Central Garden & Pet Company Q2 FY2025 earnings call

• Second Quarter Achievements: Despite weather delays and product line losses, GAAP and non-GAAP EPS grew, margin improved, Wild Bird 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, on track to consolidate distribution centers in California and Utah, opened new 300,000 square foot dog and cat distribution center in New Jersey, and began winding down UK operations with a noncash charge of $5.3 million.

Pet Segment: Net sales totaled $454 million, a decrease of 6%. Non-GAAP operating income reached $66 million, up 5% and a record second quarter for the segment. Non-GAAP operating margin expanded by 150 basis points to 14.5%. E-commerce sales represented 27% of pet sales. Garden Segment: Net sales totaled $380 million, a 10% decrease. The Wild Bird business had record sales across channels. GAAP operating income for Garden was $59 million, up $2 million. GAAP operating margin was 15.5%, an increase of 190 basis points. Garden e-commerce sales delivered double-digit growth.

• Reaffirmed fiscal 2025 non-GAAP EPS of $2.20 or higher. Anticipate inflationary pressures in the second half due to tariffs and geopolitical tensions, but remain cautiously optimistic about the garden season. Expected CapEx for fiscal 2025 is approximately $60 million.

• Macroeconomic uncertainty and geopolitical tensions leading to consumer caution and promotional retail environments.
• Tariff impacts on import costs, particularly affecting durables in the Pet segment.
• Weather variability continuing to impact garden sales performance.

Q: Talk about pet trends, durables vs. consumables, and outlook moving through summer A: John Hanson mentioned pet net sales down 6% due to customer pull forwards and SKU rationalization. Consumables up mid-single digits, e-com up similarly. Durables down double digits, but live animal business showing positive trends. Tariffs remain a wildcard.

Q: Comment on Garden segment, weather impact, inventory levels, and live goods A: J.D. Walker said delayed season but improved consumption as weather improved. Retailers promotional, live goods affected by weather but team rationalized SKUs. POS for Garden was low single digits decrease, flat when excluding lost third-party lines.

Q: Chinese online imports impact on Pet business, price increases, and Garden shipments A: John Hanson noted Chinese online imports hurt Pet business, but hard to track price increases yet. J.D. Walker said Garden shipments improved in April and May, with season still ahead.

Q: Impact of tariffs on M&A environment and margin performance A: Niko Lahanas said M&A activity is low, bid-ask spreads disconnected. Brad Smith added they continue to look for deals. Margin performance strong on weaker sales due to Cost and Simplicity program, mix improvement, and SKU rationalization.

Q: SKU rationalization progress, gross margin expansion outlook, and trade down/ private label in Garden A: Niko Lahanas said Cost and Simplicity program has many years left, ongoing integration and optimization. J.D. Walker mentioned picking up private label business at big box stores, trade down seen in Wild Bird but hard to call for private label broadly.