Spectrum Brands Holdings, Inc.

Good day and thank you for standing by. Welcome to the first quarter 2025 Spectrum Brands Holdings, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Joanne Chomack, SVP Corporate Tax and Treasury. Please go ahead.

Thank you, Daniel. Welcome to Spectrum Brands Holdings Q1 2025 Earnings Conference Call and Webcast. I'm Joanne Chomack, Senior Vice President of Tax and Treasury, and I will moderate today's call. To help you follow our comments, we have placed a slide presentation on the event calendar page in the investor relations section of our website at .spectrumbrands.com. This document will remain there following your call. Starting with slide two of the presentation, our call will be led by David Mora, our Chairman and Chief Executive Officer, and Jeremy Smeltzer, our Chief Financial Officer. After opening remarks, we will conduct the Q&A. Turning to slides three and four, our comments today include forward-looking statements, which are based upon management's current expectations, projections, and assumptions, and are, by nature, uncertain. Actual results may differ materially. Due to that risk, Spectrum Brands encourages you to review the risk factors and cautionary statements outlined in our press release dated February 6th, 2025, our most recent SEC filings, and Spectrum Brands Folding's most recent annual report on Form 10K and quarterly reports on Form 10Q. We assume no obligation to update any forward-looking statements. Also, please note that we will discuss certain non-GAAP financial measures in this call. Reconciliations on a GAAP basis for these measures are included in today's press release and 8K filing, which are both available on our website in the investor relations section. Now, I'll turn the call over to David Mora. David?

