Central Garden & Pet Q3 2025 Earnings Report

Central Garden & Pet EPS Results

• Actual EPS: $1.56
• Consensus EPS: $1.34
• Beat/Miss: Beat by +$0.22
• One Year Ago EPS: $1.19

Central Garden & Pet Revenue Results

• Actual Revenue: $960.91 million
• Expected Revenue: $993.66 million
• Beat/Miss: Missed by -$32.75 million
• YoY Revenue Growth: -3.60%

Central Garden & Pet Announcement Details

• Quarter: Q3 2025
• Date: 8/6/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, August 6, 2025
• Conference Call Time: 4:30PM ET

Central Garden & Pet (NASDAQ:CENT) Co. engages in the production and distribution of branded and private label products for the lawn, garden, and pet supplies markets. It operates through the Pet and Garden segments. The Pet segment focuses on dog and cat supplies such as dog treats and chews, toys, pet beds and containment, grooming products, waste management and training pads, supplies for aquatics, small animals, reptiles and pet birds including toys, cages and habitats, bedding, food and supplements, products for equine and livestock, animal and household health and insect control products, live fish, and small animals, as well as outdoor cushions. The Garden segment includes lawn and garden consumables such as grass, vegetable, flower and herb seed, wild bird feed, bird houses and other birding accessories, weed, grass, and other herbicides, insecticide and pesticide products, fertilizers, and live plants. The company was founded by William E. Brown in 1980 and is headquartered in Walnut Creek, CA.

Central Garden & Pet Q3 2025 Earnings Call Transcript

Key Takeaways

• Negative Sentiment: Third quarter net sales of $961 million were down 4%, reflecting extended cool, rainy weather in Garden, the loss of two third-party distribution lines and softer demand in Pet durables.
• Positive Sentiment: Record Q3 GAAP EPS of $1.52 and non-GAAP EPS of $1.56 were achieved alongside a 280 bp expansion in gross margin, driven by strong execution across the business.
• Positive Sentiment: The cost and simplicity program delivered measurable impact, consolidating 20 outdated locations into five modern DTC-enabled hubs, selling the UK Aquatic Brands operation and opening a new distribution center in Utah.
• Positive Sentiment: The Pet segment’s portfolio is now more resilient, with consumables representing 82% of sales, stable POS trends and market share gains offsetting double-digit declines in durables.
• Neutral Sentiment: Despite tariff pressures and macroeconomic uncertainty, management reaffirmed its full-year fiscal 2025 non-GAAP EPS guidance of approximately $2.60 per share.

Presentation

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome to Central Garden and Pet's Fiscal twenty twenty five Third Quarter Earnings Call. My name is Julian Bell, and I'll be your conference operator for today. At this time, all participants are in a listen only mode. Following the prepared remarks, we will hold a question and answer session and instructions will be given at that time.

[Operator]

As a reminder, this conference call is being recorded. I will now turn the call over to Frederic Edelman, Vice President, Investor Relations. Thank you. Please proceed.

[Friederike Edelmann, VP - IR & Corporate Sustainability at Central Garden & Pet Company]

Good afternoon, everyone, and thank you for joining Central's third quarter fiscal twenty twenty five earnings call. Joining me today are Nikola Hanas, Chief Executive Officer Brad Smith, Chief Financial Officer John Hanson, President of Pet Consumer Products and JD Walker, President of Garden Consumer Products. Nico will start by sharing today's key takeaways followed by Brad, who will provide a more in-depth discussion of our results. After their prepared remarks, JD and John will join us for the Q and A session. Before we begin, I would like to remind everyone that all forward looking statements made during this call are subject to risks and uncertainties that could cause our actual results to differ materially from what those forward looking statements express or imply today.

[Friederike Edelmann, VP - IR & Corporate Sustainability at Central Garden & Pet Company]

A detailed description of Central's risk factors can be found in our annual report filed with the SEC. Please note that Central undertakes no obligation to publicly update forward looking statements to reflect new information, future events or other developments. Our press release and related materials, including GAAP reconciliation for the non GAAP measures discussed on this call are available at ir.central.com. Last but not least, unless otherwise specified, all comparisons discussed during this call are made against the same period in the prior year. If you have any questions after the call or at any time during the quarter, please don't hesitate to contact me directly. And with that, let's get started. Nico?

[Niko Lahanas, CEO at Central Garden & Pet Company]

Thank you, Frederic, and good afternoon, everyone. Let me begin by sharing three key takeaways from today's call. First, we delivered a solid third quarter, driven by strong cross functional collaboration, disciplined execution and the unwavering dedication of Team Central across all business units. We advanced our operational optimization efforts, consolidating our footprint, refining our portfolio and improving our cost structure setting the stage for long term growth. And third, we remain confident in our full year outlook even as we navigate a complex and fluid macroeconomic environment.

[Niko Lahanas, CEO at Central Garden & Pet Company]

Now let me expand on these points. First, our third quarter achievements. Our team's strong execution led to record Q3 and year to date GAAP and non GAAP earnings per share, significant margin expansion and a major improvement in workplace safety performance within the company. We achieved these results despite extended cool and rainy weather that negatively impacted the garden season, as well as top line pressure from the recent loss of two product lines in our third party garden distribution business and ongoing assortment rationalization and soft demand in pet durables. These outcomes reflect the dedication, teamwork and cross business collaboration across our more than 6,000 employees.

