Q3 2025 Central Garden & Pet Co Earnings Call
Following the prepared remarks, we will hold a question and answer session and instructions will be given at that time. If you require operator assistance at any point during the call. Please press star followed by zero on your Touchtone phone as a reminder, this conference call is being recorded I will now turn the call over to Frederic Edelman Vice President.
Relations. Thank you. Please proceed.
Good afternoon, everyone and thank you for joining central third quarter fiscal 2025 earnings call joining.
Joining me today are Nicola Chief Executive Officer, Brad Smith, Chief Financial Officer, John Hanson, President of Pet consumer products, and J D Walker President Garden consumer product Nico.
Nico will start by sharing today's key takeaways, followed by Brett who will provide a more in depth discussion of our results. After their prepared remarks, J D and John will join us for the Q&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 expressed or implied today.
A detailed description of central's risk factors can be found in our annual report filed with the SEC.
Please note that central on that takes 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 Dot central Dot com.
Last but not least unless otherwise specified all comparisons discussed during this call are made against the same period in the prior year.
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.
Thank you Fredrik 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.
Speaker #1: Ladies and gentlemen, thank
Speaker #1: ou for standing by.
Speaker #1: Welcome to Central Garden & Pet's
Now let me expand on these points.
Speaker #1: fiscal 2025
First our third quarter achievements.
Speaker #1: third quarter earnings
Speaker #1: call. My name is Julian
Our team's strong execution led to record Q3 and year to date, GAAP and non-GAAP earnings per share.
Speaker #1: Bell, and I'll be your
Speaker #1: conference operator for
Speaker #1: today. At this time, all
Speaker #1: participants are on a
Speaker #1: listen-only mode.
Significant margin expansion.
Speaker #1: Following the prepared
Speaker #1: remarks, we will hold a
And a major improvement in workplace safety performance within the company.
Speaker #1: question-and-answer
Speaker #1: session. An instructions will be
Speaker #1: given at that time. If
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.
Speaker #1: ou require operator assistance
Speaker #1: at any point during the
Speaker #1: call, please press star
Speaker #1: followed by zero on your
Speaker #1: touchtone
Speaker #1: phone. As a reminder, this
Speaker #1: conference call is being
Speaker #1: recorded. I will now turn the call over to Friederike Edelmann, Vice President of Best Relations. Thank you. Please proceed.
Speaker #2: Good afternoon, everyone, and thank you for joining Central's third quarter fiscal 2025 earnings call. Joining me today are Nikola Hanas, Chief Executive Officer, Brad Smith, Chief Financial
These outcomes reflect the dedication teamwork and cross business collaboration across our more than 6000 employees.
Their collective efforts continue to drive our success and pave the way for an even stronger future.
Speaker #2: Hansen, President of
Speaker #2: Products, and JD Walker,
Second progress on our cost and simplicity program.
Speaker #2: President of Garden
Speaker #2: Consumer
Speaker #2: Niko will start by sharing today's key
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.
Speaker #2: takeaways, followed
Speaker #2: by Brad, who will provide
Speaker #2: a more in-depth discussion
Speaker #2: of our
Speaker #2: results. After their prepared
Speaker #2: remarks, JD and John
Speaker #2: will join us for the
Speaker #2: Q&A
Speaker #2: session. Before we begin,
Speaker #2: everyone that all
Speaker #2: during this call
Speaker #2: are subject to risk and
Speaker #2: uncertainties that could
Shipping next month.
Speaker #2: cause our actual
Footprint optimization.
Speaker #2: results to differ
Speaker #2: materially from what those specified, all comparisons forward-looking statements
We recently completed the sale of our UK operations aquatic brands to Sarah group and.
Speaker #2: express or imply
Speaker #2: today.
Speaker #2: A detailed description of
And transitioned our U S pet brands to a direct export model to serve UK and select European markets directly from the United States.
Speaker #2: Central's risk factors can
Speaker #2: be found in our annual
Speaker #2: report filed with the
Speaker #2: SEC.
Speaker #2: undertakes no obligation to
Speaker #2: publicly update
Speaker #2: forward-looking statements to
Streamlining operations with.
Speaker #2: reflect new information
Speaker #2: future events or
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.
Speaker #2: other
Speaker #2: Our press release and related
Speaker #2: materials including
Speaker #2: GAAP reconciliation for
Speaker #2: the non-GAAP measures discussed on this call are available at ir.central.com. Last but not least, unless otherwise specified, all
Strengthened operations in our life planner business, which operates within a relatively short selling season, we recently streamlined our assortment exited unprofitable markets and restructured operations to enhance efficiency.
Speaker #2: call are made against
Speaker #2: the same period in
Speaker #2: prior
Speaker #2: year. If you have any
Speaker #2: questions after the call or at
Speaker #2: any time during the
Speaker #2: quarter, please don't
These actions contributed to significantly improved operating results in the third quarter, despite challenging weather conditions.
Speaker #2: hesitate to contact me
Speaker #2: directly. And with
Speaker #2: that, let's get
Speaker #2: started.
Speaker #2: Niko?
Speaker #1: Friederike. And good afternoon,
These initiatives enhance our operational efficiency unlock organic growth potential and support our commitment to environmental stewardship and corporate responsibility.
Speaker #1: everyone. Let me complex and
Speaker #1: begin by sharing three
Speaker #1: key takeaways from today's
Speaker #1: call.
Speaker #1: a solid third
Speaker #1: quarter. Driven by strong
Speaker #1: collaboration, discipline
As part of that commitment we're proud to highlight our recent collaboration between several of our business units and teams to support animal welfare organizations assisting communities impacted by the flooding in Kern County, Texas.
Speaker #1: execution, and the unwavering
Speaker #1: dedication of Team
Speaker #1: Central across all business
Speaker #1: units. We advanced our
Speaker #1: operational optimization
Speaker #1: efforts. Consolidating
Speaker #1: our footprint,
Speaker #1: refining our
Speaker #1: portfolio, and improving our
Speaker #1: cost structure setting the stage
Our contributions included essential pet supplies, such as dog beds training pads and treats as well as the cash donation to greater good charities and the hill country Humane Society.
Speaker #1: for long-term
Speaker #1: growth. And
Speaker #1: third, we remain confident
Speaker #1: in our full-year
Speaker #1: outlook even as we
Speaker #1: navigate a complex and
Speaker #1: fluid macroeconomic
Speaker #1: environment.
Speaker #1: points.
Third confidence in our outlook for the fiscal year.
Speaker #1: First, our third quarter
Speaker #1: achievements. Our
Speaker #1: team's strong
Speaker #1: execution led to record
We posted record third quarter and year to date results outpacing the prior year.
Speaker #1: Q3 and year-to-date
Speaker #1: GAAP and non-GAAP earnings
Speaker #1: per
As we look to the fourth quarter.
Speaker #1: Significant margin expansion,
Recent tariff developments and escalated geopolitical tensions have heightened macroeconomic uncertainty and put additional pressure on consumer confidence.
Speaker #1: and a major improvement
Speaker #1: company. We
Speaker #1: achieved these results
Speaker #1: despite extended cool
Speaker #1: and rainy weather
Speaker #1: that negatively impacted the
Speaker #1: Garden
We continue to anticipate increased consumer value consciousness.
Speaker #1: season. As well as top-line
Speaker #1: pressure from the recent
Speaker #1: loss of two product
Speaker #1: lines in our third-party
Eitan promotional activity across retail channels and ongoing pressure in the pet specialty brick and mortar space.
