Core Insights - Central Garden & Pet Company (CENT) reported its third-quarter fiscal 2025 results, with net sales declining year over year and missing the Zacks Consensus Estimate, while earnings exceeded expectations and improved from the previous year [1][3][9] - The company's focus on operational efficiency through its Cost and Simplicity program contributed to margin expansion and earnings growth, with management reaffirming its full-year earnings outlook [1][12] Financial Performance - Adjusted earnings per share were $1.56, surpassing the Zacks Consensus Estimate of $1.34 and increasing from $1.32 in the prior year [3][9] - Net sales totaled $960.9 million, a 4% decline from the previous year, missing the consensus estimate of $987 million, primarily due to assortment rationalization and softer demand [3][4] - Gross profit increased by 5% to $332 million, with gross margin expanding by 280 basis points to 34.6%, driven by productivity improvements [4][9] - Adjusted operating income rose to $139 million, up 9% year over year, with adjusted operating margin expanding by 170 basis points to 14.5% [5][9] Segment Performance - The Pet segment reported net sales of $493 million, down 3% year over year, attributed to the exit of lower-margin products and sluggish demand, although market share gains were noted in specific categories [6][7] - The Garden segment's net sales were $468 million, a 4% decline, impacted by adverse weather and the exit of certain product lines, but growth was observed in Wild Bird and Grass Seed categories [8][10] Financial Health - At the end of the quarter, the company had cash and cash equivalents of $713 million, long-term debt of $1,191.2 million, and shareholders' equity of $1,588.2 million, with a gross leverage ratio improving to 2.9 [11] - During the quarter, the company repurchased 1.7 million shares for $55 million, with $46 million remaining under the share repurchase authorization [11] Outlook - The company continues to estimate fiscal 2025 adjusted earnings at $2.60 per share, considering factors such as shifting consumer behavior and macroeconomic uncertainties [12]

Financial Data and Key Metrics Changes - Net sales for Q3 2025 were $961 million, a decline of 4% compared to the previous year [17] - Gross profit increased by 5% to $332 million, with gross margin expanding by 280 basis points to 34.6% [17] - Non-GAAP net income totaled $98 million, an increase of 11%, while GAAP earnings per share rose by 28% to $1.52 [20] - Non-GAAP EPS increased by 18% to $1.56, marking record results for the third quarter [20] Business Line Data and Key Metrics Changes Pet Segment - Net sales for the Pet segment were $493 million, down 3%, primarily due to exiting lower-margin durable products [21] - Consumables now represent 82% of total pet sales, up from 79% a year ago, indicating a shift towards higher-margin products [22] - Non-GAAP operating income for the Pet segment was $78 million, down 6%, with non-GAAP operating margin contracting by 60 basis points to 15.8% [23] Garden Segment - Net sales for the Garden segment were $468 million, representing a 4% decline, driven by the exit of two product lines and adverse weather conditions [24] - Non-GAAP operating income for Garden rose to $85 million, an increase of $12 million, with non-GAAP operating margin expanding by 310 basis points to 18.2% [25] Market Data and Key Metrics Changes - E-commerce accounted for 27% of total Pet sales, consistent with the prior quarter but slightly below the same period last year [23] - The Garden and e-commerce channel achieved double-digit growth, particularly in wild bird and grass seed categories [25] Company Strategy and Development Direction - The company is focused on operational optimization, including consolidating distribution centers and enhancing e-commerce capabilities [9][10] - The "central to home" strategy aims to blend startup agility with large enterprise scale, fostering innovation and market share growth [13][14] - M&A is viewed as a strategic lever to complement internal innovation, with plans to accelerate efforts in 2026 as market conditions improve [15][16] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the full-year outlook despite macroeconomic uncertainties and anticipated increased consumer value consciousness [12] - The company expects tariff-related inflationary pressures to intensify, particularly in the Pet segment, but reaffirms non-GAAP EPS guidance of approximately $2.6 for the fiscal year [13][28] Other Important Information - The company streamlined operations by consolidating 20 outdated locations and creating five