Scotts Miracle-Gro's Q4 2025: Contradictions Emerge on Pricing Strategy, Margins, Sales Shifts, and Private Label Pressures

Business Commentary:

* Sales and Market Share Growth: - The Scotts Miracle-Gro Company reported that U.S. consumer net sales were $311.2 million for Q1 fiscal '26, a 3% increase from volume gains, excluding nonrecurring sales from fiscal '24. -

- The growth was driven by strong consumer demand for lawn products and Roundup, as well as the maintenance of listing gains and expansion in e-commerce. - Over the full year, U.S. consumer sales increased 1%, with a cumulative 2-year growth of 7%, indicating strong brand engagement and channel expansion strategies.

• Gross Margin and Cost-Saving Improvements:
• The company achieved a GAAP gross margin rate of 6.1% for Q1, up from a negative 7.1% in the prior year, and a full-year GAAP gross margin rate of 30.6%, up from 23.9% in the prior year.

• This improvement was primarily driven by the non-repeat of inventory write-offs and favorable product mix, along with significant cost savings from supply chain efficiency initiatives.

• Brand Focus and Shift in Strategy:

• Scotts Miracle-Gro is focusing on branded products, moving away from lower-priced, low-margin commodities like mulch, to improve the quality of consumer sales at the retail level.

• This strategic shift is expected to drive a significant improvement in the gross margin and reduce the reliance on third-party manufacturing for commodity orders.

• E-commerce Expansion:

• E-commerce POS units increased by 51% year-over-year, with e-commerce POS dollars increasing by 23%, driving e-commerce sales to represent 10% of overall POS.
• The growth in e-commerce is attributed to increased consumer engagement through joint retailer and company activation programs, as well as investments in digital channels and innovation in product offerings.

Contradiction Point 1

Pricing Strategy and Its Impact

It involves differing approaches to pricing strategy and its impact on the company's financial outlook, which could influence investor expectations.

How is Scotts digitizing lawn and garden knowledge and what benefits will consumers see? - Joseph Altobello (Raymond James & Associates, Inc., Research Division)

2025Q4: In '25, we took under 1.5% pricing and invested most of it back into the business through activation with retail partners. For '26, we will go after pricing, maintaining or even increasing activation levels. Our strategy is still being developed. - Nate Baxter(COO)

How did pricing and mix in '25 perform vs. expectations, and what are expectations for '26? - Eric Bosshard (Cleveland Research Company)

2025Q3: In '25, we took under 1.5% pricing and invested most of it back into the business through activation with retail partners. For '26, we will go after pricing, maintaining or even increasing activation levels. Our strategy is still being developed. - Nate Baxter(COO)

Contradiction Point 2

Gross Margin Improvement Strategy

It involves differing expectations for gross margin improvements, which are critical for financial performance and investor expectations.

Can you outline the key factors driving the gross margin guidance and whether there's flexibility in the guidance? - Peter Grom (UBS Investment Bank, Research Division)

2025Q4: We expect to reach a 30% gross margin rate this year, with progress towards 35% from supply chain efficiencies and pricing improvements. - Mark Scheiwer(CFO)

Can you clarify the gross margin improvement strategy and its expected cadence? - Peter Grom (UBS)

2025Q3: We expect to reach a 30% gross margin rate this year, with progress towards 35% from supply chain efficiencies and pricing improvements. - Mark Scheiwer(CFO)

Contradiction Point 3

Sales and Order Shifts Impact on Gross Margin and SG&A

It involves differing explanations of how sales and order shifts will impact gross margin and SG&A, which are critical aspects of financial management and forecasting.

How will shifts in sales and orders impact gross margin and SG&A cadence this year? - Jonathan Matuszewski (Jefferies LLC, Research Division)

2025Q4: The sales shift will impact Q1 the most, affecting gross margin due to volume-related costs. SG&A will remain flexibly managed, with the goal to maintain a similar SG&A rate to the prior year. - Mark Scheiwer(CFO)

Can you explain the difference between the 12% unit growth and low single-digit dollar growth, including the impact of mix, retailer investments/promotions, and confidence in mid-single-digit U.S. consumer growth for the full year? - Jon Andersen (William Blair & Company L.L.C., Research Division)

2025Q2: Transformation initiatives provide over 200 basis points of gross margin improvement. We are reinvesting pricing increases into promotional activity. - Mark Scheiwer(CFO)

Contradiction Point 4

Private Label Pressure and Retailer Support

It involves differing perspectives on the impact of private label products and retailer support, which are crucial for market positioning and competitive strategy.

Did the focus on branded products affect results, or was there a trade-off with private-label products? - W. Andrew Carter (Stifel, Nicolaus & Company, Incorporated, Research Division)

2025Q4: There is no significant private label pressure; Scotts Miracle-Gro retains share, despite commodity business challenges. The shift in focus from commodities to high-margin branded products has been effective. Retailers are supportive of this strategy, and there is strong alignment on programs for fiscal '26. - James Hagedorn(CEO)

Is the private label gap close to the historical 30% average? How does the gap change with store brand pricing adjustments? - Eric Bouchard (Cleveland Research Company)

2025Q2: Gaps are less than normal because of steep promotional action. Retailers are focusing on foot traffic and our brands. - Jim Hagedorn(CEO)