CENTRAL GARDEN & PET CO Q2 FY2024 earnings call

Key themes: Delivered solid quarter with GAAP EPS $0.93 and non-GAAP EPS $0.99; progress on cost and simplicity program; unchanged fiscal year outlook. Cost and simplicity program: Consolidating 4 distribution locations into one modern facility, closing a manufacturing facility in Chico, CA, piloting centers of excellence at 3 manufacturing sites. Product innovation: Pet brands like Simply Smoked, Cadet, Nylabone; Garden's AMDRO packaging with new design and clear claims.

Pet Segment: Sales were $480 million, up 1% (organic net sales down 3% excluding TD BBS). Operating income improved 13% to $63 million, operating margin 140 basis points to 13%. E-commerce represents approximately 25% of pet sales. Garden Segment: Sales declined 3% to $420 million (organic net sales up 2%). Operating income was $62 million, up from $50 million, operating margin 340 basis points to 14.8%. E-commerce represents 5% of garden sales.

Outlook unchanged: Non-GAAP EPS for the year expected $2 or better; moderating inflation, softer consumption in some categories, lower foot traffic in key retailers; CapEx remains at about $70 million across segments; continues to look for growth and margin accretive acquisition targets.

Macro and geopolitical volatility; retailer pressure for price concessions; softness in durable pet product categories; weather impact on garden sales affecting categories like wild bird.

Q: Just looking at the results and pairing with pet category expectations, any change in softness?

A: Consumables outperforming durables, durables remain soft, household penetration in pet supplies stabilized.

Q: Garden category compared to competitor, market share?

A: Portfolio different, bird feed lagged due to warm weather, but gained share in insecticides and grass seed.

Q: Inventory in channel and third quarter impact?

A: Retail inventories down low single digits, shipments outpaced consumption YTD, but season still ahead.

Q: Pet POS trends by consumables and durables?

A: Pet category down on POS, consumables outperformed durables, durables down double digits but improved vs Q1.

Q: Distribution facility consolidation benefits timeline?

A: Benefits likely start flowing next year, starting to move product in July, August.

Q: SKU rationalization impact and extent?

A: Removed ~5,000 SKUs, focusing on high-margin, ongoing process.

Q: Pet durables category bottoming and time frame?

A: Hard to pinpoint timing, pet ownership peaked in 2021, penetration leveled off, declines moderating.