Central Garden & Pet ((CENT)) has held its Q3 earnings call. Read on for the main highlights of the call.
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Central Garden & Pet’s recent earnings call reflected a balanced sentiment, highlighting both achievements and challenges. The company celebrated record earnings and strategic advancements in its Pet segment, while also acknowledging hurdles such as declining net sales and adverse weather impacts on its Garden segment. Despite these obstacles, Central Garden & Pet remains optimistic about its strategic direction and future growth prospects.
Record Third Quarter Earnings
Central Garden & Pet reported record third-quarter and year-to-date earnings per share, both on a GAAP and non-GAAP basis. The company achieved significant margin expansion and improved workplace safety performance, all while navigating challenging weather conditions.
Cost and Simplicity Program Success
The company’s Cost and Simplicity program has yielded tangible results, including the expansion of e-commerce, consolidation of outdated distribution centers into a modern facility, and enhanced efficiency in the Live Plants business.
Strong Cash Flow and Share Repurchase
Central Garden & Pet generated $265 million in cash from operations during the quarter. The company also repurchased approximately 1.7 million shares, valued at $55 million, with $46 million remaining authorized under the share repurchase program.
Pet Segment Strategy Shift
The Pet segment has undergone a strategic shift, with consumables now accounting for 82% of total Pet sales, up from 79% the previous year. This move towards higher-margin products marks a significant strategic adjustment.
Garden Segment Margin Expansion
The Garden segment’s non-GAAP operating margin expanded by 310 basis points to 18.2%, reflecting solid productivity gains despite external challenges.
Decline in Net Sales
Net sales for the quarter were $961 million, a 4% decline year-over-year. This drop was attributed to extended cool and rainy weather, loss of product lines, and soft demand in pet durables.
Impact of Tariffs
Tariffs are expected to have a significant impact on the fourth quarter, with an overall tariff impact estimated at $10 million for fiscal 2025, particularly affecting the Pet segment.
Challenges in Live Goods and Garden
The Live Plants business faced challenging weather conditions, and the exit of certain product lines in the Garden distribution business further impacted sales.
E-commerce Sales Pressure
E-commerce sales accounted for 27% of Pet sales, slightly below the same period last year, indicating challenges in maintaining e-commerce growth.
Forward-Looking Guidance
Central Garden & Pet reaffirmed its non-GAAP EPS guidance for the fiscal year at approximately $2.60. Despite a 4% decline in net sales, the company reported a 5% increase in gross profit and a 280 basis point expansion in gross margin. The company remains focused on navigating macroeconomic uncertainties, including tariff-related inflationary pressures, and is committed to disciplined cost management and targeted investments to drive organic growth, particularly in e-commerce and innovation.
In summary, Central Garden & Pet’s earnings call presented a mixed picture of achievements and challenges. While the company celebrated record earnings and strategic shifts in its Pet segment, it also faced declining net sales and external pressures such as tariffs and adverse weather. Nonetheless, the company remains optimistic about its strategic initiatives and future growth potential.