[Niko Lahanas, CEO at Central Garden & Pet Company]

Their collective efforts continue to drive our success and pave the way for an even stronger future. Second, progress in our cost and simplicity program. Our cost and simplicity program continues to deliver measurable impact. Highlights from the third quarter include e commerce expansion. We are excited about our progress in consolidating two outdated distribution centers into a new modern direct to consumer enabled facility in Salt Lake City, Utah, which is scheduled to start shipping next month.

[Niko Lahanas, CEO at Central Garden & Pet Company]

Footprint optimization. We recently completed the sale of our U. K. Operations Aquatic Brands to Sara Group and transitioned our U. S.

[Niko Lahanas, CEO at Central Garden & Pet Company]

Pet brands to a direct export model to serve U. K. And select European markets directly from The United States. Streamlining operations. With the consolidation of 20 outdated locations and the creation of five efficient DTC enabled hubs, we've reached a major milestone in our simplification and e commerce expansion efforts.

[Niko Lahanas, CEO at Central Garden & Pet Company]

Strengthened operations. In our live plants business, which operates within a relatively short selling season, we recently streamlined our assortment, exited unprofitable markets and restructured operations to enhance efficiency. These actions contributed to significantly improved operating results in the third quarter despite challenging weather conditions. These initiatives enhance our operational efficiency, unlock organic growth potential and support our commitments to environmental stewardship and corporate responsibility. As part of that commitment, we're proud to highlight a recent collaboration between several of our business units and teams to support animal welfare organizations assisting communities impacted by the flooding in Kerr County, Texas.

[Niko Lahanas, CEO at Central Garden & Pet Company]

Our contributions included essential pet supplies such as dog beds, training pads and treats as well as a cash donation to Greater Good Charities and the Hill Country Humane Society. Third, confidence in our outlook for the fiscal year. We posted record third quarter and year to date results, outpacing the prior year. As we look to the fourth quarter, recent tariff developments and escalated geopolitical tensions have heightened macroeconomic uncertainty and put additional pressure on consumer confidence. We continue to anticipate increased consumer value consciousness, heightened promotional activity across retail channels and ongoing pressure in the Pet Specialty brick and mortar space.

[Niko Lahanas, CEO at Central Garden & Pet Company]

Internally, we expect tariff related inflationary pressures to intensify, especially in our Pet segment. Nevertheless, we are reaffirming our fiscal twenty twenty five non GAAP EPS guidance of approximately $2.6 This outlook excludes potential impacts from acquisitions, divestitures or restructuring initiatives that may arise in Q4, including actions related to our ongoing cost and simplicity program. As Brad and I approach our one year milestone in our roles, we remain confident that our central to home strategy is not only the right one, but the foundation for long term success. We see our unique opportunity and responsibility of blending the agility of a startup with the scale of a large enterprise, empowering our teams to act locally, test quickly and scale winning ideas. At the same time, we leverage central scale to accelerate innovation and market share growth.

[Niko Lahanas, CEO at Central Garden & Pet Company]

By breaking down silos and sharing tools, data and talent across our organization, we create a powerful advantage that will compound over time. Looking ahead, we remain focused on disciplined cost and cash management while making targeted investments to drive organic growth, especially in e commerce, digital technology and innovation. While innovation is still an emerging capability for us, we're encouraged by the early momentum we're seeing from several recent launches. These include Zilla Turtle Sticks, made with black soldier fly larvae and shrimp meal, free from artificial colors and preservatives and ADAMS Botanical Spray, a plant based solution proven to kill fleas and ticks. We also introduced Aquion smart LED lights with app control and Aquion smart clean filtration system, which makes water changes faster and easier.

[Niko Lahanas, CEO at Central Garden & Pet Company]

Nylabones ocean chew toys crafted from 30% reclaimed fishing nets and our vet approved BEST Bully Sticks with collagen offer a natural alternative to rawhide for active, aging and sensitive dogs. Finally, our KT brand launched the All About the Little Things campaign, celebrating the importance of everyday care for small animals and pet birds. We continue to view M and A as a strategic lever to complement our internal innovation agenda and drive long term shareholder value. While the overall environment is showing signs of improvement, deal activity in our core categories remains muted. Nevertheless, we remain disciplined in our pursuit of margin accretive opportunities, particularly in consumables, and are cautiously optimistic that the pipeline will strengthen.

[Niko Lahanas, CEO at Central Garden & Pet Company]

We plan to accelerate our M and A efforts in 2026 as conditions continue to become more favorable. With that, I'll turn it over to Brad.

[Brad Smith, CFO at Central Garden & Pet Company]

Thank you, Nico. Expanding on Nico's key takeaways, I'll share an overview of our third quarter results, including the performance of our two segments. Now let's start with our third quarter performance. Net sales were $961,000,000 a decline of 4%. Gross profit of $332,000,000 increased 5%, while gross margin expanded by two eighty basis points to 34.6%.

