Core Insights - Chewy, Inc. (CHWY) and Central Garden & Pet Company (CENT) are key players in the pet care industry, each with unique operational models and growth strategies [1] - Chewy focuses on e-commerce and customer engagement, while Central Garden & Pet emphasizes a diversified portfolio and operational efficiency [1] Chewy, Inc. (CHWY) - Chewy reported net sales of $3.12 billion in fiscal Q1 2025, an 8.3% year-over-year increase, exceeding guidance [2] - The Autoship program generated $2.56 billion in sales, accounting for 82% of total net sales, with a 14.8% year-over-year growth [3] - Active customer base grew by 3.8% year-over-year to 20.8 million, with net sales per active customer rising 3.7% to $583 [4] - Chewy Vet Care operates 11 clinics and plans to open 8-10 more in fiscal 2025, while the Chewy+ membership program shows early success [5] - Adjusted EBITDA margin for Q1 was 6.2%, but management expects a decline due to seasonality and increased marketing investments [6] - Marketing expenses reached $193.8 million, or 6.2% of sales, projected to rise to 6.7-6.8% for the year [7] Central Garden & Pet Company (CENT) - CENT's adjusted gross margin improved by 200 basis points to 33.3% in Q2, reflecting strong cost management [9][13] - E-commerce accounted for 27% of Pet segment sales, driven by new products and digital strategies [14] - The company opened a 300,000-square-foot distribution center in New Jersey, enhancing fulfillment capabilities [12] - Financially, CENT ended Q2 with $517 million in cash and no borrowings, maintaining a net leverage ratio of 1.7X [15] - The consensus estimate for CENT's fiscal 2025 sales suggests a year-over-year decline of 1.7%, while EPS is expected to grow by 17.8% [20] Comparative Analysis - Chewy's shares gained 1% over the past three months, while CENT's stock rose 19.6%, driven by strong margin expansion and cost execution [21] - Chewy's forward price-to-sales (P/S) multiple is 1.20, while CENT's is 0.85, indicating a more attractive valuation for CENT [22][23] - Central Garden & Pet is viewed as a better investment due to disciplined cost management and consistent margin expansion, while Chewy faces near-term challenges [26][27]

[Form 8-K Current Report](index=1&type=section&id=Form%208-K) [Item 2.02 Results of Operations and Financial Condition](index=3&type=section&id=Item%202.02%20Results%20of%20Operations%20and%20Financial%20Condition) Central Garden & Pet Company announced an increased financial outlook for fiscal year 2025 via a press release - The company has **increased its financial outlook** for the fiscal year ending September 28, 2025[7](index=7&type=chunk) [Item 9.01 Financial Statements and Exhibits](index=3&type=section&id=Item%209.01%20Financial%20Statements%20and%20Exhibits) This section details the exhibits filed with the Form 8-K, primarily the press release on updated financial outlook List of Exhibits | Exhibit Number | Description | | :--- | :--- | | Exhibit 99.1 | Press release dated July 11, 2025 | | Exhibit 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |

Summary of Central Garden & Pet Company (CENT) FY Conference Company Overview - **Company**: Central Garden & Pet Company (CENT) - **Date of Conference**: June 09, 2025 - **Key Speaker**: Brad Smith, CFO Key Points Management Changes and Strategy - Recent management changes include Nico becoming CEO and Brad Smith as CFO, with a focus on transitioning to a more agile culture that empowers business units (BUs) to make decisions [5][6] - The core strategy remains consistent, emphasizing innovation alongside cost reduction, which has become part of the company's DNA [7][8] - Mergers and Acquisitions (M&A) will focus on pet consumables and adjacent markets, moving beyond traditional pet and garden spaces [8][9] Pet Segment Dynamics - The pet segment is bifurcated into consumables and durables, with consumables showing resilience, particularly in dog and cat products [12][13] - Pet ownership demand is stabilizing, with dog ownership slightly below pre-pandemic levels and cat ownership slightly above [12][29] - Durables have contracted from approximately 35% of total pet sales during the pandemic to below 20%, attributed to declining demand and strategic consolidation [14][18] - The company is optimizing its durable product offerings to maintain profitability amidst increased competition from overseas [22][23] Garden Segment Dynamics - The garden business is highly weather-dependent, with sales fluctuating based on weather conditions [34][35] - Recent weather patterns have been challenging, impacting