Central Garden & Pet Company CENT posted lower-than-expected fourth-quarter fiscal 2022 results, wherein the top and bottom lines declined year over year. Softness in the garden segment, high inflation, changing consumer behavior and unfavorable retailer inventory dynamics acted as deterrents.
Nonetheless, the company has been taking steps to strengthen its position in the pet supplies and lawn and garden supplies space. It has been simplifying the portfolio, developing new products, advancing digital capabilities and automation and focusing on cost reduction.
Let’s Delve Deeper
Central Garden & Pet reported a quarterly loss of 4 cents a share, narrower than a loss of 6 cents posted in the year-ago period. The Zacks Consensus Estimate for earnings was pegged at 3 cents a share.
The company generated net sales of $707.4 million, falling short of the Zacks Consensus Estimate of $724 million. The metric declined 4% from the year-ago period.
The gross profit decreased 6.1% to $199.7 million. Also, the gross margin contracted 60 basis points to 28.2%. The positive effect of pricing actions was more than offset by substantial inflationary cost pressure and lower sales volumes.
SG&A expenses of $186.8 million declined 8.1% year over year. As a percentage of net sales, SG&A expenses contracted 110 basis points to 26.4%. The operating income totaled $12.9 million, up from the $9.6 million reported in the year-ago period. The operating margin expanded 50 basis points to 1.8%.
Central Garden & Pet Company Price, Consensus and EPS Surprise
Central Garden & Pet Company price-consensus-eps-surprise-chart | Central Garden & Pet Company Quote
Net sales in the Pet segment were $440 million, down 4% from the year-ago period. The metric declined due to the unfavorable impact of SKU rationalization and the purposeful decision to exit low-profit private label product lines.
The segment’s operating income came in at $40 million, up 28% year over year. Meanwhile, the operating margin increased 230 basis points to 9.2%. Favorable pricing actions, coupled with lower commercial expenses and variable compensation, contributed to margin expansion.
In the Garden segment, net sales decreased 4% year over year to $268 million due to sluggishness across most of the Garden portfolio. This was partly mitigated by continued strength in wild bird, packet seeds and grass seeds.
The segment’s operating income came in at $1.8 million, up from the $1.1 million reported in the year-ago period. The operating margin expanded 30 basis points to 0.7%, driven by lower variable compensation compared with the prior year.
Central Garden & Pet ended the quarter with cash and cash equivalents of $177.4 million, long-term debt of $1,186.2 million and shareholders’ equity of $1,333.7 million, excluding the non-controlling interest of $1 million.
The company repurchased about 495,000 shares worth $20 million in the quarter under review. For fiscal 2023, management anticipates capital expenditures in the band of $70 million-$80 million.
Central Garden & Pet foresees fiscal 2023 GAAP earnings between $2.60 and $2.80 per share. The projection indicates macroeconomic uncertainty, further cost inflation, changing customer behavior and unfavorable retailer inventory dynamics. It also suggests anticipated pricing actions and productivity initiatives to mitigate the impact of inflationary headwinds.
For the first quarter of fiscal 2023, management estimates a loss of 15 cents to 20 cents per share. This implies soft sales and higher cost inventories.
Shares of this Zacks Rank #3 (Hold) company have risen 4.3% in the past six months against the industry’s decline of 4.7%.
Stocks to Consider
Here we have highlighted three better-ranked stocks, namely Crocs CROX, Chipotle Mexican Grill CMG and Dollar General DG.
Crocs, a leader in innovative casual footwear for women, men and children, carries a Zacks Rank #2 (Buy). CROX has an expected EPS growth rate of 15% for three to five years. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Crocs’ current financial-year sales and EPS suggests growth of 51.5% and 23.7%, respectively, from the year-ago period. CROX has a trailing four-quarter earnings surprise of 18.2%, on average.
Chipotle Mexican Grill, an operator of fast-casual restaurants, currently carries a Zacks Rank #2. The expected EPS growth rate for three to five years is 23.4%.
The Zacks Consensus Estimate for Chipotle Mexican Grill’s current financial-year revenues and EPS suggests growth of 15.1% and 31%, respectively, from the year-ago reported figure. CMG has a trailing four-quarter earnings surprise of 4.1%, on average.
Dollar General, a discount retailer, carries a Zacks Rank #2. The expected EPS growth rate for three to five years is 11.1%.
The Zacks Consensus Estimate for Dollar General’s current financial-year revenues and EPS suggests growth of 10.8% and 13.8%, respectively, from the year-ago reported figure. Dollar General has a trailing four-quarter earnings surprise of 2.2%, on average.
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