Central Garden & Pet(CENT) - 2025 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net sales for Q2 2025 were $834 million, a decrease of 7% compared to the prior year [14] - Gross profit was $273 million, down 2%, but gross margin expanded by 180 basis points to 32.8% [14] - Non-GAAP net income totaled $68 million, an increase of 3%, with non-GAAP EPS of $1.04, up $0.05 [18] - Cash and cash equivalents at the end of Q2 were $517 million, an increase of $215 million [24] Business Line Data and Key Metrics Changes Pet Segment - Pet net sales totaled $454 million, a decrease of 6% [19] - E-commerce sales represented 27% of Pet sales, up from the prior year [20] - Non-GAAP operating income for Pet reached $66 million, up 5%, with a non-GAAP operating margin of 14.5% [20] Garden Segment - Garden net sales totaled $380 million, a 10% decrease [21] - POS trends were down low single digits, reflecting a delayed garden selling season [21] - Garden e-commerce sales delivered double-digit growth, particularly in Wild Bird and Grass Seed categories [22] Market Data and Key Metrics Changes - The earlier timing of customer orders and promotional events shifted sales into Q1, impacting Q2 results [6] - The Wild Bird business achieved record sales due to extended cold weather [7] - Overall share performance was strong in key categories, including Wild Bird, Grass Seed, Chemicals, and Fertilizer [21] Company Strategy and Development Direction - The company is focused on streamlining operations through footprint consolidation and cost structure improvements [5] - A new 300,000 square foot Dog and Cat distribution center in New Jersey aims to boost productivity and operational efficiency [10] - The M&A strategy prioritizes identifying high-growth consumable companies with accretive margins [25] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the outlook for the year despite macroeconomic uncertainties and inflationary pressures [12] - The company anticipates increased consumer caution and a more promotional retail environment in the second half of the fiscal year [12] - Management reaffirmed guidance for non-GAAP EPS of $2.2 or higher for the full fiscal year [25] Other Important Information - The company is winding down UK operations and transitioning to a direct export model [11] - Cash used by operations was $47 million for the quarter, compared to $25 million a year ago [22] - The company repurchased approximately 1.2 million shares for $41 million during the quarter [23] Q&A Session Summary Question: Can you talk about Pet trends, particularly durables versus consumables? - Management noted a 6% decline in net sales for Q2 due to earlier customer orders and SKU rationalization efforts [28][30] - Consumables were up low to mid-single digits, while durables were down double digits [30] Question: How are tariffs impacting your business? - Management indicated that about 13% of total import costs are subject to tariffs, primarily affecting the Pet segment [34] - Plans are in place for vendor concessions and SKU redesign to mitigate tariff impacts [34][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][48] - Retailers are engaged and promotional, which is expected to drive sales as the season progresses [46] Question: Are you seeing trade down to private label products? - Management confirmed some trade down to private label, particularly in the Wild Bird business, but noted strong execution in stores [67][70] Question: How is the M&A environment being affected by tariffs? - Management stated that M&A activity is low, with a disconnect between bid-ask spreads due to current market conditions [77][78]