sales negatively, but there is potential for an extended selling season if favorable weather occurs [38][39] - The wild bird feed segment has performed well, countering the overall weather-related challenges [44][46] Market and Economic Factors - Tariffs and trade policies have impacted demand for durable products, leading to a shift in sourcing to countries with lower tariffs [25][26] - The stagnant housing market affects larger garden projects, with HELOC rates influencing consumer spending on major renovations [48] M&A and Growth Opportunities - M&A remains a priority, with a focus on pet consumables, particularly in the dog and cat segments, and potential growth in supplements [49][51] - The company is exploring adjacencies, such as pest control products, to expand its market reach [54] Retail and Distribution - The company continues to grow its online presence while facing challenges in the pet specialty retail channel [56][58] - Partnerships with large retailers like Walmart and Costco remain strong, with a shift towards online sales expected to continue [59] Capital Allocation - Priorities for capital allocation include M&A, internal investments for growth, and share buybacks, with a current focus on M&A opportunities [60] Additional Insights - The company is optimistic about the potential for growth in the pet consumables market, particularly in the cat segment, which has been underrepresented [52] - The psychological factors driving demand for wild bird feed indicate a growing consumer interest in this category [45]

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) The unaudited condensed consolidated financial statements for the periods ended March 29, 2025, and March 30, 2024 are presented [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets reached $3.63 billion as of March 29, 2025, with a notable increase in cash and cash equivalents Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | March 29, 2025 | March 30, 2024 | September 28, 2024 | | :--- | :--- | :--- | :--- | | **Assets** | | | | | Cash and cash equivalents | $516,675 | $301,332 | $753,550 | | Inventories, net | $824,281 | $914,352 | $757,943 | | Total current assets | $1,975,253 | $1,850,618 | $1,886,806 | | Total assets | $3,629,617 | $3,540,018 | $3,553,439 | | **Liabilities & Equity** | | | | | Total current liabilities | $597,651 | $556,490 | $515,384 | | Long-term debt | $1,190,724 | $1,188,955 | $1,189,809 | | Total liabilities | $2,186,213 | $2,027,851 | $2,000,000 (Calculated) | | Total equity | $1,543,404 | $1,512,167 | $1,557,545 | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Quarterly net sales decreased to $833.5 million, while net income slightly increased to $63.6 million Statement of Operations Highlights (in thousands, except per share data) | Metric | Q2 2025 (Three Months) | Q2 2024 (Three Months) | YTD 2025 (Six Months) | YTD 2024 (Six Months) | | :--- | :--- | :--- | :--- | :--- | | Net sales | $833,537 | $900,090 | $1,489,973 | $1,534,623 | | Gross profit | $273,083 | $278,880 | $468,782 | $457,725 | | Operating income | $93,324 | $93,447 | $121,316 | $101,859 | | Net income attributable to Central | $63,633 | $61,987 | $77,642 | $62,417 | | Diluted EPS | $0.98 | $0.93 | $1.19 | $0.93 | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash used by operating activities increased to $115.7 million for the six-month period ended March 29, 2025 Cash Flow Summary (Six Months Ended, in thousands) | Cash Flow Activity | March 29, 2025 | March 30, 2024 | | :--- | :--- | :--- | | Net cash used by operating activities | $(115,695) | $(94,302) | | Net cash used in investing activities | $(20,203) | $(80,286) | | Net cash used by financing activities | $(99,724) | $(13,171) | | **Net decrease in cash** | **$(237,066)** | **$(187,344)** | [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Key disclosures include the TDBBS acquisition, debt structure, segment data, and an update on a legal contingency - On November 3, 2023, the Company acquired TDBBS, LLC for approximately **$60 million** to expand its dog and cat business[54](index=54&type=chunk) - The company's long-term debt primarily consists of three series of senior notes totaling **$1.2 billion**, with maturities in 2028, 2030, and 2031[63](index=63&type=chunk) - A legal proceeding with Nite Glow regarding a patent infringement claim is pending a court decision on damages[95](index=95&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses a 7.4% Q2 sales decline, improved gross margin, and the company's liquidity position [Results of