CENTRAL GARDEN & PET CO

Central Garden & Pet Company is a market leader in the U.S. pet and garden industries, operating through two reportable segments: Pet and Garden. The pet industry encompasses food, supplies, veterinary care, non-medical services, and live animals, with Packaged Facts estimating that in 2025, U.S. retail sales of pet food, treats and chews, supplies, veterinary and non-medical services and live animals will total approximately $158 billion, with about $40 billion attributable to the categories where Central competes. The U.S. pet supplies market is highly fragmented, with more than 2,500 manufacturers, most operating in single or limited categories, and only about two dozen companies maintaining a solid multi-category presence. The total lawn and garden consumables industry in the United States is estimated by Packaged Facts, the Freedonia Group, Numerator and internal estimates to be approximately $33 billion in annual retail sales in 2025, including grass and other seeds, fertilizer, controls, live goods, wild bird products as well as soil and mulch, and Central estimates the annual retail sales of the lawn and garden consumables market in the categories in which it participates to be approximately $32 billion. The lawn and garden consumables market is highly concentrated with most products sold to consumers through a number of distribution channels, including home centers, mass merchants, independent nurseries and hardware stores.

Central Garden & Pet Company is a market leader in the U.S. pet and garden industries. The company believes it is one of the largest pet supplies vendors to Costco, Amazon and Walmart, a leading supplier to independent pet retailers in the United States and among the largest lawn and garden consumables vendors to The Home Depot, Walmart and Lowe’s. In the Pet segment, the company's largest competitors are Mars, Inc., Spectrum Brands and the J.M. Smucker Co. In the Garden segment, the company's largest competitors are The Scotts Miracle-Gro Company, Spectrum Brands and S.C. Johnson & Son, Inc. The company differentiates itself through a broad portfolio of leading brands across key pet and garden segments, robust financial performance, a proven track record of value enhancing M&A, deep and diversified relationships with retailers, a scaled manufacturing, sales and logistics network, and an experienced and entrepreneurial leadership team. Since 1992, the company has completed more than 60 acquisitions, building a company with approximately $3.1 billion in net sales.

Central Garden & Pet Company generates revenue by manufacturing, marketing and distributing a wide variety of branded, private label and third-party pet and garden products to wholesalers, distributors and retailers, primarily in the United States. The majority of the company's revenue is generated from the sale of finished pet and garden products. The company also recognizes a minor amount of non-product revenue (approximately one percent of consolidated net sales) comprising third-party logistics services, merchandising services and royalty income from sales-based licensing arrangements. The company produces both branded and private label products for its customers as well as distributes third-party brands. In fiscal 2025, sales of branded products represented approximately 79% of net sales, compared to 78% in fiscal 2024, and sales of other manufacturers' products represented 21% of net sales.

The Pet segment offers a broad range of products for dog and cat supplies, including treats and chews, toys, beds and containment, grooming items, waste management and training pads, as well as supplies for aquatics, small animals, reptiles and pet birds, such as toys, enclosures, habitats, bedding, food and supplements, equine and livestock products, animal and household health solutions and insect control items, and also includes live fish and small animals as well as outdoor cushions. Products are sold under well-recognized brands including Aqueon, Best Bully Sticks, Cadet, C&S, Comfort Zone, Farnam, Four Paws, Kaytee, Nylabone, Zilla and Zoëcon. In fiscal 2025, Pet net sales decreased $30.8 million, or 1.7%, to $1,802.0 million from $1,832.8 million in fiscal 2024. The Garden segment includes lawn and garden consumables such as grass seed; vegetable, flower and herb packet seed; wild bird feed, bird houses and other birding accessories; weed, grass, and other herbicides, insecticide and pesticide products; fertilizers and live plants, with brands including 3D, Amdro, Ferry-Morse, Pennington and Sevin. In fiscal 2025, Garden net sales decreased $40.6 million, or 3.0%, to $1,327.1 million from $1,367.7 million in fiscal 2024.

