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CG

CENTRAL GARDEN & PET CO (CENT)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 FY2025 delivered revenue of $656.4M (+3% y/y) and diluted EPS of $0.21, with gross margin up 160 bps to 29.8% and operating margin up 300 bps to 4.3%, driven by productivity gains, easing inflation, and favorable timing of shipments and promotions .
  • Pet segment outperformed with net sales +4% to $427M and operating margin expanding to 12.0%; Garden returned to profitability with $2M operating income and operating margin improving to 1.1% on moderating inflation and portfolio simplification (pottery exit) .
  • FY2025 outlook maintained: non-GAAP EPS of $2.20 or better; CapEx guided to $60–$70M; management flagged tariff exposure in assumptions and indicated a softer Q2 vs prior year due to shipment timing and product mix .
  • Balance sheet remains strong: cash $618M, gross leverage 2.9x, and $52M of buybacks (1.68M shares) completed in Q1; $131M remains under repurchase programs .
  • Potential stock narrative catalysts: margin expansion momentum and e-commerce execution (Pet e-comm at 28% of sales, +6% y/y), tempered by ongoing pet durables softness and Q2 cadence commentary .

What Went Well and What Went Wrong

What Went Well

  • Gross margin expanded 160 bps to 29.8% on productivity and moderating inflation; SG&A $168M declined y/y and SG&A as % of sales fell 140 bps to 25.5% .
  • Pet segment delivered 12.0% operating margin (up 140 bps) with adjusted EBITDA rising to $61M; e-commerce now 28% of Pet sales (+6% y/y) offsetting brick-and-mortar declines .
  • Garden segment posted $2M operating income vs a ($9M) loss last year, aided by weather, productivity, and exiting low-margin pottery; adjusted EBITDA improved to $14M from $2M .
  • CEO: “The fiscal year is off to a strong start, driven by increased first quarter shipments, productivity gains and easing inflation...” .
  • Cost and Simplicity program executing: new Covington, GA DC replaced 7 facilities; footprint rationalization increasing efficiency .

What Went Wrong

  • Durable pet products remain challenged despite sequential improvement; category weakness tied to soft new pet acquisition and direct-import price competition (de minimis issue) .
  • Q1 strength partly reflects shipment timing; management expects a softer Q2 vs last year (top line potentially down low single digits) as shipments normalize and product mix impacts margin cadence .
  • Other expense moved to expense (vs income last year), and pricing is expected to be net negative for FY2025 (~$14M headwind previously guided), requiring offset via cost savings and mix .

Financial Results

Consolidated Quarterly Comparison

MetricQ3 2024Q4 2024Q1 2025
Revenue ($USD Millions)$996.3 $669.5 $656.4
Diluted EPS ($)$1.19 ($0.51) $0.21
Gross Margin (%)31.8% 25.2% 29.8%
Operating Margin (%)11.6% (4.8)% 4.3%
Adjusted EBITDA ($USD Millions)$156.0 $17.0 $55.4
SG&A ($USD Millions)$201.1 $201.4 $167.7
SG&A as % of Sales20.2% 30.1% 25.5%
Net Income ($USD Millions)$79.7 ($34.2) $14.0

Segment Breakdown (Year-over-Year, Q1)

SegmentQ1 2024 Net Sales ($M)Q1 2025 Net Sales ($M)Q1 2024 Op Inc ($M)Q1 2025 Op Inc ($M)Q1 2024 Op Margin (%)Q1 2025 Op Margin (%)Q1 2024 Adj EBITDA ($M)Q1 2025 Adj EBITDA ($M)
Pet$409 $427 $43 $51 10.6% 12.0% $54 $61
Garden$225 $229 ($9) $2 (3.9)% 1.1% $2 $14

KPIs and Balance Sheet

KPIQ1 2025Prior Year / Prior Quarter
Effective Tax Rate (%)23.5% 23.2% FY2024
Pet e-commerce share (%)28% n/a
Pet e-commerce growth (y/y, %)6% n/a
Garden e-commerce growthDouble-digit n/a
Cash and Equivalents ($M)$618.0 $341.4 a year ago
Cash from Operations ($M)($68.8) ($69.8) a year ago
Total Debt ($B)$1.2 $1.2 a year ago
Gross Leverage (x)2.9x 3.0x prior year
Share Repurchases1.68M shares; $52M Authorization remaining $131M
CapEx (Quarter, $M)$6.1 $10.1 a year ago

