Scotts Miracle-Gro Company (The)

Miracle-Gro Company's third quarter conference call. Today's call is being recorded. Mr. King, you may now begin. Good morning, everyone, and welcome to the third quarter earnings conference call. With me this morning are Jim Hagedorn, our chairman and CEO, Randy Coleman, our CFO, Mike Lukemeyer, our president and chief operating officer, as well as Chris Hagedorn, who's General Manager of Hawthorne Gardening Company. I'm sure you've already seen this morning our press release that includes the details of our record third quarter results, updated guidance for fiscal 2020, and the announcement of additional plans to return cash to shareholders. In just a few moments, Jim will share some prepared remarks providing more color on these issues as well as others. Afterward, Randy will drill a little deeper into the numbers and set the table for communicating our year-end results in November, which is also when we will provide guidance for fiscal 2021. After Randy's remarks, we'll open the call for your questions, and both Mike and Chris will also participate in that session. Given the amount of content being covered today, we ask that you help us manage through the time by asking only one question and one follow-up. If we don't get to everyone in the queue, or if you have additional questions we don't cover, please call me directly at 937-578-5622, and I'm glad to give you as much time as needed. Obviously, our comments this morning are going to contain forward-looking statements, so I'm compelled to remind everyone that our actual results could differ materially from what we discussed. A discussion of the risk factors that could impact future results are provided in the press release this morning, as well as within our 10-K, which, of course, is part of the SEC. I want to remind everyone that this morning's call is being recorded, and our conversion call will be being available on our investor relations website. With that, let me clear the stage and turn things over to Jim Hagedorn. Jim? Thanks, Jim, and good morning, everyone. In the late 1990s, we created a commercial that was used for our sponsorship of the American Experience on PBS. The ad copy read as follows. At the Stops Company, we make grass greener, trees taller, and flowers more beautiful. If there's a better business to be in, please let us know. As all of us here reflect on what we've seen over the past several months, the question posed in that PBS spot feels more relevant than ever. What our category does for people's emotional and physical well-being has never been more evident than it has been in 2020. How our brands and products enhance the lives of consumers has never been more important, and our ability to thrive during times of macroeconomic distress and deliver for all of our stakeholders has never been more obvious. This is a great business to be in, and all of us are grateful to be a part of it. The record results we announced this morning are both exciting and humbling. On a full-year basis, we now expect to exceed even our most optimistic expectations. The unprecedented success we're seeing continues in both the U.S. consumer segment and in Hawthorne. We're now in positive territory with every product category in both businesses, and the momentum we've enjoyed does not seem to be slowing down as we enter the final two months of our fiscal year. I want to start by thanking our consumers and cultivators for their support of our brands. I want to thank our retail partners for their support of our category and our business. And most of all, I want to thank the associates with the Scotts Miracle-Gro Company who delivered these results. Our success this year has required a level of dedication, creativity, and collaboration that's been inspiring to see. I'm compelled to say that our shareholders owe associates a debt of gratitude, especially those who work on the front lines in our manufacturing and distribution facilities, as well as the field sales force. As the severity of this crisis has ebbed and flowed, these frontline associates have been there every day, demonstrating a level of loyalty and, at times, even bravery that allowed us to keep up with consumer demand. In the face of our success this year, perspective matters. We know too many Americans are still unemployed, and it's becoming increasingly apparent the economy has a long road ahead in terms of recovery. And, of course, we know that the families of more than 140,000 Americans continue to grieve for the loss of loved ones. We also lost a member of the Scott's Miracle-Gro family to the coronavirus just a few weeks ago. He was just 34 years old. and his passing reminded us of the severity of the crisis. We continue to extend our thoughts and prayers to his fiancée and his family. As we move on this morning, I want to divide my remaining comments into four areas. First, it's important to understand what's driven our results this year. So I'll talk about the successes we've seen in both U.S. consumer and Hawthorne at a high level while allowing Randy to focus on the financials. Second, I want to talk about where we expect to finish in 2020 in the investments we're making for the balance of the year. Third, I want to share some initial thoughts about next year. This is not guidance. It's far too early for us to target specific numbers for either the top or bottom line for 2021. But to some extent, I want this call to provide the roadmap for what we see in 2021. The obvious question on the table this morning is, how do we comp this year's results? And we want to address that issue proactively. Fourth, I want to address our current thinking about our balance sheet, uses of cash, and elaborate on our other announcement this morning of a special dividend of $5 per share, which will be paid in September. That's a lot to cover, so let's dig in and discuss current business trends. I'll start with the U.S. consumer segment, which reported a sales increase of 21% in the quarter and is now up 15% year-to-date. That year-to-date number is expected to improve further, which has probably raised our guidance again for the U.S. consumer business to a range of 20% to 22% compared to the previous guidance of 9% to 11% growth. Entering August, consumer purchases are up 23% on a year-to-date basis at our top four retail partners. When you look at consumer activity more closely, we continue to see gardening as the driving force, even though we are weeks past what would normally be the peak of that season. Consumer purchases of our branded soils are up more than 40% year-to-date, and plant food purchases are up more than 30%. Finding plants in which we have a 25% financial interest has seen an increase in POS up about 50% as edible gardening continues to swell in popularity. The success of Bonnie this year increasingly reinforces our long-held interest in this category and our belief that edible gardening is critical to our strategy in the years ahead. Our controls business continues to see significant increases from last year. Also, outdoor insect control products have seen more than 60% increase in POS, and also indoor insect products are up more than 40%. Most of these gains have come from increased from improved lifting support. Ortho Weed Control products are up about 15%, driven by the continued success of GroundClear, which continues to improve its market share position in the non-selective weed control space. Roundup, which we represent per buyer, has seen an 8% increase in POS on a year-over-year basis. In lawns, GrassFeed continues its multi-year run with POS up nearly 25%. Consumer purchases of lawn fertilizer are up 9%. Across all retailers, our lawns portfolio recently cleared the $1 billion milestone for the first time, and that's with two months still ahead of us. In fact, the severity of this summer and its damaging effects on lawns should bode well for our fall grass-feed business as well. Finally, mulch crossed over into positive territory near the end of June, and POS is now up more than 4% as we enter August. Recall that mulch was still in deep negative numbers entering Q3 and suffered as retailers canceled Black Friday events and other aggressive promotions that used mulch to drive foot traffic into lawn and garden apartments. While mulch isn't a high-margin business, it's a highly strategic one. Retailers began to aggressively reengage in the mulch category beginning in May. If they did, we joined their efforts. we employed a rifle-shot approach to using digital media to drive consumer purchases of mulch in specific markets across the country, which helped clear the inventory from both our distribution points as well as retail stores. The success of that combined effort, again, showed how this product category can create momentum for the entire lawn and garden space. We've seen strong double-digit improvements in every retail chain, in the hardware, club, and farm and fleet channels. Retailers in the home storage channels significantly reengaged in May and June as the economy began to reopen across the country, which allowed them to operate with fewer restrictions. The big picture trends around COVID-19 undoubtedly had a positive impact in our industry and our brands. But it's important to stress that success we had this year didn't just happen. Our marketing team has done an outstanding job all season long adjusting our messaging and campaigns, especially in the digital space. Early in the season, no one was talking to the consumer except us. The team didn't just carry the load for the entire industry, but did so with smart, innovative, and fast efforts to hit the right note at the right time in the right places. Our direct-to-consumer business was also significantly impacted. This is both at-home delivery and curbside or in-store pickup. We've seen more than a 200% increase in volume, growth we've easily absorbed because of the groundwork laid by the team over the last several years. Our sales force did more than just work with our retail partners. They stayed engaged during the peak of the crisis, often adjusting their efforts to work in the middle of the night in order to keep our products in stock while operating in a smart and safe way. And our supply chain has been exceptional. I'm not saying we were perfect. We weren't, and we often employed a bend but don't break mentality, because our teams worked 24-7 to keep up with record demand. At times, service levels fell below our standard. We owned that issue and were working to fix it. However, this team managed an unprecedented level of volatility in the midst of a pandemic. They didn't just keep product rolling through the system, but did so while establishing social distancing and other safety protocols, including regular shutdowns to accommodate deep cleaning activities in more than 50 locations. It may be our most remarkable success story of the entire year. Our supply chain wasn't just challenged to keep up with demand in U.S. consumer, but in Hawthorne as well. Sales in the quarter for Hawthorne were up more than 70% against a nearly 50% comp from a year ago. And with year-to-date sales growth of 59%, we are moving our sales guidance for Hawthorne higher as well and now expect sales growth of 55% to 60% for the full year. We saw third quarter growth in every Hawthorne category in nearly every geography. We were up 129% in lighting, driven by our recently introduced Gevita LED products. We were up 45% in nutrients, 