Operations](index=21&type=section&id=Results%20of%20Operations) Q2 2025 net sales fell 7.4% to $833.5 million, while gross margin improved by 180 basis points to 32.8% Q2 2025 vs Q2 2024 Performance | Metric | Q2 2025 | Q2 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $833.5M | $900.1M | -7.4% | | Pet Net Sales | $453.7M | $480.2M | -5.5% | | Garden Net Sales | $379.8M | $419.9M | -9.5% | | Gross Profit | $273.1M | $278.9M | -2.1% | | Gross Margin | 32.8% | 31.0% | +180 bps | | Operating Income | $93.3M | $93.4M | -0.1% | Six Months 2025 vs Six Months 2024 Performance | Metric | YTD 2025 | YTD 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $1,490M | $1,535M | -2.9% | | Gross Profit | $468.8M | $457.7M | +2.4% | | Gross Margin | 31.5% | 29.8% | +170 bps | | Operating Income | $121.3M | $101.8M | +19.1% | - In March 2025, the company decided to wind-down its operations in the United Kingdom, incurring **$5.3 million** in one-time costs[103](index=103&type=chunk) [Use of Non-GAAP Financial Measures](index=24&type=section&id=Use%20of%20Non-GAAP%20Financial%20Measures) The company uses non-GAAP measures like adjusted EBITDA to exclude one-time charges and supplement GAAP results Q2 2025 GAAP to Non-GAAP Reconciliation (in thousands, except per share) | Metric | GAAP | Adjustments (Facility Closures) | Non-GAAP | | :--- | :--- | :--- | :--- | | Net Income | $63,633 | $4,084 (net of tax) | $67,717 | | Diluted EPS | $0.98 | | $1.04 | | Operating Income | $93,324 | $5,339 | $98,663 | Adjusted EBITDA Reconciliation (Three Months Ended March 29, 2025, in thousands) | Segment | Adjusted EBITDA | | :--- | :--- | | Pet | $75,451 | | Garden | $69,174 | | Corporate | $(21,298) | | **Total** | **$123,327** | [Liquidity and Capital Resources](index=27&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity is supported by a $750 million credit facility, with total debt stable at approximately $1.2 billion - Net availability under the **$750 million Credit Facility** was approximately **$706 million** as of March 29, 2025[78](index=78&type=chunk)[165](index=165&type=chunk) - During the first six months of fiscal 2025, the company repurchased approximately **3.0 million shares** for **$93.4 million**[149](index=149&type=chunk) - Anticipated capital expenditures for fiscal 2025 are approximately **$60 million**, with **$17 million** invested year-to-date[151](index=151&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) There have been no material changes in market risk exposure since the last annual report on Form 10-K - **No material change** in market risk exposure has occurred since the fiscal year-end 2024 Form 10-K filing[175](index=175&type=chunk) [Item 4. Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of the end of the fiscal quarter - Management concluded that **disclosure controls and procedures were effective** as of the end of the quarter[176](index=176&type=chunk) - **No material changes** to internal control over financial reporting were identified during the second quarter of fiscal 2025[177](index=177&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=31&type=section&id=Item%201.%20Legal%20Proceedings) The company provides an update on its litigation with Nite Glow Industries, with a court decision pending - The retrial of the damages issue in the Nite Glow lawsuit concluded in early March 2024, but **no decision has been issued** by the court[179](index=179&type=chunk) - Management believes the ultimate resolution of the Nite Glow matter **will not have a material impact** on the company's financial statements[180](index=180&type=chunk) [Item 1A. Risk Factors](index=32&type=section&id=Item%201A.%20Risk%20Factors) No material changes from the risk factors previously disclosed in the company's annual report have been reported - **No material changes** to risk factors have been reported since the last Form 10-K filing[182](index=182&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=32&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased 1.34 million shares this quarter, with $101.2 million remaining under its repurchase program Share Repurchases for Quarter Ended March 29, 2025 | Period | Total Shares Purchased | Average Price Paid | Value Remaining for Repurchase | | :--- | :--- | :--- | :--- | | Dec 29, 2024 - Feb 1, 2025 | 4,804 | $30.68 | $131,028,000 | | Feb 2, 2025 - Mar 1, 2025 | 181,824 | $32.62 | $131,028,000 | | Mar 2, 2025 - Mar 29, 2025 | 1,156,651 | $33.51 | $101,172,000 | | **Total** | **1,343,279** | **$33.38** | **$101,172,000** | - In December 2024, the Board of Directors authorized a **$100 million increase** to the share repurchase program[185](index=185&type=chunk) [Item 5. Other Information](index=32&type=section&id=Item%205.