Hey, thank you, Joanne. Good morning, everybody. Welcome to our first quarter earnings update, and I thank you all for joining us today. Today, I'm gonna start the call and update on our operating performance and our strategic initiatives. Jeremy will then provide you all with a more detailed financial and operational update, including a discussion on our specific business unit results. During our last call, just to remind everybody, I talked about how Fiscal 24 was a year where we delivered on our promises, we restored operating momentum to our business, we set standards of excellence, and we laid the foundation for a much more successful future. Fiscal 24 was a transformative year for us. We accelerated our investments into brand-focused, top-line driving initiatives. We upgraded our capabilities in commercial operations, innovation, marketing, and advertising. We've materially strengthened our working capital management and we've maintained what we believe is the strongest balance sheet in our peer group on returning significant capital to our shareholders through share repurchases and increased dividends. We've worked to gain back and maintain our investors' trust. Today, I'm happy to report that our momentum is continuing into Fiscal 25, and the work we've done to build operational excellence within our organization is paying off. I can now have you guys turn to slide six in our financial performance. We're pleased with the start of the year, and we're pleased with our first quarter results. Net sales increased 1.2%, excluding unfavorable effects, our organic net sales were up 1.9%. The investments we made in Fiscal 24 to upgrade our commercial operations and accelerate our top-line growth are paying off. You'll recall from last quarter's call that our sales this quarter were going to be negatively impacted by approximately $10 million of global PECCUR sales that were accelerated or pulled forward into last quarter in advance of the Go Live we did on our new S4HANA update, which was completed on October 3rd of 2024. Our home and garden business has had a terrific start to this year. And while this is the slowest quarter of the year for that division, the home and garden team saw an opportunity to capitalize on warm fall season in many regions of the US, and we partnered with our retail customers to create another demand micro season called the fall crawl. The holiday season generally came in as we expected for our home and personal care business. Competitive pressures in the small kitchen appliance category remained high, but overall demand was generally stable, and the consumer trend of increasing online purchases continued. Our investments in e-commerce helped drive another quarter of outsized e-commerce growth for our HBC business. Our adjusted EBITDA in the first quarter of $77.8 million delivered an increase of $16.5 million over last year, or a .9% growth over last year's first quarter results if you exclude our investment income. Gross margins grew 140 basis points over the first quarter of fiscal 24. Our businesses were diligent in delivering cost improvements and operational efficiencies, offset headwinds from ocean freight, and tariff-driven inflation from last year's expiration of tariff exemptions. Staying lean is imperative to sustain the operating improvements we've achieved. Our teams approach each day with a lean mindset, continuously looking for opportunity to reduce and take out costs. We are focusing our spend toward top line driven investments. In this quarter, we increased brand focused investments by over $8 million compared to the same period last year. Our strong balance sheet continues to be one of the competitive advantages we enjoy, and we're leaning into that to drive our top line. We closed the quarter with net leverage under 1.1 terms. We're leveraging the balance sheet to support all facets of our operation and to spur growth. We can now turn to slide seven, and let's discuss the strategic priorities for the current fiscal year. We continue to invest in the brands to drive long-term growth, and that's really priority one. Last year, we began reinvigorating the focus on making smart ROI positive investments in advertising, marketing, and R&D. This quarter, each of our businesses increased their investments compared to the first quarter of fiscal 24. We're seeing significant returns on investments made toward e-commerce leadership and capabilities, and we expect our spend this year will be more consistently spread throughout the year in terms of phasing. That will put pressure on comparables in the first half of this year. We're strategically investing in inventory to support sales growth, and particularly our e-commerce expansion. While we make these investments, we're looking across all facets of our working capital for opportunities to maintain our -in-class working capital management capabilities which we've recently put in place. We believe there are opportunities actually to deliver even more working capital improvements as we move forward during this fiscal year. Our investments in innovation are actually expanding our core categories, and we're driving sales into new adjacencies as we speak. In global pet care, we are expanding our Good and Fun brand into Good and Tasty for cat treats and toppers, adding a brand alongside our Meowie brand in the Growing Cat Treat category. We will launch health and wellness products under our Good Boy brand, and later this year, we will be entering the dog food category in North America with a complete nutrition product line. We are investing in our operations to improve our costs, quality, and safety. I'm very pleased with our operational teams. They are delivering productivity savings in our factories, our distribution centers, and throughout our sourcing operations. Our operations and commercial teams are activating plans right now to minimize and mitigate the impact of the recently announced US tariffs. While we purchase very few goods from Canada or Mexico, our HPC business and GPC businesses both source material levels of product from China. Many of those products are already subject to tariffs ranging from the high single digits up to 25%. The incremental 10% tariff on Chinese sourced products will impact our cash flows almost immediately, but given our inventory terms, the effect on our P&L won't be seen until the third quarter. With all of that said, we do expect to mitigate the vast majority of any currently announced tariff impacts in the year. The business that will be most impacted by the recently announced tariffs is our HPC business. Nearly 40% of HPC's global purchases come into the United States, and nearly all of those are currently Chinese sourced. Last year, we began implementing a plan to move production for US-bound products out of China. Moving production for our appliances is not a quick process because we want to ensure we have very high quality product. That's the top priority. However, we've recently accelerated these plans, and by the end of this fiscal year, we anticipate that approximately 35 to 40% of all our US-bound appliance product will be sourced outside of China. And we will continue to look at opportunities to accelerate and migrate our purchases out of China, and in the meantime, intend to minimize the impact of incremental tariffs through both supplier concessions and pricing and cost improvements. If we can turn to the strategic transaction for HPC, while we're still engaged with several potential buyers on the M&A side, clearly the changing landscape for US tariffs has created some uncertainty, and that's slowed down the dual-track process we undertook last summer. We are pleased that the business continues to perform well, although the timeframe for a separation is taken longer due to these geopolitical factors that are simply outside of our control. We will continue to seek opportunities to maximize value with our HPC business, and we will provide updates on our earnings calls or sooner if there's news to share. I can now direct everyone's attention to slide eight, and I'll give you a little bit of an update on capital structure and recent share repurchase activity, et cetera. During the first quarter, we repurchased approximately 800,000 shares, and in December, we put another $150 million 10B5-1 plan in place that allows us to continue buying shares during otherwise restricted periods. Year to date, through today's call, we have repurchased approximately 2.1 million shares for about $183 million in total, and quite frankly, since the close of the HHI transaction, we've returned over $1.2 billion to shareholders through our various share repurchase programs. We've really materially reduced our share count. In fact, we've driven our share count down by 36.6%, to be exact. We're gonna continue to reward our shareholders, and we've recently increased our dividend payout. We have approximately $220 million right now remaining on the share repurchase authorization that we recently updated with our board of directors. In terms of balance sheet strength, our net leverage is still well below our long-term target, which is a range of 2.0 turns to 2.5 turns, and so we clearly have ample capacity to both fund the investments in our company and continue to return a material amount of capital to our shareholders. As we keep our internal momentum going and we keep delivering our commitments and we keep shrinking our share count, we do believe that eventually our share price will react positively. If we can now turn over to page nine, after a good first quarter start, we are currently reiterating our expectations for our full year sales, adjusted EBITDA, and free cash flow. The investments in innovation and brand building that we've made since the start of fiscal 24 are helping us to grow our top line organically. We generally see healthy retail inventory levels in our categories. We had a very good holiday season for HPC, and we're off to a terrific start in our home and garden business, and we're introducing a lot of new innovation in our global tech care group. Now, before I turn the call over to Jeremy, I do wanna take a minute to thank each and every one of our global employees who are continuing to help us drive momentum, and they are gonna help us thrive in fiscal 25. Now, I'll turn the call to Jeremy, and he'll give you a lot more information on the financials and a lot of additional business unit color and insights. So over to you, Jeremy.

Thanks, David. Good morning, everyone. Let's turn to slide 11 and a review of Q1 results from continued operations. I'll start with net sales, which increased 1.2%. Excluding the impact of $5.1 million of unfavorable foreign exchange, organic net sales increased 1.9%, primarily due to an acceleration of inventory builds at certain retailers and an extended fall season in our home and garden business, as well as continued growth in e-commerce with our home and personal care business. This was partially offset by a previously communicated strategic pull forward of orders in the Q4 of last year in GPC in preparation for the S4 HANA ERP implementation. Gross profit increased $12.9 million and gross margins of .8% increased 140 basis points, largely driven by impacts from cost improvement actions, operational efficiencies and favorable transaction effects, partially offset by ocean freight inflation and higher tariffs from the expiration of exemptions on certain product lines from last year. Operating expenses of $213.1 million decreased 3% due to the absence of a trade name impairment compared to last year and cost reduction actions, partially offset by increased investment spend in advertising and marketing as we continue to invest behind our brands. Operating income of $44.7 million improved by $19.7 million, driven by the gross margin improvement and lower operating expenses I mentioned. Gap net income and diluted earnings per share both increased, primarily driven by the higher operating income, lower interest expense and lower share count, partially offset by lower investment income. Adjusted EBITDA was $77.8 million, a decrease of .7% or $6.5 million, driven by investment income of $23 million in the prior year and increased brand focused investments, partially offset by higher volume and improved gross margins. Excluding prior year investment income, adjusted EBITDA was up $16.5 million. Adjusted diluted EPS increased by 39 cents to $1.02 per share driven by lower interest expense and the reduction in shares outstanding, partially offset by lower adjusted EBITDA. Turning to slide 12, Q1 interest expense from continuing operations of $6.2 million decreased $13 million due to our lower outstanding debt balance. Cash taxes during the quarter of $8 million increased $4.6 million from the prior year. Appreciation and amortization of $24.5 million decreased $1 million from last year and separately share-based compensation increased $800,000 to $4.7 million from $3.9 million in the prior year. Capital expenditures were $5.9 million in Q1, two and a half million lower than last

year.

