Joe Altobello: I appreciate that. Thank you.
Operator: One moment for our next question. Our next question comes from William Carter with Stifel.
Andrew Carter: Hey, thanks. Good morning. This is Andrew on for William. Just wanted to really quickly ask, and maybe I’m nitpicking here on the SG&A guidance that you said. I think you said 15% to 16%. I thought it was 14.5% to 15% last quarter. So was that a change through either some incremental marketing dollars or whatever and that would have to be a stronger US consumer profit performance that you’ve got modeled in there? And did that influence the higher advertising? Thanks.
Matt Garth: Good catch. So we are going to be on the low end of that 15% to 16% range. And so that’s — it’s kind of in the context of how we’re building the long-term model for the company, which is 15% to 16% of sales, getting back to that normal rhythm of conversation. But you’re right. It’s going to be on the very low end of that range. And it does embed in it the things that we have talked about. Sales are going to be up this year, dollars in SG&A are going to be up this year. The key drivers there are the three areas of focus that we have; marketing, innovation and our sales force. Everything else that exists in SG&A, we are working on maintaining or reducing. And so that is creating the room to keep that percent of sales low currently and long-term and afford the increases in the areas that drive value for the company.
Andrew Carter: Thank you. And second question I wanted to ask because you’re now at, I think, you said 77% of Hawthorne is signature brands. I guess, first off, just to give a help us with the road map of 30%, not sure if you’ll break it out. Could you give us the margin differential between US Consumer and Hawthorne and then also signature and distributed? And then the second piece is, do you still see value in being in the third-party distribution business? I think when you bought something like in 2018, a lot of that was due to visibility to get more scale, but is there still value with how the category has changed over the last six years? Thanks.
Matt Garth: Yeah. And I think, Andrew, look, we don’t break out a lot of that that you just asked. But let me give some trajectory here. Right now, the overall margins for the company are by and large, reflective of US consumer business. And as we guide for the full year, that will be the case as well. Hawthorne coming through the period last year when you saw us with an EBITDA loss of about $48 million, moving to breakeven or profitability. And as Chris said, they’re driving towards profitability. That will create some positive gross margin that is going to be in the kind of, call it, mid-single digits. And that’s not guidance, do not model that out. That is a waypoint on where that business should be, which is much closer to the overall corporate margins, but that will take time. So, that’s kind of the lay of the road on the margin side. You asked a lot of questions on some decisions that Chris and the team have made. So, I’ll let Chris speak about that.
Chris Hagedorn: Yes, Andrew. Look, we are — it’s not that we are uninterested in being a distributor of third-party brands. We’re interested in — in making money on the work that we do. And the reality is, there were a number of brands — there are a number of brands in the category, some of which we still distribute, some of which we are no longer distributing, that have been extremely low, zero or even negative margin products for us. Now, there were products that when we did the Sunlight deal and through the explosive growth we saw through 2020 and 2021, they were products that they increased basket size, and they helped in some other ways. As the category shrunk, there’s just — there’s — those considerations have changed for us.
So, it’s not so much that we are philosophically opposed to being a distributor of third-party products. It’s that we have to have programs in place that allow us to make money on those products. And we’ve had challenges there. Now, obviously, when able, I think our number one preferred course of action is to work with third-party vendors to establish programs that there’s enough profitability for obviously the vendor, the manufacturer, for us and the retailer ultimately and to remain competitive. But as things have compressed, they forced some tough choices for us. So, again, we are just — we are focused on profitability. And without getting into detail, obviously, our signature portfolio is significantly more profitable than the vast majority of our distributable.
Jim Hagedorn: And Andrew, Jim here. I — first of all, I think that was a really good question, okay? I’m not sure we’re completely ready to answer that. And I think as we hopefully soon announce new relationships that it sort of starts to make sense. But as we have been searching for partnerships for Hawthorne for sort of strategic scale — and we’ve talked to, I would say, the usual suspects. The thing is, everybody is looking to do the same thing. And so it’s not like everybody is like, we need to be — we need even more SKUs. I think everybody we talk to is basically interested in the same thing, sort of fewer SKUs, higher gross margins, less inventory. And I think — so what I’d say is it was a real good question. And I think you’ll probably hear a lot more of this in maybe the next call or the call after that, where it starts to become clear.