%20Other%20Information) No directors or officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement during the quarter - **No directors or officers** reported changes to their Rule 10b5-1 trading arrangements during the quarter[185](index=185&type=chunk) [Item 6. Exhibits](index=33&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including officer certifications and XBRL financial data - Exhibits filed include **CEO and CFO certifications** pursuant to Sarbanes-Oxley Act Sections 302 and 1350[186](index=186&type=chunk) - The report includes financial data formatted in **Inline XBRL** as Exhibit 101[186](index=186&type=chunk)

Core Insights - Central Garden & Pet Company reported mixed results for the second quarter of fiscal 2025, with revenue declining year over year while earnings exceeded expectations [1][4]. Financial Performance - The company achieved adjusted earnings of $1.04 per share, surpassing the Zacks Consensus Estimate of 94 cents and increasing from 99 cents in the prior year [4]. - Consolidated net sales were $833.5 million, missing the Zacks Consensus Estimate of $875 million and down 7% from $900.1 million in the previous year [4]. - Adjusted gross profit was $277.5 million, slightly lower than $281.4 million in the year-ago period, but the adjusted gross margin improved by 200 basis points to 33.3% due to productivity gains [5]. - SG&A expenses decreased by 3% to $179.8 million from $185.4 million year over year, although as a percentage of net sales, it increased by 100 basis points to 21.6% [6]. - Adjusted operating income remained stable at $98.7 million, with an adjusted operating margin expanding by 80 basis points to 11.8% [6]. - Adjusted EBITDA was reported at $123.3 million, down from $124.4 million in the prior year [7]. Segment Performance - The Pet segment reported net sales of $454 million, a 6% decrease from the previous year, missing estimates due to order timing and softer demand [8]. - Adjusted operating income for the Pet segment increased by 5% to $65.9 million, with an adjusted operating margin of 14.5%, up 150 basis points [9]. - The Garden segment's net sales were $380 million, down 10% year over year, missing estimates due to pre-season order shifts and unfavorable weather [10]. - Adjusted operating income for the Garden segment decreased to $58.7 million from $62.3 million in the prior year, but the adjusted operating margin improved to 15.5% [11]. Financial Health - As of the end of the quarter, the company had cash and cash equivalents of $516.7 million, long-term debt of $1,190.7 million, and shareholders' equity of $1,541.5 million [13]. - The company repurchased approximately 1.2 million shares for $41 million during the quarter, with an additional 1.2 million shares repurchased for $39 million after the quarter ended [14]. Outlook - Central Garden & Pet reaffirms its guidance for fiscal 2025, estimating adjusted earnings of $2.20 per share or more, considering various macroeconomic factors [15].

Core Viewpoint - Central Garden (CENT) reported quarterly earnings of $1.04 per share, exceeding the Zacks Consensus Estimate of $0.94 per share, and showing an increase from $0.99 per share a year ago [1][2] Financial Performance - The earnings surprise for the quarter was 10.64%, with a significant prior quarter surprise of 800% when the company reported earnings of $0.21 per share against an expected loss of $0.03 [2] - Revenue for the quarter was $833.54 million, which fell short of the Zacks Consensus Estimate by 4.76% and decreased from $900.09 million year-over-year [3] - Over the last four quarters, the company has surpassed consensus EPS estimates four times but has only topped revenue estimates once [3] Stock Performance and Outlook - Central Garden shares have declined approximately 11% since the beginning of the year, compared to a 4.7% decline in the S&P 500 [4] - The company's earnings outlook is mixed, with current consensus EPS estimates of $1.32 for the upcoming quarter and $2.37 for the current fiscal year, alongside expected revenues of $1.01 billion and $3.23 billion respectively [8] Industry Context - The Consumer Products - Discretionary industry, to which Central Garden belongs, is currently ranked in the bottom 32% of over 250 Zacks industries, indicating potential challenges ahead [9] - The performance of Central Garden's stock may be influenced by the overall industry outlook, as research indicates that the top 50% of Zacks-ranked industries outperform the bottom 50% by more than 2 to 1 [9]

