Financial Data and Key Metrics Changes - Net sales increased by 1% year-over-year to $3.3 billion, with recent acquisitions contributing $147 million to this growth, offsetting an organic decline of $108 million [47] - Gross profit rose by 2% to $992 million, with gross margin expanding by 30 basis points to 29.7% despite significant inflationary pressures [48] - Operating income increased by 2% to $260 million, with an operating margin growth of 10 basis points [49] - Earnings per share (EPS) grew by $0.05 to $2.80, exceeding previous guidance [50] Business Segment Data and Key Metrics Changes Garden Segment - Garden net sales decreased by 4% to $268 million in Q4, impacted by poor weather and economic uncertainty [56] - Organic garden net sales declined by 7%, while total garden net sales increased by 4% due to acquisitions [18][56] - Operating income for the garden segment was $1.8 million, up from $1.1 million in the prior year [57] Pet Segment - Pet net sales for Q4 decreased by 4% to $440 million, affected by SKU rationalization and exiting low-profit private label lines [54] - Operating income for the pet segment increased by 28% to $40 million, with an operating margin of 9.2% [55] - Pet e-commerce grew by 10%, now representing 22% of total pet sales [27] Market Data and Key Metrics Changes - The garden e-commerce business grew by 9%, accounting for mid-single digits of total garden sales [22] - Market share in key categories such as wild bird and grass seed increased due to strong innovation and promotional activities [20] - The pet segment maintained or gained market share in small animal, equine, and dog treats [26] Company Strategy and Development Direction - The company is focused on a "Central-to-home" strategy to leverage macro trends supporting growth in the pet and garden industries [8][34] - Emphasis on sustainability and digital marketing excellence as core components of the growth strategy [32][33] - Plans to manage costs and cash flow more aggressively in response to ongoing inflation and economic uncertainty [64] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term growth fundamentals of the pet and garden industries despite short-term economic volatility [8][66] - The company anticipates a challenging fiscal 2023, with guidance for EPS in the range of $2.60 to $2.80 [9][66] - Management noted that consumer engagement remains strong, as indicated by point-of-sale consumption trends outpacing shipments [67] Other Important Information - The company is taking steps to control costs, including a deliberate pause in hiring and reducing travel expenses [44][64] - Significant investments in capacity expansion and automation are planned to support long-term growth [59] - The company aims to convert excess inventory into cash, particularly in the garden segment, as the season progresses [80] Q&A Session Summary Question: What kind of sales outlook is embedded into the $2.60 to $2.80 range for earnings? - The company expects low-single digit growth in the garden segment, assuming a more normal weather year [72][73] Question: How will the company manage excess inventory? - The company plans to convert inventory into cash without resorting to discount channels, focusing on a strong garden season [76][77] Question: Is there a shift towards private label products? - The company's branded products continue to outperform private label, with no significant shift observed despite inflationary pressures [81][82] Question: What are the expectations for working capital next year? - The company aims to convert approximately $250 million of excess inventory into cash, with updates expected as the garden season progresses [79][80] Question: How does the company view M&A opportunities in the current environment? - The company remains open to M&A opportunities based on merit, regardless of current retailer sentiment [104]
Central Garden & Pet(CENTA) - 2022 Q4 - Earnings Call Transcript