[Brad Smith, CFO at Central Garden & Pet Company]

Margin improvement was driven primarily by the successful execution of our cost and simplicity program. The impact on tariffs on our third quarter results was relatively limited, thanks to adequate pre tariff inventory levels. SG and A expense of $197,000,000 was 2% below the prior year, reflecting continued cost discipline across our businesses. However, given the lower sales, SG and A as a percentage of net sales increased by 30 basis points to 24.5%. Non GAAP operating income increased 9% to $139,000,000 and non GAAP operating margin expanded by 170 basis points to 14.5%.

[Brad Smith, CFO at Central Garden & Pet Company]

Non GAAP adjustments in the Garden SG segment are related to the consolidation of two older distribution facilities in Ontario, California and Salt Lake City, Utah into a larger modern facility in Salt Lake City. As a result, we incurred a charge of $2,200,000 most of which is in SG and A. In the Pet segment, non GAAP adjustments are related to the strategic wind down of our UK operations and moving to a direct export only model, a cost and simplicity initiative we launched in the second quarter. As a result, we incurred an additional charge of $1,700,000 again most of which was in SG and A.

[John Hanson, President, Pet Consumer Products at Central Garden & Pet Company]

Below the line, net interest expense was $9,000,000 compared to $10,000,000

[Brad Smith, CFO at Central Garden & Pet Company]

in the prior year, driven by higher interest income as a result of larger cash balances. Other income was $1,100,000 compared to $225,000 a year ago. Non GAAP net income totaled $98,000,000 an increase of 11%. We delivered GAAP earnings per share of $1.52 an increase of 28%. Non GAAP EPS rose 18% to 1.56 These record third quarter results underscore the strength of our operations and the positive momentum we are maintaining across the business.

[Brad Smith, CFO at Central Garden & Pet Company]

Adjusted EBITDA was $167,000,000 an increase of $11,000,000 Our tax rate for the quarter was 25.1. Now, I'll provide highlights from our two segments starting with Pet. Net sales for the Pet segment totaled $493,000,000 down 3%. This was primarily due to our strategic decision to exit lower margin durable products and customers. We accelerated this move at the end of last fiscal year in response to softer demand, heightened pricing pressure and the onset of new tariffs this year.

[Brad Smith, CFO at Central Garden & Pet Company]

These headwinds were partially offset by growth in our Professional and Pet Distribution businesses. Consumable sales remained stable, while Durables declined by double digits. Overall Point of Sale or POS trends were in line with shipments. Importantly, consumables now represent 82% of total pet sales, up from 79% a year ago. This marks a significant increase from approximately sixty five percent four years ago, underscoring our success in building out the higher margin, more resilient consumables portfolio, while thoughtfully reducing our exposure to durables.

[Brad Smith, CFO at Central Garden & Pet Company]

We held market share overall and delivered gains in several key consumer categories such as dog chews, flea and tick and pet bird as well as in our professional portfolio. E commerce remained an important part of our channel mix accounting for 27% of total Pet sales consistent with the prior quarter albeit slightly below the same period last year. Non GAAP operating income for the segment came in at $78,000,000 down 6% compared to a record third quarter last year. Non GAAP operating margin contracted by 60 basis points to 15.8% largely due to lower volume. Lastly, Pet segment adjusted EBITDA totaled $88,000,000 reflecting a $6,000,000 decline year over year.

[Brad Smith, CFO at Central Garden & Pet Company]

Now moving to Garden. Net sales for the Garden segment were $468,000,000 representing a 4% decline. This was primarily driven by the exit of two product lines in our Garden third party distribution business following ownership changes. Additional pressure came from extended periods of cool and rainy weather, which impacted seasonal categories such as controls and live plants. These headwinds were partially offset by continued momentum in our wild bird, fertilizer and packet seed businesses each delivering strong broad based performance across channels.

[Brad Smith, CFO at Central Garden & Pet Company]

While overall shipments declined, overall POS grew in the low single digits for the quarter and consequently year to date despite the headwinds noted earlier. In aggregate, we grew share with gains in several categories including wild bird, grass seed, packet seeds and fertilizer. Our Garden and e commerce channel continued to gain momentum achieving yet another quarter of double digit growth. Results were especially strong in Wild Bird and Grass Seed with sustained category leadership and robust growth across both pure play and omni channel partners. Non GAAP operating income for Garden rose to $85,000,000 up $12,000,000 Non GAAP operating margin expanded by three ten basis points to 18.2% reflecting solid productivity gains.

[Brad Smith, CFO at Central Garden & Pet Company]

Adjusted EBITDA for the segment was $96,000,000 an improvement of $11,000,000 year over year. Let me now address the balance sheet and cash flows. Cash provided by operations was $265,000,000 for the quarter versus $286,000,000 a year ago. Our continued emphasis on working capital management resulted in an additional $67,000,000 reduction in inventory during the third quarter spanning both segments of our business. CapEx for the quarter was $14,000,000 in line with the prior year, reflecting disciplined investments primarily in productivity enhancing initiatives and essential maintenance projects.

[Brad Smith, CFO at Central Garden & Pet Company]

Depreciation and amortization of 21,000,000 was 5% below the prior year. During the quarter, we repurchased approximately 1,700,000.0 shares or $55,000,000 of our stock. As of the quarter end, dollars 46,000,000 remained authorized under the share repurchase program. Cash and cash equivalents at the end of the third quarter were $713,000,000 an increase of 143,000,000 Total debt of $1,200,000,000 was in line with the prior year. We ended the quarter with a gross leverage ratio of 2.9 times in line with the prior year and below our target range of three to 3.5 times.