In November 2023, the company acquired TDBBS, LLC, a provider of premium natural dog chews and treats, for approximately $60 million, expanding its presence in bully and collagen sticks, bones and jerky, and enhancing its eCommerce and digital capabilities. In March 2025, the company decided to wind-down its operations in the United Kingdom, which also served certain European markets, and move to a direct-export model, incurring approximately $10.0 million of one-time closure costs during fiscal 2025. During fiscal 2025, the company began the consolidation of two legacy distribution facilities in Ontario, California and Salt Lake City, Utah into a new modern facility in Salt Lake City, Utah, recognizing $5.0 million in selling, general and administrative expense. During fiscal 2025, the company repurchased 3.2 million shares of its non-voting common stock (CENTA) and 1.4 million shares of its voting common stock (CENT) on the open market at an aggregate cost of $148.4 million. In December 2024, the Board of Directors authorized a $100 million increase in the share repurchase program. As of September 27, 2025, the company had $46.5 million remaining under its 2024 Repurchase Authorization.

Net sales for fiscal 2025 decreased $71.4 million, or 2.2%, to $3.1 billion from $3.2 billion in fiscal 2024. Gross profit for fiscal 2025 increased $53.6 million, or 5.7%, to $997.3 million and gross margin increased 240 basis points in fiscal 2025 to 31.9%, from 29.5% in fiscal 2024. Operating income increased $64.7 million, or 34.9%, to $250.0 million in fiscal 2025. Net income for fiscal 2025 was $162.8 million, or $2.55 per share on a diluted basis compared to $108.0 million, or $1.62 per share on a diluted basis in fiscal 2024. On a non-GAAP basis, net income in fiscal 2025 was $174.2 million, or $2.73 per share on a diluted basis compared to $142.4 million, or $2.13 per share on a diluted basis in fiscal 2024.

The company's Central to Home strategy is focused on developing innovative products, expanding market share, acquiring complementary businesses and partnering with customers to grow the categories it serves. The company is focusing on developing differentiated new products and reinvesting some of its annual cost savings into brand building and demand creation to deliver sustainable organic growth and expand market share. The company is investing in consumer insights, data analytics, and research and development to fuel its product innovation pipeline. The company is also enhancing its digital capabilities to meet consumers who research and buy products online. The company's M&A priorities include building scale in its core categories, expanding into priority adjacencies, filling whitespaces and enhancing key capabilities such as digital and eCommerce, generally targeting growth- and margin-accretive, brand-focused companies led by strong management teams.

The company's Cost and Simplicity agenda addresses procurement, logistics, manufacturing, portfolio optimization and administrative functions, designed to reduce complexity by streamlining product assortment, consolidating plants and logistics centers, lowering cost of goods sold through improved logistics and procurement, and reducing administrative costs through scale and efficiency. The company is also shifting its focus to its higher-margin, higher-growth branded pet and garden consumer products. As part of these efforts, the company has consolidated portions of its dog and cat treat and toy operations, combined multiple garden manufacturing facilities, merged its outdoor cushion business with its pet bed business, consolidated legacy garden distribution locations into modern fulfillment centers, exited its pottery business and sold its U.K. operations.

The company expects to continue to implement its Central to Home strategy initiatives over the next several years and anticipates continuing to incur substantial costs relating to this strategy in each of the next several years. The company's Cost and Simplicity agenda involves reducing costs, including procurement, logistics, manufacturing, portfolio optimization and administrative, and reducing complexity through fewer SKUs, plants and distribution centers. The company plans to simplify its business and improve its efficiency across the organization by rationalizing its footprint, streamlining its portfolio, and improving its cost structure.

The company anticipates that its capital expenditures, which are related primarily to replacements and expansion of and upgrades to plant and equipment and also investment in its continued implementation of a scalable enterprise-wide information technology platform, will be approximately $50 to 60 million over the next 12 months. The company continues to implement enterprise resource planning information technology systems and has reduced the number of ERP systems from 46 to 6. Capital expenditures for the enterprise resource planning software systems for fiscal 2025 and beyond will depend upon the pace of conversion for those remaining legacy systems.