Financial Data and Key Metrics Changes - Net sales for the second quarter were $834 million, a decrease of 7% compared to the prior year [16] - Gross profit was $273 million, down 2%, but gross margin expanded by 180 basis points to 32.8% [16] - Non-GAAP net income totaled $68 million, an increase of 3%, with non-GAAP EPS of $1.04, up $0.05 [19] - GAAP earnings per share rose by $0.05 to $0.98 [19] - Adjusted EBITDA was $123 million, $1 million below the prior year quarter [19] Business Line Data and Key Metrics Changes Pet Segment - Pet net sales totaled $454 million, a decrease of 6% [20] - E-commerce sales represented 27% of Pet sales, up from the prior year [21] - Non-GAAP operating income for Pet reached $66 million, up 5%, with a non-GAAP operating margin of 14.5%, an increase of 150 basis points [21] Garden Segment - Garden net sales totaled $380 million, a 10% decrease [22] - E-commerce sales in the Garden segment delivered double-digit growth, particularly in Wild Bird and Grass Seed categories [23] - GAAP operating income for Garden was $59 million, up $2 million, with a GAAP operating margin of 15.5%, an increase of 190 basis points [23] Market Data and Key Metrics Changes - The earlier timing of customer orders and promotional events shifted sales into the first quarter, impacting both segments [6][22] - POS trends in the Garden segment were down low single digits, reflecting the delayed start to the garden selling season [22] - The Wild Bird business achieved record sales, benefiting from extended cold weather [8][50] Company Strategy and Development Direction - The company is focused on streamlining operations through footprint consolidation, portfolio refinement, and cost structure improvements [5][12] - The M&A strategy aims to identify high-growth consumable companies with accretive margins [26] - Continued investment in e-commerce, digital technology, and innovation is prioritized [15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the outlook for the year despite navigating a challenging environment in the second half [5][14] - Anticipated increased consumer caution and a more promotional retail environment due to macroeconomic uncertainties [14] - The company reaffirmed its fiscal 2025 guidance for non-GAAP EPS of $2.2 or higher [26] Other Important Information - The company has completed significant inventory reductions of $90 million across both segments [24] - Cash and cash equivalents at the end of the second quarter were $517 million, an increase of $215 million [25] - The company repurchased approximately 1.2 million shares for $41 million during the quarter [24] Q&A Session Summary Question: Can you talk about Pet trends, particularly durables versus consumables? - Management noted a 6% decline in net sales due to earlier customer orders and SKU rationalization efforts [29][30] - Consumables were up low to mid-single digits, while durables were down double digits [31] Question: How are tariffs impacting your business? - Management indicated that tariffs affect about 13% of total import costs, primarily from China [34] - Plans are in place for vendor concessions and pricing adjustments to mitigate tariff impacts [35] Question: What are you seeing in the Garden segment regarding the spring selling season? - Management acknowledged a delayed season but noted improved consumption as weather conditions became favorable [46][64] Question: Are you seeing trade down to private label products? - Management confirmed some trade down to private label, particularly in the Wild Bird business [68][71] Question: How is the M&A environment being impacted by tariffs? - Management noted that M&A activity is low, with a disconnect between bid-ask spreads due to current market conditions [79][80]

Financial Data and Key Metrics Changes - Net sales for Q2 2025 were $834 million, a decrease of 7% compared to the prior year [14] - Gross profit was $273 million, down 2%, but gross margin expanded by 180 basis points to 32.8% [14] - Non-GAAP net income totaled $68 million, an increase of 3%, with non-GAAP EPS of $1.04, up $0.05 [18] - Cash and cash equivalents at the end of Q2 were $517 million, an increase of $215 million [24] Business Line Data and Key Metrics Changes Pet Segment - Pet net sales totaled $454 million, a decrease of 6% [19] - E-commerce sales represented 27% of Pet sales, up from the prior year [20] - Non-GAAP operating income for Pet reached $66 million, up 5%, with a non-GAAP operating margin of 14.5% [20] Garden Segment - Garden net sales totaled $380 