Cash payments towards strategic transactions, restructuring related projects and other unusual non-recurring adjustments were $8.8 million versus $16.3 million last year. Moving to the balance sheet, we had a quarter-end cash balance of approximately $180 million and about $491 million available on our $500 million cash flow revolver. Total debt outstanding was approximately $575 million, consisting of $496 million of senior unsecured notes and $79 million of finance leases. We ended the quarter with just over $395 million of net debt. Now let's get into the review of each business unit to provide details on the underlying performance drivers of our operational results. We will start with global pet care, which is on slide 13. Reported net sales decreased .1% and excluding favorable foreign currency impacts, organic sales decreased 6.4%. Sales declined in both the companion animal and aquatics categories, primarily driven by last quarter's pull forward of approximately $10 million of sales prior to GPC North America's October 3rd go live on our new ERP system. The implementation went well, and we're pleased to say our operations are running smoothly. As anticipated, this put pressure on our first quarter sales. To add some perspective on the impact this had on our quarterly results, if we look at the four-month period from September through December of 2024, which would eliminate most timing differences resulting from the pull forward, GPC's reported net sales grew 1.8%. GPC EMEA, which was not impacted by the S4 Honda Go Live, grew sales in the mid single digits. We are seeing solid sales growth for our Good Boy brand as we expand distribution throughout continental Europe and introduce new products that are being well received by consumers. The chews and treats business also had several successful holiday campaigns at EMEA. Dog and cat food e-commerce sales had a strong growth quarter as well. Sales in North America declined low double digits, impacted primarily by the sales pull forward into the fourth quarter. North America's companion animal sales were also adversely impacted by consumer trade-downs. Many of our North American brands, like Good and Fun, Nature's Miracle, and Furminator, are premium brands, and we see consumers looking for lower cost options, including choosing smaller pack sizes and or private label. To combat this pressure and continue to build our brands, we are investing in value-focused innovation, brand building, and promotional programming to strategically differentiate our products and win with consumers. Soft consumer demand and aquatics continue to impact our sales this quarter. The aquatics category has been especially impacted by low foot traffic and pet specialty. E-commerce sales were in the mid 20% of GPC's global sales and were relatively flat to last year. One of our large e-commerce customers experienced capacity issues at its fulfillment centers, attributable in part to high levels of inventory on hand during the holiday season, which impacted their repurchase levels in the quarter. We did see strong POS for our products at this retailer, and expect those capacity challenges to stabilize in the second half of the year. Our strategic investments in GPC brand-focused innovation, marketing, and advertising continue to fuel a robust pipeline and position us well for future top-line growth. In North America, our recently launched Good and Fun National Lab Campaign is running during both live sports and on network TV, driving significant brand awareness and expanding our distribution channels. We plan to further expand the campaign in the near term, such as through our partnership with Good Morning America on a live custom segment with an in-studio dog competition where these good and fun pups will compete in the low stakes obstacle course, with the winner taking home a year's worth of good and fun dog treats. We are also launching Dreambone collagen and high protein dog treats this spring. These products cater to the growing demand for nutritious health-focused products, and we already have listings at one of our largest retail customers. We are also excited to launch nutritional dog food in North America later this year. In aquatics, we secured a new aquarium kit program with a major retailer that will begin shipping later this fiscal year. These -in-one aquarium options target consumers new to the hobby, helping drive household penetration and long-term category engagement. We will manufacture the tanks and assemble the kits at our Noblesville, Indiana facility. Just a deeper dive for GPC, decreased by $1.2 million to $51.5 million, primarily driven by lower sales volume and inflationary pressures in ocean freight, offset by operational productivity improvements and other favorable variances. GPC also increased its brand-building investments this quarter, continuing to invest behind strategies to drive sales growth for the business. For fiscal 25, we expect GPC sales will be relatively flat to last year. With approximately a third of GPC's business in Europe, we expect FX headwinds to negatively impact our reported net sales growth levels. We expect cautious consumer behavior, and given the premium placement of many of our brands, we anticipate continued pressure in North America from consumer trade-downs. We remain cautious about aquatics where demand continues to be soft and has not yet returned to pre-pandemic levels. Moving now to home and garden, which is on slide 14, net sales increased .9% in the first quarter, driven primarily by the timing of seasonal inventory billed by certain retailers. The first quarter is typically H&G's slowest sales quarter and represents a small portion of the annual consumer activity for this business. The quarter is predominantly focused on preparation and staging for the seasonal business, which typically begins later in our second quarter. Order trends support our view that retailers are starting the season with normalized inventory levels. Sales increased in all categories other than cleaning. Sales and controls and repellents increased most substantially, with strong demand also aiding growth in household pest sales. A relatively warm fall season also extended demand further into the fall. At the end of January, the H&G business successfully went live on our S4 HANA ERP. While the impact of that go live on quarterly sales was less pronounced than it was with the GPC North American go live, about four to five million of the quarterly sales favorability was attributable to retailers cautiously building inventory to ensure supply during the go live. In cleaning, quarterly sales comparisons are being affected by the loss of some distribution last year. But sales trends for Rejuvenate's floor care products are gradually improving, led by the Click and Clean Mop Kit. Our H&G commercial teams partnered with retailers this fall behind a new fall crawl campaign to drive demand during the extended fall season. We supported the campaign with brand-focused media investments and drove share growth for both the Spectracide and Hotshot brands this quarter. Based on the success of the campaign, we anticipate increasing our fall crawl investments this coming fall. We are excited about our new products that are being introduced this season, including the Spectracide Wasp and Hornet Trap and the Hotshot Flying Insect Trap, which are already gaining traction with retailers. This will be the second season for our Spectracide OneShot product line, our longest-lasting Spectracide product. Spectracide OneShot had a strong first year and resonated with results-focused consumers looking for increased efficacy at a superior value. We will have incremental Spectracide OneShot displays in retailers this season and will support growth for the product line and the Spectracide brand with brand-focused investments. Adjusted EBITDA was $9.3 million compared to a loss of $700,000 last year. The increase in adjusted EBITDA was primarily volume-driven, aided by cost improvements and favorable trade variances, offset by an increase in brand-building investments and some inflation. For fiscal 2025, we expect low single-digit sales growth for H&G. We are planning for weather in 2025 that is generally similar to the 2024 season. We anticipate that our retail partners will be supportive of the lawn and garden category in their stores with the allocation of off-shelf space. Certain retailers continue to expect a cooler start to the season, which could impact the timing of orders and reorder patterns. We do expect the category to be competitive and we will continue supporting our innovation and brands through brand-focused investments throughout the year. And finally, home and personal care, which is on slide 15. Reported net sales increased .4% and excluding unfavorable foreign exchange, organic net sales increased 3.1%. High single-digit organic sales growth in global personal care was offset by low single-digit declines in global home appliances. Continuing recent quarterly trends, HPC's e-commerce sales growth significantly outpaced -and-mortar sales. This quarter, e-commerce sales accounted for over 30% of HPC's quarterly global sales. We were overall pleased with the holiday season. We generally saw stable consumer demand with highly competitive retail markets. North American sales decreased low single digits with growth in personal care offset by sales declines in home appliances. Within personal care, hair care and grooming sales grew while home appliances saw competitive pressures in toaster ovens and air fryers this holiday season. Sales in EMEA grew high single digits in both personal care and home appliances. EMEA also saw strong e-commerce growth, particularly in hair care, beverage, and garment care, as well as new listings at a number of traditional retailers across the region. Latin America posted organic single-digit sales growth led by growth in personal care where we gained new distribution from successful new product launches offset by low single-digit declines in home appliances. We had a great season online. Consumers are increasingly going online for HPC's categories, and we are investing behind that global trend to drive top-line sales. One standout product for us was the Emeril French Door air fryer toaster oven, where we saw especially strong online sales. The Russell Hobbs garment steamer is gaining momentum throughout the UK and continental Europe. And our Remington Balder continues to get new listings and gain share, both online and in traditional retail, gaining traction and driving awareness of the Remington brand with consumers. We plan to introduce new Remington lines in multiple North American retailers and internationally during fiscal 25, building off the successful Remington One launch a year ago. We will continue to activate brand-focused investments to drive top-line sales of our current product portfolio and our new product launches throughout fiscal 25. Adjusted EBITDA was $26.7 million in the quarter, flat to last year. The adjusted EBITDA margin of .7% was also relatively flat to last year. Adjusted EBITDA benefited from higher sales volumes, continued cost improvement initiatives, favorable cost variances to last year, and favorable FX, offset by inflation and ocean freight, higher tariffs, and increased brand-focused investments. Looking forward, we expect HPC's sales to grow low single digits in fiscal 25. As our most global business, we anticipate significant FX headwinds will negatively impact our reported sales growth levels. We see stabilizing consumer demand trends with pockets of softness in certain small kitchen product categories, and we expect a continued, challenging, competitive environment in North America. We believe most retailers ended the holiday season with relatively healthy inventory levels, and expect HPC's growth in e-commerce to outpace growth in brick and mortar channels throughout the year. Turning now to slide 16 and our expectations for 2025. Consistent with our prior earnings framework, we expect fiscal 25 net sales to grow low single digits, driven by our brand-building investment strategy fueling top-line growth, offsetting pressures from current geopolitical and economic conditions, including FX headwinds. We continue to expect adjusted EBITDA to grow mid to high single digits, driven primarily by higher sales volumes and cost improvement actions, offset by ocean freight inflation and the expiration of certain tariff exclusions on certain product lines within our home and personal care business. As David mentioned, we currently expect to mitigate the vast majority of recently announced tariffs in the fiscal year. Our earnings framework does not contemplate any additional tariffs beyond those recently announced. Turning to slide 17, depreciation and amortization is expected to be between 115 and $125 million, including stock-based compensation of approximately 20 to $25 million. Cash payments towards restructuring, optimization and strategic transaction costs are expected to be between 30 and $40 million. Capital expenditures are expected to be between 50 and $60 million, and cash taxes are expected to be 40 to $45 million. To end my section, I want to echo David and thank all of our global employees for their hard work so far this year. Now