[Brad Smith, CFO at Central Garden & Pet Company]

Factoring in our strong cash position, our net leverage ratio was around 1.2. We continue to have no borrowings under our $750,000,000 credit facility. Turning to our fiscal twenty twenty five outlook. As Nigo pointed out, we are reaffirming our guidance for non GAAP EPS of approximately $2.6 a share for the full fiscal year. And with that, we'd like to open the line for questions.

[Operator]

Thank you. We will now be conducting a question and answer session. And our first question comes from the line of Brad Thomas with KeyBanc Capital Markets. Please proceed with your question.

[Brad Thomas, Associate Director - Research at KeyBanc Capital Markets]

Good afternoon and thank you for taking my question. Nico, my first question for you was around the strong profitability and the momentum that you've had in the cost and simplicity program. And I was wondering how investors should think about the opportunity to keep improving margins in what's been a difficult environment should that persist? And then if we think about a recovery, where you think perhaps margins might be able to go for the company? Thank you.

[Niko Lahanas, CEO at Central Garden & Pet Company]

Sure.

[Niko Lahanas, CEO at Central Garden & Pet Company]

Well, what I would say is the company has done just an excellent job around cost and simplicity. We've been at this for some time and I think it's really been ingrained here. And everyone is on board and looking for ways to take cost out. I think there's also the simplification piece of this, which we think about every day. How do we simplify the company?

[Niko Lahanas, CEO at Central Garden & Pet Company]

The company has really grown through acquisitions. So with that comes a lot of complexity. We have like 24 BUs out there that really operate independently to a large degree. We give a lot of autonomy to our BUs. That's sort of part of our secret sauce.

[Niko Lahanas, CEO at Central Garden & Pet Company]

But with that comes complexity. So we're constantly looking to simplify the business both from logistics, from procurement in a lot of different areas. So that's ongoing. I think we've made a lot of progress. We feel great about our distribution centers.

[Niko Lahanas, CEO at Central Garden & Pet Company]

As we mentioned in the prepared remarks, we've accomplished a lot of rationalization there. So we feel great about that. I think there's other areas where we can continue to improve margins and that's around portfolio optimization, SKU rat. We're going to continue to take cost out. We still have a ways to go there.

[Niko Lahanas, CEO at Central Garden & Pet Company]

And then there's also innovation, which we touched on as well, where we can really start ramping up that innovation muscle similar to what we've done with cost and simplicity. And of course, you always want to innovate with, first of all, products, but you want them to be margin accretive. So we feel like we can influence margin in a lot of different ways. Lastly, you're going to be disappointed with the answer, but we don't give a target. We keep it open ended on margin and we just come at it from a continuous improvement mindset. Nico, one

[J.D. Walker, President, Garden Consumer Products at Central Garden & Pet Company]

thing I'd add to that. You said that we've made great progress on cost and simplicity and we have. We still have a lot of runway still in front There's still a lot of opportunity for further consolidation simplification, which should lead to margin enhancement.

[Niko Lahanas, CEO at Central Garden & Pet Company]

Yes. And the work is really never done here because we do intend to acquire more businesses and those will have to be integrated. And we're really building that muscle as well. So we go into acquisitions knowing exactly where they're going to fit. And in many cases, it's into one of our platforms.

[Niko Lahanas, CEO at Central Garden & Pet Company]

I think a great example is the TD BBS acquisition we did over a year ago. That fits squarely into our dog and cat platform and that's an extremely well run business that will up the game of that company in a very big way and we're excited to see that down the road.

[Brad Thomas, Associate Director - Research at KeyBanc Capital Markets]

That's really helpful. Knowing that you're probably not going to give us too many numbers behind all this, just to ask maybe a more near term question on margins and thinking about the tariff implications. Brad, I think you mentioned this quarter benefit from having inventory that had not been exposed to tariffs. Wondering if you could just share with us a little bit more about how to think about the timing of incremental inventory flowing through, what the implications for margins might be and how much you've needed to push through in price to customers? Thanks.

[Brad Smith, CFO at Central Garden & Pet Company]

Yes. So we're expecting most of the hit to really start to surface in Q4. We are working on pricing actions right now. It's obviously a very challenging market. And so we would expect some bumpiness along the way in terms of taking pricing.

[Brad Smith, CFO at Central Garden & Pet Company]

But we are looking at doing that where we can't fully mitigate cost increases through other measures. We're not going to give a number on pricing impact. What I can tell you is that the expectation is first of all a couple of things. First of all, we are already though most of the benefit that we're going to accrue from all the work that we're doing to change sourcing destinations, SKU rat and whatnot are really going to bear fruit next year. We're already starting to see benefits through, for example, our China distribution our China sourcing where we've actually reduced purchases by almost 50% in Q3 year over year, which is significant for us.