Speaker #1: garden distribution
Speaker #1: business and
Speaker #1: ongoing assortment
Speaker #1: rationalization and soft demand in pet durables. These outcomes reflect the dedication, teamwork, and cross-business collaboration across our more than 6,000 employees. Their collective efforts continue to drive our success and pave the way for an even stronger future.
Internally, we expect tariff related inflationary pressures to intensify, especially in our pet segment.
Nevertheless, we are reaffirming our fiscal 2025, non-GAAP EPS guidance of approximately $2 60.
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.
Speaker #1: 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.
As Brad and I approach, our one year milestone and 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.
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.
Speaker #1: Footprint optimization. We recently completed the sale of our UK operations aquatic brands to Sara Group. And transitioned our US pet brands to a direct export model to serve UK and select European markets directly from the United States.
At the same time, we leveraged central scale to accelerate innovation and market share growth.
Speaker #1: Streamlining operations. With the consolidation 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.
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.
Speaker #1: Strengthened operations. In our live plants business, which operates within a relatively short selling season, we recently streamlined our assortment, exited on profitable markets, and restructured operations to enhance efficiency.
While innovation is still an emerging capability for us we're encouraged by the early momentum we're seeing from several recent launches. These.
Speaker #1: 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.
These include Zelle, a turtle sticks made with black soldier fly larvae and shrimp meal free from artificial colors and preservatives and.
In Adam's botanical spray.
<unk> solutions proven to kill fleas and ticks.
We also introduced Aqua on smart led lights, with App control and Ocwen on smart clean filtration system, which makes water changes faster and easier.
Speaker #1: 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.
<unk> Ocean Chew toys crafted from 30% reclaimed fishing nets, and our vet approved best fully sticks with college and offer a natural alternative to write for active aging insensitive dogs.
Speaker #1: 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.
Finally, our K T brand launched the all about the little things campaign.
Celebrating the importance of everyday care for small animals and pet birds.
Speaker #1: Third, confidence in our look 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 view M&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.
Speaker #1: 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. Internally, we expect tariff-related inflationary pressures to intensify.
We plan to accelerate our M&A efforts in 2026 as conditions continue to become more favorable.
With that I'll turn it over to Brad.
Thank you Nico expanding our Nikos 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 million a decline of 4% gross profit of $332 million increase.
Speaker #1: Especially in our pet segment. Nevertheless, we are reaffirming our fiscal 2025 non-GAAP EPS guidance of approximately $2.60. 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.
<unk>, 5%, while gross margin expanded by 280 basis points to 34, 6%.
Speaker #1: 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.
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.
Speaker #1: 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.
SG&A expense of $197 million was 2% below the prior year, reflecting continued cost discipline across our businesses. However, given the lower sales SG&A as a percentage of net sales increased by 30 basis points to 24, 5%.
Speaker #1: At the same time, we leverage Central's scale to accelerate innovation and market share growth. By breaking down silos and sharing tools, data, and talent across our organization, we create a powerful advantage that will compound over time.
non-GAAP operating income increased 9% to 139 million and non-GAAP operating margin expanded by 170 basis points to 14, 5%.
Speaker #1: Looking ahead, we remain focused on discipline cost and cash management while making targeted investments to drive organic growth, especially in e-commerce, digital technology, and innovation.
non-GAAP adjustments in the garden 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 2 million most of which is in SG&A.
Speaker #1: 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.
In the pet segment non-GAAP adjustments related to the strategic wind down of our UK operations and moving to a direct export or when we model our cost and simplicity initiative, we launched in the second quarter. As a result, we incurred an additional charge of $1 7 million again, most of which was in SG&A.
Speaker #1: Freed from artificial colors and preservatives, Adam's Botanical Spray is a plant-based solution proven to kill fleas and ticks. We also introduced Aquion Smart LED lights with app control and the Aquion Smart Clean filtration system, which makes water changes faster and easier.
Below the line net interest expense was $9 million compared to $10 million in the prior year driven by higher interest income as a result of larger cash balances.
Speaker #1: Nylabone's Ocean 2 toys, crafted from 30% reclaimed fishing nets, and our approved Best Bully Sticks with collagen, offer a natural alternative to rawhide for active aging and sensitive dogs.
Other income was $1 1 million compared to 225000 a year ago.
Speaker #1: 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&A as a strategic lever to complement our internal innovation agenda and drive long-term shareholder value.
non-GAAP net income totaled $98 million, 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.
These record third quarter results underscore the strength of our operations and the positive momentum we are maintaining across the business.
Speaker #1: 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 our cautiously optimistic that the pipeline will strengthen.
Adjusted EBITDA was 167 million, an increase of $11 million our tax rate for the quarter was 25, 1% now I'll provide highlights from our two segments starting with pet.
Speaker #1: We plan to accelerate our M&A efforts in 2026 as conditions continue to become more favorable. With that, I'll turn it over to Brad. Thank you, Niko.
Net sales for the pet segment totaled $493 million down 3%.
Speaker #1: Expanding on Niko'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.
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. These.
Speaker #1: Net sales were $961 million, a decline of 4%. Gross profit of $332 million, increased 5%. While gross margin expanded by $280 basis points to $34.6%.
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.
Speaker #1: Margin improvement was driven primarily by the successful execution of our cost and simplicity program. The impact of tariffs on our third-quarter results was relatively limited, thanks to adequate pre-tariff inventory levels.
Importantly, consumables now represent 82% of total pet sales.
Speaker #1: SG&A expense of $197 million was 2% below the prior year, reflecting continued cost discipline across our businesses. However, given the lower sales SG&A as a percentage of net sales increased by 30 basis points to 24.5%.
Up from 79% a year ago. This marks a significant increase from approximately 65% four years ago underscoring our success in building out the higher margin more resilient consumables portfolio, while thoughtfully, reducing our exposure to durables.
Speaker #1: Non-GAAP operating income increased 9% to $139 million. And non-GAAP operating margin expanded by $170 basis points to 14.5%. Non-GAAP adjustments in the Garden 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.
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 remains 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 million down, 6% compared to our record third quarter last year non.
Speaker #1: As a result, we incurred a charge of $2.2 million most of which is in SG&A. In the pet segment, non-GAAP adjustments are ated to the strategic windown of our UK operations and moving to a direct export-only model across and simplicity initiative we launched in the second quarter.
non-GAAP operating margin contracted by 60 basis points to 15, 8% largely due to lower volume.
Lastly, pet segment, adjusted EBITDA totaled 88 million, reflecting a $6 million decline year over year.
Speaker #1: As a result, we incurred an additional charge of $1.7 million, again, most of which was in SG&A. Below the line, net interest expense was $9 million compared to $10 million in the prior year, driven by higher interest income as a result of larger cash balances. Other income was $1.1 million compared to $225,000 a year ago.
Now moving to garden.
Net sales for the garden segment were $468 million, representing a 4% decline.
This was primarily driven by the exit of two product lines in our Garden third party distribution business following over ownership changes additional.
Speaker #1: Non-GAAP net income totaled $98 million, 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.
Pressure came from extended periods of cool and rainy weather, which impacted seasonal categories, such as controls and lives 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.
Speaker #1: These record third quarter results underscore the strength of our operations and the positive momentum we are maintaining across the business. Adjusted EBITDA was $167 million, an increase of $11 million.
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 packaged seeds and fertilizer.
