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Central Garden & Pet's (CENT) Q4 Loss Narrower Than Expected

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·5 min read
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  • CENTA
  • BOOT
  • TSCO
  • COST

Central Garden & Pet Company CENT posted narrower-than-expected fourth-quarter fiscal 2021 loss. Impressively, the top line not only surpassed the Zacks Consensus Estimate but also improved year over year, thanks to the continued strength in the Garden and Pet segments. The company is also on track with its ‘Central to Home’ strategy and investing in digital marketing and innovation as well as customer insights to drive growth.

Let’s Delve Deeper

The California-based company reported a quarterly loss of 6 cents a share narrower than the Zacks Consensus Estimate of a loss of 27 cents. However, the figure showed a sharp decline from earnings of 25 cents reported in the year-ago period.

Central Garden & Pet Company generated net sales of $739.1 million, which surpassed the Zacks Consensus Estimate of $729.2 million. The metric improved 9% from the year-ago period, benefiting from four recent acquisitions, namely DoMyOwn.com, Hopewell Nursery, Green Garden Products and D&D Commodities Ltd. This was partly offset by an organic sales decline of 1%. E-commerce accounted for 20% of the company’s pet-branded sales.

Gross profit increased 8% to $212.8 million. Meanwhile, gross margin contracted a marginal 20 basis points to 28.8%. Aggressive pricing actions and gross productivity efforts as well as favorable product mix helped offset inflationary cost pressure.

Central Garden & Pet Company Price, Consensus and EPS Surprise

Central Garden & Pet Company Price, Consensus and EPS Surprise
Central Garden & Pet Company Price, Consensus and EPS Surprise

Central Garden & Pet Company price-consensus-eps-surprise-chart | Central Garden & Pet Company Quote

Operating income totaled $10 million, sharply down from $25 million in the year-ago period. Also, operating margin shrunk 240 basis points to 1.3% due to rise in key commodities costs, higher freight and labor expenses as well as increased strategic investment spending. These were partly mitigated by pricing actions and favorable product mix as well as improved overhead leverage.

SG&A expenses amounted to $203.2 million, up 19% year over year on account of acquisitions, higher commercial investment and rise in logistics costs. As a percentage of net sales, SG&A expenses increased 220 basis points to 27.5%.

Segment in Detail

Net sales in the Pet segment grew 3% to $459 million, driven by significant contributions from dog treats and chews, distribution, outdoor cushions and animal health. The segment’s operating income was $32 million, down from $36 million in the prior-year quarter. Operating margin decreased 110 basis points to 6.9%. This decrease was primarily due to cost inflation across key commodities, freight and labor as well as heightened investment levels to build capacity and drive future growth. These were partly offset by pricing actions and favorable product mix.

In the Garden segment, net sales advanced 21% to $280 million, courtesy of a $78 million contribution from recent buyouts. However, on an organic basis, net sales declined 13%, as continued strength in wild bird feed was more than offset by sluggishness across the rest of the Garden portfolio. The segment’s operating income was $1.1 million, down from $14 million in the year-ago period. Operating margin shriveled 570 basis points to 0.4% primarily due to substantial cost inflation and investment, which more than offset pricing and productivity initiatives.

Financial Details

Central Garden & Pet ended the quarter with cash and cash equivalents of $426.4 million, total debt of $1,185.8 million and shareholders’ equity of $1,222.2 million, excluding non-controlling interest of $1.3 million. Management incurred capital expenditure of $80 million in fiscal 2021. The company has invested $23 million in the final quarter.

Outlook

Tim Cofer, CEO said, “As we look to fiscal 2022, we expect to face continued inflationary pressures and supply chain disruption.” Management now envisions fiscal 2021 GAAP EPS of $3.10 or better. The guidance includes expected investments in capacity expansion and automation at or marginally above fiscal 2021 levels as well as higher investments in brand building and e-commerce. The guidance also takes into account rising costs for key commodities, freight and labor, muted consumer demand patterns following exceptional demand in the last two fiscal years, and pricing actions to mitigate inflationary headwinds.

Shares of this Zacks Rank #2 (Buy) company have gained 15.1% in the past three months against the industry’s decline of 2.2%.

3 More Stocks Hogging the Limelight

Some other top-ranked stocks include, Boot Barn Holdings BOOT, Tractor Supply Company TSCO and Costco COST.

Boot Barn Holdings, which is a lifestyle retailer of western and work-related footwear, apparel and accessories, sports a Zacks Rank #1 (Strong Buy). Shares of the company have jumped 76.2% in the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Boot Barn Holdings’ current financial year sales and earnings per share (EPS) suggests growth of 54.4% and 183.3%, respectively, from the year-ago period. BOOT has a trailing four-quarter earnings surprise of 35.3%, on average.

Tractor Supply Company, a rural lifestyle retailer in the United States, flaunts a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 22.8%, on average. Shares of the company have jumped 26.6% in the past six months.

The Zacks Consensus Estimate for Tractor Supply Company’s current financial year sales and EPS suggests growth of 19% and 23.9%, respectively, from the year-ago period. TSCO has an expected EPS growth rate of 9.6% for three-five years.

Costco, which operates membership warehouses, carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 7.7%, on average. Shares of the company have surged 41.2% in the past six months.

The Zacks Consensus Estimate for Costco’s current financial year sales and EPS suggests growth of 9.6% and 9.7%, respectively, from the year-ago period. COST has an expected EPS growth rate of 8.6% for three-five years.


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