62% in growing media, and 81% in growing systems. In our largest and most established market, California, sales in the quarter were up nearly 80%. Meanwhile, in expanding and recently approved markets like Michigan and Oklahoma, we were up 140% and 190% respectively. On a year-to-date basis, there was not a single negative market in the entire country. The other important storyline here is we're simply running the business better. The shock to the system we experienced in 2018 is a distant memory, but the lessons remain. We have better visibility into the marketplace. more focus on working capital management, and our innovation pipeline continues to improve. This has allowed the team to strike the right balance between driving growth, market share gains, and margin improvement. By the time we complete 2020, we will have exceeded expectations in all three of those measures. The entire Hawthorne team deserves recognition for how they've evolved over the past three years. I was openly critical of this group on one of these calls in 2018. Frankly, at the time, they deserved the criticism. But they've gelled as a unit since then and have established credibility as a true industry leader. They didn't just embrace the idea of remote management. They've excelled at it. Their performance this year gives all of us confidence of what the future holds for this business. The second subject I wanted to cover is where and how we believe we'll finish the year. As you saw, we increased our adjusted EPS guidance for the full year, and I'll leave it to Randy to cover the details. I just want to be straightforward. That range could be higher if we wanted it to be. We're incurring some originally unplanned expenses, however, because we have the flexibility to do so and because it's the right thing to do. For starters, beyond our normal bonus plans, which apply to about 1,500 people, we decided to share some of our upside with a broader group of associates. As I said at the outset of my remarks, the success we enjoyed this year would never have occurred without them. They deserve to share in the outcomes. That's why we plan later this year to make one-time cash payments as well as enhanced retirement contributions to approximately 3,000 hourly and salary associates who do not participate in our variable pay plans. These associates work heroically all season to help us deliver this result, and they are the first people on the list to share in our upside. We also plan to increase our charitable efforts this year, primarily with increased corporate contributions to the Scotts Miracle Grove Foundation. We have also stepped up our support of specific community initiatives close to home in central Ohio, and more broadly, like the 9-11 Memorial and the United Veterans War Council. By the end of the year, we will have more than doubled our planned contributions to charity. Those combined efforts are worth approximately 20 cents per share on an adjusted basis. All of this brings me to my third topic, which is our current viewpoint about 2021. Jim King has told us barely a day goes by when she's not asked about the tough cop we face after this historic year. So we know it's the number one topic on everyone's mind. As a reminder, we're not providing guidance today for next year. We'll look to provide that in November. But I want to address the very big differences for 2021 as it relates to our ability to prompt this year from a sales perspective and then on an earnings perspective. On the top line, let's start with Hawthorne, where the story is relatively simple. If we extrapolate the current run rate of the business into next year, we would expect to see extremely solid double-digit growth in the front half of the year. Given our current order book and view of the market, this seems achievable. Our comps in the second half next year obviously will be a lot harder. So even if we're flat in the second half, and I'm not saying that's the expectation, then we should still be able to hit our long-term targets of high single digit growth. And you as a consumer, we know the societal changes brought on by COVID-19 will begin to normalize at some point. We told you on our last call, The 30% of edible gardening activity came from consumers who were either new to the category this year or returned to the category after stepping away. Since then, we've conducted some additional consumer research, which tells us that lawn care participation increased by 14%, meaning an additional 8 million households used grass seed or lawn food for the first time this year. We also know that 28% of all homeowners said they spent more time on overall lawn and garden activities this year. Keeping all these consumers engaged will be the single biggest key to whether our U.S. consumer segment grows in 2021. I'll start by saying the primary activity that brought these consumers to us in 2020, edible gardening, is a good start. We know that most people who engage in edible gardening don't see it as a chore. It's a passion and a lifestyle choice. and it's been the fastest growing area of lawn and garden for years. We believe most people will do it again next year. To help ensure that outcome, we know we need to strengthen our relationship with these consumers, and that means we intend to stay connected with them. You will likely see us continue to communicate to them throughout the fall and winter, not just about our products, but about the lifestyle around gardening and being out in the yard. We made major improvements to our marketing efforts in 2020. In fact, I believe we're as good as we've ever been. Our team has transformed the way we communicate with our consumers. We know them better than ever before. And we're not simply advertising to them anymore. We're communicating with them in a way that is clearly delivering results. But that doesn't mean we're done. you will see us continue to adapt to the marketplace faster than ever with more creative assets and more ways to deploy them. Come next spring, we also expect a different retail dynamic. Remember that home centers, which generate about 60% of our revenue, had little to no promotional activity this past spring. We expect a step-up of promotional activity, especially early in the season, but not necessarily a return to the way things used to be. Clearly, consumers remained engaged this year with very little promotional activity. We think there's a better balance out there, and we're working in partnership with those retailers to find it. But remember, our retail partners who were in that next tier from a scale perspective had tremendous success in 2020 and clearly saw market share gains. They aren't going to simply roll over in 2021. They're going to work hard to defend their space. So I believe we'll see a much more competitive retail landscape next year. Finally, we would expect to take some pricing next year, pretty much in line with our historical behavior. And that should help the top line as well. We also know even with the big gains we've seen this year, we left some sales on the table due to supply chain constraints during the peak of the season. While we feel good about next year, you should expect for us to be conservative when we set sales guidance in November. If you told me right now we could comp this year and hold our margins, I'd take it. Clearly, we'll incentivize the team to do better than that. And as we've shown this year, we possess an incredible ability to rise to the challenge when we have higher than expected growth. I'd rather do that in 2021 than just have an unrealistic expectation. However, when we think about earnings next year, growth should be far easier. Getting SG&A back to a normal level should be worth at least $70 or $80 million, and that's primarily a variable compensation issue, so we have good visibility to the potential upside there. We'll obviously be in a much better place to share details when we talk in November, but I want you to know that our 2021 upcoming budgeting has become our number one priority, and we're sensitive to the same issues that we know all of you care about as well. The last topic I want to cover is our balance sheet and our current thoughts about uses of cash. When we announced Project Focus in 2015, we said we'd focus on three things. First, to maximize the potential of our U.S. consumer business, and I think we've done a great job there. Second, to reconfigure our company-wide portfolio. That meant divesting some businesses and acquiring others, and that's how Hawthorne evolved to what it is today. And third, we said we'd focus on cash flow and returning cash to shareholders while maintaining target leverage ratio of about 3.5 times debt to EBITDA. We were in the mode of starting to return cash, but pulled back a bit in 2018 after the challenges we faced that year took our leverage ratio higher than we wanted. But once we got back to our comfort zone, we reengaged in our share and purchase activity in 2019 until COVID-19 hit us. We suspended sharing purchases in March out of an abundance of caution, which was the right decision at the time. Now with free cash flow likely to be at its highest level ever and leveraged well below our target, we want to get back to returning cash to our shareholders. A special dividend puts cash back into the hands of our shareholders right away and allows them to decide how they want to invest the money. In my conversation with some of our largest institutional shareholders over the years, I've found most of them to be agnostic about share or purchase versus dividend. So this time, we chose the dividend. Most likely, the special dividend will replace any meaningful share or purchase activity for at least the next several months, though we still have enough flexibility to be opportunistic. We also have ramped up some of our M&A work in recent months and are currently pursuing a couple of small but strategic ideas for both U.S. consumer and software. For obvious reasons, I don't intend to share details this morning, but we still see strategic opportunities to expand our portfolio and better position both businesses for continued success. Before I turn things over to Randy, I want to wrap things up by acknowledging the good fortune that's come our way in 2020. In late March, we issued a press release saying we'd seen a recent surge in business, but also acknowledging we did not know where the season would take us. At the time, we stuck a conservative posture, pulling back on SP&A and suspending our share repurchase activity. We didn't know what to expect. But then consumers stepped up, clearly demonstrating they viewed our category as critical to them as they navigated this public health crisis. The trust consumers and growers put in us, the trust that our retail partners put in us, has not been forgotten by any of the people on this team. We're working harder than ever to strengthen our relationship with them even further in 2021. We're using the strength and flexibility of our financial position to make our company stronger, too. to position us for success, not just in 2021, but in the years that followed. With that, let's switch gears and look at the numbers. Randy? Thanks, Jim, and hello, everyone. It's obvious from our announcement today that our Q3 results greatly exceeded what we expected when we updated our guidance about seven weeks ago. Our momentum throughout June surpassed anything we historically seen and is continuing even as we speak.