Speaker #1: Our tax rate for the quarter was 25.1%. Now, all provide highlights from our two segments starting with pet. Net sales for the pet segment totaled $493 million.
Our garden E Commerce channel continued to gain momentum achieving yet another quarter of double digit growth.
Speaker #1: 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.
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 million up $12 million non-GAAP operating margin expanded by 310 basis points to 18, 2%, reflecting solid productivity gains.
Speaker #1: These headwinds were partially offset by growth in our professional and pet distribution businesses. Consumable sales remain stable, while durables declined by double digits. Overall point of sale or POS trends were in line with shipments.
Adjusted EBITDA for this segment was $96 million, an improvement of $11 million year over year.
Speaker #1: Importantly, consumables now represent 82% of total pet sales. Up from 79% a year ago. This marks a significant increase from approximately 65% four years ago, underscoring our success in building out the higher margin, more resilient consumables portfolio, while thoughtfully reducing our exposure to durables.
Let me now address the balance sheet and cash flows.
Cash provided by operations was $265 million for the quarter versus $286 million a year ago.
Our continued emphasis on working capital management resulted in an additional $67 million reduction in inventory during the third quarter spanning both segments of our business.
Capex for the quarter was $14 million in line with the prior year, reflecting disciplined investments primarily in productivity enhancing initiatives and essential maintenance projects.
Speaker #1: We held market share overall and delivered gains in several key consumer categories. Such as dog shoes, flea, and tick, and pet bird, as well as in our professional portfolio.
Depreciation and amortization of $21 million was 5% below the prior year.
Speaker #3: Ladies and gentlemen, thank you for standing by. Welcome to Central Garden & Pet's fiscal 2025 third quarter earnings call. My name is Julian Bell, and I'll be your conference operator for today.
Speaker #1: 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.
During the quarter, we repurchased approximately one 7 million shares or $55 million of our stock.
Speaker #3: At this time, all participants are in a listen-only mode. Following the prepared remarks, we will hold a question-and-answer session. An instruction will be given at that time.
As of the quarter and $46 million remained authorized under the share repurchase program.
Speaker #1: Non-GAAP operating income for the segment came in at $78 million, down 6%. Compared to a record third quarter last year. Non-GAAP operating margin contracted by 60 basis points to 15%.
Cash and cash equivalents at the end of the third quarter were $713 million, an increase of $143 million.
Speaker #3: If you require operator assistance at any point during the call, please press star, followed by zero on your touchtone phone. As a reminder, this conference call is being recorded.
Total debt of $1 2 billion was in line with the prior year, we ended the quarter with a gross leverage ratio of two nine times in line with the prior year and below our target range of three to three five times <unk>.
Speaker #1: Largely due to lower volume. Lastly, pet segment adjusted EBITDA totaled $88 million, reflecting a $6 million decline year-over-year. Now, moving to garden. Net sales for the garden segment were $468 million, representing a 4% decline.
Speaker #3: I will now turn the call over to Friederike Edelmann, Vice President
Speaker #3: of Best Relations. Thank
Speaker #3: you. Please
Speaker #3: proceed.
Speaker #4: Good afternoon,
Speaker #4: everyone, and thank you for joining
Factoring in our strong cash position, our net leverage ratio was around one two we continue to have no borrowings under our $750 million credit facility.
Speaker #4: Central's third quarter
Speaker #4: fiscal
Speaker #4: 2025 earnings
Speaker #4: call. Joining me
Speaker #4: today are Nikola Hanas,
Speaker #4: Chief Executive
Speaker #4: Officer Brad
Speaker #1: 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.
Speaker #4: Smith, Chief Financial
Speaker #4: Officer John
Turning to our fiscal 'twenty five outlook.
Speaker #4: Hansen, President of Pet
Speaker #4: Consumer Products, and
Speaker #4: JD Walker,
As an ego pointed out we are reaffirming our guidance for non-GAAP EPS of approximately $2 60, a share for the full fiscal year.
Speaker #4: President of Garden Consumer
Speaker #4: Products.
Speaker #4: Niko will start by sharing
Speaker #4: today's key
Speaker #4: takeaways, followed by
Speaker #4: Brad, who will provide a more
Speaker #4: in-depth discussion of
And with that we'd like to open the line for questions.
Speaker #1: 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. 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.
Speaker #4: After their prepared remarks, JD and John will join us for the Q&A session. Before we begin, I would like to remind everyone that all forward-looking statements made during this call are subject to risk and uncertainties that could cause
Thank you we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue.
Speaker #4: our actual results
Speaker #4: to differ materially from what those Pet Consumer forward-looking statements express or imply today. A detailed description of
Press Star two to remove yourself from the queue for participants using speaker equipment that may be necessary to pick up the handset before pressing the star keys, one moment, while we poll for questions.
Speaker #1: In aggregate, we grew share would gains in several categories including wild bird, grass seed, packet seeds, and fertilizer. Our garden e-commerce channel continued to gain momentum, achieving yet another quarter of double-digit growth.
Speaker #4: Central's risk factors can be
Speaker #4: found in our annual
Speaker #4: report filed with the
Speaker #4: SEC. Please Products.
Speaker #4: note that Central undertakes
Speaker #4: no obligation to our results.
Speaker #4: publicly update
Speaker #4: forward-looking statements to
Speaker #4: reflect new information
And our first question comes from the line of Brad Thomas with Keybanc Capital markets. Please proceed with your question.
Speaker #4: future events or other
Speaker #4: developments.
Speaker #4: Our press release and
Speaker #1: Results were especially strong in wild bird and grass seed with sustained category leadership and robust growth across both pure play and omnichannel partners. Non-GAAP operating income for garden rose to $85 million, up 12 million.
Speaker #4: related materials
Speaker #4: including GAAP
Speaker #4: reconciliation for the I would like to remind
Good afternoon, and thank you for taking my question.
Speaker #4: non-GAAP measures discussed
Speaker #4: on this call forward-looking statements made
Speaker #4: are available at ir
Nico My first question for you was around the strong profitability and the momentum that you've had and the cost and simplicity program and I was wondering how investors should think about the opportunity.
Speaker #4: dot central dot
Speaker #4: com. Last but
Speaker #4: not least, unless otherwise
Speaker #4: discussed during this
Speaker #4: call are made against the
Speaker #4: same period in the
Speaker #1: Non-GAAP operating margin expanded by $310 basis points to $18.2%, reflecting solid productivity gains. Adjusted EBITDA for the segment was $96 million, an improvement of $11 million year-over-year.
Speaker #4: prior year. If
Speaker #4: you have any questions after
Speaker #4: the call or at any
Keep improving margins in what's been a difficult environment should that persist.
Speaker #4: time during the
Speaker #4: quarter, please don't hesitate
Speaker #4: to contact me Please note that Central
Speaker #4: directly. And with that,
Speaker #4: let's get started.
Speaker #4: Niko?
And then if we think about a recovery, where you think perhaps margins might be able to go for the company. Thank you.
Speaker #3: Thank you, Friederike, and
Speaker #3: good afternoon,
Speaker #3: everyone. Let me begin
Speaker #1: Let me now address the balance sheet and cash flows. Cash provided by operations was $265 million for the quarter, versus $286 million a year ago.
Speaker #3: by sharing three key developments.
Speaker #3: takeaways from today's
Sure.
Speaker #3: call.
Speaker #3: First, we delivered a
Well, what I would say is.
