Central Garden & Pet(CENTA) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive income, and cash flows, with detailed accounting policy notes Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 29, 2025 | March 30, 2024 | September 28, 2024 | | :--- | :--- | :--- | :--- | | Total current assets | $1,975,253 | $1,850,618 | $1,886,806 | | Inventories, net | $824,281 | $914,352 | $757,943 | | Total Assets | $3,629,617 | $3,540,018 | $3,553,439 | | Total current liabilities | $597,651 | $556,490 | $515,384 | | Long-term debt | $1,190,724 | $1,188,955 | $1,189,809 | | Total Equity | $1,543,404 | $1,512,167 | $1,557,545 | Condensed Consolidated Statements of Operations Highlights (in thousands, except per share) | Metric | Three Months Ended Mar 29, 2025 | Three Months Ended Mar 30, 2024 | Six Months Ended Mar 29, 2025 | Six Months Ended Mar 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | 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 Highlights (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 Detailed notes explain accounting policies, including the TDBBS acquisition, inventory and intangible asset breakdowns, $1.2 billion in long-term debt, segment performance, and an update on the Nite Glow legal contingency - On November 3, 2023, the Company acquired TDBBS, LLC, a provider of premium natural dog chews and treats, for approximately $60 million, resulting in $23 million in intangible assets and $5 million in goodwill[54] - The company has three series of senior notes outstanding, totaling $1.2 billion in principal: $300 million at 5.125% due 2028, $500 million at 4.125% due 2030, and $400 million at 4.125% due 2031[63] Segment Operating Income (Six Months Ended, in thousands) | Segment | March 29, 2025 | March 30, 2024 | | :--- | :--- | :--- | | Pet segment | $111,871 | $106,047 | | Garden segment | $61,154 | $48,180 | | Corporate | $(51,709) | $(52,368) | | Total operating income | $121,316 | $101,859 | - A legal dispute with Nite Glow regarding a patent, breach of contract, and misappropriation of confidential information is ongoing; a retrial on damages concluded in March 2024, with no decision issued, and the company believes the final resolution will not have a material impact[95] Item 2. MD&A of Financial Condition and Results of Operations Management discusses financial results, noting a 7.4% Q2 FY2025 net sales decrease, improved gross margin, a 2.9% six-month net sales decrease, and a 19.1% operating income increase, alongside liquidity, capital resources, debt, and stock repurchase details Results of Operations Q2 FY2025 net sales decreased 7.4% to $833.5 million due to order timing and weather, while gross margin improved; six-month net sales decreased 2.9% to $1.49 billion, but operating income rose 19.1% to $121.3 million Q2 FY2025 vs Q2 FY2024 Performance (in millions) | Metric | Q2 FY2025 | Q2 FY2024 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $833.5 | $900.1 | -7.4% | | Gross Profit | $273.1 | $278.9 | -2.1% | | Operating Income | $93.3 | $93.4 | -0.1% | | Diluted EPS | $0.98 | $0.93 | +5.4% | - The Q2 sales decline was driven by the timing of customer orders shifting sales into Q1, continued weak demand for pet durables (outdoor cushions, pet beds, aquatics), and a delayed start to the garden season due to weather[106] Six Months FY2025 vs FY2024 Performance (in millions) | Metric | Six Months FY2025 | Six Months FY2024 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $1,490.0 | $1,535.0 | -2.9% | | Gross Profit | $468.8 | $457.7 | +2.4% | | Operating Income | $121.3 | $101.8 | +19.1% | | Diluted EPS | $1.19 | $0.93 | +28.0% | - In March 2025, the company decided to wind-down its U.K. operations, incurring $5.3 million in one-time costs during the quarter[103] Use of Non-GAAP Financial Measures The company uses non-GAAP measures like adjusted EBITDA and non-GAAP net income, excluding one-time charges, with Q2 2025 non-GAAP net income at $67.7 million ($1.04 diluted EPS) and six-month non-GAAP net income at $81.7 million ($1.25 diluted EPS) GAAP to Non-GAAP Net Income Reconciliation (in thousands, except per share) | | Three Months Ended Mar 29, 2025 | Six Months Ended Mar 29, 2025 | | :--- | :--- | :--- | | GAAP net income | $63,633 | $77,642 | | Facility closures | $5,339 | $5,339 | | Tax effect | $(1,255) | $(1,255) | | Non-GAAP net income | $67,717 | $81,726 | | GAAP diluted EPS | $0.98 | $1.19 | | Non-GAAP diluted EPS | $1.04 | $1.25 | - Non-GAAP adjustments for Q2 2025 relate to a $5.3 million charge for winding down U.K. operations, while Q2 2024 adjustments related to a $5.3 million charge for closing a California facility and consolidating distribution[135] Liquidity and Capital Resources Liquidity is managed through operations and a $750 million credit facility with $706 million available, as net cash used by operating activities increased to $115.7 million, and stock repurchases significantly rose to $93.4 million, while total debt remained stable at $1.2 billion - Net cash used by operating activities increased by $21.4 million year-over-year for the six-month period, primarily due to changes in working capital[147] - Cash used in financing activities increased to $99.7 million from $13.2 million year-over-year for the six-month period, driven by significant stock repurchases[149] - During the first six months of FY2025, the company repurchased approximately 2.1 million shares of CENTA stock for $63.2 million and 0.9 million shares of CENT stock for $30.2 million[149] - As of March 29, 2025, total debt was $1,190.8 million, and net availability under the Credit Facility was approximately $706 million[153][165] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes in market risk exposure have occurred since the last Form 10-K filing - No material change in market risk exposure has occurred since the last Form 10-K filing[175] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 29, 2025, with no material changes to internal control over financial reporting during the quarter - The Principal Executive Officer and Principal Financial Officer concluded that disclosure controls and procedures were effective as of the end of the period[176] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[177] PART II. OTHER INFORMATION Item 1. Legal Proceedings An update on the ongoing Nite Glow Industries litigation notes a retrial on damages concluded in March 2024 with a pending decision, and the company does not expect a material financial impact - The company is involved in a legal proceeding with Nite Glow Industries, initiated in 2012; a retrial on damages for a misappropriation claim concluded in March 2024, but no decision has been issued by the court[179] Item 1A. Risk Factors No material changes to risk factors have been reported since the most recent Form 10-K filing - There have been no material changes to the risk factors disclosed in the most recent Form 10-K[182] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the quarter ended March 29, 2025, the company repurchased 1,343,279 shares at an average price of $33.38, with approximately $101.2 million remaining for future repurchases Equity Repurchases for Quarter Ended March 29, 2025 | Period | Total Shares Purchased | Average Price Paid | Value Remaining for Purchase | | :--- | :--- | :--- | :--- | | 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 | - As of March 29, 2025, the company had $101 million of authorization remaining under its 2019 and 2024 Repurchase Authorizations[185] Item 5. Other Information No directors or officers adopted, modified, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the quarter ended March 29, 2025 - No directors or officers reported any adoption, modification, or termination of a Rule 10b5-1 trading arrangement during the quarter[185] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications, guarantor subsidiaries, and Inline XBRL financial statements - Exhibits filed include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and financial data in Inline XBRL format (101, 104)[186]