So I want to start by joining Jim and thanking our consumers and retail partners, but mostly our associates, for helping us navigate the COVID crisis so effectively in delivering outstanding results.

This morning, I'd like to spend most of my time providing some core commentary on the P&L. I won't go through all of the numbers. I know most of you have already done that.

I also want to pick up on Jim's commentary about 2021. I'll reiterate that we're not

that feel confident in our ability to drive earnings even higher next year. So let's get started.

On the top line, the most important story to understand is what's happening with U.S. consumers. In June, we raised our guidance and projected 9% to 11% growth for the full year.

But even as we were making those comments, the landscape was evolving differently than we expected.

If I showed you 20 years of consumer POS data, you'd see a consistent pattern of consumer behavior. In any given year, the timing of the season and impacts from weather could affect the slope of the chaos curve to some degree within a season, but is very consistent after the middle of June. So that's what we expected. Instead, we saw an extension of the season that went well beyond our expectations and also continued a dramatic year-over-year growth throughout the rest of June. Given the consumer momentum in the market, we continue to push the category with more media and in-store support. That strategy worked. POS increased 50% in the month versus the prior year, and the result was that June failed the newest consumer over the letter by over $100 million, and we'll be expected when we establish our new guidance range during the month.

Since then, the strength has continued. Consumer purchases in July, for example, are up 33% from last year. And while August is always the smallest month of the lawn and garden season, and that's what we'll see again this year, We are now forecasting year-over-year percentage growth to mirror what we've been seeing all season. We are also expecting a strong fall season, as Jim alluded to in his remarks. That should mean selling a fall product in September should be a very strong trend. Our revised guidance assumes the trends we've been seeing through July will continue through year-end, which gives us a 20% to 22% sales growth on a full-year basis for U.S. consumers. In Hawthorne, the story is starting to sound appetizing. We simply did not expect the second half of the year to be this strong.

For Q3, we reported 72% sales growth against a 49% comp.

Hopper is now 59% year-to-date, and we expect the full year number to be in the range between 55% and 60% as we are facing slightly higher comps over the next two months.

Jim mentioned Hopper's profitability, and I want to share some thoughts as well.

you'll see the segment margin rate in the quarter was 13.5%, and we're at 11% on a year-to-date basis. I expect the full-year rate to hit our 10% target, but to decrease from Q3 to Q4 as we make more investments in supply chain, sales and marketing, and other areas to strengthen our business for the long term. The irony here is that I believe the margin rate would be even higher if the sales growth rate was closer to 25% or 30%. We had to spend a good bit of money to keep up with demand, and some of the spending was less efficient and margin-delivered. That said, the rate improvement we'll see for the full year will meet our original guidance and keep us on track for the 15% segment margin rate that is achievable for this business over time. Let's move on to gross margin. There are a lot of moving pieces here, but it's a good story overall. The accepted gross margin rate declined 10 basis points in the quarter to 36.1%. While both the U.S. consumer and hotline segments improved in the quarter, the relative strength of the lower-margin hotline business drove company-wide margin rates down nearly 80 basis points. We also lost another 85 basis points from the timing of the $20 million round-up payment we received in Q3 of last year from there.

The call to raise received a similar increase in our commission income in Q2 of this year, so there's no full-year impact on the rate. On the other side of the equation, Pricing and volume benefits combined have been nearly offset to heaviness.

On a year-to-date basis, we're still about 25 basis points ahead of last year, and we expect a four-year gross margin rate to be about flat once we get to September 30th. We plan to execute a few supply chain initiatives in Q4 that will increase costs in 2020 to help us improve service next year.

Moving on to SG&A, a 43% year-over-year increase surely stands out, so let me provide context. As Jim said earlier, we've made the decision this year to share some of the F5R results with associates.

On a full year basis, we expect our variable compensation will be $60 to $70 million higher than a year ago, and we treat up our pools in quarter two reflectors. We also begin to recruit dollars for our hourly and hourly associates who don't typically participate in our bonus planning. but will receive one-time bonuses this year, giving their significant contribution to our collective success. In addition to the compensation-related items, we have significantly increased our U.S. consumer media spending, an expectable finish a year about 20% higher than a year ago. We also believe consumer impressions greatly exceed our growth in spending, as media costs are down significantly from last year. We have also continued to aggressively invest in house owners. the growth in SG&A is almost keeping up with the increase in sales. Below the operating line, you'll see the interest expenses down nearly $6 million in quarters and $17 million year-to-date.

The strong operating cash flows, the postponement of share repurchase activity this year beyond Q2, and the fact there are no acquisitions, collectively allow for lower than expected borrowing levels with lower interest rates helping too.

Looking at the bottom line, adjusted earnings of $3.80 per share, or 22% higher than a year ago. And the year-to-date adjusted EPS total, $7.20, is 34% above last year. We lost 91 cents on an adjusted basis in Q4 of last year, and we expect our year-over-year earnings improvement to continue in Q4 of this year.

