CENTRAL GARDEN & PET CO (CENT)·Q2 2025 Earnings Summary

Executive Summary

• Q2 FY2025 delivered margin-led EPS strength despite softer sales: GAAP EPS $0.98 and non-GAAP EPS $1.04, both up $0.05 YoY, while net sales fell 7% to $833.5M; gross margin expanded 180 bps to 32.8% and operating margin rose 80 bps to 11.2% .
• Against Wall Street, non-GAAP EPS beat consensus ($1.04 vs $0.93*) while revenue missed ($833.5M vs $876.4M*); Q1 also beat both EPS and revenue, and Q4 FY2024 showed an EPS beat with a revenue miss*.
• Guidance reaffirmed: FY2025 non-GAAP EPS $2.20 or better; capex refined to ~$60M (from $60–$70M in Q1) .
• Key operational catalysts: record Wild Bird performance, strong e-commerce traction (Pet e-comm 27% of sales), footprint/logistics consolidation, and UK exit to a direct-export model .
• Watch items: late spring garden season, tariff-driven cost inflation (13% of COGS subject to tariffs) and durable Pet demand softness; management flagged potential Q4 tariff “bumpiness” and increased promotions/consumer value focus .

What Went Well and What Went Wrong

What Went Well

• Margin execution: Gross margin +180 bps to 32.8% and operating margin +80 bps to 11.2% on productivity and Cost & Simplicity initiatives .
• Pet segment resilience: Non-GAAP operating income $66M (+5%), non-GAAP operating margin +150 bps to 14.5%; e-commerce reached 27% of Pet sales, aided by content/retail media and conversion .
• Wild Bird tailwind and share gains: Record sales on extended cold weather; share gains across Wild Bird, Grass Seed, Chemicals and Fertilizer; strong merchandising execution .

“Despite expected softer sales, our continued focus on improving productivity and execution of our Cost and Simplicity program drove margin and earnings per share growth above last year’s performance.” — CEO Niko Lahanas

What Went Wrong

• Top-line softness: Net sales down 7% to $833.5M on earlier pre-season shifts to Q1, late spring, and loss of two third-party distribution product lines; Garden sales down 10%, Pet down 6% .
• Cash from operations: Quarterly cash used by operations rose to $47M (vs $25M YoY), despite continued inventory reductions .
• Durables headwinds: Pet durables down double digits (~10–11%); SKU rationalization actions contributed ~half of the decline; brick-and-mortar pet specialty remains challenged .

Financial Results

Quarterly Performance (GAAP)

Segment Breakdown (Q2 FY2025)

KPIs and Balance Sheet (Q2 FY2025)

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• Strategy and execution: “Advancements in streamlining our business... setting us up for future growth. Confidence in our outlook for the year, even as we navigate a more challenging environment in the second half.” — Niko Lahanas, CEO .
• UK restructuring: “We began winding down our U.K. operations and are transitioning to a direct export model... integral to our broader strategy to streamline Central.” — Niko Lahanas .
• Margin focus: “Non-GAAP operating margin expanded by 80 bps to 11.8%... driven primarily by successful execution of our Cost and Simplicity program.” — Brad Smith, CFO .
• Garden season outlook: “Consumption has improved as the weather improved; cautiously optimistic on remainder of the garden season.” — J.D. Walker, President Garden .

Q&A Highlights

• Pet consumables vs durables: Pet durables down double digits (~10–11%) with half due to SKU rationalization; consumables up low-to-mid single digits in 1H; e-comm up low-to-mid single digits .
• Tariff exposure and mitigation: ~13% of COGS tariffable; majority in Pet; mitigations include vendor concessions, country changes, SKU redesign and some pricing; pre-tariff inventory helps 2025; Q4 may see “bumpiness” .
• Garden POS and inventory: Q2 Garden POS down low single digits; excluding lost third-party lines, POS flat; shipments improved in April/May as weather normalized .
• Private label/value trade-down: Deeper promotions; trade down observed (notably Wild Bird); private label programs at big-box retailers margin-accretive with lower SG&A burden .
• Structure/margins: Cost & Simplicity structurally lifting margins; mix shift away from lower-margin durables supports margin trajectory .

Estimates Context

• Q2 FY2025: EPS beat (1.04 vs 0.93*), revenue miss ($833.5M vs $876.4M*) aligned with timing/weather/product line losses; Q1: beat both; Q4: EPS beat, revenue miss*.
  Values retrieved from S&P Global.*

Key Takeaways for Investors

• Non-GAAP EPS beat with margin expansion despite revenue pressure; productivity and mix shifts (away from durables) are offsetting macro headwinds .
• Revenue miss reflects order timing (shift to Q1), late spring, and distribution product line losses; watch POS trends and weather normalization through Q3 .
• Tariffs are the primary near-term risk; mitigation actions underway but pricing may be difficult in value-seeking environment; anticipate potential Q4 noise .
• Pet e-commerce and Wild Bird strength provide durable growth levers; continued DTC/logistics upgrades should support margin and service levels .
• Balance sheet flexibility (cash $516.7M; gross leverage 2.9x; net ~1.7x) plus buybacks ($80M through April; $63M remaining) offer capital allocation support .
• Guidance steady at $2.20+ non-GAAP EPS; capex narrowed to ~$60M—signals cost discipline and confidence; monitor tariff outcomes for any guidance sensitivity .
• Trading view: Near term, stock could react to EPS beat vs miss on revenue; watch seasonality updates, tariff developments, and private label momentum in Garden; medium term, structural margin improvements and portfolio simplification strengthen the case for sustained EPS growth .