Central Garden & Pet (CENT) Advances in 3 Months: Here's Why
Central Garden & Pet Company’s CENT focus on effective customer service, cost management, digital adaptation and portfolio rationalization reflects a commitment toward long-term success and profitability in the pet supplies, and lawn and garden products market. Also, its recent rise in stock price, up 12.6% in just three months against the industry’s decline of 9%, signals a compelling investment opportunity.
This Zacks Rank #2 (Buy) company is investing in its digital capabilities, supply chain optimization, data analytics and marketing efforts to engage with customers more effectively. This approach aligns with the broader trend of businesses adapting to the digital age and meeting customers’ needs where they prefer to shop.
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A Look at Driving Factors
Central Garden & Pet is implementing a multi-year cost and simplicity program to enhance efficiency throughout the organization. This involves efforts to streamline operations, rationalize the company's footprint, optimize its product portfolio and refine its cost structure. The focus on cost management is aimed at improving profitability.
As part of its cost management and profitability efforts, the company has closed the Athens production facility and plans to close the Portland, OR-based garden distribution facility by the end of 2023. These actions are intended to free up resources for future growth while eliminating redundant or less efficient operations. Improved pricing, a favorable product mix and cost management enhanced the operating margin up to 210 basis points to 16.9% in the third quarter of fiscal 2023.
CENT recognizes the importance of customer service in building brand loyalty and retaining customers. By focusing on customer needs, the company aims to create a positive reputation, which will lead to long-term customer relationships.
The company is experiencing rapid growth in its e-commerce sales, outpacing traditional brick-and-mortar retail as consumers increasingly shift their purchasing habits online. Although it currently constitutes a relatively small portion, the e-commerce segment has surged by more than 20% and accounts for over 5% of the total garden sales in the third quarter.
This growth can be attributed to Central Garden & Pet's successful retail media initiatives, expanded product offerings and improved home delivery options for its top three customers. In the garden segment, CENT has witnessed a promising resurgence, as evidenced by a 2% year-over-year increase in net sales to $520 million in the quarter under review.
Strong Financial Position
Central Garden & Pet Company has a robust financial standing, boasting a cash reserve exceeding $330 million by the end of third quarter and an untapped $750 million credit facility at its disposal. This financial strength enables the company to actively seek out promising opportunities for profitable growth in both the pet and garden sectors.
The company remains dedicated to ongoing portfolio refinement, prioritizing its core strengths, which encompass consumer products, strong brand portfolios and attractive profit margins. It is actively working to reduce the cost of goods sold by improving logistics efficiency, enhancing procurement practices and cutting administrative expenses.
Wrapping Up
Given its strong performance, management revised its adjusted outlook for fiscal 2023, raising the earnings expectation from $2.35 per share to $2.55 or better. This is backed by pricing actions and productivity initiatives across the board.
Other Stocks Looking Red Hot
A few other top-ranked stocks in the same sector are Build-A-Bear Workshop BBW, Walmart Inc. WMT and Trupanion, Inc. TRUP.
Build-A-Bear Workshop is the leading and only national company providing a make-your-own stuffed animal interactive retail-entertainment experience. The stock currently sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Build-A-Bear Workshop’s current fiscal-year earnings and sales indicates growth of 16.9% and 6.2%, respectively, from the year-ago period’s reported figures. BBW has a trailing four-quarter average earnings surprise of 21.6%.
Walmart has evolved from just being a traditional brick-and-mortar retailer into an omnichannel player. It currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for Walmart’s current fiscal-year earnings and sales indicates growth of 2.2% and 5%, respectively, from the year-ago period’s reported figures. WMT has a trailing four-quarter average earnings surprise of 11.6%.
Trupanion operates as a direct-to-consumer monthly subscription service provider of a medical insurance plan for cats and dogs. The company currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for Trupanion’s current financial-year sales indicates growth of 19.5% from the year-ago period’s reported figures. TRUP has a negative trailing four-quarter average earnings surprise of 20%.
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