[Brad Smith, CFO at Central Garden & Pet Company]

That was our largest country in terms of tariffable imports. So we've already done quite a bit to take exposure out of China through sourcing elsewhere through SKU rat and whatnot. We're going to and we'll continue to see benefits through our broader initiatives that will really bear fruit mostly next year. Our expectation is that leading through pre tariff inventory and considering that most of the pricing benefits won't kick in until next year, we're probably going to end up running around roughly $10,000,000 this year in terms of total tariff impact with the bulk of that hitting in Q4.

[Brad Thomas, Associate Director - Research at KeyBanc Capital Markets]

Very helpful. Thank you.

[Operator]

Thank you. And our next question comes from the line of Bill Chappell with Truist Securities. Please proceed with your question.

[Davis Holcombe, Analyst at Truist Securities]

Hey, good afternoon. This is David Holcomb on for Bill Chappell. Just wondering if you could maybe share a little bit on Pet trends, both for like the category and for your business and if they're as we head into the end of the year and if things are kind of unfolding as you all had been expecting?

[John Hanson, President, Pet Consumer Products at Central Garden & Pet Company]

Yes. I can take that. This is John. We certainly have a challenged consumer out there and we have a challenged customer base with Pet Specialty relative to traffic. Now the good news is we're seeing Pet ownership stabilizing and our live animal business, which we've got a live animal business and that is stabilizing as well.

[John Hanson, President, Pet Consumer Products at Central Garden & Pet Company]

That said, our consumable business at Central, we were lapping a record top and bottom line Q3 year ago. Our consumable business is flat and our durable business really is declining. Brad mentioned double digits. There's two pieces of that. One is category softness.

[John Hanson, President, Pet Consumer Products at Central Garden & Pet Company]

So we're still seeing durables kind of in that mid to high single digit declines. And the second piece of that is our assortment rationalization. And we've been proactive about that. It's low margin SKUs, but as tariffs kind of come into play here, it's something we have to continue to look at. And we're going to have a little bit of time within Central to lap that.

[John Hanson, President, Pet Consumer Products at Central Garden & Pet Company]

Brad mentioned we started at Q4, but it's been an ongoing process through this year. But we're also 82% consumable now and 18% durable and we feel really good about that mix.

[Niko Lahanas, CEO at Central Garden & Pet Company]

Yes. And our consumables also tend to be higher margin. So that's had an effect on our margins as well as that durable piece shrinks. It's actually accretive to our business, which in a weird way is good. So there is that.

[Davis Holcombe, Analyst at Truist Securities]

Thanks. Appreciate the color there. And could you maybe like elaborate a little bit on if there were any particular categories for Garden that drove EPS upside?

[J.D. Walker, President, Garden Consumer Products at Central Garden & Pet Company]

Yes. This is JD, David. I would say that the categories that have driven our business overall this year in what was a challenging year from a weather standpoint, yet we had certain categories, certain business units that delivered extremely well. And I'd say that wild bird food has been a driver this year for us. Our fertilizer business, which is primarily private label contracts that we picked up this year as well as grass seed, very strong consumption for the grass seed category and our packet seed business.

[J.D. Walker, President, Garden Consumer Products at Central Garden & Pet Company]

Those categories would be the strongest producers for us this year.

[Niko Lahanas, CEO at Central Garden & Pet Company]

I would pile on to what J. D. Said. We talked about the live goods business, which was really challenged a year ago. And in the prepared remarks, we talked about the change there.

[Niko Lahanas, CEO at Central Garden & Pet Company]

And the team there has just done an incredible job of improving the operational efficiency there, taking cost out, SKU rat, all the right things they could be doing. The business is still not where we want it to be, but just a huge improvement year over year there. And the weather was actually probably worse this year for LiveGoods during that sort of contracted season that they have. It's really three months and even maybe even less than that. So big shout out to them, did a really fantastic job there of improving that business.

[Davis Holcombe, Analyst at Truist Securities]

Excellent. Thanks for the color. I'll go ahead and pass it on.

[Operator]

Thank you. And our next question comes from the line of Jim Cherrier with Monness, Crespi and Hardt. Please proceed with your question.

[Jim Chartier, Director - Research at Monness, Crespi, Hardt & Co., Inc]

Hi, thanks for taking my question. Could you quantify the impact of the exited product lines on third quarter and year to date sales for both Pet and Garden?

[Niko Lahanas, CEO at Central Garden & Pet Company]

I don't think we've got those numbers I in front of

[John Hanson, President, Pet Consumer Products at Central Garden & Pet Company]

don't think we do. We could

[Niko Lahanas, CEO at Central Garden & Pet Company]

probably follow-up with you on that.

[John Hanson, President, Pet Consumer Products at Central Garden & Pet Company]

That's right.

[Niko Lahanas, CEO at Central Garden & Pet Company]

I mean with I

[John Hanson, President, Pet Consumer Products at Central Garden & Pet Company]

would say on the Pet side, it was significant, right? So the assortment rationalization we did on Pet, we said that was a big driver and the categories are soft and durables. The assortment rationalization was a bigger impact than the category decline.

[Brad Smith, CFO at Central Garden & Pet Company]

I mean on the Pet side, I mean durables was substantially all of the

[John Hanson, President, Pet Consumer Products at Central Garden & Pet Company]

All of the decline. Yes.

[Brad Smith, CFO at Central Garden & Pet Company]

For the quarter. Simple math that would be as good a number as any.