Speaker #3: Driven by strong
Speaker #3: cross-functional collaboration, discipline comparisons discussed during this execution, and the unwavering dedication of Team Central across all business units. We
The company has done just an excellent job around cost and simplicity, we've been at this for some time.
Speaker #1: Our continued emphasis on working capital management resulted in an additional $67 million reduction in inventory during the third quarter spanning both segments of our business.
And I think it's it's really been ingrained here and everyone is onboard and looking for ways to take cost out.
Speaker #3: advanced our operational
Speaker #3: optimization
Speaker #3: efforts. Consolidating our
Speaker #3: footprint, refining our
There's also the simplification piece of this which.
Speaker #1: CapEx for the quarter was $14 million, in line with the prior year, reflecting disciplined investments primarily in productivity-enhancing initiatives and essential maintenance projects. Depreciation and amortization of $21 million was 5% below the prior year.
Speaker #3: portfolio,
Speaker #3: and improving our cost
Speaker #3: structure set in the stage for
Speaker #3: long-term
We think about every day, how do we simplify the company. The company has really grown through acquisitions. So with that comes a lot of complexity.
Speaker #3: growth. And third,
Speaker #3: we remain confident in
Speaker #3: our full-year
Speaker #3: outlook even as we navigate a Thank you,
Speaker #3: fluid macroeconomic
Speaker #3: environment. Now, let
Like 24, B use out there that.
Speaker #3: me expand on these
Speaker #3: points.
That really.
Speaker #3: First, our third quarter First, we delivered
Speaker #1: During the quarter, we repurchased approximately $1.7 million shares or $55 million of our stock. As of the quarter end, $46 million remained authorized under the share repurchase program.
Speaker #3: ievements. Our team's
Operate independently to a large degree we give a lot of autonomy to our b use thats sort of part of our secret sauce, but with that comes complexity. So we're constantly looking to to simplify the business.
Speaker #3: strong execution led
Speaker #3: to record Q3 cross-functional
Speaker #3: and year-to-date GAAP and non-GAAP earnings per
Speaker #3: share.
Speaker #3: Significant margin
Speaker #3: expansion, and a major improvement in
Speaker #3: workplace safety
Both from logistics from procurement and 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 as we mentioned in the prepared remarks.
Speaker #3: performance within the
Speaker #1: Cash and cash equivalents at the end of the third quarter were $713 million, an increase of $143 million. Total debt of $1.2 billion was in line with the prior year.
Speaker #3: company. We achieved these
Speaker #3: results
Speaker #3: despite extended cool and
Speaker #3: rainy weather that
Speaker #3: negatively impacted the
Speaker #3: Garden season. As
Speaker #3: well as top-line
Speaker #3: pressure from the recent loss
Speaker #3: of two product lines in
Speaker #1: We ended quarter with a gross leverage ratio of 2.9 times in line with the prior year and below our target range of 3 to 3.5 times.
Speaker #3: our third-party garden
Speaker #3: distribution
<unk>.
Speaker #3: business, and ongoing
We we've accomplished a lot of rationalization there. So we feel great about that I think theres other areas, where we can continue to improve margins and thats around.
Speaker #3: assortment
Speaker #3: rationalization and soft demand Now, let me expand on these
Speaker #3: in pet
Speaker #3: durables. These
Speaker #3: outcomes reflect the
Speaker #1: Factoring in our strong cash position, our net leverage ratio was around 1.2. We continue to have no borrowings under our $750 million credit facility.
Speaker #3: dedication,
Speaker #3: teamwork, and cross-business
Speaker #3: collaboration
Portfolio optimization SKU rat.
Speaker #3: across our more than
Speaker #3: 6,000
Speaker #3: employees. Their collective share.
We're going to continue to.
Speaker #3: efforts continue to drive
Speaker #3: our success and pave
To take cost out we still have a ways to go there and then there's also innovation, which we touched on as well where.
Speaker #1: Turning to our fiscal 25 outlook, as Niko pointed out, we are reaffirming our guidance for non-GAAP EPS of approximately $2.60 a share for the full fiscal year.
Speaker #3: way for an even in workplace
Speaker #3: stronger safety performance within the
Speaker #3: future.
Speaker #3: Second, progress in our cost and
Speaker #3: simplicity
We can 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 great products, but you want them to be margin accretive. So we feel like we can influence margin and a lot of different ways.
Speaker #3: program. Our cost and
Speaker #3: simplicity program continues to
Speaker #3: deliver measurable
Speaker #3: impact. Highlights
Speaker #3: from the third quarter
Speaker #3: include
Speaker #1: And with that, we'd like to open the line for questions.
Speaker #3: e-commerce expansion,
Speaker #3: we are excited about our
Speaker #3: progress in
Speaker #3: consolidating two outdated distribution centers into a new modern
Speaker #3: Thank you. We will now be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad.
Lastly, youre going to be disappointed with the answer, but we don't give a target.
Speaker #3: A confirmation tone will indicate that your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, there may be necessary to pick the handset before pressing the star keys.
We keep it open ended on margin and we just come come at it from a continuous improvement mindset.
Yes, Nico one thing I'd add to that you said that we've made great progress on cost and simplicity will and we have we still have a lot of runway in front of us there yet on a lot of opportunity for further consolidation simplification, which should lead to margin enhancement.
Speaker #3: One moment while we poll for questions. And our first question comes from the line of Brad Thomas, with KeyBank Capital Markets. Please proceed with your question.
And the work is really never done here, because we do intend to acquire more businesses and those will we'll have to be integrated.
Speaker #4: Good afternoon, and thank you for taking my question. Niko, my first question for you was around the strong profitability and the momentum that you've had in the cost and simplicity.
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 I think a great example is the TD Bbs.
Speaker #4: 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?
Acquisition, we did over a year ago.
That fits squarely into our dog <unk> cat platform and that's an extremely well run business that that will up the game of that that company in a very big way and we're excited to see that down the road.
Speaker #4: And then if we think about a recovery, where do ou think perhaps margins might be able to go for the company? Thank ou.
Speaker #1: Sure. Well, what I would say is the company's done just an excellent job around cost and simplicity. We've been at this for some time.
That's really helpful.
Knowing that you're probably not going to give us too many numbers behind all this just to ask maybe 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 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.
Speaker #1: And I think it's 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.
Speaker #1: You know, how do we simplify the company? The company's 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.
And how much you've needed to push through in price to customers.
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 lumpiness along the way in terms of taking pricing but.
Speaker #1: We give a lot of autonomy to our BUs. That's sort of part of our secret sauce. But with that comes complexity. So we're constantly looking to simplify the business both from logistics from procurement, and a lot of different areas.
We are looking at doing that.
Speaker #1: So that's ongoing. I think we've made a lot of progress. We feel great about our distribution centers. As we mentioned in the prepared remarks, you ow, we've accomplished a lot of rationalization there.
Where we where we can't fully mitigate cost increases through other measures.
Sure.
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 destination SKU rat and whatnot are really going to bear fruit next.
Speaker #1: 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.
Speaker #1: We still have a ways to go there. And then there's also innovation, which we touched on as well, where you know we can really start ramping up that innovation muscle.
Year.
We're already starting to see benefits.
Through for example, our China distribution, where our China sourcing, where we've actually reduced purchases by almost 50% in Q3, a year over year, which is which is significant for us that was our largest.
Speaker #1: Similar to what we've one with cost and simplicity, and of course, you always want to innovate with, first of all, great products, but you want them to be margin-accretive.
