline in adjusted EBITDA for the full year.
The company said it plans to provide an updated full-year outlook in June, offering more details on business results and expectations as the spring season comes to a close.