During fiscal 2025, the company repurchased 3.2 million shares of its non-voting common stock (CENTA) and 1.4 million shares of its voting common stock (CENT) on the open market at an aggregate cost of $148.4 million. In December 2024, the Board of Directors authorized a $100 million increase in the share repurchase program. As of September 27, 2025, the company had $46.5 million remaining under its 2024 Repurchase Authorization. The company has never paid any cash dividends on its common stock or Class A common stock and currently does not intend to do so.

The company's revenues and margins are dependent on various economic factors, including interest rates, the potential of an economic recession, trade tariffs, energy costs, consumer attitudes toward discretionary spending, currency fluctuations, rates of inflation and other macro-economic factors which may impact consumer spending. While the rate of inflation moderated during fiscal 2025, and a recession has not materialized, interest rates remain high and the imposition of tariffs on imports by the U.S. administration has resulted in higher input costs. In fiscal 2025, less than 15% of the company's cost of goods sold was from products or materials sourced from outside the United States, primarily from China, Brazil and Mexico. The company's lawn and garden business is highly seasonal, with approximately 64% of the Garden segment's net sales and 57% of total net sales occurring during the second and third fiscal quarters, and substantially all of the Garden segment's operating income is generated in this period.

The company faces risks from economic uncertainty and adverse macro-economic conditions, including interest rate fluctuations and tariffs, which may harm its business. The company's operating results and cash flow are susceptible to fluctuations due to factors including the uncertain macro-economic environment, seasonality and the impact of adverse weather conditions, fluctuations in prices of commodity grains and other input costs, supply chain and sourcing disruptions including the potential imposition of trade tariffs, and shifts in demand for lawn and garden and pet products. The company is subject to significant risks associated with innovation, including the risk that new product innovations will not produce sufficient sales to recoup investment. The company depends on a few customers for a significant portion of its business, with Walmart, its largest customer, accounting for approximately 17% of total net sales in fiscal 2025, and Home Depot, its second largest customer, representing approximately 16% of total net sales in fiscal 2025.

The company's revenues and margins are dependent on various economic factors, including interest rates, the potential of an economic recession, trade tariffs, energy costs, consumer attitudes toward discretionary spending, currency fluctuations, rates of inflation and other macro-economic factors which may impact consumer spending. In fiscal 2025, less than 15% ¹ of the company's cost of goods sold was from products or materials sourced from outside the United States, primarily from China, Brazil and Mexico, and the imposition of tariffs on imports by the U.S. administration has resulted in higher input costs. The company depends on a few customers for a significant portion of its business, with Walmart, its largest customer, accounting for approximately 17% ² of total net sales in fiscal 2025, and Home Depot, its second largest customer, representing approximately 16% ³ of total net sales in fiscal 2025. The company's lawn and garden business is highly seasonal, with approximately 64% ⁴ of the Garden segment's net sales and 57% ⁵ of total net sales occurring during the second and third fiscal quarters. The company has significant indebtedness, with total indebtedness of approximately $1.2 billion ⁶ as of September 27, 2025, which could have material adverse consequences for its business. The company's acquisition strategy involves a number of risks, including failure of the acquired business to achieve expected results, potential impairment of acquired assets, and difficulties in integrating operations.

Management's message emphasizes the company's Central to Home strategy, which reflects its purpose of nurturing happy and healthy homes and its ambition to lead the pet and garden industries. The goal is to grow net sales, operating income and cash flows by developing innovative products, expanding market share, acquiring complementary businesses and partnering with customers to grow the categories served. The company manages its business with a long-term view, confident that delivering on this strategy will generate sustainable value for all stakeholders. The strategic priorities emphasized for the period ahead are captured in five strategic pillars: Consumer (build and grow brands that consumers love), Customer (win with winning customers and channels), Central (fortify the Central portfolio), Cost (reduce cost to improve margins and fuel growth), and Culture (strengthen the entrepreneurial business unit-led growth culture).