Speaker #1: So we feel like we can influence margin in a lot of different ways. Lastly, you know you're going to be disappointed with answer, but you know we don't give a target.
Yeah.
Our country in terms of.
Tariff terrible imports. So we are we've already done quite a bit to take exposure out of China through sourcing elsewhere through SKU rat and whatnot and we will continue to see benefits through our broader initiatives.
Speaker #1: We keep it open-ended on margin, and we just come at it from a continuous improvement mindset.
Speaker #5: Niko, one thing I'd add to that. You said that you know we've made great progress on cost and simplicity. And we have. But we still have a lot of runway still in front of us.
Really bear fruit, mostly next year, our expectation is that bleeding through pre tariff inventory and <unk>.
Speaker #5: There's still a lot of opportunity for further consolidation, simplification, which should lead to margin enhancement.
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 million. This year in terms of total tariff impact with the bulk of that hitting in Q4.
Speaker #1: Yeah. And the work's because we do intend to acquire really never done here more businesses. And those will have to be integrated. And we're really building that muscle as well.
Very helpful. Thank you.
Speaker #1: So we go into acquisitions knowing exactly where they're going to it. And in many cases, it's into one of our platforms. I think a great ample is the TDBBS acquisition we did over a year ago.
Thank you.
And our next question comes from the line of Bill Chappell with <unk> Securities. Please proceed with your question.
Hey, Good afternoon. This is David whole come on for Bill Chappell.
Speaker #1: 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.
Just wondering if you could maybe share a little bit on pet trends.
Both for like the category and for your business and if there are like as we head into the end of the year and if things are kind of unfolding.
Speaker #1: And we're excited to see that down the road.
Speaker #3: That's really helpful. Well, knowing that you're probably not going to give us too many numbers behind all this, just to ask, maybe a near-term question on margins and thinking about the tariff implications.
As you all had been expecting.
Yes, I can take that this is John.
No.
We certainly have a challenged consumer out there.
And we have a challenged customer base with pet specialty.
Speaker #3: Brad, I think you ioned 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.
Relative to traffic.
It uses we're seeing ownership stabilizing and our.
<unk> animal business.
We've got our live animal business and that is stabilizing as well.
That said.
Our consumable business at Central we were lapping a record top and bottom line Q3, a year ago, our consumable business is flat and our durable business really is a declining Brad mentioned double digits.
Speaker #3: Thanks.
Speaker #1: Yeah, 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.
There is two pieces of that one is category softness.
Speaker #1: And so we would expect some bumpiness along the way in terms of taking pricing. But we are looking at doing that where we can't fully mitigate cost increases through other measures.
<unk> seen durables kind of in that mid to high single digit declines.
And the second piece of that is our assortment rationalization.
Speaker #1: We're not going to get a number on pricing impact. What I can tell you is that the expectation is, first of all, a couple of things.
We've been proactive about that.
It's low margin skus, but as tariffs kind of come into play here and something we have to continue to look at.
Speaker #1: First of , 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.
And we're going to have a little bit of time within central to lap that.
Brad mentioned, we started in Q4, but that's been an ongoing process through this year.
Speaker #1: We're already starting to see benefits through, for example, our China distribution or our China sourcing where we've ally reduced purchases by almost 50% in Q3.
We're also 82% consumable, 18% durable and we feel really good about that mix.
Yes.
Our consumables also tend to be higher margin so.
Speaker #1: A year-over-year, which is significant for us. That was our largest country in terms tariffable imports. So we've ready done quite a bit to take exposure out of China through sourcing elsewhere, through SKU rat, and whatnot.
That's had an effect on our margins as well as that durable peace shrinks.
It's actually accretive to.
So our business, which in a weird way is good so.
Or is that.
Okay.
Thanks appreciate the color there.
Speaker #1: We're going to, and we'll continue to see benefits through our broader initiatives. 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 million this year in s of total tariff impact with the bulk of that hitting in Q4.
<unk>.
Could you maybe like.
Elaborate a little bit on if there are any particular categories for for.
For garden drove EPS upside.
Yes. This is J D. David.
I would say that the categories that have driven our business overall this year.
And what was a challenging year from a weather standpoint, yet we had certain cat.
Categories certain business units it delivered.
Speaker #3: Very helpful. Thank ou. Thank you. And our next question comes from the line of Bill Tapple with Trua Securities. Please proceed with your question.
Extremely well and I would 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.
Speaker #5: Hey, good noon. This is Davis Holcomb for Bill Tapple. 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 like as we head into the end of the year and if things are kind unfolding as you all had been expecting.
As well as grass seed.
Strong consumption for the grassy category.
And our packet seed business those categories would be the strongest.
Producers for us this year.
I would pile onto a 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.
Speaker #1: Yeah. I can take that. This is John. You know, we certainly have a challenging consumer out there. And we have a challenging customer base with pet specialty relative to traffic.
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 but just a huge improvement.
Speaker #1: Now, the good news is we're seeing pet ownership stabilizing. And our live animal business, which you know we've got a live animal business, and that is stabilizing as well.
Year over year, there and the weather was actually probably worse. This year for live goods during that sort of contracted season that they have it's really three months.
Speaker #1: That said, you ow our consumable business, you know at Central, we are lapping a record top and bottom line Q3 a year ago. Our consumable business is flat.
And even maybe even less than that so big shout out to them.
Did a really fantastic job there of improving that business.
Speaker #1: And our durable business really is declining. Brad mentioned double digits. You know, there's two pieces of that. One is category softness. So we're still seeing durables, kind of in that mid to high single digit declines.
Excellent. Thanks for the color I'll go ahead and pass it on.
Thank you.
And our next question comes from the line of Jim <unk> with <unk> Crespi Hardt. Please proceed with your question.
Speaker #1: And the second piece is our assortment rationalization. We have been proactive about that. You know, it's low-margin SKUs. But, you know, tariffs kind of come into play here.
Hi, Thanks for taking my question.
Could you quantify the impact of the exited product lines.
Third quarter and year to date sales for both pet and garden.
Speaker #1: You know, it's ething we have to continue to look at. And you know we're ing to have a little bit of time within Central to lap that.
I don't think we've got those number I don't know front of US I don't think we could probably follow up with you on that.
Speaker #1: 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.
That's right.
With.
What I would.
Say on the pet side it was significant.
And also the assortment rationalization. We did we said that was a big driver in the categories are soft in durables.
Speaker #3: Yeah. And our consumables also tend to be higher margins. So that's had an effect on our margins as well as that durable piece shrinks.
Assortment rationalization was a bigger impact than the than the category decline.
Speaker #3: It's actually accretive to our business, which in a weird way is good. So there is that.
I mean on the pet side, I mean, durables with substantially all of that.
All of the decline for the.
Simple math that would be.
Speaker #5: Thanks, I appreciate the color there. Could you elaborate a little bit on whether there were any particular categories for the garden that drove EPS upside?
A number of them yeah, that's fair lot of that wasn't aquatics, and it's hard to quantify on the garden side as well and lab goods Nicole with just talking about the the team there has done a nice job we exited some unprofitable.
Speaker #1: Yes. This is JD, David. I would say that you know the categories that have driven our business overall this year and what was a challenging year from a weather standpoint, yet you know we had certain categories, certain business units that delivered extremely well.
Markets, some unprofitable skus, but again.
At this point in time, and then the pottery business, which we 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 will be out of that category altogether and then the vendor partner, yes exactly right.
