Central Garden & Pet Announces Fourth Quarter and Fiscal Year 2023 Financial Results

Fiscal 2023 net sales of $3.3 billion

Fiscal 2023 GAAP EPS of $2.35, non-GAAP EPS of $2.59

Expects fiscal 2024 non-GAAP EPS of $2.50 or better

Central Garden & Pet Company (NASDAQ: CENT) (NASDAQ: CENTA) (“Central”), a market leader in the Pet and Garden industries, today announced results for its fourth quarter and fiscal year ended September 30, 2023.

“We are proud of what Team Central was able to achieve in a challenging environment characterized by evolving consumer behavior, unfavorable retailer inventory dynamics, high inflation and extreme weather. Despite these headwinds, we delivered non-GAAP EPS within our revised fiscal 2023 guidance, successfully turned inventories into cash, generated record cash flow and continued to make progress on our Cost and Simplicity program,” said Beth Springer, Interim CEO of Central Garden & Pet. “While the near-term external environment remains challenging, we are confident in the competitive strength of Central, our Team’s execution and our Central to Home strategy.”

Fiscal 2023 Results

Net sales of $3.3 billion were in line with the prior year. Fiscal 2023 benefited from an additional week compared to the prior year.

Net sales for the Pet segment of $1.9 billion were in line with the prior year. Net sales for the Garden segment were $1.4 billion compared to $1.5 billion a year ago.

Gross margin was 28.6% compared to 29.7% in the prior year. On a non-GAAP basis, gross margin was 28.9%. The decrease was due to inflation and lower volumes resulting in unfavorable overhead absorption, partially offset by improved pricing and productivity efforts.

Operating income was $211 million compared to $260 million a year ago. On a non-GAAP basis, operating income was $227 million. Operating margin was 6.4% compared to 7.8% in the prior year. On a non-GAAP basis, operating margin was 6.9%. The decrease was due to lower sales and inflation, partially offset by improved pricing and cost reductions.

Other income and expense was income of $1.5 million compared to expense of $3.6 million a year ago.

Net interest expense was $50 million compared to $58 million in the prior year driven by higher cash balances and interest rates.

Net income was $126 million compared to $152 million a year ago. On a non-GAAP basis, net income was $138 million. Earnings per share were $2.35 compared to $2.80 in the prior year. On a non-GAAP basis, earnings per share were $2.59, in line with Central’s revised fiscal 2023 guidance.

Adjusted EBITDA was $343 million compared to $367 million a year ago.

The effective tax rate for the fiscal year was 22.4% compared to 23.2% in the prior year. The decrease was primarily due to the impact of a lower blended state tax rate.

Fourth Quarter Fiscal 2023 Results

Net sales increased 6% to $750 million. The fourth quarter benefited from an additional week compared to the prior year.

Gross margin was 26.3% compared to 28.2% a year ago. On a non-GAAP basis, gross margin was 26.6%. The decrease was due to inflation and lower volumes resulting in unfavorable overhead absorption, partially offset by improved pricing and productivity efforts.

Operating income was $9 million compared to $13 million in the prior year. On a non-GAAP basis, operating income was $12 million. Operating margin was 1.2% compared to 1.8% in the prior year. On a non-GAAP basis, operating margin was 1.6%.

Other expense was $1.7 million compared to $2.3 million in the prior year.

Net interest expense was $8 million compared to $14 million a year ago.

Net income was $2.8 million compared to a net loss of $2.0 million in the prior year quarter. On a non-GAAP basis, net income was $5.1 million. Earnings per share were $0.05 compared to a loss per share of $0.04 in the prior year. On a non-GAAP basis, earnings per share were $0.10.

Adjusted EBITDA was $42 million, in line with the prior year.

Pet Segment Fourth Quarter Fiscal 2023 Results

Net sales for the Pet segment increased 10% to $483 million, driven primarily by the additional week compared to the prior year.

The Pet segment’s operating income increased 7% to $43 million. On a non-GAAP basis, operating income was $48 million. Operating margin was 9.0% compared to 9.2% in the prior year. On a non-GAAP basis, operating margin was 9.9%. The increase was driven by productivity efforts and improved pricing, partially offset by unfavorable overhead absorption.

Pet segment adjusted EBITDA increased 15% to $58 million.

Garden Segment Fourth Quarter Fiscal 2023 Results

Net sales for the Garden segment of $267 million were in line with prior year, due to softness across most of the Garden portfolio, partially offset by strength in controls & fertilizer, live goods and grass seed.

The Garden segment’s operating loss was $3.4 million compared to operating income of $1.8 million in the prior year. On a non-GAAP basis, operating loss was $5.3 million. Operating margin was (1.3)% compared to 0.7% a year ago. On a non-GAAP basis, operating margin was (2.0)%. The decrease was due to inflation, partially offset by improved pricing and productivity efforts.

Garden segment adjusted EBITDA was $6 million compared to $12 million in the prior year quarter.

Liquidity and Debt

At September 30, 2023, cash and cash equivalents was $489 million, compared to $177 million a year ago. The increase in cash provided by operations was driven by the reduction in inventory due to converting inventory to cash and lower capital expenditures.

Cash provided by operations for fiscal 2023 was $382 million, compared to cash used by operations of $34 million in the prior year. The increase in cash provided by operations was primarily due to changes in working capital driven by the reduction in inventory.

Total debt at September 30, 2023 and September 24, 2022 was $1.2 billion. The gross leverage ratio, as defined in Central’s credit agreement, at the end of the quarter was 3.1x compared to 2.9x in the prior year. Central repurchased approximately 65,268 shares or $2.4 million of its stock during the quarter.

Cost and Simplicity Program

Central continues to progress its multi-year Cost and Simplicity program consisting of a pipeline of projects across a number of areas including procurement, manufacturing, logistics, portfolio management and administrative costs to simplify its business and improve efficiency across the organization.

As part of the program, Central closed several facilities in fiscal 2023.

In the third quarter of fiscal 2023, Central closed a pet bedding facility in Athens, Texas. In the fourth quarter of fiscal year 2023, Central closed a leased manufacturing and distribution facility in Amarillo, Texas. As a result, in fiscal 2023, Central incurred $16 million of one-time costs, including $10 million in cost of goods sold and $6 million in selling, general and administrative expenses, the majority of which were non-cash.

In the fourth quarter of fiscal 2023, Central sold its independent garden center distribution business to simplify its garden business, optimize its customer footprint and improve margins while retaining its third-party distribution business with its largest three retail partners and select national accounts. As a result, Central recorded a gain of approximately $6 million which is net of the inventory sold, inventory transport costs and the associated facility closure costs, including severance. The gain was recorded as part of selling, general and administrative expenses.

Outlook for Fiscal 2024

Central currently expects fiscal 2024 non-GAAP EPS to be $2.50 or better. This outlook reflects deflationary pressure in some of its commodity businesses, evolving consumer behavior and unfavorable retailer inventory dynamics in an environment of macroeconomic and geopolitical uncertainty. The outlook includes productivity initiatives already under way and modest pricing actions to help mitigate inflationary headwinds. Central expects fiscal 2024 capital spending to be approximately $70 million. This outlook excludes the impact of any acquisitions, divestitures or restructuring activities that may occur during fiscal 2024, including any such project under the Cost and Simplicity program. It also excludes the impact from the recently announced pet consumables acquisition.

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