back to David. Hey, thank you very much, Jeremy, and thanks everyone for joining us on the call today. Let's just take a few minutes and recap the key takeaways. You'll find those on your slide 19. But there's no question about it. We're currently operating in a dynamic environment today. The developing tariff landscape will certainly have an impact on us and our competitive set. But while, you know, in the meantime, we're implementing contingency plans, we're moving production out of China, we're redesigning supply chains, we're also working with our suppliers and retailers to cover the recently enacted tariffs. We expect consumers to be cautious as they digest the new international trade environment and the eventual implication on prices and inflation. We also expect FX headwinds to impact reported sales numbers. However, we remain focused on what we can control. We're investing in innovation and top-line driving initiatives. We are expanding the reach of our brands to adjacencies, and we're letting costless consumers know about the value of our products. We're staying lean and focusing our spend toward growth. We're very pleased with the start of the year. The brand-focused investments we started to make in 2024 and are continuing to make in 2025 are driving innovation in our products and consumer demand at shelf and online. Our investments in e-commerce, from leadership to strategy to content to fulfillment, are helping us win in what is the fastest growing channel for most of our product portfolio. HPC delivered another solid holiday season, and our investment in e-commerce was one of the reasons we keep winning there. Home and Garden had a fantastic quarter, while a portion of their sales increase is due to timing because of accelerated purchases prior to the business's go-lile on S4HANA. We're looking forward to a good season in Home and Garden. Based on our discussions with our retail partners, we expect retailers to be supportive of the lawn and garden category this season to help drive foot traffic into their stores. While we can't control the weather, we're ready for another season of growth. For global PECFIR, when we even out the quarterly impact of sales acceleration to last quarter, sales also grew. Our S4HANA go-lives have been successful, and we now have global PECFIR North America and our Home and Garden businesses on the new platform. And we're focusing now on expanding that ERP system further internationally as the year progresses. Overall, we have a ton to be proud of, and I'm excited about our continued momentum. While the world is currently in a volatile state, I'm very pleased with our operating performance, our inventory levels are healthy, and we are maintaining best in class service levels to our customers. We are thrilled to have the lowest levered balance sheet in our space, allowing us to invest in our operating units and return significant capital back to our shareholders. We continue to believe that our share price is significantly undervalued, as evidenced by recent M&A multiples in the PEC space, and we are highly optimistic that by continuing to improve our operating performance, we will ultimately succeed in a better multiple. Right now, I'll turn the call back over to Joanne, and we're happy to take your questions.

