CENTRAL GARDEN & PET CO Q1 FY2025 earnings call

Management Statement and Operational Highlights

• First Quarter Achievements: Delivered solid performance with growth in earnings per share and net sales, driven by shipment timing across pet and garden categories, favorable weather for garden, and promotional timing for pet. Margins improved due to cost management and easing inflation. E-commerce showed robust growth.
• Cost and Simplicity Program: Initiatives yielding tangible benefits, including distribution optimization with a new DC in Georgia replacing 7 legacy facilities, safety and productivity enhancements across business units, and e-commerce expansion to Easton, PA.
• Community Support: Collaborated with animal welfare organizations to assist communities impacted by LA wildfires, providing pet supplies and cash donations.

Segment Performance

• Pet Segment: Net sales increased 4% to $427 million, accounting for 65.1% of total net sales. Operating income was $51 million (up from $43 million) with an operating margin of 12% (up 140 basis points). Adjusted EBITDA for the pet segment was $61 million (up from $54 million). E-commerce now constitutes 28% of pet sales, growing 6% year-over-year.
• Garden Segment: Net sales were $229 million, a 2% increase from the prior year. Operating income was $2 million (compared to a $9 million operating loss in the prior year quarter), with an operating margin of 1.1% (up from -3.9% year-over-year). Adjusted EBITDA for the garden segment was $14 million (up from $2 million year-over-year). Garden e-commerce sales grew double digits during the quarter.

Guidance

• Reaffirmed fiscal 2025 non-GAAP EPS of $2.20 or higher.
• Anticipates a softer second quarter than last year due to seasonal factors and retailers working through inventories.
• Plans to invest $60–$70 million in CapEx for productivity-enhancing initiatives and maintenance.
• Guidance assumes current tariffs but excludes impacts from acquisitions, divestitures, or restructuring activities.

Risks

• Macroeconomic and geopolitical uncertainties, including potential tariffs.
• Consumer pressure, competitive marketplace with promotions, and challenges in brick-and-mortar retail.
• Volatility in the garden business from extreme weather patterns.

Question and Answer

• Q: Is the quarter's performance due to pull forward or timing? A: Niko Lahanas states it's a combination of timing, favorable mix, weather, and execution, noting Q2 is expected to be softer.
• Q: Tariff impact and sourcing? A: About 4% of product sourced from China, 2% from Canada/Mexico. Pricing is challenging, relying on cost savings and volume.
• Q: M&A environment and cash uses? A: Anticipating M&A pickup, cash will be used for M&A, CapEx, demand creation, and stock buybacks.
• Q: Garden and pet segment outlooks? A: J.D. Walker is cautiously optimistic for garden with normal weather; John Hanson notes pet sees strong e-comm growth and improved durables trends