Continued top-line momentum across the company,

per share, which is a dollar per share higher than our previous guidance. We believe this is not a conservative outlook. Having said that, in early June, we clearly underestimated forward-looking demand in such an unprecedented season. The possibility remains that we could still exceed this new range. Regardless, I prefer to provide transparent forward-looking estimates versus just reporting results after the books are closed. Even in such a challenging environment, in which precision is extremely difficult. Let me remind everyone that our adjusted results exclude incremental cost of premium and failure associated. We continue to work in stores, factories, and distribution centers during the onset of the COVID pandemic. The year-to-date amount we've spent on 50% hourly payment be next year, and he and I are in lockstep on this point. We will take a conservative view as we build our plans for U.S. consumer, and hopper and growth should continue, but not at the same rate we're seeing in 2020. SG&A should be a significant tailwind and should allow us to see operating income growth in line with our long-term growth projections, but we're continuing to invest in our brands, hopper and supply chain growth initiatives, and our direct-to-consumer distribution models. Moving to the balance sheet, Our debt-to-debit-EA ratio stood at 2.8 times at the end of the quarter. Given our strong anticipated free cash flow this year, which we now expect to be about $400 million, and given our continued coughing from the business as we look ahead, we choose to again begin returning cash to shareholders, even though retirement is a few months ahead of what we expected only a couple of months ago. The special dividend we announced today will take our leverage up to slightly over three times, around the midpoint of our target leverage range. Looking ahead, we still have the flexibility to repurchase shares next year and execute against the current pipeline of the two small and early-stage M&A opportunities. We'll maintain the leverage ratio below 30 at times and possibly return to a level similar to what we're seeing right now by this time again next year. As it relates to cash flow for next year, I would expect us to take a step back just a bit for a few

the incentives we accrue in 2020 will be paid in 2021, and this will be a large headwind the next year.

As Jim pointed out earlier, the supply chain was stressed throughout the entire year. While I applaud our effort to meet unprecedented demand increases, industry service levels fall below our expectations at certain times. We've been attempting to build inventory over the last few months, but sales growth continues to accelerate, and we finished the third quarter with inventory about $40 million lower than a year ago.

Accordingly, you'll probably see us rebuild from inventory levels in the fourth quarter and throughout 2021 as we continue to attempt to get ahead of demand. As I close, I can't help but reflect on the dramatic changes we've seen in our world, our country, and our business over the past several months.

Scott was fortunate to be in a position to help our consumers, and our management team and associates are extremely great Let's move on to Q&A. Thanks, operator. Good morning, everyone. Stephen, let's go ahead and start the Q&A. Yes, sir. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach the equipment. Again, that's star 1 to ask a question. And we will take our first question from Mr. John Anderson with William Blair. Please go ahead, sir. Thank you. Good morning, everybody.

Hi, John. Hi.