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Non-GAAP EPSFY2025≥ $2.20 ≥ $2.20 Maintained
CapExFY2025$60–$70M $60–$70M Maintained
Q2 cadence (directional)Q2 FY2025n/aSofter vs prior year; top line could be down low-single digits; EPS likely below Q2 FY2024, mix-dependent New directional commentary
Tariff assumptionsFY2025Not explicit in Nov guidanceOutlook reflects proposed tariffs (e.g., potential 10% CN, 25% CA/MX exposures); mitigation strategies embedded Incorporated into outlook

Earnings Call Themes & Trends

TopicQ3 2024 (Aug 2024)Q4 2024 (Nov 2024)Q1 2025 (Feb 2025)Trend
Cost & Simplicity executionMargin gains; pottery exit initiated Non-GAAP charges tied to facility closures/impairments; continued margin focus DC consolidation (Covington), footprint rationalization; efficiency gains Sustained progress; margin accretive
Pet durablesOngoing category weakness Intangible impairment in durables Sequential decline improvement; still y/y down; de minimis closure may help Stabilizing, but not yet growing
Live goods & weatherGarden sell-through pressure Difficult garden season; grass seed write-down Early season shipments; cautious on Q2; improved operating cadence; weather critical Cautious optimism into peak season
E-commerceExecution improving n/aPet e-comm 28% of sales, +6% y/y; Garden e-comm double-digit growth Strengthening channel mix
Tariffs & policyn/an/aTariffs embedded in guidance; sourcing exposure ~14–15% of costs abroad; de minimis addressed Managed risk; mitigation underway
M&A & capital allocationn/aRecord cash flow, buybacks post-FY end Active pipeline forming; buybacks opportunistic; invest in CapEx/brand Optionality with strong balance sheet

Management Commentary

  • “We delivered a solid performance… margins improved due to disciplined cost management and easing inflationary pressures… robust continued growth in e-commerce” — CEO Niko Lahanas .
  • “Our new distribution center in Covington, Georgia… replaced 7 legacy facilities… significantly reducing our distribution footprint while increasing efficiency” .
  • “Given our first quarter performance benefited from favorable timing… we expect a softer second quarter compared to last year… remain confident in achieving non-GAAP EPS of $2.20 or better” — CFO Brad Smith .
  • “We sized up the potential impact of the 10% tariff on China and 25% on Canada and Mexico… able to absorb those and stay within our guide” .
  • “Durables… sequentially the declines are improving… de minimis closure should level the playing field” .

Q&A Highlights

  • Shipment timing vs pull-forward: Management emphasized earlier promotional and seasonal shipments in both Pet (cushions) and Garden; normalization expected in Q2 .
  • Tariffs/de minimis: Sourcing exposure ~4% China, ~2% Canada/Mexico, ~8% other; management embedding assumed tariffs and not relying on price increases; focus on supplier negotiations and cost programs .
  • Garden season setup: Large early store-set shipments; retailers highly engaged; weather remains the dominant variable for Q2/Q3 performance .
  • Capital allocation: Priority order is M&A, internal investment (CapEx/brand), then buybacks depending on valuation; $131M remains authorized .
  • Pet specialty channel: Near-term challenged due to soft new pet acquisition; e-comm execution helping offset brick-and-mortar weakness .

Estimates Context

  • S&P Global consensus estimates for Q1 FY2025 were unavailable at the time of this report due to a data access limit; therefore, explicit revenue/EPS comparisons to consensus cannot be provided (Values retrieved from S&P Global were unavailable).*
  • On the call, one analyst referenced approximately $20M upside vs their model for Q1 revenue, which management indicated would likely normalize in Q2 due to timing; this is not a substitute for S&P Global consensus .

Key Takeaways for Investors

  • Margin expansion and disciplined SG&A drove a material improvement in profitability; continued execution of Cost & Simplicity and DC consolidation should support margins through FY2025 .
  • Pet segment resilience, with e-commerce at 28% and +6% y/y sales, is offsetting brick-and-mortar softness; watch for durable recovery as de minimis changes take effect .
  • Garden’s return to profitability is encouraging, but Q2 cadence is expected softer due to timing and weather dependence; monitor POS and early-season conditions .
  • Balance sheet flexibility (cash $618M, gross leverage 2.9x) provides M&A and buyback optionality; authorization of $131M remains for repurchases .
  • Pricing headwinds (~net negative) mean FY2025 earnings must come from mix and cost savings; management is not relying on price increases in current retail environment .
  • Tariffs embedded in FY2025 guide; sourcing exposure manageable with mitigation strategies; policy changes (de minimis) could gradually aid durables .
  • Near-term trading: expect heightened focus on Q2 normalization and weather; medium-term thesis hinges on sustained margin gains, e-comm growth, and portfolio optimization .