million, a 10% decrease [21] - POS trends were down low single digits, reflecting a delayed garden selling season [21] - Garden e-commerce sales delivered double-digit growth, particularly in Wild Bird and Grass Seed categories [22] Market Data and Key Metrics Changes - The earlier timing of customer orders and promotional events shifted sales into Q1, impacting Q2 results [6] - The Wild Bird business achieved record sales due to extended cold weather [7] - Overall share performance was strong in key categories, including Wild Bird, Grass Seed, Chemicals, and Fertilizer [21] Company Strategy and Development Direction - The company is focused on streamlining operations through footprint consolidation and cost structure improvements [5] - A new 300,000 square foot Dog and Cat distribution center in New Jersey aims to boost productivity and operational efficiency [10] - The M&A strategy prioritizes identifying high-growth consumable companies with accretive margins [25] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the outlook for the year despite macroeconomic uncertainties and inflationary pressures [12] - The company anticipates increased consumer caution and a more promotional retail environment in the second half of the fiscal year [12] - Management reaffirmed guidance for non-GAAP EPS of $2.2 or higher for the full fiscal year [25] Other Important Information - The company is winding down UK operations and transitioning to a direct export model [11] - Cash used by operations was $47 million for the quarter, compared to $25 million a year ago [22] - The company repurchased approximately 1.2 million shares for $41 million during the quarter [23] Q&A Session Summary Question: Can you talk about Pet trends, particularly durables versus consumables? - Management noted a 6% decline in net sales for Q2 due to earlier customer orders and SKU rationalization efforts [28][30] - Consumables were up low to mid-single digits, while durables were down double digits [30] Question: How are tariffs impacting your business? - Management indicated that about 13% of total import costs are subject to tariffs, primarily affecting the Pet segment [34] - Plans are in place for vendor concessions and SKU redesign to mitigate tariff impacts [34][35] Question: What are you seeing in the Garden segment regarding the spring selling season? - Management acknowledged a delayed season but noted improved consumption as weather conditions became favorable [46][48] - Retailers are engaged and promotional, which is expected to drive sales as the season progresses [46] Question: Are you seeing trade down to private label products? - Management confirmed some trade down to private label, particularly in the Wild Bird business, but noted strong execution in stores [67][70] Question: How is the M&A environment being affected by tariffs? - Management stated that M&A activity is low, with a disconnect between bid-ask spreads due to current market conditions [77][78]

[Q2 Fiscal 2025 Financial Results and Outlook](index=1&type=section&id=Q2_Fiscal_2025_Financial_Results_and_Outlook) [Financial Highlights](index=1&type=section&id=Financial_Highlights) In the second quarter of fiscal 2025, Central Garden & Pet experienced a **7%** decrease in net sales to **$834 million**, attributed to softer demand and timing shifts in customer orders, while improving profitability through its Cost and Simplicity program, leading to a **180 basis point** expansion in gross margin to **32.8%** and a **$0.05** increase in both GAAP and non-GAAP EPS to **$0.98** and **$1.04**, respectively Q2 Fiscal 2025 Key Financial Metrics (vs. Q2 Fiscal 2024) | Metric | Q2 FY2025 ($ millions) | Q2 FY2024 ($ millions) | Change | | :--- | :--- | :--- | :--- | | Net Sales | $834 | $900 | -7% | | Gross Profit | $273 | $279 | -2% | | Gross Margin | 32.8% | 31.0% | +180 bps | | Operating Income | $93 | $93 | 0% | | Operating Margin | 11.2% | 10.4% | +80 bps | | Net Income | $64 | $62 | +3% | | GAAP Diluted EPS | $0.98 | $0.93 | +$0.05 | | Non-GAAP Diluted EPS | $1.04 | $0.99 | +$0.05 | - Profitability improvements were primarily driven by productivity efforts from the company's Cost and Simplicity program, which helped expand gross and operating margins despite lower sales volume[2](index=2&type=chunk)[3](index=3&type=chunk) [Segment Performance](index=2&type=section&id=Segment_Performance) Both the Pet and Garden segments saw sales declines in Q2, with the Pet segment's sales falling **6%** due to order timing and softer demand, and the Garden segment's sales dropping **10%** because of a shift in