PART I. FINANCIAL INFORMATION Item 1. Financial Statements The company's financial statements for Q3 2024 show a 2.6% net sales decrease to $996.3 million and a net income of $79.7 million, with total assets reaching $3.61 billion Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 29, 2024 | Sept 30, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $570,398 | $488,730 | | Inventories, net | $784,775 | $838,188 | | Total current assets | $1,910,170 | $1,707,123 | | Total assets | $3,607,878 | $3,378,648 | | Liabilities & Equity | | | | Total current liabilities | $521,445 | $457,987 | | Long-term debt | $1,189,366 | $1,187,956 | | Total liabilities | $2,012,098 | $1,925,835 | | Total equity | $1,595,780 | $1,452,813 | Condensed Consolidated Statements of Operations Statement of Operations Highlights (in thousands, except per share data) | Metric | Q3 2024 | Q3 2023 | Nine Months 2024 | Nine Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $996,348 | $1,023,269 | $2,530,971 | $2,559,936 | | Gross profit | $317,058 | $318,052 | $774,783 | $749,389 | | Operating income | $115,936 | $122,830 | $217,795 | $201,277 | | Net income | $79,724 | $83,126 | $142,141 | $122,808 | | Diluted EPS | $1.19 | $1.25 | $2.13 | $1.84 | Condensed Consolidated Statements of Cash Flows Cash Flow Summary - Nine Months Ended (in thousands) | Activity | June 29, 2024 | June 24, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $191,804 | $227,566 | | Net cash used in investing activities | ($94,589) | ($41,450) | | Net cash used by financing activities | ($16,007) | ($33,665) | | Net increase in cash | $81,505 | $154,497 | Key Notes to Financial Statements - On November 3, 2023, the Company acquired TDBBS, LLC, a provider of premium natural dog chews and treats, for approximately $60 million. This acquisition expands Central's portfolio and enhances its eCommerce capabilities39 - In December 2023, the Board approved a stock dividend of one Class A Common Stock share for every four outstanding shares, distributed on February 8, 2024. All share and per-share amounts have been retroactively adjusted21 Segment Net Sales (in thousands) | Segment | Q3 2024 | Q3 2023 | Nine Months 2024 | Nine Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Pet | $508,002 | $503,329 | $1,397,454 | $1,394,352 | | Garden | $488,346 | $519,940 | $1,133,517 | $1,165,584 | Segment Operating Income (in thousands) | Segment | Q3 2024 | Q3 2023 | Nine Months 2024 | Nine Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Pet | $83,068 | $59,969 | $189,115 | $154,779 | | Garden | $62,519 | $88,088 | $110,699 | $126,887 | - The company is involved in a legal proceeding with Nite Glow. A retrial on damages for a misappropriation of confidential information claim concluded in March 2024, but no decision has been issued by the court. Management does not expect the outcome to have a material impact73 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) MD&A highlights a 2.6% Q3 2024 net sales decrease, driven by the Garden segment, while nine-month operating income grew 8.2% due to margin improvements, with a $15-20 million Q4 inventory write-down anticipated Overall Financial Performance Q3 2024 vs. Q3 2023 Performance (in millions) | Metric | Q3 2024 | Q3 2023 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $996.3 | $1,023.3 | -2.6% | | Organic Net Sales | - | - | -2.9% | | Gross Profit | $317.1 | $318.1 | -0.3% | | Gross Margin | 31.8% | 31.1% | +70 bps | | Operating Income | $115.9 | $122.8 | -5.6% | | Diluted EPS | $1.19 | $1.25 | -4.8% | Nine Months 2024 vs. Nine Months 2023 Performance (in millions) | Metric | YTD 2024 | YTD 2023 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $2,531 | $2,560 | -1.1% | | Gross Profit | $774.8 | $749.4 | +3.4% | | Operating Income | $217.8 | $201.3 | +8.2% | | Diluted EPS | $2.13 | $1.84 | +15.8% | - The company is implementing a 'Cost and Simplicity' program, which involved exiting the pottery business and closing several facilities, resulting in one-time costs of $11.1 million in Q3 202478 - A significant decrease in market prices for grass seed will necessitate an inventory write-down, with an anticipated charge of $15-20 million in the fourth quarter of fiscal 202479 Segment Performance Analysis - Pet Segment: Q3 net sales grew 0.9% to $508.0 million, though organic sales declined 2.2% due to lower demand for durable goods. Operating income surged 38.5% to $83.1 million, driven by improved gross margin8285 - Garden Segment: Q3 net sales fell 6.1% to $488.3 million, with organic sales down 3.7% primarily due to decreased sales in the live plant business. Operating income decreased 29.0% to $62.5 million8286 Liquidity and Capital Resources - Net cash provided by operating activities for the nine-month period was $191.8 million, a decrease from $227.6 million in the prior year, primarily due to changes in working capital124 - Total debt outstanding was $1,189.7 million as of June 29, 2024, consisting primarily of three series of senior notes due in 2028, 2030, and 2031127 - The company has a $750 million asset-based revolving credit facility, with approximately $550 million in net availability and no borrowings outstanding as of June 29, 2024131 - Capital expenditures are anticipated to be approximately $60 million in fiscal 2024, with $33 million invested through the first nine months126 Non-GAAP Financial Measures - The company uses non-GAAP measures to exclude infrequent items like facility closure and business exit costs to provide better comparability of ongoing operating performance103104 GAAP vs. Non-GAAP Reconciliation Highlights (Q3 2024, in millions) | Metric | GAAP | Non-GAAP | Difference | | :--- | :--- | :--- | :--- | | Operating Income | $115.9 | $127.1 | +$11.2 | | Net Income | $79.7 | $88.2 | +$8.5 | | Diluted EPS | $1.19 | $1.32 | +$0.13 | Quantitative and Qualitative Disclosures About Market Risk No material changes to the company's market risk exposure have occurred since the fiscal year-end 2023 Form 10-K disclosures - There has been no material change in the company's exposure to market risk since the fiscal year-end 2023 Form 10-K report141 Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of June 29, 2024, due to material weaknesses in IT general controls, with a remediation plan underway - Management concluded that disclosure controls and procedures were not effective as of June 29, 2024143 - The ineffectiveness is due to material weaknesses in IT general controls (ITGCs) and controls related to an outsourced service provider for the Live Plant business144 - A remediation plan is underway, which includes enhancing control design, hiring additional experienced personnel, and expanding control procedures145 PART II. OTHER INFORMATION Legal Proceedings The company is involved in ongoing legal proceedings with Nite Glow Industries, with a retrial on damages concluded and a decision pending, not expected to materially impact financials - A retrial on damages in the Nite Glow litigation concluded in March 2024, with a court decision still pending. The company intends to vigorously defend its position147 Risk Factors No material changes to the company's risk factors have been reported since the fiscal year-end 2023 Form 10-K - No material changes from the risk factors disclosed in the Form 10-K for the fiscal year ended September 30, 2023 have been reported148 Unregistered Sales of Equity Securities and Use of Proceeds During Q3, the company repurchased 46,849 shares for tax coverage on vested restricted stock, with $82.0 million remaining under the 2019 repurchase authorization - As of June 29, 2024, the company had $82.0 million of authorization remaining under its 2019 share repurchase program150 - During the quarter, 46,849 shares were repurchased, representing shares withheld to cover taxes on vested restricted stock awards150151
Central Garden & Pet(CENTA) - 2024 Q3 - Quarterly Report