Central Garden & Pet(US:CENT)2024-02-07 16:00Financial Performance - Net sales for Q1 FY 2024 increased by $6.8 million, or 1.1%, to $634.5 million compared to $627.7 million in Q1 FY 2023[105] - Gross profit for Q1 FY 2024 rose by $7.1 million, or 4.2%, to $178.8 million, with a gross margin increase of 80 basis points to 28.2%[106] - Selling, general and administrative expenses decreased by $0.9 million, or 0.5%, to $170.4 million, representing 26.9% of net sales, down from 27.3% in the prior year[107] - Net income for Q1 FY 2024 was $0.4 million, or $0.01 per diluted share, compared to a net loss of $8.4 million, or $0.16 per diluted share, in Q1 FY 2023[103] - Adjusted EBITDA for Q1 FY 2024 was $36.978 million, compared to $28.675 million in Q1 FY 2023[114] - Total net sales for the three months ended December 30, 2023, were $634.5 million, a decrease of $6.6 million or 1.6% compared to the same period in the prior year[123] - Pet operating income increased by $3.8 million, or 9.7%, to $43.4 million, with an operating margin improvement of 110 basis points to 10.6%[124] - Garden operating loss decreased by $1.9 million to a loss of $8.9 million, attributed to higher sales and gross margin[124] - Net income for the first quarter of fiscal 2024 was $0.4 million, or $0.01 per diluted share, compared to a net loss of $8.4 million, or $0.16 per diluted share, in the prior year[127] - Organic net sales for the Pet segment decreased by $19.8 million, or 4.8%, while the Garden segment saw an increase of $22.9 million, or 11.3%[129] Cash Flow and Debt - Net cash used by operating activities increased by $6.5 million to $69.8 million, primarily due to changes in working capital accounts[133] - Net cash used in investing activities increased by $52.5 million to $70.5 million, mainly due to acquisition activity[134] - Total debt outstanding as of December 30, 2023, was $1,189.6 million, a slight increase from $1,186.9 million at December 24, 2022[136] - The company anticipates capital expenditures of approximately $70 million for fiscal 2024, with $10 million already invested through December 30, 2023[135] Acquisitions and Segment Performance - The acquisition of TDBBS, LLC for approximately $60 million enhances the company's portfolio in the pet segment and boosts eCommerce capabilities[104] - Pet segment net sales decreased by $6.6 million, or 1.6%, to $409.2 million, while garden segment net sales increased by $13.4 million, or 6.3%, to $225.3 million[105] - Organic net sales, excluding the impact of acquisitions and divestitures, increased by 0.5% in Q1 FY 2024[105] Inflation and Market Conditions - The company experienced moderating inflationary pressures entering calendar 2024, following notable inflation in fiscal 2022 and 2023[115] - Approximately 67% of the garden segment's net sales occur during the second and third fiscal quarters, indicating strong seasonality in this business[116] Internal Controls and Compliance - Management identified material weaknesses in internal controls over financial reporting, particularly in IT general computer controls and outsourced service provider controls[152] - Remediation plans are being developed to address the identified material weaknesses, including enhancing control procedures and hiring additional IT personnel[174] - The company has not identified any material misstatements in its consolidated financial statements despite the material weaknesses[152] - The company is in the process of delivering SOX compliance training to control owners as part of its remediation efforts[174] - No changes in internal control over financial reporting have materially affected the company during the quarter ended December 30, 2023[175] Litigation and Market Risk - The ongoing litigation with Nite Glow Industries may result in expenses exceeding management's expectations, although the company believes it will prevail[155] - There have been no material changes in market risk exposure since the last annual report[150]