One of the dynamics that's played out this year is that you referred to in the prepared comments is less promotion. And that's been driven by, I think, a couple of things, most notably, COVID-19 and some of the restraints that that put on the new home centers. So I guess my question there is, you know, has that benefited, has that benefit largely accrued to the retailers or has it also accrued to Scott's with less promotion frequency and depth? And how do you think this plays out know in 2021 2022 do we go back to a more promotional intense environment in line with kind of what we pre-covered or have there really been some learnings around consumer engagement that that can be uh applied here to um maybe uh moderate you know the level of promotional activity in the category um i think i'll start and then hand it over to randy um John, here's what I think. Number one, most of the benefit, I think, accrued to the retailers. I think we got some benefit, but a lot of that because there was no voice sort of to the industry slash category. We upped our spending and pretty much just did kind of what we want. And in some ways it was good because we didn't have to ask a lot of permission. We just kind of ran for the industry. And I think that worked for us and we learned a lot. I don't think the retailers probably pocketed a lot of that because their operating expenses were up significantly. So, they kind of had to work their labor and cleanliness and stuff in the stores. So, I don't think the retailers would be kind of beating their chest that they pocketed a lot of it. But I think as we look at sort of the margin at the retail level, on our products, we think it's a lot higher at the retailer side. Again, I'll repeat, I think they spent most of that. We've talked about that, at least my view, and I think it's kind of our view here, is that Black Friday, we were getting kind of more and more down on these Black Friday events, largely because if we looked at these early season, which are real tied to weather, what we saw is a real high miss rate of sort of cold and bad weather. And, you know, at least 50% of everybody's promotional matters was going into these Black Friday events. And our view is with, you know, I'm going to say call it like a 20% hit rate, meaning an 80% miss rate. So we've been engaged in conversations all in the last 12 months with retailers saying, dude, it doesn't seem like the way to do it. It's just a lot of money being spent for not kind of the results that we'd like to see. And we think there's a better, more kind of what we call rifle shot approach, which is, you know, by market, by category, looking at the weather, which we can do a couple of weeks in advance pretty easily. And so again, I think there's probably more believers at the retail level after this year than there has been, meaning, you know, I think everybody's looking at the sales and saying clearly the consumer didn't require the level of kind of giveaways that they have typically got, especially in some of our larger categories. So I think that's going to change, and we're engaged with retailers right now to see if you know, what the balance is where it's a little less discount focused. So, now, that's kind of one thing. I think on the other side, you're going to look and say, I think largely because of footprints, you know, that the big retailers, you know, the big home centers were just under more pressure to not make their shopping costs like experienced dangerous, both for their associates and for consumers. And so they were limiting number of people in. They were limiting their promotions. We weren't working days there. We were mostly working nights, you know, during the peak of the crisis. And some places still doing that. And so, you know, where do we go from here? I think that what you're going to see is some kind of mid-road, you know, where we promote, you know, we, you saw comments on mulch, which is, you know, as we looked at our kind of our inventory level, um, what I think we saw was a lot of mulch that we really wanted to get moved out. And so we started using very targeted marketing promotions. Um, like what I'm talking about, whether, you know, um, you know, sort of marketplace by almost zip code, targeted with weather, and we were able to get all that mulch moved. And so we know that this approach, you know, which is kind of a new approach to sort of what used to be Black Fridays, works. But what you're seeing is the home centers lost quite a bit of share in, you know, I would say roughly 10%. I don't know. Mike's next to me. I don't know if he Yeah, no, I lie to that number. I would say about 10% overall, almost everyone. And so I think they're going to want to get that back. And I think that the people who gained it, you know, which would be, you know, wholesale clubs, hardware, general merchandise. I mean, there's a lot of people. Go ahead, just spit it out online. Yeah, direct-to-consumer. I think there's going to be a lot of pressure for them to maintain that share. Farm and fleet was another area that did really well this year. And so what do I think? I think it sets up a pretty competitive environment for the beginning of next season. And so I don't think we're going to be able to talk people out of that because I think you're going to have people who made big gains, want to defend them, and I think you're going to have people who lost. And remember, lawn and garden is a major category in the season for us, the most important category, the most important non-lumber category in home centers during our season. And so I think there's going to be a big fight. And listen, depending on what happens with COVID, you could see that in the fall. I think you're going to see Halloween being kind of a weird season this year. And so I think that opens up fall opportunities for us to promote, which we're I think beyond discussions, I think there's actually planning occurring with our significant accounts on making fall a bigger season than it would normally be. And so what do I think? Back to your question. I think there's going to be a difference next year. I think most of the benefits did end up with the retailers. I think it's going to be more competitive, and I think you're going to see a more year-round business than you've seen before. I don't know, Randy. No, John, there's nothing I could add to that. It's funny you didn't catch me at all. Do you have a follow-up you wanted to ask? Yeah, I do. Thanks. Quick follow-up. Maybe for you, Randy. So I know, thank you for the commentary on 2021. I know it's earlier than usual, but appreciate that. I guess what I heard is you'd be happy with kind of flat top lines. I think, in U.S. consumer is what you're referring to. And yet, you see an opportunity to grow, you know, up earnings. And so, you know, let's assume, you know, kind of flat top line in U.S. consumer playgrounds, and there's some growth in Hawthorne, but no aggregate modest top line growth given the top comp. Can you walk through, maybe just at a high level, some of the key puts and takes there? Like, I think you mentioned $60 to $70 million of perhaps swing and variable comp. Then there's this kind of one-time bonus to employees. I don't know if that's incremental for that. But just step us through, you know, the benefits that could get you to solid earnings growth despite, you know, maybe less top line than normal. Look, before Randy Johnson then, he'll do that. I just want to talk about really the top line a little bit. You know, part of my job as we go through budgeting, which has been challenging both in season here and as we look at next year, is what would be kind of a victory. And so I think as we look at this, especially early on, and we've got, I think, a lot more granular now than we did, like, cost even a month ago, is would we be happy if we could comp this year, hold our gross margins, and then pick up the SG&A tailwinds? And I think Randy and I sort of set the expectations for the operating community that we thought that would be a good result. And I think that's what we communicated today. And, you know, Randy can sort of take you through the details of that, at least, you know, the sort of SG&A tailwinds. tailwinds and what we think. I do want to talk a little bit about just the top line, just because I think it's important. I think anybody who's shot, Mike is pretty self-critical about, you know, our ability to execute in season when demand was just going kind of bananas. I'm much more forgiving of that. And, you know, my wife and I have done a lot of gardening this year. And so we've been in quite a few garden centers buying stuff. And there were a lot of empty shelves. I think Chris's demand on Hawthorne was also, I wouldn't say excessive, but it was a lot higher than we had forecast. And that business was a lot younger. And, you know, we just implemented SAP. So, you know, I think you could easily sort of tag maybe $100 million of money we left on the table on both businesses, which is pretty significant, you know, just because we couldn't, fill orders sometimes. And I think we did a really, really good job, like living up to kind of a standard. As we said, we know we could do better. But we left a lot of money on the table there. And I think we don't intend to do that again next year, meaning that, you know, I think there's been a lot of discussion about inventory levels, and Mike's got major projects on what he called a customer experience, which means our customers, and making sure that we're the vendor we need to be. In addition, we're really looking at a lot of opportunity in Q4 and Q1 as we go forward and much more of a kind of year-round business. And I think that the Halloween still, you know, fits into that. And, you know, our direct-to-consumer business fits into that. So, you know, I think we've – as we spend more time talking and, including with our retail partners and our direct-to-consumer people, I think we actually believe there is upside on the top line. But this issue of if we could comp 2020, I'm saying last year, but this year, if we could comp this year, hold margins, and get the tailwinds, it would be a really great earnings year. And I think that's kind of where we're at. But I think we actually have more visibility to growth in 2021 than we probably did like a month ago. I completely agree with everything Jim said, John. Obviously, we have a much more line of sight to what Q1 is going to look like. And it appears there's plenty of momentum going into the fall. You get beyond that point and you have to make assumptions and do scenario analysis around what's going on in the world and what's that going to mean. And we're doing that. But we're trying to, you know, put bets on which scenario is going to be the right one. It's way too early to get there. But your real question, what does next year look like from the bottom line, it's pretty clear if we – take our incentive plans back to more of a targeted or normalized level, plus some of the SG&A that we've expedited from Q1 into Q4, and we're trying to get ahead and build a better business for next year and the year after that. Trying to quantify that as the dollar share of EPS, if gross margins are flat on flat sales growth, which, believe me, we'll be pushing for much higher numbers than that. But as a starting point, you just have to have a scenario to work against. That's the way we're thinking about it. When we're trying to keep things in balance between sales growth, we're going to be a $4 billion company this year. Last year, slightly over $3 billion. We're beating ourselves up a bit on service, but trying to keep up with that. If you go backwards four months ago, we were counting our pennies and just trying to be careful and make sure we'd be able to navigate through this year. Again, I'd give everybody a big pat on the back, but you unwind a lot of that SG&A that we're putting in our P&L here in 2020 and roll out into 2021, our operating margin rates will be significantly higher and we'll see a lot of appreciation across the company and Hoffman too, which I know is a big focus for everybody. But we're trying to keep things in balance. We're trying to think about this year, but also next year and the year after and the year after that. And I really like the way that we're running the business right now in order to prepare for that. Yeah. Hopefully that answers your question, John, and I'm really bullish on where we're going right now. Yeah, thank you both, and appreciate all the color. Thanks. Again, that is star one to ask a question. If you find your question has been answered, you may remove yourself from the queue by pressing star two. We will take our next question from Mr. William Reuter with Bank of America. Please go ahead, sir.

Good morning. Good morning. I just have one. I know it's a little early for line reviews for next year, but I would imagine your categories have been some of the most productive for your big retail customers. Have you heard from them that they plan on dramatically altering or increasing the shelf space allocated to your categories?

This is Mike Lukemeyer. Yeah, we're in the midst of line reviews, and we're seeing retailers want to lean in more with us on that space. But we really don't finalize that until really December as they finish out their years. But the indication is they're definitely leaning into fall. So we're seeing expanded space there, and we're seeing a willingness with our retailers to lean in and do more and build off of what we've accomplished this year. And the other thing I'd add, this is Randy, again, when you think about the way we go to business and, you know, we talked about e-commerce being up 200%, we're even higher on that when you look at buy online and pick up in store. And looking forward, I'd expect that to continue to be a key way that consumers shop. And I believe we're at a real advantage in that area just because of national advertising, national scope of brands across stores, regardless of, you know, if you're in Washington State or Florida. or Maine, California, we have it covered. So I think there should be more focus by us and the retailers on just trying to focus on key core SKUs that consumers want to show up and buy. And I think we're at a big advantage in order to do that. And that business has grown faster than any other channel or any other, you know, component that we look at. Yeah, I'd like to just throw a little bit into sort of that because that's, I think, what Randy says is an important point. It's not just us that are looking at kind of inventory levels. It's us and the retailers. You know, and again, Mike's hard on himself. But, you know, this year was very much kind of business combat. And I think when you do that stuff, you break stuff. And so we had kind of what I call a good war. But we definitely broke some stuff. And that's going to help us be better, but it's us and the retailers. And I think this idea of kind of our core SKUs and make sure that we have the inventory and the retailers do as well so that we don't have out-of-stocks and empty shelves. So I think you're likely to see kind of a rebuilding both of our inventory and retail inventory on certain of our high-volume SKUs for next year. Yeah, and we're seeing that – playing out big time with some of the southern markets wanting to have 80% of the POS in early. So, I mean, there's just good momentum right now on being ready and taking advantage of that and, you know, occupying their shelves.

Great. That aligns with my expectations. Thanks a lot.

Thank you. We will take our next question from Mr. Joe Altamelo with Raymond James. Please go ahead, sir.

Thanks. Hey, guys. Good morning. Congratulations. First question on U.S. consumer. And, Jim, you touched a bit on this with respect to edible gardening. And this sort of speaks to 2021 and beyond. But I'm curious if you think COVID, it is permanently changing the way consumers think about your categories. Or is this more of a temporary phenomenon, which, you know, if it's the latter, it would make even flat sales aggressive for next year?