Thank you, David. Operator, we can go to the question queue now.

As a reminder, to ask a question, please press star, one, one on your telephone, and wait for your name to be announced. To withdraw your question, please press star, one, one again. Please stand by while we compile the Q&A roster. Our first question comes from Brian McNamara, with Canocorgenuity, your line is open.

Hey, good morning, guys. Thanks for taking the questions. Understanding you sell very different product lines, a large garden competitor sounded pretty optimistic heading into the spring last week. Another competitor last night was what we'll call a cautiously optimistic, obviously not asking you to predict the weather, sounds like you're planning on the same weather as last year, which is probably a good way to be given the last few years. But are earlier load-ins and overall retailer behavior suggesting they're a bit more committed to the category than they've been in some time?

You know, I would say it feels to me that retailers in general are the same level of commitment as they were last year to the category. I do see some incremental off-shelf seasonal space coming to our categories. You know, it was really a couple years ago, I think, where retailers tended to step away or move to some adjacent categories for the spring season. So I do think back to the consumables and controls, there's a big focus there. I think, you know, retailers load at different times each year, so, you know, we were pleased to see that. It helps the factory level load, it helped us get ahead of some of the go live activity that we had at the end of January for that business. But overall, we're in a good place. You know, I do think that that activity is really a pull forward of loading from Q2 to Q1. So I would expect, frankly, it would come out relatively dollar to dollar in Q2. But at the same time, we'll see how the spring season progresses. Inventory looks really good across the brick and mortar retail space for our categories. And we're excited about the season. I think we're taking a prudent approach to what we're saying we're expecting for the year. And if we have a better weather season than that, there's a potential for it to to move up.

Got it. Go ahead, David.

No, no, I just I just want to really call out the team there. I mean, at Holman Garden for us has been a remarkable turnaround. I think the whole industry, you know, kind of had the COVID situation and then you had kind of the overhang of tons of inventory. But I think we're doing a little bit better than competition. I mean, I really want to thank the team there, you know, led by Avier. We're just much sharper on innovation. We're much sharper on the efficacy of the product. We're sharper on marketing. I mean, look, we just we just had nearly a record quarter. Right. We have nine million dollars in EBITDA for Q1. It's phenomenal. And so, look, I do think retail is committed to the category. And as I said in my opening remarks, they really love the efficacy and the value that we play at. It drives a lot of foot traffic. So, but, you know, I think we are being prudent, but let's hope for some good weather. It should be a should be a good year for Holman Garden. We're excited about it.