pre-season orders, unfavorable weather, and product line losses, though both segments improved their operating margins through productivity initiatives [Pet Segment](index=2&type=section&id=Pet_Segment) - Net sales decreased by **6%** to **$454 million**, mainly due to the timing of customer orders shifting to Q1, assortment rationalization, and softer demand in durable pet products[10](index=10&type=chunk) Pet Segment Q2 Financials (vs. Q2 FY2024) | Metric | Q2 FY2025 | Change | | :--- | :--- | :--- | | Net Sales ($ millions) | $454 | -6% | | GAAP Operating Income ($ millions) | $61 | -3% | | GAAP Operating Margin | 13.4% | +40 bps | | Non-GAAP Operating Income ($ millions) | $66 | +5% | | Non-GAAP Operating Margin | 14.5% | +150 bps | | Adjusted EBITDA ($ millions) | $75 | +$2 | [Garden Segment](index=2&type=section&id=Garden_Segment) - Net sales decreased by **10%** to **$380 million**, primarily caused by customers shifting pre-season orders into Q1, a late-breaking spring selling season due to weather, and the loss of two product lines in the third-party distribution business[13](index=13&type=chunk) Garden Segment Q2 Financials (vs. Q2 FY2024) | Metric | Q2 FY2025 | Change | | :--- | :--- | :--- | | Net Sales ($ millions) | $380 | -10% | | GAAP Operating Income ($ millions) | $59 | +3% | | GAAP Operating Margin | 15.5% | +190 bps | | Adjusted EBITDA ($ millions) | $69 | -$4 | [Fiscal 2025 Guidance](index=3&type=section&id=Fiscal_2025_Guidance) Central Garden & Pet reaffirmed its fiscal 2025 outlook, expecting non-GAAP EPS to be **$2.20** or better, considering potential shifts in consumer behavior, retail landscape challenges, and weather variability, while anticipating capital expenditures of approximately **$60 million** for the fiscal year - The company reaffirmed its fiscal 2025 non-GAAP EPS guidance of **$2.20 or better**[20](index=20&type=chunk) - The outlook accounts for macroeconomic uncertainty, challenges in brick-and-mortar retail, and weather variability[20](index=20&type=chunk) - Anticipated capital expenditures for fiscal 2025 are approximately **$60 million**[21](index=21&type=chunk) [Financial Position and Corporate Initiatives](index=2&type=section&id=Financial_Position_and_Corporate_Initiatives) [Liquidity, Debt, and Capital Allocation](index=2&type=section&id=Liquidity_Debt_and_Capital_Allocation) The company maintained a strong liquidity position with a cash balance of **$517 million**, a significant improvement from the prior year driven by earnings and inventory reduction, while total debt remained stable at **$1.2 billion** with a gross leverage ratio of **2.9x**, and actively returned capital to shareholders by repurchasing **$41 million** of stock during the quarter and an additional **$39 million** after the quarter's end - Cash and cash equivalents at quarter-end were **$517 million**, an increase of **$215 million** year-over-year, attributed to earnings and inventory reduction efforts[15](index=15&type=chunk) - Total debt was stable at **$1.2 billion**, and the gross leverage ratio was **2.9x**, in line with the prior-year quarter[16](index=16&type=chunk) - The company repurchased **1.2 million shares** for **$41 million** during Q2 and an additional **1.2 million shares** for **$39 million** through April 30, 2025[17](index=17&type=chunk) [Cost and Simplicity Program](index=3&type=section&id=Cost_and_Simplicity_Program) Central is making significant progress with its multi-year Cost and Simplicity program, aimed at streamlining operations and improving efficiency, with a key action in Q2 being the decision to wind down operations in the United Kingdom and transition to a direct-export model, resulting in initial non-cash charges of **$5.3 million** within the Pet segment - The company is executing a multi-year Cost and Simplicity program to streamline operations across procurement, manufacturing, logistics, and administration[18](index=18&type=chunk) - In Q2, Central began winding down its UK operations to move to a direct-export model, incurring **$5.3 million** in initial costs (**$4.4 million** in COGS, **$0.9 million** in SG&A), all of which was non-cash[19](index=19&type=chunk) [Condensed Consolidated Financial Statements (Unaudited)](index=6&type=section&id=Condensed_Consolidated_Financial_Statements) [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed_Consolidated_Balance_Sheets) As of March 29, 2025, total assets were **$3.63 billion**, a slight increase from **$3.54 billion** a year prior, driven by a significant rise in cash and cash equivalents to **$517 million** from **$301 