The Scotts Miracle-Gro Company SMG stated consumer purchases of its core lawn and garden brands surged in May with unit volume now trending towards the company’s original assumptions for the season. However, a variety of factors prompted the company to lower its outlook for both sales and adjusted earnings for fiscal 2022.
Consumer purchases at the company’s largest retail partners were at near-record levels in May, resulting in year-to-date POS that is approximately 6 percent lower in dollars and 9 percent lower in units than a year ago. The year-over-year decline at the end of May was half of what it had been entering the month due to strong results in all major markets in the Midwest and Northeast.
Adjusted earnings per share are now expected in a range of $4.50 to $5.00. Consumer sales are expected to decline 4 to 6 percent. Hawthorne sales are now expected to decline 40 to 45 percent for the year ending September 30, 2022. Entering May, Hawthorne sales had begun to show signs of strengthening but momentum in the business slowed again during the month as expected improvement in outdoor cultivation has been slow to materialize.
“We have stated for years that our comfort zone for leverage is 3.5 times debt-to-EBITDA and current facility allows for leverage up to 4.5 times,” stated Cory Miller, executive vice president and chief financial officer. “Given the external factors currently impacting the business, we are seeking to adjust our debt covenants to allow for up to two additional turns of leverage in the near-term to maintain the appropriate level of flexibility in navigating the current market conditions. Obviously, we are focused on implementing aggressive plans to improve cash flow, reduce debt, and return leverage to our target levels as quickly as possible.”
“The decisive steps we have taken to reduce expenses will result in a year-over-year decline of 12 to 13 percent in SG&A for fiscal 2022. We would expect to incur restructuring charges in both the third and fourth fiscal quarters as a result of these actions which we would remove from our adjusted earnings for the year, consistent with our long-held practices related to these non-recurring costs,” added Miller.
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