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]

Core Insights - Zacks Premium offers various tools for investors to enhance their stock market strategies and confidence [1] - The Zacks Style Scores are designed to help investors identify stocks with the potential to outperform the market in the short term [2] Zacks Style Scores Overview - The Style Scores categorize stocks into four types: Value Score, Growth Score, Momentum Score, and VGM Score, each focusing on different investment strategies [3][4][5][6] - Value Score identifies undervalued stocks using financial ratios [3] - Growth Score assesses a company's financial health and future growth potential [4] - Momentum Score tracks price trends to capitalize on upward or downward movements [5] - VGM Score combines all three styles to highlight stocks with the best overall characteristics [6] Zacks Rank and Performance - The Zacks Rank is a proprietary model that uses earnings estimate revisions to guide investment decisions [7] - Stocks rated 1 (Strong Buy) have historically outperformed the S&P 500, with an average annual return of +25.41% since 1988 [8] - Investors are encouraged to focus on stocks with a Zacks Rank of 1 or 2 and Style Scores of A or B for optimal returns [9] Company Spotlight: Central Garden & Pet Co. (CENT) - Central Garden & Pet Co. is positioned as a leading player in the U.S. pet supplies and lawn and garden supplies market, emphasizing product innovation and customer service [11] - Currently rated 3 (Hold) by Zacks, CENT has a VGM Score of A and a Momentum Style Score of A, indicating strong potential [11][12] - CENT's shares have increased by 3.4% over the past four weeks, with positive earnings estimate revisions for fiscal 2025 [12] - The Zacks Consensus Estimate for CENT's earnings has risen by $0.05 to $2.37 per share, with an impressive average earnings surprise of 208.7% [12]

Core Viewpoint - Investors are seeking growth stocks that can deliver above-average growth and exceptional returns, but identifying such stocks can be challenging due to inherent volatility and risks [1] Group 1: Company Overview - Central Garden (CENT) is identified as a promising growth stock with a favorable Growth Score and a top Zacks Rank [2] - The company operates in the pet supply and lawn and garden markets, which are currently attractive for growth investors [3] Group 2: Earnings Growth - Central Garden has a historical EPS growth rate of 5.1%, but projected EPS growth for this year is expected to be 10.7%, significantly higher than the industry average of 3.2% [4] Group 3: Cash Flow Growth - The year-over-year cash flow growth for Central Garden is 8.7%, surpassing the industry average of 4.5% [5] - The company's annualized cash flow growth rate over the past 3-5 years is 11.4%, compared to the industry average of 9.3% [6] Group 4: Earnings Estimate Revisions - There have been upward revisions in current-year earnings estimates for Central Garden, with the Zacks Consensus Estimate increasing by 0.1% over the past month [8] Group 5: Investment Positioning - Central Garden has earned a Growth Score of B and carries a Zacks Rank 2 due to positive earnings estimate revisions, positioning it well for potential outperformance [10]

Core Insights - Central Garden & Pet Company (CENT) is a resilient player in the pet consumables and garden supplies market, demonstrating adaptability and innovation despite market changes [1][3] - The company is well-positioned for sustainable growth due to a clear strategic vision, disciplined cost management, and a growing digital presence [2] Growth Strategy - CENT is strategically positioning itself as a dominant player in the U.S. pet and lawn and garden supplies market, leveraging distinctive packaging, effective point-of-sale displays, robust logistics, and exceptional customer service [3] - The Central-to-Home strategy is gaining traction through enhanced digital capabilities, optimized supply chain, and elevated marketing efforts [3] Product Innovation - The company is investing in a robust pipeline of new products across its pet and garden segments, focusing on high-quality pet consumables and sustainable garden solutions [4] Operational Efficiency - CENT's multi-year Cost and Simplicity program is driving operational efficiency through Stock Keeping Unit rationalization, facility consolidations, and enhanced tech integration [5] - Adjusted gross margin expanded by 160 basis points to 29.8% in Q1 of fiscal 2025, with SG&A expenses falling by 2% year over year and operating margins increasing by 300 basis points to 4.3% [6] E-Commerce Performance - In Q1 of fiscal 2025, sales in the Pet segment rose by 4% to $427 million, with e-commerce representing 28% of pet segment revenues, growing at 6% year over year [7] - The Garden segment also saw double-digit e-commerce growth, with revenues growing by 2% to $229 million, driven by strong sales in bird feed and fertilizer [8] Stock Performance - CENT shares have decreased by 4.3% in the past month, but have outperformed the industry's decline of 5.3% [9] - Currently, CENT is trading at a forward 12-month price-to-sales multiple of 0.71X, indicating it may be undervalued relative to its earnings potential [11] Strategic Focus - Despite near-term challenges such as tariffs and macroeconomic uncertainty, CENT's focus on innovation, cost optimization, and digital expansion positions it for sustained long-term growth [13]