[Niko Lahanas, CEO at Central Garden & Pet Company]

That's fair. A lot of that was in Aquatics. Yes.

[J.D. Walker, President, Garden Consumer Products at Central Garden & Pet Company]

And it's hard to quantify on the Garden side as well. And live goods, Nico was just talking about the team there has done a nice job. We exited some unprofitable markets, some unprofitable SKUs, but again can't quantify it at this point in time. And then the Pottery business, which we signaled that exit over a year ago. By the end of this year, we'll be working through the residual inventory there and we'll be out of that category altogether.

[Niko Lahanas, CEO at Central Garden & Pet Company]

And then the vendor partner.

[Brad Smith, CFO at Central Garden & Pet Company]

Yes, exactly. Right. Those two were Yes.

[Niko Lahanas, CEO at Central Garden & Pet Company]

I mean, everyone's summing up here though is what I would say is we're not losing high margin businesses here. These are very intentional moves. The vendor partner piece was not within our control. But again, that's a distribution business that tends to be lower margin. The tanks and aquatics is a little bit lower margin.

[Niko Lahanas, CEO at Central Garden & Pet Company]

And then pottery is also a high energy, what I would say high energy low margin business. So we're not shedding a ton of tears on those types of losses in terms of volume.

[J.D. Walker, President, Garden Consumer Products at Central Garden & Pet Company]

I think you can see that in the P and L, right?

[J.D. Walker, President, Garden Consumer Products at Central Garden & Pet Company]

Yes. Line pressure, but gross margin has improved nicely and it's flowing through to operating margin.

[Brad Smith, CFO at Central Garden & Pet Company]

And when you get into Q4, we'll be that will be the first quarter where Interpet, the business that we sold is out of the mix. And so there will be no revenues flowing in related to that business. So that is going to be a meaningful impact for Q4, but only from a top line perspective.

[Jim Chartier, Director - Research at Monness, Crespi, Hardt & Co., Inc]

Okay. I'm just trying to understand is the underlying trend for sales closer to flat for the company, if you exclude kind of the intentional exits?

[Niko Lahanas, CEO at Central Garden & Pet Company]

I don't know if it's flat. We'd have to get back to you on that.

[Jim Chartier, Director - Research at Monness, Crespi, Hardt & Co., Inc]

Okay. And then on the new e commerce facility, does that add any revenue enhancing capabilities to you?

[Niko Lahanas, CEO at Central Garden & Pet Company]

I don't know if it's incremental in any way. It gives us a greater amount of flexibility, improves our service levels, does a lot for us, simplifies our logistics footprint. It's very similar to what we did in Covington, Georgia, where we folded a bunch of facilities into a more modern type facility. So I think the way we think about it is it's really more of a cost out initiative as opposed to incrementality. But a lot of times when you become more efficient and fill rates go up, it could lead to a little bit of a lift in sales.

[J.D. Walker, President, Garden Consumer Products at Central Garden & Pet Company]

I think from a service standpoint, we'll be covering over 95% of the country in less than two days. From that standpoint, I think it will be a benefit.

[Niko Lahanas, CEO at Central Garden & Pet Company]

Yes.

[Jim Chartier, Director - Research at Monness, Crespi, Hardt & Co., Inc]

Great. Thank you.

[Operator]

Thank you. And our next question comes from the line of Bob Labick with CJS Securities. Please proceed with your question.

[Bob Labick, President at CJS Securities]

Good afternoon. Thanks for taking our questions. On the Garden side, I believe you won some private label business to your I was just hoping you could give us a sense of how much of an impact from that win was this year? Should that carry over and drive incremental sales next year? Or is it like fully into this year?

[Bob Labick, President at CJS Securities]

And likewise on the third the product lines that you exited from sales, is that all like out this year and no hangover next year? Or is there still some loss next year in Garden from that change?

[J.D. Walker, President, Garden Consumer Products at Central Garden & Pet Company]

Bob, it's J. D. I'll speak to that. So first of all, the private label gains that we picked up at two major retailers, We saw some of the benefit this year and we'll see benefit next year as well. They had to work through existing inventories of the previous supplier.

[J.D. Walker, President, Garden Consumer Products at Central Garden & Pet Company]

So we saw some of the benefit and then there'll be carryover. And then we picked up some additional stores with one of those two retailers for next year as well. So we'll see that benefit. And then the second part of the question was? The vendor partner losses.

[J.D. Walker, President, Garden Consumer Products at Central Garden & Pet Company]

The vendor partner losses. Will we see that next year? Most of that will be we'll stop shipping those products this year, but we'll have a comp, a difficult comp carrying into next year,

[Operator]

Yes.

[Brad Smith, CFO at Central Garden & Pet Company]

We start to lap that loss of its two product lines this quarter Q4. Yes.

[Operator]

Okay.

[Niko Lahanas, CEO at Central Garden & Pet Company]

And by the way, the reason we were awarded more stores is because of great execution.

[J.D. Walker, President, Garden Consumer Products at Central Garden & Pet Company]

Fantastic execution. It's a beautiful business. We were glad to pick that up. And it's our in store execution, the team there is doing a phenomenal job and gaining market share in this category. And the retailer recognized that and awarded us additional business.

