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

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]