And while I have the opportunity to also just say thanks to that Holman Garden team, our supply chain teams, our finance teams. It's we're super excited to go live on us for the end of January, four months after we did GPC North America. It's a 600 million dollar business that went live with with no hiccups. We're operating. So just a big shout out to our internal teams.

Great. And then on HBC,

go ahead. Next question.

You're good. On HBC, while I understand it's not a core asset, could this kind of delay be almost like a blessing in disguise? Does it make sense to maybe hold on to the asset a little while longer while you nurse it back to health? With a large player winning with innovation in the space, there's a reasonable school of thought that, you know, with innovation returning to the category overall, the higher quality business might businesses might fetch higher, higher multiples, particularly after we get some certainty on the policy front.

Yeah, listen, there's no question. I mean, last summer, you know, we went and felt things out and we were overwhelmed with the response we had, to be honest. And so we got super confident we would find a complementary partner, a merger synergy, you know, global scale type play that would create a lot of value for stakeholders. There's no question that, you know, changing administration, you know, tariffs that that makes things harder to value. It creates volatility. And so that's, you know, it just slowed things down. But I think if you zoom out, you know, again, just to just thank the team there and Tim Wright, you know, they've done a yeoman's job turning this business around. I mean, it's less than two years ago. It was a forty million dollar business. You know, we've returned it 70 million plus. Our goal is to get that back to 80 and then 100. And so, yeah, we've got some short term, you know, headwinds right now with FX and tariffs that are unwelcomed. But we face into these things, we manage and we'll mitigate them. And I agree with what you're saying. You know, there's no question that we can draft off some of this innovation. We can be a value price point player. And I think, look, that's how you ultimately create more value, right? Is you continue to just focus and improve your fundamentals. But this industry is absolutely right for consolidation. It has to happen. It will happen. And we just have to, you know, listen, we've got to keep doing what we're doing as great stewards of the asset. And eventually the right the right situation will come along and it'll unlock some value. But that's that's where we're going to steer the boat.

Thank you. Our next question comes from Ian Zappino with Alpenheimer. Your line is open.

Hey, great. You know, I'm thankful. Thanks for taking my question. And then, you know, how are you guys? I'm on the pet side, you know, just going down a little bit on this, you know, two items and, you know, the e-commerce business, what is that now growing? I know you kind of called it out a slap, but there's one retailer. So if you kind of back out that one retailer, maybe give us an idea kind of the core growth of the online business in GPC. And then also, are you seeing any signs of like bottoming in aquatics? Or is this kind of a, you know, a long haul sort of way to say thanks?

I'll hit the first piece. And then, Jeremy, as always, we'll fill it in and give you more detail. But online, we continue to win. You know, POS has been double digit growth for that business since we put a new Ecom team in there. And I couldn't be more pleased with Mir and Will just, again, bringing lots of new content, lots of new excitement, lots of new digital advertising. So very vibrant there. And that continues. You know, very recent, you know, today or this week, we continue to grow double digit there in terms of POS. So we did have a big player that, you know, had some capacity issues. And so our factory shipments did not match that POS rate. And then we had a major pull forward of revenue into that September quarter from December, because we had to tell our customers we were doing a major SAP upgrade to S4HANA and we didn't want them out of stock. And so there's definitely some distortion in the pet business here in Q1, but fundamentally very vibrant. We are tweaking things. You know, we do have some premium product. There is pressure on the consumer. You know, we want to work with our vendors and our customers, and we want to get a higher growth rate there for sure. We're also we would also tell our investors, look, we are making top funnel investments. Those take longer to pay back. They just do. But, you know, we've built, you know, from my seat, we've taken a good and fun business from 30, 50 million. It's now a quarter billion dollar wholesale business. The American consumer doesn't really know that brand like I want them to. We've got to spend money. We've got to get awareness up. We've got to build brand equity. That is a longer payback. And we are clearly burdening the earnings of the company with it right now. But those are the assets that ultimately get great value. You saw just 90 days ago a company, you know, trade for 22 times EBITDA. Now, granted, that's food focused, had a little faster growth rate than us. But we're pretty convinced if you build giant, scalable, attractive pet assets, they're worth a hell of a lot more than what we trade currently at seven times. And we're going to keep banging on that. Aquatics has definitely been a little bit of a slower slot. But we're the dominant player there. It's a great margin business. We're going to continue to do things like the low fish and try to bring news and excitement to the category. We figured out how to make a bigger angel fish light up in a tank and get that as part of the glowfish family. We saw a big lift there. We are increasing our tanks business to support some of our major brick and retailers, but it's definitely been a more challenged category. Jeremy, you want to?

Yeah, I think it's it's a bit of a tale of two cities between what we see in Europe and what we see in North America. You know, new entrance to the category, particularly in North America, are difficult right now. It's a relatively expensive entry point for this economic cycle that we're in. That's why, as I mentioned in my prepared remarks, you know, some of our new products and new agreements with brick and mortar or some smaller tanks entry level to start building that. We do see relatively steady demand for all the consumables. That's a good thing. That's where we that's where we make our margin. And you can see that where the performance is holding up nicely. And the other reason that beyond the installed base in Europe, I think that we see a little bit more steady performance in Europe. There's also a larger pond market, you know, think Koi outdoor, even indoor. Koi, that's a bigger market in Europe than it is in the US. A bigger consumer base. And that's very steady, particularly on food, but also on water treatment.