Speaker #1: 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.
Those two were yes, I mean, what what 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.
Speaker #1: And our packet seed business. Those categories would be the strongest producers for us this year.
The vendor partner piece was not within our control, but again, that's a distribution business that tends to be lower margin.
Speaker #3: And I would pile on to what JD said. You know, we talked about the live goods business, which was really challenged a year ago.
The tanks in Aquatics is a little bit lower margin and then pottery is.
As also.
Speaker #3: And in the prepared remarks, we talked about the change there. And the team there has just done an incredible job of improving the operational efficiency there.
Our high energy, what I would say high energy low margin business. So.
We're not we're not shedding a tenant tears on those types of losses in terms of volume I think you can see that in the P&L right, Yes top line grew.
Speaker #3: Taking cost out, SKU rat, all the right things they could doing. The business is still not where we want it to be, but just a huge improvement year over year there.
Gross margin has improved nicely and it's flowing through to operating margin.
And when you get into Q4.
Speaker #3: And the weather was actually probably worse this year for live goods during that sort of contracted season that they have. It's really three months and even maybe even less than that.
We'll be that'll be the first quarter were <unk> the business that we sold is out of the mix and so there will be no revenues.
Flowing and related to that business. So that is going to be a meaningful impact for Q4, but only from a top line perspective.
Speaker #3: So big shout out to them. Did a really fantastic job there of improving that business.
Okay I'm just trying to understand is the.
The underlying trend for sales closer to flat for the company.
Speaker #5: Excellent. Thanks for the color. I'll go ahead and pass it on.
Exclude kind of.
Speaker #3: Thank you. And our next question comes from the line of Jim Cheriker. With Monas Crespi and Hart. Please proceed with your estion.
<unk>.
Yeah.
I don't know if its flat.
We'd have to get back to you on that.
Speaker #6: 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?
Okay.
And then the new ecommerce facility does that add any revenue enhancement capabilities to you.
I don't know if it's incremental in any way it gives us a greater amount of flexibility improves our service levels.
Speaker #1: I don't think we've got those numbers in front of us.
Speaker #6: I don't think we do. We could.
Speaker #3: Probably follow up with you on that.
Speaker #1: That's right. I mean, with what I would say on the pet side, you know it was significant.
It does a lot for our simplifies our logistics footprint.
It's very similar to what we did in Covington, Georgia, where.
Speaker #3: Right. You know.
Speaker #6: So the assortment rationalization we did on pet, you know 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.
Where we folded a bunch of facilities into a more modern type facility. So.
Think the way we think about it is it's really more of a cost out initiatives as opposed to incremental <unk>, 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 I think from a service standpoint, and we will be covering over 95% of the country in two days so from that stands.
Speaker #5: I mean, on the pet side, I an, durables was substantially all of the.
Speaker #6: All of the decline, yeah.
Speaker #5: Yeah. For the simple math, that would be as good a number as any.
Speaker #6: Yeah. That's fair.
Speaker #1: A lot of that wasn't aquatics, right?
Point, I think it'll be a benefit yet.
Speaker #6: Yeah. Yeah.
Speaker #5: And it's hard to quantify on the garden side as well. And live goods, and Niko was just talking about the team there has done a nice job.
Great. Thank you.
Yes.
Thank you.
The next question comes from the line of Bob <unk> with CJS Securities. Please proceed with your question.
Speaker #5: 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 we signaled that exit over a year ago.
Good afternoon, thanks for taking our questions.
On the Garden side I believe you won some you know 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 carryover in and drive incremental sales next year or is it.
Speaker #5: By the end of this year, we'll be working through the residual inventory there, and 'll be out of that category altogether.
Speaker #1: And then the vendor partner.
Speaker #5: Yeah. Exactly.
Speaker #1: Right. Those two were. I mean,
Speaker #5: Yeah.
Speaker #1: what 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.
Fully into this year.
And likewise on the third the product lines that you exited from sale is that all out this year and no hangover next year or is there still some loss next year.
Speaker #1: But again, you know that's a distribution business that tends to be lower margin. The tanks and aquatics is a little bit lower margin, and then pottery is also a high-energy, what I would say, high-energy, low-margin business.
And garden from that change.
Yeah, Bob It's J D I'll speak to that so first of all on the private label gains that we picked up at two major retailers.
We saw some of the benefit this year and we will see benefit next year as well they have to work through existing inventories of the previous supplier. So we saw some of the benefit and then 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.
Speaker #1: So we're shedding a ton of tears on those types of losses in terms of volume.
Speaker #5: I think you can see in the P&L, right?
Speaker #1: Yeah. Yeah.
Speaker #5: Top line pressure. But gross margin has improved nicely and it's flowing through to operating margin as well.
Speaker #1: Yeah. And when you get into Q4, we'll be that'll be the first quarter we're in our pet. The business that we sold is out of the mix.
And then the second part of the question was.
The vendor partner losses of the vendor partner losses will we see that next year.
Speaker #1: 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.
Most of that will be we'll stop shipping.
Those products this year, but we will have a comp a difficult comp carrying into next year.
Speaker #6: Okay. Yeah. I'm trying to understand is the underlying trend for sales, you know closer to flat for the company, you know if you exclude kind of the you know, the intentional exits.
We start to lap that loss of its two product lines this quarter Q4.
Okay and by the way. The reason we were awarded more stores is because of great execution fantastic execution. It's a beautiful business, we were glad to pick that up and it's.
Speaker #1: I don't know it's flat. We'd have to get back to you on that.
Yes.
Our in store execution of the team there is doing a phenomenal job.
Speaker #6: Okay. Yeah. And then on the new e-commerce facility, does that add any you know revenue enhancing capabilities to you?
And gaining market share in this category and the retailers recognize that and awarded us additional business.
That's great well congratulations on that.
Speaker #1: 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 a simplifies our logistics footprint.
And you spoke to this a little bit but I.
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 esque.
Speaker #1: 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 you know the way we think about it is it's really more of a cost out initiative as opposed to incrementality.
SKU rationalization.
Is that a full year next year as well or when will you lap that.
We don't know yet.
We're we still need to put the plans together for next year and really get our arms around what that top line looks like.
Speaker #1: But a lot of times when you become more efficient and you know fill rates go up, it could lead to a little bit of a lift in sales.
We also have to take into account.
Speaker #5: I think from a service standpoint, and we'll be covering over 95% of the country in less than two days. So from that standpoint, I think it'll be a benefit.
What the what the.
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.
Speaker #1: Yeah.
Speaker #6: Great. Thank ou.
Speaker #3: Thank you. And our next question comes from the line of Bob Lebick with CJS Securities. Please proceed with your estion.
So we just don't have clarity on that just yet as we are in the middle of putting our plans together, we'll certainly give everybody more guidance on that come November.
Speaker #7: Good afternoon. Thanks for taking our estions. On the garden side, I believe you won some private label business here. Was just hoping you uld give us a sense of how much you know of an impact you know from that win was this year?
When we do that year end call.
We'll have more color and thats not unusual typical over the line review process. We don't know until late August sometime September.
What line review listings will look like for the following year.
Speaker #7: Should that carry over? And drive incremental sales next year? Or it like you know fully into this year? Or and and likewise on the the third the product lines that you exited from sale, is that all like out this year and no hangover next year?
Okay, Great last one for me is.
Given the I guess current iteration.
Iteration of the de Minimis tariff.
You know hold or exemption or whatever you want to call. It right now putting the tariffs back on.
