CENTRAL GARDEN & PET CO Q2 FY2025 earnings call

Second Quarter Achievements

• Soft second quarter due to shifted sales, cold weather, and loss of product lines, but GAAP and non-GAAP EPS grew, margin improved, and Pet segment had record non-GAAP operating income. Wild Bird business had record sales, and e-commerce sales were strong with brands leading in online categories.

Cost and Simplicity Program

• Upgraded distribution center in Eastern Pennsylvania with DTC capabilities, shipped over 10,000 packages. On track to consolidate distribution centers in CA and UT. Opened new 300,000 square foot dog and cat distribution center in NJ. Wind-down of UK operations with initial noncash charge of $5.3 million.

Pet Segment

• Net sales: $454 million, down 6%. Consumable sales relatively flat, durable sales down double digits. E-commerce sales represented 27% of pet sales, up vs prior year. Non-GAAP operating income: $66 million, up 5%, non-GAAP operating margin: 14.5%, up 150 basis points. Adjusted EBITDA: $75 million, up $2 million.

Garden Segment

• Net sales: $380 million, down 10%. Wild Bird business had record sales. POS trends down low single digits. GAAP operating income: $59 million, up $2 million. GAAP operating margin: 15.5%, up 190 basis points. Adjusted EBITDA: $69 million, down $4 million.

• Reaffirmed fiscal 2025 non-GAAP EPS of $2.20 or higher.
• Expect CapEx of approximately $60 million in fiscal 2025.
• Guidance does not incorporate potential impacts from tariff changes or acquisitions/divestitures.

• Macroeconomic uncertainty and geopolitical tensions affecting consumer confidence.
• Tariffs impacting import costs, particularly in Pet segment.
• Weather variability affecting garden sales season.

Q: Bill Chappell asks about pet trends, durables vs consumables, tariffs.

A: John Hanson and Brad Smith discuss pet sales, SKU rationalization, tariffs. John mentions net sales down 6% due to customer pull forwards and SKU rationalization, consumables up low to mid-single digits, e-com up, durable sales down double digits, and tariffs being a wildcard. Brad adds on durables SKU rationalization and tariff exposure.

Q: Brad Thomas asks about Garden segment, weather, live goods.

A: J.D. Walker and Niko Lahanas talk about delayed season, consumption improvement, and live goods. J.D. says weather improved consumption, optimistic outlook, and live goods had SKU rationalization. Niko highlights live goods team's work and Wild Bird's record year.

Q: Jim Chartier asks about Chinese online imports, Garden shipments, POS.

A: John Hanson answers on Chinese online imports impact, Garden shipments improvement, and POS being low single digits decrease, flat when excluding lost third-party lines.

Q: Pete Lukas asks about trade down to private label.

A: Niko Lahanas and J.D. Walker discuss trade down in Wild Bird, private label business picked up at big box stores, and private label conversion rate good.

Q: Brian McNamara asks about tariffs impact on M&A, margin performance.

A: Niko Lahanas and Brad Smith talk about M&A deal flow being anemic, bid-ask spread tension, and margins structurally higher due to Cost and Simplicity program and mix optimization.

Q: Shovana Chowdhury asks about SKU rationalization, trade down in Garden.

A: Niko Lahanas says SKU rationalization program ongoing, and J.D. Walker mentions trade down to private label in Garden but no evidence of consumer pullback.