OK, thank you. And I need to sneak in one more on the M&A front. You know, any need to buy anything here? How are you thinking about kind of if we do hit an innovation cycle, if you're well positioned or if you need mass anywhere else, just sort of a your current thoughts on M&A.

Thanks. Give me that again. I didn't hear it exactly.

I'm just saying, what do you need? Do you need to do M&A if you do? Where do you need it? You need it from, you know, maybe help on more innovation or maybe more scale or anything like that or adjacencies. Just any kind of discussion or color to give us on what you're thinking on M&A, maybe just nothing. But yeah, thanks.

Look, listen, we have looked at tons of transactions in the last nine months. Most of these things are at price points that I don't think we don't want to deploy capital at the wrong price point. So we passed on tons of deals. You know, we continue to buy shares. Even today, the share price is down a little bit as we're doing this call. I don't understand it, but that's OK. People don't want to own the shares. We're happy to buy them. We frankly think that a billion to that franchise is worth a lot more than seven turns, and we're eventually going to get proved right on that. As you can see in our opening remarks, we are launching a number of adjacencies. We are getting into cat treats. We're taking that good and fun halo brand, which we're pretty dominant in dog chews. We're going into good and tasty. We've started a business there and we've grown it from zero to 10 million bucks. We've got to get bigger faster. We've got meowy launching over here. We're taking our good boy brand, which has been a home run for us in the UK. And we've taken that into continental Europe, but we're going to launch food, actual dog food under that brand here and into the summer and fall of this year. And frankly, we want to get into the health and wellness business. And you can see us launching collagen and other things into some of our treats and chews. And so those are adjacencies we're currently building organically. But there's no question, you know, we're an under levered balance sheet. Everybody calls us to sell stuff. And we want to we want to acquire higher growing, globally scaled assets in that in those categories, cat, wellness, health and wellness and food. But we have got to maintain discipline and patience. And we believe that is how you win in the M&A game over the long run.

Thank you. I hope that helps.

Thank you.

Our next question comes from Olivia Tong with Raymond James. Your line is open.

Great. Thanks. Good morning. Oh, I'm here. Hi. How are you? I'm here. I'm great. It's impressive that you cut your exposure that dramatically by or planning to cut your exposure that dramatically on tariffs by year end. So if you could talk about the actions in place to do that, whether pricing is a component of that and also the competitive dynamics in in your HPC categories as well, particularly at the sort of opening price point level. And given the efforts that you've made to lower your China manufacturing exposure and the obviously evolving political backdrop, how does that impact your commitment to exiting the segment? You know, realize, of course, that you said earlier, you remain committed to doing that, but just your sense of urgency in doing that. Thanks.

Look, I think big picture. Let's just restage this. You know, our home and garden business is largely a North American company. We manufacture, we source, you know, we have raw materials, web finished goods. We do basically all that in USA. So there's very little tariff impact to the home and garden business. We have been very deliberate over the last five, ten years on getting dual source, triple source, quadruple source in pet. We still have product come out of China, but it's it's relatively small. And, you know, we are going to we have access to tons of factories, tons of vendors, both here in the US and in other parts of the world, where we currently source and we can flex capacity and move that around. And we could completely exit China, you know, if if if the environment so demands that's not going to happen overnight. But if it comes to that, we have that flexibility and we can work on that, depending on how the numbers fall. It's HPC that's exposed. And, you know, we've been over there. You know, we've recently been in a number of different countries with new factories and we have capacity coming on. We have products launching there now. And what we're telling you is we can have 30 to 40 percent of that business moved out of China by the end of the year. And so that's that's kind of our that's kind of how that plays. But, you know, in the interim, you know, if tariffs are a problem, we obviously we have to take price and we have to work with our suppliers to get lower costs and work both sides and make sure we stay viable so we can invest in innovation and continue to market and be a valuable player to our our our competitors to our consumers.

Got it.

Oh, thanks.

Yep. Got it. And then in terms of the mid to high single digit EBITDA target, you know, obviously the tariff factor is one factor, perhaps you'd already assume some level of increase in providing your initial outlook, but you talk about what's embedded in the target at this point, you know, in getting to that mid to high single digit. Presumably there are some costs associated with moving into other countries, what you've embedded as far as potential price increases in the back half of the year. If you could just give us a little bit more color there, that would be helpful. Thank you.

Yeah, we will get specifics into specific into line by line, how we plan to offset. But as we said, overall, we do tend to mitigate it in the year just to put a little bit of context for everybody listening. You know, it's plus or minus twelve million dollars impact to this year as currently announced with current dates in place. And so, you know, as we look at our playbook, you know, obviously it's not the first time around mitigating tariffs. So we look at our playbook, which is working with our suppliers on cost, working with our retail customers on price and also looking at other cost improvement opportunities across the platform. You know, we intend to mitigate that and we'll see how the environment develops as we head into twenty six. But, you know, David's already talked about, you know, the flexibility that we have and the additional flexibility we're going to create. So, you know, we feel very confident, you know, with the current announcements that are out there with it, we're going to mitigate in a competent way and just get more flexible, frankly, in our supply chains for whatever comes at us in the future. Obviously, it's a dynamic environment out there.

Got it. Thank you.

Thanks, Olivia.

Thank you. Our next question comes from Peter Grom with UBS. Your line is open.

Thank you, operator. Good morning. I'm all right, David. How are you?

I'm good, thanks.