Speaker #7: Or is there still some loss next year you ow in garden from that change?
All goods coming in might that help you in any way on the pet side are you seeing anything from that or is it.
Speaker #1: Yeah, Bob. It's JD. I'll speak to that. So first of all, on the private label gains that picked up at two major retailers, we saw some of the benefit this year and we'll see benefit next year as well.
Now that.
Durables is such a small part of the portfolio, it's not really a.
Yes or that you're watching.
Yes, we are watching it it's frankly, it's really hard to get good data on it but we aren't seen any meaningful impact at this point related to it.
Speaker #1: They had to work through existing inventories of the previous supplier. So we saw some of the benefit. And that and then they'll be carryover.
Speaker #1: 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 the vendor partner losses.
No we're not.
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Think there's potential that it could be a tailwind.
Thank the dilutive historical I wrote in the Wall Street Journal <unk>.
It was going to be broad based.
Speaker #1: Oh, the vendor partner losses. Well, we see that next year. Yeah. Most of that will be we'll stop shipping the those products this year, but we'll have a comp, a difficult comp carrying into next year.
So we're going to stay super close to it.
But it could be we could have a tailwind from it.
Speaker #1: Yeah. Right.
Alright, thanks very much.
Speaker #5: We start to lap that loss of those two product lines this quarter, Q4. So yeah, okay.
Thank you.
And our next question comes from the line of Brian Mcnamara with Canaccord Genuity. Please proceed with your question.
Speaker #1: And by the way, the reason we were awarded more stores is because of great execution.
Speaker #5: Fantastic execution. That's a autiful business. We were glad to pick that up. And it's you ow our in-store execution, the team there is doing a phenomenal job.
Hi, This is Madison County, and Entre, Brian Thanks for taking our questions.
What would it take for garden to return to the consistent modest growth.
Speaker #5: And pick gaining market share in this category. And the retailer recognized that and awarded us additional business.
Understanding weather was a factor.
But industry participants, saying that consumers engaged kick in a little more color on why it isn't showing up in results.
Speaker #6: That's great. Well, congratulations on that.
Speaker #5: Thank you.
Speaker #6: And you spoke to this a little bit, but I ess again, thinking about next year in general, how much you ow longer do you expect to see kind a top line I ess self-imposed headwind from the SKU rationalization?
Hi, 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, and when I say in season and our Q late.
Late Q2, and Q3 next year that would be.
Speaker #6: You know is that a full year? Next year as well? Or when will you lap that?
Beneficial to the last couple of years of weather Hasnt exactly cooperated.
Speaker #1: We don't know yet. We're we still need to put the plans together for next year and really get our arms around what that top line looks like.
We play in lawn and garden consumables, it's a good space to be in I think there is still great consumer engagement here and our retailers are very engaged.
Speaker #1: We also have to take into account what the what the what the you ow the estimate is on innovation and other things that we're ing.
I think that.
Some of the metrics on the garden.
P&L look very favorable our gross margins look great. Our operating margins look great and we're getting topline pressure. This year, mainly from what we've talked about a few times today and that is the two vendor partner distributed products that that.
Speaker #1: You know we have to look at all the puts and takes around businesses that we won, that we lost. Innovation SKU rat. So we do we just don't have clarity on that just yet as we're we're in the middle of putting our plans together.
Were acquired by another company and they ended up going direct with our retailers. So we lost that topline, having said that we've seen nice growth across our branded business or private label business. It hasnt been able to make up for the full top line. The revenue loss, but you can see that flowing down through our P&L, which has been.
Speaker #1: We'll certainly give everybody more guidance on that come November. When we do that year-end call, we'll have more color.
Speaker #5: And that's not unusual. Typically, the line review process, we 't know until late August, sometimes September. What line review listings will look like for the following year.
Ben.
Speaker #1: Yep.
Actually quite strong in a difficult environment. So we still feel very optimistic about this will work through the losses of these vendor partner businesses.
Speaker #6: Okay. Great. Last one for me is you know given the I guess current iteration of the de minimis tariff you ow hold or exemption or atever you want to call it, trying you ow now putting the tariffs back on all goods coming in, might that help you in any way on the pet side?
And I am encouraged by the fact that our our manufactured products are branded businesses growing nicely. So.
Still a good business from our perspective and one that has.
Speaker #6: Or are you seeing anything from that? Or is it you know now that durables is such a small part of the portfolio, it's not really a you ow factor that you're watching?
Better days ahead.
I would say to that.
J D as being modest but on a 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 is some growth there.
Speaker #1: Yeah. Yeah. We are watching it. It's 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.
The other the other part two is when we look at the data and we actually have good days in the northeast and other areas you see really tremendous pls, so that speaks to a very engaged consumer.
Speaker #1: No. We're not. You know I think there's potential that it could be a tailwind. I think the latest article I read in the Wall Street Journal was the end of August that that it was going be broad-based.
Speaker #1: So you know we're going to stay super close to it. But it could be we could have a tailwind from it.
The weather. This this year in our key markets has been was incredibly rainy in the spring.
Speaker #5: Yeah. Super. All right. Thanks y much.
Probably more rain than even last year so.
It could look to some like Oh boy, it's a horrible category, but.
Speaker #3: Thank you. And our next question comes from the line of Brian McNamara, with Canacor Genuity. Please proceed with your question.
There is there is a lot of good momentum here within our business and also with the customers and the consumers. So we actually feel quite good about our guidance, we do and there's a lot of talk about an uncertain economic environment right and.
Speaker #8: Hi. This is Madison County and on for Brian. Thanks for taking our questions. What will it take for garden to return to a consistent modest growth?
This category Garden Lawn and garden has performed very well in prior down economic downturns and Thats, because we play again and consumables Thats alts.
Speaker #8: Understanding whether it's a factor with industry participants saying that the consumers engaged can get a little more color on why it n't showing up in results.
Relatively small cash outlay, 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 in this quarter has started off good from a shift perspective, mpls perspective or managing yes.
Speaker #8: Thanks.
Speaker #1: Hey, Madison. This is JD. Weather is a factor, as you said. It's the largest factor that usually impacts a garden business. So you know we need some favorable weather, particularly in season.
Speaker #1: And when I say in season, in our Q late Q2 and Q3 next year, that would be beneficial. The last couple of years, the weather hasn't exactly cooperated.
Our retailers have remained engaged I haven't given up on the season by any means. So we think there is still runway in this year as well.
Speaker #1: We plan along a garden consumables. It's good space to be in. You know I think there's still great consumer engagement here in our retailers are very engaged.
Great. Thank you so much and just like we were looking at when you pre purchased over 150 Mylan stock over the last three quarters.
Speaker #1: And I think that you know some of the metrics on the garden P&L look very favorable. Our gross margins look great. Our operating margins look great.
Can you add anything about your view.
That the shares are undervalued relative to M&A opportunities or lack thereof anything around that thank you.
Speaker #1: And we're etting top line pressure this year, mainly from what we've ked about a few times today. And that is the two vendor partner or distributed products that were acquired by another company.
We always think our shares are undervalued.
But in particular.
During those first three quarters.
Speaker #1: And they ended up going direct with the retailers. So we lost that top line. Having said that, we've seen nice growth across our branded business, our private label business.
We felt like our shares where the best value out there and we.
We do we do want to be mindful.
And thoughtful around our shareholders.
Turning money to those shareholders and at that point in time, given the lack of M&A activity that we're seeing or the lack of quality M&A activity I should say.