You know, I'll use profanity. Shit, I have no idea. What do I think? See, I guess I disagree in that what I disagree with is the fact that, you know, the consumers are seeing it differently. I think that what we're seeing is that how people feel about the category, you know, which is, I think people's attract attraction to gardening, clearly people being stuck at home has been helpful to us. Um, but I think people have really gone to things that make them happy. And I think they've to some extent rediscovered the value. I mean, I hardly anybody I don't know that doesn't have a garden. And I know Carly and I, you know, um, You know, we're up at our place in Vermont. We have a pretty big garden. We intend to expand it next year. And, you know, I'm not sure there's not a lot of people getting a lot of satisfaction that aren't getting a lot of satisfaction from gardening. And I think we expect that to continue. The focus of our communications efforts is weird. I'm not really calling it advertising efforts. You know, I don't know, Randy would know the number, Joe, about like what over the last three or four years. It was really, I got to say, Randy, who came to me like three years ago, and I think I told you guys this, that said, dude, if we're a branded consumer company, why is our like marketing dollars continuing to go down and our promotional dollars continuing to go up? And so, I don't know, Randy, what are we spending over the last three years? Last year, we were up 30% or so. This year, another 20%. And then this year, you know, even beyond the dollars, the fact that media is on sale right now, our impressions are well above that 20% number. They're probably 35% again. So, you know, really our challenge is to keep those people engaged and communicate to them in a way that, you know, where and when. And so, you know... I've always been pretty negative on sort of digital advertising, just kind of taking what is like TV-like advertising and banner ads and bullshit on, you know, on social. We are doing some incredible work, I think. And we're really just getting going on that. So I think our ability to keep people engaged is pretty high. And so I personally, listen, I have no idea. Like when people are released online, are they going to want to just rush out and go to bars and get COVID? You know, I don't think so at this point. I think the more people are, you know, the more I talk to my partners here, the more like I talk to my family, the more I talk to Annette, my admin, people are really comfortable at home. you know, and they feel vulnerable when they're around people they don't know and they don't know what they've been up to. And I don't think that's going to change a lot sort of this fall and winter. So I think that you're going to continue to see people wanting to be home and wanting to engage in activities that make them feel good. So I think that was always there. You know, I don't think it was luck that got us where we are today. You know, my father had this thing, you know, luck is where preparation meets opportunity. And I think we prepared, you know, we built this business kind of for what's happening, not for COVID, but we built this because we thought it was kind of an essential business for people, and it turned out that way. So, look, is there a risk? Clearly, you know, if you talk to Mike, he'd say we can beat this year. Randy and I are basically plugging, you know, that would it be – because just think about what we said. If we can comp this year, not lose margin, plus a dollar on the bottom line, what do we think? We think that's a damn good result. And I think could it be worse? Yeah, it could be. I don't think it will be, but it's possible. And I think Mike actually is not in the talking stage. with his business, with the operators, I think there's growth out there. And that's stuff to us to prove. And we'll talk more about it in November. But, you know, I think, look, Randy has also been frustrated on the financials because every time we talk to you guys, we're undercounting, you know. And so, I mean, it's hard for us to even figure out how we're going to end QB. Q4 right now. And I know that's bothering Randy. And part of that is we've been so conservative, as you guys know, in how we talk about our numbers, you know, under promise, over deliver. That has not been our friend, you know, from accuracy of financials this year. And, you know, I think Randy is more interested in the real numbers and not massage numbers that we can beat. And that's been hard for the culture here to sort of accept that what are the real numbers? And so I think that what you're hearing from us are probably more like the real numbers, which means there's upside and downside risk. But I think that it's balanced. I don't know, Randy. We could have taken the easy way out and just thrown up our hands and said, you know, we'll figure it out later. We'll tell you when we know, but

SEC was very encouraging back at the onset of COVID saying we should be providing more transparency about forward-looking numbers.

We've tried to do that, but we do have a culture of trying to be conservative and make sure that we hit the targets. I think we're clearly way too low back in June when we spoke at the William Blair Conference. You know, we've taken another shot and saying if we just keep the same run rate we saw in July and that runs out the rest of the year, retail inventory stay about where they are, you know, the hot run forecast, you know, maybe a little upside that looks pretty good. We do all that. That should be in the range that we talked about. Having said that, it's very unpredictable right now, and there could still be upside to that. And, you know, Jim's saying, Coleman, take it easy on yourself, but I think we all expect better from ourselves around here, and we've given it the best shot we can right now.

I appreciate that. Thank you, guys.

We will take our next question from Mr. Bill Chappell with SunTrust. Please go ahead, sir.

Thanks. Good morning and congratulations on an exceptional quarter. Two quick questions. I guess maybe not quick the way we've been going. The first is on the outlook for Hawthorne next year. I mean, I understand we're your early stages of planning, but, I mean, do you have any real visibility to kind of how these come down the pipe for individual states in terms of, like, they utilize medicinal and then sales go here and then they go recreational and go here? I mean, after doing this for a couple years, just trying to understand if you have any visibility, especially if you talk about potential tough comparisons in the second half of next year.

We're all kind of looking at each other and saying, who answers that one? Chris, do you want to start on that and then hand it to Randy? Yeah, sure. And I'll be relatively brief, to be honest, Chris. The way that we've sort of tracked this over the past few years, as you mentioned, starting to get a pretty good handle, we think, on sort of the timelines from, you know, this thing gets legalized. in one fashion or other, whether it's a vote or a state senate bill, whatever, there's usually about a 12-month lag time from when the log is passed till we start seeing actual cannons being sold. And typically, it's about a year lag time even for our business to really see a bump from that. And then typically, there's a year or two of the state getting comfortable with medical before they make a move to recreational. So, Typically, the way that we look at these in other states legislated a bit differently, but we figure there's about a year from passage of law until we start seeing a real bump in our business in that geography, and another year or two after that before the state starts to reach any level of what we consider maturity, if that answers your question. Yeah, Phil, a couple things that I would add is, you know, given the nature of the way the industry is set up, there's not really capacity within retailers to be loading inventory. So we have a lot better direct line of sight since we purchased Sunrise Supply a couple years ago now. So, you know, we have a good line of sight to what's going on with retailers, and they really just don't have a capacity to load. You know, another area we look at a lot is wholesale and retail pricing in a marketplace, and that's fairly stable. It's, you know, up a lot from a couple years ago. So that seems to be in good shape right now, even though the results are high.

And then the thing about demand, I think it's, you know, like Chris said this in our last earnings call, People are staying home and gardening or people are staying home and doing other things. So I think demand is high and it's understandable why, whether that will sustain.

My bet is it will. But, you know, I think we're in a good place and the approach we're outlining right now and more to come in November is if we just stay at the same run rate through the first six months of the year,

you know, we'll be in healthy double-digit growth next year. Similar approach to what we took this year coming off of 2019 because we kind of look at it six months at a time.

I think that's a very healthy place to be.

Great. No, I appreciate it. And then second, just, and I'm sorry if I missed this, but on just your media spin for 2020, were you able to spin what you wanted to? And as you look to next year, do you still need to, you know, be at the level to do historically then? I just assume such advertising around early season baseball games or NCAA March Madness or stuff like that. I mean, it doesn't necessarily make sense to do it in the fall, but I'm just trying to understand what the total spend kind of looks like this year versus next year. Right.