[Bob Labick, President at CJS Securities]

That's great. Well, on that. Thank you. And you spoke to this a little bit, but I guess again, thinking about next year in general, how much longer do you expect to see kind of a top line, I guess, self imposed headwind from the SKU rationalization? Is that a full year next year as well? Or when will you lap that?

[Niko Lahanas, CEO at Central Garden & Pet Company]

We don't know yet. We still need to put the plans together for next year and really get our arms around what that top line looks like. We also have to take into account what the estimate is on innovation and other things that we're doing. We have to look at all the puts and takes around businesses that we won, that we lost, innovation, SKU rat. So we just don't have clarity on that just yet as we're in the middle of putting our plans together.

[Niko Lahanas, CEO at Central Garden & Pet Company]

We'll certainly give everybody more guidance on that come November when we do that year end call. We'll have more color.

[J.D. Walker, President, Garden Consumer Products at Central Garden & Pet Company]

And that's not unusual. Typically, line review process, we don't know until late August, sometime September what line review listings will look like for the following year. Yes.

[Bob Labick, President at CJS Securities]

Okay. Great. Last one for me is, given the I guess current iteration of the de minimis tariff hold or exemption or whatever you want to call it trying now putting the tariffs back on all goods coming in, Might that help you in any way on the Pet side? Or are you seeing anything from that? Or is it now that durables is such a small part of the portfolio, it's not really

[John Hanson, President, Pet Consumer Products at Central Garden & Pet Company]

Yes. Factor that you're We are watching it. Frankly, it's really hard to get good data on it, but we aren't seeing any meaningful impact at this point related to it.

[John Hanson, President, Pet Consumer Products at Central Garden & Pet Company]

No, we're not. I think there's potentially that it could be a tailwind. I think the latest article I read in the Wall Street Journal was the August that it was going to be broad based. So we're going to stay super close to it, but it could be we could have a tailwind from it. Yes.

[Bob Labick, President at CJS Securities]

Super. All right. Thanks very much.

[Operator]

Thank you. And our next question comes from the line of Brian McNamara with Canaccord Genuity. Please proceed with your question.

[Madison Callinan, Equity Research Associate at Canaccord Genuity - Global Capital Markets]

Hi, this is Madison Callanan on for Brian. Thanks for taking our questions. What will it take for Garden to return to a consistent modest growth? Understanding weather is a factor with industry participants saying that the consumer is engaged. Can you give a little more color on why it isn't showing up in results? Thanks.

[J.D. Walker, President, Garden Consumer Products at Central Garden & Pet Company]

Hey, Madison, this is J. D. Weather is a factor as you said. It's the largest factor that usually impacts the Garden business. So we need some favorable weather particularly in season.

[J.D. Walker, President, Garden Consumer Products at Central Garden & Pet Company]

And when I say in season in our Q late Q2 and Q3 next year, that would be beneficial. The last couple of years, weather hasn't exactly cooperated. We play in lawn and garden consumables. It's a good space to be in. I think there's still great consumer engagement here and our retailers are very engaged.

[J.D. Walker, President, Garden Consumer Products at Central Garden & Pet Company]

And I think that some of the metrics on the garden P and L look very favorable. Our gross margins look great. Our operating margins look great. We're getting top line pressure this year mainly from what we've talked about a few times today and that is the two vendor partner or distributed products that were acquired by another company and they ended up going direct with the retailers. So we lost that top line.

[J.D. Walker, President, Garden Consumer Products at Central Garden & Pet Company]

Having said that, we've seen nice growth across our branded business, our private label business. It hasn't been able to make up for the full top line, the revenue loss, but you can see that flowing down through our P and L, which has been actually quite strong in a difficult environment. So we still feel very optimistic about this. We'll work through the losses of these vendor partner businesses. And I am encouraged by the fact that our manufactured products, our branded business is growing nicely.

[J.D. Walker, President, Garden Consumer Products at Central Garden & Pet Company]

So still a good business from our perspective and one that has better days ahead. Well, I would say too that JD is being modest, but on our Garden side of our business, the relationships with the larger customers have never been better. So those teams are just doing a great job. And I think you see that with us picking up private label business. So there's some growth there. The other part too is when we look

[Niko Lahanas, CEO at Central Garden & Pet Company]

at the data and we actually have good days in the Northeast and other areas, you see really tremendous POS. So that speaks to a very engaged consumer. The weather this year in our key markets has been was incredibly rainy in the spring, probably more rain than even last year. So it could look to some like, oh boy, it's a horrible category. But there's a lot of good momentum here within our business and also with the customers and the consumers. So actually feel quite good about our Garden business.

[J.D. Walker, President, Garden Consumer Products at Central Garden & Pet Company]

We do. And there's a lot of talk about an uncertain economic environment, right? And this category garden lawn and garden has performed very well in prior economic downturns. And that's because we play again in consumables. It's a relatively small cash outlay.

[J.D. Walker, President, Garden Consumer Products at Central Garden & Pet Company]

So consumers, they may forego large capital projects, but they're going to do maintenance projects around their house. And oftentimes that includes beautifying the yard. So still a good space to be in.

[Brad Smith, CFO at Central Garden & Pet Company]

And this quarter has started off good from a ship perspective and POS perspective. Has.