Speaker #1: It hasn't been able make up for the full top line that revenue lost. But you can see that flowing down through our P&L, which has been you ow actually quite strong in a difficult environment.
We felt our stock was probably the best value out there. So we went pretty aggressively.
Speaker #1: So we still feel very optimistic about this. We'll work through the losses of these vendor partner businesses. And I am am encouraged by the fact that our our manufactured products, our branded business is growing nicely.
Two to buyback.
Great. Thank you.
Thank you and our next question comes from the line of William Ruder with Bank of America. Please proceed with your question.
Speaker #1: So you know still a good business from our perspective. And one that has you know better days ahead. Well, and I would say too that you know JD's being modest, but on a garden side of our , the relationships with the larger customers have never been better.
Good afternoon, just a couple the first you mentioned that the aggregate amount of tariffs in the fourth quarter would be $10 million.
Speaker #1: 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.
Yes.
That's full year.
Okay.
I think that you've mentioned there really wasn't much in the second quarter and you don't expect much in the third quarter.
Speaker #1: The other the other part too is when we look at the data, and we actually have good days in the Northeast and other areas you see really tremendous POS.
I guess is that right.
Yes, I mean, roughly it was kind of say $3 million in Q3, and the balance would be Q4.
Speaker #1: 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.
Got it.
I guess, if we think about what the run rate implies for next year I guess, if the fourth quarter was $7 million and most of this is Pat.
Speaker #1: So it could look to some like, oh boy, you know it's a rible category. But there's a lot of good momentum here. Within our business and also with the customers and the consumers.
Does that kind of imply that we'd be at a run rate of maybe something like $30 million for next year on a non.
On an unmitigated basis.
Not really I think I mean honestly I think we need to come back to you.
Speaker #1: So we actually feel quite good about our garden business.
After 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.
Speaker #5: We do. And you know there's a lot of talk about an uncertain economic environment, right? And this category, garden, loan garden, has performed very well in prior down economic downturns.
Speaker #5: And that's because we play again in consumables. That's a relatively small cash outlay. So consumers, they may forego large capital projects. But they're going to do maintenance projects around their house.
Changing this morning, yes.
We're doing a lot of work on the supply side, we're working with our customers and.
We are certainly not going to sit on our hands.
Speaker #5: And oftentimes that includes beautifying the yard. So still a good space to be in.
And we can to mitigate tariffs vendor concessions moving the country of origin SKU rationalization that we talked about.
Speaker #1: Yeah. And this quarter has started off good from a ship perspective and POS perspective during the surging.
And it's likely we're going to have to work with our customers and partner with our customers on unlimited pricing.
Speaker #5: Yes. Our retailers are remained engaged. They haven't given up on the season by any means. So we think they're still runway in this year as well.
And suppliers, yes, everything you said so what.
Speaker #8: Great. Thank you so much. And just like we were looking when you repurchased over 150 million stock over the last three quarters, can ou add anything about your view like that the shares are undervalued relative to M&A opportunities or lack thereof?
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 26 plan and where we are in the process of doing that and we'll be back to everybody with with more guide for that year, including commentary around tariffs and pricing and all that stuff.
Speaker #8: Anything around that? Thank ou.
Speaker #5: We always think our shares are undervalued. But in particular, you know during those first three quarters, we felt like our shares were the best value out there.
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.
Speaker #5: And we do we do want to be mindful and thoughtful around our shareholders and returning money to those shareholders. And at that point in time, given you know lack of M&A activity that we were seeing or the lack of quality M&A activity, I should say, we felt our our stock was probably the best value out there.
Or I mean are you I guess are you just I don't know how are you picking up private label that was being produced by competition, how should we think about that.
It's a combination of both we are picking up private label.
Produced by competition at the same time I mentioned are our field team, our retail merchandising team and.
Speaker #5: So we we went pretty aggressively to to buy it back.
And they execute with excellence in the stores, which gets.
Speaker #8: Great. Thank ou.
Off shelf activity.
So it's a combination of us picking up.
Speaker #3: Thank you. And our next question comes from the line of William Ruder with the Bank of America. Please proceed with your question.
Yes, the product from that was previously manufactured by others and then better execution in store.
Speaker #9: Good afternoon. Just a couple the first, you mentioned that the aggregate amount of tariffs in the fourth quarter would be 10 million on I think.
Got it.
And then my last question do you have a kind of long term growth rate expectation for pet consumables.
Speaker #1: That's full year.
There are numbers that a lot of <unk>.
Speaker #9: 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 ess, is that right?
Different participants in this category throw out there for their expectations and I was wondering if there was something which you guys have kind of tried to center youre planning around.
Speaker #1: Yeah. I mean, roughly it was kind of say 3 million in Q3 in the balance would be Q4.
Well the good news what I mentioned about the categories were seeing per ownership stabilize and we're actually seeing our live animal business stabilizing as well.
Speaker #9: Got it. I guess if we think about what the run rate implies for next year, I guess if the fourth quarter was 7 million, and most of this is pet, does that kind of imply that we'd be at a run rate of maybe something like 30 million for next year on a non or on an unmitigated basis?
Long term, we believe this category can grow.
Low to mid single digits.
And it has historically and Theres no reason to think it wont in the future.
Got it alright, that's very helpful. Thanks, that's all for me. Thank you.
This was our last question thanks, everyone for joining our call today.
Speaker #1: Not really. I think, I mean, honestly, I think we need to come back to you after after year-end and talk about it in a bit more detail because the situation is very fluid.
Our team is available for any questions that may arise after this call.
Okay.
Speaker #1: And these rates could change by time we finish this call.
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.
Speaker #9: And we're ing right. Yeah. They change this morning.
Speaker #1: Yeah. I an, we're doing a lot of work on the supply side. We're working with our ustomers and you know we are certainly not going to sit on our hands.
Speaker #1: So I wouldn't.
Speaker #9: We're doing everything we can to mitigate tariffs, vendor concessions, moving country of origin, SKU rationalization that we talked . You know, and it's like we were going to have to work with our customers and partner with our customers on unlimited pricing.
Speaker #5: And suppliers everything you said. So what you ow 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 26 plan.
Speaker #5: And we're we're in the process of doing that. And we'll be back to everybody with with more guide for for that year. Including commentary around tariffs and pricing and all that stuff.
Speaker #9: Got it. And then multiple times you've ioned private label and how you're strong relationships with some of your customers have allowed you to pick up share.
Speaker #9: Are they changing the percentage of their floor space allocation to private label versus branded? Or I mean, are you I guess are you I don't know.
Speaker #9: Are you icking up private label that was being produced by competition? How should we think about that?
Speaker #1: It's a combination of both. We are picking up private label. It's produced by competition. And at the same time, I mentioned our our field team, our retail merchandising team, and they execute with excellence in the stores, which gets you know more off-shelf activity for us.
Speaker #1: So it's a combination us picking up the the product from that was previously manufactured by others, and then better execution in store.
Speaker #9: 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 category throw out there for their expectations.
Speaker #9: And I was wondering if there was something which you guys had kind tried to center your planning around.
Speaker #1: Well, you know the good s 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.
Speaker #1: You know long-term, we believe this category can grow you know low to mid single digits. And it has historically. And there's no reason to think it won't in the ure.
Speaker #9: Got it. All right. 's very helpful. Thanks. That's for me. Thank you.
Speaker #8: 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.
Speaker #8: Thank ou.