Core Viewpoint - Central Garden & Pet reported a decline in net sales for fiscal 2026 first quarter, primarily due to shipment timing shifts and ongoing portfolio optimization, but achieved improved gross margins and solid earnings per share [3][6][19] Financial Performance - Net sales totaled $617 million, down 6% year over year, attributed to retailer spring inventory shipment shifts and portfolio rationalization [2][6] - Non-GAAP gross margin improved by 100 basis points to 30.8%, driven by productivity gains and improved product mix [6][7] - Non-GAAP diluted EPS held steady at $0.21, above internal expectations, with GAAP diluted EPS at $0.11 [8][19] Segment Analysis - The Pet segment reported net sales of $416 million, down 3%, with strengths in rawhide and animal health, while the Garden segment saw net sales of $202 million, down 12%, affected by shipment timing and category exits [5][12] - The Garden segment experienced a small operating loss of $2 million compared to a profit of $2 million in the prior year, primarily due to shipment timing [13] Operational Initiatives - The company is transitioning to a more profitable direct export model in Europe and rationalizing lower-margin categories [2][19] - Central completed the tuck-in acquisition of Champion USA, enhancing its professional portfolio with environmentally responsible solutions [4][18] Balance Sheet and Capital Allocation - Cash and cash equivalents plus short-term investments totaled $721 million, with total debt at $1.2 billion and gross leverage at 2.9x [17] - The company repurchased approximately 660,000 shares for $18.5 million, with $28 million remaining under its authorization [17] Outlook - The company reaffirmed its fiscal 2026 guidance for non-GAAP diluted EPS of at least $2.70 and expects capital expenditures of $50 million to $60 million [4][19] - Management indicated stronger shipment trends in January, consistent with the timing shift into the second quarter, and expects to remain active in M&A and share repurchases [20]

Financial Data and Key Metrics Changes - Net sales for the first quarter were $617 million, reflecting a 6% year-over-year decline primarily due to the timing of retailer spring inventory shipments and portfolio optimization efforts [11][12] - Non-GAAP gross profit was $190 million, down from $196 million, while non-GAAP gross margin expanded by 100 basis points to 30.8% [12][13] - Non-GAAP diluted earnings per share were $0.21, consistent with the prior year and above expectations for the quarter [13][17] Business Line Data and Key Metrics Changes - Pet segment net sales were $416 million, a 3% year-over-year decline, impacted by portfolio optimization and shipment timing [14] - Garden segment net sales were $202 million, a 12% decline, primarily due to shipment timing and rationalization of live plants categories [15] - Non-GAAP operating income for the pet segment was $50 million, while the garden segment reported a non-GAAP operating loss of $2 million [14][15] Market Data and Key Metrics Changes - The company gained market share in several key categories within the pet segment, including dog treats and animal health [14] - In the garden segment, market share gains were noted in wild bird, fertilizer, and packet seeds [15] - The overall consumer focus remains on value and product performance, particularly in a promotionally active retail environment [9] Company Strategy and Development Direction - The company is focused on sustainable long-term growth, emphasizing innovation and operational efficiency [4][8] - A multi-year supply chain network design program has been implemented to improve customer alignment and cost efficiency [6] - M&A remains a key component of the growth strategy, with a focus on margin-accretive consumable businesses [9][8] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the upcoming garden season despite current weather challenges, citing strong retailer support and distribution gains [21][22] - The company reaffirmed its expectation for Fiscal 2026 non-GAAP diluted EPS of $2.70 or better, indicating confidence in future performance [9][17] - Management noted that the consumer landscape is stabilizing, particularly in the pet segment, with expectations for modest growth in the back half of the fiscal year [33][57] Other Important Information - Cash used by operations was $70 million for the quarter, with a strong liquidity position reflected in cash and cash equivalents totaling $721 million [16][17] - The company repurchased approximately 660,000 shares for $18.5 million during the quarter, with $28 million remaining under the share repurchase authorization [16][17] Q&A Session Summary Question: Insights on the garden season and growth opportunities - Management indicated that the garden season's performance is not dictated by Q1 results and expressed optimism about distribution points and retailer support for the upcoming year [21][22] Question: Balancing profitability improvements with growth investments - Management acknowledged the need to pivot towards a growth mindset, focusing on innovation, private label, and M&A to drive market share [24][27] Question: Quantifying sales headwinds - The timing of garden shipments and portfolio optimization efforts accounted for more than half of the overall net sales decline [32] Question: Update on pet adoption trends - Management noted stabilization in the pet category, with positive growth in the live animal business and expectations for modest growth in the back half of the year [33][57] Question: Thoughts on the M&A environment - Management expressed optimism about increased M&A activity, particularly in the pet segment, and indicated ongoing discussions for potential acquisitions [46][47] Question: Inventory readiness for potential demand surges - Management confirmed reasonable in-store inventories and readiness to fulfill increased demand, supported by a diverse product portfolio [50][51]