The Scotts Miracle-Gro Company (NYSE:SMG) Q1 2023 Earnings Call Transcript

Page 9 of 17

Matt Garth: Yeah. Hey, Andrew. So we are looking this year at a Signature to distributed breakout of about 65% on the Signature side of things. So lighting and new trends continue to drive that for us.

Andrew Carter: But the question is, are you focused — are you focusing on your products as distributed?

Chris Hagedorn: Yeah. Andrew, it’s Chris. Yeah. I mean, the focus is, and Tom, can give you again more specific numbers and certainly, Aimee and Matt and follow-ups. But the philosophy that we are moving towards here and this is really as we look at how the market has evolved, and frankly, constricted here over the past year, the philosophy is certainly to move towards more of what we are calling internally as Signature Plus model, which is to focus much more on our owned brands. We have some distributed brands that we have unique relationships with. These are brands like Quest dehumidifier. And then there’s other brands and products that are at least, currently, we think essential parts of our portfolio, parts of our offering that we don’t make a great deal of money on and we don’t feel like a great value proposition for us, but again, our customers require them.

So I’d say we are in a transitional period right now moving from what has really been a distributor business with a slight emphasis on our Signature brands to much more of a Signature offering.

Matt Garth: Yeah. Just

Andrew Carter: I guess.

Matt Garth: Andrew, a key focus on the brands that we own, the brands that we have developed, the innovation that we continue to develop and continuing to also take a hard look at partnerships out there in terms of where there are other key pieces of the category that makes sense for us to stay really close to all in the spirit of doing the right thing for the grower.

Andrew Carter: Got you. Just to be clear, I guess, the — I guess, I will say my question better. So that 65%-35% split, I guess, I was asking, do you expect that 35% to go down quite a bit through the year, i.e., an added headwind to sales, but one that might not show up much is probably. That’s what I was asking, do you expect that split to move meaningfully and any kind of associated headwind?

Chris Hagedorn: Hey, Andrew. I think for the balance of the year, it will probably remain relatively steady, that 35% distributed ratio. Again, I think, the shift towards Signature Plus is going to be something we will see more over the course of, I’d say, the next 24 months or so is that and we expect that we will be able to replace a significant portion of the distributed sales that we will be choosing to move away from with signature sales. So what we are hoping for is not a huge step back in terms of overall topline revenue from those sales, and again, that’s not considering what we expect to see in terms of recovery in the marketplace, but a good deal more profitability on each dollar per dollar sale.

Andrew Carter: Got it. I will pass it on. Thank you.

Chris Hagedorn: Thank you.

Operator: Thank you. Our next question comes from Bill Chappell with Truist. Your line is open.

Bill Chappell: Thanks. Good morning.

Jim Hagedorn: Hi, Bill.

Page 9 of 17