efficient direct-to-consumer hubs [10] - Cash provided by operations was $265 million for the quarter, with a reduction in inventory of $67 million [26] - The company repurchased approximately 1.7 million shares, totaling $55 million, with $46 million remaining under the share repurchase program [27] Q&A Session Summary Question: How should investors think about the opportunity to keep improving margins? - Management highlighted ongoing efforts in cost and simplicity, with a focus on portfolio optimization and innovation to enhance margins [30][34] Question: What are the implications of tariffs on margins? - The company expects most tariff impacts to surface in Q4, with pricing actions being considered to mitigate cost increases [38][40] Question: Can you elaborate on Pet trends as the year ends? - Management noted a challenged consumer environment but indicated stabilization in pet ownership and live animal business, with consumables remaining flat and durables declining [44][46] Question: What categories drove EPS upside in Garden? - Strong performance was noted in wild bird food, fertilizer, and grass seed categories, despite challenging weather conditions [49][50] Question: How much longer will SKU rationalization impact top line growth? - Management indicated uncertainty regarding the duration of SKU rationalization impacts, with more clarity expected in future guidance [83][84] Question: What is the long-term growth rate expectation for pet consumables? - Management believes the pet consumables category can grow low to mid-single digits in the long term, supported by stabilizing pet ownership [110]

Financial Data and Key Metrics Changes - Net sales for Q3 2025 were $961 million, a decline of 4% year-over-year [16] - Gross profit increased by 5% to $332 million, with gross margin expanding by 280 basis points to 34.6% [16] - Non-GAAP operating income rose by 9% to $139 million, with non-GAAP operating margin expanding by 170 basis points to 14.5% [18] - GAAP earnings per share increased by 28% to $1.52, while non-GAAP EPS rose by 18% to $1.56 [20] - Adjusted EBITDA was $167 million, an increase of $11 million year-over-year [21] Business Line Data and Key Metrics Changes Pet Segment - Net sales for the Pet segment totaled $493 million, down 3% [21] - Consumables now represent 82% of total pet sales, up from 79% a year ago [22] - Non-GAAP operating income for the Pet segment was $78 million, down 6% compared to the previous year [23] - E-commerce accounted for 27% of total Pet sales, consistent with the prior quarter [23] Garden Segment - Net sales for the Garden segment were $468 million, representing a 4% decline [24] - Non-GAAP operating income for Garden rose to $85 million, up $12 million year-over-year [25] - Adjusted EBITDA for the Garden segment was $96 million, an improvement of $11 million year-over-year [26] Market Data and Key Metrics Changes - The company faced top-line pressure from the loss of two product lines in the garden distribution business and soft demand in pet durables [6][11] - Despite challenges, the company maintained market share and gained in key consumer categories such as dog chews and flea and tick products [22] - E-commerce channels for both segments showed double-digit growth, particularly in the Garden segment [25] Company Strategy and Development Direction - The company is focused on operational optimization, including consolidating distribution centers and streamlining operations [7][10] - The "central to home" strategy aims to blend agility with scale, empowering teams to innovate and grow market share [12] - The company plans to accelerate M&A efforts in 2026, viewing it as a strategic lever for long-term shareholder value [14][15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the full-year outlook despite macroeconomic uncertainties and pressures on consumer confidence [11] - The company anticipates increased consumer value consciousness and heightened promotional activity across retail channels [11] - Management noted that tariff-related inflationary pressures are expected to intensify, particularly in the Pet segment [12] Other Important Information - The company completed the sale of its U.K. operations and transitioned to a direct export model for certain products [8] - Cash provided by operations was $265 million for the quarter, with a focus on working capital management [26] - The company repurchased approximately 1.7 million shares for $55 million during the quarter [27] Q&A Session Summary Question: How should investors think about the opportunity to keep improving margins? - Management highlighted ongoing efforts in