All right. So I appreciate all the color, you know, provided on HBC capital allocation. You bought back a lot of stocks since the HHI transaction, but you kind of alluded to this a lot on the call today. Like the stock's kind of been in the same spot. You know, valuation, you know, is certainly below where you would like. Right. So I guess how do you think about that? I mean, and I guess can you maybe talk about your willingness to maybe lean into buybacks in a more meaningful way, just given where valuation is and especially just where your leverage is as well?

You know, look, I mean, I think we're in a great spot. You know, I mean, you know, after this call, I'm going to write a really big thank you note to all our employees. I mean, we we have really navigated quite a bit in the last three years, you know, prevailing over the DOJ, paying down all the debt. And, you know, this was kind of my hope that we would end up with a low levered balance sheet and we'd be able to take advantage of opportunities. And I didn't think our stock price would be our biggest opportunity. But as long as it stays there, we'll continue to capitalize on it. But, you know, look, they think, you know, fundamentals always win. Sometimes you have to keep working a problem longer than you like. And I mean, listen, let's just back up here. I think just the last couple of weeks is, you know, it adds a little bit of a little bit of uncertainty to the world. And so you've got to go, you've got to go manage and mitigate that. But now I think we're in a really fantastic spot. And, you know, we're going to continue to invest in the business and drive operating performance. I mean, first quarter EBITDA growth, apples to apples, twenty six point nine percent. It's not a bad start to the year. And, you know, we we look we look forward to to continue the progress we're making. And this and eventually, eventually, eventually, you know, it won't just be all AI and big cap. Eventually, someone will pay attention to a small cap that's under levered and frankly undervalued. And we're going to keep building great businesses.

Makes sense. And then just on the HPC transaction, totally understand tariff uncertainty. And but I just be curious, like, and I guess you said you can share. What do you think needs more clarity? Is it just simply knowing what the tariff situation looks like? Do you think these partners want to see how the mitigation efforts play out? I'm just kind of curious what you think they want more clarity on, especially since it seems like we're kind of getting, you know, at least hopefully we'll be getting some more clarity on what actually happens and plays out in the next couple of months.

So I think if you're trying to price, you know, tax flows and MPVs and, you know, all this stuff is super recent, right? And do we really know? Was that just an opening salvo? You know, did things change? I mean, listen, we're in a very fluid dynamic situation. And I know for myself, when I want to allocate money, you know, you want to get as much certainty as you can on on the stability of those cash flows and what the what the you're going to play a game, you want to know the rules of the game before you before you sit down at the table. And so I just think it's going to take a couple of months to let the dust clear and see what the rules of the road are. And then, you know, you can have much more fruitful conversations. But I can't control that stuff. And, you know, we're just going to keep putting out great product and making sure that we work with our vendors and retailers to have a great value efficacy message. And frankly, again, I point you back to just my earlier comments. I mean, we've been able to take an appliance business for 40 million EBITDA back to 70. And we're we're we're we're we're shooting for 80 and 100. And those plans are unchanged, you know, in the face of all this. So very pleased with the team. We've got clearly got some short term headwinds to work through. But we're going to face into them and overcome them.

Thanks a lot. I appreciate it. I think we have time to take one more in.

Thank you. Our final question comes from Bob Ladeit with CJS Securities. Your line is open.

Hi, good morning. It's Pete Lucas for Bob. I'll keep it quick. Just one for you. Last year, you executed on an increase in sales and marketing is planned, which seems to have gone very well. Where do you stand now? You talk about spreading it more throughout the year and focusing on e-commerce. But overall, do you see increase in spending or are you at the desired levels? Just kind of how are you thinking about it going forward?

Well, I'll do general and Jeremy give you the specifics. But last year was pretty lumpy. And so what we're trying to telegraph is the spend is going to be more even, you know, quarter to quarter to quarter. So that's that's the big takeaway. The spend was up a lot last year. Quite frankly, I still want to make sure we get better returns on it. And so we're adopting new measurement tools and all the rest of it. As I said in the earlier comments, a lot of the investments new for us, you know, we've never been a company that's done a lot of top funnel brand awareness advertising, and that takes longer to get a payback on. But no, I mean, we just told you we spent eight million dollars more in Q1 on marketing than we did a period of year ago. So we're continuing to spend more money. But we want to drive brand awareness. We want brand equity to be built. And we want to continue to drive customers to consumers, to our customers, stores and websites.

Yeah, and I just want to add quickly is it is relatively dynamic. I mean, there's even a couple of things in Q1 where we dialed back spending a bit where we weren't seeing the level of return that we wanted. And so as we sit here today, though, it's early in the year, I would tell you the full year will probably be up a little bit, probably not as much as the 10 to 15 million we expected when we started the year. And in fact, given the eight million dollar increase in Q1, we'll probably see Q3, Q4 wouldn't surprise you to see a quarter where we actually have a little bit less spending year over year as we even it out, as David said. But it has to be dynamic. You have to monitor it every week. You have to make sure you're getting the returns. And if you're not, you either dial it back or you reallocate it elsewhere to make sure you get those returns.

Very helpful. Thanks.

Thanks. Thank you. Very good. Thank you. And with that, we have reached the top of the hour. So we will conclude our conference call. Thank you to David and Jeremy. And on behalf of Spectrum Brands, thank you for your participation this morning.

This concludes today's conference call. Thank you for participating.

You may

now disconnect.