So when, you know, back in the March time period and even April, we were really careful and tried to preserve some of that money. And once things started looking a lot better in early May, we really threw a lot of If you're on the fire, again, we did that in June. We're still continuing to do that. Our fall program will be higher than it's ever been. If there's any expectation we're going to go backwards next year. Difficult to predict what will be going on with media rates next year. Hard to believe that they'll go down again, but again, you never know. But I'd expect us to continue investing in the brands as our business grows, and I don't see that changing at all. I mean, I mean, We will definitely be spending more money next year with our marketing group. And, you know, we do like sports. That's been challenging. And Major League Baseball, for one, has been very flexible. And, you know, our view is no games, no money. But baseball has been good to work with, and we continue to like March Madness. So, you know, I think if you look at our – Our media people, they continue to like sports, and we're doing a ton on the social side as well. But sports and news will continue to be important for us.

Great. Thanks so much.

We will take our next question from Ms. Carla Casella with JP Morgan. Please go ahead.

Hi. My question is related to M&As. You mentioned that you were still looking at opportunities. I'm wondering if you're seeing more from, you know, smaller or weaker competitors through COVID. And also, in the event you do find an opportunity, what's your comfort level? What's kicking leverage up above your target range for the right opportunity?

I mean, I'll... I will start with the latter part. I don't think that's actually necessary. You know, I have actually been pushing Hawthorne to kind of think bigger, and where they've ended up is kind of closer adjacencies, which are smaller deals, and I wouldn't put them in the You know, so just on the Hawthorne side, I would say our opportunities are not with people who are struggling. I think the whole industry is actually doing pretty well. But it's people who are, I think, open-minded to being with us and monetizing all or some of their investment. So, but I think that the business has tried to push back to me to say, You know, there's areas within Hawthorne that are clearly opportunities that the owners are willing to monetize that would fit in really well with our kind of pillars of our business, you know, which is the places that we operate. And so I think they push back to say we don't need to do big, giant deals. I am pushing Randy and Chris. You know, Randy's – the strategy group reports in to Randy to look at kind of game-changing opportunity, which are not part of our plans at the moment, that basically say if we believe that this country is moving toward sort of national legalization and that because of sort of, you know, tax code and problems with banking that these businesses are struggling to some extent unnaturally. If we believe that it's going to be legal, do we want to step in early? Those are in very early stages, and I'm not predicting we're looking at game-changing opportunities there, but I do want the company... taking a look and saying, is there a possibility to go big here? And what does that mean to Hawthorne as far as in Scots, next to Scots? You know, I don't think we know, but I don't want to miss the opportunity to sort of have the strategic group and our banking partners helping us look at industry structure, not tomorrow, but sort of 10 years out in the we're being smart about it. But for right now, what everybody's saying is, dude, let's just look at closing adjacencies that are easily integrated. A lot of times we're dealing with these companies because of our relationship with Sunlight, our ownership of Sunlight. And so that's that. On the consumer side, again, nothing groundbreaking. This would be businesses that we're already operating with and just sort of rationalizing sort of the ownership structure. But I think, you know, you're probably talking less than $200 million on both offline and consumer side for 2021 or possibly the end of 2020 if we continue to make progress. So I don't think we're having to operate at higher leverage ratios than we're comfortable with. But if we thought there was a big enough opportunity, I think we'd start by talking to our board and Randy would start reaching out to, you know, our banking partners to figure out how we, you know, finance that. And, Carla, you know, I point out back in 2018 when we purchased Sunlight Supply, our leverage did go as high as about four and a half times. And we – took a lot of actions to pay that down as quickly as possible. So really comfortable with where we're at. Three and a half is still a very reasonable place to be. And even after this dividend, you know, we won't be even close to three and a half times. So we would do it again if we had the right deal, but we don't have the right deal. But I'd also say Sunlight was clearly the right deal.

So, you know, at the time, the industry was in all kinds of flux. You know, if you compare where we are now versus three years ago, you know, the number three competitor dropped out of the industry last When you look at us compared to our largest competitor now, who's number two, our sales are three to four times bigger.

Our profitability is five or six times higher. So this has been a terrific success, and looking ahead to next year, we still have a lot of momentum, and we can do a whole lot better. So more to come on that.

Great. Thank you so much, Father Keller.