[J.D. Walker, President, Garden Consumer Products at Central Garden & Pet Company]

Our retailers have remained engaged. They haven't given up on the season by any means. So we think there's still runway in this year as well.

[Madison Callinan, Equity Research Associate at Canaccord Genuity - Global Capital Markets]

Great. Thank you so much. And just like we were listening, when you've repurchased over $150,000,000 in stock over the last three quarters, can you add anything about your view like that the shares are undervalued relative to M and A opportunities or lack thereof? Anything around that? Thank you.

[Niko Lahanas, CEO at Central Garden & Pet Company]

We always think our shares are undervalued. But in particular, during those first three quarters, we felt like our shares were the best value out there. And we do want to be mindful and thoughtful around our shareholders and returning money to those shareholders. And at that point in time, the lack of M and A activity that we were seeing or the lack of quality M and A activity, should say, we felt our stock was probably the best value out there. So we went pretty aggressively to buy back.

[Madison Callinan, Equity Research Associate at Canaccord Genuity - Global Capital Markets]

Great. Thank you.

[Operator]

Thank you. And our next question comes from the line of William Reuter with Bank of America. Please proceed with your question.

[William Reuter, Managing Director at Bank of America]

Good afternoon. Just a couple. The first, you mentioned that the aggregate amount of tariffs, in the fourth quarter would be $10,000,000 That's on the full year. Okay. I think that you mentioned there really wasn't much in the second quarter and you don't expect much in the third quarter. Is I guess is that right?

[Brad Smith, CFO at Central Garden & Pet Company]

Yes. I mean roughly it was kind of say $3,000,000 in Q3 and the balance would be Q4.

[William Reuter, Managing Director at Bank of America]

Got it. I guess if we think about what the run rate implies for next year, I guess if the fourth quarter was $7,000,000 and most of this is pet, does that kind of imply that we'd be at a run rate of maybe something like $30,000,000 for next year on a non on an unmitigated basis?

[Brad Smith, CFO at Central Garden & Pet Company]

Not really. I think I mean honestly, I think we need to come back to you after year end and talk about it in a bit more detail because the situation is very fluid and these rates could change by the time we finish this call.

[John Hanson, President, Pet Consumer Products at Central Garden & Pet Company]

And we're doing

[Brad Smith, CFO at Central Garden & Pet Company]

all right. I mean, we're doing a lot of work on the supply side, working with our customers and we are certainly not going to sit on our hands. So I wouldn't we try

[John Hanson, President, Pet Consumer Products at Central Garden & Pet Company]

can to mitigate tariffs, vendor concessions, moving country of origin, SKU rationalization that we talked about. And it's like we were going to have to work with our customers and partner with our customers on limited pricing.

[Niko Lahanas, CEO at Central Garden & Pet Company]

And suppliers So and everything you what kind of similar to when we gave the answer on top line, we've got a lot of work to do as far as our 2026 plan. And we're in the process of doing that and we'll be back to everybody with more guide for that year, including commentary around tariffs and pricing and all that stuff.

[William Reuter, Managing Director at Bank of America]

Got it. And then multiple times you've mentioned private label and how your strong relationships with some of your customers have allowed you to pick up share. Are they changing the percentage of their floor space allocation to private label versus branded? Or I mean are you I guess are you just I don't know are you picking up private label that was being produced by competition? How should we think about that?

[J.D. Walker, President, Garden Consumer Products at Central Garden & Pet Company]

It's a combination of both. We are picking up private label that's produced by competition. At the same time, I mentioned our field team, our retail merchandising team and they execute with excellence in the stores more off shelf activity for the product. So it's a combination of us picking up the product from that was previously manufactured by others and then better execution in store.

[William Reuter, Managing Director at Bank of America]

Got it. And then my last question. Do you have a kind of long term growth rate expectation for pet consumables? There are numbers that a lot of different participants in this category throw out there for their expectations. And I was wondering if there was something which you guys had kind of tried to center your planning around?

[John Hanson, President, Pet Consumer Products at Central Garden & Pet Company]

Well, the good news that I mentioned about the category is we're seeing pet ownership stabilize and we're actually seeing our live animal business stabilizing as well. Long term, we believe this category can grow low to mid single digits. And it has historically and there's no reason to think it won't in the future.

[William Reuter, Managing Director at Bank of America]

Got it. All right. That's very helpful. Thanks. That's all for me. Thank you.

[Friederike Edelmann, VP - IR & Corporate Sustainability at Central Garden & Pet Company]

This was our last question. Thanks everyone for joining our call today. The IR team is available for any questions that may arise after this call. Thank you.

[Operator]

Thank you. And with that, this does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.

Participants

Executives

• Friederike Edelmann, VP - IR & Corporate Sustainability
• Niko Lahanas, CEO
• Brad Smith, CFO
• John Hanson, President, Pet Consumer Products
• J.D. Walker, President, Garden Consumer Products

Analysts

• Brad Thomas, Associate Director - Research at KeyBanc Capital Markets
• Davis Holcombe, Analyst at Truist Securities
• Jim Chartier, Director - Research at Monness, Crespi, Hardt & Co., Inc
• Bob Labick, President at CJS Securities
• Madison Callinan, Equity Research Associate at Canaccord Genuity - Global Capital Markets
• William Reuter, Managing Director at Bank of America