When people — as we prepared for this, it was — we’ve been pretty explicit about what we’re looking to do. And I don’t want people to sort of misread what we said and where we are. But what’s clear to me right now is that this structure of this — Hawthorne is an important piece of this cannabis business, particularly on the supply side. And that the solutions for — that for us and for other people, we would partner with, it’s a puzzle. And it seems like it’s more complicated. And so part of what I would say is, I don’t want to like people to say, you say some, and then you take it back and you say, you take it back. No, it’s not like that. What is it — this Rubik’s Cube is we’re still messing around with it with other important people in the space trying to figure out how to do things that works for everybody.
But there is a lot of progress. And so I would just tell you that, we can’t announce right now. And I think that — we have leap touching parts of our business, at least through our relationship with RIV. And I think there’s progress on both sides of the business in ways that I think people will find interesting and impressive. But it just — and some of those things, we’re still dealing with the puzzle pieces and trying to do it. And we’re not operating a puzzle by ourselves. We’re operating puzzles with other people, and it has to solve for them as well. And so but I’d say good progress, and Chris and Tom and Matt and Dimiter are all doing really good work right now, and impressive. And it’s — and I get to play a little bit with them on it on the kind of the vision side.
And I don’t know, it’s hard. It’s like speed dating sometimes. And — but we know what Hawthorne is. And I think if we kind of look back a little bit to kind of the decisions on distribution, it is sort of dealing with the short term and profitability that — in the Rubik’s Cube, Hawthorn profitability matters a lot when you’re in sort of dating — dowry — dowries are always important. And so that’s also driving some of this stuff, which is that — live in today’s world because when you’re dealing with the Rubik’s Cube puzzle, the other people on the other side, they are absolutely living in the same world of crap that everybody else is. And so people are interested in when you talk about something, it’s a positive as opposed to like scratch your head and say, what?
So lots of good work happening, and just good question.
Andrew Carter: Thanks. I’ll pass it on.
Operator: One moment for our next question. Next question comes from Jon Andersen with William Blair. Your line is open.
Jon Andersen: Hey. Good morning, everybody. I want to shift gears back to the consumer business, US Consumer. Were sales in line with plan in the first quarter relative to your plan? And I had a ton of questions about the full year guide, which calls for 10% or so volume growth. And that volume growth, I understand, is based on new listings. But why should we think that new listings say, a fourth phasing of the same item be as incremental as listings you had a year ago? So can you just talk about kind of how you progressed through the first quarter relative to budget? And then why the volume guidance makes sense in terms of incrementality, if it’s just listings driven? Thanks.
Jim Hagedorn: Okay. I’ll start, and then I think Nate, can sort of pick it up and Matt can clean up anything we said wrong. North America, first quarter outperformed. So that’s an easy one. They beat their numbers pretty well. So that’s good. The sort of believability in the numbers — first of all, I’m not sure we’re using double-digits. I think we’re saying high single-digits. But we don’t need to quibble on — I don’t know what the numbers are eight, nine, something that is probably what I think the numbers are. I start, Jon, by saying — because we know exactly what we’re taking over, okay? So new listings aren’t really new listings. There are new listings people had before that we got that we knew exactly what the volume was.
So there’s no like guessing really on that. This is just what it was worth. Now it’s ours, okay? The — and it’s not just new listings because it’s additional promotional support of stuff that wasn’t promoted before, and we have products like that where they advertise something else that they don’t advertise it. And so you get promotional support, which is their own advertising plus discounts and promotional periods, where we had none before or it’s incremental on top of what we did have before. So if we did have promotion, it’s more. And I think that those numbers — I’m not going to — I know that people say, what. But our view is that that’s just meat and potatoes translation. That’s not — nobody is, I think, being super — I think if anything, they’re probably conservative.