Group 1 - Zacks Premium offers various tools for investors, including daily updates on Zacks Rank and Industry Rank, access to the Zacks 1 Rank List, Equity Research reports, and Premium stock screens to enhance investment confidence [1][8] - The Zacks Style Scores are designed to help investors select stocks with the highest potential to outperform the market within 30 days, rated from A to F based on value, growth, and momentum characteristics [2][9] Group 2 - The Value Score focuses on identifying undervalued stocks using financial ratios such as P/E, PEG, and Price/Sales to highlight attractive investment opportunities [3] - The Growth Score evaluates a company's future prospects by analyzing projected and historical earnings, sales, and cash flow to identify stocks with sustainable growth [4] - The Momentum Score assists investors in capitalizing on price trends by analyzing recent price changes and earnings estimate revisions [5] Group 3 - The VGM Score combines the Value, Growth, and Momentum Scores, serving as a comprehensive indicator to identify stocks with the best overall potential [6] - The Zacks Rank utilizes earnings estimate revisions to simplify the process of building a successful investment portfolio, with 1 (Strong Buy) stocks achieving an average annual return of +25.41% since 1988, significantly outperforming the S&P 500 [7][8] Group 4 - For optimal returns, investors should focus on stocks with a Zacks Rank of 1 or 2 and Style Scores of A or B, while also considering the direction of earnings estimate revisions [9][10] - Central Garden & Pet Co. (CENT) is highlighted as a strong investment opportunity, holding a 1 (Strong Buy) Zacks Rank and a VGM Score of A, with key growth drivers including product innovation and customer service [11] - CENT has a Momentum Style Score of B, with a 4.4% increase in shares over the past four weeks and an upward revision of earnings estimates, indicating strong potential for investors [12]

Company Overview - Central Garden & Pet is focusing on growth through innovation, e-commerce expansion, and cost efficiencies in its Pet and Garden segments [2] - The company is implementing a Cost and Simplicity program to streamline operations and is investing in digital capabilities and higher-margin consumables to enhance profitability [2] Financial Performance - Central Garden is expected to report quarterly earnings of $0.95 per share, reflecting a year-over-year decrease of 4% [3] - Revenue for the upcoming quarter is projected to be $878.1 million, which is a decline of 2.4% compared to the same quarter last year [3] Stock Performance - Central Garden shares increased by 5.7% in the last trading session, closing at $35.58, following a 9.5% loss over the previous four weeks [1] - The consensus EPS estimate for Central Garden has remained unchanged over the last 30 days, indicating a lack of upward revisions in earnings estimates [5] - The stock currently holds a Zacks Rank of 1 (Strong Buy), suggesting positive sentiment among analysts [5] Industry Context - Central Garden operates within the Zacks Consumer Products - Discretionary industry, which includes other companies like The RealReal [5] - The RealReal's consensus EPS estimate has decreased by 16.7% over the past month, contrasting with Central Garden's stable estimates [6]

Company Overview - Central Garden & Pet Co. is focused on product innovation and aims to strengthen its position in the U.S. pet supplies and lawn and garden supplies market [12] - The company utilizes unique packaging, point-of-sale displays, logistic capabilities, and high customer service levels as key growth catalysts [12] Investment Ratings - Central Garden has a Zacks Rank of 1 (Strong Buy) and a VGM Score of A, indicating strong potential for investment [12] - The company is also a top pick for growth investors, with a Growth Style Score of B, forecasting year-over-year earnings growth of 10.8% for the current fiscal year [13] Earnings Estimates - In the last 60 days, three analysts have revised their earnings estimates upwards for fiscal 2025, with the Zacks Consensus Estimate increasing by $0.15 to $2.37 per share [13] - Central Garden boasts an impressive average earnings surprise of 208.7%, highlighting its ability to exceed earnings expectations [13]

Core Viewpoint - Growth investors are increasingly focused on stocks with above-average financial growth, which can lead to solid returns, but identifying such stocks can be challenging [1] Group 1: Company Overview - Central Garden (CENT) is identified as a promising growth stock with a favorable Growth Score and a top Zacks Rank [2] - The company operates in the pet supply and lawn and garden markets, making it a relevant choice for growth investors [3] Group 2: Earnings Growth - Central Garden has a historical EPS growth rate of 5.1%, but projected EPS growth for this year is expected to be 10.6%, surpassing the industry average of 8.6% [5] Group 3: Cash Flow Growth - The year-over-year cash flow growth for Central Garden is currently at 8.7%, significantly higher than the industry average of 1.8% [6] - Over the past 3-5 years, the company's annualized cash flow growth rate has been 11.4%, compared to the industry average of 3.7% [7] Group 4: Earnings Estimate Revisions - There has been a positive trend in earnings estimate revisions for Central Garden, with the Zacks Consensus Estimate for the current year increasing by 6.8% over the past month [9] Group 5: Investment Potential - Central Garden has achieved a Growth Score of B and a Zacks Rank 1 due to positive earnings estimate revisions, indicating it is a potential outperformer and a solid choice for growth investors [11]