Steve, I'm going to jump in here. If we can just take two more questions. questions, and then we'll wrap things up. That'd be great. Of course, sir. Absolutely. We will take our next question from Alex Morosia with Berenberg. Please go ahead. Good morning, guys. Hope you're all doing well. I'm trying to get a better sense of the sustainability of the game scene in U.S. consumer. The public landscaping wholesaler also saw some decent growth this quarter, which implies non-DIY spending didn't change much year over year despite the pandemic. So based on that, do you have any visibility into how many of your end customers are servicing their own properties to some degree in addition to using a professional? So we would have had a lot more insight, Alex, back when we were partners with TrueGreen. Now that we no longer have that relationship, we don't have nearly as much insight. I can tell you back then when we were able to compare and contrast, When we look at sales by geography, so Florida was having a great year for Scots. True Green was as well, for example. So at this point, I can't really speak to that, but I think most of it's consumer gain. It's not pro. Well, if you look at, like, say, our home center channels and say how much of that was being going in the back of a pickup truck with somebody who was a landscaper, I think you would see much more gain on the consumer side. Okay, I agree with that. Yeah, I agree with that. I mean, people didn't really want people on their property, and so they're very sensitive about that, and they wanted to do it for themselves. So I think we're seeing that. All right, great. That's helpful. And then just to follow up, can you explain how you weighed the special dividend decision versus some internal growth opportunities or other capital allocation options? Yeah, I mean, I'll, you know, chapel was yelling at us for, like, talking too long, I guess. So, you know, we sort of said to ourselves, well, people will ask, like, how did you decide how to do it? You know, I think we looked at the equity and saying we believe it's pretty fairly valued. So, you know, I think that pushed us toward a cash special dividend. But you know, I think we just kind of made a choice that said that seems like the appropriate thing. We've over the years talked to a lot of people who generally have said, and I'm talking, you know, investors that I really respect, you know, and where you talk to them and they say, dude, my only problem with your share repurchase stuff is you guys buy like crazy when you're feeling good and your equity is high. And then, when the business is not good and your equity blows, you like put the brakes on and you just give me the cash and I'll decide because I have more kind of cojones when it comes to buying when things aren't great than you do. And so, you know, I think because there's nobody really felt strongly about it either way, we just made the decision to go with a special and, We feel good about that. And remember, you know, we had a call with my family yesterday, and they asked about, you know, what are the kind of future plans? And I just want to say the same thing to the street, which I told them, which is, you know, we're in the mode of after reconfiguring our businesses, you know, which is true green and out, Europe out, Hawthorne in, live goods in, that we would then pay down debt and go back to being shareholder friendly. And so this is not a one time deal of returning cash to shareholders. We just decided that with the equity price the way it was, we thought it was a better move to just do as a special. We intend to continue to return cash to shareholders. The question is how, and we'll just look at it every time we have that opportunity. But we plan to continue this. Alex, what I'd add is, you know, our pre-cash was coming in better than we expected just a couple months ago. So, you know, $400 million plus for this year, and we were in a situation where we were going to have cash on our balance sheet starting end of July, August, September. So originally we were contemplating doing something in the fall. We just thought, why wait? Let's do it now rather than sell on cash. And we don't really want to pay down any kind of debt capacity. So that has a lot to do with it. And, you know, if you do look at our share repurchases over the last, let's call it the last five years, I'm going to give you rough numbers, but we repurchased about 800 million bucks and the average share price was around 90. So something in that range. So we will be doing share repurchases again. We're not going to wait for $90, though. I'll tell you that. And the last part of it is that as Randy and I talked about preferences of investment in the business versus shareholder-friendly, I think Randy has taken a point of view which I am completely in agreement with, which is we actually can do both. We can't be accessible in either area, but but we can do both. And I think that's what you're seeing right now is Hawthorne is not requesting more money than we're prepared to hand over, and the consumer business is not requesting more money than we're handing over. So we're meeting the needs of the business to invest, and we're also, you know, upping the shareholder-friendly side. So I think we feel like we're pretty well in balance right now. Well, thank you. I appreciate the comprehensive answer, and good luck with the rest of Q4. Thank you, sir. And we will take our final question of the day from Mr. Eric Beauchard with Cleveland Research. Please go ahead, sir. Thank you. Good morning. A question and a follow-up. Thanks. A question and a follow-up, if I could. Having 8 million new consumers engaged in the category is... a tremendous accomplishment, achievement, however you want to view how 20s play out. That's something I know that you've been focused on for years of getting more people engaged in the category. My question is, if you think about 21, in 20 they engaged, I would assume in part because they didn't have anything else to do. In 21, if there are more alternatives for how people spend their time, I'm curious for what you're doing or what the sort of buckets of focus are to say don't forget about your lawn and garden 21 when you can do other things. Where is the focus to sort of keep them engaged? Massive. Massive. It is our major focus is retention of that customer pool going into 21. You know, I think that, you know, I don't want to jump on this COVID bandwagon in ways that are kind of inappropriate. You know, I lost a kid. I know how that feels. We lost an associate here just a couple weeks ago, only 34 with no underlying health conditions. It sucks. But I think that, you know, my view based on sort of America's kind of shaky response to this is, that, you know, I think the fall could be squirrely and I think people coming out. So, you know, I look at saying I'm not sure the behavior next spring is going to be a ton different than it is, it has been this year. And I think that in some weird, unfortunate way benefits us, you know, Eric, because we look – We are doing a tremendous amount of work, and the work we're doing with VaynerMedia, and we've reconfigured our marketing teams and our sort of advertising efforts, and that's broad when I say advertising. It's more communications. They have, like, unlimited ability to really do what it takes to keep those consumers, and I know the retailers want to do the same thing. in our online and direct business also, you know, continues to sort of do well. You know, I think where it drives us is that 22 is going to be the interesting year. That's kind of where we're getting to is that, you know, I think everybody's hopeful that this is behind us in the 22 season. But I think the 21 season is kind of setting up okay for us. But the major focus is going to be on retention of those customers, and they really don't have a budget to do that. You know, I think the work we did this year was very much in the moment, meaning, you know, just think about how we – the level of content, you know, I would say, you know, you're dealing with probably tens of thousands of pieces of content that were produced, A lot of that was done where we couldn't get talent. We had to use sort of stock footage or imagery. It was all done overnight, meaning we said we got to do something here, and it would be done sort of overnight where these creative teams were working through the night to produce stuff that we could run kind of the next day. I think that's going to be easier for us, but – We were just kind of learning this shit. Look, I am speaking aspirationally a little bit, but I was not a big believer in sort of digital up until now. I think that it's kind of everything right now, and that's not because we're – I don't think we're doing it stupidly, but I think we can do it so much better. And I think we have a great partner with Vayner. And our teams are really organized around it. Randy's a believer, Mike is a believer. And so I'm hopeful that when we have this conversation next year, we can say to you that not only retained that group, but we've also gotten to sell more and we didn't lose sales because we couldn't deliver. And Hawthorne is better than high single digits. So, you know, that's what I'm hopeful for. But I think we've got a lot to show the sort of the community of consumer goods that we're engaged in sort of a new approach to how we market our products in a way that lawn and garden really works well for. Eric, I'd add, you know, we know who the consumers are and we're targeting them directly. We're not being cheap, so we're spending lots of dough to get after it. Even beyond the social media, we recently developed a new TV spot that ran for the first time in the first baseball game that was played last week pretty quickly after the game started. It runs for a while, but if you watch that and if that doesn't evoke an emotional response from people, people are cold-hearted because it really goes to what we're trying to do, which is more focused on lifestyle and people with their family in the yards and I thought it was terrific. We're seeing more people lean in in the fall in gardening. They're looking for the second harvest. Their arrow garden is tremendously up. We see that momentum of a 365. And then a lot of people are moving out of the cities into the suburbs, which is a huge opportunity for lawn and garden. So I think those trends, we've got to capitalize on it, and that's where how good we are at that will be the determining factor. Okay, and then just to follow up, you sounded optimistic about price next year. I'm curious if there's any challenge to that in a year where it sounds like your home center's lost share this year and they're going to want to drive traffic. Can you sort of square those two points that your price can go up and it sounds like their price is going to go down? And I understand maybe the opposite happened this year, but I'm curious how you think about that. Well, what do I think? We want pricing. But it's a fight this year, to be transparent. And I think for, you know, pretty reasonable, you know, there are retailers out there, you know, some of the biggest retailers in the world who would say, dude, there's all kinds of unemployment, you know, you guys are making money like crazy, your numbers, you know, are stupid good. Really? You know, you want pricing? But we've got a lot to do to drive, you know, comp numbers. And so do they. So we also view it as, to some extent, unbalanced because of the real lack of promotion, the effect it's had not really on our margins but on their margins that, you know, I don't think it should, you know, because if you look at the consumer price, the consumer price is probably up 10%. I don't know, something like that. this year, and we don't think it's crazy to look for 100, 200 basis points of pricing, but there's definitely resistance out there. We will achieve our pricing, but it's, I think, requiring Mike and I to make visits personally to sort of explain what we're trying to do and the challenge of comping this year, which Again, I don't want anybody to think I don't think it can be done, but I do think that it's a tall order. And, you know, I think we know what to do, and that means that we're going to continue to invest in the business to be a better vendor, you know, to have satisfaction rates that are higher. and to invest the money in our brands, which is really, I'll just repeat, something that Randy sort of grabbed me at the end of a budget session like three years ago and said, why are we putting so much money in promotion and so much less money into our marketing efforts? And that doesn't seem to me to go to the strength of our brands. And so I think Randy was right. And we're trying to convince retailers that this is right, too. But it's not an environment where they are just, like, completely open-minded to us demanding pricing, you know, even though I think we really helped the industry this year. Mike, anything you want to add on that? No, I think it's – each one is a discussion and battle to try to get to the right spot for customers. But we will be successful, Eric, in getting the pricing. It's just it's requiring us to talk personally to top to top. Okay. Okay. Fair enough. Thank you. All right. Thanks, Eric. And, Stephen, we're going to wrap up at this point. I know there are several people who were in the queue that we didn't get to. So feel free to reach out to me directly, 937 578-5622. Otherwise, our next planned public communication is tentatively scheduled for November 4th, when we'll be sharing our four-year results and a more detailed outlook for 2021. Thanks for joining us. Have a great day, everybody. This concludes today's call. Thank you for your participation. You may now disconnect.