cost and simplicity, with a focus on portfolio optimization and innovation to enhance margins [30][32] Question: What are the implications of tariffs on margins? - Management expects most tariff impacts to surface in Q4, with pricing actions being considered to mitigate cost increases [39][41] Question: Can you elaborate on Pet trends as the year ends? - Management noted a challenged consumer environment but indicated stabilization in pet ownership and live animal business [46][48] Question: What was the impact of exited product lines on sales? - Management acknowledged significant impacts from assortment rationalization, particularly in the Pet segment [57][60] Question: What will it take for the Garden segment to return to consistent growth? - Management indicated that favorable weather conditions are crucial for growth, alongside strong consumer engagement [88][90]

Financial Data and Key Metrics Changes - Net sales for the second quarter were $834 million, a decrease of 7% compared to the prior year [16] - Gross profit was $273 million, down 2%, but gross margin expanded by 180 basis points to 32.8% [16] - Non-GAAP net income totaled $68 million, an increase of 3%, with non-GAAP EPS of $1.04, up $0.05 [19] - GAAP earnings per share rose by $0.05 to $0.98 [19] - Adjusted EBITDA was $123 million, $1 million below the prior year quarter [19] Business Line Data and Key Metrics Changes Pet Segment - Pet net sales totaled $454 million, a decrease of 6% [20] - E-commerce sales represented 27% of Pet sales, up from the prior year [21] - Non-GAAP operating income for Pet reached $66 million, up 5%, with a non-GAAP operating margin of 14.5%, an increase of 150 basis points [21] Garden Segment - Garden net sales totaled $380 million, a 10% decrease [22] - E-commerce sales in the Garden segment delivered double-digit growth, particularly in Wild Bird and Grass Seed categories [23] - GAAP operating income for Garden was $59 million, up $2 million, with a GAAP operating margin of 15.5%, an increase of 190 basis points [23] Market Data and Key Metrics Changes - The earlier timing of customer orders and promotional events shifted sales into the first quarter, impacting both segments [6][22] - POS trends in the Garden segment were down low single digits, reflecting the delayed start to the garden selling season [22] - The Wild Bird business achieved record sales, benefiting from extended cold weather [8][50] Company Strategy and Development Direction - The company is focused on streamlining operations through footprint consolidation, portfolio refinement, and cost structure improvements [5][12] - The M&A strategy aims to identify high-growth consumable companies with accretive margins [26] - Continued investment in e-commerce, digital technology, and innovation is prioritized [15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the outlook for the year despite navigating a challenging environment in the second half [5][14] - Anticipated increased consumer caution and a more promotional retail environment due to macroeconomic uncertainties [14] - The company reaffirmed its fiscal 2025 guidance for non-GAAP EPS of $2.2 or higher [26] Other Important Information - The company has completed significant inventory reductions of $90 million across both segments [24] - Cash and cash equivalents at the end of the second quarter were $517 million, an increase of $215 million [25] - The company repurchased approximately 1.2 million shares for $41 million during the quarter [24] Q&A Session Summary Question: Can you talk about Pet trends, particularly durables versus consumables? - Management noted a 6% decline in net sales due to earlier customer orders and SKU rationalization efforts [29][30] - Consumables were up low to mid-single digits, while durables were down double digits [31] Question: How are tariffs impacting your business? - Management indicated that tariffs affect about 13% of total import costs, primarily from China [34] - Plans are in place for vendor concessions and pricing adjustments to mitigate tariff impacts [35] Question: What are you seeing in the Garden segment regarding the spring selling season? - Management acknowledged a delayed season but noted improved consumption as weather conditions became favorable [46][64] Question: Are you seeing trade down to private label products? - Management confirmed some trade down to private label, particularly in the Wild Bird business [68][71] Question: How is the M&A environment being impacted by tariffs? - Management noted that M&A activity is low, with a disconnect between bid-ask spreads due to current market conditions [79][80]