Central Garden & Pet Announces Record Q3 Fiscal 2023 Financial Results

Fiscal 2023 Q3 net sales of $1,023 million
Fiscal 2023 Q3 EPS of $1.56; Non-GAAP EPS of $1.75
Raises outlook for fiscal 2023 Non-GAAP EPS to $2.55 or better

Central Garden & Pet Company (NASDAQ: CENT) (NASDAQ: CENTA) (“Central”), a market leader in the Pet and Garden industries, today announced its third quarter fiscal 2023 financial results for the period ended June 24, 2023.

“We delivered record operating income and earnings per share in the third quarter while expanding gross margin, growing market share and significantly improving our cash position. We are also pleased with the progress we are making on our cost and simplicity program,” said Tim Cofer, CEO of Central Garden & Pet. “Given our record Q3 performance, coupled with the early visibility we have into the fourth quarter, we are raising our outlook for the full year.”

Fiscal 2023 Third Quarter Financial Results

Net sales increased 1% to $1,023 million from $1,015 million a year ago.

Gross margin expanded by 80 basis points to 31.1% from 30.3% a year ago, and by 160 basis points to 31.9% on a non-GAAP basis. The gross margin expansion was driven by improved pricing, cost management and favorable product mix.

Operating income increased 8% to $123 million from $114 million a year ago, and 20% to $137 million on a non-GAAP basis. Operating margin expanded by 80 basis points to 12.0% from 11.2% in the prior year, and by 220 basis points to 13.4% on a non-GAAP basis. The operating margin expansion was driven by improved gross profit and reduced commercial spend to align with demand.

Net interest expense was $13 million compared to $14 million in the prior year quarter.

The Company’s net income increased 10% to $83 million from $75 million a year ago, and 24% to $94 million on a non-GAAP basis. Earnings per share increased $0.17 to $1.56 from $1.39 in the prior year, and $0.36 to $1.75 on a non-GAAP basis. Adjusted EBITDA increased 17.3% to $166 million from $141 million in the prior year.

The Company’s effective tax rate was 24.4% compared to 23.7% in the prior year quarter.

Pet Segment Fiscal 2023 Third Quarter Results

Net sales for the Pet segment of $503 million were essentially flat compared to $505 million in the prior year. Strength in Dog & Cat Treats & Toys as well as Bird was offset by lower sales in Outdoor Cushions and lower demand for durable pet products.

Pet segment operating income was $60 million compared to $63 million a year ago and increased 18% to $74 million on a non-GAAP basis. Operating margin was 11.9% compared to 12.4% in the prior year. On a non-GAAP basis, operating margin increased by 230 basis points to 14.7% driven by improved pricing and cost management. Pet segment adjusted EBITDA was $84 million compared to $72 million a year ago.

Garden Segment Fiscal 2023 Third Quarter Results

Net sales for the Garden segment increased 2% to $520 million from $511 million a year ago. Strength in Live Goods, Packet Seed and Wild Bird was partly offset by lower sales in Distribution and Grass Seed.

Garden segment operating income increased 17% to $88 million from $76 million a year ago, and operating margin increased by 210 basis points to 16.9% from 14.8% in the prior year. The increase in operating margin was mainly driven by improved pricing, favorable product mix and cost management. Garden segment adjusted EBITDA increased 17% to $99 million from $85 million in the prior year quarter.

Additional Information

The Company’s cash balance at the end of the quarter was $333 million compared to $196 million a year ago. Cash provided by operations during the quarter was $325 million compared to $190 million a year ago. The increase in cash provided by operations was driven by a reduction in inventory as the Company converted inventory to cash.

Total debt as of June 24, 2023 and June 25, 2022 was $1.2 billion. The Company’s leverage ratio, as defined in the Company’s credit agreement, at the end of the third quarter was 3.1x compared to 2.9x at the end of the prior year quarter. The Company repurchased approximately 466,011 shares or $16.7 million of its stock during the quarter.

Cost and Simplicity Program

The Company continues to progress its multi-year cost and simplicity program consisting of a pipeline of projects across a number of key areas including procurement, manufacturing, logistics, portfolio management and administrative costs to simplify its business and improve efficiency across the organization. In the third quarter fiscal 2023, as expected, the Company incurred $14 million of one-time charges related to the closure of its pet bedding facility in Texas, the majority of which were non-cash.

Earlier this week, the Company completed the sale of its independent garden center distribution business to reduce complexity and improve margins. The Company will retain its third-party distribution business with its largest three retail partners and select other national accounts. The Company will share more details on its earnings call.

Fiscal 2023 Guidance

Taking the record Q3 performance into account, coupled with the early visibility into the fourth quarter, the Company now expects fiscal 2023 non-GAAP EPS of $2.55 or better. This outlook reflects the macroeconomic uncertainty, cost inflation, evolving consumer behavior and unfavorable retailer inventory dynamics, as well as pricing actions and productivity initiatives across the Company’s portfolio. The Company anticipates capital spending significantly below fiscal 2022 levels. Fiscal 2023 will have 53 weeks compared to 52 weeks in fiscal 2022. This outlook excludes the impact of any acquisitions, divestitures or restructuring activities that may occur during fiscal 2023, including any projects under the cost and simplicity program.

For the complete press release, click here.

About Central Garden & Pet

Central Garden & Pet Company (NASDAQ: CENT) (NASDAQ: CENTA) understands that home is central to life and has proudly nurtured happy and healthy homes for over 40 years. With fiscal 2022 net sales of $3.3 billion, Central is on a mission to lead the future of the Pet and Garden industries. The Company’s innovative and trusted products are dedicated to helping lawns grow greener, gardens bloom bigger, pets live healthier and communities grow stronger. Central is home to a leading portfolio of more than 65 high-quality brands including Amdro®, Aqueon®, Cadet®, Farnam®, Ferry~Morse®, Four Paws®, Kaytee®, K&H®, Nylabone® and Pennington®, strong manufacturing and distribution capabilities and a passionate, entrepreneurial growth culture. Central is based in Walnut Creek, California and has over 7,000 employees across North America and Europe. Visit www.central.com to learn more.

Contact:

Friederike Edelmann – VP, Investor Relations – fedelmann@central.com – (925) 412-6726

Source: Central Garden & Pet Company