million**, partially offset by a decrease in inventories, while total liabilities remained relatively stable and total equity increased slightly to **$1.54 billion** Selected Balance Sheet Data (in thousands) | Account | March 29, 2025 | March 30, 2024 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $516,675 | $301,332 | | Inventories, net | $824,281 | $914,352 | | Total current assets | $1,975,253 | $1,850,618 | | Total assets | $3,629,617 | $3,540,018 | | **Liabilities & Equity** | | | | Total current liabilities | $597,651 | $556,490 | | Long-term debt | $1,190,724 | $1,188,955 | | Total liabilities | $2,086,213 | $2,027,851 | | Total equity | $1,543,404 | $1,512,167 | [Condensed Consolidated Statements of Operations](index=7&type=section&id=Condensed_Consolidated_Statements_of_Operations) For the three months ended March 29, 2025, net sales decreased **7.4%** to **$833.5 million** compared to the prior-year period, yet cost management led to a higher gross margin (**32.8%** vs **31.0%**), stable operating income of **$93.3 million**, and a **2.7%** increase in net income attributable to the company to **$63.6 million** Consolidated Statement of Operations - Three Months Ended (in thousands) | Account | March 29, 2025 | March 30, 2024 | | :--- | :--- | :--- | | Net sales | $833,537 | $900,090 | | Gross profit | $273,083 | $278,880 | | Operating income | $93,324 | $93,447 | | Income before income taxes | $84,710 | $81,803 | | Net income attributable to Central | $63,633 | $61,987 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed_Consolidated_Statements_of_Cash_Flows) For the six months ended March 29, 2025, net cash used by operating activities was **$115.7 million**, an increase from **$94.3 million** in the prior year, primarily due to changes in working capital like accounts receivable, while net cash used in investing activities decreased significantly to **$20.2 million** from **$80.3 million**, and financing activities used **$99.7 million**, mainly for stock repurchases Cash Flow Summary - Six Months Ended (in thousands) | Activity | March 29, 2025 | March 30, 2024 | | :--- | :--- | :--- | | Net cash used by operating activities | $(115,695) | $(94,302) | | Net cash used in investing activities | $(20,203) | $(80,286) | | Net cash used by financing activities | $(99,724) | $(13,171) | | Net decrease in cash | $(237,066) | $(187,344) | [Non-GAAP Financial Measures and Reconciliations](index=9&type=section&id=Non-GAAP_Financial_Measures_and_Reconciliations) The company uses non-GAAP measures like non-GAAP net income, non-GAAP operating income, and adjusted EBITDA to supplement GAAP results, arguing they provide a better assessment of ongoing performance by excluding infrequent items, with the primary adjustment for Q2 2025 being a **$5.3 million** charge related to the wind-down of UK operations, resulting in non-GAAP net income of **$67.7 million** compared to GAAP net income of **$63.6 million** - Management uses non-GAAP measures to exclude specific items, such as facility closure costs, to aid in financial planning and performance evaluation[37](index=37&type=chunk)[39](index=39&type=chunk) Q2 Net Income Reconciliation: GAAP to Non-GAAP (in thousands) | Description | Q2 FY2025 | Q2 FY2024 | | :--- | :--- | :--- | | GAAP net income attributable to Central | $63,633 | $61,987 | | Facility closures | $5,339 | $5,270 | | Tax effect of adjustments | $(1,255) | $(1,233) | | **Non-GAAP net income attributable to Central** | **$67,717** | **$66,024** |

Financial Performance - Net sales reached $834 million, a decrease of 7% compared to the previous year (PY)[3] - Non-GAAP operating income was $99 million, in line with the previous year[3] - Non-GAAP EPS was $1.04, an increase of $0.05 compared to the previous year[9] Segment Performance - **Pet Segment:** Net sales were $454 million, a decrease of 6% compared to the previous year[5]; Non-GAAP operating income was $66 million, an increase of 5% compared to the previous year[7] - **Garden Segment:** Net sales were $380 million, a decrease of 10% compared to the previous year[10]; Operating income was $59 million, an increase of 3% compared to the previous year[10] Key Highlights - Continued execution of the Cost & Simplicity program enhances efficiency[11] - Further eCommerce growth, fueled by centralized retail media efforts, new product introductions and improved content[11] - Record sales and online share leadership in Wild Bird[11] - Held market share in pet and garden with gains across several key categories including Dog Chews, Rawhide, Wild Bird and Grass Seed[11]