Central Garden & Pet(CENT) - 2025 Q2 - Quarterly Results

Q2 Fiscal 2025 Financial Results and Outlook 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][3] 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 - Net sales decreased by 6% to $454 million, mainly due to the timing of customer orders shifting to Q1, assortment rationalization, and softer demand in durable pet products[10] Pet Segment Q2 Financials (vs. Q2 FY2024) | Metric | Q2 FY2025 | Change | | :--- | :--- | :--- | | Net Sales ($ 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 - Net sales decreased by 10% to $380 million, primarily caused by customers shifting pre-season orders into Q1, a late-breaking spring selling season due to weather, and the loss of two product lines in the third-party distribution business[13] Garden Segment Q2 Financials (vs. Q2 FY2024) | Metric | Q2 FY2025 | Change | | :--- | :--- | :--- | | Net Sales ($ millions) | $380 | -10% | | GAAP Operating Income ($ millions) | $59 | +3% | | GAAP Operating Margin | 15.5% | +190 bps | | Adjusted EBITDA ($ millions) | $69 | -$4 | Fiscal 2025 Guidance 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] - The outlook accounts for macroeconomic uncertainty, challenges in brick-and-mortar retail, and weather variability[20] - Anticipated capital expenditures for fiscal 2025 are approximately $60 million[21] Financial Position and Corporate Initiatives 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] - Total debt was stable at $1.2 billion, and the gross leverage ratio was 2.9x, in line with the prior-year quarter[16] - 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] 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] - 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] Condensed Consolidated Financial Statements (Unaudited) 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 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 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 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][39] 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 |